Global Business:
Concepts, Methodologies, Tools and Applications Information Resources Management Association USA
Senior Editorial Director: Director of Book Publications: Editorial Director: Acquisitions Editor: Development Editor: Production Editor: Content Systems Analyst: Assistant Production Editor: Typesetters: Print Coordinator: Cover Design:
Kristin Klinger Julia Mosemann Lindsay Johnston Erika Carter Chris Wozniak Sean Woznicki Devvin Earnest Deanna Zombro Michael Brehm, Keith Glazewski, Natalie Pronio, Jennifer Roamanchak, Milan Vracarich, Jr.
Jamie Snavely Nick Newcomer
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Global business : concepts, methodologies, tools and applications / Information Resources Management Association, editor. p. cm. Includes bibliographical references and index. Summary: "This multi-volume reference examines critical issues and emerging trends in global business, with topics ranging from managing new information technology in global business operations to ethics and communication strategies"--Provided by publisher. ISBN 978-1-60960-587-2 (hardcover) -- ISBN 978-1-60960-588-9 (ebook) 1. International business enterprises. 2. Electronic commerce. I. Information Resources Management Association. HD62.4.G5355 2011 658'.049--dc22 2011016269 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book set is original material. The views expressed in this book are those of the authors, but not necessarily of the publisher.
Editor-in-Chief
Mehdi Khosrow-Pour, DBA Editor-in-Chief Contemporary Research in Information Science and Technology, Book Series
Associate Editors Steve Clarke University of Hull, UK Murray E. Jennex San Diego State University, USA Annie Becker Florida Institute of Technology USA Ari-Veikko Anttiroiko University of Tampere, Finland
Editorial Advisory Board Sherif Kamel American University in Cairo, Egypt In Lee Western Illinois University, USA Jerzy Kisielnicki Warsaw University, Poland Keng Siau University of Nebraska-Lincoln, USA Amar Gupta Arizona University, USA Craig van Slyke University of Central Florida, USA John Wang Montclair State University, USA Vishanth Weerakkody Brunel University, UK
Additional Research Collections found in the “Contemporary Research in Information Science and Technology” Book Series Data Mining and Warehousing: Concepts, Methodologies, Tools, and Applications John Wang, Montclair University, USA • 6-volume set • ISBN 978-1-60566-056-1 Electronic Business: Concepts, Methodologies, Tools, and Applications In Lee, Western Illinois University • 4-volume set • ISBN 978-1-59904-943-4 Electronic Commerce: Concepts, Methodologies, Tools, and Applications S. Ann Becker, Florida Institute of Technology, USA • 4-volume set • ISBN 978-1-59904-943-4 Electronic Government: Concepts, Methodologies, Tools, and Applications Ari-Veikko Anttiroiko, University of Tampere, Finland • 6-volume set • ISBN 978-1-59904-947-2 Knowledge Management: Concepts, Methodologies, Tools, and Applications Murray E. Jennex, San Diego State University, USA • 6-volume set • ISBN 978-1-59904-933-5 Information Communication Technologies: Concepts, Methodologies, Tools, and Applications Craig Van Slyke, University of Central Florida, USA • 6-volume set • ISBN 978-1-59904-949-6 Intelligent Information Technologies: Concepts, Methodologies, Tools, and Applications Vijayan Sugumaran, Oakland University, USA • 4-volume set • ISBN 978-1-59904-941-0 Information Security and Ethics: Concepts, Methodologies, Tools, and Applications Hamid Nemati, The University of North Carolina at Greensboro, USA • 6-volume set • ISBN 978-1-59904-937-3 Medical Informatics: Concepts, Methodologies, Tools, and Applications Joseph Tan, Wayne State University, USA • 4-volume set • ISBN 978-1-60566-050-9 Mobile Computing: Concepts, Methodologies, Tools, and Applications David Taniar, Monash University, Australia • 6-volume set • ISBN 978-1-60566-054-7 Multimedia Technologies: Concepts, Methodologies, Tools, and Applications Syed Mahbubur Rahman, Minnesota State University, Mankato, USA • 3-volume set • ISBN 978-1-60566-054-7 Virtual Technologies: Concepts, Methodologies, Tools, and Applications Jerzy Kisielnicki, Warsaw University, Poland • 3-volume set • ISBN 978-1-59904-955-7
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List of Contributors
Acosta, Pedro Soto \ University of Murcia, Spain .......................................................................... 1615 Adekola, O. D. \ Babcock University, Nigeria . ............................................................................... 1438 Adeniji, Anthonia Adenike \ Covenant University, Nigeria ........................................................... 1868 Aggestam, Lena \ University of Skövde, Sweden .............................................................................. 206 Ahmed, Nazim U. \ Ball State University, USA .............................................................................. 1662 Ahonen, Aki \ OP Bank Group Central Cooperative, Finland ......................................................... 911 Al Rabea, Adnan I. \ Al Balqa Applied University, Jordan ............................................................ 2360 Alas, Ruth \ Estonian Business School, Estonia . ............................................................................ 1044 Alawneh, Ali \ Philadelphia University, Jordan .............................................................................. 1055 AlBulushi, Ahlam Abdullah \ Sultanate of Oman .......................................................................... 1087 Al-Gharbi, Khamis \ Sultan Qaboos University, Sultanate of Oman ............................................. 1087 Alqatawna, Ja’far \ Sheffield Hallam University, UK .................................................................... 2102 Al-Refai, Hasan \ Philadelphia University, Jordan . ....................................................................... 1055 Amjad, Urooj \ London School of Economics, UK ......................................................................... 2034 Anthopoulos, Leonidas G. \ Hellenic Ministry of Foreign Affairs, Greece . .................................... 294 Arjonilla-Domínguez, Sixto Jesús \ Freescale Semiconductor, Inc., Spain ....................................... 39 Assaf, Wael \ Scuola Superiore ISUFI - University of Salento, Italy .............................................. 1375 Athanasiadou, Christina \ Ernst & Young, Greece .......................................................................... 888 Averweg, Udo Richard \ eThekwini Municipality and University of KwaZulu-Natal, South Africa .......................................................................................................................................... 1858 Babatope, Ihuoma \ Delta State University, Nigeria ...................................................................... 2420 Bachani, Jyoti \ University of Redlands, USA ................................................................................... 150 Badr, Youakim \ INSA-Lyon, France . ............................................................................................... 670 Baek, John Y. \ Center for Advancement of Informal Science Education, USA . .............................. 529 Baker, Valerie \ University of Wollongong, Australia ..................................................................... 1788 Baker, Paul M.A. \ Georgia Institute of Technology, USA .............................................................. 2112 Bakke, John Willy \ Telenor Research and Innovation, Norway .................................................... 1948 Bandara, Arosha \ The Open University, UK . .................................................................................. 750 Batiha, Khaldoun \ Philadelphia University, Jordan . .................................................................... 1055 Baumeister, Alexander \ Saarland University, Germany . .................................................... 1588, 1644 Beaudry, Anne \ Concordia University, Canada ............................................................................. 1338 Beck, Phil \ Southwest Airlines, USA ............................................................................................... 1445 Berkin, Esin Ertemsir \ Yildiz Technical University, Turkey .......................................................... 1633 Biggert, Timothy \ IBM Global Business Services, USA .................................................................. 311 Biggiero, Lucio \ University of L’Aquila, Italy ................................................................................ 2525
Birchall, David W. \ Henley Business School, UK .......................................................................... 1396 Blumberg, Baruch S. \ Fox Chase Cancer Center, USA . ............................................................... 1201 Bocarnea, Mihai C. \ Regent University, USA ................................................................................ 1562 Borgman (Hans), H.P. \ University of Leiden, The Netherlands .................................................... 2493 Braun, Patrice \ University of Ballarat, Australia .......................................................................... 1978 Bricout, John C. \ University of Central Florida, USA . ................................................................. 2112 Btoush, Mohammad Hjouj \ Sheffield Hallam University, UK . .................................................... 2102 Burakova-Lorgnier, Marina \ ECE-INSEEC Research Laboratory, University of Montesquieu Bordeaux 4, France .................................................................................................................... 1896 Calo, Seraphin B. \ IBM Research, USA ........................................................................................... 750 Campos, Eduardo Bueno \ University of Madrid, Spain ................................................................. 418 Capó-Vicedo, Josep \ Universitat Politècnica de València, Spain .................................................. 1475 Carayon, Pascale \ University of Wisconsin-Madison, USA ........................................................... 1879 Casado-Lumbreras, Cristina \ Universidad Complutense, Madrid, Spain ..................................... 627 Caswell, Nathan S. \ Janus Consulting, USA .................................................................................. 2275 Chamakiotis, Petros \ University of Bath, UK ................................................................................ 1688 Chan, Cliff E. L. \ Mitsubishi Electric, Singapore .......................................................................... 1023 Chang, Yuan-Chieh \ National Tsing Hua University, Taiwan ....................................................... 1796 Chen, Ye-Sho \ Louisiana State University, USA . ....................................................................... 47, 809 Chen, Te Fu \ Graduate Institute of Central Asia, Chin Yung University, Taiwan & Lunghwa University of Science and Technology, Taiwan ................................................................ 1109, 2202 Chi, Hui-Ru \ National Changhua University of Education, Taiwan . ............................................ 1796 Chugh, Ritesh \ CQUniversity Melbourne, Australia ..................................................................... 2135 Claver-Cortés, Enrique \ University of Alicante, Spain ................................................................... 929 Colomo-Palacios, Ricardo \ Universidad Carlos III de Madrid, Spain ......................... 403, 627, 1615 Coltman, Tim \ University of Wollongong, Australia . .................................................................... 1788 Cox, Sharon \ Birmingham City University, UK ............................................................................... 732 Craven, Robert \ Imperial College, UK ............................................................................................ 750 Croteau, Anne-Marie \ Concordia University, Canada . ................................................................ 1338 Dai, Jie \ Huazhong University of Science and Technology, China ................................................. 1149 Datta, B. \ Indian Institute of Technology, India .............................................................................. 2331 Davies, John \ Victoria University of Wellington, New Zealand ..................................................... 2044 De, S. K. \ Indian Institute of Technology, India .............................................................................. 2331 de Juana-Espinosa, Susana \ University of Alicante, Spain ............................................................. 967 De Maggio, Marco \ University of Salento, Italy ............................................................................ 2380 Dekker, Ronald \ Delft University of Technology, The Netherlands & ReflecT at Tilburg University, The Netherlands ....................................................................................................... 1603 Del Vecchio, Pasquale \ University of Salento, Italy ....................................................................... 2380 Dong, Dong \ Hebei Normal University, China ................................................................................... 83 Drost, Adam W. \ eCareerFit.com, USA ......................................................................................... 2087 Duin, Heiko \ BIBA Bremer Institut für Produktion und Logistik GmbH, Germany ......................... 254 Durbin, Teresa \ San Diego Gas and Electric, USA . ........................................................................ 718 Dyehouse, Melissa A. \ Purdue University, USA ............................................................................... 529 Egyedi, Tineke M. \ Delft University of Technology, The Netherlands . ........................................... 105 Eisenhauer, Markus \ Fraunhofer FIT, Germany . ........................................................................... 569 El Emary, Ibrahiem M. M. \ King Abdulaziz University, Kingdom of Saudi Arabia . ................... 2360 Elia, Gianluca \ Scuola Superiore ISUFI - University of Salento, Italy ................................ 1375, 2380
Expósito-Langa, Manuel \ Universitat Politècnica de València, Spain ......................................... 1475 Eze, Uchenna Cyril \ Multimedia University, Malaysia ................................................................. 1178 Fables, Wylci \ IndaSea, Inc., USA .................................................................................................. 1933 Fagbe, T. \ ATT Safety Technologies, Nigeria .................................................................................. 1438 Faithorn, Lisa \ NASA Ames Research Center, USA ....................................................................... 1201 Fayyoumi, Ayham \ Scuola Superiore ISUFI - University of Salento, Italy ................................... 1375 Fengel, Janina \ University of Applied Sciences Darmstadt, Germany ............................................ 373 Ferlander, Sara \ Södertörn University, Sweden ............................................................................. 1904 Fernandes, Cristina \ PhD student at University of Beira Interior, Portugal ................................ 1765 Fernández-Sánchez, José Antonio \ University of Alicante, Spain . ................................................ 967 Ferreira, João J. \ University of Beira Interior, Portugal ............................................................... 1765 Fink, Lior \ Ben-Gurion University of the Negev, Israel ..................................................................... 28 Floren, Alexander \ Saarland University, Germany ....................................................................... 1588 Florkowski, Gary W. \ Katz Graduate School of Business, USA . .................................................... 976 Foster, Jonathan \ University of Sheffield, UK . .............................................................................. 1570 Fragidis, Garyfallos \ Technological Educational Institute of Serres, Greece ............................... 2473 Francesca, Grippa \ University of Salento, Italy ............................................................................ 2398 Frost, Eric \ San Diego State University, USA .................................................................................. 718 Gadman, Leslie \ London South Bank University, UK .................................................................... 1522 Galanaki, Eleanna \ Athens University of Economics and Business, Greece ................................... 948 Galván, Ramón Sanguino \ University of Extremadura, Spain . ...................................................... 183 García-Crespo, Ángel \ Universidad Carlos III de Madrid, Spain . ............................... 403, 627, 1615 Gayialis, Sotiris P. \ National Technical University of Athens, Greece . ........................................... 888 Gemoets, Leopoldo \ University of Texas at El Paso, USA . ............................................................. 229 Giambona, Genoveffa (Jeni) \ University of Reading, UK ............................................................ 1396 Gianluca, Elia \ University of Salento, Italy . .................................................................................. 2398 Gibbs, Jennifer L. \ Rutgers University, USA ................................................................................. 1413 Gibson, Lucy W. \ eCareerFit.com & Resource Assoiciates,, USA . ............................................... 2087 Given, Lisa M. \ University of Alberta, Canada . .............................................................................. 468 Gómez-Berbís, Juan Miguel \ Universidad Carlos III de Madrid, Spain ................................ 403, 627 Goossenaerts, Jan \ Eindhoven University of Technology, The Netherlands .................................. 2229 Goswami, Ranjit \ Indian Institute of Technology, India ................................................................ 2331 Grippa, Francesca \ University of Salento, Italy ............................................................................ 2380 Grisoni, Louise \ Bristol Business School, UK . .............................................................................. 1249 Gruber, Harald \ European Investment Bank, Luxembourg ........................................................... 2352 Gürol, Yonca \ Yildiz Technical Unversity, Turkey .......................................................................... 1633 Guiderdoni-Jourdain, Karine \ The Institute of Labour Economics and Industrial Sociology (LEST); Université de la Méditerranee, France ........................................................................ 2073 Gulliver, S. R. \ University of Reading, UK . ..................................................................................... 135 Gupta, Surendra M. \ Northeastern University, Boston, USA . ........................................................ 357 Gupta, Pramila \ CQUniversity Melbourne, Australia ................................................................... 2135 Haghirian, Parissa \ Sophia University, Japan ............................................................................... 1536 Halas, Helena \ SETCCE, Slovenia ................................................................................................... 192 Hall, Laura Lunstrum \ University of Texas at El Paso, USA ......................................................... 229 Haller, Armin \ National University of Ireland - Galway, Ireland .................................................... 782 Häsel, Matthias \ University of Duisburg-Essen, Germany .............................................................. 512 Hassall, Kim \ University of Melbourne, Australia ........................................................................... 643
Hernández-López, Adrián \ Universidad Carlos III de Madrid, Spain ......................................... 1615 Herremans, Irene M. \ University of Calgary, Canada .................................................................. 2433 Hollensen, Svend \ University of Southern Denmark, Denmark ..................................................... 1838 Holm, Justin \ Concordia University, Canada ................................................................................ 1338 Holt, Duncan \ RAYTHEON, Australia . .......................................................................................... 1961 Hongsranagon, Prathurng \ Chulalongkorn University, Thailand ................................................ 2512 Hoonakker, Peter \ University of Wisconsin-Madison, USA . ......................................................... 1879 Hua, Grace \ Louisiana State University, USA .................................................................................. 809 Huang, Liusheng \ University of Science & Technology of China, China & CityU-USTC Advanced Research Institute, China ............................................................................................................. 487 Huerta-Carvajal, María Isabel \ Universidad de las Americas-Puebla, Mexico ............................ 842 Hurley-Hanson, Amy E. \ Chapman University, USA ...................................................................... 619 Ifinedo, Princely \ University of Jyväskylä, Finland & Cape Breton University, Canada ............................................................................................................................. 1170, 1217 Ignatiadis, Ioannis \ Kingston University, UK ................................................................................ 2473 Ilg, Markus \ Vorarlberg University of Applied Sciences, Austria .................................................. 1644 Imafidon, Tongo Constantine \ Covenant University, Nigeria . ..................................................... 1508 Isaac, Robert G. \ University of Calgary, Canada .......................................................................... 2433 Jackson, Pamela \ Fayetteville State University, USA .................................................................... 1134 Järvinen, Raija \ National Consumer Research Centre, Finland ..................................................... 911 Jennex, Murray E. \ San Diego State University, USA . ................................................................... 718 Jentsch, Marc \ Fraunhofer FIT, Germany ....................................................................................... 569 Jiang, James \ University of Central Florida, USA ......................................................................... 1445 Jin, Hai \ Huazhong University of Science and Technology, China ................................................ 1149 Jones, Joanna \ University of Wales Newport, UK . .......................................................................... 984 Judge, Robert \ San Diego State University, USA . ........................................................................... 718 Julsrud, Tom Erik \ Telenor Research and Innovation, Norway .................................................... 1948 Juntunen, Arla \ Department of Marketing and Management Helsinki School of Economics, Finland & Finland’s Government Ministry of the Interior, Police Department, Finland ................. 820, 956 Justis, Bob \ Louisiana State University, USA ................................................................................... 809 Kalfakakou, Glykeria \ Aristotle University of Thessaloniki, Greece . .......................................... 1458 Kamath, Manjunath \ Oklahoma State University, USA . .............................................................. 2275 Kamau, Caroline \ Southampton Solent University, UK . ............................................................... 1707 Kanellis, Panagiotis \ National and Kapodistrian University of Athens, Greece ............................. 741 Karakostas, Bill \ City University, UK .............................................................................................. 593 Karat, John \ IBM Research, USA . ................................................................................................... 750 Karat, Clare-Marie \ IBM Research, USA . ...................................................................................... 750 Kardaras, Dimitris K. \ Athens University of Economics and Business, Greece ............................. 593 Katriou, Stamatia-Ann \ ALTEC S.A., Greece ............................................................................... 2473 Keesey, Christopher \ Ohio University, USA .................................................................................... 121 Kettunen, Juha \ Turku University of Applied Sciences, Finland ........................................... 611, 1281 Kim, Young Hoon \ Rutgers University, USA ................................................................................. 1413 Kipp, Alexander \ High Performance Computing Center Stuttgart, Germany . ............................. 1306 Kivistö-Rahnasto, Jouni \ Tampere University of Technology, Finland . ......................................... 911 Klein, Gary \ University of Colorado in Colorado Springs, USA ................................................... 1445 Kleinknecht, Alfred \ Delft University of Technology, The Netherlands ........................................ 1603 Klobučar, Tomaž \ Jožef Stefan Institute & SETCCE, Slovenia ....................................................... 192
Knebel, Uta \ Technische Universitaet Muenchen, Germany .......................................................... 1267 Kobb, Ryan \ IBM Global Business Services, USA ........................................................................... 311 Kollmann, Tobias \ University of Duisburg-Essen, Germany . ......................................................... 512 Kotinurmi, Paavo \ Helsinki University of Technology, Finland . .................................................... 782 Koumpis, Adamantios \ ALTEC S.A., Greece ................................................................................ 2473 Kovac, Jure \ Faculty of Organizational Sciences & University of Maribor, Slovenia . ................. 1750 Krcmar, Helmut \ Technische Universitaet Muenchen, Germany .................................................. 1267 Kung, Hsiang-Jui \ Georgia Southern University, USA . .................................................................... 67 Kwak, N. K. \ Saint Louis University, USA ....................................................................................... 344 Kwan Tan, Albert Wee \ National University of Singapore, Singapore ........................................... 271 Kyritsis, M. \ Brunel University, UK ................................................................................................. 135 Lagraña, Fernando A.A. \ Webster University Geneva, Switzerland & Grenoble École de Management, France ................................................................................................................. 1999 Land, Frank \ London School of Economics, UK ........................................................................... 2034 Landaeta, Reinaldo Plaz \ University of Madrid, Spain .................................................................. 418 Law, Wai K. \ University of Guam, Guam . ..................................................................................... 1924 Lawless, Désirée S. \ Woodward, USA . ............................................................................................... 67 Lawless, William F. \ Paine College, USA .......................................................................................... 67 Lee, Sun Kyong \ Rutgers University, USA ..................................................................................... 1413 Lee, Chang Won \ Jinju National University, Korea ........................................................................ 344 Leimeister, Jan Marco \ Kassel University, Germany .................................................................... 1267 Lenart, Gregor \ University of Maribor, Slovenia ............................................................................ 995 Lesh, Richard A. \ Indiana University, USA ..................................................................................... 529 Leung, Ying Tat \ IBM Almaden Research Center, USA ................................................................. 2275 Li, Xueping \ University of Tennessee, Knoxville, USA . ................................................................... 691 Li, Pengtao \ California State University, Stanislaus, USA ............................................................. 2244 Li, Qing \ City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China ............................................................................................................................................ 487 Lin, Angela \ University of Sheffield, UK ........................................................................................ 1570 Liu, Chuanlan \ Louisiana State University, USA . ............................................................................. 47 Liu, An \ University of Science & Technology of China, China & City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China ........................................................ 487 lo Storto, Corrado \ Universitá di Napoli Federico II, Italy ............................................................ 863 Lobo, Jorge \ IBM Research, USA . ................................................................................................... 750 López, Francisco J. \ Macon State College, USA ............................................................................. 229 López, Ana Villar \ Universitat Jaume I, Spain ................................................................................ 434 Lounsbury, John W. \ University of Tennessee at Knoxville and eCareerFit.com, USA . .............. 2087 Lukosch, Stephan \ Delft University of Technology, The Netherlands ............................................. 661 Luna-Reyes, Luis Felipe \ Universidad de las Americas-Puebla, Mexico ....................................... 842 Luo, Yaqin \ Huazhong University of Science and Technology, China ........................................... 1149 Lupton, Natalie \ Central Washington University, USA . .................................................................. 549 Lupu, Emil \ Imperial College, UK ................................................................................................... 750 Ma, Jiefei \ Imperial College, UK . .................................................................................................... 750 Maamar, Zakaria \ Zayed University, UAE ...................................................................................... 670 Mahmood, M. Adam \ University of Texas at El Paso, USA ............................................................ 229 Manassian, Armond \ American University of Beirut, Lebanon .................................................... 2433
Manikavasagam, Sivagnanasundaram \ NITT-National Institute of Technology Tiruchirappalli, India ........................................................................................................................................... 1094 Marques, Elon \ University of Dallas, USA ...................................................................................... 651 Marques, Carla S. \ University of Trás-os-Montes e Alto Douro, Portugal ................................... 1765 Martakos, Drakoulis \ National and Kapodistrian University of Athens, Greece . .......................... 741 Martín, Fernando Paniagua \ Universidad Carlos III de Madrid, Spain ...................................... 1615 McGuire, Kerry \ University of Wisconsin-Madison, USA ............................................................. 1879 Medina-Garrido, José Aurelio \ Cadiz University, Spain .................................................................. 39 Mehri, Darius \ University of California - Berkeley, USA .............................................................. 1157 Mendes, Júlio da Costa \ University of Algarve, Portugal ............................................................... 446 Mohamed, Mirghani S. \ New York Institute of Technology, Bahrain ............................................ 2457 Mohamed, Mona A. \ New York Institute of Technology, Bahrain . ................................................ 2457 Molnar, Darin R. \ CEO, eXcolo Research Group, USA ................................................................ 1675 Montagno, Ray \ Ball State University, USA .................................................................................. 1662 Moody, Janette \ The Citadel, USA ................................................................................................. 1991 Moon, Nathan W. \ Georgia Institute of Technology, USA ............................................................. 2112 Morar, S. \ Consultant, UK ................................................................................................................ 135 Moreno, Carlos Merino \ University of Madrid, Spain .................................................................... 418 Mulej, Matjaz \ University of Maribor, Slovenia ............................................................................ 2257 Munde, Gail \ East Carolina University, USA . ............................................................................... 2060 Murphy, Lyndon \ University of Wales Newport, UK . ..................................................................... 984 Narayanan, V. K. \ Drexel University, USA ...................................................................................... 286 Narendra, Nanjangud C. \ IBM Research India, India .................................................................... 670 Natale, Peter J. \ Regent University, USA ....................................................................................... 1562 Natarajan, Thamaraiselvan \ NITT-National Institute of Technology Tiruchirappalli, India ....... 1094 Navarro, Montserrat Boronat \ Universitat Jaume I, Spain . .......................................................... 434 Nazari, Jamal A. \ Mount Royal College & University of Calgary, Canada .................................. 2433 Nedelko, Zlatko \ University of Maribor, Slovenia ......................................................................... 2257 Nissen, Mark E. \ Naval Postgraduate School, USA ...................................................................... 1494 Nitse, Philip S. \ Idaho State University, USA ................................................................................. 1933 Nolas, Sevasti-Melissa \ London School of Economics, UK ........................................................... 2034 Obuh, Alex Ozoemelem \ Delta State University, Nigeria ............................................................. 2420 Oikonomitsios, Stylianos \ CIA, Consultant, Greece . ...................................................................... 888 Oiry, Ewan \ The Institute of Labour Economics and Industrial Sociology (LEST); Université de la Méditerranee, France . ...................................................................................................... 2073 Olivas-Luján, Miguel R. \ Clarion University of Pennsylvania, USA & Tecnológico de Monterrey, México .......................................................................................................................................... 976 Oren, Eyal \ Vrije Universiteit Amsterdam, The Netherlands . .......................................................... 782 Osorio, Diana Benito \ Universidad Rey Juan Carlos–Madrid, Spain ........................................... 1577 Özdemir, Erkan \ Uludag University, Turkey .................................................................................. 2019 Palacios, Tomás M. Banegil \ University of Extremadura, Spain . ................................................... 183 Panayiotou, Nikolaos A. \ National Technical University of Athens, Greece ................................... 888 Panayotopoulou, Leda \ Athens University of Economics and Business, Greece ............................ 948 Panteli, Niki \ University of Bath, UK ............................................................................................. 1688 Park, Jore \ IndaSea, Inc., USA ....................................................................................................... 1933 Parker, Kevin R. \ Idaho State University, USA ............................................................................. 1933 Pimpa, Nattavud \ RMIT University, Australia . ............................................................................. 2352
Pochampally, Kishore K. \ Southern New Hampshire University, Manchester, USA ...................... 357 Popplewell, Keith \ Coventry University, UK ................................................................................. 2229 Possel-Dölken, Frank \ RWTH Aachen University, Germany . ....................................................... 2229 Potocan, Vojko \ University of Maribor, Slovenia ........................................................................... 2257 Powell, Loreen Marie \ Bloomsburg University of Pennsylvania, USA ........................................... 777 Powell, Steven R. \ California State Polytechnic University, USA ................................................. 1231 Prause, Christian R. \ Fraunhofer FIT, Germany ............................................................................ 569 Premchaiswadi, Wichian \ Siam University, Thailand ..................................................................... 699 Pucihar, Andreja \ University of Maribor, Slovenia ......................................................................... 995 Qi, Li \ Huazhong University of Science and Technology, China .................................................... 1149 Quaddus, Mohammad \ Curtin University, Australia .................................................................... 1548 Quan, Jing \ Perdue School of Business, USA . ................................................................................... 56 Quer-Ramón, Diego \ University of Alicante, Spain ......................................................................... 929 Rachan, Wilfred \ University of Leiden, The Netherlands .............................................................. 2493 Rahim, Md Mahbubur \ Monash University, Australia ................................................................. 1548 Raisinghani, Mahesh \ Texas Women’s University, USA . ................................................................. 651 Rajagopal \ Monterrey Institute of Technology and Higher Education, ITESM, Mexico . .................... 1 Rajah, Saraswathy R. Aravinda \ NITT-National Institute of Technology Tiruchirappalli, India ........................................................................................................................................... 1094 Ramakrishna, Hindupur \ University of Redlands, USA ................................................................. 150 Rao, Pramila \ Marymount University, USA ..................................................................................... 635 Rathi, Dinesh \ University of Alberta, Canada . ................................................................................ 468 Rawlinson, David \ Central Washington University, USA ................................................................ 549 Richardson, Robert \ Mental Health Associates, USA ................................................................... 1522 Rimbau-Gilabert, Eva \ Open University of Catalonia (UOC), Spain .......................................... 1298 Robbins, Stephanie S. \ University of North Carolina at Charlotte, USA ...................................... 1134 Ruano-Mayoral, Marcos \ Universidad Carlos III de Madrid, Spain . ............................................ 403 Russo, Alessandra \ Imperial College, UK ....................................................................................... 750 Sahut, Jean-Michel \ Amiens School of Management, France ......................................................... 499 Salonen, Jarno \ VTT Technical Research Centre of Finland, Finland . ........................................... 911 Sarkar, Avijit \ University of Redlands, USA .................................................................................... 150 Schubert, Lutz \ High Performance Computing Center Stuttgart, Germany ................................. 1306 Schümmer, Till \ FernUniversität in Hagen, Germany . ................................................................... 661 Scott, Craig R. \ Rutgers University, USA ....................................................................................... 1413 Semolic, Brane \ Project & Technology Management Institute & Faculty of Logistics, University of Maribor, Slovenia ................................................................................................. 1750 Shaqrah, Amin Ahmad \ Alzaytoonah University of Jordan, Jordan . ........................................... 1071 Sharma, Sushil \ Ball State University, USA ................................................................................... 1662 Siddiqi, Jawed \ Sheffield Hallam University, UK .......................................................................... 2102 Silburn, Nicholas L.J. \ Henley Business School, UK .................................................................... 1396 Singh, Mohini \ RMIT University, Australia . .................................................................................. 1548 Sloman, Morris \ Imperial College, UK . .......................................................................................... 750 Smith-Robbins, Sarah \ Indiana University, USA ............................................................................ 121 Söderström, Eva \ University of Skövde, Sweden ............................................................................. 206 Sofge, Donald A. \ Naval Research Laboratory, USA ......................................................................... 67 Stamati, Teta \ National and Kapodistrian University of Athens, Greece ........................................ 741 Stamati, Konstantina \ National and Kapodistrian University of Athens, Greece . ......................... 741
Steel, Robert P. \ University of Michigan-Dearborn, USA ............................................................. 2087 Strang, Kenneth David \ APPC International Market Research, USA & Unviersity of Central Queensland, Australia ............................................................................................ 1023, 1350, 2298 Studham, R. Scott \ Oak Ridge National Laboratory, USA ............................................................ 2087 Stylianou, Antonis C. \ University of North Carolina at Charlotte, USA ....................................... 1134 Sun, Zhaohao \ University of Ballarat, Australia . .............................................................................. 83 Suryavanishi, Kumal \ IBM Global Business Services, USA ........................................................... 311 Swatman, Paula \ University of South Australia, Australia ............................................................ 1961 Swayne, Huw \ University of Glamorgan, UK .................................................................................. 984 Sweeney, Edward \ Dublin Institute of Technology, Ireland ........................................................... 1820 Taurino, Cesare \ Scuola Superiore ISUFI - University of Salento, Italy ....................................... 1375 Thoben, Klaus-Dieter \ BIBA Bremer Institut für Produktion und Logistik GmbH, Germany ........ 254 Thomas, Brychan \ University of Glamorgan, UK ........................................................................... 984 Timms, Duncan \ University of Stirling, Scotland .......................................................................... 1904 Tolias, Evangelos \ ALTEC S.A., Greece ......................................................................................... 2473 Tomás-Miquel, José V. \ Universitat Politècnica de València, Spain ............................................. 1475 Tung, Huilien \ Auburn University, USA ............................................................................................. 67 Valdés-Conca, Jorge \ University of Alicante, Spain ........................................................................ 967 Wagner, Claudia-Maria \ Dublin Institute of Technology, Ireland ................................................ 1820 Wallis, Steven E. \ Institute for Social Innovation, USA & Foundation for the Advancement of Social Theory, USA .................................................................................................................... 2177 Wang, Fen \ Central Washington University, USA ............................................................................ 549 Wang, Eric T.G. \ National Central University, Taiwan ................................................................. 1445 Ward, Andrew C. \ University of Minnesota, USA ......................................................................... 2112 Wenyin, Liu \ City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China ............................................................................................................................................ 487 Wilkins, Linda \ RMIT University, Australia .................................................................................. 1961 Williams, James G. \ University of Pittsburgh, USA ........................................................................ 699 Wittkower, D. E. \ Coastal Carolina University, USA .................................................................... 2157 Wolff, R. Ayşen \ Haliç University, Turkey . .................................................................................... 1633 Worden, Daniel \ RuleSmith Corporation, Canada ........................................................................ 1732 Woszczynski, Amy B. \ Kennesaw State University, USA . ............................................................. 1991 Wulff, Vlad Stefan \ University of Southern Denmark, Denmark .................................................. 1838 Yearwood, John \ University of Ballarat, Australia ............................................................................ 83 Yu, Pei-Ju \ Chunghua Institution for Economic Research, Taiwan ............................................... 1796 Zapounidis, Konstantinos C. \ Aristotle University of Thessaloniki, Greece ................................ 1458 Zaragoza-Sáez, Patrocinio \ University of Alicante, Spain .............................................................. 929 Zeng, Qingfeng \ Shanghai University of Finance and Economics, China ........................................ 47 Zhang, Jilong \ RMIT University, Australia .................................................................................... 2554 Zhang, Xingguo \ Aging and Disability Service Administration, USA ............................................. 549 Zhao, Fang \ Royal Melbourne Institute of Technology, Australia . ................................................ 1290 Zhou, Haibo \ Erasmus University Rotterdam, The Netherlands . .................................................. 1603
Contents
Volume I Section I. Fundamental Concepts and Theories This section serves as a foundation for this exhaustive reference tool by addressing crucial theories essential to the understanding of global business. Chapters found within these pages provide an excellent framework in which to position global business within the field of information science and technology. Insight regarding the critical incorporation of global measures into global business is addressed, while crucial stumbling blocks of this field are explored. With a little over 10 chapters comprising this foundational section, the reader can learn and chose from a compendium of expert research on the elemental theories underscoring the global business discipline. Chapter 1.1. Marketing Strategy, Technology and Modes of Entry in Global Retailing......................... 1 Rajagopal, Monterrey Institute of Technology and Higher Education, ITESM, Mexico Chapter 1.2. The Business Value of E-Collaboration: A Conceptual Framework................................. 28 Lior Fink, Ben-Gurion University of the Negev, Israel Chapter 1.3. Virtual Corporations.......................................................................................................... 39 Sixto Jesús Arjonilla-Domínguez, Freescale Semiconductor, Inc., Spain José Aurelio Medina-Garrido, Cadiz University, Spain Chapter 1.4. E-Business Strategy in Franchising................................................................................... 47 Ye-Sho Chen, Louisiana State University, USA Chuanlan Liu, Louisiana State University, USA Qingfeng Zeng, Shanghai University of Finance and Economics, China Chapter 1.5. E-Business Strategy and Firm Performance...................................................................... 56 Jing Quan, Perdue School of Business, USA
Chapter 1.6. Conservation of Information and e-Business Success and Challenges: A Case Study.......................................................................................................................................... 67 Huilien Tung, Auburn University, USA Hsiang-Jui Kung, Georgia Southern University, USA Désirée S. Lawless, Woodward, USA Donald A. Sofge, Naval Research Laboratory, USA William F. Lawless, Paine College, USA Chapter 1.7. Demand Driven Web Services.......................................................................................... 83 Zhaohao Sun, University of Ballarat, Australia Dong Dong, Hebei Normal University, China John Yearwood, University of Ballarat, Australia Chapter 1.8. Between Supply and Demand: Coping with the Impact of Standards Change............... 105 Tineke M. Egyedi, Delft University of Technology, The Netherlands Chapter 1.9. Engagement, Immersion, and Learning Cultures: Project Planning and Decision Making for Virtual World Training Programs...................................................................... 121 Christopher Keesey, Ohio University, USA Sarah Smith-Robbins, Indiana University, USA Chapter 1.10. Learning Space in Virtual Environments: Understanding the Factors Influencing Training Time................................................................................................................... 135 M. Kyritsis, Brunel University, UK S. R. Gulliver, University of Reading, UK S. Morar, Consultant, UK Chapter 1.11. Business Analytics Success: A Conceptual Framework and an Application to Virtual Organizing........................................................................................................ 150 Hindupur Ramakrishna, University of Redlands, USA Avijit Sarkar, University of Redlands, USA Jyoti Bachani, University of Redlands, USA Chapter 1.12. An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines.......................................................................................................................... 183 Tomás M. Bañegil Palacios, University of Extremadura, Spain Ramón Sanguino Galván, University of Extremadura, Spain Chapter 1.13. Business Models and Organizational Processes Changes............................................. 192 Helena Halas, SETCCE, Slovenia Tomaž Klobučar, Jožef Stefan Institute & SETCCE, Slovenia Chapter 1.14. Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B.......................................................................................................................... 206 Lena Aggestam, University of Skövde, Sweden Eva Söderström, University of Skövde, Sweden
Section II. Development and Design Methodologies This section provides in-depth coverage of conceptual architecture frameworks to provide the reader with a comprehensive understanding of the emerging technological developments within the field of global business. Research fundamentals imperative to the understanding of developmental processes within information/knowledge management are offered. From broad examinations to specific discussions on electronic tools, the research found within this section spans the discipline while offering detailed, specific discussions. From basic designs to abstract development, these chapters serve to expand the reaches of development and design technologies within the global business community. This section includes more than 15 contributions from researchers throughout the world on the topic of global business. Chapter 2.1. Building Business Value in E-Commerce Enabled Organizations: An Empirical Study.............................................................................................................................. 229 M. Adam Mahmood, University of Texas at El Paso, USA Leopoldo Gemoets, University of Texas at El Paso, USA Laura Lunstrum Hall, University of Texas at El Paso, USA Francisco J. López, Macon State College, USA Chapter 2.2. Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks....................................................................................................................... 254 Heiko Duin, BIBA Bremer Institut für Produktion und Logistik GmbH, Germany Klaus-Dieter Thoben, BIBA Bremer Institut für Produktion und Logistik GmbH, Germany Chapter 2.3. An Information Technology Planning Framework for an Industry Cluster.................... 271 Albert Wee Kwan Tan, National University of Singapore, Singapore Chapter 2.4. Linking Information Technology, Knowledge Management, and Strategic Experimentation.................................................................................................................... 286 V. K. Narayanan, Drexel University, USA Chapter 2.5. Collaborative Enterprise Architecture for Municipal Environments.............................. 294 Leonidas G. Anthopoulos, Hellenic Ministry of Foreign Affairs, Greece Chapter 2.6. Using Enterprise Architecture to Transform Service Delivery: The U.S. Federal Government’s Human Resources Line of Business................................................................ 311 Timothy Biggert, IBM Global Business Services, USA Kumal Suryavanishi, IBM Global Business Services, USA Ryan Kobb, IBM Global Business Services, USA Chapter 2.7. An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing for Effective Supply-Chain Linkages.............................................................................. 344 N. K. Kwak, Saint Louis University, USA Chang Won Lee, Jinju National University, Korea
Chapter 2.8. Reverse Supply Chain Design: A Neural Network Approach......................................... 357 Kishore K. Pochampally, Southern New Hampshire University, Manchester, USA Surendra M. Gupta, Northeastern University, Boston, USA Chapter 2.9. Semantic Interoperability Enablement in E-Business Modeling.................................... 373 Janina Fengel, University of Applied Sciences Darmstadt, Germany Chapter 2.10. Semantic Competence Pull: A Semantics-Based Architecture for Filling Competency Gaps in Organizations..................................................................................................... 403 Ricardo Colomo-Palacios, Universidad Carlos III de Madrid, Spain Marcos Ruano-Mayoral, Universidad Carlos III de Madrid, Spain Juan Miguel Gómez-Berbís, Universidad Carlos III de Madrid, Spain Ángel García-Crespo, Universidad Carlos III de Madrid, Spain Chapter 2.11. Model on Knowledge-Governance: Collaboration Focus and Communities of Practice...................................................................................................................... 418 Eduardo Bueno Campos, University of Madrid, Spain Carlos Merino Moreno, University of Madrid, Spain Reinaldo Plaz Landaeta, University of Madrid, Spain Chapter 2.12. Knowledge Integration through Inter-Organizational Virtual Organizations................ 434 Montserrat Boronat Navarro, Universitat Jaume I, Spain Ana Villar López, Universitat Jaume I, Spain Chapter 2.13. The Development of Knowledge and Information Networks in Tourism Destinations........................................................................................................................... 446 Júlio da Costa Mendes, University of Algarve, Portugal Chapter 2.14. Designing Digital Marketplaces for Competitive Advantage....................................... 468 Dinesh Rathi, University of Alberta, Canada Lisa M. Given, University of Alberta, Canada Chapter 2.15. Business Models for Insurance of Business Web Services........................................... 487 Liu Wenyin, City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China An Liu, University of Science & Technology of China, China & City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China Qing Li, City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China Liusheng Huang, University of Science & Technology of China, China & CityU-USTC Advanced Research Institute, China Chapter 2.16. Business Model of Internet Banks................................................................................ 499 Jean-Michel Sahut, Amiens School of Management, France
Chapter 2.17. A Reverse Auction-Based E-Business Model for B2C Service Markets...................... 512 Tobias Kollmann, University of Duisburg-Essen, Germany Matthias Häsel, University of Duisburg-Essen, Germany Chapter 2.18. Multi-Tier Design Assessment in the Development of Complex Organizational Systems....................................................................................................................... 529 Melissa A. Dyehouse, Purdue University, USA John Y. Baek, Center for Advancement of Informal Science Education, USA Richard A. Lesh, Indiana University, USA Chapter 2.19. EBDMSS: A Web-Based Decision Making Support System for Strategic E-Business Management...................................................................................................................... 549 Fen Wang, Central Washington University, USA Natalie Lupton, Central Washington University, USA David Rawlinson, Central Washington University, USA Xingguo Zhang, Aging and Disability Service Administration, USA Section III. Tools and Technologies This section presents an extensive coverage of various tools and technologies available in the field of global business that practitioners and academicians alike can utilize to develop different techniques. These chapters enlighten readers about fundamental research on the many methods used to facilitate and enhance the integration of this worldwide industry by exploring the usage of such tools as supply chain design, IT strategy, and new business models, all increasingly pertinent research areas. It is through these rigorously researched chapters that the reader is provided with countless examples of the up-and-coming tools and technologies emerging from the field of global business. With more than 20 chapters, this section offers a broad treatment of some of the many tools and technologies within the global business community. Chapter 3.1. MICA: A Mobile Support System for Warehouse Workers............................................ 569 Christian R. Prause, Fraunhofer FIT, Germany Marc Jentsch, Fraunhofer FIT, Germany Markus Eisenhauer, Fraunhofer FIT, Germany Chapter 3.2. Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design............................................................................................................... 593 Dimitris K. Kardaras, Athens University of Economics and Business, Greece Bill Karakostas, City University, UK Chapter 3.3. Human Resources in the Balanced Scorecard System.................................................... 611 Juha Kettunen, Turku University of Applied Sciences, Finland Chapter 3.4. The Role of HRIS in Crisis Response Planning.............................................................. 619 Amy E. Hurley-Hanson, Chapman University, USA
Chapter 3.5. Concepts, Technology, and Applications in E-Mentoring............................................... 627 Ricardo Colomo-Palacios, Universidad de Carlos III, Spain Juan Miguel Gómez-Berbís, Universidad de Carlos III, Spain Angel Garcia-Crespo, Universidad de Carlos III, Spain Cristina Casado-Lumbreras, Universidad Complutense, Spain Chapter 3.6. E-Recruitment in Emerging Economies.......................................................................... 635 Pramila Rao, Marymount University, USA
Volume II Chapter 3.7. E-Logistics: The Slowly Evolving Platform Underpinning E-Business......................... 643 Kim Hassall, University of Melbourne, Australia Chapter 3.8. E-Business Perspectives through Social Networks......................................................... 651 Mahesh Raisinghani, Texas Women’s University, USA Elon Marques, University of Dallas, USA Chapter 3.9. Designing E-Business Applications with Patterns for ComputerMediated Interaction............................................................................................................................ 661 Stephan Lukosch, Delft University of Technology, The Netherlands Till Schümmer, FernUniversität in Hagen, Germany Chapter 3.10. Business Artifacts for E-Business Interoperability....................................................... 670 Youakim Badr, INSA-Lyon, France Nanjangud C. Narendra, IBM Research India, India Zakaria Maamar, Zayed University, UAE Chapter 3.11. Adaptive Web Presence and Evolution through Web Log Analysis.............................. 691 Xueping Li, University of Tennessee, USA Chapter 3.12. On-Line Credit Card Payment Processing and Fraud Prevention for E-Business........ 699 James G. Williams, University of Pittsburgh, USA Wichian Premchaiswadi, Siam University, Thailand Chapter 3.13. Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response: A Knowledge Management Analysis................................................ 718 Teresa Durbin, San Diego Gas and Electric, USA Murray E. Jennex, San Diego State University, USA Eric Frost, San Diego State University, USA Robert Judge, San Diego State University, USA Chapter 3.14. Assessing the Impact of Mobile Technologies on Work-Life Balance......................... 732 Sharon Cox, Birmingham City University, UK
Chapter 3.15. Migration of Legacy Information Systems................................................................... 741 Teta Stamati, National and Kapodistrian University of Athens, Greece Panagiotis Kanellis, National and Kapodistrian University of Athens, Greece Konstantina Stamati, National and Kapodistrian University of Athens, Greece Drakoulis Martakos, National and Kapodistrian University of Athens, Greece Chapter 3.16. Policy Technologies for Security Management in Coalition Networks........................ 750 Seraphin B. Calo, IBM Research, USA Clare-Marie Karat, IBM Research, USA John Karat, IBM Research, USA Jorge Lobo, IBM Research, USA Robert Craven, Imperial College, UK Emil Lupu, Imperial College, UK Jiefei Ma, Imperial College, UK Alessandra Russo, Imperial College, UK Morris Sloman, Imperial College, UK Arosha Bandara, The Open University, UK Chapter 3.17. Teleworker’s Security Risks Minimized with Informal Online Information Technology Communities of Practice.................................................................................................. 777 Loreen Marie Powell, Bloomsburg University of Pennsylvania, USA Chapter 3.18. Ontologically Enhanced RosettaNet B2B Integration.................................................. 782 Paavo Kotinurmi, Helsinki University of Technology, Finland Armin Haller, National University of Ireland - Galway, Ireland Eyal Oren, Vrije Universiteit Amsterdam, The Netherlands Chapter 3.19. Data Mining in Franchising........................................................................................... 809 Ye-Sho Chen, Louisiana State University, USA Grace Hua, Louisiana State University, USA Bob Justis, Louisiana State University, USA Chapter 3.20. Developing a Corporate Memory as a Competitive Advantage in the ICT Sector....... 820 Arla Juntunen, Helsinki School of Economics, Finland Chapter 3.21. City Boosterism through Internet Marketing: An Institutional Perspective.................. 842 María Isabel Huerta-Carvajal, Universidad de las Americas-Puebla, Mexico Luis Felipe Luna-Reyes, Universidad de las Americas-Puebla, Mexico Chapter 3.22. Learning Organizations or Organizations for Learning? How Small Firms can Learn from Planned and Random Technical Problem-Solving: Implications for Technical Education........ 863 Corrado lo Storto, Universitá di Napoli Federico II, Italy
Section IV. Utilization and Application This section discusses a variety of applications and opportunities available that can be considered by practitioners in developing viable and effective global business programs and processes. This section includes over 25 chapters that review numerous business aspects, such as IT diffusion, e-human resource management, and e-commerce development. Also explored in this section is the use of organizational learning during operational change in business. Contributions included in this section provide excellent coverage of today’s business community and how research into global business is impacting the social fabric of our present-day global village. Chapter 4.1. Risk Assessment in Virtual Enterprise Networks: A Process-Driven Internal Audit Approach.................................................................................................................................... 888 Nikolaos A. Panayiotou, National Technical University of Athens, Greece Stylianos Oikonomitsios, CIA, Consultant, Greece Christina Athanasiadou, Ernst & Young, Greece Sotiris P. Gayialis, National Technical University of Athens, Greece Chapter 4.2. eInsurance: Developing Customer-Firendly Electronic Insurance Services from the Novel Project Perspective..................................................................................................... 911 Aki Ahonen, OP Bank Group Central Cooperative, Finland Jarno Salonen, VTT Technical Research Centre of Finland, Finland Raija Järvinen, National Consumer Research Centre, Finland Jouni Kivistö-Rahnasto, Tampere University of Technology, Finland Chapter 4.3. A Qualitative Study of Knowledge Management: The Multinational Firm Point of View....................................................................................................................................... 929 Patrocinio Zaragoza-Sáez, University of Alicante, Spain Enrique Claver-Cortés, University of Alicante, Spain Diego Quer-Ramón, University of Alicante, Spain Chapter 4.4. Adoption and Success of E-HRM in European Firms..................................................... 948 Eleanna Galanaki, Athens University of Economics and Business, Greece Leda Panayotopoulou, Athens University of Economics and Business, Greece Chapter 4.5. A Case Study of a Data Warehouse in the Finnish Police............................................... 956 Arla Juntunen, Helsinki School of Economics, Finland & Finland’s Government Ministry of the Interior, Finland Chapter 4.6. Exploring the Relation between the Use of HRIS and their Implementation in Spanish Firms...................................................................................................................................... 967 José Antonio Fernández-Sánchez, University of Alicante, Spain Susana de Juana-Espinosa, University of Alicante, Spain Jorge Valdés-Conca, University of Alicante, Spain
Chapter 4.7. The Diffusion of HRITs Across English- Speaking Countries........................................ 976 Miguel R. Olivas-Luján, Clarion University of Pennsylvania, USA & Tecnológico de Monterrey, México Gary W. Florkowski, Katz Graduate School of Business, USA Chapter 4.8. The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales.......................................................................................................................................... 984 Lyndon Murphy, University of Wales Newport, UK Joanna Jones, University of Wales Newport, UK Huw Swayne, University of Glamorgan, UK Brychan Thomas, University of Glamorgan, UK Chapter 4.9. “eSME Slovenia”: Initiative and Action Plan for the Accelerated Introduction of E-Business in SMEs........................................................................................................................ 995 Andreja Pucihar, University of Maribor, Slovenia Gregor Lenart, University of Maribor, Slovenia Chapter 4.10. Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia..................................................................................................................... 1023 Kenneth D. Strang, APPC International Market Research, USA & University of Central Queensland, Australia Cliff E. L. Chan, Mitsubishi Electric, Singapore Chapter 4.11. Organizational Learning During Changes in Estonian Organization.......................... 1044 Ruth Alas, Estonian Business School, Estonia Chapter 4.12. E-Business Adoption by Jordanian Banks: An Exploratory Study of the Key Factors and Performance Indicators................................................................................................... 1055 Ali Alawneh, Philadelphia University, Jordan Hasan Al-Refai, Philadelphia University, Jordan Khaldoun Batiha, Philadelphia University, Jordan Chapter 4.13. The Influence of Internet Security on E-Business Competence in Jordan: An Empirical Analysis....................................................................................................................... 1071 Amin Ahmad Shaqrah, Alzaytoonah University of Jordan, Jordan Chapter 4.14. Internet Adoption from Omani Organizations’ Perspective: Motivations and Reservations............................................................................................................ 1087 Khamis Al-Gharbi, Sultan Qaboos University, Sultanate of Oman Ahlam Abdullah AlBulushi, Sultanate of Oman Chapter 4.15. Snapshot of Personnel Productivity Assessment in Indian IT Industry...................... 1094 Thamaraiselvan Natarajan, NITT-National Institute of Technology Tiruchirappalli, India Saraswathy R. Aravinda Rajah, NITT-National Institute of Technology Tiruchirappalli, India Sivagnanasundaram Manikavasagam, NITT-National Institute of Technology Tiruchirappalli, India
Chapter 4.16. The Critical Success Factors and Integrated Model for Implementing E-Business in Taiwan’s SMEs........................................................................................................... 1109 Te Fu Chen, Graduate Institute of Central Asia, Chin Yung University, Taiwan Chapter 4.17. E-Commerce Development in China: An Exploration of Perceptions and Attitudes................................................................................................................... 1134 Antonis C. Stylianou, University of North Carolina at Charlotte, USA Stephanie S. Robbins, University of North Carolina at Charlotte, USA Pamela Jackson, Fayetteville State University, USA Chapter 4.18. Dynamic Maintenance in ChinaGrid Support Platform.............................................. 1149 Hai Jin, Huazhong University of Science and Technology, China Li Qi, Huazhong University of Science and Technology, China Jie Dai, Huazhong University of Science and Technology, China Yaqin Luo, Huazhong University of Science and Technology, China Chapter 4.19. Engineering Design at a Toyota Company: Knowledge Management and the Innovative Process................................................................................................................. 1157 Darius Mehri, University of California - Berkeley, USA Chapter 4.20. The Internet and SMEs in Sub-Saharan African Countries: An Analysis in Nigeria....................................................................................................................... 1170 Princely Ifinedo, University of Jyväskylä, Finland Chapter 4.21. E-Business and Nigerian Financial Firms Development: A Review of Key Determinants.............................................................................................................................. 1178 Uchenna Cyril Eze, Multimedia University, Malaysia Chapter 4.22. Lessons Learned from the NASA Astrobiology Institute............................................ 1201 Lisa Faithorn, NASA Ames Research Center, USA Baruch S. Blumberg, Fox Chase Cancer Center, USA Chapter 4.23. Influencing Factors and the Acceptance of Internet and E-Business Technologies in Maritime Canada’s SMEs: An Analysis.................................................................. 1217 Princely Ifinedo, Cape Breton University, Canada Chapter 4.24. An Analysis of the Latin American Wireless Telecommunications Market Portfolios of Telefonica and America Movil...................................................................................... 1231 Steven R. Powell, California State Polytechnic University, USA Chapter 4.25. Exploring Organizational Learning and Knowledge Exchange through Poetry......... 1249 Louise Grisoni, Bristol Business School, UK
Chapter 4.26. Hybrid Value Creation in the Sports Industry: The Case of a Mobile Sports Companion as IT-Supported Product-Servce-Bundle........................................................................ 1267 Jan Marco Leimeister, Kassel University, Germany Uta Knebel, Technische Universitaet Muenchen, Germany Helmut Krcmar, Technische Universitaet Muenchen, Germany Chapter 4.27. Management Information System in Higher Education.............................................. 1281 Juha Kettunen, Turku University of Applied Sciences, Finland
Volume III Section V. Organizational and Social Implications This section includes a wide range of research pertaining to the social and organizational impact of global business around the world. Chapters introducing this section critically analyze interoperability, collaboration, synergy and interpersonal communication/knowledge sharing. Additional chapters included in this section look at trust and tension in telework practices, which has been recognized as one of the main causes of the collapse of a large number of dot-com companies. With 20 chapters the discussions presented in this section offer research into the integration of global global business as well as implementation of ethical considerations for all organizations. Chapter 5.1. Business Relationships and Organizational Structures in E-Business.......................... 1290 Fang Zhao, Royal Melbourne Institute of Technology, Australia Chapter 5.2. Exploring the Link between Flexible Work and Organizational Performance............. 1298 Eva Rimbau-Gilabert, Open University of Catalonia (UOC), Spain Chapter 5.3. E-Business Interoperability and Collaboration............................................................. 1306 Alexander Kipp, High Performance Computing Center Stuttgart, Germany Lutz Schubert, High Performance Computing Center Stuttgart, Germany Chapter 5.4. Assessing Relational E-Strategy Supporting Business Relationships........................... 1338 Anne-Marie Croteau, Concordia University, Canada Anne Beaudry, Concordia University, Canada Justin Holm, Concordia University, Canada Chapter 5.5. Collaborative Synergy and Leadership in E-Business.................................................. 1350 Kenneth David Strang, Central Queensland University, Australia Chapter 5.6. Collaborative Learning Experiences in Teaching of E-Business Management............ 1375 Wael Assaf, Scuola Superiore ISUFI - University of Salento, Italy Gianluca Elia, Scuola Superiore ISUFI - University of Salento, Italy Ayham Fayyoumi, Scuola Superiore ISUFI - University of Salento, Italy Cesare Taurino, Scuola Superiore ISUFI - University of Salento, Italy
Chapter 5.7. Trust, Virtual Teams, and Grid Technology.................................................................. 1396 Genoveffa (Jeni) Giambona, University of Reading, UK Nicholas L.J. Silburn, Henley Business School, UK David W. Birchall, Henley Business School, UK Chapter 5.8. Examining Tensions in Telework Policies.................................................................... 1413 Jennifer L. Gibbs, Rutgers University, USA Craig R. Scott, Rutgers University, USA Young Hoon Kim, Rutgers University, USA Sun Kyong Lee, Rutgers University, USA Chapter 5.9. Workplace Safety and Personnel Well-Being: The Impact of Information Technology..................................................................................................................... 1438 T. Fagbe, ATT Safety Technologies, Nigeria O. D. Adekola, Babcock University, Nigeria Chapter 5.10. The Impact of Missing Skills on Learning and Project Performance......................... 1445 James Jiang, University of Central Florida, USA Gary Klein, University of Colorado in Colorado Springs, USA Phil Beck, Southwest Airlines, USA Eric T.G. Wang, National Central University, Taiwan Chapter 5.11. Recruiting, Selecting and Motivating Human Resources: Methodological Analysis and Case Studies Applications.................................................................. 1458 Konstantinos C. Zapounidis, Aristotle University of Thessaloniki, Greece Glykeria Kalfakakou, Aristotle University of Thessaloniki, Greece Chapter 5.12. Knowledge Management in SMEs Clusters................................................................ 1475 Josep Capó-Vicedo, Universitat Politècnica de València, Spain José V. Tomás-Miquel, Universitat Politècnica de València, Spain Manuel Expósito-Langa, Universitat Politècnica de València, Spain Chapter 5.13. Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in Virtual Organizations.................................................................... 1494 Mark E. Nissen, Naval Postgraduate School, USA Chapter 5.14. The Multicultural Organization: A Histroric Organizational Theory for Gaining Competitiveness in Global Business Environment............................................ 1508 Tongo Constantine Imafidon, Covenant University, Nigeria Chapter 5.15. Multinational Intellect: The Synergistic Power of Cross Cultural Knowledge Networks.......................................................................................................... 1522 Leslie Gadman, London South Bank University, UK Robert Richardson, Mental Health Associates, USA
Chapter 5.16. Knowledge Transfer within Multinational Corporations: An Intercultural Challenge................................................................................................................. 1536 Parissa Haghirian, Sophia University, Japan Chapter 5.17. Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University through the Employee Lens: A Quantitative Approach.................................. 1548 Md Mahbubur Rahim, Monash University, Australia Mohammad Quaddus, Curtin University, Australia Mohini Singh, RMIT University, Australia Chapter 5.18. Media Channel Preferences of Mobile Communities................................................. 1562 Peter J. Natale, Regent University, USA Mihai C. Bocarnea, Regent University, USA Chapter 5.19. Consumer Information Sharing................................................................................... 1570 Jonathan Foster, University of Sheffield, UK Angela Lin, University of Sheffield, UK Chapter 5.20. The Benefits of Home-Based Working’s Flexibility................................................... 1577 Diana Benito Osorio, Universidad Rey Juan Carlos–Madrid, Spain Section VI. Managerial Impact This section presents contemporary coverage of the social implications of global business, more specifically related to the corporate and managerial utilization of strategy and resource planning. Core ideas such as training and continuing education of human resources in modern organizations are discussed throughout these chapters. Issues, such as a conceptual model to show how managers evaluate internal (relative advantage and compatibility of adopting an innovation) and external (competitive pressure and partner conflict) determinants that affect the intention to adopt technological innovations in global business, are discussed. Equally as crucial, chapters within this section discuss how low-cost Internet commercialization has led to much more widespread adoption of inter-organizational information systems. Also in this section is a focus on finding a solution to deal with Internet empowered customers and to learn how to apply technologies demanded in the new digital economy. Chapter 6.1. Optimizing the Configuration of Development Teams Using EVA: The Case of Ongoing Project Adjustments Facing Personnel Restrictions....................................... 1588 Alexander Baumeister, Saarland University, Germany Alexander Floren, Saarland University, Germany Chapter 6.2. The Impact of Labour Flexibility and HRM on Innovation.......................................... 1603 Haibo Zhou, Erasmus University Rotterdam, The Netherlands Ronald Dekker, Delft University of Technology, The Netherlands & ReflecT at Tilburg University, The Netherlands Alfred Kleinknecht, Delft University of Technology, The Netherlands
Chapter 6.3. Personnel Performance Management in IT eSourcing Environments.......................... 1615 Adrián Hernández-López, Universidad Carlos III de Madrid, Spain Ricardo Colomo-Palacios, Universidad Carlos III de Madrid, Spain Ángel García-Crespo, Universidad Carlos III de Madrid, Spain Fernando Paniagua Martín, Universidad Carlos III de Madrid, Spain Pedro Soto Acosta, University of Murcia, Spain Chapter 6.4. E-HRM in Turkey: A Case Study.................................................................................. 1633 Yonca Gürol, Yildiz Technical Unversity, Turkey R. Ayşen Wolff, Haliç University, Turkey Esin Ertemsir Berkin, Yildiz Technical University, Turkey Chapter 6.5. Performance Management in Software Engineering.................................................... 1644 Markus Ilg, Vorarlberg University of Applied Sciences, Austria Alexander Baumeister, Saarland University, Germany Chapter 6.6. Strategy and Structure in a Virtual Organization.......................................................... 1662 Nazim Ahmed, Ball State University, USA Ray Montagno, Ball State University, USA Sushil Sharma, Ball State University, USA Chapter 6.7. Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization........................................................................................................................... 1675 Darin R. Molnar, eXcolo Research Group, USA Chapter 6.8. E-Leadership Styles for Global Virtual Teams.............................................................. 1688 Petros Chamakiotis, University of Bath, UK Niki Panteli, University of Bath, UK Chapter 6.9. Strategising Impression Management in Corporations: Cultural Knowledge as Capital........................................................................................................................ 1707 Caroline Kamau, Southampton Solent University, UK Chapter 6.10. Agile Alignment of Enterprise Execution Capabilities with Strategy......................... 1732 Daniel Worden, RuleSmith Corporation, Canada Chapter 6.11. Governance of Virtual Networks: Case of Living and Virtual Laboratories............... 1750 Brane Semolic, University of Maribor, Slovenia Jure Kovac, University of Maribor, Slovenia Chapter 6.12. Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector: Portuguese Evidences..................................................................................................... 1765 João J. Ferreira, University of Beira Interior, Portugal Carla S. Marques, University of Trás-os-Montes e Alto Douro, Portugal Cristina Fernandes, University of Beira Interior, Portugal
Chapter 6.13. Executive Judgement in E-Business Strategy............................................................. 1788 Valerie Baker, University of Wollongong, Australia Tim Coltman, University of Wollongong, Australia Chapter 6.14. Prioritizing Corporate R&D Capabilities: The Intellectual Capital Perspective......... 1796 Yuan-Chieh Chang, National Tsing Hua University, Taiwan Pei-Ju Yu, Chunghua Institution for Economic Research, Taiwan Hui-Ru Chi, National Changhua University of Education, Taiwan Chapter 6.15. E-Business in Supply Chain Management.................................................................. 1820 Claudia-Maria Wagner, Dublin Institute of Technology, Ireland Edward Sweeney, Dublin Institute of Technology, Ireland Chapter 6.16. Global Account Management (GAM): Creating Companywide and Worldwide Relationships to Global Customers................................................................................. 1838 Svend Hollensen, University of Southern Denmark, Denmark Vlad Stefan Wulff, University of Southern Denmark, Denmark Chapter 6.17. An Overview of Executive Information Systems (EIS) Research in South Africa....................................................................................................................................... 1858 Udo Richard Averweg, eThekwini Municipality and University of KwaZulu-Natal, South Africa Chapter 6.18. Managerial Succession and E-Business...................................................................... 1868 Anthonia Adenike Adeniji, Covenant University, Nigeria Section VII. Critical Issues This section contains 21 chapters addressing issues such as business as a social institution, social capital theory, advancing women in the workplace through technology, management theory, digital divide, and copyright in business, to name a few. Within the chapters, the reader is presented with an in-depth analysis of the most current and relevant issues within this growing field of study. Issues, such as the current state of cultural integration of the workplace, are discussed. Crucial questions are addressed and alternatives offered, such as the divergence between the expected and realized degrees of innovation in business to business management. Rounding out this section is a look at scientific and technological revolutions, and their implications on different institutions and enterprises. Chapter 7.1. Sociotechnical Issues of Tele-ICU Technology............................................................ 1879 Peter Hoonakker, University of Wisconsin-Madison, USA Kerry McGuire, University of Wisconsin-Madison, USA Pascale Carayon, University of Wisconsin-Madison, USA Chapter 7.2. Contributions of Social Capital Theory to HRM.......................................................... 1896 Marina Burakova-Lorgnier, ECE-INSEEC Research Laboratory, University of Montesquieu Bordeaux 4, France
Chapter 7.3. Social Capital and Third Places through the Internet: Lessons from a Disadvantaged Swedish Community................................................................................................. 1904 Duncan Timms, University of Stirling, Scotland Sara Ferlander, Södertörn University, Sweden Chapter 7.4. Cross-Cultural Challenges for Information Resources Management........................... 1924 Wai K. Law, University of Guam, Guam
Volume IV Chapter 7.5. The Role of Culture in Business Intelligence................................................................ 1933 Jore Park, IndaSea, Inc., USA Wylci Fables, IndaSea, Inc., USA Kevin R. Parker, Idaho State University, USA Philip S. Nitse, Idaho State University, USA Chapter 7.6. Contested Terrain: Place, Work and Organizational Identities...................................... 1948 John Willy Bakke, Telenor Research and Innovation, Norway Tom Erik Julsrud, Telenor Research and Innovation, Norway Chapter 7.7. Evolutionary Diffusion Theory..................................................................................... 1961 Linda Wilkins, RMIT University, Australia Paula Swatman, University of South Australia, Australia Duncan Holt, RAYTHEON, Australia Chapter 7.8. Advancing Women in the Digital Economy: eLearning Opportunities for Meta-Competency Skilling................................................................................................................ 1978 Patrice Braun, University of Ballarat, Australia Chapter 7.9. Interventions and Solutions in Gender and IT.............................................................. 1991 Amy B. Woszczynski, Kennesaw State University, USA Janette Moody, The Citadel, USA Chapter 7.10. Ethical Issues Arising from the Usage of Electronic Communications in the Workplace................................................................................................................................ 1999 Fernando A.A. Lagraña, Webster University Geneva, Switzerland & Grenoble École de Management, France Chapter 7.11. Ethics in E-Marketing: A Marketing Mix Perspective................................................ 2019 Erkan Özdemir, Uludag University, Turkey Chapter 7.12. Accountability and Ethics in Knowledge Management.............................................. 2034 Frank Land, London School of Economics, UK Urooj Amjad, London School of Economics, UK Sevasti-Melissa Nolas, London School of Economics, UK
Chapter 7.13. Management Theory: A Systems Perspective on Understanding Management Practice and Management Behavior............................................................................ 2044 John Davies, Victoria University of Wellington, New Zealand Chapter 7.14. Global Issues in Human Resource Management and Their Significance to Information Organizations and Information Professionals............................................................ 2060 Gail Munde, East Carolina University, USA Chapter 7.15. Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development of Human Resource Intranet Use?............................................................ 2073 Karine Guiderdoni-Jourdain, Université de la Méditerranee, France Ewan Oiry, Université de la Méditerranee, France Chapter 7.16. Holland’s Vocational Theory and Personality Traits of Information Technology Professionals.................................................................................................................. 2087 John W. Lounsbury, University of Tennessee at Knoxville and eCareerFit.com, USA R. Scott Studham, Oak Ridge National Laboratory, USA Robert P. Steel, University of Michigan-Dearborn, USA Lucy W. Gibson, eCareerFit.com & Resource Assoiciates, USA Adam W. Drost, eCareerFit.com, USA Chapter 7.17. Do Insecure Systems Increase Global Digital Divide?............................................... 2102 Jawed Siddiqi, Sheffield Hallam University, UK Ja’far Alqatawna, Sheffield Hallam University, UK Mohammad Hjouj Btoush, Sheffield Hallam University, UK Chapter 7.18. Teleworking and the “Disability Divide”.................................................................... 2112 John C. Bricout, University of Central Florida, USA Paul M.A. Baker, Georgia Institute of Technology, USA Andrew C. Ward, University of Minnesota, USA Nathan W. Moon, Georgia Institute of Technology, USA Chapter 7.19. A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises for E-Business Adoption................................................................................................. 2135 Ritesh Chugh, CQUniversity Melbourne, Australia Pramila Gupta, CQUniversity Melbourne, Australia Chapter 7.20. Against Strong Copyright in E-Business..................................................................... 2157 D. E. Wittkower, Coastal Carolina University, USA Chapter 7.21. The Structure of Theory and the Structure of Scientific Revolutions: What Constitutes an Advance in Theory?.......................................................................................... 2177 Steven E. Wallis, Institute for Social Innovation, USA & Foundation for the Advancement of Social Theory, USA
Section VIII. Emerging Trends This section highlights research potential within the field of global business while exploring uncharted areas of study for the advancement of the discipline. Introducing this section are chapters that set the stage for future research directions and topical suggestions for continued debate. Discussions assessing the potential of new technologies for user authentication (verification of the user’s identity) on the basis of a practical test and an analysis of trust are offered. Another debate which currently finds itself at the forefront of research is the potential development and application of a ‘Social Network Scorecard’ (SNS) managerial tool to monitor social interchanges and relationships within and across organizations in order to assess the effectiveness of knowledge networks. Found in these chapters, concluding this exhaustive multi-volume set are areas of emerging trends and suggestions for future research within this ever- and rapidly expanding discipline. Chapter 8.1. Emerging Business Models: Value Drivers in E-Business 2.0 and towards Enterprise 2.0..................................................................................................................................... 2202 Te Fu Chen, Lunghwa University of Science and Technology, Taiwan Chapter 8.2. Vision, Trends, Gaps and a Broad Roadmap for Future Engineering........................... 2229 Jan Goossenaerts, Eindhoven University of Technology, The Netherlands Frank Possel-Dölken, RWTH Aachen University, Germany Keith Popplewell, Coventry University, UK Chapter 8.3. Emerging Trends of E-Business.................................................................................... 2244 Pengtao Li, California State University, Stanislaus, USA Chapter 8.4. What is New with Organization of E-Business: Organizational Viewpoint of the Relationships in E-Business.................................................................................................... 2257 Vojko Potocan, University of Maribor, Slovenia Zlatko Nedelko, University of Maribor, Slovenia Matjaz Mulej, University of Maribor, Slovenia Chapter 8.5. New Profession Development: The Case for the Business Process Engineer.............. 2275 Ying Tat Leung, IBM Almaden Research Center, USA Nathan S. Caswell, Janus Consulting, USA Manjunath Kamath, Oklahoma State University, USA Chapter 8.6. Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs................................................................................................................................. 2298 Kenneth David Strang, APPC IM Research, USA & University of Central Queensland, Australia Chapter 8.7. Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms....... 2331 Ranjit Goswami, Indian Institute of Technology, India S. K. De, Indian Institute of Technology, India B. Datta, Indian Institute of Technology, India
Chapter 8.8. The Global Telecommunications Industry Facing the IP Revolution: Technological and Regulatory Challenges......................................................................................... 2352 Harald Gruber, European Investment Bank, Luxembourg Chapter 8.9. Optimizing and Managing Digital Telecommunication Systems Using Data Mining and Knowledge Discovery Approaches................................................................................ 2360 Adnan I. Al Rabea, Al Balqa Applied University, Jordan Ibrahiem M. M. El Emary, King Abdulaziz University, Kingdom of Saudi Arabia Chapter 8.10. An ICT-Based Network of Competence Centres for Developing Intellectual Capital in the Mediterranean Area..................................................................................................... 2380 Marco De Maggio, University of Salento, Italy Pasquale Del Vecchio, University of Salento, Italy Gianluca Elia, University of Salento, Italy Francesca Grippa, University of Salento, Italy Chapter 8.11. Recognizing Innovation through Social Network Analysis: The Case of the Virtual eBMS Project............................................................................................... 2398 Grippa Francesca, University of Salento, Italy Elia Gianluca, University of Salento, Italy Chapter 8.12. Organizational Password Policy.................................................................................. 2420 Alex Ozoemelem Obuh, Delta State University, Nigeria Ihuoma Babatope, Delta State University, Nigeria Chapter 8.13. National Intellectual Capital Stocks and Organizational Cultures: A Comparison of Lebanon and Iran................................................................................................... 2433 Jamal A. Nazari, Mount Royal College & University of Calgary, Canada Irene M. Herremans, University of Calgary, Canada Armond Manassian, American University of Beirut, Lebanon Robert G. Isaac, University of Calgary, Canada Chapter 8.14. The Role of ICTs and the Management of Multinational Intellectual Capital............ 2457 Mirghani S. Mohamed, New York Institute of Technology, Bahrain Mona A. Mohamed, New York Institute of Technology, Bahrain Chapter 8.15. An Approach to Efficient Waste Management for SMEs via RBVOs........................ 2473 Stamatia-Ann Katriou, ALTEC S.A., Greece Ioannis Ignatiadis, Kingston University, UK Garyfallos Fragidis, Technological Educational Institute of Serres, Greece Evangelos Tolias, ALTEC S.A., Greece Adamantios Koumpis, ALTEC S.A., Greece Chapter 8.16. Supply Chain Risk Management Driven by Action Learning..................................... 2493 H.P. Borgman (Hans), University of Leiden, The Netherlands Wilfred Rachan, University of Leiden, The Netherlands
Chapter 8.17. Tailor-Made Distance Education as a Retention Strategy: The “Learning at the Workplace” Program in Thailand.................................................................... 2512 Prathurng Hongsranagon, Chulalongkorn University, Thailand Chapter 8.18. Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism............ 2525 Lucio Biggiero, University of L’Aquila, Italy Chapter 8.19. Embracing Guanxi: The Literature Review................................................................ 2554 Jilong Zhang, RMIT University, Australia Nattavud Pimpa, RMIT University, Australia
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Preface
The world is always expanding with people, ideas, and technology. Global business looks to capitalize on the successes of modern society and the range of products and services people look for around the world. As people and cultures change, so do the products and services they look for. In addition to producing and marketing new products for consumers, businesses create jobs and spur local growth in infrastructure. As change goes, so do the industries surrounding it; businesses must be ready to adapt to new technologies, products, and consumers. That is why Information Science Reference is pleased to offer this four-volume reference collection that will empower students, researchers, and academicians with a strong understanding of critical issues within global business by providing both extensive and detailed perspectives on cutting-edge theories and developments. This reference serves as a single, comprehensive reference source on conceptual, methodological, technical, and managerial issues, as well as providing insight into emerging trends and future opportunities within the discipline. Global Business: Concepts, Methodologies, Tools and Applications is organized into eight distinct sections that provide comprehensive coverage of important topics. The sections are: (1) Fundamental Concepts and Theories, (2) Development and Design Methodologies, (3) Tools and Technologies, (4) Utilization and Application, (5) Organizational and Social Implications, (6) Managerial Impact, (7) Critical Issues, and (8) Emerging Trends. The following paragraphs provide a summary of what to expect from this invaluable reference tool. Section 1, Fundamental Concepts and Theories, serves as a foundation for this extensive reference tool by laying the groundwork within the subject matter, and addressing crucial theories essential to the understanding of global business. The book opens with Marketing Strategy, Technology and Modes of Entry in Global Retailing by Rajagopal, breaking down how new businesses can enter their respective markets with proper strategy and best practices in place to allow substantive growth. The section also contains Engagement, Immersion, and Learning Cultures by Christopher Keesey, offering a guide to avoiding common pitfalls while suggesting a plan for maximum training benefit in virtual world implementations. Another among the vital chapter selections is An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines by Tomas M. Banegil Palacios and Ramon Sanguino Galvan, moving out of the fundamental concepts and into some critical theory on intellectual capital management. Section 2, Development and Design Methodologies, presents in-depth coverage of the conceptual design and architecture of global business, focusing on aspects such as IT strategy, supply chain management, knowledge governance, and business models. Designing and implementing effective processes and strategies are the focus of such chapters as Collaborative Enterprise Architecture for Municipal Environments by Leonidas G. Anthopoulos, or Linking Information Technology, Knowledge Manage-
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ment, and Strategic Experimentation by V. K. Narayanan. The section also contains such revolutionary methodological suggestions as those found in A Reverse Auction-Based E-Business Model for B2C Service Markets by Tobias Kollmann. For those in strategic planning departments of their businesses, this section provides a vital reference of the latest research in the design and development of planning and growth of your business. Section 3, Tools and Technologies, shows how new devices and models can be implemented into the growth of global business. This comprehensive section includes such chapters as On-Line Credit Card Payment Processing and Fraud Prevention for e-Business by Wichian Premchaiswadi and James G. Williams, breaking down security measures involved in account payment and credit card processing, and Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response by Murray E. Jennex, Robert Judge, Eric Frost, and Teresa Durbin, an important look into crisis management and the role business infrastructure (especially within the energy sector) must play in the process. Another fantastic chapter in section 3 is Learning Organizations or Organizations for Learning? How Small Firms can Learn from Planned and Random Technical Problem-Solving by Corrado lo Storto, detailing knowledge management and learning strategies for keeping employees informed and sharp in critical thinking. The section contains a diverse selection of the latest strategies, tools, and technologies that businesses have begun to adopt around the globe. Section 4, Utilization and Application, describes how various strategies and technologies in global business have been utilized and offers insight on important lessons for their continued use and evolution. This section is filled with case studies and research from leading industry members around the world, including selections such as The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales by Lyndon Murphy, Joanna Jones, Huw Swayne, and Brychan Thomas; Lessons Learned from the NASA Astrobiology Institute by Lisa Faithorn and Baruch S. Blumberg; and even as diverse as Exploring Organizational Learning and Knowledge Exchange through Poetry by Louise Grisoni. Section 4 has the broadest range of topics, the largest volume of chapters, and contains works from authors from over a dozen countries. Section 5, Organizational and Social Implications, discusses the human impact on global business, and how people influence the decision making and directions that companies take, with topics including human resource management, synergy, information transfer, and many more. The section includes chapters such as Trust, Virtual Teams, and Grid Technology by Genoveffa Giambona, Nicholas L.J. Silburn, and David W. Birchall, detailing the importance of employee trust and security measures in place in networked technologies within a business. Another representative chapter is The Multicultural Organization by Tongo Constantine Imafidon, part of a group of chapters on culture in business. Closing out section five is The Benefits of Home-Based Working’s Flexibility by Diana Benito Osorio, which, as the title suggests, compiles benefits of home business and strategies for growth in small and home businesses. Section 6, Managerial Impact, presents focused coverage of global business as it relates to managerial improvements and considerations in the workplace. In Assessment Strategies for Servant Leadership Practice in the Virtual Organization, Darin R. Molnar writes about “servant leadership,” a method gaining popularity in recent decades as a management technique, and its integration into virtual organizations. Prioritizing Corporate R&D Capabilities by Hui-Ru Chi, Pei-Ju Yu, and Yuan-Chieh Chang offers strategies and lessons learnt about the importance of research and development, with surveys from managers of different industries relaying their findings. An always vital topic in management is succession, and Managerial Succession and E-Business by Anthonia Adenike Adeniji closes out section 6.
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Section 7, Critical Issues, addresses vital issues related to global business, including ethics, security, digital divide, intellectual capital, the role of culture and gender, and business as social enterprise. The section has a broad range of critical, theoretical, and analytical topics, and closes out with two fascinating chapters: Against Strong Copyright in E-Business by D. E. Wittkower and The Structure of Theory and the Structure of Scientific Revolutions by Steven E. Wallis. These two chapters take sometimes marginalized or ignored topics and show their vital relevance to global business as ways of understanding how such things as intellectual property or organizational (r)evolution can inhibit or shape growth. Section 8, Emerging Trends, highlights areas for future research within the field of global business, while exploring new avenues for the advancement of the discipline. This section holds chapters such as The Global Telecommunications Industry Facing the IP Revolution by Harald Gruber, discussing how Internet Protocols are changing, and what businesses inside and outside the telecommunications industry must do to adapt and grow. Another emerging topic is covered in Organizational Password Policy by Alex Ozoemelem Obuh and Ihuoma Sandra Babatope, wherein the authors discuss the importance of keeping strict security measures such as password protection within businesses. As technology expands, and knowledge management grows into distance learning and cultural integration, chapters such as Tailor-Made Distance Education as a Retention Strategy: The “Learning at the Workplace” Program in Thailand by Prathurng Hongsranagon become vital resources for managers of global businesses. Although the primary organization of the contents in this multi-volume work is based on its eight sections, offering a progression of coverage of the important concepts, methodologies, technologies, applications, social issues, and emerging trends, the reader can also identify specific contents by utilizing the extensive indexing system listed at the end of each volume. Furthermore to ensure that the scholar, researcher, and educator have access to the entire contents of this multi volume set as well as additional coverage that could not be included in the print version of this publication, the publisher will provide unlimited multi-user electronic access to the online aggregated database of this collection for the life of the edition, free of charge when a library purchases a print copy. This aggregated database provides far more contents than what can be included in the print version, in addition to continual updates. This unlimited access, coupled with the continuous updates to the database ensures that the most current research is accessible to knowledge seekers. As a comprehensive collection of research on the latest findings related to multinational and multicultural enterprises, Global Business: Concepts, Methodologies, Tools and Applications, provides researchers, administrators, and all audiences with a complete understanding of the development of applications and concepts in global business. Given the vast number of issues concerning usage, failure, success, policies, strategies, and applications of global business in organizations, Global Business: Concepts, Methodologies, Tools and Applications addresses the demand for a resource that encompasses the most pertinent research in global business development, deployment, and impact.
Section I
Fundamental Concepts and Theories
This section serves as a foundation for this exhaustive reference tool by addressing crucial theories essential to the understanding of global business. Chapters found within these pages provide an excellent framework in which to position global business within the field of information science and technology. Insight regarding the critical incorporation of global measures into global business is addressed, while crucial stumbling blocks of this field are explored. With a little over 10 chapters comprising this foundational section, the reader can learn and chose from a compendium of expert research on the elemental theories underscoring the global business discipline.
1
Chapter 1.1
Marketing Strategy, Technology and Modes of Entry in Global Retailing Rajagopal Monterrey Institute of Technology and Higher Education, ITESM, Mexico
A firm, which would like to involve itself in the international business, may look for its entry into international marketing in many possible ways including exporting, licensing, franchising, or as a production firm with multi-national plant locations. However, at any level of market entry the managerial trade-off lies between extent of risk and operational control. The low intensity modes of entry minimize risk e.g. contracting with a local distributor requires no investment in the destination country market as the local distributors may own offices, distribution facilities, sales personnel, or marketing campaigns. Under the
normal arrangement, whereby the distributor takes title to the goods or purchases them as they leave the production facility of the international company, there is not even a credit risk, assuming that the distributor has offered a letter of credit from his bank. At the same time such arrangement to enter a destination country may minimize control along with the risk factor. In many cases, lowintensity modes of market participation cut off the international firm with information network while operational controls can only be obtained through higher-intensity modes of market participation, involving investments in local executives, distribution, and marketing programs.
DOI: 10.4018/978-1-60960-587-2.ch101
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Marketing Strategy, Technology and Modes of Entry in Global Retailing
Breakfast cereal, a relatively new introduction to the Bulgarian market, is the fastest growing sector in the Bulgarian bakery products market. According to a research study (Euromonitor, 2006), ready-to-eat breakfast cereals grew by 90 percent in value terms during 2000-2005 and the market grew by approximately 14 percent just in 2005. Despite this impressive growth, cereal consumption in Bulgaria is low compared to other countries, which illustrates the immaturity of the market and its potential for the future. Besides the “novelty” of breakfast cereals, a key reason for the success of breakfast cereals in Bulgaria is their healthy image, which manufacturers have carefully created by illustrating that their products are part of a balanced diet. Although the concept of health and wellness is growing in popularity in Bulgaria, consumers still need additional education on the subject. The foreign cereal manufacturing companies like Nestle, Kraft, Kellogg and General Mills etc. have therefore invested heavily in radio and television advertising to promote a healthy image for their products and attract health conscious consumers. These companies have also set up demonstrations in supermarkets that are designed to educate consumers on the health benefits of breakfast cereals. By using samples and other promotional materials, manufacturers have tried to inspire trials and eventually repeat purchases of their products. These campaigns mainly targeted the bigger cities, where consumers are generally more willing to try new products. The entry of foreign brands in the breakfast cereals in Bulgaria is further moved ahead by the fast expansion of supermarkets and the development of this distribution channel over the next several years will play a crucial role in making breakfast cereals more widely available (Euromonitor, 2006). Many companies begin their internationalization opportunistically through a variety of arrangements that may be described as “piggybacking,” because they all involve taking advantage of a channel to an international market rather than se-
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lecting the country-market in a more conventional manner. Piggybacking is an interesting development. The method means that organizations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally these would be geographically adjacent or able to be served, say, on an air route. The fertilizer manufacturers of Zimbabwe, for example, could piggyback with the South Africans who both import potassium from outside their respective countries. Such practices may be noticed as American breakfast cereal products like Post from the owners of the leading US brand, which entered in the Mexican market via their subsidiary Kraft rather than direct from USA, thus leading to the rather bizarre situation of packs of breakfast cereals with English language packaging covered with stickers in Spanish. The most common form of piggybacking is to internationalize by serving a customer who is more international than the vendor firm. Thus, a customer requests an order, delivery, or service in more than one country, and the supplier starts selling internationally in order to retain the customer and increases its penetration of the account. This is particularly common in the case of businessto-business companies and technology-oriented start-ups (Arnold, 2003). The innovative concept of market entry strategy is based on moving with consumer space which indicates that foreign firms enter the destination market by developing adequate consumer awareness on the products and services prior to launch. This strategy is followed largely by the fast moving consumer goods manufacturing companies and such practice is termed as go-to-market strategy. Go-to-market planning enables the firm to achieve higher margins, accelerated revenue growth and increased customer satisfaction through existing sales channels. An effective go-to-market strategy aligns products & services, processes, and partners with customers and markets to deliver brand promise, the desired customer experience, and tangible value. Go-to-
Marketing Strategy, Technology and Modes of Entry in Global Retailing
market strategy services help technology suppliers overcome market challenges. Anti-ageing products are driving growth in Hong Kong’s skin care market, on the back of increasing consumer interest in premium products and the development of consumer-focused cosmetics retailing. Consumer interest in premium products has been spurred, in part, by recent media reports on the safety of chemicals present in some skin care products. Catching on to this consumer trend, manufacturers have been introducing more premium anti-ageing products containing rare ingredients, and products benefiting from more advanced technology, to the market. This has generated greater consumer interest in premium quality products and has provided a further boost to the market. Guerlain, for example, is expected to launch a new skin care cream in 2006, which is based on a rare orchid extract and is expected to retail for more than US$350. Further, a recent entrant to Hong Kong’s skin care market, Sulwhasoo which is a premium herbal based brand from Amore Pacific of Korea that draws on Oriental medicine by using a unique compound of five herbs to deliver a range of products targeted at women over 35. The value driver of growth in the anti-ageing products market in Hong Kong is the trend towards concept stores and beauty boutiques, which are retail outlets designed to emphasize the experiential aspects of premium cosmetic products. Developed to attract new customers and gain their loyalty in Hong Kong’s increasingly competitive market, these brandspecific beauty salons and spas, not only engage in a highly personalized product sales process, but also provide make-up and skin care services. Since 2004, major players, such as Kose, L’Oréal, H2O and cult brand Aesop, have set up concept stores around the city, in the hopes of developing a loyal customer base (Hofmann, 2006). Such retail strategy where concept of the product is delivered with practical experience on it establishes the goto-market strategy on consumer space.
Some firms who are aggressive have clearly defined plans and strategy, including product, price, promotion, and distribution and research elements. Passiveness versus aggressiveness depends on the motivation to export. In countries like Tanzania and Zambia, which have embarked on structural adjustment programs, organizations are being encouraged to export, motivated by foreign exchange earnings potential, saturated domestic markets, growth and expansion objectives, and the need to repay debts incurred by the borrowings to finance the programs. The type of export response is dependent on how the pressures are perceived by the decision maker. The degree of involvement in foreign operations depends on “endogenous versus exogenous” motivating factors, that is, whether the motivations were a result of active or aggressive behavior based on the firm’s internal situation (endogenous) or a result of reactive environmental(exogenous) changes (Piercy, 1982). There is certainly no single strategy that fits all firms, products and markets. The competitive strategy for an established firm to start a new venture and launch a new product must be shaped by the characteristics of the firm, the market, and other environmental factors. Market entry through expansion of the company draws many challenges to firms considering new business options. Capitalizing on overseas markets often opens doors to new levels of top and bottom line growth. Moreover, introducing a new product or service into a new market is an even bigger strategic challenge. A Successful Entry strategy may conceptualize and implement well structured entry processes to drive future growth, explore diversified stream of revenues and augment profit margins. It also addresses new competitors, customers, partners, suppliers and other market dynamics. However, there are five major modes which a foreign firm may apply to enter in the international markets. These modes of entry include exporting, contractual agreement, joint venture, strategic alliance and wholly owned subsidiaries.
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
EXPORTING A firm may organize indirect export through the intermediaries or export agents of the parent country. On the contrary, in direct exporting foreign markets are reached by exporters through agents located outside their parent markets. Exporting is a low risk-low investment strategy wherein a company may minimize the risk of dealing internationally by exporting domestically manufactured products either by minimal response to inquiries or by systematic development of demand in foreign markets. Exporting activity requires small capital for quick start. Exporting is also a good way to gain international experience. A major part of the overseas involvement of large firms is through export trade managed by the various channels involved in the process. The channels involved in direct and indirect exporting are listed in Table 1. Some companies, which occasionally carry out export activities typically, use the services of the broker. Brokers are the middlemen who bring buyers and sellers in contact for a negotiated commission or brokerage. They are just the trade facilitators and do not take the ownership of the product. These brokers operate in international markets independently and do not belong to any firm. The manufacturer’s export agent (MEA) may be an exclusive agent engaged by the firm to offer services as desired by the firm. The MEA’s are vested with the right to take marketing decisions on behalf of the firm, arrange negotiations Table 1. Export Channels Indirect Exporting
Direct Exporting
Broker
Representative
Manufacturer’s Export Agent
Merchant Middlemen
Combination Export Manager
Company Sales Manager
Group Export Forum
Own Distribution Network
Domestic Middlemen Company Based Managers
4
and trade agreements and the delivery of the consignment to the buyer. The Combination Export Manager (CEM) provides services over and above the broker and the MEA by way of taking over the entire export operations of a firm on a commission basis. The export operations involve a variety of activities like identifying the country, markets, analyzing consumer behavior, product designing, technological improvements, competitive pricing, distribution, promotion, negotiations with the governments of countries, public relations and collecting marketing information. The group export forums are associations of exporters who collectively manage to export activities. These forums are recognized by the government of the parent country and provide admissible concessions on export activities like licensing, taxes and duties infrastructure, etc. Middlemen who have base in the parent country of the exporting firm also function as one of the channels for indirect exports. The company based managers are the salaried personnel of the exporting firm and possess the responsibility of total export management. In direct exporting activities, the firm appoints its own export representatives for conducting the export operations in the respective markets or countries. The Merchant Middlemen are a type of intermediary based in foreign markets that buy products on their own and resell these to the identified countries functioning with substantial operational managers. They may also take up export activities without involving any indirect channel. Such offices may also be networked as an effective distribution channel for a region in order to cater to identify countries thereof. Li & Fung, Hong Kong’s largest export trading company, has been an innovator in supply-chain management. It performs the higher-value-added tasks such as design and quality control in Hong Kong, and outsources the lower-value-added tasks to the best possible locations around the world. To produce a garment, for example, the
Marketing Strategy, Technology and Modes of Entry in Global Retailing
company might purchase yarn from Korea that will be woven and dyed in Taiwan, then shipped to Thailand for final assembly, where it will be matched with zippers from a Japanese company. The corporate philosophy of Li & Fung envisages that for every order, the goal is to customize the value chain to meet the customer’s specific needs. The organizational approaches that keep the company towards growth in profits and size largely set around small customer-focused units, competitive incentives and compensation structure and it’s leaning towards of venture capital strategy as a vehicle for business development (Fung and Margaretta, 1998). The company operates in partnership with customers to cater to their needs of competitive pricing, quality, on-time delivery, as well as ethical sourcing. The company manages the logistics of producing and exporting private label consumer goods across many producers and countries1. The firms choosing to enter the international markets through exporting activities may choose to engage the goods listed under open general license which does not involve heavy documentation process. However the goods that are not controlled, regulated or prohibited by other government departments need to be reported to customs prior to export by means of export declaration. On the contrary regardless of their value, export of all goods that are controlled, regulated, or prohibited need to be supported by valid permits, licenses, or certificates required by the government departments or agencies that regulate the export of these goods. A firm also opts for direct exporting as a platform to enter into the destination country. This approach is the most ambitious and difficult as the exporting firm handles every aspect of the exporting process independently from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach
may lead to maximum profits, higher control and long-term growth.
CONTRACTUAL AGREEMENT There are several types of contractual agreements including patent licensing agreement, turnkey operation, co-production agreement, management contract, and licensing. The patent licensing agreement is based on either a fixed fee or a royalty-based agreement and delivering managerial training on manufacturing and quality control process. The plant construction, personnel training, and initial production runs on a fixed-fee or cost-plus arrangement are be covered under turn-key operation agreement. The co-production agreement was one of the popular practices among the Soviet-bloc countries, where plants were built and then paid for with part of the output. In the Middle East, the management contract requires that an MNC provide key personnel to operate the foreign enterprise for a fee until local people acquire the ability to manage the business independently.
LICENSING This is one of the common tools of franchising a firm to set quality and operational control standards. In the past, multinational companies used licensing for many reasons. One of the major reasons may be towards the use of a trade mark of the company. Licensing may be understood as one of the varieties of contractual agreements whereby a multinational firm makes available intangible assets such as patents, trade secrets, know-how, trademarks, and company name to foreign companies in return for royalties or other forms of payment. Transfer of these assets is usually accompanied by technical services to ensure their proper use. It also helps in regulating the import and export operations of firms in
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
such countries or regions where trade restrictions prohibit the movement of products. Some of the advantages of licensing are as follows: •
• •
•
•
•
•
•
•
Licensing is a quick and easy entry tool with little capital investment in the foreign markets Some countries offer licensing as the only means of tapping the market. Licensing is also considered to be an effective tool for life extension of products during their stage of maturity in order of their life cycle. Licensing is a good alternative to start foreign production and marketing activity in a destination country which has economic inflation, shortages of skilled-labor, increasing domestic and foreign governmental regulation and restriction, and severe international competition. In the licensing arrangement periodic royalties are guaranteed, whereas shared income from investment fluctuates and stays risky. The company which has strong domestic base can benefit through licensing arrangement in developing customized products without expensive research. Licensing provides an alternative when exports are no longer profitable because of intense competition. Licensing can reduce transportation costs and help promoting exports in non-competitive markets. One of the major advantages of licensing is the immunity over stringent political intervention as expropriation.
On the contrary, the economic liberalization policy envisages the de-licensing of goods and services (notified) for mutual business growth. Under contract manufacturing, a firm gets its products manufactured by an independent local firm as per the agreement. Such export mecha-
6
nism is chosen by the firms typically where the marketing potential seems to be low with tariff walls that are too high. Assembling involves the import of raw material and mechanical parts for manufacturing any product. Such an operation is usually labor intensive, despite high capital investment in business. This mode of entry into international marketing would be advantageous in countries which do not impose heavy import duties and which encourage free exports. Assembling firms take the benefit of low wage rates by shifting labor intensive operations to the foreign market that results in a lower final price of the product. Largely, local laws of a country play a big role in the decision-making for setting up an assembling unit in foreign country. Procter & Gamble offered most of its exceptional growth through continuous innovation and building global research facilities. The company lagged behind in achieving its growth objectives by spending greater and greater amounts on research and development for smaller and smaller payoffs during 2000. This situation revolutionized the strategic management process of the company to dispense with the company’s age-old invent it ourselves approach and reorient to innovation following connect and develop model. Now, the company collaborates with suppliers, competitors, scientists, entrepreneurs, and others, systematically scouring the world for proven technologies, packages, and products that P&G can improve, scale up, and market, either on its own or in partnership with other companies. Connect and develop approach, brought P&G an increase of about 60 percent productivity through research and development. In the past two years, P&G launched many new products for which some aspect of development came from outside the company (Hustom and Sakkab, 2006). Among most successful connect-and-develop products of the company include Oil of Olay, Tide, Crest dental products and Mr. Clean Magic Eraser. The success of this strategy further revealed in
Marketing Strategy, Technology and Modes of Entry in Global Retailing
launching a unique portfolio in the US Market. The company that revolutionized the laundry industry with the launch of Tide(R) in 1946 has begun offering an on-premise laundry (OPL) and daily cleaners program to hotels in select markets across the United States. Marketed under the P&G Pro Line(TM) brand name, the Lodging Program aims to leverage reputation of the company as a leader in home and commercial cleaning products to help hotel housekeeping staffs discover how the company’s top- performing brands maximize productivity and increase guest satisfaction. The program is built around popular householdname laundry brands including Tide, Downy(R), and Clorox(R) Bleach, as well as daily cleaners including Spic and Span(R) 3-in-1 Disinfecting All-Purpose Spray and Glass Cleaner and Comet(R) Disinfecting Bathroom Cleaner. The Lodging Program presents an alternative to the housekeeping departments of lodging establishments (Proctor and Gamble, 2005). Technology licensing is a contractual arrangement in which the licensor’s patents, trademarks, service marks, copyrights, trade secrets, or other intellectual property may be sold or made available to a licensee for compensation that is negotiated in advance between the parties. A technology licensing agreement usually enables a firm to enter a foreign market quickly, and poses fewer financial and legal risks than owning and operating a foreign manufacturing facility or participating in an overseas joint venture. In considering the licensing of technology, it is important to remember that foreign licensees may attempt to use the licensed technology to manufacture products in direct competition with the licensor or its other licensees.
FRANCHISING Franchising is not a business itself, but a way of doing business. It is essentially a marketing
concept introducing an innovative method of manufacturing and distributing goods and services. Franchising is a business relationship in which the franchisor (the owner of the business providing the product or service) assigns to independent entrepreneur (the franchisee) the legal right to manufacture, market and distribute the franchisor’s goods or service using the brand name for an agreed period of time. The International Franchise Association defines franchising as a continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing training, merchandising and management in return for a consideration from the franchisee. Franchising has become popular because it allows a much greater degree of control over the marketing efforts in the foreign country. In franchising, product lines and customer service are standardized, two important features from a marketing perspective though cultural differences might require adaptation. Franchising can offer people looking at self-employment a greater chance of success than starting their own businesses, but it is a path that many people are not aware is open to them. A franchisor’s main ongoing commitment to his franchisees is to provide support. A support program should be well defined prior to joining a given franchise group and is likely to cover areas such as staff issues, marketing and system compliance. There are four possible models of franchising as discussed below: •
•
•
Manufacturer-Retailer: Where the retailer as franchisee sells the franchisor’s product directly to the public. (e.g. Automobile dealerships). Manufacturer-Wholesaler: Where the franchisee under license manufactures and distributes the franchisor’s product (e.g. Soft drink bottling arrangements). Wholesaler-Retailer: Where the retailer as franchisee purchases products for retail sale from a franchisor wholesaler. (e.g.
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
•
Hardware equipments and automotive product stores) Retailer-Retailer: Where the franchisor markets a service, or a product, under a common name and standardized system, through a network of franchisees.
The first two categories cited above are often referred to as product and trade name franchises. These include arrangements in which franchisees are granted the right to distribute a manufacturer’s product within a specified territory or at a specific location, generally with the use of the manufacturer’s identifying name or trademark, in exchange for fees or royalties. The business format franchise, however, differs from product and trade name franchises through the use of a format, or a comprehensive system for the conduct of the business, including such elements as business planning, management system, location, appearance and image, and quality of goods. Papa John’s has recently expanded its business in Edinburgh and Glasgow (UK). Its new-look stores compete with more established names like Pizza Hut and Domino’s Pizza. The competition in the fast food market is fierce and challenging for potential franchisees. Papa John’s operates a comprehensive marketing and public relation campaign for all stores. Launch events typically include a ‘grand opening’ day with entertainment, free pizzas and visits from local dignitaries. It also runs national marketing campaigns and special offers, backed up by a marketing team to help franchisees promote their stores at a local level. Franchisees can expect to pay extra for those services. The prospective franchisees need to undergo three stages interview process which include an initial telephone interview to ascertain suitability and solvency of applicants, an informal meeting and presentation of factual details including an outline of potential working hours and staffing requirements and a more formal gathering to discuss site positioning and
8
to release paperwork, including a legal/franchise agreement and a business plan template to present to the bank. The company has proposed a 5 percent royalty fee on the store’s weekly net sales figures, and a 4 percent marketing fee is also charged on its weekly net sales2. •
•
•
•
•
•
•
The franchisor provides detailed consultation and training in operating the business as well as choosing locations for the business The franchisee benefits from operating under the established brand image and reputation of the franchisor The franchisees usually need less capital than they would if they were setting up a business independently because the franchisors, through their pilot operations and buying power, will have eliminated unnecessary expenses. The franchisor helps the franchisee obtain occupation rights to the trading location, comply with planning (zoning) laws, prepare plans for layouts, plans ergonomics and refurbishment, and provide general assistance in calculating the correct level and mix of stock for the opening launch of the business. The franchisee taps into the bulk purchasing power and negotiating capacity made available by the franchisor by reason of the size of the franchised network. The franchisee has access to use of the franchisor’s patents, trade marks, copyrights, trade secrets, and any secret processes or formulae. The franchisee has the benefit of the franchisor’s continuous research and development programs, which are designed to improve the business and keep it up-to-date and competitive.
Marketing Strategy, Technology and Modes of Entry in Global Retailing
One of the drawbacks of franchising is the need for careful and continuous quality control. Such close supervision of the various aspects of distant operations requires well-developed global management systems and labor-intensive monitoring. Inevitably, the relationship between the franchisor and franchisee must involve the imposition of controls. These controls will regulate the quality of the service or products to be provided or sold by the franchisee to the consumer. As the effective managerial skills are required, international franchising has become successful largely among those enterprises which have long experience with franchising at home before venturing out in international markets.
JOINT VENTURES A joint venture involves partnership between two or more business firms interested in pooling their resources and expertise to achieve a common goal. The risks and rewards of the enterprise are also shared. The reasons for forming a joint venture may include business expansion, development of new products or moving into new markets, particularly overseas. The joint venture may offer more resources, increased capacity of production, enhanced technical expertise and established markets and distribution channels. Entry into an international market would be possible either as a wholly owned subsidiary of any firm or as a joint venture. Joint ventures provide the best partnerlike manner of obtaining foreign trade income the firm chooses to begin a business relationship with a firm in the host country. These two partners could agree upon a contract setting out the terms and conditions of how this will work. Alternatively, joint ventures may be set up as a separate joint venture business, possibly a new company. A joint venture company can be a very flexible option wherein partners own substantial resources in the company, and agree on a managing strategy. Firms of any size can use joint
ventures to strengthen long-term relationships or to collaborate on short-term projects. A successful joint venture can offer: • • • •
Access to new markets and distribution networks Increase in production capacity Risk sharing and control process policies among business partners Working with specialized staff and technology
However, partnering in business may also be complex. It may consume time and effort to build the right relationship while operational problems may grow with the following ideological and functional discrepancies: •
•
•
•
The objectives of the venture are not clear and communicated among the partnering firms There exists an imbalance in levels of expertise, investment or assets set into the venture by the different business partners Coordination problems of cross- cultural issues and management styles affecting the functional integration and workplace co-operation Lack of sufficient leadership and support in the early stages
Success in a joint venture depends on thorough research and analysis of aims and objectives. This should be followed up with effective communication of the business plan to everyone involved. International joint ventures are used in a wide variety of manufacturing, mining, and service industries and frequently involve technology licensing. The company looking for a joint venture invites foreign firms by issuing by a regional or global invitation to share stock ownership in the new unit. However, the control of the unit will rest with the companies accepting either a minority or a majority position. Largely, multi-national
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
companies prefer wholly owned subsidiaries for effective control. A major potential drawback of joint ventures, especially in countries that limit foreign companies to minority participation, is the loss of effective managerial control. This can result in reduced profits, increased operating costs, inferior product quality, exposure to product liability, and environmental litigation and fines. When firms decide to create a joint venture, the terms and conditions need to set out in a written agreement. This will help prevent any misunderstandings once the joint venture is up and running. A written agreement should cover: • • •
• • • •
• •
•
The structure of the joint venture The objectives of the joint venture Financial contributions, liabilities, distribution of profit, and other matters related to corporate finance and accounts Protocol on transfer assets or employees in or out of the joint venture Ownership of intellectual property created by the joint venture Management and control of operational issues Responsibilities, tasks and processes to be followed in production and operations activities Protocol on managing liabilities, sharing of profits and losses Policy and process of disputes settlement between the partnering firms in the joint venture, and Exit policies to being the joint venture to an end and cause and effect management at post-closure.
Ranbaxy Laboratories Limited (Ranbaxy) has raised its equity stake in Nihon Pharmaceutical Industry Co., Ltd. (NPI), a Joint Venture between Ranbaxy and Nippon Chemiphar Co. Ltd. (NC), from the present 10% to 50%. With this enhancement, NPI will become a 50:50 Joint Venture
10
between Ranbaxy and NC. Ranbaxy and NC have signed the agreement on November 11, 2005. The increasing financial stakes of Ranbaxy in the shareholding of the joint venture reinforces the Company’s strong commitment to the Japanese market. Further, the new structure recognizes the equal commitment of both partners and their intent to grow the generics business in Japan, in a collaborative manner. Ranbaxy and NPI have had a successful relationship. This logical move by Ranbaxy to enhance its stake flows from the increased comfort level of both partners and take the business to higher levels of performance. The 50:50 JV exemplifies the synergy and the strengths, which the respective companies bring to the Joint Venture. In Japanese ethical pharmaceutical industry, NC is one of the first companies to recognize the importance of generics and to make the generic business a pillar of the company’s business. NC intends to be a leading company in Japan’s generics market. Both partners have a complementary role to play. NC provides the regulatory know how and in-depth knowledge of the Japanese market, while Ranbaxy brings to the table, its diversified and rich generics product pipeline along with its astute understanding of the global generics business3. Smaller firms often want to access a larger partner’s resources such as a strong distribution network, specialist employees, and financial resources. The larger company might benefit from working with a more flexible, innovative partner or simply from access to new products or intellectual property (IP). Joint ventures offer mutual advantages for domestic and foreign firms to operate in a global competitive business environment sharing both capital and risk and by making use of mutual technical potentials. Japanese companies, for example, prefer entering into joint ventures with American firms as such arrangements help them to ensure against possible trade barriers. American firms, on the other hand like to venture with Japanese firms to explore product innovation
Marketing Strategy, Technology and Modes of Entry in Global Retailing
at low-cost Japanese manufacturing technology, and make pace to enter a wide Asian market. The joint venture in this ways helps both the international firms to utilize established channels and to outperform potentially tough competitors in respective countries. House Foods and Takeda Pharmaceutical have signed a joint venture agreement on their beverage and food businesses. Under the terms of the agreement, the two companies will establish a new company, House Wellness Foods Corporation, with a capital of 100 million yen ($840,000), on April 2006. House Foods will have a 66% stake in the new company while Takeda Pharmaceutical will retain the remaining 34%. After the initial 18-month joint venture period, the new company will become a wholly owned House Foods subsidiary (Tsukioka, 2006). A joint venture serves as a center of resource appropriation and making a foreign firm’s entry into a new terrain easier than other modes. It should not be viewed as a handy vehicle to reap money without effort, interest, or additional resources. In view of the above benefits, the joint ventures stand as a popular mode to seek entry in a foreign country.
STRATEGIC ALLIANCE A strategic alliance for international marketing is developed by pooling resources directly in collaboration. This strategy is more advantageous than joint venture. In this process the business partners bring together the specific skills of production, marketing and control in order to maximize their profit and have a major stake in the international business scenario. Many organizations have come to rely on alliances with key players in the marketplace as strategic ventures for maintaining a competitive advantage. These key relationships can help foster organizational learning, thus giving an edge over the competition. This serves as a primary motivation for alliance formation. A new trend of collaborative strategy in international business has gained popularity based on strategic
alliance through which leading firms, particularly in high-tech industries gain mutual benefit. Strategic alliances are partial merger, but have comprehensive impact on the performance of the firm. They involve mutual dependence and shared decision making between two or more separate firms. Strategic alliances differ from joint ventures as they encompass selected activities within time limits. Strategic goals pursued through strategic alliances are product exchange or supply alliances, learning alliances in research and development and market positioning alliances (Schoenmakers and ╯Duysters, 2006). There are some important types of alliance that can be set-up for optimizing the business. They are: • • • •
Technology based alliances Production based alliances Distribution based alliances Resource based alliances
One way for a firm to enter into a foreign market is to create a strategic alliance. A global strategic alliance is an agreement among two or more independent firms to cooperate for the purpose of achieving common goals such as a competitive advantage or customer value creation. Strategic partnerships may emerge in many forms including research and development consortium, co-production alliance, co-marketing partnerships, cross-licensing and cross-equity arrangements. Such alliances do not result in formation of a separate corporate entity but equity joint ventures form new strategic allies as legal entities to do specified business. The emergence of strategic alliances in Canada and other industrialized countries are related to economies of scale or scope, resource pooling, and risk and cost sharing among alliance partners. They include globalization of the world economy, systemic technological change, and the growing acceptance of the view that competition, by itself, does not necessarily ensure optimum, innovation-led growth. While international alliances provide firms with strategic flexibility, enabling
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
them to respond to changing market conditions, they can also be effective paths for achieving global scale in enterprise operations along with mergers and acquisitions and green field investment. The driving forces behind international strategic alliances include cost economizing in production and research and development, strengthening market presence, and accessing intangible assets (NamHoon and Kentaro, 2005). In the recent trends of globalization, the practice of entering the international market through such alliances seems to be gearing up along with political support from developing countries. However, the companies having a larger share in the international market still reserve the right to entertain or not, any such alliances. Strategic alliances offer many advantages in business, of which some significant ones are as indicated below: •
• •
•
•
The organizational efficiency will be improved with the flexibility and informality in strategic alliances Alliances developed strategically offer access to new markets and technologies The risk and expenses are shared among the allies reducing the impact of risk on the participating members The alliance would help the partners build their independent brand and manage retailing of goods and services Alliances can take various forms, from simple research and development deals to heavy budget projects.
Strategic alliances are especially useful for seeking entry into emerging markets. Foreign firms in emerging markets seek to optimize the market performance in global economy and strategic alliances appear to be the obvious solution for mutual benefit. Given this pattern of benefit, the strategic alliances of US and European manufacturing firms account for over half of the market entries into Latin America and Asia.
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ING is one of the largest financial services companies among the prominent global firms, offering banking, insurance and asset management in over 50 countries. It has spread over its business to 60 million private, corporate and institutional clients in 60 countries with a workforce of over 115,000 people as in 2003. ING was founded in 1991 by a merger between Nationale-Nederlanden and NMB Postbank Group to become the first bancassurer of Netherlands. During the past 15 years ING has become multinational with very diverse international activities. The company holds insurance operations and asset-management activities in the Americas. It is well-established in the United States with retirement services, annuities and life insurances and has leading positions in non-life insurance in Canada and Mexico. Furthermore, the company is active in Chile, Brazil and Peru. The operating profits for the company in Americas have been increasing in €1310 million in 2003 to €1669 in 2004 before tax. In 2004, ING successfully repositioned itself in the wholesale banking market. The insurance business of the company in the Netherlands introduced a far-reaching plan to improve its customer service, with positive results so far. The business lines of the company further sharpened their focus on profitable top line growth, managing costs and risks and showing good bottom-line results. These four pillars are all equally important to generate above-average returns for shareholders. ING has diversified business activities in developing markets which offer a broad range of services in the fields of banking, insurance and asset management and has made its identity obvious in Asia/Pacific, Latin America and Central Europe amidst the competing local and multinational companies. In Latin America, ING is the largest insurer in Mexico and has important businesses in Chile and Brazil (Rajagopal, 2005). The convergence of business practices of the partnering firms often emerges as a major challenge to perform the alliance task as in interna-
Marketing Strategy, Technology and Modes of Entry in Global Retailing
tional business arena partnering firms belong to different socio-cultural environments. Alliance managers must make difficult decisions about when to partner and with whom, as well as how to structure and manage the partnership. Managers who can leverage information and knowledge across each stage of the alliance process will find that a knowledge-based approach is critical to the success of any partnership. In U.S.-Japanese alliances in the past, for example, Japanese companies saw these partnerships as a way to learn from their partner, while their U.S. counterparts used these alliances as a substitute for more competitive skills, ultimately resulting in an erosion of their own internal skills. Therefore, with companies that look on alliances as a way of learning from their partners, practices that enable knowledge sharing, creation, dissemination and internalization become critical (Parise Salvatore╯and╯Sasson, 2002). Cisco Systems and Polycom Inc. have a strategic agreement for joint development, licensing, and sales of Internet protocol (IP) telephony solutions. The objective of the alliance is to deliver enhanced IP telephones to enterprise customers; this agreement combines Polycom’s leadership in audio conferencing technologies and Cisco’s industry-leading expertise in IP networking and IP telephony. Based on this agreement, Polycom and Cisco have brought a Voice over IP (VoIP) conference phone to market that provides customers with industry-leading group conferencing capabilities within the Cisco IP Telephony environment4.
WHOLLY-OWNED SUBSIDIARIES The multi-national companies also plan to enter into a new international market establishing themselves in overseas markets by direct investment in a manufacturing or assembly subsidiary company. In view of the frequently changing economic, social and political conditions globally, these wholly-owned subsidiaries are highly risk averse. A wholly owned subsidiary in manufacturing can
involve investment in a new manufacturing or assembly plant or the acquisition of an existing plant (such as Coca-Cola Company purchases local bottling plants in developing countries). The presence of actual manufacturing operations helps support marketing activities. As manufacturing is established abroad through direct investment, parts and components are often exported from the home country. Besides manufacturing subsidiaries, establishing a sales subsidiary requires relatively low levels of capital investment which leads to low risk. HP Financial Services has emerged in 2002 as the parent company Hewlett Packard’s (HP) new leasing and financial services subsidiary. HP Financial Services (HPFS) is designed to enhance the worldwide sales efforts of the parent company by delivering a broad range of financial services and asset management capabilities that can positively impact the customer and partner relationships and shareowner value of the parent company . The HPFS represents approximately 4 percent of total revenue of parent company. This new subsidiary brings a centralized business model for the financial services offered to customers as part of a total HP solution5. Cadbury has played an excellent strategic move by acquiring Green & Black’s (G&B), organic food products, which has been leading with 90 percent market share in organic chocolates. In the global marketplace for organic products, the organic chocolate market in United Kingdom was worth £24 million in 2004 and growing on an average by a phenomenal 30% each year since 2002. With this acquisition G &B has enabled Cadbury to enter both the organic and premium chocolate markets, which are growing faster than chocolate confectionery overall, with a well-established brand that already enjoys significantly wider distribution than many other organic products. G & B is the fastest growing chocolate confectionery brand in the UK and will also benefit from Cadbury’s strong presence in impulse channels such as newsagents, where distribution of their products
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
is still relatively weak. Nonetheless the company’s sales have more than quadrupled between 2001 and 2004 thanks to a combination of other factors, including good distribution across various channels from foodservice to supermarkets, the premium image of the brand and the company’s fair trade policies (Benkouider, 2005). The parent ventures, which are managed by wholly-owned subsidiaries, are more successful than shared management ventures, where both companies-parent and subsidiary-contribute on operational strategies. Problems often arise in shared situations because managers of international ventures have communication problems and different attitudes regarding time, job performance and the desirability of change (Killing, 1982). Firms become multinational companies by setting up manufacturing or marketing subsidiaries overseas and transferring knowledge, which embodies its advantage, from one country to another. That is, knowledge flows from headquarters to overseas subsidiaries. Venturing is serious business, requiring skill, patience, and entrepreneurial flair. Most new ventures involve entering unfamiliar markets, employing unfamiliar technology, and implementing an unfamiliar organizational structure. An approach of particular promise is the new-style joint venture, in which a small company with vigor, flexibility, and advanced technology joins forces with a large company with capital, marketing strength, and distribution channels (Rajagopal, 2006). In order to determine the fit between the parent company and its subsidiaries, corporate strategists should evaluate the operational areas which includes the critical success factors of the business, the parenting opportunities in the business, organizational attributes of the parent company, and the financial results (Campbell et al, 1995).
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DEVELOPING ENTRY PLAN An international marketing plan is prepared considering various factors that determine marketing functions across various countries. However, the marketing plan primarily needs to be designed considering the principal business components as stated below: • • • •
•
Commitment on decisions taken by the marketing firm Selection of country or cluster of countries (trade region) Mode of entry in the market Appropriate marketing strategy in tune to the marketing environment of the identified country or region. Building effective marketing organization
The selection of a country is a critical exercise that involves the examination of all the above variables besides undertaking the demand analysis and financial estimates. The commitment of the firm to its trading decisions in the selected country, cost-benefit ratio study, and market operational methods largely determine the mode of entry of the firm into the international marketing avenue. The marketing strategy needs to be evolved assessing the objectives of the firm in the local markets in order to acquire differential advantage. Once the marketing-mix is critically analyzed, an implementation strategy can be formulated by the marketing firm. However, to ensure effective implementation of marketing policies, the marketing organization needs to be strengthened first. The decentralized organizational structure at regional levels (like Central Asia, South-East Asia, Middle-East, Far-East, etc.) would be appropriate for a marketing firm when planning for international marketing in more than one country. Such an organizational set-up would facilitate monitoring of demand, supply, price trend and political interventions more comprehensively. The centralized set-up would be of greater cost
Marketing Strategy, Technology and Modes of Entry in Global Retailing
but less effective in exercising the marketing implementation and control measures. A two stage selection process is required for the firm in identifying the product, market and services for international marketing. In this process, first, potential international markets need to be explored. Secondly, comparison of the domestic market of the firm with those abroad needs to be carried out in order to ensure that marketing at the international level has cooperative advantages over the domestic market (Rajagopal, 2004). Identifying a marketing region is always better than restricting to an individual country for the purpose of cost effective distribution networking. In addition, the tariff walls at the border countries need to be studied carefully. The firm involved in the international marketing should also make efforts to develop export markets in the initial stage. This would help in product specialization. International business firms have found that exporting is cheaper than manufacturing in overseas markets. There still remain some basic issues to be examined by the firm engaged in international marketing. These are: • • • • • • • • • •
Size and growth Marketing potential of a country or region Similarities in host countries Free trade area, customs, common market Economic and political unions Appropriate economies of scale in managing business Accessibility, infrastructure and its cost Possibilities of decentralizing business activities Geographical boundaries of the markets Long run market segmentation
Exporting firms should understand that the export operations are subordinate to the domestic market policies and that the policy of the business firm to market the surplus home produce in the international market, would largely be determined by the opportunities offered by the host country
or regional markets. However, the considerations on —(i) the firm’s extent of awareness on varying requirements of consumers (ii) market response to the design and packaging of the product (iii) the impact of the pre-launch promotion among the focus groups and (iv) the size of the market which influences the adaptation process of goods and services at the international markets level. Roche is a pharmaceutical research, technology and market-driven company, whose unique portfolio of products and services creates superior value for the customers. The products of the company are delivered through its affiliates located all over the world. Affiliates or regional representations are direct link to the customers and local markets of the company. Roche Diagnostics integrates its own know-how with that of selected partners from a wide range of specialized areas. With this objective in mind, Roche Diagnostic’s strategic alliances and collaborative partnerships are aimed at combining potential with an innovative and ambitious approach. Best known examples of successful and long lasting partnerships are the global alliances with Hitachi (since 1978) for clinical chemistry and immunoassay systems, with Sysmex (since 1998) for hematology systems and with Stago (since 1973) in selected countries for coagulation systems. Roche Centralized Diagnostics (formerly Roche Laboratory Systems) directs its products and services at private labs, laboratory associations and central hospital laboratories, offering high-performance analysis systems to measure hundreds of different parameters in clinical specimens as well as programs to optimize lab processes, from sample down to result management. In cooperation with its partners Hitachi, Sysmex and Stago, Roche Centralized Diagnostics offers a full line of solutions for laboratories of all workloads. Roche Centralized Diagnostics’ ultimate goal is to improve patients’ health through the application of modern laboratory diagnostics as an integrated part of health management systems. In another alliance Roche-
15
Marketing Strategy, Technology and Modes of Entry in Global Retailing
Syntex Mexico is engaged in selling the diagnostic reagents and equipments to the government and private clinics. The company also provides the diagnostic equipments to these health institutions and hospitals on lease. The business environment of the diagnostic market in Mexico is highly competitive and distributor oriented. The laboratory diagnostics supplier base in Mexico is confined to the selected suppliers dominating 80% of the total market (Rajagopal, 2003). The firms preparing for international marketing should also keep track of the international subsidies provided to the developing countries. A strong political and economic information system would help the firms in preparing international marketing plans more effectively. The synthesis of these inputs for planning is essential in pursuing global strategies. Thus integration of this information with the border-country profiles is a pre-requisite for sound plans. The selection of a market place at international level is a critical process and is required to be filtered at many intermediate levels to select the core business country.
CONTROL MANAGEMENT A control feedback system is one of the core components of international marketing management and it serves to assess performance. Monitoring is one of the tools to measure the degree of the success of international marketing and needs to be incorporated in the plan itself. The marketing plans need to specify the periodicity of the control exercises and its prime objective. The monitoring calendar for international marketing firms may be designed keeping the following checks in mind: • • •
16
Budgetary control Plan implementation Performance of marketing functions (11Ps) which include product, price, place, promotion, packaging, pace, people, per-
• •
formance, psychodynamics, posture and proliferation Periodical appraisals of marketing information Social, cultural and political changes
The overall objective of these checks and controls is to determine the achievement of targeted results on time. These points need to be administered from the corporate office of the business firm in a centralized manner in order to enable effective planning and execution process. The standardization of marketing-mix is usually centralized to ensure the quality of all the components of the mix across the markets in the operational region. Besides, it is important to provide a common business language across markets which would help in understanding local markets more analytically. The checks need to be exercised at different levels of the marketing plan execution and to build-up a strong communication and information system. A consolidated document of the target group index (TGI) may be an appropriate tool for information processing and analysis. The variables which need to be covered in the TGI include consumer goods, industrial goods, services, spatial and temporal trend of demand and price, distribution patterns, marketing budgets, response to advertising, communication services and the like. International marketing research needs to be conducted on specific issues of interest and inferences may be tagged along with the Monitoring and Evaluation (M&E) process. Nevertheless, M&E should be conducted periodically as a tool of control.
EXIT POLICY It is essential that the firm entering into the international market needs to analyze the level of profitability, asset-production ratio, production costs, sales projections, and the risk factors in the short and long run. Further, it is very important that the firm should make all possible arrangements for
Marketing Strategy, Technology and Modes of Entry in Global Retailing
a smooth ejection from the international business in case of an unavoidable loss to property, brand or functional markets. The firm usually faces exit barriers after entry. A firm will be reluctant to commit on non-recoverable investments that have been made, people hired, contracts signed if there is likelihood of a forced exit. Another consideration for the marketer is the potential loss of goodwill accompanying withdrawal from an important and visible market. The French automaker Peugeot probably lost a great deal of brand equity and money in the U.S. market before finally exiting in 1992. The specific exit reasons for international firms to leave the operational stream are listed below: • • • • • • •
Shut down of specific operations Labor scarcity and high wage rates Market speculation and its impact Employees’ demand, labor problems and threats Changing government regulations International trade policies Total mismanagement
Hence, exiting strategy should also be carefully designed together with the approaches for entering the international market. Enough capital cushions are to be built or insured against risks in the world markets and against abrupt exits. In the era of global marketing, the company needs sufficient resources and capability to nurture and sustain its products and brands, thus surmounting exit barriers by never having to face them.
bearing on possessing the relative market share and growth of the business organization. The strategies are the directional statements and need to be converted into the step-by-step plan of action for effective plan implementation. The strategic directions have four options that can be expressed by 4As - arena, advantage, access and activities. The arena may be defined as serving the targeted market segment through an appropriate scale of operations and scope of activities to be performed for competitive advantage. The advantages in the process consist of positioning the products theme that differentiates the business from competitors. The access may be referred to the communication and distribution channels used to reach the market in the uncertain business conditions. These activities are interdependent and are affected by the change in any of the factors. The arena of the market largely dictates the customers to be served by the company, the competitors to by-passes and the key success factors to be considered upon. Each market has distinctive profile of key success factors developed by the attributes of the market. The recent development of corporate strategies shows that many multi-national companies are considering their choice of the market arena based on the following factors: •
•
There is an increasing trend of market fragmentation. New segments with specific needs are emerging and are being served by the specialist competitors by offering tailor made goods and services. The traditional market boundaries are disappearing as a consequence of the rush of substitutes emerging due to the technological growth. The transformation of existing self-contained regional and national markets into global markets.
MARKET UNCERTAINTIES AND ENTRY DECISIONS
•
In turbulent markets the competitive strategy provides the conceptual magnitude that integrates various functional activities and marketing programs for sustaining the competitive threats. The effective competitive strategies have a direct
In the above discussed situations the challenge for the corporate sector management may be observed as to find the right balance of global
17
Marketing Strategy, Technology and Modes of Entry in Global Retailing
reach and standardization of the activities versus the traditional strategies or local adaptation. The companies need to find out the competitive advantages within the chosen arena of business. The core issue associated with the competitive advantage is positioning of the theme that sets a business apart from the rivals in the way that is meaningful to target the customers. It is necessary for the companies to move aggressively against the competitors to retain their market territories and build a strong defense. Thus Kodak asserted itself in the film market against the strategies of Fuji in American market. The supply gluts also put pressure on advantages. The markets for the pharmaceuticals, electronics and automobiles suffer chronic global overcapacity to the extent of 15-40 percent. Such problem situation demands the companies to develop the strategies of competitive advantage to hold the key success factors and become the market leader. Such strategies are required as there are too many firms competing and the customers may back integrate by their marketing requirement rather than buying them. This situation reduces the volume of market demand relative to supply and the customers may sell their excess capacity on competition with their one-time supplier. The need for the competitively advantageous strategies may further be justified as a large number of firms are increasingly productive in reference to the rapid diffusion of the technologies. The customers’ bargaining power also works out to be an instrument to either broaden or narrow the differences between the competitors. The companies that use intermediaries are often encountered with balancing the power of distribution and delivery of services. In consumer markets the retail trade is forcing major concessions on the multi-national brands. Such strategies hold the access to the retail network through a long chain of channels. Conventionally the choice of appropriate scale in business and scope thereof were guided by the concepts of the bigger is better and umbrella control of activities. In the current era of globalization the decentralization of activities and
18
production sharing have become more effective tools in marketing. The profit centre approach (PCA), control circles and total quality management practices has endorsed the success of small integrated units operating in a well defined market. In view to promote the PCA concepts and maintain the control circles, the large companies are increasingly creating the autonomous, small and entrepreneurial units to find responsive solutions to the customer problems in the well defined market niches (Webster, 1989). Corporate structures are changing in order to accommodate the concept of PCA and control circles and are exploring for the long term advantages by way of heavy investment to develop the core competencies. BMW, Honda, and Toyota, among other companies, begin with a strong brand that imparts sales momentum to each model. Brands that are weak—because their products have acquired a reputation for shoddy workmanship, their designs are not evocative, or their models bear little relationship to one another—cannot pursue this top-down approach. But a company stands a good chance of selling more cars and, step by step, of rehabilitating the brand if managers take pains to match each model to the consumer segments most likely to be interested in it, identify and overcome the obstacles that keep browsers from becoming purchasers, and emphasize both the functional and the process and relationship benefits of the model in question. BMW Direct is an initiative of BMW (GB) to help selected company car fleet buyers streamline their service for employees. BMW Direct is a web based fully personalized, car configuration and ordering system for the purchase of new BMWs. This highly efficient rules based web application delivers a level of information previously unavailable outside of a showroom. The BMW Direct solution provides users with the ability to view details on all eligible cars online and then go on to configure them against a full menu of accessories. BMW Direct is truly ‘CRM’ compliant, providing two-way communication via
Marketing Strategy, Technology and Modes of Entry in Global Retailing
automated alerts and e-mails and incorporating a Contact Centre to ensure immediate access to trained product advisors. Users can track online the status of their individual orders whether by web, phone, fax or email. The call centre functionality includes phone and e-campaign generation, customer enquiry handling and profiling to customized promotions (Rajagopal, 2003a). Post-sales support is delivered using a thin client solution, (using Citrix) to BMWs contact centre in Croydon and order management centre in Bracknell in UK. The technological changes are the main impetus behind new market opportunities. The extent of such change may be explained from super technologies to the appropriate and intermediate technologies. The strategic choices have wide ranging ripple effects through the organization that determine the key success factors and growth performance. Some companies would be making right strategic choices by improving the implementation process of competitive advantages. These companies are guided by the shared strategic vision and are driven by the responsive attitude towards the market requirements. They emphasize the continuous strive to satisfy the customers. A strategic vision in managing markets may be understood as the guiding theme that explains the nature of business and the future projections thereof. These projections or business intentions depend on the collective analysis of the environment that determines the need for the new developments or diversifications. The vision should be commissioned on a concrete understanding of the business and the ability to foresee the impact of market forces on the growth of business. The vision will motivate the organization for collaborative business planning and implementation. The powerful visions are also the statements of intent that create on obsession with winning thorough out the organization (Day, 1990). The business strategy broadly incorporates the following dimensions:
• • • •
Customer needs Consumer segments Technology and resources Activities in the value added chain
The strategic thrust has a significant magnitude and direction in sailing the business though the turbulent situation. The factors associated with the competitive advantage and business investments uphold the strategic thrust to achieve the business objectives though the positive channel efforts. The competitive advantage may be assessed in reference to the superior customer value and lowest delivered cost. Such combination of the strategies may be termed as competitive superiority that explains cost effective delivery strategy to enhance the customer value. An overall edge is gained by performing most of the activities at a lower cost than competitors. This would enable the company to optimize its cost of delivery of the new products and simultaneously enhance the value of customer value to up-hold the strategic thrust of the company. Canon delivers innovative digital business solutions to ensure that its customers achieve and maintain the information edge. The increasingly competitive global marketplace, and the fact that the organizations must store, process and share immense volumes of information with both speed and accuracy have been the key areas of the company to penetrate in the territorial gateways like Mexico for Latin American market. The company functions with four key areas in Mexican market that include marketing, logistics, sales and services operations. The marketing activities of the company consist of planning and budgeting, pricing, forecasting, purchases, marketing research and developing promotional strategies. The company is also engaged in developing attractive media –mix and advertising campaigns and launches the loyalty programs for its major brands. The virtual shopping network is also a
19
Marketing Strategy, Technology and Modes of Entry in Global Retailing
major part of the marketing functions performed by the company in the country. The company feels that the loyal, ongoing customers are the backbone of every business and in the prevailing highly competitive environment, these shoppers cannot be ignored or else they may be won over by competitors. The consumers might have bought such products many times in their life or some might have purchased at least once in life time. There is no single way to segment a market. The most important factors influencing a consumer’s involvement level are their perceived risks. The purchase of any product involves a certain amount of risk, which may include product failure, financial, operational, social, personal and psychological. The repeat customers are more apt to buy a full range of merchandise, not merely items that are under promotional programs. This means that the dealers and retailers of the company can reach profit margin goals. The logistics functions of the company is largely international trade oriented as the Canon Mexico is a part of Canon USA and many products of the company are acquired from its USA counterpart as inbound logistics. The import process has been one of the major activities of the company in Mexico. The logistics of the company further involves the key activities of transport, inventory management and developing appropriate overseas trade and information strategies (Rajagopal, 2003b). There are major types of strategies catalogued and given various names by different authors. Often these strategies and tactics are so bold and innovative that they “change the rules of the game.” Leaders are increasingly being advised to seek that objective in planning and executing their strategies. The pace of change today is dizzying with new technological breakthroughs occurring at shorter intervals and global competition putting the heat on. Mergers and acquisitions change the competitive landscape unexpectedly, and strategic alliances develop even among the companies that
20
were, or still are, competitors. The concept of “Hyper-competition explains the highly aggressive form of competition that characterizes hi-tech industries today. Hyper-competition is said to be increasingly making its way into other industries as well. They speak in terms of surprise, speed and mobility, terms suggestive of the military approach. Not that aggressive action is new in business so much so as the level, intent and severity of business “combat” have changed dramatically. It is necessary to build the strategic business mindset to outwit the competitors and gain competitive advantages over the segmented markets. The following factors need to be considered for achieving the strategic business leadership: •
•
•
• • •
• •
• •
A clear sense of desired outcomes before acting. Develop a plan capable of delivering outcomes that will add significant value to a state of affairs. Explore possibilities outwards to capture the larger context, to see how the pieces fit together. Adaptive to realities and flexible in choice of tactics. Recognize that once action begins the “game board” is fluid offering both new threats and new opportunities.╯ Wherever possible, attempt to achieve multiple objectives through singular actions. Plan a couple of steps ahead of competition. Anticipate the actions of business rival and strategically rehearse next responses should those contingencies arise. Core discipline to observe the market moves and rival reactions. Capitalize on business crises or behavioural change in the markets in order to turn them to advantage. Stay future-focused. Plan the business strategy implementation in both sequential and parallel direction to accomplish goals and sustain the impact thereof.
Marketing Strategy, Technology and Modes of Entry in Global Retailing
•
• • •
• • • • • •
• •
•
Develop negotiations with the business intermediaries on win-win platform at an acceptable cost. Supplement actions with those of others (allies, partners, joint ventures.)╯ Be patient, with a good sense of timing. Be able to scrap or alter plans when information indicates actions are not attaining their intended results. Develop alternate strategies for contingencies Use speed and surprise to gain advantage. Form alliances with opponents of his opponents in business. Learn the strengths and weaknesses of rivals. Be aggressive in pursuing goals, cordon the moves and ready to take on to the next. Assure that everyone in the company knows one’s role and is equipped with the resources to contribute. Monitor activities in the operating environment. Use “what if” speculation to stretch thinking in the direction of opportunities and possibilities. Study the logic of the opponent’s tactics with an eye toward determining what their ultimate end purposes may be.
These are some tested aspects of thinking employed by leaders to gain and hold strategic advantage. They can serve as a checklist when responsibilities include thinking strategically. Customers want more of everything they value. If they value low cost they want it lower. If they value convenience they want it easier and faster. If they look for state of the art they want it first and want to push the envelope. If they need expert advice they want more time and dedicated effort and investment. By raising the level of value that customers can expect from everyone, leading companies are driving the market and driving their competitors out of business, or at least into
a malaise of mediocrity. Here are a few options for managerial consideration: •
•
• •
•
•
•
•
•
Alter the industry structure to change the basis of competition. Reconfigure the value chain - retailers become wholesalers and suppliers, insurers takeover brokerages, banks move into insurance, etc. Improve the position of the business within the industry by way of acquisitions and market share. Alter the playing field to achieve an enhanced scale of operations and competitive positioning.╯ Innovate and create new opportunities new products, services, and markets. Employ barriers to entry in terms of significant capital investment, proprietary technology, or in the magnitude of resources required to compete effectively. Increase the dependence of customers for products and services in terms of the total value for customers or higher costs of switching to alternates. Change and enhance supplier relationships to obtain cost and quality improvements, reduced cycle times, and integrated processes. Change the basis of competition by creating a service relationship and differentiation. Move away from price to service, software, and customer relationships.╯ Centralize into high volume, low cost, automated, ‘focused factories’, to achieve the lowest cost operations in support of customer value. Decentralize into custom, low volume, flexible factories, quick to market, responsive, and able to customize products to specific customer requirements.
Controls may be considered as checkpoints used to verify performance progress by comparison with some standard in a given competitive environment. Generally the business standards
21
Marketing Strategy, Technology and Modes of Entry in Global Retailing
are established by top management in the planning process. The control and analysis process need to be revised with the growing size of the firm and its business operations. Controls must go along with the expansion process and tight control should ensure consistency in product and marketing performance. Since multinational companies typically have several foreign subsidiaries in different parts of the world, a good control system is important to ensure that these subsidiaries move together toward a common goal, spelled out by the corporate strategic plan to meet any market uncertainties. These issues need to be considered in anticipation by the international firms while deciding the entry strategies in foreign markets.
DRIVERS OF GLOBALIZATION There are over 200 countries in the world and it is difficult for the marketer to determine a critical path of success across the countries or regions. Exceptionally, couple of companies like Fuji, Kodak and Coca-cola that have spread their business in over 100 countries developed gradually. The characteristics of the global market place are diverse and international marketing approaches are different. The companies need to adapt a strong rationale for grouping the countries into segments. The multinational and the global corporation are different as the former operates in a number of countries and carries adjustment in the production and marketing practices in each country at a highly relative costs (Levitt, 1998). The global corporation operates with the stanch loyalty at relatively low costs with standardization. Coca-cola and Pepsi-Cola companies have standardized their products globally according to the regional and ethnic preferences of consumers. The most effective world competitors integrate quality and trust attributes into their cost structure. Such companies compete on the basis of appropriate value of price, quality, trust and delivery systems. These values are considered by
22
the companies in reference to the product design, function and changing consumer preferences like fashion. The multi-national corporations know a lot about the business environment in a country, put their efforts on adapting to the given environment and sets gradual penetration process in the country. On the contrary, the global corporations recognize the absolute need to be competitive and drive through the lower prices by standardizing its marketing operations. The global corporations treat the world as composed of a few networked and standardized markets than many independent and customized markets. There are five major categories of drivers that propel companies towards globalization. These drivers include market, competition, cost, technology and government. Of these, the market driver has been considered as one of the strongest forces that push the process of global marketing. The major driver of change for General Motors today is the same as for most companies; it’s globalization. Advances in technology and communication are making the ‘small world’ a reality, and the world will only get smaller and smaller in coming years…This trend towards global integration should be- viewed as an opportunity—not a problem. -John F. Smith, Jr., CEO of General Motors The market drivers comprise the needs of common customers, global customers, global channels and transferable marketing. The common customers needs become a compelling factor for the multinational companies when customers of the different countries have the same needs in a product category. The free trade and unrestricted travel has created homogenous groups of customers across the countries in reference to specific industries. However, some markets that typically deal with the culture bound products like food and beverages, apparel and entertainment strongly resist the shift towards globalization and remain multi-domestic serving to the different customer
Marketing Strategy, Technology and Modes of Entry in Global Retailing
preferences and differentiated products across the countries. On the contrary the global customers need the same products or services in many countries like the case of Kodak films or Hilton Hotels. The global channels, distribution and logistics companies offer seamless transport, storage and delivery services. The companies can expand internationally provided the channel infrastructure is met with the distribution needs of the company. Hence their integrated networks thrive to bring the multinational companies close to the global distributors, retail stores like super markets and departmental stores in order to generate systems effect. Transferable marketing is applied to the same marketing ideas on brand names, packaging, advertising and other components of marketingmix in the different countries. Nike’s campaign anchoring the basketball champion Michael Jordan pulled-up the brand in many countries. This is how the good ideas of multinationals get leveraged world over. The competitive drivers support the companies for matching their strategies appropriately with their moves in the market. The existence of many global competitors indicates that an industry is mature for international business operations. The global competitors operate on cost advantages over the local competitors. The emergence of strong global competitors has served to develop the market infrastructure for the local companies and also help in transfer of technological skills enabling the domestic company to explore the scope of expansion. The competitive efforts put pressure on companies to globalize their marketing activities to derive optimum performance by interpreting appropriately the competitor signals. When Kodak backed out from sponsoring the 1984 Los Angeles Olympics, the Fuji Film entered into the sponsorship issue immediately at the prescribed price and was one of the official sponsors of the Olympics. By the time Kodak reconsidered to participate in this international event, the time overran. However, for the Olympics of 1988 and
ABC-TV Kodak become sport program sponsor (Finnerty, 2000). The cost drivers are largely based on the scale of economies that involve the cost of production functions in large and complex industries, cost of outsourcing, diffusion and adaptation of technology, tariffs and taxes and costs associated with the basic and advanced marketing functions. The macro economic factors of the neighboring countries also govern the cost drivers. When a new automobile plant is set-up, it aims at designing, manufacturing or assembling and delivering a particular model by penetrating into the neighboring markets to gain the advantages of economies of scale. The automobile plant of Toyota at Kentucky manufacture the Camry model for catering to the markets of NAFTA group of countries. The high market share multi-domestic companies derive gains from spreading their production activities across multiple product lines or diversified business lines to achieve advantage through the scope of economies. The manufacturing and marketing activities of Proctor and Gamble, Unilever, Colgate-Palmolive may illustrate this global attribute that is explained by the cost drivers. The other cost drivers include global sourcing advantages, low global communications and automation processes. The location of strategic resources to the production plants, cost differences across the countries and transport costs are also some important considerations of the cost drivers. The lowering of trade barriers made globalization of markets and production a theoretical possibility, and technological change has made it a tangible reality. Since the end of World War II, the world has seen major advances in communications, information processing, and transportation technology including, most recently, the explosive emergence of the Internet and World Wide Web. The technology drivers play a significant role in global business. Global expansion of the multinational companies has been highly stimulated by the technological advancements in the designing,
23
Marketing Strategy, Technology and Modes of Entry in Global Retailing
manufacturing and marketing of consumer and industrial products. The services were also improved by many technological breakthroughs. The internet revolution has triggered the e-commerce as open access channel with a strong driving force for the global business in the consumer and industry segments. Improved transport and communication now makes it possible to be in continuous contact with producers anywhere in the world. This makes it easier for companies to split production of a single good over any distance. Storage and preservation techniques have revolutionized the food industry for example, so that the idea of seasonal vegetables is no longer relevant today as anything can be exported all year round from anywhere. In addition, the IT revolution has made the movement of investment capital around the globe an almost immediate process ensuring that financing opportunities across the developed and developing world have both expanded and become more flexible. However, non-economic drivers of global integration, from travel to telephone traffic maintained their forward momentum, making the world more integrated at the end of 2002 than ever before. Technological upgrading, in the form of introduction of new machinery and improvement of technological capabilities, provides a firm with the means to be successful in competition. In the process of introducing better technologies, new lower-cost methods become available, which allow the firm to increase labor productivity, i.e., the efficiency with which it converts resources into value. Firms will adopt these newer methods of production if they are more profitable than the older ones. The ability of a firm to take advantage of technical progress is also enhanced if the firm improves its entrepreneurial and technological capabilities through two competitiveness strategies, namely (i)╯learning and adaptation, and (ii)╯innovation. The latter is a process of searching for, finding, developing, imitating, adapting, and adopting new products, new processes, and new organizational arrangements. Because rivals
24
do not stand still, the firm’s capacity to develop these capabilities, as well as its ability to compete, depends on the firm’s maintaining a steady pace of innovation (Asian Development Bank, 2003). Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. Before the advent of containerization, moving goods from one mode of transport to another was very labor intensive, lengthy, and costly. It could take days to unload a ship and reload goods onto trucks and trains. The efficiency gains associated with containerization, transportation costs have plummeted, making it much more economical to ship goods around the world, thereby helping to drive the globalization of markets and production. The government drivers for the globalization include diplomatic trade relations, customs unions or common markets. The government drivers add favorable trade policies, foreign investment regulations, bilateral or regional trade treaties and common market regulations. The introduction of global standard norms like ISO certifications by the respective countries may be one of the effective measures to promote the globalization through uniform quality perspectives. In the past the government barriers to foreign market entry protected the domestic markets and made the global marketing an uphill task. WTO has been instrumental in promoting government drivers for improving trade in the developing countries. At the Fourth World Trade Organization Ministerial Meeting held in Doha in November 2001, Ministers launched a comprehensive set of multilateral trade negotiations and a work program. This mandate is sometimes referred to as the Doha Development Agenda, reflecting a shared desire to ensure that the trading system is relevant and responsive to the needs of developing countries. Among the areas covered by the negotiations or the work program are market access in manufactures, agriculture and services, certain rules (including anti-dumping, subsidies and countervailing mea-
Marketing Strategy, Technology and Modes of Entry in Global Retailing
sures, and regional arrangements), trade and environment, trade-related intellectual property rights, the relationship between trade and investment, the interaction between trade and competition policy, transparency in government procurement, trade facilitation, and dispute settlement. Developing countries were particularly instrumental in putting certain issues on the agenda, including trade and technology transfer, trade, debt and finance, small economies, implementation issues (mostly pending from the Uruguay Round) and special and differential treatment. Between 1990 and 2001, South-South trade grew faster than world trade with the share of intra-developing country trade in world merchandise exports rising from 6.5 per cent to 10.6 per cent. Over this period, developing country economies grew much faster than those of the developed and transition countries. The liberalization of the trade and investment regimes of a large number of these countries has played a significant role in this expansion. Much of this expansion in South-South trade took place in developing Asia (which accounts for more than two-thirds of intra-developing country trade). Manufactures, in particular office and telecom equipment, played a leading role in the growth of intra-developing country trade. This strong performance can be attributed in part to open trade and investment policies in the major developing economies of Asia. Trade liberalization in Asia took various forms in the 1990s: some of it was undertaken on a unilateral basis, some arose from multilateral efforts (World Trade Organization, 2003). Integrating a worldwide strategy involves five key dimensions: selecting markets for their global strategic importance; standardizing products; locating value-adding activities in a global network; using uniform marketing techniques; and integrating competitive moves across countries. Industry globalization drivers that are defined as the industry conditions that determine industry globalization potential and organization and management
factors largely determine the use of global strategy. Such drivers have the strongest influence in global trade. The application of global strategy in industries with high globalization potential improves business performance. The global companies constantly search for opportunities to achieve the benefits of globalization; take a zero-based view of existing activities; flout conventional wisdom and established practices; systematically analyze industry, strategy, and organizational linkages; and make multiple reinforcing changes in strategy and organization. They assume that strategy should be global unless proven otherwise, and they think globally and act locally. Besides, the five drivers discussed above, there exists other reasons to market products and services globally. The major factors that influence the drivers of globalization may be illustrated as under: • • • • • • •
Market Saturation Trade Deficit Foreign Competition Emergence of New Markets Globalization of Markets Opportunities via Foreign Aid Programs Other Reasons
The most evident reason to drive the companies go global is the market potential in the developing countries that constitute as major players in the world market. The companies such as Nintendo, Disney and the Japanese Motorcycle industries (Honda, Kawasaki, Suzuki etc.) have been greatly benefited from exploiting the markets of the developing countries and reassuring their growth in the world market to harness the promising market potential. The emerging scope of spatial diversification has also been one of the drivers for enhancing the global business utilizing the additional production capacity at the economies of scale and low-cost outsourcing. The production sharing of Volvo industries in India (Bangalore) where the company manufacture engines for its
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Marketing Strategy, Technology and Modes of Entry in Global Retailing
heavy transport vehicles may be cited as one of the examples. The thrust of Japanese motorcycle industry in the US markets is aided significantly by its low-cost position. The saturation of the demand for the products and services of a company in domestic market may also be an effective driver to globalization wherein the company looks for building the value for its brand across the boundaries. When a product that is near to the end of its life cycle in the domestic market while beginning to generate growth abroad. Dickson Poon’s export of high brand value luxury goods from America to the Far-east may be cited as an example of gaining advantage of general rise in the conspicuous consumption that is regarded as a sign of prosperity. Sometimes the cross-culture attributes of overseas markets that become the source of new product ideation, also may be considered as one of the potential drivers for globalization of business and explore the strategic alliances with prominent regional or multinational brands thereof. The tested market entry approaches may be implemented in the emerging markets such as South-east Asia as shown by the Revlon in cosmetics though risk of international currency prevails, legal issues and business protocols. However the most difficult task for the global companies to develop products with a universal appeal as illustrated by Gillette with its fragrances. On the contrary Lego is facing hardship in the Far-east markets to popularize its concept of do it yourself (DIY) for creative learning against the head-on competition of video games industries attracting the same segment of buyers (age group 5- 14).
REFERENCES Arnold, D. (2003). The Mirage of Global Marketing: How Globalizing Companies can Succeed as Markets Localize. Financial Times Prentice Hall, Upper Saddle River, NJ, (pp. 24-65).
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Asian Development Bank (2003). Drivers of change: Globalization, technology and competition. section III, competitiveness in developing Asia, Asian development Outlook. Benkouider, C. (2005). Going Organic: Cadbury Acquires Green and Black’s. Euromonitor, 20 May (Online edition). Campbell, A., Goold, M., & Alexander, M. (1995). Corporate Strategy-The Quest for Parenting Advantage. Harvard Business Review, 73(2), 120–132. Day, G. S. (1990). Market Driven Strategy: Process for Creating Value. New York: The Free Press, (pp. 10-18). Euromonitor (2006). Breakfast Cereals Boom in Bulgaria. Euromonitor online. January. Finnerty, T. C. (2000). Kodak Vs. Fuji – The Battle for Global Market Share, Institute of Global Business Strategy. Lubin School of Business, Pace University, New York, (pp. 1-23). Fung, V., & Magretta, V. (1998). Fast Global and Entrepreneurial: Supply Chain ManagementHong Kong Style. Harvard Business Review, 76(5), 103–114. Hofmann, O. (2006). Anti-ageing Skin Cream Booms in Hong Kong. Euromonitor, May (online edition). Hustom, L., & Sakkab, N. (2006). Connect and Develop: Inside Proctor and Gamble’s New Model for Innovation. Harvard Business Review, 84(3), 58–66. Killing, P. J. (1982). How to make a Global Joint Venture Work. Harvard Business Review, 60(3), 120–127. Levitt, T. (1998). The globalization of markets. In M. W. Taylor & G. L. John (Ed.), International and Global Marketing-Concept and Cases. Irwin McGraw Hill, Boston, (pp. 13-23, 1998).
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Nam-Hoon, K., & Kentaro, S. (2005). International Strategic Alliances: Their Role in Industrial Globalization. OECD, STI Working Paper # 2000/5. Parise, S., & Sasson, L. (2002). Leveraging Knowledge Management across Strategic Alliances. IBM Institute for Business Value Study, Cambridge, Massachusetts. USA. Piercy, N. (1981). Company Internationalization: Active and Reactive Exporting. European Journal of Marketing, 15(3), 26–40. doi:10.1108/ EUM0000000004876 Proctor & Gamble. (2005). P & G Launches Loading Program in Selected US Markets. Corporate web site, News, November 14, 2005. Rajagopal (2003). Sales Force Re-organization for Maintaining Profitable Growth: A Case of Roche Diagnostics Mexico (A), Discussion case, ITESM, Mexico City Campus, (pp. 1-19). Rajagopal (2003a). Building Customer Loyalty through Relationship Networking: A Case of BMW Mexico. Discussion Case, ITESM, Mexico City Campus, (pp. 1-16). Rajagopal (2003b). Striving with Competition in Global Imaging Market: Canon in Mexican Business Environment ITESM, Mexico City Campus, (pp. 1-22). Rajagopal (2004). Conceptual Analysis of Brand Architecture and Relationships within Product Category. Journal of Brand Management, 11(3), 233-247. Rajagopal (2005). Virtual Sales Offices for Insurance Services in Mexico: A Case of ING Comercial America, Discussion Case, ITESM, Mexico, (pp. 1-21).
Schoenmakers, W., & Duysters, G. (2006). Learning in Strategic Technological Alliances. Technology Analysis and Strategic Management, 18(2), 245–264. doi:10.1080/09537320600624162 Tsukioka, A. (2006). Joint venture agreement on food and beverages. Japan Corporate News Network, Feb. 27, 2006. Webster, F. E., Jr. (1989). It’s 1990- Do you know where your marketing is? Mass Marketing Science Institute, Cambridge MA. World Trade Organization. (2003). World Trade Report, Executive Summary, WTO, Geneva, (pp. 14-15).
ENDNOTES 1
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3
4
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Corporate website, Li & Fung http://www. lifung.com For details on the case study please see Case Study:Papa John’s, New Business.Com http://www.newbusiness.co.uk/cgi-bin/ showArticle.pl?id=3562 Ranbaxy Laboratorios Ltd.: Ranbaxy Consolidates Relationship with Japan JV Partner Nippon Chemiphar, Rainbaxy Press Release, November 11, 2005 http://www.ranbaxy. com/newsroom For details see Polycom Corporate Website: Information on strategic ally partners, http:// www.polycom.com Hewlett Packard Development Company: HP Financial Services as Wholly Owned Subsidiary, News Release, Corporate Office, Aug 13, 2002 http://www.hp.com/hpinfo/ newsroom/press/2002/020813a.html
Rajagopal (2006). Innovation and Business Growth through Corporate Venturing in Latin America: Analysis of Strategic Fit. Management Decision, 44(5), 703-718. This work was previously published in Information Communication Technologies and Globalization of Retailing Applications, edited by Dr. Rajagopal, pp. 278-315, copyright 2009 by Information Science Reference (an imprint of IGI Global). 27
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Chapter 1.2
The Business Value of E-Collaboration: A Conceptual Framework Lior Fink Ben-Gurion University of the Negev, Israel
INTRODUCTION This article presents a conceptual framework of the business value of e-collaboration. In the past decade, firms have increasingly implemented collaborative technologies to support business activities, and investments in collaborative technologies have taken an increasing share of firms’ e-business investments. Presumably, such investments have been motivated by the notion that the implementation of collaborative technologies has business value. While research has repeatedly demonstrated the individual- and group-level DOI: 10.4018/978-1-60960-587-2.ch102
impacts of collaborative technologies, it has rarely addressed their impacts at the organizational level and demonstrated their business value. In this article, I draw on three strategic management frameworks – the resource-based view of the firm, the knowledge-based view of the firm, and the dynamic capabilities perspective – to describe how specialized knowledge assets can be integrated through collaborative processes to create and sustain a competitive advantage. I then use this conceptualization as a platform for defining the organizational roles of collaborative technologies and the potential impact of each role on organizational performance. The main objective of this article is to provide a conceptual framework for
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The Business Value of E-Collaboration
researchers and practitioners who are interested in investigating and understanding the organizational impacts of collaborative technologies.
BACKGROUND Resource- and KnowledgeBased Views of the Firm The resource-based view of the firm (Barney, 1991) argues that heterogeneity and immobility of firm resources can provide a basis for superior competitive performance. Firm resources that are strategically valuable and heterogeneously distributed enable firms to outperform the competition. However, such a competitive advantage cannot be sustained if competitors can acquire strategically equivalent resources to implement the same valuable strategy. Therefore, for a firm to sustain its competitive advantage, its valuable and rare resources should not be open to imitation or substitution. The knowledge-based view of the firm (Grant, 1996; Kogut & Zander, 1996; Nonaka, 1991) extends the resource-based view by defining organizational knowledge as a valuable subset of firm resources. The knowledge-based view perceives a firm as a knowledge-creating entity; it argues that the capability to create and utilize knowledge is the most valuable source of the firm’s sustainable competitive advantage (Nonaka, Toyama, & Nagata, 2000). Specialized, firm-specific knowledge resources are those that are valuable, scarce, and difficult to imitate, transfer, or substitute. By using such resources, a firm could gain an advantage in its markets that competitors would find difficult to overcome. Applying Grant’s (1996) view of coordination mechanisms, e-collaboration is conceptualized here as a group coordination mechanism. Kock, Davison, Wazlawick, and Ocker (2001) define e-collaboration as “collaboration among individuals engaged in a common task using electronic
technologies” (p. 1). This definition encompasses different types of systems, ranging from computermediated communication (CMC), through group decision support systems (GDSS), to Web-based collaboration tools (Kock & Nosek, 2005). Nonetheless, researchers agree that e-collaboration tools are vehicles for information and knowledge sharing that transcends traditional limitations of time and space. Therefore, compared with traditional coordination mechanisms, e-collaboration is a group coordination mechanism with wider capabilities because it enables and facilitates the work of virtual groups, giving firms extra degrees of freedom in establishing and managing knowledge-sharing mechanisms.
Dynamic Capabilities Perspective The dynamic capabilities perspective (Teece, Pisano, & Shuen, 1997) is an extension of the resource-based view to dynamic markets. It has evolved to account for the deficiencies of the resource-based view in explaining how firm resources are developed and renewed in response to shifts in the business environment. The resourcebased view identifies a subset of resources as a potential source of competitive advantage. However, this is a static view of the relationship between firm resources and competitive advantage. When change occurs in the business environment, firm resources should evolve to enable new and innovative forms of competitive advantage. By adopting a process approach, the dynamic capabilities perspective argues that dynamic capabilities are the process mechanisms responsible for the continuous development of resources in the face of rapidly evolving strategic needs. By viewing specialized, firm-specific knowledge resources as a strategic asset and ecollaboration processes as a dynamic capability, I propose that e-collaboration is a potential source of competitive advantage, because of its ability to foster organizational change and innovation. In rapidly changing business environments,
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knowledge assets that have enabled superior competitiveness can quickly lose their strategic relevance, calling for the fast identification and utilization of novel, possibly tacit and distributed knowledge bases to maintain a favorable market position. In these situations, e-collaboration can provide a unique mechanism for the persistent identification, organization, integration, and utilization of knowledge assets. By creating webs of collaborations among various business segments, firms are able to generate new and synergistic resource combinations (Eisenhardt & Galunic, 2000). The dynamic capability of e-collaboration enables the frequent introduction of organizational innovations, which, in turn, can provide a source of sustained competitive advantage.
ORGANIZATIONAL ROLES OF E-COLLABORATION Teece et al. (1997) describe organizational processes as having three roles: coordination/ integration (a static concept), learning (a dynamic concept), and reconfiguration (a transformational concept). Building upon this framework, I describe coordination, learning, and innovation as the three organizational roles of e-collaboration.
COORDINATION The primary functional role of e-collaboration is to facilitate coordination among individuals, groups, and organizations. Malone and Crowston (1994), who define coordination as “managing dependencies between activities” (p. 90), describe communication and group decision making as two processes that are important in almost all instances of coordination. Collaborative technologies are typically designed to facilitate communication and decision making and therefore enable firms to manage dependencies between activities more efficiently and effectively, whether those dependencies are intra- or inter-organizational. The
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ability of collaborative technologies to enhance coordination among organizations is frequently discussed in the context of interorganizational systems (e.g., Chi & Holsapple, 2005). Bafoutsou and Mentzas (2002) demonstrate that all categories of electronic tools for communication and collaboration address some of the coordination problems created by recent organizational trends, such as decentralization and outsourcing.
Learning E-collaboration may serve as a mechanism for facilitating learning by boosting knowledge creation and sharing processes. Kogut and Zander (1996) view firms as organizations that represent social knowledge of coordination and learning. Collaborative technologies can enable individuals to arrive at new insights by providing an extended field for interaction among members of an organization (Alavi & Leidner, 2001). The use of collaborative technologies improves the three aspects of knowledge management – knowledge creation, knowledge discovery, and knowledge transfer (Paul, 2006). Leidner, Alavi, and Kayworth (2006) describe two fundamental approaches to knowledge management: the process approach and the practice approach. The process approach attempts to codify organizational knowledge through formalized processes. In contrast, the practice approach attempts to build social environments necessary to facilitate the sharing of tacit knowledge. According to Leidner et al., both approaches involve the use of collaborative technologies – either to enhance the quality and speed of knowledge creation and distribution or to facilitate conversations and transfer of tacit knowledge.
Innovation Knowledge can provide a firm with a competitive advantage, because it is through this knowledge that the firm is able to introduce innovation in
The Business Value of E-Collaboration
processes, products, and services (Nonaka et al., 2000). Nonaka (1991) describes the “knowledgecreating company” as a company “whose sole business is continuous innovation” (p. 96). Collaborative technologies play a significant role in creating business innovation (Eden & Ackermann, 2001). Wheeler (2002) proposes the net-enabled business innovation cycle (NEBIC) as an applied dynamic capabilities theory for understanding how pervasive digital networks can enable growth through business innovation. The role of collaboration in fostering business innovation is also demonstrated in absorptive capacity research. Cohen and Levinthal (1990) show that a firm’s absorptive capacity – its ability to recognize, assimilate, and apply new information based on prior related knowledge – is critical to its innovative capabilities. E-collaboration as a platform for interaction and learning creates opportunities for integrating new external knowledge into existing knowledge assets. Figure 1 graphically presents the process through which e-collaboration creates a competitive advantage.
ORGANIZATIONAL PERFORMANCE IMPACTS OF E-COLLABORATION In a comprehensive review of the literature on IT and organizational performance, Melville, Kraemer, and Gurbaxani (2004) highlight the
existence of two formulations of performance, efficiency and effectiveness. The former, designated efficiency impacts, adopts an internal process perspective using such metrics as cost reduction and productivity enhancement. The latter, designated competitive impacts, focuses on the attainment of organizational objectives in relation to the external environment. I propose that e-collaboration roles are associated with both efficiency and competitive impacts. However, the particular roles differ in their impacts on organizational performance – coordination leads primarily to efficiency impacts, whereas learning and innovation are more strongly associated with competitive impacts. One of the most fundamental performance impacts attributed to IT is the reduction of coordination costs. Efficiency impacts also result from better coordination with the external business environment. Collaborative supply chain management (SCM) systems, which strengthen coordination among partners in a supply chain, offer inventory, process, and product cost reductions, while lowering the total cost of system ownership (McLaren, Head, & Yuan, 2002). Coordination-based efficiency impacts are apparent at the organizational and interorganizational levels, but also at lower levels. Huang and Newell (2003) empirically demonstrate that the level of coordination positively affects integration efficiency in the context of cross-functional project teams. In conclusion,
Figure 1. How e-collaboration creates a competitive advantage
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implementing collaborative technologies for the purpose of enhancing coordination, at different organizational levels, can deliver a wide range of organizational efficiency impacts. Conversely, organizational learning has the potential to generate both efficiency and competitive impacts, depending on its objectives and level. Electronic links enhance lower and higher levels of learning (Scott, 2000). At the lower level, collaborative technologies are used to integrate explicit knowledge for the purpose of reducing process and product costs, shortening cycle times, improving productivity, enhancing quality, and streamlining business processes. At the higher level, collaborative technologies are used to facilitate strategic planning, strengthening the ability of firms to identify opportunities and threats in the business environment, to understand their strengths and weaknesses, to formulate an organizational vision, and to develop creative solutions to organizational problems. By identifying, integrating, and utilizing organizational sources of tacit knowledge, a firm can outperform the competition and gain a competitive advantage. However, at the higher level, the competitive impacts of learning are not direct but rather mediated through innovation. There is a causal relationship between organizational learning capabilities, process and product innovation, and competitive advantage (Adams & Lamont, 2003). While collaborative technologies may be viewed as commodity resources that are susceptible to imitation, a firm’s ability to exploit their potential in facilitating its learning and innovation capabilities is critical in gaining IT-based competitiveness. The strategic importance of learning comes from implying path-dependency and specificity in organizational transformations preventing imitability, which is crucial for competitive advantage (Andreu & Ciborra, 1996). In recent years, it seems that continuous business innovation has repeatedly been identified, more than any other organizational capability, as a potential source of competitive advantage in contemporary business environments (e.g., Sawhney, Wolcott, & Arroniz, 2006).
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A CONTINGENCY PERSPECTIVE OF E-COLLABORATION In this section, I draw on contingency theory to integrate the conceptualizations developed thus far in this article into a process view of e-collaboration at the organizational level. Contingency theory, one of the most dominant theories in the study of organizational design and performance, is based on the assumption that there is no one best way to organize, and that any one way of organizing is not equally effective under all conditions (Galbraith, 1973). Central to this theory is the proposition that the structure and process of an organization must fit its context, if it is to be effective (Drazin & Van de Ven, 1985). The contingency approach to information systems research suggests that the better the fit between contingency variables and the design and use of IT, the better the IT performance and the organizational performance (Weill & Olson, 1989). The view developed here focuses on the business environment, specifically on the extent to which it is dynamic, as the primary contingency variable determining the preferred mode of ecollaboration. The business environment has been conceptualized as one of the key constructs for understanding organizational behavior and performance (Prescott, 1986). One of its important characteristics is the rate of change in products, processes, and organizational factors. The rate of change in the business environment has been found to be a moderator of the relationship between IT use and organizational performance (Guimaraes, Cook, & Natarajan, 2002). I propose that firms can implement collaborative technologies in two different modes, operational and strategic. The former is more valuable when a firm’s business environment is static, whereas the latter is more valuable when the business environment is dynamic.
The Business Value of E-Collaboration
Operational Mode of E-Collaboration Firms can implement collaborative technologies to improve their efficiency of scale and scope by building upon their ability to facilitate organizational coordination. Such an IT investment is more lucrative for firms that operate in less dynamic business environments and aim at gaining efficiency advantages in their markets. When market conditions are relatively stable, market entry barriers are high, new technologies are developed along an evolutionary path, and business models are established and steady, then a firm may pursue market advantages that are based on superior cost and time-to-market positions. To gain IT-based efficiency advantages, the firm can implement collaborative technologies that emphasize the coordination role of e-collaboration. The use of asynchronous communication tools, such as Wikis, Blogs, and RSS, may enable better exchange of information and explicit knowledge, improved coordination, and, eventually, cost and cycle time reductions. The primary purpose of such tools is to provide an efficient platform for information sharing; valuable information is easily captured, stored, presented, and disseminated. Such an information sharing mechanism facilitates rehearsability (the medium enables the rehearsal or fine tuning of messages prior to sending them) and reprocessability (messages can be reexamined or reprocessed within a communication event) (Dennis & Valacich, 1999). Rehearsability and reprocessability improve information clarity, accuracy, and completeness, which are crucial given the high cost associated with inaccuracies and misunderstandings when coordination and efficiency are the objectives.
Strategic Mode of E-Collaboration Firms can also use collaborative technologies to gain competitive advantages by capitalizing on their ability to facilitate organizational learning and innovation. Such an IT investment is more
lucrative for firms that operate in high-velocity markets and repeatedly seek to exploit opportunities and neutralize threats in their external environments. When market conditions are dynamic, market entry barriers are low, new technologies are developed along a revolutionary path, and business opportunities are proliferating, then a firm has to continuously find new organizational sources of competitiveness. To gain an IT-based competitive advantage, the firm can implement collaborative technologies that emphasize the role of e-collaboration in enabling learning and innovation processes. The use of synchronous collaboration tools, such as instant messaging and Web conferencing, may support the crossorganizational identification and integration of tacit knowledge, enhance learning processes, and generate opportunities for innovation. Such tools are designed to facilitate communication, expression, and collective thinking, significantly beyond those enabled by traditional technologies. The tools improve feedback immediacy (the medium enables rapid bidirectional communication), symbol variety (the variety of ways in which information can be communicated), and parallelism (the number of simultaneous conversations that can exist effectively) (Dennis & Valacich, 1999). In dynamic business environments, the interactiveness and richness of communication channels are crucial to the creative thinking of individuals and to their ability to learn and innovate.
Transitioning between Modes of E-Collaboration Another dynamic aspect that the framework should account for is the need to transition from one mode of e-collaboration to another because of a dramatic change in the level of environmental turbulence. A good example is the recent financial crisis that negatively affected the stability of many relatively static markets. Firms having to transition between e-collaboration modes need to transform the organizational role of e-collaboration from
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The Business Value of E-Collaboration
coordination to learning and innovation, or vice versa. Because the framework suggests that different roles are associated with different tools, these firms also need to transform their portfolio of collaboration tools. Thus, such a transition represents a combined technical-managerial effort. It requires financial resources to acquire new tools, and managerial resources to implement these tools and motivate employees to use them to enhance valuable organizational capabilities. While the technical effort should precede the managerial effort, the latter is undoubtedly more demanding and uncertain than the former. Firms that are able to meet this challenge are better positioned to create business value from e-collaboration. Figure 2 graphically summarizes the conceptual framework developed in this article.
FUTURE RESEARCH DIRECTIONS The conceptual framework presented in this article draws on contingency theory to argue that the extent to which the business environment is dynamic is an important determinant of the selection and implementation of collaborative technologies. This contingency approach to e-collaboration can be used in future research to explore the influence of other environmental characteristics on the
business value of e-collaboration. Such studies on environmental characteristics can considerably advance the e-collaboration literature because of its emphasis on the moderating effects of media and task characteristics. The conceptual framework depicted in Figure 2, which identifies the modes, roles, and impacts of e-collaboration, may serve as a theoretical starting point for such studies. Furthermore, the proposed framework can promote empirical research on the business value of e-collaboration. The conceptualizations developed in this article may be used straightforwardly to formulate research hypotheses about relationships among collaboration tools, roles, organizational impacts, and environmental characteristics. For example, empirical research may investigate whether synchronous collaboration tools are associated with collaboration-based learning and innovation, resulting in competitive impacts, and whether those relationships are more significant in dynamic business environments than in static environments.
CONCLUSION While there is an increasingly growing body of research that explores the organizational implementation of collaborative technologies, a
Figure 2. A conceptual framework of the business value of e-collaboration
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The Business Value of E-Collaboration
significant part of that research typically focuses on the context of the individual or the group. As a result, studies that use an organizational lens to explore e-collaboration are lacking. In this article, I propose a conceptual framework of the business value of e-collaboration. A view of e-collaboration as having three organizational roles – coordination, learning, and innovation – associated with either efficiency impacts (operational mode) or competitive impacts (strategic mode) offers valuable practical guidelines and, at the same time, advances theory development. The next conceptual step should be to link this organizational view to previous, more established views of e-collaboration, which focus on processes that individuals or groups undergo.
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Melville, N., Kraemer, K., & Gurbaxani, V. (2004). Information technology and organizational performance: An integrative model of IT business value. MIS Quarterly, 28(2), 283–322. Nonaka, I. (1991). The knowledge-creating company. Harvard Business Review, 69(6), 96–104.
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ADDITIONAL READING Barua, A., Konana, P., Whinston, A. B., & Yin, F. (2004). An empirical investigation of net-enabled business value. MIS Quarterly, 28(4), 585–620.
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Bharadwaj, A. S. (2000). A resource-based perspective on information technology capability and firm performance: An empirical investigation. MIS Quarterly, 24(1), 169–196. doi:10.2307/3250983 Bhatt, G. D., & Grover, V. (2005). Types of information technology capabilities and their role in competitive advantage: An empirical study. Journal of Management Information Systems, 22(2), 253–277. Brews, P. J., & Tucci, C. L. (2004). Exploring the structural effects of internetworking. Strategic Management Journal, 25(5), 429–451. doi:10.1002/smj.386 Daft, R. L., & Lengel, R. H. (1986). Organizational information requirements, media richness and structural design. Management Science, 32(5), 554–571. doi:10.1287/mnsc.32.5.554 Dedrick, J., Gurbaxani, V., & Kraemer, K. L. (2003). Information technology and economic performance: A critical review of the empirical evidence. ACM Computing Surveys, 35(1), 1–28. doi:10.1145/641865.641866 El Sawy, O. A., & Pavlou, P. A. (2008). IT-enabled business capabilities for turbulent environments. MIS Quarterly Executive, 7(3), 139–150. Fink, L., & Neumann, S. (2009). Exploring the perceived business value of the flexibility enabled by information technology infrastructure. Information & Management, 46(2), 90–99. doi:10.1016/j.im.2008.11.007 Ginsberg, A., & Venkatraman, N. (1985). Contingency perspectives of organizational strategy: A critical review of the empirical research. Academy of Management Review, 10(3), 421–434. doi:10.2307/258125 Goh, A. L. S. (2005). Harnessing knowledge for innovation: An integrated management framework. Journal of Knowledge Management, 9(4), 6–18. doi:10.1108/13673270510610297
Kearns, G. S., & Lederer, A. L. (2003). A resourcebased view of strategic IT alignment: How knowledge sharing creates competitive advantage. Decision Sciences, 34(1), 1–29. doi:10.1111/15405915.02289 Kock, N. (Ed.). (2007). Encyclopedia of e-collaboration. Hershey, PA: Information Science Reference. Kohli, R., & Grover, V. (2008). Business value of IT: An essay on expanding research directions to keep up with the times. Journal of the Association for Information Systems, 9(1), 23–39. Li, M., & Ye, L. R. (1999). Information technology and firm performance: Linking with environmental, strategic and managerial contexts. Information & Management, 35(1), 43–51. doi:10.1016/ S0378-7206(98)00075-5 Malhotra, Y. (2000). Knowledge management and new organization forms: A framework for business model innovation. Information Resources Management Journal, 13(1), 5–14. Nonaka, I., & Takeuchi, H. (1995). The knowledgecreating company: How Japanese companies create the dynamics of innovation. New York, NY: Oxford University Press. Oh, W., & Pinsonneault, A. (2007). On the assessment of the strategic value of information technologies: Conceptual and analytical approaches. MIS Quarterly, 31(2), 239–265. Peteraf, M. A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14(3), 179–191. doi:10.1002/smj.4250140303 Porter, M. E. (2001). Strategy and the Internet. Harvard Business Review, 79(3), 63–78. Powell, W. W., Koput, K. W., & Smith-Doerr, L. (1996). Interorganizational collaboration and the locus of innovation: Networks of learning in biotechnology. Administrative Science Quarterly, 41(1), 116–145. doi:10.2307/2393988 37
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Ravichandran, T., & Lertwongsatien, C. (2005). Effect of information systems resources and capabilities on firm performance: A resource-based perspective. Journal of Management Information Systems, 21(4), 237–276. Sambamurthy, V., Bharadwaj, A., & Grover, V. (2003). Shaping agility through digital options: Reconceptualizing the role of information technology in contemporary firms. MIS Quarterly, 27(2), 237–263. Santhanam, R., & Hartono, E. (2003). Issues in linking information technology capability to firm performance. MIS Quarterly, 27(1), 125–153. Soh, C., & Markus, M. L. (1995). How IT creates business value: A process theory synthesis. In J. I. DeGross, G. Ariav, C. Beath, R. Hoyer & C. Kemerer (Eds.), 16th International Conference on Information Systems (pp. 29-41). Atlanta, GA: Association for Information Systems. Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. doi:10.1002/smj.640 Teo, T. S. H., & Pian, Y. (2003). A contingency perspective on Internet adoption and competitive advantage. European Journal of Information Systems, 12(2), 78–92. doi:10.1057/palgrave. ejis.3000448 Tippins, M. J., & Sohi, R. S. (2003). IT competency and firm performance: Is organizational learning a missing link? Strategic Management Journal, 24(8), 745–761. doi:10.1002/smj.337
Wade, M., & Hulland, J. (2004). The resourcebased view and information systems research: Review, extension, and suggestions for future research. MIS Quarterly, 28(1), 107–142. Zahra, S. A., & George, G. (2002). The net-enabled business innovation cycle and the evolution of dynamic capabilities. Information Systems Research, 13(2), 147–150. doi:10.1287/isre.13.2.147.90 Zigurs, I., & Buckland, B. K. (1998). A theory of task/technology fit and group support systems effectiveness. MIS Quarterly, 22(3), 313–334. doi:10.2307/249668
KEY TERMS AND DEFINITIONS Business Value: The contribution of a firm resource to business performance. Competitive Advantage: The ability of a firm to systematically achieve above-normal performance. Contingency Theory: A theoretical view that considers the fit between a firm’s structure and process and its context as critical to organizational effectiveness. Dynamic Capability: A theoretical view that attributes competitive advantage to a firm’s ability to reconfigure and redeploy its resource base to address rapidly changing environments. E-Collaboration: Cooperation among individuals using electronic technologies. Organizational Learning: The ability within an organization to improve performance based on experience. Resource-Based View: A theoretical view that attributes competitive advantage to a subset of firm resources.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 144-154, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 1.3
Virtual Corporations Sixto Jesús Arjonilla-Domínguez Freescale Semiconductor, Inc., Spain José Aurelio Medina-Garrido Cadiz University, Spain
INTRODUCTION At the end of the 20th century, many authors tried to predict what new structures companies would be likely to adopt in the 21st century. Now, in the 21st century a clear tendency is emerging: the virtual organization (Agrawal & Hurriyet, 2004; Alsop, 2003; Bekkers, 2003; Camarinha-Matos & Afsarmanesh, 2005; Heneman & Greenberger, 2002; Lee, Cheung, Lau, & Choy, 2003; Talukder, 2003; Vakola & Wilson, 2004). This type of organization offers the most promising response to an increasingly complex business reality. In this respect, current organization theory is beginning to change its focus to new, flexible, and virtual organizational forms.
This article is organized as follows: The background section defines different concepts of virtual organization. The first model equates the virtual corporation to a temporary network of firms that quickly comes together to exploit temporary market opportunities. The second model focuses on the manufacture of virtual products by means of stable and trusting relationships with suppliers and customers. The third model of virtual corporation tries to turn the fixed workforce costs into variable costs. The third section points out the shared characteristics of this type of organization and the role of the manufacturing function, information and information technology, the network structure, and a new type of worker. The final sections discuss future trends and our conclusions.
DOI: 10.4018/978-1-60960-587-2.ch103
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Virtual Corporations
BACKGROUND The term virtual corporation was coined by Jan Hopland, an executive at Digital Equipment Corporation at the end of the 1980s, to describe firms that can marshal more resources than they actually possess by means of both internal and external collaborations (Fitzpatrick & Burke, 2001; Weisenfeld, Fisscher, Pearson, & Brockhoff, 2001). The term can be traced to the computing concept of virtual memory, which describes how a computer can behave as if it had much more processing power than it really has. The expression virtual corporation has been used in the literature to refer to concepts ranging from simply using teleworking and outsourcing intensively (Buhman, 2003; Coates, 2005; Matthews, 2004) to the wholesale restructuring of the firm. However, three approaches predominate in the literature: (1) virtual corporation as a temporary network of firms that rapidly forms to exploit temporary opportunities appearing in the market (Alsop, 2003; Beckett, 2003; Chalmeta & Grangel, 2003); (2) virtual corporation as a firm that produces virtual products, and which develops strong and stable links with its suppliers and customers (Biondi, Bonfatti, Monari, Giannini, & Monti, 2003; Lee et al., 2003; Mo & Zhou, 2003); and (3) a final model which considers that the virtual firm is an organization whose costs are essentially variable, only being generated when the firm is sure that it will recover them by selling the product or service (Matthews, 2004; Talukder, 2003). The virtual corporation can also be defined by what it is not. The virtual corporation is not a takeover or merger between firms, nor is it a temporary employment agency, nor a “hollow” firm seeking to cut costs by closing down factories in one country and opening them up again in another one with lower labor costs.
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CHARACTERISTICS OF VIRTUAL CORPORATIONS As we mentioned in the previous section, there are three different perspectives of the concept of virtual corporation. Among the characteristics shared by these three models of virtual corporation, we would stress: excellence, technology, trust, opportunism, and absence of borders: •
•
•
•
•
Excellence: Since each member contributes its core competencies (Mo & Zhou, 2003), it is possible to create an organization with the best of each of them, so that every process of the virtual corporation can be the best in its class, something that no one firm could achieve on its own. Technology: Information technology— and more specifically, communications networks—will facilitate the transfer of knowledge and technologies between firms and will allow firms and workers to work together (Helling, Blim, & O’Regan, 2005; Heneman & Greenberger, 2002; Im, Yates, & Orlikowski, 2005; Kovacs & Paganelli, 2003). Trust: This type of relationship makes firms more dependent on others, and hence requires a much greater trust than would normally be the case between firms that are just partners (Camarinha-Matos & Afsarmanesh, 2003; Clases, Bachmann, & Wehner, 2003; Gallie & Guichard, 2005). Opportunism: In the first and third model, firms will come together to exploit a very specific market opportunity, disbanding as soon as the opportunity disappears. In the second model, the opportunity to form a virtual corporation is brief. Once a firm adopts a virtual corporation structure, other firms have less chance of doing the same. Absence of Organizational Borders: The close cooperative ties established between competitors, suppliers, and customers will
Virtual Corporations
make it difficult to see where one firm ends and another begins (Lee et al., 2003). This organizational structure shares the knowledge and resources needed to carry out the work to be done, regardless of which firm owns or manages them. In virtual corporations the role of the manufacturing function also changes (Martinez, Fouletier, Park, & Favrel, 2001). This type of organizational structure seeks to generate high-quality products and services rapidly in response to the demand (Offodile & Abdel-Malek, 2002; Weisenfeld et al., 2001). Generating virtual products, also known as mass-customized products (Biondi et al., 2003), requires both the customers’ participation in their conception and design and the firms’ implementation of time-based strategies. This implies combining the customers and suppliers in a type of highly efficient network (Lee et al., 2003), which will require information systems that support relationships at all levels (Hsieh, Lin, & Chiu 2002). Companies will focus on one, maybe two, or three core competencies, all else will be outsourced (Buhman, 2003; Erickson, 2004; Mo & Zhou, 2003; Porter, 2000). Time is regarded as a component that, like any other, can be improved by means of intelligent planning and the use of technology (Hao, Shen, & Wang, 2005; Lee et al., 2003). Mass customization of products combines the effects of lean manufacturing processes (Guisinger & Ghorashi, 2004), zero-inventory production methods, or just-in-time, and total quality management processes. These management processes make it possible to produce the great variety of products that could once only be made by craft manufacturing, but often at a lower cost than mass production, and with excellent quality. Moreover, incorporating the new information technology into the manufacturing processes has given rise to flexible manufacturing systems (FMS) and computer-integrated manufacturing (CIM) (Presley, Sarkis, Barnett, & Liles, 2001).
Such systems help manufacturers to achieve many of the objectives of the virtual corporation, such as shorter production cycles, a smaller and more qualified labor force, smaller batches, flexibility, a better short-term response, and long-term adaptability. In virtual corporations, the role of information and information technology is also important (Aerts, Szirbik, & Goossenaerts, 2002; Alsop, 2003; Gallie & Guichard, 2005; Heneman & Greenberger, 2002; Joukhadar & Binstock, 2000; Khalil & Wang, 2002; Kovacs & Paganelli, 2003; Stowell, 2005; Xu, Wei, & Fan, 2002). This role becomes clear in the three models described previously. The virtual corporation understood as a network of firms is also an information system where there is an exchange of the data generated by the activities or processes (internal and external) that it carries out. The success of the virtual corporation will depend on its capacity to acquire, distribute, store, analyze, and integrate this massive flow of information through its organizational elements, supported by information technology. The model of virtual corporation defined as a generator of virtual products is characterized by the customers’ intense participation in the creation of the products, and by the high information component of the latter. This growing information component of products is evident in the mass customization of products that the virtual corporation is applying. On the other hand, the virtual corporation is organized as a network organization structure. Firms have gone from competing against each other to cooperating. This cooperation was initially based on more or less temporary alliances, and subsequently on connections of variable geometry. This new organizational structure of variable geometry, or dynamic network structure, considers that the main components of firms can be assembled and reassembled again and again to adapt to the changing environmental conditions (Aerts et al., 2002; Huang, Gou, Liu, Li, & Xie, 2002). This network structure is accepted by all
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Virtual Corporations
of the authors (Camarinha-Matos & Afsarmanesh, 2003, 2005; Weisenfeld et al., 2001), although they refer to it using different analogies and names. Where there is consensus is in the idea that the dynamic network is the most flexible organizational form known. Its main characteristics are: (1) disaggregation of the firm’s functions (design and development, manufacturing, marketing, and distribution), now carried out by independent organizations in a network; (2) existence of internal and external agents, responsible for linking the business functions of different firms (Aerts et al., 2002; Zarour, Boufaida, Seinturier, & Estraillier, 2005); (3) existence of market mechanisms for coordinating the functions, rather than plans and controls (Biggs, 2000); and (4) existence of freely accessible information systems for verifying each member’s contribution (Zarour et al., 2005), rather than the slow processes of mutual trust building. The virtual corporation is founded on a new type of worker. This organizational structure is based on the management of processes, demanding a flexible number of versatile and autonomous human resources. Thus, a radical change in corporate culture is required for the concept of virtual corporation to work. This culture will be reflected throughout the entire organization, requiring new management skills (Heneman & Greenberger, 2002; Khalil & Wang, 2002)—focusing on how to lead “persons” and manage “relationships” (Beranek & Martz, 2005)—and a new type of worker. With regards to human resource management, the emphasis is on retaining highly qualified workers in this type of organization (Erickson, 2004), and there is significant rotation of workers between the different functions and divisions of the firm. These workers turn the firm into a learning organization. Agile Web Inc. is an example of virtual corporation. It is made up of 20 successful small and medium-sized manufacturing enterprises in north-eastern Pennsylvania. The aim of this project was that small firms could become more
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competitive, more productive, and provide a greater value-added service to their customers by working together in new ways to provide totally integrated solutions. This virtual corporation has the ability to knit companies together in the right configuration to achieve each task with speed and efficiency. Agile Web Inc. acts as a single point of contact that directs all the aspects of multi-phase design and production projects, ever changing to meet the customer’s needs and anticipating them. The member companies are able to communicate by e-mail and electronic data interchange (EDI) to ensure a quick response. Agile Web Inc. offers a totally integrated chain of suppliers with high flexibility by a sharing of needed information rather than within a traditional hierarchical structure. The company’s mission is to provide customers with solutions at the lowest possible price, with the fastest delivery time and highest technical performance. This example of virtual corporation illustrates the above mentioned roles of the manufacturing function, information, and information technology, and the network structure.
FUTURE TRENDS It will be many years before we see the first real virtual corporation. There is no empirical evidence that fully supports this theoretical model, but there is growing interest in the model in the literature, as well as among firms. This model never gained widespread acceptance because the technology needed to integrate companies with their suppliers and customers did not exist. Now, the technology exists and companies are beginning to revisit the virtual corporation concept (Joukhadar & Binstock, 2000). Thus, for example Hector Ruiz (personal communication, January 24, 1997), after being named executive president of Motorola’s semiconductor sector, wrote in an internal memo that organizations like his were becoming increasingly virtual. This trend is recognized by the Electronics Manufacturing Service Industry
Virtual Corporations
(EMSI), which detects a shift towards the virtual corporation in companies as important as Apple, Cisco, Bay Networks, and HP. From the academic perspective, important lines of research are opening up. On the one hand, researchers could investigate which of the three models of virtual corporation described previously is most likely to be adopted by firms in the future. Another line of research would be to design an approach integrating the three models. Finally, it would be interesting to analyze the virtual corporation model from the perspective of the most consolidated theories of the firm (transaction cost economics, institutional theory, agency theory, options theory, population ecology theory, resource-based view of the firm, network theory, sociological theory, etc.). Analyzing the virtual corporation phenomenon with each of these theories would allow us to increase understanding of the phenomenon, its impact on firms and society, and future trends.
CONCLUSION The new knowledge-based economy requires flexibility, new organizational structures, and managerial processes—based more on information than on hierarchy. Firms need to encourage self-learning, adapt to and exploit rapid technological change, and use their core competencies to differentiate themselves from their competitors. The characteristics described previously are reflected in the different models of virtual corporation discussed in this article. The first model equates the virtual corporation to a temporary network of firms that quickly comes together to exploit temporary market opportunities, using the best resources and capabilities of each firm. The second model focuses on the manufacture of virtual products—which vary according to customer needs—by means of stable and trusting relationships with suppliers and customers. The third model of virtual corporation tries to turn the
fixed workforce costs into variable costs, which are only incurred when the market demands the product or service. This article outlines both the basic characteristics that define the virtual corporation—excellence, technology, trust, opportunism, and absence of borders—and other elements that, while they are not exclusive to virtual corporations, must always be present to make them possible. This is the case of the set of technologies making up the so-called lean manufacturing, of information and information technology, of the new type of worker, and of the organizational structures of variable geometry or dynamic networks. Nevertheless, all authors coincide in noting that we have not yet seen the pure virtual corporation defined in the theoretical literature. At present it remains just an important trend towards which many firms are gradually orienting their management and organizational structure.
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KEY TERMS AND DEFINITIONS Information Component of Products: All that the buyer needs to know to obtain and use the product, and hence achieve the desired result (information about product characteristics, instructions for use, and maintenance).
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Knowledge-Based Economy: An economy characterized by the recognition of knowledge as a source of competitiveness; the increasing importance of science, research, technology, and innovation in knowledge creation; and the use of computers and the Internet to generate, share, and apply knowledge. Lean Manufacturing: “A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise” (APICS Dictionary). Strategic Network: Agreements by which firms establish a web of close, stable relationships to provide products and services in a coordinated and flexible way. Teleworking: Professional activity that takes place in a firm and that is independent of the firm’s physical location. The person who does this work at a distance—the teleworker—keeps in contact with the firm using information technology.
Variable Cost Virtual Corporation: These firms turn fixed personnel costs into variable costs. They make use of freelance teleworkers, who can be called in or sent home at the employer’s convenience, and outsourcing (Coates, 2005). Variable Geometry Structure: Dynamic network of firms whose main components can be assembled and reassembled again and again to adapt to the complex and changing environmental conditions. Virtual Corporation as Temporary Network: Set of firms that come together quickly to exploit temporary opportunities appearing in the market, using each firm’s best resources and capabilities. Virtual Corporation That Manufactures Virtual Products: Stable and trusting relationships with suppliers and customers to manufacture products that adapt to each customer’s changing needs. Virtual Product: A product that adapts to the customer’s changing needs.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 3992-3996, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 1.4
E-Business Strategy in Franchising Ye-Sho Chen Louisiana State University, USA Chuanlan Liu Louisiana State University, USA Qingfeng Zeng Shanghai University of Finance and Economics, China
INTRODUCTION Franchising as a global growth strategy is gaining its popularity (Justis and Judd, 2002; Thomas and Seid, 2000; Chen and Justis, 2006). For example, the U.S. Commercial Service estimated that China, having over 2,600 brands with 200,000 franchised retail stores in over 80 sectors, is now the largest franchise market in the world (U.S. Commercial Service, 2008). The popularity of franchising continues to increase, as we witness an emergence of a new e-business model, Netchising, which is the combination power of the Internet for global demand-and-supply processes and the DOI: 10.4018/978-1-60960-587-2.ch104
international franchising arrangement for local responsiveness (Chen, Justis, and Yang, 2004; Chen, Chen, and Wu, 2006). For example, Entrepreneur magazine – well known for its Franchise 500 listing – in 2001 included Tech Businesses into its Franchise Zone that contains Internet Businesses, Tech Training, and Miscellaneous Tech Businesses. At the time of this writing, 45 companies are on its list. In his best seller, Business @ the Speed of Thought, Bill Gates (1999) wrote: “Information Technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other.” (p. 6) Gates’ point is quite true when one talks about e-business strategy in franchising. Thus, to see how e-business can be
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E-Business Strategy in Franchising
“meaningfully” used in franchising, one needs to know how franchising really works.
FRANCHISING: BUILDING THE FRANCHISOR/FRANCHISEE RELATIONSHIP Franchising is “a business opportunity by which the owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for the local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards. The individual or business granting the business rights is called the franchisor, and the individual or business granted the right to operate in accordance with the chosen method to produce or sell the product or service is called the franchisee.” (Justis and Judd, 2002, pp. 1-3) Developing a good relationship between the franchisor and the franchisee is the key for a successful franchise (Justis and Judd, 2002). Figure 1 describes how to build a good franchisor/franchisee relationship. The franchisor needs to learn continuously for the growth of the franchise. The learning process is developed through five stages (Justis and Judd, 2002): (1) Beginner – learning how to do it; (2) Novice – practicing doing it; (3) Advanced – do-
ing it; (4) Master – teaching others to do it; and (5) Professional – becoming the best that you can be. Once reaching the Advanced stage, most preceding struggles have been overcome. However, further challenges will arise as the franchise continues growing. This is especially true once the system reaches the “Professional” stage, where various unpredicted and intricate problems could arise. Bud Hadfield (1995), the founder of Kwik Kopy franchise and the International Center of Entrepreneurial Development, aptly stated: “The more the company grows, the more it will be tested.” (p. 156). To capture the learning process, a counter-clockwise round arrow surrounding the franchisor is used to depict the increasing intensity of learning as the franchisor continues to grow. The franchisee also goes through five stages of franchisee life cycle (Schreuder, Krige, and Parker, 2000): (1) Courting: both the franchisee and the franchisor are eager with the relationship; (2) “We”: the relationship starts to deteriorate, but the franchisee still values the relationship; (3) “Me”: the franchisee starts to question the franchisor that the success so far is purely of his/her own work; (4) Rebel: the franchisee starts to challenge the franchisor; and (5) Renewal: the franchisee realizes the “win-win” solution is to continue working with the franchisor to grow the system. Similar to the franchisor, a counter-clockwise
Figure 1. Understanding how the franchisor/franchisee relationship works
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E-Business Strategy in Franchising
round arrow surrounding the franchisee is used in Figure 1 to depict the increasing intensity as the franchisee continues growing. As the franchisee progresses through the life cycle, the good relationship gradually develops an influencing process (Justis and Vincent, 2001), depicted in Figure 1 with a bi-directional arrow. By going through the processes of learning and influencing, both the franchisor and the franchisee gain the progressive working knowledge of relationship management with the consumers and suppliers. The franchisor, the franchisee, the consumers, and the suppliers in Figure 1 are surrounded with dashed lines, indicating that there is no limit to the learning process.
E-BUSINESS STRATEGY IN FRANCHISE RELATIONSHIP MANAGEMNET With the advancement of Internet technology, franchise companies are adapting e-business strategies for perfecting the franchisor/franchisee
relationship to grow their franchises globally. Figure 2 is a visual depiction of deploying ebusiness strategy in franchising. This community of franchise companies, consumers, and suppliers can be virtually connected for relationship management as follows: •
•
•
Intra-enterprise collaboration through Intranet, enabling the franchisor to build up relationships with the board of directors, multi-unit franchisees, new franchisees, prospective franchisees, franchisor management and employees; Collaboration with consumers through Internet, enabling the franchisor and the franchisees to build up relationships with customers, prospective customers, investors, competitors, media, blogs, advocacy groups, and government; Collaboration with suppliers through Extranet, enabling the franchisor and the franchisees to build up relationships with members and affiliates of international franchise association, law firms, co-brand-
Figure 2. E-Business strategy in franchise relationship management
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E-Business Strategy in Franchising
ing partners, goods distributors, real estate agents, information systems consultants, accounting firms, and marketing agents.
HARNESSING THE E-BUSINESS STRATEGY AROUND THE CUSTOMER SERVICE LIFE CYCLE Table 1 shows a customer-service-life-cycle (CSLC) (Ives and Mason, 1990) e-business strategy in franchising (Chen, Chong, and Justis, 2002) for relationship management depicted in Figure 2. Here we define the franchisee as the customer of the franchisor and the franchisee’s customer as the customer’s customer of the franchisor. The stages of CSLC are based on two well-known franchising books by Justis and Judd (2002) and Thomas and Seid (2000). There are four major components in the ebusiness strategy: 1. Benchmarking the Requirements and Acquisition stages. The CSLC model shown in Table 1 is a comprehensive guide for a franchise to develop its web site, especially at the stages of Requirements and Acquisition. The model may be used to compare a franchise’s e-business strategy with its competitors. As the industry progresses, best practices based on the CSLC model will evolve and become a standard for benchmarking and websites enhancements. 2. Helping the franchisees serve their customers in the Ownership stage without the Internet encroachment. There is a rich collection of studies in e-business in franchising (Chen, Chong, and Justis, 2002) showing how the Internet can help the franchisees serve their customers in the Ownership stage, including “Marketing & Promoting the Franchise Products/Services” and “Managing the Franchise System”.
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3. Cultivating the Ownership and Renewal/ Retirement stages with effective knowledge management. As mentioned earlier, the greatest challenge in the Ownership stage is to build up the relationship between the franchisor and franchisee. To cultivate the Ownership stage so that “Professional” franchisee can advance to the Renewal stage instead of retiring, Chen, Chong, and Justis (2000) suggest building an Intranet-based Franchising Knowledge Repository. The Repository provides a framework based on which a franchise system may transform into a learning organization. 4. Partnering with the “disruptive technology” providers to enhance the CSLC stages. Innovative entrepreneurs will reengineer their franchise businesses around the CSLC model shown in Table 1. Their ability to track, analyze, and leverage the buying behaviors of their customers in the CSLC sub-stages is their real competitive advantage. For example, Statability.com is a “visionary Web-based Reporting” portal for the hospitality industry. In terms of the CSLC model, Statability.com is a focused business which reengineers around the sub-stages of Ownership. Its “disruptive technology” of reporting is adopted by many franchises in the hospitality industry. As discussed earlier, partnering with those “disruptive technology” providers will make the franchise system more competitive.
ALIGNING THE CSLC-BASED E-BUSINESS STRATEGY WITH APPLICATION SERVICE PROVIDERS Although Internet technology can help deploy the franchise’s e-business strategy, the immediate question is: at what cost? Because of the need for e-business processes to monitor the linkage of internal information technologies with external
Renewal or Retirement
Ownership
Acquisition
Requirements
CSLC
Becoming a Professional Multiunit Franchisee or Retiring from the Franchise System
Building the Relationship between the Franchisor and the Franchisee
Cultivating the franchisor/franchisee relationship with effective knowledge management tools (Chen, Chong, Justis, 2000a,b; Chen, Hammerstein, and Justis, 2002; Chen, Seidman, and Justis, 2005), e.g., basic communications support, distance learning, and centralized franchise applications such as employee recruitment and online ordering
Partnering with suppliers to enhance the various stages of CSLC continuously (Chen, Justis, and Wu, 2006), e.g., a franchise system may need to partner with banks to deliver good services at the stage of “Financing the Franchise Business”. Aligning the Internet and Intranet Strategy with reputable Application Service Providers (ASP) having focused businesses reengineering around the stages of CSLC (Chen, Ford, Justis, and Chong, 2001). For example, Statability.com is a “visionary Web-based Reporting” portal for the hospitality industry. It has the focused business reengineering around the stage of “Managing the Franchise System”. Its focused service is being respected by franchise companies in the hospitality industry, as is evidenced from the ever-increasing list of its client base, including Hilton and Marriott.
Transforming the organizational structure and corporate culture to fit the e-business operation pushed by the Intranet systems (Zeng, Chen, and Huang, 2008), e.g., designing an environment for more team work opportunities and establishing e-learning environment for the employees
Managing the Franchise System
Extranet Strategy
Intranet Strategy
Helping the franchisees make sales and serve their customers with proper policies dealing with the Internet encroachment issues
Using the web site as the friendly customer relationship management tool to address customer concerns at various stages (Chen, Chong, and Justis, 2002), e.g., providing useful on financing and showing how the franchise system may help finance the franchise investment Benchmarking and enhancing the web site continuously (Chen, Chong, and Justis, 2002; Chen, Justis, and Chong, 2008), e.g., identifying frequently the best practices of web deign in the industry and improving the web site accordingly
Internet Strategy
Marketing & Promoting the Franchise Products or Services
Signing the Contract
Financing the Franchise Business
Preparing Business Plan
Making the Choice
Obtaining Franchisee Prospectus
Investigating Franchise Opportunities
Understanding How Franchising Works
Sub-stages
Table 1. The customer-service-life-cycle (CSLC) e-business strategy in franchising
E-Business Strategy in Franchising
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processing and services, the e-business investment could be very expensive and complicated. Many franchise companies, especially small ones, find it financially difficult to invest in the e-business technologies; however, a new type of service in e-business called Application Service Providers (ASP) promises to make e-business more economical and affordable to the franchise systems. The concept of subscribing information technologies through ASPs has special appeal in the franchising industry because an ASP can duplicate success for other similar franchises quickly and inexpensively (Chen, Ford, Justis, and Chong, 2001). When aligning the CSLC-based e-business strategy with ASPs, a franchise company should focus on (Chen, Ford, Justis, and Chong, 2001): 1. Develop an overall vision of the applications, including software and hardware, needed for the company. 2. Determine what applications and the specific services, e.g., to be available 24 hours a day and 7 days a week with 99.999% of reliability, you want an ASP to host, which have to be clearly defined in the Service Level Agreement. 3. Evaluate ASP providers, i.e., vendors who provide the applications services, using flexibility and trust relationship as the two primary factors.
FUTURE TRENDS: AN ATTENTIONBASED FRAMEWORK FOR THE FRANCHISEE TRAINING The third industrial revolution, combining information technology with globalization, produces an environment where everyone is facing the problem of information overload. Simon (1971) spoke for us all when he said that ‘a wealth of information creates a poverty of attention.” (p.41) Getting the franchisee’s attention on training in an information rich world is a major challenge. Ocasio (1997) pro-
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posed an attention-based theory of the firm, which allows the firm to shield off irrelevant information and gain access to information relevant to what the firm focuses on. According to Ocasio (1997), attention is defined to “encompass the noticing, encoding, interpreting, and focusing of time and effort by organizational decision-makers on both (a) issues: the available repertoire of categories for making sense of the environment: problems, opportunities, and threats; and (b) answers: the available repertoire of action alternatives: proposals, routines, projects, programs, and procedures.” (p.188) Ocasio (1997) further classifies attention into three principles: (1) focus of attention, what decision makers do primarily depends on the selective issues and answers they focus attention on; (2) situated attention, what decision makers focus on and do depends primarily on the particular contextual environment they are located in; and (3) structural distribution of attention, how decision makers attend to the particular contextual environment they are in depends on how the firm’s attention structure (including rules, resources, and relationships) channels and distributes various issues, answers, and decision makers into specific communications and procedures. In the context of franchising, what do focus of attention, situated attention, and attention structures look like? How does a franchise design an attention-based training program for the franchisees? We propose an attention-based framework in Table 2 for the franchisee training. Such a framework has two dimensions. The first dimension is the franchisee life cycle, consisting of Beginner in the Courting Phase, Novice in the “We”-Phase, Advanced in the “Me”-Phase, Master in the Rebel Phase (since the rebel ones tend to be those who know the system well and are capable of influencing others to follow them), and Professional in the Renewal Phase. It is vital for relationship building to understand which stage the franchisee is situated and allocate appropriate resources at different touch-points to help them perform their focuses of attention. The second
E-Business Strategy in Franchising
dimension is the demand-and-supply value networks (Chen, Justis, and Wu, 2006), the attention structures of the franchise, consisting of customers, franchisee outlet, franchisor headquarters, suppliers and partners, and franchise community. The main body of the framework is the focus of attention of the franchise of different levels.
CONCLUSION Franchising has been popular as a growth strategy for businesses; it is even more so in today’s global and e-commerce world (Chen, Chen, and Wu, 2005). The essence of franchising lies in managing the good relationship between the franchisor and the franchisee. In this paper we showed e-business strategy plays an important role in growing and nurturing such a good relationship. Specifically, we discussed: (1) managing the franchisor/franchisee relationship through the
Table 2. An attention-based framework for the franchisee training
Franchisee Life Cycle
Situated Attention: Relationship Touch-points
Attention Structures: Demand & Supply Value Networks Customers
Franchisee Outlet
Franchisor Headquarters
Suppliers & Partners
Franchise Community
Beginner in the Courting Phase: Beginner Guide
Focus of Attention: Learning how to become a franchisee €€€• Understanding how franchising works €€€• Investigating franchise opportunities €€€• Obtaining franchisee prospectus €€€• Making the choice €€€• Preparing business plan €€€• Financing the franchised business €€€• Signing the contract
Novice in the “We”-Phase: Practicing
Focus of Attention: Practicing how to do activities such as: €€€• How to get training and services from the headquarters €€€• How to find a good site €€€• How to find suppliers €€€• How to work with the franchisor €€€• How to work with fellow franchisees
Advanced in the “Me”-Phase: Doing
Focus of Attention: Doing activities such as: €€€• How to acquire and keep customers €€€• How to hire, train, and fire employees €€€• How to manage inventory €€€• How to manage the back office operations
Master in the Rebel Phase: Teaching Others
Focus of Attention: Teaching others how to do activities such as: €€€• How to teach others €€€• How to work as team €€€• How to do the bulleted processes above for Beginner, Novice, and Advanced franchisees
Professional in the Renewal Stage: Creative Learning and Innovation
Focus of Attention: Becoming the best he/she can be by: • Learning to creatively improve activities such as: €€€• How to cut the cost of the operations €€€• How to increase the profit of the operations €€€• How to acquire other franchises and brands • Looking for opportunities for innovation such as: €€€• Are there any new growth opportunities we can create based on our intangible assets of demand & supply value chains? How do we avoid the loss of this new venture? €€€• Are there any partnership opportunities with our customers and suppliers so that their customers could become ours and vice versa. €€€• What are the major concerns in the communities and how can we help to deal with them and build a good media relationship also?
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CSLC approach, where organizational learning is believed to be the key to building the good relationship; (2) harnessing the e-business strategy around the CSLC approach, where four major components are discussed: benchmarking the requirements and acquisition stages, helping the franchisees serve their customers in the ownership stage and avoiding Internet encroachment, cultivating the ownership and renewal/retirement stages with effective knowledge management, and partnering with the “disruptive technology” providers to enhance the CSLC stages continuously; and (3) aligning the CSLC-based e-business strategy with application service providers, where trust relationship is the major issue.
REFERENCES Chen, Y., Chen, G., & Wu, S. (2006). A Simonian Approach to E-business Research: A Study in Netchising. In Advanced Topics in E-Business Research: E-Business Innovation and Process Management, Vol. 1. Chen, Y., Chong, P., & Justis, R. T. (2000a). Information Technology Solutions to Increase Franchise Efficiency and Productivity. In Proceedings of the 2000 Franchise China Conference and Exhibition, Beijing (November 6-7), Guangzhou (November 9-10), and Shanghai (November 1314), China. Chen, Y., Chong, P., & Justis, R. T. (2000b). Franchising Knowledge Repository: A Structure for learning Organizations. In Proceedings of the 14th Annual International Society of Franchising Conference, San Diego, California, February 19-20. Chen, Y., Chong, P., & Justis, R. T. (2002). EBusiness Strategy in Franchising: A CustomerService-Life-Cycle Approach. In Proceedings of the 16th Annual International Society of Franchising Conference, Orlando, Florida, February 8-10.
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Chen, Y., Ford, C., Justis, R. T., & Chong, P. (2001). Application Service Providers (ASP) in Franchising: Opportunities and Issues. In Proceedings of the 15th Annual International Society of Franchising Conference, Las Vegas, Nevada, February 24-25. Chen, Y., Hammerstein, S., & Justis, R. T. (2002). Knowledge, learning, and capabilities in franchise organizations. In Proceedings of the 3rd European Conference on Organizational Knowledge, Learning, and Capabilities, Athens, Greece, April 5-6. Chen, Y., Justis, R., & Wu, S. (2006). Value networks in franchise organizations: A study in the senior care industry. In Proceedings of the 20th Annual International Society of Franchising Conference, Palm Springs, California, February 24-26. Chen, Y., & Justis, R. T. (2006). Chinese Franchise Brands Going Globalization. In 1st Annual China Franchise International Summit, International Franchise Academy, Zhuhai, China, November 9-11. Chen, Y., Justis, R. T., & Chong, P. P. (2008). Data mining in franchise organizations. In J. Wang (Ed.), Data Warehousing and Mining: Concepts, Methodologies, Tools, and Applications (pp. 2722-2733). Chen, Y., Justis, R. T., & Yang, H. L. (2004). Global E-Business, International Franchising, and Theory of Netchising: A Research Alliance of East and West. In Proceedings of the 18th Annual International Society of Franchising Conference, Las Vegas, Nevada, March 5-7. Chen, Y., Seidman, W., & Justis, R. T. (2005). Strategy and docility in franchise organizations. In the Proceedings of 19th Annual International Society of Franchising Conference, London, UK, May 20-22. Gates, B. (1999). Business @ the Speed of Thought: Succeeding in the Digital Economy. Clayton, Australia: Warner Books.
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Hadfield, B. (1995). Wealth Within Reach. St. Paul, MN: Cypress Publishing. Ives, B., & Mason, R. O. (1990). Can Information Technology Revitalize Your Customer Service? Academy of Management Executive, 4(4), 52–69. Justis, R. T., & Judd, R. J. (2002). Franchising. Cincinnati, OH: DAME Publishing. Justis, R. T., & Vincent, W. S. (2001). Achieving Wealth Through Franchising. Avon, MA: Adams Media Corporation. Ocasio, W. (1997). Towards an attentionbased view of the firm. Strategic Management Journal, 18, 187. doi:10.1002/ (SICI)1097-0266(199707)18:1+<187::AIDSMJ936>3.3.CO;2-B Schreuder, A. N., Krige, L., & Parker, E. (2000). The Franchisee Lifecycle Concept – A New Paradigm in Managing the Franchisee-Franchisor Relationship. In Proceedings of the 14th annual International Society of Franchising Conference, San Diego, California, February 19-20. Simon, H. A. (1971). Designing organizations for an information rich world. In M. Greeberger (Ed.), Computers, Communications, and the Public Interest (pp. 38-52). Baltimore, MD: The Johns Hopkins Press. Thomas, D., & Seid, M. (2000). Franchising for Dummies. Boston: IDG Books. U.S. Commercial Service. (2008 April). China Franchising Industry. Beijing, China: The JLJ Group.
Zeng, Q., Chen, W., & Huang, L. (2008). E-Business Transformation: An Analysis Framework Based on Critical Organizational Dimensions. Journal of Tsinghua Science and Technology, 13(3), 408–413. doi:10.1016/S10070214(08)70065-8
KEY TERMS AND DEFINITIONS Customer Service Life Cycle: Serving customers based on a process of four stages: Requirements, Acquisition, Ownership, and Retirement. Many companies are using the approach to harness the Internet to serve the customers. Franchising: A business opportunity based on granting the business rights and collecting royalties in return. Franchisor: The individual or business who grants the business rights. Franchisee: The individual or business who receives the business rights and pay the royalties for using the rights. Franchisor/Franchisee Learning Process: The stages of learning, including Beginner, Novice, Advanced, Master, and Professional. Franchisee Life Cycle: The stages a franchisee goes through in the franchise system: Courting, “We”, “Me”, Rebel, Renewal. Franchisor/Franchisee Relationship Management: The vital factor for the success of a franchise, including: Knowledge, Attitude, Motivation, Individual Behavior, and Group Behavior.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 316-324, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 1.5
E-Business Strategy and Firm Performance Jing Quan Perdue School of Business, USA
ABSTRACT Electronic business (e-business) has been popularly lauded as “new economy.” As a result, firms are prompted to invest heavily in e-business related activities such as supplier/procurement and online exchanges. Whether the investments have actually paid off for the firms remain largely unknown. Using the data on the top 100 e-business leaders compiled by InternetWeek, this chapter compares the leaders with their comparable counterparts in terms of profitability and cost in both short-run and long-run. The authors find that while the leaders have superior performance based on most DOI: 10.4018/978-1-60960-587-2.ch105
of the profitability measurements, such superiority is not observed when cost measurements are used. Based on the findings, this chapter offers managerial implications accordingly.
INTRODUCTION The rapid expansion of e-business we witnessed in the late 1990s was nothing short of a spectacle. It seemed that almost everyone was talking about it, and every firm was eager to invest in it, hoping to take away a slice of the pie. Andy Grove, Chairman of Intel Corp, stated in 1998: “Within 5 years, all companies will be internet companies or they would not be companies.” (Intel, 2000).
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E-Business Strategy and Firm Performance
Merely mentioning of the “e” word could mean multi-million dollars. The case at hand was Zapata Corp, a fish oil processing company, co-founded by former US President George H. W. Bush. The company announced on December 23, 1998 that it would transform itself into an internet portal to compete with Yahoo!, Lycos and alike. Immediately following the announcement, Zapata’s stock price skyrocketed nearly 100% from 7.19 to 14.25 with trading volume at more than 2,000% higher than normal, according to Yahoo! Finance. Academic researchers rushed in and concluded that “a new economy was born.” The potential benefits of e-business are well documented by academic researchers and practitioners alike (InternetWeek 2000/2001; Phan, 2003). Organizations that integrate e-business applications, such as shared online database and internet-based reporting in their business processes, can lead to reduced cost, increased efficiency and profitability, and better customer relationship management. Perhaps, one of the most significant contributions of e-business applications is its abilities to directly bring sellers and buyers together with little middleman’s interventions. Although the advantages of e-business exist in theory, little empirical work has been done to confirm them. Some study actually showed an inconclusive link between e-business and sustainable development (Digital Europe, 2003, p.1): Our survey showed no conclusive evidence for companies that use a lot of e-business actually performing better than other companies on sustainable development, simply by virtue of their e-business use. There may be a relationship here - which could become more obvious as e-business applications are more fully integrated into companies’ operations - but more research would be needed to prove a link. Answering this call, researchers have attempted to build theoretical frameworks to pinpoint how e-business creates value. Using the technology-
organization-environment (TOE) framework Zhu, Kraemer, Xu, and Dedrick (2004) found that technology readiness, firm size, global scope, financial resources, competition intensity, and regulatory environment may affect e-business value creation. Amit and Zott (2001) integrated several theoretical perspectives on entrepreneurship and strategic management to identify four interdependent dimensions: efficiency, complementarities, lock-in, and novelty as sources of value creation. Despite the recent advancement of research in this area, the fundamental question regarding e-business remains unanswered, i.e., whether ebusiness creates value. This paper attempts to fill this vacuum by establishing a theoretical foundation to evaluating the linkage between e-business investments and firm performance in terms of profitability and cost savings. Confirmation or disconfirmation of the effectiveness of firms’ investments in e-business will contribute to the knowledge accumulation in this area. It can also provide an insight for future investments. We begin the paper by presenting our research framework grounded in the resource-based view (Barney, 1986; Barney, 1991; Conner, 1991; Rumelt, 1984). Resource-based view argues that firm-specific skills and resources that are rare and difficult to imitate or substitute are the main drivers of firm performance. We show how e-business initiatives create unique skills and resources for firms. Then we formulate our hypotheses, discuss the data set and methodology, and present estimation results. Finally, we provide discussion of the results and suggestions for future research.
RESEARCH FRAMEWORK: THE RESOURCE-BASED VIEW Broadly speaking, e-business value is a subset of the business value of IT. The business value of IT investments in general has been long debated, which led to the birth of the famous term “productivity paradox.” Some studies provide posi-
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tive support for the business value of computer investments (Brynjolfsson 1993; Brynjolfsson and Hitt 1996; Hitt and Brynjolfsson 1996; Bharadwaj 2000; Stratopoulos and Dehning 2000). On the other hand, Strassmann (1997) argues that IT investments have no discernible effects on firm profitability measured in return on assets (ROA), return on equity (ROE), and economic value added (EVA). In an attempt to explain the inconclusiveness, some researchers propose several theoretical models that examine the entire process needed for IT investments to make an impact on business value (Lucas 1993; Markus and Soh 1993). One of the dominate views is the resource-based view (RBV). Based on this view, IT investment itself does not provide any sustainable value because competitors can easily duplicate the investment by purchasing the same hardware and software. Rather, competitive advantages are derived from the manner in which firms deploy IT to generate a unique set of resources and skills that are difficult to duplicate (Clemons 1986, 1991; Clemons and Row 1991; Mata et al. 1995). This type of resources is firm specific, rare, imperfectly imitable, and not strategically substitutable by others create competitive advantages for firms (Barney, 1991). Grant (1991) extends the RBV by linking resources to organizational capabilities. Firms generate organizational capabilities by optimally assembling their resources. When these capacities are embedded in organizational processes, it makes firms deploy resources more effectively and efficiently than its competitors. In turn, competitive advantages are created. Adopting this RBV, one can see that IT investments themselves do not necessarily generate sustained value because competitors can easily duplicate the action by investing in the same or equivalent hardware and software. In order to achieve competitive advantages of IT investments, firms must leverage their investments (resources) to create unique capacities that impact their overall effectiveness.
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E-BUSINESS AND COMPETITIVE ADVANTAGE Information systems researchers have classified key IT-based resources into three categories: (1) the physical IT infrastructure (the tangible resources); (2) the technical and managerial IT skills (the human resources); and (3) the intangible resources such as knowledge base, customer relations, and synergy (Bharadwaj, 2000; Grant, 1995). To be successful, e-business based firms need to invest in a new type of IT infrastructure that can provide real time responses 24/7 to customer inquiries. Some emerging infrastructures include XML, server farms, and dynamic storage. In addition, to protect the infrastructures and ensure the integrity of information, firms need to heavily invest in security. All these require IT and management staff to possess necessary skills for managing the new working environment. This allows the firms to acquire unique, rare and firm specific technical and managerial skills. With the infrastructure and management skills in place, the firms can manage their knowledge base better and create synergies between different working units. In the process, they can become truly customer oriented. Therefore, from the resource-based perspective, e-business initiatives help firms to obtain competitive advantage in the marketplace. In this paper, we measure competitive advantage in terms of either higher profit or lower cost. As a result, we propose the following hypotheses: H1:The average profit ratios of the e-business leader firms are higher than those of the non-leaders. H2:The average cost ratios of the e-business leader firms are lower than those of the non-leaders.
METHODOLOGY We adopt the “matched sample comparison group” method, which has been extensively used in previ-
E-Business Strategy and Firm Performance
ous research (Bharadwaj, 2000, Stratopoulos and Dehning 2000). In this methodology, there are two samples: the first sample is a treatment group and the second is a carefully selected control group that is matched to the treatment group by size and type. Then the levels of interest variables of these two samples are compared. In our case, the treatment group consists of the firms identified by the industry as e-business leaders while the control group consists of the matched firms in terms of size and type.
Dataset In 2000 and 2001 InternetWeek published a special issue InternetWeek 100, in which 100 e-business leaders were identified for their effectiveness in using internet to achieve tangible business benefits (InternetWeek, 2000/2001). They were evaluated based on their e-business participation in customer-oriented activities, supplier/procurement activities, electronic marketplace, integration of front- and back-end systems, revenue growth, and cost cutting efforts. In order to obtain a consistent sample, we restricted the selection of the companies that were identified as leaders in both years. In addition, firms must have complete financial data on Compustat for the period of 1999 to 2002. This process led to 46 companies in the treatment sample. For the control sample, we first specified that a matching firm must be in the same industry as the leader based on the 4-digit primary Standard Industrial Classification (SIC) code. Second, the average sales of the matching firm must be within 70% to 130% of the leader firm’s. When there were multiple matches, the firm with five-year average sales closest to that of the leader firm was selected. If a match couldn’t be identified in this fashion, then the 4-digit SIC matching rule was relaxed to three- or two-digit SIC. This procedure has been used by previous studies such as Bharadwaj (2000) and Barber and Lyon (1996). Firms in both groups are listed in the Appendix.
Table 1 provides the descriptive statistics for the two groups. The t-test does not reveal any systematical differences between them in terms of size measures such as sales, total assets and number of employees. Two categories of variables are collected for both treatment and control samples to test the aforementioned two hypotheses related to profit and cost. Five profit ratios include return on assets (ROA), return on sales (ROS), operating income to assets (OI/A), operating income to sales (OI/S), and operating income to employee (OI/E). Three cost ratios are total operating expenses to sales (OEXP/S), cost of goods sold to sales (COGS/S), and selling and general administrative expenses to sales (SG&A/S). Total operating expenses are defined as the sum of COGS and SG&A. The rational for those variables can be found in Bharadwaj (2000).
Statistical Tests and Outliers Our primary interest is to test the hypotheses that the mean levels of operational performance variables of e-business leaders are better than those of non-leader firms. Traditional standard t-test would be used for this purpose. However, since the distributions of financial ratios, such as the variables defined above, tend to be nonnormal, skewed and fat tailed, non-parametric test is preferred (Bharadwaj, 2000; Stratopoulos and Dehning, 2000). In this paper, we use the Wilcoxon signed rank test. Another characteristic of financial data is that there are a significant number of outliers. As a data treatment, we followed a methodology suggested by Stratopoulos and Dehning (2000) by removing those data points that fall more than 1.5 times the interquartile range above the third quartile or below the first,.
59
E-Business Strategy and Firm Performance
Table 1. Descriptive statistics 1999
E-Business Leaders
Control Sample
Mean
Mean
Median
Difference of Means Median
T
Sales (billion $)
20.84
11.27
18.56
10.28
1.326
Assets (billion $)
45.61
16.54
35.72
12.74
1.103
Number of Employees
82348
45504
120931
54450
-0.859
Median
T
2000
E-Business Leaders
Control Sample
Mean
Mean
Median
Difference of Means
Sales (billion $)
23.05
12.26
20.78
11.42
1.207
Assets (billion $)
57.17
20.49
41.96
13.02
1.474
Number of Employees
89888
44000
121425
46546
-0.900
2001 Sales (billion $)
E-Business Leaders
Control Sample
Mean
Median
Mean
Median
T
Difference of Means
21.69
12.81
20.72
11.33
0.531
Assets (billion $)
56.52
20.25
44.80
13.71
1.115
Number of Employees
85435
46800
121199
62175
-1.175
2002 Sales (billion $)
E-Business Leaders
Control Sample
Mean
Median
Mean
Median
T
Difference of Means
21.66
11.92
20.38
11.45
0.605
Assets (billion $)
59.08
19.50
48.47
13.79
0.922
Number of Employees
83961
47480
101336
44323
-1.315
RESULTS AND DISCUSSION Table 2 provides the one-sided Wilcoxon signed rank results for the aforementioned profitability related variables between e-business leaders and control sample from 1999 and 2002. E-business leaders performed better in terms of all measures but one (OIE) in 1999, the year before they were identified as e-business leaders. This indicates that financial performance was one of the considerations for their selections. Most of the advantages were maintained in 2000, except for ROA, while the leaders now performed better based on the OIE measurement. In 2001, however, there were no significant differences between the leaders and matched firms in all financial variables. In the last year of our sample, e-business leaders performed better than the control sample in terms of three out of 5 financial ratios. Based on the discussion
60
above, we can conclude that overall our hypothesis #1 is partially supported. Table 3 provides the one-sided Wilcoxon signed rank test results for the aforementioned cost related variables between the e-business leaders and the control sample from 1999 and 2002. Throughout all these years there were no significant differences between the leaders and the matched firms. This finding is largely consistent with other studies such as Bharadwaj (2000), and Mitra and Chaya (1996). Based on the results, we conclude that our hypothesis #2 is not supported.
CONCLUSION As businesses rushed to invest in the “new” economy, pressured by either the thinking of a
E-Business Strategy and Firm Performance
Table 2. E-business and profitability 1999 Mean ROAleaders ROAcontrol ROSleaders ROScontrol OIAleaders OIAcontrol OISleaders OIS-control OIEleaders OIE-control
Median
5.145
4.508
3.876
2.726
0.076
0.067
0.051
0.045
0.112
0.092
0.085
0.068
0.136
0.121
0.104
0.089
0.033
0.025
0.027
0.018
2000 Pr>Z 0.06c
0.01
a
0.02
b
0.01
b
0.18
Mean
Median
5.327
3.810
4.067
3.457
0.066
0.070
0.052
0.049
0.097
0.089
0.067
0.064
0.132
0.121
0.095
0.085
0.042
0.032
0.024
0.016
2001 Pr>Z 0.31
0.04
b
0.02
b
0.01
a
0.01a
Mean
Median
2.789
1.659
1.452
1.513
0.052
0.043
0.020
0.032
0.076
0.064
0.059
0.049
0.088
0.079
0.092
0.068
0.028
0.023
0.023
0.011
2002 Pr>Z 0.22
0.10
c
0.12
0.32
0.21
Mean
Median
3.126
2.892
1.384
2.031
0.029
0.032
0.021
0.032
0.068
0.069
0.045
0.046
0.096
0.104
0.074
0.069
0.027
0.021
0.021
0.014
Pr>Z 0.02b
0.49
0.02b
0.05b
0.33
Notes: a 1% level, b 5% level, c 10% level ROA - return on assets; ROS – return on sales; OIA – operating income to assets; OIS – operating income to sales; OIE – operating income to employees.
Table 3. E-business and cost 1999 Mean COG/Sleaders COG/S-control SGA/Sleaders SGA/S-control OPEXP/Sleaders OPEXP/Scontrol
Median
0.650
0.699
0.653
0.669
0.230
0.228
0.237
0.214
1.086
0.788
1.223
1.301
2000 Pr>Z 0.49
0.37
0.13
Mean
Median
0.638
0.683
0.644
0.650
0.236
0.233
0.236
0.238
1.227
0.952
1.175
1.234
2001 Pr>Z 0.42
0.49
0.33
Mean
Median
0.690
0.708
0.670
0.683
0.245
0.232
0.243
0.237
1.208
0.956
1.229
1.316
2002 Pr>Z 0.80
0.59
0.25
Mean
Median
0.656
0.659
0.679
0.683
0.240
0.224
0.254
0.230
1.263
1.238
0.909
1.315
Pr>Z 0.46
0.32
0.22
Notes: COG/S – cost of goods sold to sales; SGA/S – selling and general administration expense to sales; OPEXP/S – operating expenses to sales.
61
E-Business Strategy and Firm Performance
paradigm swift or peers during the internet boom, the payoff of such investments was not as important as making the move or taking action. Now that the bubble has burst, companies are forced to focus once again to justifying their IT investment decisions. This study aims to provide an assessment whether the investments made in e-business during the boom period had actually paid off in terms of profitability and cost in both short- and long-runs. Using the e-business leaders identified by InternetWeek, we created a control sample that matched the leaders based on industry type and size. The performances, measured in profit and cost, of these two groups were compared using the Wilcoxon signed rank non-parameter test. The results indicate that in terms of profitability e-business leaders performed better than the control sample in the long-run but the superior performance fluctuated in the short-run. In terms of cost, there were no significant differences between the leaders and the control sample in both the short- and long-runs. The combination of leaders’ higher profitability than and the same cost measures as the firms in the control sample is consistent with the observation by Bharadwaj (2000, p187) that “IT leaders do not necessarily have a cost focus, but tend to exploit IT for generating superior revenues.” Based on the findings in this study, we suggest that management should be very clear about the time horizon of the e-business, or IT in general, investments. The findings of this study demonstrate that the consistent superior financial performances of the e-business leaders are only observed in the long-run. In reality, management often fails to see the long-run benefits from new IT investments due to the cost concerns of new IT in the short-run. Dehning et al. (2005) suggest that management should take a long-term view because IT might allow a firm to form relationships with its customers and suppliers and reduce variability in cash flows and earning. The combined effect of such interactions between the other variables may
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easily make up for the temporary increase in cost and decline in competitive advantage. This type of research using a third party ranking suffers a few limitations, such as causality, indirectness of measurements, inherent biases of leader firms, the selection of the control sample, as suggested by Bharadwaj (2000) and Stratopoulos and Dehning (2000). Those limitations may serve as the directions for future research. Santhanam and Hartono (2003) suggest a different way of selecting the control sample. Instead of choosing a single benchmark firm for each e-business leader, one can consider all the firms in that industry for comparison. They argue that this method is more consistent with the procedure of selecting leaders, robust and general. Future research can consider adopting this approach of sample selection. Another logical follow-up study would be to extend the period beyond 2002 to examine the impact of e-business investment in the long term.
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E-Business Strategy and Firm Performance
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Grant, R. M. (1991). The resource-based theory of competitive advantage. California Management Review, 33(3), 114–135. Grant, R. M. (1995). Contemporary Strategy Analysis. Oxford, UK: Blackwell Publishers, Inc. Hitt, L. M., & Brynjofsson, E. (1996). Productivity, business profitability, and consumer surplus: three different measures of information technology value. MIS Quarterly, 20(2), 121–142. doi:10.2307/249475 Intel (2000). Retrieved January 23, 2004 from http://www.intel.com/ebusiness/estrategies/ enabling/ InternetWeek. (2000). InternetWeek 100, Special Issue, June 8. http://internetweek.cmp. com/100/100-00.htm. Retrieved on February 18, 2004. InternetWeek. (2001), InternetWeek 100, Special Issue, June 11. http://internetweek.cmp. com/100/100-01.htm. Retrieved on February 18, 2004. Lucas, H. C. (1993). The business value of information technology: a historical perspective and thoughts for future research, in strategic information technology management: perspectives on organizational growth and competitive advantage. In R. Banker, R. Kauffman, and M.A. Mahmood (Eds.), Strategic Information Technology Management: Perspectives on Organizational Growth and Competitive Advantage. Hershey, PA: Idea Group Publishing. Markus, M. L., & Soh, C. (1993). Banking on information technology: converting it spending into firm performance. In R. Banker, R. Kauffman, and M.A. Mahmood (Eds.), Strategic Information Technology Management: Perspectives on Organizational Growth and Competitive Advantage. Hershey, PA: Idea Group Publishing.
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Mata, F. J., Fuerst, W. L., & Barney, J. B. (1995). Information technology and sustained competitive advantage: a resource-based analysis. MIS Quarterly, 19(4), 487–505. doi:10.2307/249630 Mitra, S., & Chaya, A. K. (1996). Analyzing cost effectiveness of organizations: the impact of information technology spending. Journal of Management Information Systems, 13(2), 29–57. Phan, D. D. (2003). E-business development for competitive advantages: a case study. Information & Management, 40(6), 581–590. doi:10.1016/ S0378-7206(02)00089-7 Rumelt, R. P. (1984). Toward a strategic theory of the firm. In R. Lamb (Ed.), Competitive strategic management (pp. 556-570). Englewood Cliffs, NJ: Prentice-Hall.
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Santhanam, R., & Hartono, E. (2003). Issues in linking information technology capability to firm performance. MIS Quarterly, 27(1), 125–153. Strassmann, P.A. (1997, September 15) Computers have yet to make companies more productive. ComputerWorld. Stratopoulos, T., & Dehning, B. (2000). Does successful investment in information technology solve the productivity paradox? Information & Management, 38(2), 103–117. doi:10.1016/ S0378-7206(00)00058-6 Zhu, K., Kraemer, K. L., Xu, S., & Dedrick, J. (2004). Information technology payoff in e-business environment: an international perspective on value creation of e-business in the financial service industry. Journal of Management Information Systems, 21(1), 17–54.
E-Business Strategy and Firm Performance
APPENDIX Table 4. E-business leader firms and matched sample E-Business Leaders
SIC
Control Sample
SIC
ANHEUSER-BUSCH COS INC
2082
KIRIN BREWERY LTD -ADR
2082
MILLER (HERMAN) INC
2520
HON INDUSTRIES
2522
KIMBERLY-CLARK CORP
2621
3M CO
2670
KNIGHT-RIDDER INC
2711
AMERICAN GREETINGS -CL A
2771
AIR PRODUCTS & CHEMICALS INC
2810
ROHM & HAAS CO
2821
DU PONT (E I) DE NEMOURS
2820
BAYER A G -SPON ADR
2800
DOW CHEMICAL
2821
AVENTIS SA -ADR
2834
EASTMAN CHEMICAL CO
2821
PRAXAIR INC
2810
BRISTOL MYERS SQUIBB
2834
ABBOTT LABORATORIES
2834
AVON PRODUCTS
2844
LAUDER ESTEE COS INC -CL A
2844
PPG INDUSTRIES INC
2851
COLGATE-PALMOLIVE CO
2844
GILLETTE CO
3420
CROWN HOLDINGS INC
3411
CISCO SYSTEMS INC
3576
SUN MICROSYSTEMS INC
3571
EMERSON ELECTRIC CO
3600
ELECTROLUX AB -ADR
3630
AMERICAN PWR CNVRSION
3620
ALTERA CORP
3674
WHIRLPOOL CORP
3630
KYOCERA CORP -ADR
3663
NORTEL NETWORKS CORP
3661
ERICSSON (L M) TEL -ADR
3663
INTEL CORP
3674
MOTOROLA INC
3663
DAIMLERCHRYSLER AG
3711
FORD MOTOR CO
3711
RAYTHEON CO
3812
NORTHROP GRUMMAN CORP
3812
CSX CORP
4011
NORFOLK SOUTHERN CORP
4011
UNION PACIFIC CORP
4011
BURLINGTON NORTHERN SANTA FE
4011
UNITED PARCEL SERVICE INC
4210
UNITED STATES POSTAL SERVICE
4210
CONSOLIDATED FREIGHTWAYS CP
4213
YELLOW CORP
4213
ALASKA AIR GROUP INC
4512
AMERICA WEST HLDG CP -CL B
4512
AMR CORP/DE
4512
BRITISH AIRWAYS PLC -ADR
4512
DELTA AIR LINES INC
4512
NORTHWEST AIRLINES CORP
4512
AT&T CORP
4813
DEUTSCHE TELEKOM AG -SP ADR
4813
COX COMMUNICATIONS -CL A
4841
BRITISH SKY BRDCSTG GP -ADR
4833
ARROW ELECTRONICS INC
5065
GENUINE PARTS CO
5013
AVNET INC
5065
TECH DATA CORP
5045
PENNEY (J C) CO
5311
TARGET CORP
5331
SEARS ROEBUCK & CO
5311
KMART HOLDING CORP
5331
OFFICE DEPOT INC
5940
TOYS R US INC
5945
STAPLES INC
5940
RITE AID CORP
5912
J P MORGAN CHASE & CO
6020
CITICORP
6020
MELLON FINANCIAL CORP
6020
BANCO COMERCIAL PORTGE -ADR
6020
continues on following page 65
E-Business Strategy and Firm Performance
Table 4. continued E-Business Leaders
SIC
Control Sample
SIC
SCHWAB (CHARLES) CORP
6211
BEAR STEARNS COMPANIES INC
6211
HARTFORD FINL SVCS GRP INC
6331
MILLEA HOLDINGS INC -ADR
6331
HILTON HOTELS CORP
7011
STARWOOD HOTELS&RESORTS WLD
7011
MARRIOTT INTL INC
7011
INTERCONTINENTAL HOTELS -ADR
7011
INTL BUSINESS MACHINES CORP
7370
FUJITSU LTD -SPON ADR
7373
COMPUTER ASSOCIATES INTL INC
7372
KELLY SERVICES INC -CL A
7363
MICROSOFT CORP
7372
ADECCO S A -SPON ADR
7363
GENERAL ELECTRIC CO
9997
SIEMENS A G -SPON ADR
9997
This work was previously published in Technological Advancement in Developed and Developing Countries: Discoveries in Global Information Management, edited by M. Gordon Hunter and Felix B. Tan, pp. 389-399, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 1.6
Conservation of Information and e-Business Success and Challenges: A Case Study Huilien Tung Auburn University, USA Hsiang-Jui Kung Georgia Southern University, USA Désirée S. Lawless Woodward, USA Donald A. Sofge Naval Research Laboratory, USA William F. Lawless Paine College, USA
ABSTRACT Guided by the authors’ theory of the (COI), which holds that the transformation pairs of information uncertainty between time and frequency remain DOI: 10.4018/978-1-60960-587-2.ch106
constant (or alternately uncertainty for geospatial position and spatial frequency), they describe a case study on an international corporation based in Taiwan to demonstrate COI factors associated with the challenges and successes in the adoptions of e-business by the firm and by small and medium size enterprises in general.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Conservation of Information and e-Business Success and Challenges
BACKGROUND e-Business is business exchanges on the Internet which utilize information and communication technologies to support business activities and processes. Beside regular selling and buying transactions, web-based customer service and collaboration with business partners are central components of e-Business. Web applications are the glue joining Information Technology (IT) infrastructure with the business processes that e-Business services deliver to constituents. Reviewing web applications over the past ten years, scholars agree that more features are offered every year, producing more complexity as web design methods and technologies advance (Kung, Tung & Case, 2007). However, a Standish Group (2002) survey on web applications development shows that 84 percent of development projects do not meet business needs, 56 percent do not have the required functionality, 79 percent are behind schedule, and 63 percent are over budget. These challenges are especially hard on small to medium sized businesses. We will use theory and a case study to discuss the challenges and successes that e-Business organizations face from ever evolving technologies, different e-business process requirements, different e-platforms, and different e-infrastructures.
THEORY We review the state of interdependence theory and the evidence in support of it. This section engages in mathematical modeling. Whenever possible, we will summarize the results to minimize the need by readers for mathematics to better understand the material. In fact, the conclusion to draw is that understanding is a byproduct of a strongly independent worldview; an interdependent worldview, should one exist, precludes the existence of a “single understanding” or “situational analysis”. Instead, the conclusion is that in an interdependent
68
world, single perspectives or worldviews reflect human and cultural tradeoffs coupled to a residual, irreducible level of uncertainty. A single perspective in isolation is static, but two together, existing in a state of interdependence (ι), can produce a potent dynamic. What follows is our approach to a theory of ι. In sum, dynamics are the result of competitive behaviors represented by the existence of two mutually incommensurable view points (Republicans and Democrats; conservatives and liberals; market economists and socialists; etc.). These polar opposite views serve many key but seldomly appreciated functions in society: Under conflict, we learn better (Dietz et al., 2003); we make better political decisions (e.g., Coleman, 2003); and we make better economic decisions (Hayek, 1944). But how can this conflict be modeled? And what relationship can be established to winning and losing across social, political or market landscapes? A Hilbert Space (HS) is an abstract space defined so that vector positions and angles permit the calculations of distance, reflection, rotation and geospatial measurements, or subspaces with local convergences where these measurements can occur. That would allow real-time determinations of the situated, shared situational awareness in localizing the center of a target organization, σx-COG, to represent the shared uncertainty in social-psychological-geospatial terms, and σk to similarly represent the spatial frequencies of an organization’s patterns displayed across physical space (e.g., the mapping of social-psychological or organizational spaces to physical networks). It would establish an “oscillation” between two socio-psycho-geospatial operators A and B such that [A,B] = AB - BA =iC ≠ [B,A].
(1)
This type of an oscillation defines a social-psychological decision space within an organization. It is called an “oscillator” because decision-making
Conservation of Information and e-Business Success and Challenges
occurs during rapid-fire turn-taking sessions driven by big self-interests that “rotate” attention for the topic under discussion in the minds of listeners or deciders first in one valence direction (e.g., “endorsing” a proposition) followed by the opposite (e.g., “rejecting” a proposition) to produce a “rocking” or back and forth process, like an organizational or social-psychological harmonic oscillator (SPHO) within an organization, or like the merger and acquisition (M&A) negotiations between a hostile predator organization and its prey target. But these oscillations may not occur in the minds of the agents who are driving the discussion (e.g., oscillation occurs in the minds of neutral jury members as first a prosecutor’s case is presented to them followed by a defense attorney’s case, but specifically not in the partisan minds of the prosecutor or defense attorney, unless they are seeking a compromise; or not in the minds of a predator organization competing for its prey M&A target organization but more likely in the observers more neutral to the M&A process yet who are not neutral to making a profit; in Lawless et al., 2009). A democratic space could be defined as a space where decisions characterized by SPHOs are made by majority rule (e.g., jury, political, or faculty decisions); the lack of an SPHO identifies decisions made by minority (consensus) or authoritarian rules (e.g., decisions where countervailing views are suppressed, as in common to military, authoritarian government or CEO business decisions; Lawless et al., 2007). The key to building the abstract representations necessary to construct an SPHO may be to locate opposing clusters of the shared interpretations of concepts geospatially across physical space or via a socio-psychological network anchored or mapped to physical network space. SPHOs should generalize to entertainment or stories. Similar to a decision process involving drivers and neutrals, we propose that a story or stage production, as found by Hasson and his colleagues (2004) in their study of inter-subjectivity among viewers
of a Clint Eastwood movie, engages and holds an audience’s attention with this rocking process. SPHO rocking produces fluctuations that produce information characteristic of an organization’s stability response. This insight suggests that the reverse engineering of terrorist organizations may be possible (Lawless et al., 2007). The operators A and B are community interaction matrices that locate social objects interdependently,ι, in social space (shared conceptual space) that are in turn separately anchored (embedded or situated) in geospatial or physical space. ι states are non-separable and non-classical; disturbances collapse ι states into classical information states. Two agents, one as an web-based firm’s President and the second as the Chief Technology Officer (CTO), meet in the President’s office, the choice of seating location reflecting the relative social power of the President over the subordinate CTO, but the CTO holding a skill set required by the organization that permits the two to negotiate while both are aware of their different functions and relative social ranks in the organization (Ambrose, 2001), generating bistable social perspectives that reflect the separate social constituencies that drive compromises (Wood et al., 2009); e.g., in contrast to the gridlock in the Department of Energy’s (DOE) Hanford cleanup driven by its consensus-ruled Citizens Advisory Board (CAB) where compromises can be easily blocked, compromises made by the majorityruled DOE Savannah River Site (SRS) CAB have accelerated environmental remediation at SRS (Lawless et al., 2008). Per Bohr (1955), complementarity actors and observers and incommensurable cultures generate conjugate or bistable information couples that he and Heisenberg (1958) suggested paralleled the uncertainty principle at the atomic level. We have built a model to test their speculation and to extend it to role conflicts (Lawless et al., 2009). But even for mundane social interactions, Carley (2002) concluded that humans became social to reduce uncertainty. Thus, the information avail-
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Conservation of Information and e-Business Success and Challenges
able to any human is incomplete, producing uncertainty. More importantly, this uncertainty has a minimum irreducibility that promotes the existence of tradeoffs between any two factors in an interaction (uncertainty in worldviews, stories or business models, ∆WV, and their execution, ∆v; uncertainty in centers of gravity ∆xCOG and spatial frequencies, ∆k; and uncertainty in energy, ∆E, and time, ∆t). The uncertainty in these oscillations can be reformulated1 to establish that Fourier pairs, consisting of standard deviations, are equal to: σAσ B> ½
(2)
Equation (2) indicates that as variance in factor A broadens, variance in factor B narrows. To summarize, a model of interdependence in the interaction or organizations must be able to: 1. Reflect orthogonal perspectives (i.e., Nash equilibriums; cf. Luce & Raiffa, 1967); e.g., between prosecutors and defense attorneys (Busemeyer & Trueblood, 2009); between actions and observations or between multiple cultures (Bohr, 1955); between USAF combat fighter jet pilots and book-knowledge of air combat maneuvering (Lawless et al., 2000); between game-theory preferences and actual choices made during games (Kelley, 1992); and to capture the discrepancy between the views of managers and the decisions made by their organizations (Bloom et al., 2007). 2. Allow rotation vectors as a function of the direction of rotation. Permit measurements between vectors and rotations. 3. Enable a mathematics of interdependent (ι) bistability where measurements disturb or collapse the ι states that occur during socialpsychological interactions in physical space. 4. Test the proposition that information in organizational interactions can be modeled by the conservation of information.
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What we have accomplished above is to model social rotations as part of an SPHO. What we have not done to this point is to link SPHO with winners and losers in society, politics, or the market place. However, the existence of an SPHO should it be established would alone signify the value of stability to organizations and social systems. An SPHO allows us to study organizations as they search for stability (mergers; in Lawless et al., 2009). We will do this next with a case study.
CASE STUDY MiTAC Inc. was founded in 1974 as the original member of MiTAC-SYNNEX Group. The group now consists of more than 40 companies from different fields such as electronic gases & chemicals, design and manufacturing of IT and mobile communication devices, system integration and Internet technology, as well as distribution and fulfillment. MiTAC-SYNNEX Group has been trying to form a unique group, called the “NDimensional Network Organization”2, a tight network (i.e., reduced uncertainty) of different specialized units interlinked to achieve common goals. They define the N-Dimensional Network Organization as one organization that combines a problem-solving group domain of knowledge, group synergy, e-Centric skills and growth. The original core business of MiTAC Inc. was the personal computer (PC) market. In 1974, MITAC introduced the INTEL microprocessor system to Taiwan and the first super-minicomputer (Perkin-Elmer, 32-bit) and then moved on to model system integration. Later, it developed the first commercial Chinese terminal, a computerized taxation system and the first auction system in Taiwan. In the 1980s, MiTAC launched the first Chinese terminal named Ha-Tun, developed the first multi-processor system in Taiwan, established the Traffic Surveillance system for the National Chungshan freeway and got involved in different systems such as population, land, military and
Conservation of Information and e-Business Success and Challenges
police administration. In the 1990s, it entered the communication, network and education fields, produced industrial computers, built the island-wide united Credit Card Center networking system, and expanded into mainland China. Aiming at becoming a trend leader, MiTAC has been moving toward the field of Internet service by providing e-commerce web services in the 2000s. From 2000 to the present, it also developed a Self-service Counter System (SCS) for financial markets, constructed a Taipei Easy Card system using Smart Card technology, teamed up with Thales and Fubon Back to play a major part with the Taiwan High-Speed Consortium, and become the first company in Taiwan to attain a CMMI Maturity Level 3 appraisal for Systems Engineering and Software Engineering.3 MiTAC expanded from commercial computer production and system integration to IT distribution. It is now the largest IT system integration provider in Taiwan. As stated on its website, its goal is “to incorporate advanced technology and management knowledge, providing customers with comprehensive, dynamic solutions to improve productivity and working efficiency to better compete in the marketplace.” 4 MiTAC Inc. has accomplished a number of system integration projects. Their clients include governmental organizations, militaries, financial institutes, and private enterprises. In response to the “Digital Taiwan Plan” authorized by the Taiwan government, the wide-range of its clients demonstrates MiTAC’s managing concept of “eGovernment, e-Industry, and e-Society”. We list major projects from all three of these areas.
E-GOVERNMENT MiTAC has developed various information systems for different Taiwan government branches that illustrate its versatility.
•
•
•
•
•
•
Integrated Tax System (ITS): ITS is a full-scale operation service for the outsourcing program of Taiwan’s Internal Revenue Service. It is a dual-phased, cross platform system that provides data exchange through Internet and Gateways using different platforms. Integrated Taxation Administration Information System (M-ITAIS): The M-ITAIS includes taxpayer registration, tax return filing and processing, auditing, compliance, billing collection management, enforcement audit selection, and other related services. MiTAC is responsible to operate, maintain and continuously upgrade the Taxation Administration Information System. We discuss this project in more detail below as a “success” eBusiness project that MiTAC has implemented. Integrated Land Administration Information system: Taiwan land administration computerization project and its maintenance. Healthcare field: Mainframe system upgrade and database integration, and computerization for 369 villages and towns for the Bureau of National Health Insurance. Government field: The Office Automation computerization systems for the Taiwanese Presidential Palace, the National Security Office, the Executive Yuan, the Legislative Yuan, and the Judicial Yuan. Military field: Tactical Communication System and Logistics Information Management System for the Taiwanese Air Force; military real estate control system; Coast Guard Administration Information System and Vessel Satellite Monitoring System; Military Police Integrated Information System; Advanced Air Defense System (AADS) for the Taiwanese Air Force; Multiple Integrated Laser Engagement System (MILES) for the
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Conservation of Information and e-Business Success and Challenges
Taiwanese Army; and Command Control Communication Computer Intelligence Surveillance and Reconnaissance for Taiwanese tri-services.
• •
E-BUSINESS •
Silo and Mill Automatic control System:5 These Automatic control system are to increase operation performance for warehouse businesses. A complete silo automation management and control system changes the traditional storage and delivery of agriculture products process and lowers operational cost (reduce personnel and time) while increasing production. It manages the intake, shipping and delivery process under a precise product flow monitor model. Consisting of a front end control system and management system, it is mainly a chain-reaction control system run from a computer programmed controller and other equipment, including field conveying equipment control and management system controls.
E-SOCIETY •
MiTAC has built Silo automatic control systems for Taichung and Kaohsiung harbor (Far-Eastern Silo) and a mill automatic control system for LienHua Fu-Kung flour factory, Great Wall enterprise Co., and Great Wall Chuang-hua. • •
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Credit Card Operation Management System. Banking Everybody Information System: The purpose for establishing this system is to assist not only the decisionmaking for the executive and operation mangers, but also expand the system to permit all clients to be able to get their own internal or external banking information.
Logistics, Finance and Stocks Management System. Bank Foreign Exchange System: MiTAC Bank Foreign Exchange System has 4 major functions: Outward Remittance, Inward Remittance, Inter-bank Transfer and Foreign Deposits on a common platform. This platform serves to form a foundation for all foreign exchange transactions.
• • •
Integrated Highway Surveillance control System: A highway surveillance system was assigned to provide the public with a more convenient and safer driving environment by monitoring traffic and car accidents. The system should also generate revenue for the government. There are three sub-systems in the MiTAC Integrated Highway Surveillance System (MIHSS): Traffic Control System (MIHSS-100), Toll Collection System (MIHSS-200) and Operation Management System (MIHSS-300). MiTAC has developed and installed the Taiwan Chungshan Highway’s first stage traffic control system, toll counting system, and central computer system for the second Northern Highway northern section control center and tunnel control center. The Traffic Control System uses surveillance equipment to collect instant traffic information and send it back to the control center. The central computer then makes the best assessment and decision based on operational models and policies. The Operation Management System mainly provides strategic and management support. Cab Driving Simulation System. Hog Auction Management System. Automatic Fare Collection System (AFC): With the experience of designing
Conservation of Information and e-Business Success and Challenges
and installing automatic control systems, MiTAC moved to serve the rapid-transportation field. It has completed numerous projects involving system design and implementation of Highway, Railway, Mass Rapid Transit, and High Speed Rail automation. Its specialties are manifested by the Automatic Fare Collection systems. The AFC that MiTAC assigned and implemented is successful due to its ability to handle operations on a grand project scale, to provide real time traffic information and control, and to generate sufficient revenue to operate the system. MiTAC has completed Taipei’s EasyCard System AFC, Taiwan High Speed Rail System AFC, and the Electronic Toll Collection System in recent years for Taiwan as it constructed a rapid transit network to serve its public. Taipei EasyCard System is a multi-operator and multimodal system. Since its operation, it has issued over 7 million cards with transactions recorded at around 3 million per day. Taiwan’s High Speed Rail System serves over 300,000 passengers per day and is designed for future interoperability with Taipei’s EasyCard system.
Challenge: e-Government Project E-government may be described as the general use of information and communication technology and the specific use of e-commerce to carry out government operations. It includes providing citizens and organizations with more convenient access to government information and services, and with delivering government agency services to citizens, business partners and suppliers or other government agencies (UN & ASPA, 2002). Taiwan government authorities have been promoting a “Digital Taiwan” plan. MiTAC has finished some major projects under this umbrella. MiTAC has developed significant e-Government projects which include a full-scale integrated
Tax system, Integrated Taxation Administration Information System, Integrated Land Administration Information system, Healthcare field system, and other government and military systems. We discuss the project MiTAC did for Taiwan’s Patent Office, the TiPOnet, to describe the challenges for government as it moves into the eBusiness world to better serve its people; there are also challenges that a medium-size IT company faces as it develops an e-system for government authorities in this territory unfamiliar to both the government and the company.
TIPONET The challenges that digital technologies pose for national and international regulation of intellectual property rights are receiving considerable attention these days from many governments such as the United States, Taiwan and China. In September 1995 the United States issued its White Paper on Intellectual Property and the National Information Infrastructure (Samuelson, 1996). To promote efiling and international harmonization with other countries, the TIPOnet project was proposed in early 2002 by MiTAC to Taiwan’s Patent Office to integrate information technology under business processes re-engineering (BPR) to create an IT-activated, paperless and online infrastructure. The TIPOnet project was designed to enhance administrative efficiency and service quality as well as to increase the competitiveness of domestic industries. On January 6, 2003, the Executive Yuan agreed to incorporate the TIPOnet project into the “Digital Taiwan Plan” for “Challenge 2008—National Development Plans”,6 Taiwan’s plan to develop a Knowledge-based economy in Taiwan formulated by the Council for Economic Planning and Development. TIPO awarded the TIPOnet development project, valued at over $26 million (NT$ 894 million), to MiTAC in January 2003. TIPOnet is a five-year development project. Table 1 shows the
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Conservation of Information and e-Business Success and Challenges
Table 1. TIPOnet total cost breakdown (in NT$ million) 7 2003
2004
2005
2006
2007
Total
Hardware
*
59.7
52.3
47.6
47.5
207.1
Operation
*
3.8
4.8
8.3
12.6
29.5
Maintenance
*
*
7.1
13.4
19.1
39.7
Application Development
53.0
168.8
187.7
183.3
25.0
617.8
Grand Total
53.0
232.2
251.9
252.7
104.2
894.1
*There were no costs associated with Hardware, Operation and Maintenance in the first stage of system design.
total cost breakdown of the TIPOnet project. The total hardware cost is about $6 million (NT$207 million), operation $0.88 million, maintenance $1.2 million, and application development $18 million. Table 2 shows the software cost breakdown in employee-months. The total application development required over twenty-nine hundred employee-months, over four hundred employeemonths for project management, over eight hundred employee-months for operations, and over one hundred employee-months for training. MiTAC Inc. has since developed other largescale e-government development projects in Taiwan. But intellectual property systems are a brand new area for MiTAC. In order to reduce the risk to MiTAC with the TIPOnet development project, MiTAC teamed up with IBM and Reed Technology and Information Service Inc. (RTIS). IBM has been involved in the development of patent and trademark application system for the United States Patent and Trademark Office (USPTO). RTIS has been working with USPTO for over thirty years in publishing the USPTO
Gazette and in converting paper-based patents to electronic documents. In February 2001, the Chief Information Office (CIO) consortium provided guidance for FEA (federal enterprise architecture) to the United States federal government (CIO Council, 2001). The FEA is a collection of reference models that defines a common taxonomy and ontology for describing IT resources. It includes the Performance Reference Model (PRM), the Business Reference Model (BRM), the Service Component Reference Model (SRM), the Data Reference Model (DRM) and the Technical Reference Model (TRM). The purpose of the FEA framework is to identify opportunities to simplify processes and unify work across agencies and within the lines of business for the federal government. The TIPOnet enterprise architecture (EA) framework adopted a simplified view of the relationships among FEA reference models. The TIPOnet enterprise architecture (EA) framework represents the TIPOnet EA in three fundamental tiers or layers (i.e., business, services, and technical), all of which are intersected
Table 2. Software cost breakdown (in employee-months) 2004
2005
2006
2007
Total
Application Development
879
919
902
239
2,939
Project Management
128
119
167
15
429
Operation
102
204
240
312
858
Training
20
40
40
5
105
Grand Total
1,129
1,282
1,349
571
4,331
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Conservation of Information and e-Business Success and Challenges
by three critical architectural dimensions (i.e., information and data, operational, and security and privacy). This means that the three basic perspectives of the TIPOnet EA (the business view, the services view, and the technical view) must always be considered in the context of three pervasive sets of considerations: information and data flows; operational objectives and measures; and security and privacy controls. Since it is a service-oriented system, TIPOnet utilized SRM to plan and map services that the system offers. The SRM defines seven major services: portal, e-filing, e-examining, e-search, e-publishing, knowledge management (KM), and management information system (MIS). TIPOnet set out to launch an e-filing system on 26 August 2008 for patents and trade marks.8 To encourage applicants to use online instead of paper filings, from the time when it was first launched, the application fee was reduced by approximately EUR 13 per document (about 16%) for patents and EUR 6.5 (about 10%) for trademarks. Now some of the applications for patents are free. Since the launching of this new electronic filing service, the response from all types of users has been positive. The e-filing service has been utilized by individuals, agents and companies alike, with many of the first-time applicants becoming long-term users.
CHALLENGES Although TIPOnet was finished on time, it did not follow the original project time-line allotted for each component/phase of its project life cycle. This project is not listed as one of MiTAC’s “most successful” cases because it suffered project creep, delay of certain phases, and the project life-cycle was not completed in a timely and cost-effective way. Due to the nature of the project and the customer, there was no room for negotiation in the budget or for time increases. MiTAC had to come up with alternative solutions for these problems. MiTAC faced two major challenges:
step in a new and unfamiliar field to design a system, and try to follow a yet-to-mature model. First, and as the first intellectual property project MiTAC had taken on, TIPOnet’s startup had not been easy. It took MiTAC two years to do the requirements analysis to meet business (TIPO) needs and to design the system to have all the required functionalities. This caused a major delay in the beginning (requirement analysis and design phase) of the project. And the learning curve for this project was steep. Unlike the financial market that MiTAC was familiar with and also has had many models to follow, the procedure of applying and processing patents and trademarks had to be uniquely defined, mapped and implemented. Then the second major challenge revealed itself. MiTAC was asked to adopt the FEA framework. Adopting this framework meant that MiTAC inherited both its advantages and disadvantages. One of the weaknesses in the FEA framework is that it does not contain a detailed description sufficient to generate specification documents for each cell of an FEA-F Matrix (Leist & Zellner, 2006). There is no standard artifact description for some cells. Each organization has to define the meta model for each cell such as data, function, network, people, time and motivation. Such cells represent different areas of interest for each perspective. Therefore, the resulting framework is not a definite solution. Many studies compare the similarities and differences between different enterprise architecture frameworks, but few studies report the empirical implementation of FEA frameworks (Kim et al, 2005; Meneklis et al., 2005). These deficiencies made MiTAC’s work more difficult and farther steepened its learning curve. But by taking advantage of its strong background in software development, MiTAC gained time back by adding extra software developers to its team to help with the coding process during the development phase and to finish the project in time.
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Conservation of Information and e-Business Success and Challenges
SUCCESS: INTEGRATED TAXATION ADMINISTRATION INFORMATION SYSTEM (M-ITAIS) A good taxation system is the foundation of a government’s economic growth plan. Taiwan’s previously paper-based taxation system created many obstacles. From the public’s perspective, members of the public had to fill out different forms for different level units (federal, city, or local) and they had to go to each location, to get in line and either fill out a tax return or deal with several different tax issues. The process was time-consuming, error-prone and sometimes the paperwork got lost, causing many to repeat the process. From the official side, the lack of a standardized data format increased costs and time; officials were also overloaded with many different cases. To make matter worse, there was no central database for different tax units to share tax data. Taiwan’s government wanted a good taxation system to serve its people better and to stimulate economic growth. This could be better done by utilizing Information technology and the Web to reduce bottom-line costs, and thus to generate revenue that could be used for public development. During the past three decades, MiTAC won several projects to design and deploy the Integrated Taxation Administration Information System (MITAIS) in Taiwan for many government agencies. To “overhaul” the manual system, there were two major challenges/requirements for a TAIS: a common platform (to reduce uncertainty) and a “one stop” portal for both tax officials and citizens. With its strong background in information technology, web service and financial market experience, MiTAC designed ITAIS as a web-service system with a Service Oriented Architecture (SOA) to ensure interoperability across different government units.9 It consisted of three major parts of e-Business: G2C (Government to Consumer), G2B (Government to Business) and G2G (Government to Government). It was a prime model for
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e-Government to serve the public (consumers), to perform eBusiness functions (G2B), and to interoperate government units (G2G). M-ITAIS includes taxpayer registration, tax return filing and processing, auditing, compliance, billing collection management, enforcement audit selection, and other related functions. It has significant features such as the All-in-one Functional Center, transparency and accountability for all tax officials. It also simplifies service and the automation of administrative assessments. Mi-TAIS provides the government of Taiwan with an effective and cheaper way to collect taxes and at the same time to offer a better and faster service to its citizens. M-ITAIS has become both a benchmark model of a desired taxation system and MiTAC’s most famous successful project based on customer satisfaction, increased productivity, reduced operational costs, an efficient but complex system, and the revenue that it generates. The annual tax revenue collected is over 50 billion USD which has drawn international attention. Delegations from countries of Asia, Latin America and the USA have visited the Financial Data Center in Taiwan to observe its “best practices” model.
Success Factors of M-ITAIS 1. Understand the customer’s needs and goals for a project. This is critical for any system design. MiTAC has a strong background in the financial sector and it has been designing systems for different levels of organizations for about 30 years. Although it was a familiar field, MiTAC must still make sure it understands the needs for each office. However, the rotations that we described in the earlier section under theory tell us that beliefs and actions can be orthogonal; thus, we cannot rely on the average responses from customers but instead must consider the widest range of them and, more importantly, their actions. 2. Provide professional and specialized team and management. With extensive back-
Conservation of Information and e-Business Success and Challenges
grounds in all aspects of hardware, software, communication, networking, integrated testing, training, maintenance and consulting services, MiTAC was able to implement an e-Tax net which connects all levels of government units for data sharing and processing. 3. Provide the logistics necessary for operations. MiTAC has strong Supply Chain management and since it could draw knowledge, man-power from other companies in their Group on the supply chain, it was able to obtain adequate resources to finish its target project. 4. All-in-One service is the key success feature of M-ITAIA. The main purpose of setting up a ITAIS was to provide the government tax officials and citizens a central portal for their taxation needs. All-in-One services offer real-time data, standardized forms, accountability, and best of all, convenience. It saves time and cost. 5. Cross-platform design. Since the e-Tax net connects different levels of government tax units, it has to be able to perform on different platforms.
MITAC BETAS Many formulas exist for stock market beta, including with statistical regressions. Beta represents market volatility. We estimated beta with the
covariance of a target organization A against a standard, such as the S&P 500, divided by variance of the standard (see www.answers.com/ topic/beta-coefficient). In order for the data to be synchronized, we matched the dates of the available data for MITAC, the S&P 500 Index, the Goldman Sachs Taiwan Select 50 Index (TS 50), and the USA Today E-Business 25 Index. The time period chosen was from March 1, 2007 to May 21, 2009. MiTAC’s betas indicate that MiTAC is a very stable organization. Whether compared to the S&P 500 Index, the TS 50 Index, or the eBusiness 25 Index, MiTAC’s responses to market perturbations have been uniformly stable.
DISCUSSION From MiTAC’s various projects and our COI theory, we try to find the common competiveness/ success factors as listed below.
Innovation Since its founding in 1974, MiTAC has always tried to use the most current technology in order to position itself as a trend leader. It evolved from a PC and Software Development Company to a system integration enterprise that can provide a total solution for its customers. To be a trend leader, MiTAC has to be innovative in technology
Table 3. SD of MiTAC = 8.507 COVAR MiTAC
S&P 500
1942.277
Goldman Sachs Taiwan Select 50 (USD) Index
136.0038
USA TODAY E-BUSINESS 25 INDEX
155.3663
Beta 1 (S&P 500 and MiTAC)
.03
Beta 2 (TS 50 and MiTAC)
.30
Beta 3 (eBusiness 25 and MiTAC)
.39
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Conservation of Information and e-Business Success and Challenges
products, in management, and in services to its customers. Their (MiTAC-SYNNEX Group) 3V business model (Velocity, Visibility and Value), and their N-Dimension Network concept have helped MiTAC create a synergy that seamlessly unites its partners, customers, employees, and companies. MiTAC’s products and services have won awards from government, technology shows, and its customers almost every year, providing proof that it is an innovative firm. With so many successfully designed and implemented projects, such as the M-ITAIS we discussed above, MITAC has set a benchmark for financial markets.
Sophisticated Supply Chain Management and Integrated Designand-Manufacturing System Supply chains are the life-blood of all kinds of organizations. They are often the unseen forces without which an organization cannot function. A good supply chain will ensure that materials are available to begin production and that finished products are ready for delivery to the customer. A supply chain is best satisfied when the interrelated components expressed in a business plan, business objectives and profitability, and productivity extend through a planning horizon sufficient to schedule the labor, equipment, facilities, material, and finances required to accomplish the production plan. In that this plan affects many interdependent company functions, it integrates information from across the supply chain (e.g., marketing, manufacturing, engineering, finance, materials). There must be interaction across management and the other units (i.e., oscillation) of an organization. There must be units to provide real-time information on customer needs, even before customers or suppliers can articulate these needs. MiTAC’s approach, PLM (Product Lifecycle Management), is its way to address this particular part of its supply chain to reduce time and cost with precise production management. Combining the MiTAC-Synex group’s horizontal
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development strategy, MiTAC’s supply chain is completed with products Design & Manufacturing (manufacturing and Research & Development), Internet Technology & Mobile Solutions, and Distribution & Fulfillment. MiTAC’s different but interdependent functional units and other companies of the group in its supply chain communicate (oscillate back and forth) through the whole chain which enables it to identify and solve problems to provide the best and most effective service to its customers and follow its “all service in one” model. Since systems are developed by distinct groups with different points of view, only by reducing uncertainty and increasing the rate of information exchange is it possible to reach the “best” design.
Vertical and Horizontal Development Strategy MiTAC’s horizontal (i.e., supply chain) is completed from products to e-Commerce to take full advantages of its network. Its vertical chain consists of units from material (production) to system (integration and delivery).
Precise Management Unique business model and management concepts enable administrators to control all of the information relevant to an organization’s or government’s businesses. Management teams must continually strive for focus, alignment and synchronization among the interdependent functions of an organization to reduce its time and cost factors.
Great Customer Service/ Management MiTAC’s complete system life-cycle, integration, development, consultation and maintenance processes not only provide real-time information exchanges for its customers, but also help to keep its customers involved in system design and
Conservation of Information and e-Business Success and Challenges
development. This has increased customer satisfaction and has served to ensure that the systems it designs meet its customer’s needs. MiTAC is also involved in many government IT projects to build good relationships with government authorities that not only provide framework and regulations to follow but also a great resource for future projects.
e-Centric and Digitalization of its Operations are “MustHaves” in the Information Age Partnerships MiTAC partners with other companies for specialized functions when MiTAC cannot fulfill a customer’s needs or make its products sufficiently competitive. It has partnered with different companies, some very famous, with different specialties to build solutions for its customers. For example, MiTAC teamed up with HITACHI, MITSUBISHI and others for a transportation solution; with HP, IBM, Microsoft, Oracle and others for computer integration; with CORNING, CISCO, MOTOROLA and others for communication integration; and CISCO, SYMANTEC, and WATCHGUARD for security integration. MiTAC has also invested with Anjes, Sinfotek, and Onsys to build up a professional Internet service team and to team up with banks on various other projects.
LESSON LEARNED AND FUTURE TRENDS For an eBusiness to be successful, future systems must be functional across different platforms, able to provide real-time responses, and able to reduce computational time. For better management, evaluation and decision making, it is ideal to implement Web-based performance metrics to provide feedback, pinpoint the components that need improvement and reduce uncertainty. But like
most decisions made, states of interdependence can positively or adversely impact the resulting decision (Lawless et al., 2007). An organization has to involve the entire supply chain and its customers as early in the process as possible to avoid unnecessary costs. New product development should not be kept separate from the supply chain focus because not only the products (system) created but routing can adversely impact the finances of new products. Utilizing the most current information technology and Internet technology are also critical for eBusiness success. What we have done is to create a model of social rotations (i.e., SPHOs, Nash Equilibria; etc.). What we have not done is to link rotations with population effects from the fluctuations or perturbations caused by rotations (Nash equilibria). Once we do so, our model will become dynamic and predictive. We predict that these fluctuations will generate limit cycles, our next area of research.
CONCLUSION We have devised a theory of social rotations to model social, political and market conflict and competition. We used our ideas about rotation to study stability and to apply them to MiTAC, which we found to be one of the more successful international companies. We suspect that our theory of rotations and findings about MiTAC may well contradict the prevailing view of Nash Equilibria. In this prevailing view, set out by Luce and Raiffa (1969), where it was believed that cooperation can avoid the traps of Nash Equilibria, it was taken to its logical extreme by Axlerod (1984) who believed that Nash Equilibria led to the worst social welfare outcomes: “the pursuit of self-interest by each [participant] leads to a poor outcome for all” (Axlerod, 1984, p. 7; also p. 8) that can be avoided when sufficient punishment exists to discourage competition. Instead, we suspect when all is said and done, that competition is the mechanism by
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which a company like MiTACor a society can best learn, govern, defend, and feed itself.
ACKNOWLEDGMENT For the fifth author, this material is based upon work supported by, or in part by, the U. S. Army Research Laboratory and the U. S. Army Research Office under contract/grant number W911NF-10-1-0252.
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ENDNOTES 1
Given [A,B] = iC, and δA = A -
, then [δA, δB] = iC; further, <δA2><δB2> > ¼ , giving the Heisenberg uncertainty principle ∆A∆B >1/2 (for details, see
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2
3
4
5
Gershenfeld, 2000, p. 256). The uncertainty equation models the expected variance around the expectation value of the operators while the right hand side gives the expectation value of the commutator. In signal detection theory, the uncertainty principle becomes the Fourier pair σAσ B> ½ (see Cohen, 1995; Rieffel, 2007). http://www.msgroup.com.tw/index.htm Ndimension Organization = Domain knowledge + Synergy +e-Centric + Growth CMMI is a numeric scale used to “rate” the maturity of a software development process or team. There are five levels of maturity in CMMI: 1. performed, 2. managed, 3. defined, 4. Quantitatively Managed and 5. Optimizing. To achieve CMMI level three, a process that qualifies for CMMI level two is instituted as a corporate standard. Then it is tailored and applied to standard process to individual projects. http://tynerblain.com/ blog/2006/03/10/foundation-series-cmmilevels-explained/ http://www.mitac.com.tw/english/about. htm http://www.mitac.com.tw/english/project05.htm
6
7
8
9
Developed by the Council for Economic Planning and Development, Challenge 2008 –National Development Plan is combination of new policies and strategy to guide Taiwan’s IT development to meet the global IT challenge and move toward to eBusiness era. http://www.cepd.gov.tw/encontent/m1. aspx?sNo=0001451&ex=1&ic=0000069 1.00 TWD = 0.0308623 USD rate on September 27, 2009 http://www.xe.com/ucc/ convert.cgi?Amount=1&From=TWD&To =USD&image.x=55&image.y=11 http://tiponet.tipo.gov.tw/home/ In computing, service-oriented architecture (SOA) provides a set of principles of governing concepts used during phases of systems development and integration. Such an architecture will package functionality as interoperable services: software modules provided as a service can be integrated or used by several organizations, even if their respective client systems are substantially different. http://en.wikipedia.org/wiki/ Service-oriented_architecture
This work was previously published in E-Business Managerial Aspects, Solutions and Case Studies, edited by Maria Manuela Cruz-Cunha and João Varajão, pp. 254-269, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Chapter 1.7
Demand Driven Web Services Zhaohao Sun University of Ballarat, Australia Dong Dong Hebei Normal University, China John Yearwood University of Ballarat, Australia
ABSTRACT Web services are playing a pivotal role in ebusiness, service intelligence, and service science. Demand-driven web services are becoming important for web services and service computing. However, many fundamental issues are still ignored to some extent. For example, what is the demand theory for web services, what is a demand-driven architecture for web services and what is a demand-driven web service lifecycle remain open. This chapter addresses these issues by examining fundamentals for demand analysis in web services, and proposing a demand-driven architecture for web services. It also proposes a demand-driven web service lifecycle for the main DOI: 10.4018/978-1-60960-587-2.ch107
players in web services: Service providers, service requestors and service brokers, respectively. It then provides a unified perspective on demand-driven web service lifecycles. The proposed approaches will facilitate research and development of web services, e-services, service intelligence, service science and service computing.
INTRODUCTION Web services are Internet-based application components published using standard interface description languages and universally available via uniform communication protocols (ICWS, 2009). With the dramatic development of the Internet and the web in the past decade, web services have been flourishing in e-commerce,
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Demand Driven Web Services
e-business, artificial intelligence (AI), and service computing. They have also offered a number of strategic advantages such as mobility, flexibility, interactivity and interchangeability in comparison with traditional services (Hoffman, 2003). The fundamental philosophy of web services is to meet the needs of users precisely and thereby increase market share and revenue (Rust & Kannan, 2003). Web services have helped users reduce the cost of information technology (IT) operations and allow them to closely focus on their own core competencies (Hoffman, 2003). At the same time, for business marketers, web services are very useful for improving interorganizational relationships and generating new revenue streams (Sun & Lau, 2007). Furthermore, web services can be considered a further development of e-business (Gottschalk, 2001), because they are service-focused business paradigms that use two-way dialogues to build customized service offerings, based on knowledge and experience about users to build strong customer relationships (Rust & Kannan, 2003). However, one of the intriguing aspects of web services is that any web service cannot avoid similar challenges encountered in traditional services such as how to meet the customer’s demands in order to attract more customers. Service-oriented architecture (SOA) is an important topic for service computing, service science and service intelligence (Singh & Huns, 2005). The special form of SOA in web services is Web service architectures. Web service architectures are the basis for engineering many activities in web services. Therefore, there are many web service architectures proposed in the web service community (Erl, 2006; Alonso, et al, 2004). Papazoglou (2003) proposes a hierarchical serviceoriented architecture (SOA) for web services. Burstein, et al. (2005) propose a semantic web services architecture. However, the existing web service architectures are mainly from the perspective of implementation (Benatallah, et al, 2006) rather than from a demand perspective. It seems that demand-driven web service architecture and
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corresponding web services have not yet received any attention, to our knowledge, although demand is a critical force for developing web services, just as demand is a driving factor for microeconomics. Demand is a fundamental concept of economics. Demand refers to “the quantities that people are or will be willing to buy at different prices during a given time period provided that other factors affecting these quantities remain the same” (Wilkinson, 2005, p. 75). The demand for a firm’s products determines its revenues and also enables the firm to plan its production (Wilkinson, 2005, p. 71). Then demand is a decisive factor for market. Demand theory is an important part in microeconomics and managerial economics (Wilkinson, 2005, pp. 73-120). Demand theory in managerial economics examines demand curves, demand equations, demand analysis, demand chain, impact factors on demand, demand estimation and so on. Demand analysis is a factor driving e-marketing and e-business strategy objectives (Chaffey, 2007, p. 344). Demand analysis assesses current and projected demand for e-commerce services amongst existing and potential customer segments (Chaffey, 2007, p. 344). Demand chain has drawn attention in the field of supply chain management and customer relationship management since the end of last century (Walters, 2006). The demand chain can be defined as “The complex web of business processes and activities that help firms understand, manage, and ultimately create consumer demand” (Rainbird, 2006). The following problems arise in web services: what is the demand of main service players in web services? what is the demand theory for web services? what is demand analysis? What is a demand chain in web services? what is the mathematical analysis of demand in web services? These problems remain open in web services. This chapter addresses these issues by providing a mathematical analysis for web services taking into account the demand of service players in web services. The web service lifecycle (WSLC) is a fundamental topic for web services and service
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computing. The web service lifecycle is also the basis for engineering and managing web services. However, the existing models for web service lifecycles have not paid sufficient attention to the main players in web services and the demand of the main players for web services. If the main players and their demands are ignored in web services, then the healthy development of web services might be problematic, because ignorance of demand in economy and business will lead to economic recession. Therefore, this chapter will address the above mentioned issues by examining fundamentals for demands in web services, and proposing a demand-driven architecture for web services. It also reviews the existing web service lifecycles and proposes a demand-driven web service lifecycle for the main players in web services: Service providers, service requestors and service brokers, respectively. The key ideas behind this chapter are that SOA is fundamental for service intelligence (SI) and service science (SS). Web services are an important application field of SI and SS. Web service architecture is a logical realization of SOA in web services. The demand of main players and their intelligent agents is a central part for web services. Mathematical analysis of demands in web services is a basis for developing demand analysis and demand theory of web services. A WSLC can be considered as a logical implementation of web service architecture. The demand-driven WSLCs are a logical realization of the WSLC. The proposed approach will facilitate the research and development of web services, e-services, service intelligence, service science and service computing. To this end, the remainder of this chapter is organized as follows. First of all, we review SOA, Web services architecture, web services life cycle and classify main players in web services. Then we analyse demands in web services mathematically, which leads to a new classification for ecommerce. We also examine demand relationships among service providers, brokers and requestors in web services and demand chain in web services.
Then we examine web service architectures and provide a demand-driven architecture for web services (DWSOA). We also examine web service lifecycles, propose the demand-driven web service lifecycle for the main players in web services respectively and then discuss the demand-driven web service lifecycles in a unified way. Finally we end the chapter with discussing some future research directions and providing some concluding remarks.
BACKGROUND Service-oriented architecture (SOA) has been extensively studied in the fields of web services and service-oriented computing (Atkinson, et al, 2004; Singh and Huns, 2005). SOA is a conceptual architecture for implementing e-business, e-services, leaving the networking, transport protocol, and security details to the specific implementation (Gisolfi, 2001). SOA consists of three principal participants: a service provider, a service requestor, and a service broker. These three SOA participants interact using three fundamental operations: publish, find and bind: Service providers publish services to one or more service brokers or discovery agencies (Ferris & Farrell, 2003; Burstein, et al, 2005). Service requestors find required services via a service broker or a discovery agency and bind to them (Gottschalk, et al, 2000; Ferris & Farrell, 2003). A concrete form of SOA in web services is web service architecture. A web service architecture is a conceptual architecture for implementing web services, which is free of concrete implementation of a web service system owing to its conceptual nature. There are a number of different web service architectures proposed in the web service community. For example, Gottschalk, et al. (2000) propose an IBM web service architecture. This might be the first web service architecture, which is then called a SOA (Gisolfi, 2001). In other words, the web service architecture is the same
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as SOA in web services. This can be considered as the simplest SOA. Kreger (2001) developed Gottschalk’s web service architecture proposed in 2000 by adding artifacts, which mainly consist of service and service description. He uses service registry to replace the service broker in the previous architecture to fulfil the role of discovery agencies (Ferris & Farrell, 2003). Kreger (2001) also provides a business perspective on service provider, requestor and registry. He considers the above-mentioned three fundamental operations: publish, find and bind as the interactions between service provider, service requestor, and service broker. Therefore, Kreger’s web service architecture is a further development of web service architectures or SOAs. Talia (2002) explores the open grid services architecture to fully integrate grids and web services, and defines grid as a geographically distributed computation platform composed of a set of heterogeneous machines that users can access via a single interfaces. Burstein, et al. (2005) propose a semantic web services architecture, and consider semantic web services as web services in which semantic web ontologies ascribe meanings to published service descriptions so that software systems representing prospective service clients can interpret and involve them. They also examine the main interactions of web services between service providers and service requestors: service discovery, engagement, and enactment. However, they have not paid much attention to the role of service broker in interactions of web services. They have not focuses on the activities of web services from a viewpoint of web services lifecycle either. Numerous techniques, approaches, methods have been proposed to facilitate or support the main stages of the entire web service lifecycle (Wu & Chang, 2005). A large number of web service lifecycles have also been proposed to improve web services with their applications. For example, Atkinson, et al. (2004) propose a process model for a typical service, which consists of resources, service logic, and a message-processing layer that
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deals with message of exchanges. In this model, messages arrive at the service and are acted on by the service logic, utilizing the service’s resources as required. This model can be considered as an anatomy of a service in SOA, because it only focuses on the processing of a service rather than the interactions of service providers, requestors and brokers. Kreger (2001) considers web services development lifecycle as the design, deployment, and runtime requirements for each of the players in web services: service registries, providers, and requestors. Each player has specific requirement for each phase of four phases in the development lifecycle: build, deploy, run and manage. Benatallah, et al. (2006) implement a modeldriven framework for web service development lifecycle in a prototype platform, Service Mosaic, to model, analyze, and manage service models including business protocols, and adaptors. This framework at least includes protocol definition, protocol analysis, and protocol data management, which are fundamental issues that affect the web service development lifecycle from an implementation perspective. However, they have focused on neither WSLC nor the interoperations or interactions of service providers, brokers and requestors from a demand perspective. Narendra and Orriens (2006) consider a web service lifecycle consisting of web service composition, execution, midstream adaptation, and re-execution. We will turn to web services life cycle once again later when we propose demand-driven web services lifecycle. Humans are one of the most important decisive forces for development of web services. From a viewpoint of multiagent systems (Weiss, 1999; Sun and Lau, 2007), various intelligent agents are also a decisive force for developing intelligent web services. However, few studies have paid sufficient attention to the main players in web services, to our knowledge. In the next section we will first examine main players in web services.
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MAIN PLAYERS IN WEB SERVICES This section will look at the players involved in web services and some corresponding architectures. There are mainly three players related to web services: web service requestors, web service brokers, and web service providers (Sun & Lau, 2007; Singh & Huhns, 2005), as shown in Figure 1. Web service requestors also denote web service users, buyers, customers, consumers, receivers, clients, and their intelligent agents. Web service brokers denote web service intermediaries, middle agents, registry (Kreger, 2001), discovery agency (Ferris & Farrell, 2003) and their intelligent agents (Burstein, et al, 2005). Web service providers (Kreger, 2001) denote web service owners, sellers, senders and their intelligent agents. Web service requestors, brokers, and providers are the most integral players in web services transactions (Deitel, et al, 2004, p. 52). Gisolfi (2001) mentioned these three players in the simple service oriented architecture (SOA) for web services. In this architecture, web service providers create web services and advertise them to potential web service requestors by registering the web services with web service brokers, or simply offers web services (Dustar & Schreiner, 2005). The web service provider needs to describe the web service in a standard format, and publish it in a central service registry. The service registry or broker contains additional information about the service provider, such as address and contact of the providing company, and technical details about the service. Web service providers may integrate
or compose existing services (Limthanmaphon & Zhang, 2003) using intelligent techniques. They may also register descriptions of services they offer, monitor and manage service execution (Dustar & Schreiner, 2005). Web service requestors retrieve the information from the registry and use the service description obtained to bind to and invoke the web service. Web service brokers maintain a registry of published web services and might introduce web service providers to web service requestors. They use universal description discovery integration (UDDI) to find the requested web services, because UDDI specifies a registry or “yellow pages” of services (Singh & Huhns, 2005, p. 20). They also provide a searchable repository of service descriptions where service providers publish their services, service requestors find services and obtain binding information for these services. This architecture is simple because it only includes three players (as mentioned above) and three basic operations for web services: publish, find and bind. In fact, some behaviors of web service agents are also fundamentally important in order to make web services successful. These fundamental behaviors at least include communication, interaction, collaboration, cooperation, coordination, negotiation, trust and deception (Singh & Huhns, 2005; Sun & Finnie, 2004; Burstein, et al, 2005). Papazoglou (2003) proposes an extended service-oriented architecture. The players involved in this architecture are more than that in the simple SOA, because it includes service provider,
Figure 1. Main players in web services
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service aggregator, service client, market maker, and service operator. A service aggregator is a service provider that consolidates services provided by other service providers into a distinct value-added service (Papazoglou, 2003). Service aggregators develop specifications and/or codes that permit the composite service to perform functions such as coordination, monitoring quality of service (QoS) (Burstein, et al, 2005) and composition. In our view, a service aggregator should be differentiated from a service provider. We can use web service recommender or web service composer to replace service aggregator, because recommendation and composition are most important activities in web services. The main task of web market makers is to establish an efficient service-oriented market in order to facilitate the business activities among service providers to service brokers and service requestors. In the traditional market, the service broker is working in the market, while the market maker makes the market operating. The web service operator is responsible for performing operation management functions such as operation, assurance and support (Papazoglou, 2003). From the viewpoint of multiagent systems (Weiss, 1999; Henderson-Sellers & Giorgini, 2005), there are still other players involved in web services, such as web service advisors, web service managers, web service composers, web service recommenders, web service consultants, and so on. Further, an activity of web services usually is implemented by a few intelligent agents within a multiagent web service system (Sun & Finnie, 2004). Therefore, more and more intelligent players or agents will be involved in web services with the development of automating activities of web services. Although some of these will be mentioned in the later sections, we mainly focus on service providers, brokers and requestors in what follows.
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MATHEMATICAL ANALYSIS OF DEMAND IN WEB SERVICES This section will analyze demands in web services from a mathematical perspective and then discuss the demand relationships in web services. Demand is an important concept in microeconomics. Jackson and Mclver (2004, p. 74) defines demand as “a schedule that shows the amounts of a product that consumers are willing and able to purchase at each specific price in a set of possible prices during some specified period of time”. The basic law of demand is “All else being constant, as price falls, the corresponding quantity demanded rises”. Alternatively, the higher the price is, the less corresponding quantity demanded. Demand analysis has drawn attention in ebusiness. Chaffey (2007) defines demand analysis as “assessment of the demand for e-commerce services among existing and potential customer segments” (p. 218). He then analyzes the factors that affect demand for e-commerce services (Chaffey, 2007, pp. 150-60.) and uses demand analysis to examine current projected customer use of each digital channel with different markets (Chaffey, 2007, p. 344). Demand, in particular “on-demand” (Dan, et al, 2004), has also drawn some attention in web services. For example, Burstein, et al. (2005) examine functional and architectural demands or requirements for service discovery, engagement and enactment in terms of the semantic web service architecture. However, in the above-mentioned discussion, it seems that the subject of the demand and its objective are ignored to some extent. For example, who demands what from where is usually unclear. It may not be critical for traditional economics and e-commerce. However, it is useful for web services to know who, what and where exactly for web services, which can be seen in the examination of web service lifecycle. Further there has not been a mathematical theory or analysis of demand in e-commerce and web services. In what follows, we examine the mathematical foundation
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of demand in order to fill this gap and then use it to develop demand-driven web services. We can analyze “demand” mathematically as follows. A man M demands something S provided by N. In other words, from a mathematical viewpoint, demand is a 3-ary relation that can be denoted as Demand (m, n, s). In the context of web services, we can explain Demand (m, n, s) as: a player m demands web service s provided by player n. For example, “service requestor r demands web service consultation c provided by service broker b” can be denoted as Demand (r, b, c). More generally, demand as a 3-ary relation can be denoted as: Let M, N, and S be a non-empty set respectively, M = {m1, m2,…, mI}, N = {n1, n2,…, nJ}, S = {s1, s2,…, SK}, then any subset D3 of M × N × S, D3 ⊆ M × N × S, is a demand relation. In web services, N and M can denotes all the service requestors and all the service providers or brokers respectively. S represents all the web services provided on the web. In business practice, this 3-ary demand relation is usually simplified as a binary relation D2 or a unary relation D1: For example, in B2C e-commerce, we only focus on: who demands what, that is, D2 ⊆ M ×S represents “customers m demands a good s,” where M denotes all the service requestors or all the service providers. Further, in B2C e-commerce, we usually do not care about “who demands what” but only care about “what that are demanded”, that is, D1 ⊆ S represents the good that is demanded. Therefore, from a demand’s perspective, there are three different types of e-commerce: D1 e-commerce, D2 e-commerce and D3 e-commerce. •
•
D1 e-commerce only focuses on the goods that are transacted. Such an e-commerce is usually used for statistical analysis. D2 e-commerce only focuses on the customer and the goods that are purchased by the customer or the seller, and that the goods that are sold. Therefore, D2 e-commerce corresponds to a B2C e-commerce.
•
D3 e-commerce focuses on all the service providers, requestors, and goods that are transacted. Therefore, D3 e-commerce is an organization that oversees the activities in web services or e-commerce.
In fact, taking into account the amount and payment associated with demand relation, we introduce demand functions respectively for D1 e-commerce, D2 e-commerce and D3 e-commerce. For example, let A and P be non-empty sets, then any function d1: S→A×P, d(s) = a∙p, is a demand function taking into account the amount A of demand and the corresponding price P per a unit demand. For example, in D1 e-commerce, a customer demands 100 textbooks on e-commerce, and the price is AUD$100.00 per textbook. Then, the corresponding demand function value is d1(book) = 100∙100 = 10000 where the customer and provider are technically ignored. This demand function represents the total price for the demanded 100 textbooks. Similarly, in D2 e-commerce, d2(David, book) = 100∙100 = 10000 represents that David demands 100 textbooks on e-commerce with the price of AUD$10000.00, where the providers are technically ignored. In D3 e-commerce, d3(David, book) = 100∙100 = 10000 represents that David demands 100 books on e-commerce provided by Amazon.com with the price of AUD$10000.00. This is a complete form for demand in a transactional web service. From the above discussion, we can see that there is an inclusion relationship among D1 ecommerce, D2 e-commerce and D3 e-commerce, as illustrated in Figure 2. In demand-driven web services, we need a 3-ary demand relation taking into account the main players in web services (see the previous section). This demand relation can be illustrated in Demand relations in Web services.
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Figure 2. Interrelationship among D1, D2, and D3 e-commerce
In D3 web services, demand is a 3-ary relation, that is, service requestors demands service brokers or providers to provide certain web services, and vice versa. However, what properties this 3-ary relation has in the context of web services remains open. Some stages in the web lifecycle may be absent since the demand disappears. There are also many situations resulting in demand cancellation. In Table 1, the first column consists of a service provider, a service requestor, and a service broker. The first row lists a service provider, a service requestor, and a service broker. WS activities in the top left cell denote all the web service activities (or operations) in all the cell (m, n), where m an n denote rows and columns respectively. This implies that cell (m, n) contains the web service activities that are demanded. For example, cell (1, 2) contains web service binding, discovery, negotiation, invocation, billing, contract, all of which are demanded by the web service provider
to the web requestor, where cell (2, 1) contains web service QoS, description, representation, identification, search, match, discovery, negotiation, invocation, contract, all of which are demanded by the web service requestor to the web service provider. Even if the web service requestor demands the web service provider to represent web services (web service representation), the web service provider might not represent web services by himself. Instead, he may demand others to do so. In this way, a web service demand chain is formed in web services. For example, the web service requestor demands service consultation from a service broker, while the service broker demands web service representation and publication from a service provider. The service provider demands the most powerful web service tools from the ICT developer to realize the web service representation and publication, as shown in Figure 3. The extended form of a web service demand chain is a web service demand network in web services, just as there are supply chain networks in e-commerce (Chaffey, 2007). It should be noted that supply chain management and demand chain management have been seriously studied in business, marketing and management (Chaffey, 2007, pp. 266-300; Rainbird, 2004; Walters, 2006), whereas demand chain and demand chain management have not drawn significant attention in e-business and e-com-
Table 1. Demand relations in web services WS activities
Provider
Requestor
Broker
Provider
N/A
Binding, discovery, negotiation, invocation, billing, contract
discovery, recommendation, invocation, billing, contract
Requestor
QoS, description, representation, identification, search, match, discovery, negotiation, invocation, contract
N/A
Finding, consultation, personalization, recommendation, adaptation, mediation negotiation,
Broker
Publication, management search, match, Discovery, billing, contract
invocation, billing, contract
N/A
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Figure 3. A demand chain in web services
merce, to our knowledge. This situation might be changed in web services, because service customers’ demands play a vital role in web services. What are the majority of customers’ demands as well as their expectation and propensity in web services? and how do demand chain and demand network as well as demand network management impact on web services? How can we integrate demand chain analysis with the proposed mathematical analysis of demand? These problems remain open. We will address them in another article, and will not look at them any more because they are beyond the scope of this chapter.
DWSOA: A DEMAND DRIVEN ARCHITECTURE FOR WEB SERVICES This section will review a few web service architectures and then provide a demand-driven architecture for web services. We have briefly mentioned different serviceoriented architectures (SOA) for web services in the section “Background”. In fact, web service architectures have been a research topic for engineering web services (Alonso, et al, 2004). There have been a large number of web service architectures proposed in the past years. For example, Wu and Chang (2005) provide a conceptual architecture of web services for service ecosystems. Garcia and de Toledo (2006) propose an extended web service architecture providing QoS management for
web services. However, the existing web service architectures are mainly from the perspective of developers rather than from a demand perspective. Based on the above demand analysis for web services, we can propose a demand-driven SOA for web services (DWSOA), as shown in Figure 4. Note that in Figure 4, x and z denote either WS providers, brokers or requestors, y denotes WS activities. In the DWSOA, WS (web service) providers demand WS discovery, recommendation, invocation, billing, and contract from WS brokers; WS brokers demand WS invocation, billing, contract from WS requestors; WS requestors demand WS finding, consultation, personalization, recommendation, adaptation, mediation, negotiation from WS brokers; and so on. From the viewpoint of previously mentioned demand relation in web services, the above-mentioned demand relations are 3-ary, and corresponds to 1. Demand (WS providers, WS brokers, WS activities) = {WS discovery, recommendation, invocation, billing, and contract}; 2. Demand (WS brokers, WS requestors, WS activities) = {WS invocation, billing, contract}; 3. Demand (WS requestors, WS brokers, WS activities) = {WS finding, consultation, personalization, recommendation, adaptation, mediation, negotiation};
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Figure 4. DWSOA: A demand-driven SOA for web services
and so on. It should be noted that there are inter-demands among the WS providers, brokers and requestors in the DWSOA, although the demands among them are not symmetric. In other words, the service requestor demands the service consultation from the service broker, whereas the service broker does not demand service consultation from the service requestor. We do not believe that all activities in the web services have been covered in the DSWOA. For example, WS engagement, enactment, and management (Burstein, et al, 2005) are not included in the DSWOA. The key idea behind it is that we expose the demand relationship among WS providers, brokers and requestors. This is the basis for demand-driven web service lifecycles, which will be discussed in later sections.
WEB SERVICE LIFECYCLE This section mainly reviews web service lifecycles and discusses the corresponding issues. From the perspective of computer science, the notion of lifecycle originated from software engineering (Pressman, 2001). It describes the life of a software product (development) from its conception, to its implementation, delivery,
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use, and maintenance (Pfleeger & Atlee, 2006). A traditional software development lifecycle mainly consists of seven phases: planning, requirements analysis, systems design, coding, testing, delivery and maintenance. Based on this, a web service lifecycle consists of the start of a web service, the end of web service and its evolutionary stages that transform the web service from the start to the end. There have been a large number of attempts to address web service lifecycle in the web service community, as discussed in the section “Background”. Further, Glatard, et al. (2008) examine a SOA enabling dynamic service grouping for optimizing distributed workflow execution. Leymann (2003) discusses a lifecycle of a web service based on explicit factory-based approach, in which a client uses a factory to create “an instance” of a particular kind of service. The client can then explicitly manage the destruction of such an instance, or it can be left to the grid environment. Sheth (2003) proposes a semantic web process lifecycle that consists of web service description (annotation), discovery, composition and execution or orchestration. Wu and Chang (2005) consider service discovery, service invocation and service composition as the whole lifecycle of web services. Zhang and Jeckle (2003) propose a lifecycle for web service solutions that consists of
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web service modeling, development, publishing, discovery, composition, collaboration, monitoring and analytical control from a perspective of web service developers. Kwon (2003) proposes a lifecycle of web services consisting of four fundamental steps: web service identification, creation, use and maintenance. Tsalgatidou and Pilioura (2002) propose a web service lifecycle that consists of two different layers: a basic layer and a value-added layer. The basic layer contains web service creation, description, publishing, discovery, invocation and unpublishing (Gottschalk, et al, 2000), all of these activities are necessary to be supported by every web service environment. The value-added layer contains the value-added activities of composition, security, brokering, reliability, billing, monitoring, transaction handling and contracting. These activities bring value-added functionality and better performance to any web service environment. They acknowledge that some of these activities take place at the web service requestor’s site, while others take place at the web service broker’s or provider’s site. They also explore technical challenges related to each activity in the web service lifecycle. However, they have not classified the proposed activities of stages in their lifecycle based on web service requestors, providers, and brokers in detail. Some organizations also propose their own web service lifecycle. For example, W3C proposes a service lifecycle for web service management, which is expressed as state transition diagrams (W3C, 2004). Sun Microsystems considers the lifecycle of web services consisting of four stages: design/ build, test, deploy/execute, and manage (Sun Microsystems, 2003), which can be considered a model for web service developers. Based on the above analysis, we can find that there are at least the following activities of web services that have been mentioned in the reviewed web service lifecycles, all of these can be classified into two categories: development-oriented web service activities and business-oriented web service activities.
•
•
Development-oriented web service activities: Web service modeling, representation, design/building, test, publishing, unpublishing, deployment, execution, re-execution, orchestration, collaboration, monitoring, analytical control, maintenance, and management, Business-oriented web service activities: Web service creation, identification, description (annotation), publishing, finding, discovery, use, invocation and binding (Gottschalk, et al, 2000), adaptation, composition, security, brokering, recommendation, reliability, billing, monitoring, transaction handling and contracting.
This classification does not produce a crisp mathematical partition, because, some activities such as web service representation, management, and creation can be considered in both kinds of web service activities. However, such a classification reflects the fact that some existing web service lifecycles are proposed from the implementation perspective of the web service developers (Burstein, et al, 2006), whereas other web service lifecycles are proposed from the perspective of business. Generally speaking, web service providers pay more attention to development-demanded web service activities than web service brokers and requestors, whereas web service brokers and requestors pay more attention to Business-demanded web service activities than web service providers. From a market perspective, web services mainly consist of three kinds of players: Service providers, service requestors and service brokers (Tang, et al, 2007). Different players require different web service lifecycles. Therefore, what is a web service lifecycle from the demand viewpoint of web service providers, brokers and requestors respectively? How many stages does a web service lifecycle consist of? These problems are interesting for examining demand-driven web services. Further, demand is an important factor for market and economy development (Chaffey,
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2007, p. 150). The decrease of demand is an implication for economic recession. Different players generally have different demands for web services, different demands have also different web service lifecycles. Therefore, what is the demand-driven web service lifecycle from the viewpoint of web service providers, brokers and requestors respectively? These issues still remain open in web services. The following sections will address these issues by examining the web service lifecycle from a demand viewpoint. It should be noted that everybody, whether an application user, developer, financier, businessman, or an e-commerce manager, has enjoyed or will enjoy some tangible benefits from web services (Guruge, 2004) such as searching information using Google and doing business online. At the same time, he or she demands more and more web services with the development of the Internet. Therefore, we do not examine the demand of everybody for web services, but the demand of the main players in web services in what follows, that is, we will look at demand-driven web service lifecycles for web service providers, requestors and brokers respectively.
A PROVIDER’S DEMAND DRIVEN WEB SERVICE LIFECYCLE In web services, a web service provider usually demands a web service requestor to commit some web service activities and also demands a web service broker to commit some web service activities. Therefore, based on the above demand analysis for web services, a provider’s demanddriven web service lifecycle mainly consists of web service finding, identification (Kwon, 2003), description/representation (Burstein, et al, 2005), creation (Kwon, 2003; Tang, et al, 2007), discovery, composition (Limthanmaphon & Zhang, 2003; Tang, et al, 2007; Burstein, et al, 2005), recommendation (Sun & Lau, 2007), negotiation (Hung, et al, 2004; Burstein, et al, 2005), invoca-
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tion (Burstein, et al, 2005), contracting, use and reuse (Kwon, 2003), execution or orchestration, management and monitoring (Dustar & Schreiner, 2005), maintenance (Kwon, 2003), billing and security (Tang, et al, 2007). Web service identification aims to identify appropriate services (Ladner, 2008). Web service invocation is to invoke the discovered web service interface. Web services are published to the intranet or the Internet repositories for potential users to locate (Tang, et al, 2007). Web service unpublishing is sometimes no longer available or needed, or it has to be updated to satisfy new requirements (Tang, et al, 2007) Web service composition primarily concerns requests of web service users that cannot be satisfied by any available web service (Bucchiarone & Gnesi, 2006; Narendra & Orriens, 2006). One form of simple web service composition is to combine a set of available web services to obtain a composite service that might be recommended to the users. In other words, web service composition is a process in which a single web service requested from a service requestor can be satisfied by an aggregation of different services provided by several independent web services providers. More strictly, web service composition refers to the process of creating customized or personalized services from existing services by a process of dynamic discovery, integration and execution of those services in order to satisfy user requirements (Wang, et al, 2008). Web service composition is a key challenge to manage collaboration among web services (Limthanmaphon & Zhang, 2003). It refers to intelligent techniques and efficient mechanisms of composing arbitrarily complex services from relatively simpler services available over the Internet. Service composition can be either performed by composing elementary or composite services. Composite services in turn are recursively defined as an aggregation of elementary and composite services (Dustdar & Schreiner, 2005).
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There are many techniques existing for web service composition. For example, Tang, et al (2007) propose an automatic web service composition method taking into account both services’ input/output type compatibility and behavioral constraint compatibility. Cheng, et al. (2006) use case-based reasoning (CBR) to support web service composition. Further, Dustdar and Schreiner (2005) discuss the urgent need for service composition and the required technologies to perform service composition as well as present several different composition strategies. Web service composition is becoming an important topic for service computing, because composing web services to meet the requirement of the web service requestor is the most important issue for web service providers and brokers.
REQUESTOR’S DEMAND DRIVEN WEB SERVICE LIFECYCLE In web services, a web service requestor usually demands a web service provider and a web service broker to commit some web service activities respectively. Therefore, based on the above demand analysis for web services, a requestor’s demand-driven web service lifecycle mainly consists of web service consultation, creation (Burstein, et al, 2005), representation, search (Ladner, 2008), matching (Ladner, 2008), finding, discovery (Tang, et al, 2007; Burstein, et al, 2005), identification (Burstein, et al, 2005), composition, mediation (Ladner, 2008; Burstein, et al, 2005), personalization, adaptation, negotiation (Gottschalk, et al, 2000), evaluation (Burstein, et al, 2005) and recommendation, QoS (Burstein, et al, 2005), invocation (Burstein, et al, 2005), contracting (Burstein, et al, 2005). Web service discovery is a process of finding the most appropriate web service needed by a web service requestor (Singh & Huhns, 2005; Burstein, et al, 2005). It identifies a new web service and detects an update to a previously discovered web
service (Ladner, 2008). Services may be searched, matched, and discovered by service requestors by specifying search criteria and then be invoked (Dustdar & Schreiner, 2005; Tang, et al, 2007). Service invocation is restricted to authorized users (Dustdar & Schreiner, 2005). There have been a variety of techniques and approaches developed for web service discovery. For example, OWL-S (an OWL-based Web service ontology of W3C) provides classes that describe what the service does, how to ask for the service, what happens when the service is carried out, and how the service can be accessed (Ladner, 2008). Web service mediation aims to mediate the request of web service from the web service requestor. Web service negotiation consists of a sequence of proposal exchanges between the two or more parties with the goal of establishing a formal contract to specify agreed terms on the web service (Yao, et al, 2006). Through negotiation, web service requestors can continuously customize their needs, and web service providers can tailor their offers. In particular, multiple web service providers can collaborate and coordinate with each other in order to satisfy a request that they can’t process alone. However, a web service requestor might not need to know how the web services are retrieved, discovered and composed internally. Therefore, search, matching, and composition might be less important for a web service requestor.
A BROKER’S DEMAND DRIVEN WEB SERVICE LIFECYCLE Brokering is the general act of mediating between requestors and providers in order to match service requestor’s needs and providers’ offerings. It is a more complicated activity than discovery (Tang, et al, 2007). A broker should enable universal serviceto-service interaction, negotiation, bidding and selection of the highest quality of service (QoS) (Singh & Huhns, 2005, pp. 345-346). Brokering
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is supported by HP web services platform as a HP web intelligent broker (Tsalgatidou & Pilioura, 2002). After discovering web service providers that can respond to a user’s service request, HP web services platform negotiates between them to weed out those that offer services outside the criteria of the request. In web services, a web service broker usually demands a web service provider and a web service requestor to undertake some web service activities respectively. Therefore, based on the above demand analysis for web services, a broker’s demand-driven web service lifecycle mainly consists of web service consultation, publication, search, matching (Burstein, et al, 2005), discovery, personalization, adaptation, composition, negotiation, recommendation, management, invocation, contracting and billing. We propose web service consultation as the start of the broker’s demand-driven web service lifecycle, because the web service requestor provides a request for a web service so that the web service broker begins to consultation. In order to provide a service consultation, the web service broker has to conduct web service search, by using a search tool/engine such as google.com and beidu.com. During the web service search, the web service broker uses any techniques of web service matching such as CBR (Sun & Finnie, 2004). After discovering a number of web services, the web service broker can select one of them to recommend it to the web service requestor. If the requestor accepts the recommended web service, then the web service can be considered as a web service use/reuse; that is, the existing web service has been reused by customers. Web service recommendation aims at helping web service requestors in selecting web services more suitable to their needs. Web service recommendation is a significant challenge for web service industry, in particular for web service brokers. Web service recommendation can be improved through optimization, analysis, forecasting, reasoning and simulation (Kwon, 2003).
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Recommender systems have been studied and developed in e-commerce, e-business and multiagent systems (Sun & Finnie, 2004). Sun and Lau has examined case based web service recommendation based on the analysis of customer experience and experience-based reasoning (Sun & Lau, 2007). However, how to integrate web service recommendation, composition and discovery in a unified way is still a big issue for web services. Different web service requestors have different preferences and expectations. Therefore, a web service broker has to personalize web services in order to meet the requirement of the web service requestor satisfactorily. It is necessary to compose web services based on the requirement of requestors in order to personalize the web service. At the same time, web service composition allows web service brokers to create a composite web service for requestors rapidly (Tang, et al, 2007). Billing concerns service brokers and service providers (Tang, et al, 2007). Service brokers create and manage taxonomies, register services and offer rapid lookup for services and companies. They might also offer value-added information for services, such as statistical information for the service usage and QoS data.
A UNIFIED PERSPECTIVE ON DEMAND DRIVEN WEB SERVICE LIFECYCLES Based on the above discussion, the stages involved in the demand-driven web service lifecycle for web service providers, requestors and brokers can be summarized in Figure 5. Some of the detailed activities have not been listed in the table because of space limitations. From Figure 5, we can intuitively find that service requestors and brokers are the dominant force for developing web services, which will be examined in more detail in another paper. In what follows, we discuss the above proposed demand-driven web service lifecycles from a unified perspective.
Demand Driven Web Services
Figure 5. Demand driven web service lifecycles: A unified perspective
Some activities in web services are common demands of the main players: service providers, brokers, and requestors. This means that they share some common web service activities. However, different players in web services demand the same activity in a different way. For example, the service provider demands “web services search” also means that s/he asks web services developers or her/his technology agents to provide efficient web services search function for his or her business. On the other hand, the service requestor demands “web services search” means that s/he requires a fast search function from the service provider or broker in order to obtain the most satisfactory web services as soon as possible. Finding, search and matching are not unique activities or operations related to web services, because they are also involved in database and case based reasoning (CBR). For example, Google uses search and matching to provide web services. In fact, search can be considered the most common demand for everyone who accesses the Internet or the web. Adaptation, retrieval, classification (Ladner, 2008), use/reuse (Kwon, 2003), retention or feedback are not unique activities related to web services either, because they are also stages of CBR cycle (Sun & Finnie, 2004). Web service invocation, binding, billing, contract (Tang, et al, 2007) can be considered as the common features
for any commercial activities. Therefore, we need not discuss each of them in detail in the context of web services. Based on the above discussion, the most important activities in web services can be web service discovery, composition and recommendation: The service requestors demand the service providers and brokers for web services discovery and recommendation; the service brokers demand the service providers for web services discovery and composition; the service providers demands up-to-date techniques and tools for web services discovery, composition and recommendation. In a more general sense, all the above-mentioned activities of web services can be considered as a demand from web services to all the stakeholders of web services. This demand asks web service developers to provide services with high QoS and advanced tools for all the activities of web services. Therefore, these services can be considered as meta-web services and we will examine the hierarchy of demands in web services in future work. It should be noted that the activities in web services should be classified in a hierarchical way (main services and subservices). For example, identification, finding, search and matching can be subactivities of web service discovery (Burstein, et al, 2005). Dan, et al. (2004) argues that the subactivities of web service contract consist of
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offering creation, customer order and negotiation, monitoring, billing and reporting. Burstein, et al. (2005) examines the subactivities of web service discovery, engagement, enactment and management. Then we can examine the hierarchical structure of activities or interoperations in web services assuming that publish, find, and bind are the fundamental activities of web services.
FUTURE RESEARCH DIRECTIONS Understanding the demand of stakeholders of web services is a critical factor for further development of web services. This chapter only focuses on demand-driven web services from a demand perspective of the main players in web services: service providers, brokers, and requestors. In fact, these demands from the web service providers, brokers, and requestors not only require to be met from themselves but also from more stakeholders of web services, in particular, the web service developers with the strong background of information communication technology (ICT). They will provide technological solution for the main activities of web service lifecycle such as web service description and discovery (Garcia & Toledo, 2006), composition (Papazoglou, et al, 2006), billing, contracting. For example, the engineering of web service composition and recommendation are a research direction (Papazoglou, et al, 2006). In future work, we will explore implementation issues for engineering of web service composition and recommendation. The proposed demand-driven web service lifecycles are still in a linear form. Providing other forms of demand-driven web service lifecycle is also a research direction. In future work, we will develop demand-driven models for web service lifecycle in a spiral and iterative way with corresponding diagrams, as done in software engineering. Applying intelligent techniques to web services and automating the process stages in the demand-
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driven web service lifecycle is another research direction (Petrie & Genesereth, 2003). In future work, we will integrate web service discovery, composition and recommendation using soft case based reasoning. Demand is an important concept in economics. However, there is less attention in web services. In future work, we will investigate the computing basis of demand and then improve the abovementioned web service lifecycle. For example, we will examine demand as a 4-ary relation (seller, buyer, service, price) from a mathematical and business viewpoint and propose a hierarchical structure for demand-driven e-commerce and demand-driven web services. We will also further analyse the demands between service players, and provide the related instruction/guidance for web service design and development in order to develop demand-driven framework for Web services.
CONCLUSION This chapter first looked at main players in web services, provided a mathematical analysis of demand in web services. It also examined the demand relationship among service providers, brokers and requestors in web services and the demand chain in web services. Then the chapter reviewed web service architectures and provided a demand-driven architecture for web services (DWSOA). It also reviewed web service lifecycles, proposed the demand-driven web service lifecycle for the main players in web services respectively and then discussed the demand-driven web service lifecycles in a unified way. The proposed approach in this chapter can facilitate the engineering and management of web services, and the research and development of web services, e-services, service intelligence and service science. In the future work, besides above-mentioned future research directions, we will develop demand-driven framework for Web services by extending Table 2 to include as many stages or activities of web services life
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cycle as possible. We will also use the proposed approaches to study business models further and try to apply them to Web services design.
ACKNOWLEDGMENT This research is partially supported by the Ministry of Education Hebei, China under a key research Grant No. ZH200815 and other research grants provided by the College of Mathematics and Information Science, Hebei Normal University, China.
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Wang, M., Liu, J., Wang, H., Cheung, W. K., & Xie, X. (2008). On-demand e-supply chain integration: A multi-agent constraint-based approach. Expert Systems with Applications, 34(4), 2683–2692. doi:10.1016/j.eswa.2007.05.041 Waters, D. (2006). Demand chain effectivenesssupply chain efficiencies: A role for enterprise information management. Journal of Enterprise Information Management, 19(3), 246–261. doi:10.1108/17410390610658441 Weiss, G. (Ed.). (1999). Multiagent Systems: A modern approach to Distributed Artificial Intelligence. Cambridge, MA: MIT Press. Wiki (2009). Retrieved April 2, 2009, from http:// en.wikipedia.org/wiki/Demand_(economics). Wilkinson, N. (2005). Managerial Economics: A Problem-Solving Approach. Cambridge: Cambridge University Press. Wu, C., & Chang, E. (2005). A conceptual architecture of distributed web services for service ecosystems. In S. Dascalu (Ed.), 18th International Conf on Computer Applications in Industry and Engineering (CAINE 2005) (pp. 209-214).
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Yao, Y., Yang, F., & Su, S. (2006). Flexible decision making in web services negotiation. In J. Euzenat & J. Domingue (Eds.), AIMSA 2006 (LNAI 4183, pp. 108-117). Zhang, L. J., & Jeckle, M. (2003). The next big thing: Web services composition. In M. Jeckle & L.J. Zhang (Eds.), ICWS-Europe (LNCS 2853, pp. 1-10).
ADDITIONAL READING Bell, M. (2008). Service-Oriented Modeling (SOA): Service Analysis, Design, and Architecture. Chichester, UK: John Wiley and Sons Ltd. Breu, R. Breu1, M., Hafner, M., & Nowak, A. (2005). Web service engineering advancing a new software engineering discipline. In D. Lowe & M. Gaedke (Eds.), ICWE 2005 (LNCS 3579, pp. 8-18). Brown, A., Johnston, S., & Kelly, K. (2002). Using Service-Oriented Architecture and Component-based Development to Build Web Services. Retrieved 10 July 2009, from http://www. ibm.com/developerworks/rational/library/510. html#download Chen, L., & Tao, F. (2008). An intelligent recommender system for web resource discovery and selection . In Ruan, D., Hardeman, F., & van der Meer, K. (Eds.), Intelligent Decision and Policy Making Support Systems (pp. 113–140). Berlin, Heidelberg: Springer. doi:10.1007/978-3-54078308-4_7 Cheng, M.-Y., Tsai, H.-C., & Chiu, Y.-H. (2009). Fuzzy case-based reasoning for coping with construction disputes. Expert Systems with Applications, 36(2), 4106–4113. doi:10.1016/j. eswa.2008.03.025
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Cheng, R., & Su, S. Yang, F., & Li, Y. (2006). Using case-based reasoning to support web service composition. In V.N. Alexandrov et al. (eds.), ICCS 2006, Part IV (LNCS 3994, pp. 87-94). Berlin Heidelberg: Springer-Verlag. Chung, J. Y., Lin, K. J., & Mathieu, R. G. (2003). Web services computing: Advancing software interoperability. Computer, 36(10), 35–37. doi:10.1109/MC.2003.1236469 Costantini, S. (2008). Agents and Web Services. Retrieved April 04, 2009, from http://www. cs.nmsu.edu/ ~epontell/backbone/aug08/content/ Articles/sadri2/paper.pdf Han, W., Xingdong Shi, X., & Chen, R. (2008). Process-context aware matchmaking for web service composition. Journal of Network and Computer Applications, 31(4), 559–576. doi:10.1016/j. jnca.2007.11.008 Jeong, B., Cho, H., & Lee, C. (2009). On the functional quality of service (FQoS) to discover and compose interoperable web services. Expert Systems with Applications, 36(3), 5411–5418. doi:10.1016/j.eswa.2008.06.087 Küster, U., König-Ries, B., Stern, M., & Klein, M. (2007). DIANE: An integrated approach to automated service discovery, matchmaking and composition. In Intl Conf on World Wide Web (WWW2007), May 8–12, 2007, Alberta, Canada (pp. 1033-1041). Lau, R. Y. K. (2007). Towards a web services and intelligent agents-based negotiation system for B2B eCommerce. Electronic Commerce Research and Applications, 6(3), 260–273. doi:10.1016/j. elerap.2006.06.007 Lawler, J. P. (2007). Service-Oriented Architecture: SOA Strategy, Methodology, and Technology. Hoboken: Taylor & Francis Ltd. doi:10.1201/9781420045017
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Lu, J., Ruan, D., & Zhang, G. (Eds.). (2006). EService Intelligence. Berlin, Heidelberg: Springer Verlag. Madhusudan, T., & Uttamsingh, N. (2006). A declarative approach to composing web services in dynamic environments. Journal of Decision Support Systems, 41(2), 325–357. doi:10.1016/j. dss.2004.07.003 Park, C.-S., & Park, S. (2008). Efficient execution of composite Web services exchanging intensional data. Journal of Information Science, 178(2), 317–339. doi:10.1016/j.ins.2007.08.021 Psaila, G., & Wagner, R. R. (Eds.). (2008). ECommerce and Web Technologies: 9th International Conference, EC-Web 2008, Turin, Italy, September 3-4, 2008, Proceedings (LNCS). Berlin Heidelberg: Springer Verlag. Richter, M. M. (2009). The search for knowledge, contexts, and case-based reasoning. Engineering Applications of Artificial Intelligence, 22(1), 3–9. doi:10.1016/j.engappai.2008.04.021 Rust, R. T., & Kannan, P. K. (Eds.). (2002). EService: New Directions in Theory and Practice. Armonk, NY: M.E. Sharpe. Sahai, A., & Graupner, S. (2005). Web Services in the Enterprise: Concepts, Standards, Solutions, and Management (Network and Systems Management). New York: Springer. Song, R., Korba, L., & Yee, G. (Eds.). (2007). Trust in E-services: Technologies, Practices and Challenges. Hershey, PA: IGI Global. Talukder, A. K., & Yavagal, R. R. (2007). Mobile Computing: Technology, Applications and Service Creation. New York: McGraw-Hill Inc. Tatemura, J., & Hsiung, W. P. (2006). Web service decomposition: Edge computing architecture for cache-friendly e-commerce applications. Electronic Commerce Research and Applications, 5(1), 57–65. doi:10.1016/j.elerap.2005.08.001
Ting, I.-H., & Wu, H. J. (Eds.). (2009). Web Mining Applications in E-commerce and E-services. Berlin, Heidelberg: Springer Verlag. doi:10.1007/9783-540-88081-3 Web Services Activity. (n.d.). Retrieved April 3, 2009, from http://www.w3.org/2002/ws/arch/. Wooldridge, M. (2002). An Introduction to Multiagent Systems. Chichester, UK: John Wiley & Sons Ltd. Zhao, J. L., & Cheng, H. K. (2005). Web services and process management: a union of convenience or a new area of research? Journal of Decision Support Systems, 40(1), 1–8. doi:10.1016/j. dss.2004.04.002
KEY TERMS AND DEFINITIONS A Web Service Demand Chain: A chain linking players related to web services, similar to supply chain in e-commerce. For example, the web service requestor demands service consultation from service broker, while the service broker demands web service representation and publication from service provider. The service provider demands the most powerful web service tools from the ICT developer to realize the web service representation and publication. Demand Theory: A part of microeconomics. It examines demand curves, demand equations, demand analysis, demand chain, impact factors on demand, demand estimation and so on. Demand analysis assesses current and projected demand for e-commerce services amongst existing and potential customer segments. Intelligent System: A system that can imitate, automate some intelligent behaviors of human being. Expert systems and knowledge based systems are examples of intelligent systems. Currently intelligent systems is a discipline that studies the intelligent behaviors and their implementations as well as impacts on human society.
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Multiagent Systems: An intelligent system consisting of many intelligent agents. An intelligent agent can be considered as a counterpart of a human agent in intelligent systems. Service Computing: A research field about service science, science intelligence, service technology, service engineering, service management, and service applications. It is the most general representation form of studying service in computing discipline. Service computing and service-oriented computing are used interchangeably. Web Service Architecture: A Web service architecture is a high level description for web services, which is free of concrete implementation of a web service system. Web Service Discovery: The process of searching, matching a machine-processable description of a Web service. It aims to find appropriate web services that meet the requirement of the customers.
Web Service Lifecycle (WSLC): It consists of the start of a web service, the end of web service and its evolutionary stages that transform the web service from the start to the end. Many activities are included in a WSLC such as web service discovery, composition, recommendation and management. Web Services: Generally speaking, web services are all the services available on the Web or the Internet from a business perspective. The first web services were information sources (Schneider, 2003). From a technological perspective, web services are Internet-based application components published using standard interface description languages and universally available via uniform communication protocols. This definition is currently used in the web service community.
This work was previously published in Service Intelligence and Service Science: Evolutionary Technologies and Challenges, edited by Ho-fung Leung, Dickson K.W. Chiu and Patrick C.K. Hung, pp. 35-55, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Between Supply and Demand: Coping with the Impact of Standards Change Tineke M. Egyedi Delft University of Technology, The Netherlands
ABSTRACT There is a continuous pressure for improvement in e-business. Increasing technical possibilities, new forms of outsourcing, the ongoing integration of business processes, the expansion of value chains, the emergence of new markets and new players; they affect the infrastructure and underlying ICT standards. Contrary to the inherent stability one might expect from standards, maintenance of and change in standards are rule rather than exception. The benefit of standards change is sometimes obDOI: 10.4018/978-1-60960-587-2.ch108
vious. However, it can also pose severe problems (e.g. heavy switching costs and reduced market transparency). This chapter synthesizes research findings on standards change. A conceptual framework is developed to determine under which circumstances standards change is avoidable; if so, in what manner; and if not, which means exist to reduce the negative impact of change. While some change drivers are innovation-related, others stem from the standardization activity itself. They require distinct coping strategies: change control and quality control, respectively. Along these two lines, the chapter discusses strategies to cope with the impact of standards change.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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1. INTRODUCTION For different reasons, change is inherent to e-business and to the ICT sector in general. First, the high rate of technology change has led to a shortening of technology and product life-cycles. The shorter life-cycles are accompanied by a higher rate of standards change and an accelerated standards process. Second, the world-wide diffusion of ICT systems has facilitated the globalization of business and production. The distributed production of goods and services, including outsourcing of research and development (R&D) services, has created an additional demand for ICT standards. This, in turn, challenges the standardization system. Next to the growing number of standards, the need to acquire consensus among a higher number of stakeholders with increasingly heterogeneous preferences is even more challenging. Even if consensus can be reached, the diversified context of those implementing ICT standards increases the likelihood of different implementations. Third, related to the aforementioned two trends is the deregulation of many industries, and the telecommunication sector, in particular. Publicly owned companies have been privatized and legal framework conditions have been substituted by self-regulatory schemes, which include standardization. In sum, the need to develop standards has increased while the stability of the surrounding conditions has decreased. Therefore, the rate of standards change promises to be particularly high. (Egyedi & Blind, 2008) Although standards change is systemic to the field of ICT (Blind, 2008; Egyedi & Heijnen, 2008) and is, as will be argued, not an unproblematic issue, until recently the topic has hardly been addressed. In order to draw attention to a number of studies that have recently been published, this chapter discusses and synthesizes their findings to determine the causes of standards change and how to deal with them. More specifically, the aim is to determine under which circumstances standards change is avoidable; if so, in what manner change
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can be avoided; and if not, which means exist to reduce the negative impact of change. The chapter is structured as follows. In order to explain the problems attached to standards change (section 4), section 2 first argues that stability is crucial to standards. Nevertheless, different kinds of change exist (section 3). Their causes are manifold. However, they seem to fall into two main categories: standardization-internal and external causes (section 5). The causes can be conceptualized and modeled with help of two complementary, theoretical angles: innovation and management (section 6). The heuristic model provides a stepping stone for identifying strategies to cope with standards change: avoiding unnecessary change, reducing its impact ex post, or dealing ex ante with future change in standards design (section 7). To conclude, the chapter’s main findings are re-analyzed in terms of supply- and demand-side drivers of standards change (section 8).
2. THE VALUE OF STANDARDS The term ‘standard’ is used in this chapter in two main senses, namely in the sense of committee standards and in the sense of de facto standards. A committee standard1 is a very specific type of agreement. It is a specification developed by a committee for repeated use, or “a document established by consensus (…), that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context” (adapted from ISO/IEC, 2004, p. 8).2 This – adapted - definition covers the standards developed by formal standards bodies like the International Organization of Standardization (ISO) and from, for example, standards consortia (e.g. World Wide Web Consortium, W3C) and professional organizations (e.g. Institute of Electrical and Electronics Engineers, IEEE). The second sense in which the term ‘standard’ is often used, refers to de facto standards, that
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is, to specifications that underlie products and services with a significant market share, and to widely adopted practices. An example is the PDF specification of Acrobat Reader3. Initially these specifications were not meant to become standards, that is, to be referred and built to by third parties, but their wide use turns them into such standards. De facto standards, too, undergo changes (e.g. software updates). Standards make life easier because we can refer to them implicitly and explicitly, and thus reduce what economists term informational transaction costs (Kindleberger, 1983).4 Moreover, they create compatibility (i.e. interoperability). They allow products to work together and equipment parts to be replaced. In anonymous markets complementary products can be used together based on standard interfaces. As points of reference, standards coordinate technology development (Schmidt & Werle, 1998). They structure and coordinate the way markets develop. Standards-based clusters of economic activity emerge. An example is the product cluster for paper processing equipment like printers, copiers, and fax machines which is based on the common A-series of paper formats (ISO 216). There are many economic benefits to standards. As Table 1 indicates, standards facilitate trade and allow economies of scale. They increase economic efficiency.
3. CATEGORIES OF STANDARDS CHANGE To be of value, however, standards need to be stable – at least for a certain period of time. The problem is that often they are not. Standards are revised, extended, replaced, succeeded, withdrawn, re-instated, etc.. In short, they are dynamic. Standards dynamics refers to the changes to and interaction between standards, that is, to what happens to standards once they have been set (Egyedi & Blind, 2008). Although its meaning includes competition between standards and the friction between complementary standards, the emphasis in this chapter is on standards that change. There are four categories of standards change: implementation change, standard maintenance, standard succession, and formalization. •
• Table 1. Main functions of compatibility standards (Source: Blind, 2004, adapted) Function of standards
Effect on the market
Information
Reduce transaction costs Correct adverse selection5 Facilitate trade
Compatibility
Create network externalities6 Avoid lock-ins
Variety reduction
Allow economies of scale Build critical mass
•
Implementation change: a change introduced to the standard specification during its implementation in, for example, a product. When a standard is used, that is, implemented in a product, a service or a practice, it may undergo changes. The specification may only partly be implemented in order to suit the local situation (e.g. Timmermans & Berg, 1997); or it may be extended and implemented in a way that ties customers to a vendor. In such situations, where the implementation deviates from the standard, we speak of implementation change. Maintenance change or horizontal dynamics (Gauch, 2008): standards change that results from maintenance activities of standards bodies. It includes developing a new standard edition, a corrigendum, an amendment or a revision; merging standards, splitting them up, withdrawing a standard and re-instating it. Succession: the replacement of one standard by another one in an area of standardization. It includes what may retrospectively be seen to be a next generation standard.
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Where developed by the same committee, standard succession can be viewed as an extension to and special case of standard maintenance. However, different committees and even competing standards bodies may be involved in developing successors. Formalization or vertical dynamics (Gauch, 2008): the result of either ratifying a de facto standard in a standards consortium or a formal standards body (leading to a consortium standard or a formal standard, respectively), or by ratifying a consortium standard in a formal standards body. At stake is increased recognition and endorsement of the de facto or consortium standard.
is an extension of the standard’s life-cycle, as is formalization. Although Figure 1 does not specify sources of change, the category ‘implementation change’ already fore-shadows the importance of the interplay between, on the one hand, standards use, a significant factor on the demand-side of standardization, and, on the other hand, the standard setting, that is, the supply-side. Vendor experience with implementing and localizing standards, and end-user experience with implementations are highly relevant triggers for standards maintenance.
Each category can be plotted onto the standard’s life-cycle (see Figure 1). Figure 1 visualizes the relation between them. From the moment the standard specification has been defined, the cycle of standard maintenance starts. Feedback from implementers may be the reason to revise a standard (dotted arrow); while too many maintenance cycles may indicate that a more radical change is called for, i.e. a new standard. From the perspective of standards change, succession
Change is a double-edged sword. On the one hand, standards change may well be valued positively when it accompanies innovation in science and technology. For example, in the field of medicine new research might result in a changed reference value for medical treatment. It may mean a lower dose of medication and less side-effect for patients. In this case, standards change is a regular occurrence and standards maintenance is part of what Kuhn (1970) calls ‘normal problem
•
4. PROBLEMS OF STANDARDS CHANGE
Figure 1. Four categories of standards change: Implementation change, maintenance, succession and formalization in the extended life-cycle of a standard
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solving’. Some regulatory and policy areas highly depend on standards, and therefore need to find ways to cope with this kind of standards change. The European Union has decided not to include standards in regulation precisely because standards change so often. Re-drafting regulation would require too much time and effort. Therefore, a referential approach has been developed, which allows standards to evolve without affecting the regulatory framework. This referential approach, which was confirmed in 1985 as the New Approach, is still in place. On the other hand, where the need for a standard is expressed, inherently, the need for a certain degree of stability is implied. From this angle standards change poses a problem. While stable standards create transparency and reduce in formational transaction costs, changing them has the opposite effect; it decreases transparency and increases transaction costs. Standards change involves new costs (e.g. costs of updating the standard) and devaluates earlier investments (i.e. sunk cost). It diminishes self-evident interoperability because uncertainty may arise about the interoperability of products complying with different standard versions. To follow, we highlight two difficulties that may arise: the economic costs of switching to the revised standard, and the issue of who actually benefits from and who carries the burden of change. We close this section with two wellrecognized problems: the longevity of digital data and incompatibility between standard-compliant products.
4.1 Switching Costs The work of economists on switching between competing de facto standards (e.g. Farrell & Saloner, 1985) provides a useful theoretical underpinning for understanding the difficulty of switching to a new standard version. The costs involved in switching from one standard to another are called switching costs (e.g. vonWeizsacker,
1982). Literature informs us that whether or not a party switches standards depends in particular on the size of the installed base, the improvements offered by the competing standard, and how quick network externalities are expected to be realized. In addition to a likely need to depreciate earlier investments in terms of time, effort and money, new investments have to be made. If the sum of switching costs, for example, investments in new equipment and the costs of learning how to use a new technology, is assessed as being too high lock-in occurs (Farrell, 1990). Since similar switching costs are involved, thresholds for switching between competing standards also explain the hesitations which people have about switching to a new version of a standard or to a standard successor.
4.2 Who Bears the Costs A core question is who benefits and who bears the costs of standards change. Some parties stand to gain more than others. The stakes are not only distributed asymmetrically between those who develop and change standards (the developers), but also between developers, standard implementers (i.e. those who adopt standards in products, services, regulation, etc.), and those who buy the standard-compliant products and services or are affected by them (end-users such as consumers). Those who initiate the change are seldom the ones who bear its costs. In particular where lack of quality of an initial standard is the reason for a revision, the people responsible may not be the ones to pay (Sherif et al., 2007). As Jakobs puts it Users (…) are the ultimate sponsors of standardization (the costs of which are included in product prices). (…) Moreover, users will suffer most from inadequate standards that will leave them struggling with incompatibilities. (Jakobs, 2005, p. 5) Staying close to home, these last years Microsoft products have become de facto standards in
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both the home and the work environment. They have undergone many updates in response to software bugs and virus attacks, updates which users initially had to act upon (i.e. downloads). In addition, new software releases have kept many large organizations in an almost constant flux of IT projects, which usually not only involved the roll-out of software and adapted configurations but included renewal of the stock of personal computers (Egyedi, 2002). In short: here, as in many cases, not the producer but the consumer bears the costs of change.
4.3 Salient Problem Areas Next to the economic angle on the negative impact of change, there are a number of currently well-recognized problem areas in the field of ICT that illustrate the problematic side of standards change. Examples are, first, the increasingly urgent problem of sustainable digital data. Van der Meer (2008), for example, analyses the difficulty of maintaining access to archival digital data over time (i.e., longevity). The informational, legal, and cultural-historic value of archival data, “… are at risk as a result of standard dynamics”. In most cases changes to standards make it very difficult to retain access. A second example is that of standard-compliant, but incompatible IT products and services (Egyedi, 2008b). In particular implementation change leads to incompatibilities. Incompatible implementations may come about intentionally or unintentionally, for perfectly viable economic or functional reasons, or as part of an aggressive market strategy (embrace-and-extend). But whatever the reason, the consequences are the same. Implementation change undermines the open standards development setting and often results in needless market fragmentation.
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5. CAUSES OF CHANGE If change puts the value of standards at risk and can create serious problems, as the previous sections illustrate, then why do standards change? In order to know how to prevent, reduce and/or, retrospectively cope with the negative impact of standards change, insight is required in causes of standards change. The causes roughly fall into three complementary explanations, each with its own flow of reasoning: • • •
Standards change as part of innovation; Standards change as a market strategy; and Standards change as a learning phase in the standard’s life-cycle.
5.1 Innovation Standards change is endogenous to technology development (Egyedi, 1996). It is an intrinsic part of technology development and as such an unavoidable derivative of innovation. The pressure for change may stem from •
Evolving user requirements, that is, changes in the needs of consumers and organizations. Examples are the requirement for higher speed and more bandwidth in the case of wireless LAN (Jakobs, 2008); for more internet addresses in the case of IPv4 (Vrancken et al., 2008); or for extended facilities (Meer, 2008). In addition, standards use - and localization (Timmermans & Berg, 1997) leads to new problems which then also need to be addressed (Vrancken et al., 2008).
The expected importance of a new functionality is often enough reason to initiate standards change - although in practice the functionality may never be used (e.g. added proprietary standard features such as encryption in the WLAN case; Jakobs, 2008).
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•
•
The emergence of a new technical context. An example is the new possibilities which the web-based environment offered for using standardized mark-up languages (Egyedi & Loeffen, 2008). A new contextof-use sets different requirements. The identification of new application domains. Examples are the intended use of a mark-up language for company-external document exchange (business-to-business), while the focus used to be on managing complex, company-internal document flows (Egyedi & Loeffen, 2008); the expected use of IEEE 802.11 for imaging and voice transmission (IEEE 802.11a; Jakobs, 2008); and expansion of the Dublin Core to make it better suited for more types of digital objects, including software components and cultural heritage materials (Vander, Meer, 2008).
These developments lead to intensified standards maintenance as well as to more radical types of standards succession.
5.2 Market Strategy ICT companies typically use standardization as a competitive tool. A company policy on standards, including standard’s change, should therefore be part of their market strategy7. However, standards change can also be an outcome of market competition. Thus, in the case of wireless LAN competing technologies have led to different standard specifications (IEEE 802.11, 802.11a and 802.11b; Jakobs, 2008). Gauch’s study of changes in the area of DVD recordables illustrates how competition can even spur a standard’s race, and involve a high extent of change. He describes two largely stable, competing groups of companies tied together by patents and shared market interests. The two groups engage in R&D for increased speed and disc capacity to prolong revenue streams from their respective patents. This, in turn, leads
to a string of competing standards versions and initiatives to formalize them (horizontal and vertical dynamics; Gauch, 2008). Standards change is here an outcome of market competition as well as part of a market strategy. In the same vein implementation change can be a company strategy (e.g. embrace-and-extend strategy). A standard may be implemented with proprietary extensions or be otherwise ‘improved’ (as in the case of IEEE 802.11b+ implementations and Access Point that supports 128 bit link layer encryption; Jakobs, 2008); or, alternately, organizations may implement a standard prematurely and comply to a draft standard which is subsequently changed (Jakobs, 2008).
5.3 Standardization Factors Overall standards research ignores life-cycle issues of standardization and the relevance of maintenance therein. In addition to innovation- and market-related factors that give rise to standard updates and revisions, factors intrinsic to the activity of standardization occasion maintenance change. Factors are at work that are standardization-specific and stem from the context in which standards are developed, that is, the supply-side, and implemented, that is, the demand-side. There are four main sources of tension and change (Egyedi, 2008b). The source of change may lie in •
•
• •
A flaw or a weakness in the idea that underlies the standard (e.g. aim at a standard which is too comprehensive to be workable), How the standard process takes place (e.g. not involving an important category of standard users in its development), The standard specification itself (e.g. ambiguous terminology), and The way the standard is implemented (e.g. partial implementation due to cost-constraints).
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For example, a standard which is perceived as too complex for implementers may signal that the standard’s scope has been too wide (Thomas et al., 2008), but also that possibly too many compromises have clouded the standards process. Complex standards may only be partially implemented - as in the case of OSI standards (Egyedi, 2008b). Sometimes revisions are desired because experience with implementing a standard has uncovered ambiguities and omissions. Ambiguities may lead to different implementations and irreproducible outcomes as in the case of Z39.50 (Van der Meer, 2008). Table 2 summarizes a number of salient, standardization-related causes of incompatibility and assigns them to phases in the standards life-cycle. Table 2. Causes of incompatibility and their origin (source: Egyedi, 2008b) CAUSES OF INCOMPATIBILITY
PHASE C= conceptual idea SP= standard process S= standard spec IP=implem. process
Errors, ambiguities, inconsistencies
SP/S
Ambiguity of natural language
SP/S
Missing details, monopoly on tacit knowledge
S/IP
Ill-structured standards
S
Unclear how to handle options
S
Uncertain compatibility of non-binding recommendations
S
Complexity of comprehensive, ambitious standards
C
Too many options and parameters
SP/S/IP
‘Bugward compatibility’
C
Unclear official status of standard’s companion book
S
Single company pushing for standard; weak specs
SP
Overload of standards
C/IP
Deviation from and partial implementation of a standard
IP
Interference between standards
C/IP
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A number of factors influence the level of maintenance change. To note the most salient ones, the timing of standardization with respect to the technology life-cycle is influential (Egyedi & Sherif, 2008). It matters whether the technology to be standardized is mature (responsive standardization) or immature (anticipatory standardization). In the latter case experience with the technology comes after the standard and will sooner lead to revisions (Egyedi & Heijnen, 2008). Technical immaturity not only increases the likelihood of change. It also increases the scope of change. More radical changes to standards may be expected. Incidentally, the same applies to standards that switch development environment and are elaborated in a different standards setting – that is, a different committee or standard body. Such a switch also facilitates the adoption of more radical – and incompatible - changes to the original standard (e.g. XML; Egyedi & Loeffen, 2008). Lastly, although one might assume a direct relation between a low quality standards process, a dire need for maintenance and a high level of maintenance activity, this line of reasoning needs to be put into perspective: some standards bodies adopt a more elaborate and intensive maintenance policy, and are therefore more likely to show a higher number of revisions.
6. HEURISTIC MODEL The aforementioned findings point to two clusters of causes of standards change: the external causes of change typically also identified as causes of technology change in innovation literature (i.e. the innovation and market strategy angle), and the internal causes of change that are specific to the activity of standardization development and use. See Figure 2. With regard to the external causes, ICT standards are intrinsic to ICT. Where there is pressure to innovate in ICT, ICT standards will be subject to the same pressure for change. That is, the forces that lead to technology dynamics,
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Figure 2. External factors lead to technology change and therefore also to standards change. Internal factors in the settings of standard development and implementation may directly cause standards change.
such as regulatory change, market dynamics, and innovations in related technologies, also lead to changes in standards. In Figure 1 these forces are portrayed by the arrow ‘external causes of change’. The internal causes of standards change, which are standardization-specific and stem from the context in which standards are developed and implemented, are evident across all standards areas and directly affect standards. Institutional factors such as weaknesses in committee procedures fall within this explanatory category. The two sets of causes are analytically distinct but, as the figure indicates, not mutually independent: external factors such as a fiercely competitive market may well underlie internal causes of change such as ambiguity in the standard. That is, external causes may intensify internal causes of change. External pressures for technology change - and hence standards change – are difficult to withstand. Standards must follow technology innovation and remain up-to-date. Standards change is therefore unavoidable, and should therefore preferably be
well-orchestrated (i.e. change control). Where internal causes of change are concerned (Table 2), many of them are a consequence of the way the standards process has been managed and can be addressed (i.e. quality control). See Table 3. The distinction between avoidable internal causes and unavoidable external causes points to two different directions for systematically dealing with standards change: measures that focus on the quality of the standards process, and measures that mediate the impact of standards change. These two directions are explored in the following section.
7. COPING WITH THE IMPACT OF CHANGE Sometimes standards change has little impact. For example, the users of the Aachen Wireless LAN had few problems with the transition from IEEE 802.11b to IEEE 802.11g (Jakobs, 2008). However, in many cases revisions and extensions do
Table 3. Drivers for standards change and their implications (source: Egyedi & Sherif, 2008) Drivers for Change
External Causes
Internal Causes
Source of change
Co-evolution with technology
Standardization process
Characteristics of change
Inevitable
Consequence of a standardization management process (intentional or accidental)
Framework
Innovation
Management and business
Overall aim
Create up-to-date standard
Create a stable standard
Management objectives
Change control
Quality control
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create difficulties. For example, different standard versions may become competitors as in the case of the compatible short-term solution to IPv4 addressing problems (i.e. NAT) and the incompatible long-term solution (i.e. IPv6). Or, in the case of Z39.50, different standard implementations may lead to different query results. If a query result is later needed to account for an important decision and cannot be reproduced, this may have legal repercussions (Van der Meer, 2008). What means are there to cope with the adverse impact of standards dynamics? Literature analysis points to ad hoc and to systematic strategies, and strategies that try to prevent problems from occurring (ex ante) and those that try to deal with them ex post. See Table 4.
7.1 Ex Post Measures Standards change cannot be always be prevented. In such a situation, the main problem which implementers and end-users must deal with is market fragmentation and lack of interoperability between different standards versions, generations and implementations. The solution depends on the type of incompatibility concerned. In data communication, for example, bridges, multi-protocol stacks and routers are used to re-create interoperability between competing standards (Egyedi & Loeffen, 2008). More in general, in the field of ICT and consumer electronics multiprotocol implementations are made, that is, single devices in which competing standards are implemented (Gauch, 2008). In all these solutions producers and users of one standard still have access to the
market segment of the competing standard and its externalities. They reduce the consumer’s fear that the market will tip towards the competing standard leaving them with an obsolete technology. However, apart from the extra costs involved, Gauch argues that these solutions sustain market competition and fragmentation. Since they allow consumers to benefit from the externalities of both markets, there is no urgent need to integrate standards and markets (e.g. DVD recordables; Gauch, 2008). A similar phenomenon is at stake with the dual stack implementation of IPv4 and IPv6 (Vrancken et al., 2008). Although aimed to ease migration from IPv4 to IPv6, the dual stack lessens the need to migrate because it allows coexistence. Inefficiencies remain. Where the sustainability of digital data is concerned, there are a number of partial and temporary solutions (Van der Meer, 2008): data refreshment, migration and conversion, and the emulation of earlier data handling devices. The emulation option is required if there is no strategy to archive and update the data handling devices, as was the case with tools that could handle ODA/ ODIF (Van der Meer, 2008). Although crosswalks between a standard and its successor sometimes seem possible (e.g. from DC to DCQ; Van der Meer, 2008), the results of such efforts are likely to be ambiguous - as were the results of multiple efforts to re-establish compatibility between SGML and its successor XML (Egyedi & Loeffen, 2008). In principle these ex post measures temporarily resolve the adverse effects of standards dynamics. Moreover, in rapidly evolving fields of technology
Table 4. Strategies for coping with standards change Type of Solutions
Ad hoc
Systematic
Ex ante
-
Quality standards process Flexible, future-proof standard design
Ex post
Patchwork: converters, bridges, multi-protocol stacks, etc.
Downward compatibility
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‘temporariness’ need not always pose a problem. But they are usually costly and laborious, and are often unsatisfactory because they only solve part of the problem and do so inadequately.
7.2 Quality of the Standards Process Standardization-specific, internal causes of standards change can to large degree be avoided by improving the quality of the standards process (Sherif et al., 2007). Quality standards may sometimes take longer to develop but are more stable and therefore less disruptive for the market. Improving the quality of the process means intervening in the causes of dynamics. As indicated in Table 2, there are numerous examples of internal causes of standards change, causes that can be traced back to the scope of the standards project, the standards process, the standards specifica-
tion, and the implementation process. There are several options open to standards management for addressing these internal causes and intensifying quality control measures. A number of suggestions are made in Egyedi (2008b). See Table 5. Paying attention to the quality of the standards process will not always be able to prevent change. First of all, standards development is not a onesize-fits-all occurrence. Besides, there are design and participation dilemmas which by definition cannot be fully resolved. Learning and feedback is part of the process and will often lead to changes. Moreover, standards work is difficult to manage because there is no real hierarchy between the voluntary committee participants. It is difficult for the committee chair to manage – much more so than projects usually are (Sherif et al., 2007). Sometimes standards change is a by-product of the chosen standards strategy. Quick and dirty
Table 5. Recommendations Institutional measures towards reducing standard-based interoperability problems Drafting of standards €€€• provide institutional support for editors and rapporteurs on standards engineering €€€• involve technical editors €€€• use pseudo-code or formal languages in a focused way €€€• adopt a unified naming convention €€€• clarify the type of options involved €€€• specify how to deal with options (e.g. profiles) €€€• specify the consequences of (not) implementing options €€€• make explicit the rationale that underlies choices in the specification €€€• issue a reference guide with the standard €€€• organize wider scrutiny of the standard €€€• translate the standard to uncover ambiguities €€€• coordinate the interrelated processes of different standards bodies Pre-implementation €€€• validate standards before implementation in products (“walk throughs”) €€€• develop a reference implementation / pre-implementation €€€• develop a reference environment €€€• include standard conformance and interoperability testing €€€• organize interoperability events with different vendors (e.g. plug tests) €€€• organize dialogues between standard developers and implementers Post-implementation €€€• supply test suites €€€• improve consistent use and integrity of standards with e.g. compliance and interoperability conformance statements, compatibility logos, certification programs Standards policy €€€• prioritize implementability as a standard’s requirement €€€• reconsider the desired level of consensus across all areas
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standardization allows standardizers to make an early claim to market, but it also increases the likely need for improvements at a later stage.
7.3 Standards Design: Downward Compatible & Future-Proof Whereas high quality standards lessen the need for change, standards change is to a large degree unavoidable and even desirable where standards need to co-evolve with technology innovation. In many cases standards change actively contributes to the development of technologies and markets. In such situations, the only option is to intervene on the negative impact of standards change and design standards in way that causes the least upheaval. Two design strategies, each departing from a different point in time, would seem to be most promising: designing in downward compatibility and developing ‘future-proof’ standards (i.e., robust and flexible). Standards change can lead to technology disruption and fragmentation between the markets of the successor standard and its predecessor. Whether or not this will happen depends to a large degree on whether standard versions and successors are downward compatible and grafted. The incremental nature of most changes makes grafting8 a viable option and reduces the negative impact of change. In particular where the longevity of digital archival data is concerned, grafting would seem the most viable ex ante strategy (Van der Meer, 2008). Grafting also partly alleviates the problem that most standards are not stand-alone artifacts but part of a web of interrelated standards. To keep abreast with changes in the ‘core’ standard, related standards must be updated. Grafting lessens the pressure for change on related standards. However, it comes at a cost. Sometimes a less burdensome clean start is preferred, as the SGML- XML succession showed (Egyedi & Loeffen, 2008). ‘Downward compatibility or a clean start’ is one of the fundamental dilemmas in standards design.
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Backward compatibility is easier said than done (Thomas et al, 2008). The backward compatibility effort itself can become a source of problems. For example, when the STEP standard was introduced in the UK defense environment, end-users saw too few differences between the implemented versions. Moreover, compatibility between the versions was not fully achieved, which led to extra work and delays in the project (i.e. 1999, 2001, 2006 editions of AP224; Thomas et al). Furthermore, there is the problem of seeking backward compatibility with legacy systems that contain bugs - as in the case of AP224 with UNIX (Thomas et al., 2008) and CSS1 in Internet Explorer (Egyedi, 2008b). ‘Bugward compatibility’, as this is referred to, lays a burden on current and future interoperability with other systems. The second design angle relevant for coping with standards change is the development of ‘future-proof’ or robust ex ante standards. The need for robustness applies to sets of interrelated standards as well as individual standards. Where information architectures or otherwise composed systems are concerned, a modular and layered design approach to standardization is a well-tested and proven concept. In essence, the idea is here that modularity and layering allow one standard to evolve without affecting related standards. The archetypical example for layering is the Open Systems Interconnection reference framework for data communication (Tanenbaum, 1989). In respect to separate standards, standards must be flexible to be able to cater to uncertain future needs. What makes a standard flexible? Although there have been incidental studies exploring the characteristics of flexible system and product standards (Egyedi & Verwater-Lukszo, 2005), it is an area of research that deserves more systematic attention in the context of standards dynamics.
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8. CONCLUSION
ABBREVIATIONS
The occurrence of change in ICT standards is caused by an interplay of supply- and demandside factors. In this respect, e-business standards are no exception. On the demand-side, evolving user requirements, new technological possibilities, and new application domains create a pull for innovation-driven standards change; while experience gained with implementing standards in products and services and localizing standardcompliant systems make manifest the need to improve them. On the supply-side of setting standards, sources of change may play at any stage of the standards life-cycle (i.e., problems with the scope of the standard, the standards process, the specification, and the implementation process). In this chapter, these standardization-related factors, together with implementation feedback (a demand-side factor), have been categorized as internal causes of change. The resulting changes can partly be avoided by improving the standards process, that is, by improved quality control. However, standards change that is caused by external, demand-side factors, such as the emergence of new technological opportunities, is in the long run inevitable – and desirable where it supports innovation. To cope with the negative side of change such as switching costs and reduced transparency, change control is required. There are ad hoc as well as more systematic approaches to support change management. Some of them cope with change ex post and focus on repairing compatibility; while others try to prevent incompatibility by including change requirements in standards design. In particular in the latter area, that is, the area of developing ‘future-proof’, robust and flexible ex ante standards, much work still needs to be done to minimize the negative effects of standards change.
CSS: Cascading Style Sheets DC: Dublin Core DCQ: Dublin Core Qualifi ers DVD: Digital Versatile Disc ICT: Information and Communication Technology IEC: International Electrotechnical Commission IEEE: Institute of Electrical and Electronics Engineers IPv4: Internet Protocol version 4 IPv6: Internet Protocol version 6 ISO: International Standardization Organization IT: Information Technology LAN: Local Area Network NAT: Network Address Translation ODA: Open Document Architecture ODIF: Open Document Interchange Format OSI: Open Systems Interconnection R&D: Research and Development SGML: Standard Generalized Markup Language STEP: STandard for the Exchange of Product model data W3C: World Wide Web Consortium WLAN: Wireless Local Area Network XML: EXtensible Markup Language
ACKNOWLEDGMENT I sincerely thank the contributors to the NO-REST workpackage on standards dynamics (EU project), the Europeon Commission and Sun Microsystems for their valuable contributions and financial support and the two anonymous reviewers of this chapter for their constructive comments. This chapter is a strongly revised version of and extension to Egyedi (2008a).
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REFERENCES Blind, K. (2008). Factors influencing the lifetime of telecommunication and information technology standards In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 155-177). Cheltenham, UK: Edward Elgar. Egyedi, T. M. (1996). Shaping Standardisation: A Study of Standards Processes and Standards Policies in the Field of Telematic Services. Delft, the Netherlands: Delft University Press. Egyedi, T. M. (2002). Trendrapport Standaardisatie. Oplossingsrichtingen voor problemen van ITinteroperabiliteit. Delft: Ministerie van Verkeer en Waterstaat, Rijkswaterstaat/ Meetkundige Dienst. Egyedi, T. M. (2008a). Conclusion. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 181-189). Cheltenham, UK: Edward Elgar. Egyedi, T. M. (2008b). An implementation perspective on sources of incompatibility and standards’ dynamics. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 181-189). Cheltenham, UK: Edward Elgar. Egyedi, T. M., & Blind, K. (2008). Introduction. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 1-12). Cheltenham, UK: Edward Elgar. Egyedi, T. M., & Heijnen, P. (2008). How stable are IT standards? In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 137-154). Cheltenham, UK: Edward Elgar. Egyedi, T. M., & Loeffen, A. (2008). Incompatible successors: The failure to graft XML onto SGML. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 82-97). Cheltenham, UK: Edward Elgar.
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Egyedi, T. M., & Sherif, M. H. (2008). Standards’ Dynamics through an Innovation Lens: Next Generation Ethernet Networks. Paper presented at the Conference Name|. Retrieved Access Date|. from URL|. Egyedi, T. M., & Verwater-Lukszo, Z. (2005). Which standards’ characteristics increase system flexibility? Comparing ICT and Batch Processing Infrastructures. Technology in Society, 27(3), 347–362. doi:10.1016/j.techsoc.2005.04.007 Farrell, J. (1990). Economics of Standardization. In J. L. B. H. Schumny (Ed.), An Analysis of the Information Technology Standardization Process. Farrell, J., & Saloner, G. (1985). Standardization, Compatibility and Innovation. The Rand Journal of Economics, 16, 70–83. doi:10.2307/2555589 Gauch, S. (2008). + vs. –, Dynamics and effects of competing standards of recordable DVD media In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 47-67). Cheltenham, UK: Edward Elgar. ISO/IEC. (2004). ISO/IEC Directives, Part 2: Rules for the structure and drafting of International Standards. Geneva: ISO/IEC. Jakobs, K. (2005). The Role of the ‘Third Estate’ in ICT Standardisation. In S. Bolin (Ed.), The Standards Edge: Future Generation: The Bolin Group. Jakobs, K. (2008). The IEEE 802.11 WLAN installation at RWTH Aachen University: A case of voluntary vendor lock-in. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 99-116). Cheltenham, UK: Edward Elgar. Jones, P., & Hudson, J. (1996). Standardization and the Cost of Assessing Quality. European Journal of Political Economy, 12, 355–361. doi:10.1016/0176-2680(95)00021-6
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Kindleberger, C. P. (1983). Standards as Public, Collective and Private Goods. Kyklos, 36, 377– 396. doi:10.1111/j.1467-6435.1983.tb02705.x Kuhn, T. S. (1970). The structure of scientific revolutions (2 ed.). Chicago: University of Chicago Press. Reddy, N. M. (1990). Product of Self-Regulation. A Paradox of Technology Policy. Technological Forecasting and Social Change, 38, 43–63. doi:10.1016/0040-1625(90)90017-P Schmidt, S. K., & Werle, R. (1998). Co-ordinating Technology. Studies in the International Standardization of Telecommunications. Cambridge, Mass: MIT Press. Sherif, M. H., Jakobs, K., & Egyedi, T. M. (2007). Standards of quality and quality of standards for Telecommunications and Information Technologies. In M. Hörlesberger, M. El_Nawawi & T. Khalil (Eds.), Challenges in the Management of New Technologies (pp. 427-447). Singapore: World Scientific Publishing Company.
v Weizsacker, C. C. (1982). Staatliche Regulierung - positive und normative Theorie. Schweizerische Zeitschrift fur Volkswirtschaft und Statistik, 2, 325–243. Vrancken, J., Kaart, M., & Soares, M. (2008). Internet addressing standards: A case study in standards dynamics driven by bottom-up adoption. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 68-81). Cheltenham, UK: Edward Elgar.
ENDNOTES 1
2
3
4
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Tanenbaum, A. S. (1989). Computer Networks (2 ed.): Prentice-Hall. Thomas, J. W., Probets, S., Dawson, R., & King, T. (2008). A case study of the adoption and implementation of STEP. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 117-134). Cheltenham, UK: Edward Elgar. Timmermans, S., & Berg, M. (1997). Standardization in Action: Achieving Local Universality through Medical Protocols. Social Studies of Science, 27(2), 273–305. doi:10.1177/030631297027002003 v Meer, K. d. (2008). The sustainability of digital data: Tension between the dynamics and longevity of standards. In T. M. Egyedi & K. Blind (Eds.), The dynamics of standards (pp. 15-27). Cheltenham, UK: Edward Elgar.
The term ‘open standards’ is avoided because it raises more questions than that it provides answers, and the term committee standard suffices for our purposes. For the interested reader we point to Krechmer (2006), who distinguishes different aspects of openness and angles (openness from the perspective of standard creators, implementers, and users). The phrase “and approved by a recognized body” was omitted from the definition in order to widen its applicability to other committee standards as well. In 2005 a PDF version became an ISO committee standard. Transaction costs are costs like the time and resources required to establish a common understanding. Standards reduce transaction costs of negotiation because “both parties to a deal mutually recognize what is being dealt in...” (Kindleberger, 1983, p. 395) Standards reduce transaction costs between producers and costumers by improving recognition of technical characteristics and avoidance of buyer dissatisfaction (Reddy, 1990). They reduce e.g. search costs since there is less need for customers to spend time and money evaluating products (Jones & Hudson, 1996). Adverse selection takes place if a supplier of inferior products gains market share through
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6
7
price competition because the supplier of high quality products has no means to signal the superior quality of its products to consumers. Quality standards support the latter in signaling activities, foster the co-existence of low and high quality market segments, and therefore minimize the likelihood that consumer selection is based on wrong assumptions. The term network externalities refers to the situation that every new user in the network increases the value of being connected to the network (Farrell & Saloner, 1985). Because company strategies on standardization are usually not made public, it is un-
8
certain whether company policies include a standards change paragraph. Since standards change has not yet been widely addressed, its business relevance may not have drawn their attention. The term grafting refers to the process of developing a standard (successor) based on another standard (predecessor) with the intention to improve the latter’s functionality and/or usefulness in other respects (e.g. ease or cost of implementation) while preserving compatibility and interoperability with its predecessor’s context of use (Egyedi & Loeffen, 2008, p.84)
This work was previously published in Information Communication Technology Standardization for E-Business Sectors: Integrating Supply and Demand Factors, edited by Kai Jakobs, pp. 171-186, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 1.9
Engagement, Immersion, and Learning Cultures:
Project Planning and Decision Making for Virtual World Training Programs Christopher Keesey Ohio University, USA Sarah Smith-Robbins Indiana University, USA
ABSTRACT The decision to use a virtual world for training and development is a potentially treacherous one. Legal issues, adoption barriers, a pedagogical design complexities often inhibit true engagement and adoption. Strategic planning is required for every step from the choice of a virtual world to instruction design and user adoption. In this chapter, Keesey and Smith-Robbins offer guide to avoiding common pitfalls while suggesting a plan for maximum
training benefit in virtual world implementations. Included are considerations about sound pedagogical practices, advice regarding the assessment of a corporate culture’s ability to engage in a virtual world, as well as recommendations for alleviating common fears and concerns. Special attention is paid to the complexities of virtual world cultures as they interact with organizational cultures. Finally, the authors offer a rubric to aid training designers evaluate whether a virtual world is the right choice for their organization through a series of question and adoption concerns.
DOI: 10.4018/978-1-60960-587-2.ch109
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Engagement, Immersion, and Learning Cultures
THE CHALLENGE OF VIRTUAL WORLD VENTURES The metaverse is littered with the corpses of failed corporate forays into developing virtual world presence. From late 2006 to the present, companies such as Coke, Reebok, Adidas and many others launched spectacular three-dimensional failures. These environments appeared to have little beyond a simple presence or conglomeration of slick modern structures, lacking adequate planning for how such a world could provide real Return on Investment (ROI) beyond an initial flurry of wild eyed journalists racing to be the first the report the official announcement of web 2.5, 3.0, 3.5 or whatever new marketing moniker had just been devised. Many of these industry players were guilty of the same offenses that were committed only 10 years ago during the height of the Internet bubble. Remember the rush of the wind generated by the stampede of anyone even capable of plopping a sub-par and sub-planned website onto the internet in 1997? Remember the subsequent bubble burst short years later following that wind of folly? Indeed, recent Gartner research statistics show that nine out of ten business ventures into virtual worlds will fail. Many virtual world naysayers are quick to utilize research data like this in support of a presupposed incompatibility between industry and virtual world technologies. Ultimately these failures were the result of one or a combination of missteps all leading down the same path of lack of proper research, knowledge, information and planning for proper implementation of a virtual world for adding value in the enterprise. Yet, regardless of the failure rates thus far by business in virtual worlds, Gartner Research also estimates that an over-riding majority of companies will utilize a virtual world within their enterprise by the year 2012. Therefore, the challenge for businesses today is to first identify if a virtual world can offer the kind of value add to justify the investment. Second, if it is determined
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that there are business functions/processes where a virtual world can increase efficiencies, shave costs, or provide value added, then the company must identify proper planning points to ensure that the initiative will not only succeed but also be continually supported by and provide support back into the enterprise.
THE BEST CORPORATE TRAINING PROGRAMS FOCUS ON THE END-USER Corporate training programs are one component of organizational management that could stand to benefit from properly planned utilization of virtual world technology. For example, one of the authors can remember back to 2001 and their first forced entry into a corporate LMS. Not only was completion of the training program required for retaining one’s job, but it was thought that the program would teach participants how to perform required job functions more effectively and efficiently. At the time, the whole experience was abdominally boring, merely consisting of pageturners and test-taking. That experience in 2001 was not designed for the learner. It was designed for the training managers and for human resources. While it did a great job of collecting data that could subsequently be utilized by trainers and managers, it did a horrible job of training this author or any other associate of the company because it wasn’t designed for the end-user or learner. Since that time, traditional corporate learning experiences across many companies have greatly improved, as training managers and corporate instructional designers conceived and implemented far more engaging, learner-center approaches to employee training. However, many of the early corporate builds in virtual worlds still lack the same consideration of the end-user. They seemed to have been implemented with little end-user focus at their mission core and in-such served no purpose, added no value, and ultimately ended up
Engagement, Immersion, and Learning Cultures
as visually pleasing ghost-towns. Imagine designing a feature-rich enterprise software application without first engaging in a host of ethnographic studies of your end-user or of how the potential software could add efficiency to their individual process and subsequent company process. Training initiatives deserve and are most often implemented following similar study of the user, in this case the learner. We study outputs and outcomes to identify training or knowledge gaps or processes where training could close said gaps and add efficiency and value. In the case of a virtual world training experience the scope of research should be even more complete. Ideally, study of the users would happen over multiple levels including training needs assessments and user/training interface study. Additionally, with existing virtual worlds that have existing cultures and norms an additional ethnographic study and intimate knowledge of the world within which you will be delivering the learning experience is critical.
VIRTUAL WORLDS AND CULTURAL SENSITIVITIES Simply from a cultural integration standpoint, moving an organization or a company into an existing virtual world platform has a few similarities to that of moving a company, organization or for that matter an individual into a foreign country. There is more to it than simply plopping structures, machines, processes and yourself into your new location and resuming operations as you did in other contexts. Rather, there are multiple layers to this cultural integration, all of which begin with doing a substantial amount of research just as you would before leaving for a foreign country. Additionally, you will have an entirely different set of cultural considerations depending on the mission of your virtual world presence, the public visibility, and the level of openness and outward faces.
Marketers learned some tough lessons early on about the perception of their brands during the early rush to enter Second Life. They quickly learned the difference in the perception of their brands within virtual world from the more traditional channels both online and offline. (http:// www.websitemagazine.com/content/blogs/posts/ articles/second_life_metaverse.aspx) Something as simple as a highway billboard or a webpage banner advertisement – items that are a part of the normal landscape in our online and offline everyday lives – are wildly out of place in a virtual world environment. They’re the equivalent of a real life elevator having a “Teleport” button. There are practical reasons for this. Virtual world users are not slow moving sightseers. They are flying and teleporting from place to place, hungry for interaction with other avatars. Buying is happening, but it is often for the sake of supplementing a social collaboration experience and not simply for the sake of buying something. (http:// www.kzero.co.uk/blog/?p=854) This is a different mode of consumption than that of an individual stuck in a traffic jam on their way home from work to watch television, in which case evoking thoughts of a bigger, better television via a billboard would be more fitting. When organizations attempt to employ virtual worlds in a manner that ignore these cultural sensitivities, the inhabitant community may respond. Indeed, transgressions against the unique ethnographic realities of these spaces has led to amusing stories of marketers having their billboards buried by virtual world residents under virtual forests or graffiti. The take away here is that regardless of your mission, an out-of-place, and non-relevant presence within the virtual world culture is quickly identified by residents and often rebelled against – either within the virtual world itself or in subsequent postings across other web 2.0 channels, such as blogs, Facebook or Twitter. Therefore, learning designers can themselves learn a great deal from the early forays by marketers into Second Life and other platforms. Substantial
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research and exploration of cultural intricacies during the definition of your project will greatly increase your chances of positively impacting both your organization and the world of which you will become a part. If you are utilizing a consumer focused platform such as Second Life or Active Worlds, don’t limit yourself to simply reading and exploring the greater environment. Explore the potential “settlement” location for your organization. Introduce yourself to your potential neighbors and acquaint yourself with their activities, goals and traffic. This advice is already understood within a real life context (for example, you probably do not want to move your fortune 500 or university training environment next door to a region of strip bars); the same rules apply in the metaverse. Furthermore, in devising a setting for your organization’s virtual presence, you can seek a location offering neighbors that may positively supplement the learner experience by providing greater occasion for extended community opportunities. For example, imagine locating your company’s supply chain orientation simulation next to a group of your suppliers in the same virtual environment; this could allow for collaboration and discussion that may improve the efficiencies of all those involved. This idea of community – which is not a new concept in learning circles – is one that must be greatly considered. In an ideal world, learning does not happen in a vacuum regardless of the medium of delivery. The question for those implementing a virtual worlds solution is how much of the community building opportunities of any particular virtual world culture will you leverage, what parts of that virtual world culture will be a benefit to your learning outcomes and what parts will be a hindrance. Further, in answering these questions, it is quite important to keep in mind the interactive nature of your company’s learning community: is it primarily asynchronous or synchronous?
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KNOWING AND BUILDING ON THE STRENGTHS OF VIRTUAL WORLDS Virtual Worlds are Social For example, let’s say your organization is currently sustaining learning communities across multiple time-zones via discussion threads, wikis or other shared documents. If you wanted to consider moving these activities into a virtual world, there would be a number of technological and community-based concerns to keep in mind. First, virtual world culture is at its most vigorous and vibrant when residents are being actively social. Virtual worlds, specifically those directed at the consumer such as Second Life or Active Worlds ARE social networking applications. Many virtual worlds have individual profiles, buddy lists, online status and a variety of other features to enable social activities. Further, they add the “world” element to social networking that allows for play amongst residents. Let’s not forget that while virtual worlds are not games, they are a distant cousin and were born with similar DNA. Play is an important part of collaboration and social interaction. Second, most virtual world residents are not in the world to read large swaths of text and will generally avoid reading large documents for a variety of reasons, one of the most important being related to readability and usability. Outside of the dialogue text from an active conversation, reading content or discussion threads is more preferable in a readable window as opposed to on the face of a three-dimensional structures. Therefore, if document sharing and collaboration are a large part of your training activities you will want to select a virtual world platform that is best suited for this purpose. Platforms such as QWAK and OLIVE by Forterra Systems Inc. are currently better suited to facilitate document collaboration naively or through third party plugins. Second Life is not strong with document collaboration and large quantities of text. However,
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Second Life, when teamed with your LMS can be quite effective.
add value for customers, employees, and organizations as a whole.
Virtual Worlds are Active
Considerations for the Synchronous Learning Community
Some very effective learning experiences can be delivered in the LMS with learners being sent out to participate in unique, value adding activities. These activities may include items such as self-paced games or process simulations to help explain simple global concepts, all of which can be built to supplement current outcomes addressed through your LMS. In turn, such activities may then drive more detailed discussion and application to your organization within the established learning community environment. Additionally, if your game or process simulation is not ripe with enterprise secrets, it may provide a great opportunity to involve the greater community of the virtual world in which your organization is based. Such opportunity will drive positive brand extension around the value that you have added to the community at large. Indeed, nothing will get blogged and Tweeted faster by virtual world residents than “I just had a great experience today.” Further, as experiences go, no experience is quite as popular to virtual world residents as the event. In fact, this element of virtual worlds is so popular that “Event Planning” is listed as one of six skills that Second Life residents publicize in their personal profiles. Entire companies are built and seeing profits from planning, organizing and delivering events for other companies within virtual worlds. Moreover, established real world companies can are also beginning to reap the cost benefits of virtual world meeting and conferences: IBM’s Academy of Technology recently saved $320,000 by holding an event in Second Life. The figure was reached by cutting $250,000 in travel costs and a further $150,000 inproductivity gains. (http://www.virtualworldsnews.com/2009/02/ ibm-saves-320000-with-second-life-meeting. html, n.d.) Bottom line: Events can substantially
Alternatively, if your organization’s learning communities are based from synchronous activities and collaboration (whether online or offline), you should plan an initial deployment that builds on your existing model and uses the strengths of the virtual world, namely the playfulness of the culture.
Virtual Worlds are Playful One interesting training example that has been fairly seamlessly moved from the synchronous classroom environment to the synchronous virtual world environment is the Six Sigma Catapult experience. Initially, the catapult experience was delivered around synchronous classroom discussions for identifying critical variables that will maximize the distance traveled by the loaded projectile.(http://www.pscoe.gov.sg/repository/ open/2/522/Training.htm, n.d.) The outcomes are then tied to greater six sigma concepts for improvement in product development. In this example, we see how virtual worlds can provide a wonderful framework where a playful activity fits and allows for distributed delivery. Subsequently, it can be argued that the exercise takes on an even more engaging tone as individuals launch their co-worker’s avatars hundreds of meters into the air to howling laughter, a feat that is not a healthy option for the real classroom.
Virtual Communities Carry Real Expectations Beyond the preparation for how your learning experience will fit your organizational culture and visa versa one of the greater considerations is preparing learners and instructors for how they
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will fit as individuals into the culture. Again, the similarities of preparing for travel and integration into the culture of a foreign country are loosely applicable. A good or bad experience traveling abroad can often be tied to the preparedness of the individual for the unique cultural norms of the culture within which they will be spending time. Poor preparation can leave the traveler feeling isolated, alone and out of place. However, proper planning can help travelers prepare mentally for confronting any cultural differences, allowing them to instead focus on more rewarding activities, such as collaboration with and learning from the people of the other culture. Just as when traveling abroad, instructors and learners must prepare for cultural expectations such as dress and language, both verbal and nonverbal. Though it may seem superficial to the new virtual world resident (“newbie”) to have to consider the appearance of their avatar, such a consideration is really no different than considering what to wear to a meeting in the real world; there is a cultural context in which appearance carries meaning. Avatars adorned in the stock clothing and hair who have taken no time to personalize their avatar will be subject to certain assumptions by other avatars, be they founded or not. Resident avatars will speak differently to those assumed to be newbies. They may even avoid such persons altogether if time is of the essence and an unsolicited training session in virtual world etiquette is not in the cards for the day. Is this really any different than entering a boardroom of upper-level executives for a strategy meeting in your jeans and tee-shirt having not washed or styled your hair that morning? Assumptions will be made, right or wrong.
Virtual World Etiquette Requires a New Skill Set Overall, virtual environments are hyper-friendly and are, at their core, social environments. Be
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prepared to for people to say “hi” and to address you by avatar name. Often new residents are taken aback by this and act as they might on the streets when approached by a stranger. These are two of many intricacies of living and working in the virtual world. The most successful organizations prepare their employees for the intricacies of virtual world collaboration through substantial cultural orientation experiences. One of the best examples of systematic preparation for most effective virtual world outcomes is implemented by World2Worlds, an event planning and coordination company that has worked with multiple organizations on virtual world roll-outs and virtual world events. World2Worlds habitually schedules a barrage of orientation meetings that first get new residents comfortable with often complex interface controls, then further hones their communication abilities, and then finally steers residents to options for avatar customization. All this is done to prevent cognitive overload when the user attends a virtual event, training session other experience, allowing him to focus on the intended target outcomes. It is highly encouraged that any company moving into virtual world delivery of training or other collaboration has a scheduled “train of adoption” where a group of experienced early adopters are leading trainers and subsequently, trainers are leading learners through the intricacies of becoming experienced residents. Much like traveling abroad, it is so much more enjoyable to initially walk the streets of a foreign environment with someone familiar with the landscape and cultural considerations to show you the ropes. To reiterate, each virtual world platform is a unique culture inhabited by equally unique residents. They have unique cultural mores that are partly driven by features and abilities given by the coding authority and partly as the outcome of residents developing certain collectively accepted rules that enhance the efficiency and enjoyment of life in that particular world. If this culture is the pallet or shell for a learning experience then
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lacking intimate knowledge of your shell will surely doom the experience to failure.
The ideas extolled above emphasize the key point that not all virtual worlds are created equally. Indeed, one virtual world platform could be of greater fit your needs than another. Though, sometimes the answer might be to use no virtual world at all. Be honest with yourself and don’t roll-out a platform just for the sake of rolling out a platform. As you survey your own corporate culture, the pedagogies utilized by your trainers, your security considerations, your budget and a host of other concerns, you will then want to match these factors with the most applicable virtual world platform for your unique requirements. First, take a realistic look at your organization’s culture and ask some simple questions:
technically-mediated initiatives, you might want to realistically consider whether a virtual world is a viable option. It is also worth noting that a team of young millennials can be as apprehensive to embrace and buy into a virtual world as any other group but for different reasons. It is not uncommon to hear a group of young students state, “It’s OK, but it’s not World of Warcraft.” Many millennial learners place much higher expectations on their 3D environments as many of them have spent far greater amounts of time in environments of similar aesthetics. Dr. Rod Riegel of Illinois State University embraced the expectations of millennial learners by completely delivering his undergraduate course in Social Foundations of Education within the popular massively multiplayer online roleplaying game Everquest II. This is truly an extreme example of embracing your culture of learners, but may nonetheless prelude an interesting and effective future trend.
Is your current technologically-mediated learning initiatives embraced and utilized?
What is your threshold for influence from the existing virtual world platform culture?
If you are offering a strong set of online training environments that are underutilized as is, what would a virtual world change? If buy-in is a problem for an already strong set of tools, odds are that a virtual world is not going to change things.
Second Life, the most popular of the consumer focused virtual worlds, does contain the settings to secure areas from outside avatars. Likewise, communication via voice and text can also be contained privately via groups. That said, these settings are only as good as locking the doors to a classroom with windows. The culture is right outside the window. At Ohio University, regardless of security settings in a particular area, students were still able to see and be distracted by a visit from the now infamous flying phalluses. Second Life is, at its core, a consumer application and as such has a wide and complex culture, as has been discussed. If your threshold of influence from the existing culture is low and the tools inside Second Life are not robust enough to tune out the cultural noise, there are platforms that have been designed specifically with industry in mind.
Is there a Virtual World Platform that Fits Your Organization?
Does your organization have the bandwidth to support on boarding employees to a virtual world training platform? If you are already struggling to support learners technically in existing LMS platforms or simulations, a virtual world is not going to make this job any easier and will most likely take far greater amounts of support time. Not all industries are ripe with teams of millennials who are ready and willing to ramp up quickly into a 3D environment. If your teams have already demonstrated apprehension and difficulty with more typical
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OLIVE by Forterra Sytems Inc. is one such tool. OLIVE is seeing wider adoption and was most recently adopted by Accenture and Affiliated Computer Services amongst others as the platform of choice. Protosphere is another platform to consider and was developed specifically with a focus on training and learning in mind. More recently Nortel launched their browser-embedded web. alive platform that is billed as “Network secured virtual world platform for collaboration, assisted E-Commerce and virtual learning & training applications.” These tools do however come with a higher initial price tag than Second Life, Active Worlds or other consumer focused virtual world applications. Another promising development that is currently in beta at the time of this chapter’s release is 3D integration into Lotus Sametime. The 3D capabilities would extend the current integration of IM, email, telephony and web conferences and add the capability for participants to quickly jump into a virtual world space should the immersive and persistent quality of virtual world collaboration be a desired form of collaboration for expanding on an idea. Lotus Sametime 3D would allow employees to quickly jump in and jump out of the virtual world around specific tasks or concepts, requiring very little in terms of integration into any existing virtual world culture. It also comes with a price tag and will still require you to have an existing virtual world environment in place. Lotus Sametime 3D has currently been tested with Second Life, Open Sim and Forterra. In terms of an achievable ramp-up for establishing and orienting your culture in a virtual world, Second Life still provides a wonderfully rich environment where organizations can affordably develop training tools and competencies for virtual world delivery. Organizations can take advantage of the openness of the community and relative ease of creating assets to transform content for real impact in a 3D environment. Then, once the virtual world solution achieves initially planned outcomes, greater adoption, greater funding and
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is holding more enterprise assets, it might be time to seek a more extensive and walled environment. What are your internal policies for securing the information you will have in your virtual world spaces? Some organizations may require a more secure option from the onset for any hope of buy-in from IT departments. Likewise, you might be training around sensitive enterprise information that would require more formidable security. Should a completely walled solution on local severs be required there are open source options that are becoming more and more viable for a contained and controlled virtual world solution. Three such solutions are Open Simulator,Project Wonderland and The Second Life Enterprise Beta. The most promising Open Simulator distribution is realXtend. The purported strength of the realXtend platform is its goal of global standardization and interconnectedness amongst virtual world platforms. Project Wonderland is a toolkit by Sun Microsystems that would enable your developers to create your own enterprise’s 3D virtual world. The Second Life Enterprise Beta enables a secure and flexible workspace behind an organization’s firewall. The key word related to both realXtend and Project Wonderland is “developers.” You will need people to develop and support any kind of platform that you plan to build on your own servers behind your firewall. Though this may seem like an obstacle at present, these kinds of self-contained solutions will become more and more attractive as these technologies advance and the value-add of virtual worlds for the enterprise are continually documented. The Second Life Enterprise Beta is more of an out-of-the-box solution for securing virtual collaboration. The Second Life documentation states that the installation and setup will take a network administrator thirty minutes. Eventually an architecture of an intra-virtual world and an inter-virtual world – and travel between the two
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– will more closely resemble the current intranet/ internet relationship. Meanwhile, platforms such as the consumer versions of Second Life or Active Worlds are viable environments for acclimating an organization to the unique culture of immersive virtual environments and offering an introduction to what does and does not work well. The key is to continually keep your feet wet and roll with the very rapid changes in the space, so that – as platforms continue to rapidly develop, change, merge, and become more interoperable and more ubiquitous – your organization is continually well footed to utilize the virtual world for increasing efficiencies where applicable. Another failure point that is currently more prevalent in the world of higher education is the sudden lack of pedagogical focus when crafting virtual world learning experiences. Where many of the early corporate failures were built around a marketing or customer communication function, most higher education initiatives where built around the hope of enhancing student learning experiences. Many educators made the mistake of throwing current e-learning or face-to-face learning experiences blindly into the virtual world without deciding which experiences or parts of experiences are more or less suitable for a virtual world. Each virtual world has strengths and weaknesses in light of human-computer interface, as well as in capability as an adequate delivery platform. Identifying these strengths and weaknesses is key to supporting learning outcomes with valuable activities that can drive inquiry and ultimate transfer. Indeed, there is only one thing worse than a page-turner: a page-turner delivered in a virtual world.
Examples of How Not to Employ a Virtual World Solution Considering such mistakes in application, as well as the defining characteristics of virtual worlds discussed earlier, we can identify some examples
of how your organization should not employ these environments.
Using Monologic or Inactive Pedagogy Listening to a talk head is boring no matter what the medium. We’ve all sat through lectures that were less than engaging. On the flip side, most of us have sat listening to engaging ideas wishing desperately that we would be allowed to contribute and have a conversation rather than merely listen passively. Using a virtual world for employee development, training, and community building requires a new approach to what “learning” looks like. We’ve all heard about the old “sage on the stage” model of learning and most of us have grim memories of experiences where we were expected to somehow magically absorb information presented to us in some flat, boring form. Learning in a virtual world not only gives us ways to go against the boring grain but may also occasionally make these old methods nearly impossible. Give a long lecture in Second Life, for example, and even the most intriguing speaker may look out on an audience of slumped avatars who are listening but not engaged. The virtual worlds we refer to in this chapter are largely constructed for facilitating social activities. They’re 3D social networks of people with similar interests. If training is to be successful in these spaces then it has to built around social practices. After all, we all learn better when we’re given the opportunity to discuss what we’re learning, mull it over, pull it apart, and bounce ideas off of peers. This can only happen when learning is social. It may be hard to imagine a class where everyone can talk at the same time, get up and fly around, or pan their avatar’s camera around to inspect another person or just to watch a sunset. This description might sound like a course that’s out of control but in fact it’s rather normal for people using virtual worlds. Rather than sitting in a virtual auditorium listening to a lecture (which is probably better done in Breeze or another teleconferenc-
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ing, webinar product), successful virtual learning allows participants to...well, participate! Passive learning just doesn’t cut it in a world where every user has the same ability to create content and to engage one another. Know that you may need to think way outside the box to make learning in a virtual world work in your institution. However, you can also be confident that, if you’re successful, you will have ditched all the elements of professional development that have given “training days” their horrible reputation.
Jumping in because Everyone Else is Doing It Adapting your training to fit within a social virtual world is no easy feat. The training, developing new courses and methods, engaging an internal community to make it work... these are not projects you want to take on if your reason for jumping into a virtual world is “other people are doing it.” Virtual worlds are a fairly hot topic. Over 5,000 educators subscribe to the Second Life mailing list but that doesn’t mean that every university or every CLO should jump in too. The PR blitz around companies experimenting in virtual worlds has almost completely passed as these spaces become more mainstream. Don’t let your CEO convince you that moving your training into a virtual world will be a good external marketing move. It won’t. Frankly, enough companies have already done it to render such a move no longer newsworthy. On the other hand, doing it really well might get you some exposure. But this still isn’t the best use of your time if your only goal is to get attention. There are certainly better ways to do it. We don’t mean to dissuade you from jumping in. It’s just that, if you’re to be really successful, you’ll need to have realistic goals that suit your needs, your people, and the tool you choose to use. Besides, it’s far too common that the brave soul willing to develop a new program is the one who gets the blame if it fails, even when other factors
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are to blame. Don’t let your marketing department turn you into a patsy for PR. Know that you have solid justification for adopting a new tool such as a virtual world. Be ready to justify it in detail and to define what success will be for the project.
THE FALL-OUT OF FAILED APPROACHES: HOW BEST TO INTRODUCE THE IDEA OF A VIRTUAL WORLD SOLUTION Ineffective introductions of virtual worlds as training spaces can have broad negative effects among a training population and in the organization in general. Such projects are still seen, unfortunately, as risky and experimental so their failure typically means that future efforts will meet increased resistance. But the negatives don’t end there. Once participants are convinced to give such a new approach to training a try, they’ve begun to invest trust in the trainer beyond simply being willing to learn. Often, the experience of becoming acclimated to a world such as Second Life involves a certain degree of vulnerability as participants learn through awkward circumstances such as flying into buildings or adjusting their avatar’s appearance. Once participants have committed to this kind of risk taking, a failure in the actual training experience itself can be destructive not only to that particular training effort but to future training efforts and to the relationship participants have with the trainer. Be as transparent as possible in introducing such a new approach. Including participants in the experimental nature of the training can help them to share the excitement and be more invested in the success of the program. It should also be noted that, in many cases, virtual world training efforts require a larger investment of time and money than recycling previously used approaches. And again, because using a virtual world is typically seen as risky rather than mainstream, the funds used to support such a project can easily be seen as a waste of money
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in a more negative way than “successful” but ineffective traditional methods. It’s important to explain to those who control budgets that an effort to develop virtual world training accomplishes many tasks at once, including training programs, introduction of new technology, research and development, and marketing efforts (for the attention that many organizations receive for using such a novel approach). Unfortunately, in many organizations, the outcomes of traditional approaches to training aren’t measured with the same standards that a new approach might be. Classroom lectures and self-paced slideshows are well understood and can be extremely ineffective but they are familiar. Therefore, while the outcomes of these approaches might be inferior to a well-run virtual training program, the failure of a more traditional approach usually doesn’t draw much attention. Fail at something new and you’ll have all eyes on you.
THE BIG QUESTION: ARE VIRTUAL WORLDS RIGHT FOR YOUR ORGANIZATION? So, if the risk is so high, why would anyone want to try his or her hand at developing virtual world training methods? How can you know beforehand that you’ve made the right choice when you choose to utilize virtual spaces for training? Have you adequately identified the need? You’ll need to if you’re to get good adoption. First, be sure you’ve adequately identified the training need and that you’ll get good adoption within the organization. Making a few asynchronous training modules available online requires little commitment. If no one takes advantage of them then there isn’t much lost. However, if you invest in developing an interactive training experience in a virtual space then you will have put in much more time and effort. Be sure that
you’ve selected a topic that has high interest in your organization. Make the decision to participate an easy one. Students taking the class should clearly understand that there are clear benefits to the program. You may even need to sweeten the deal by stressing that learning the virtual world’s tools may be beneficial after the training is over. Be sure it’s not just what you want to do but what’s best for the learners Next, ask yourself the tough question: Is using a virtual world what is best for my learners or is it just interesting to me? It’s easy as a trainer to be seduced by something that looks so different from the modes of delivery that you use every day (you can only make so many PowerPoints before you bore even yourself!). Using a virtual space can seem attractive merely for the novelty of them. It’s also seductive to think that mastering such a new approach might get you more approbations as a trainer. However, if an experimental approach is antithetical to the culture of your learners (technology novices for example), you’ll need to acknowledge that even though you may have a brilliant idea for training, it might not suit your audience. What haven’t you been able to accomplish in other tools; with other methods? As always, pedagogy should come before technology and learning goals should come before delivery method. Perhaps you’re trying to improve the results you get with another delivery method or accomplish a kind of training that you haven’t been able to deliver with the available tools. Regardless of the perceived need that drives you to consider virtual worlds for training, be sure that the time and effort are worth it and that there isn’t an easier to use tool that would allow you to deliver the training with a less steep learning curve. This will also help you make the case for a virtual world application. If you’re truly able to
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do something unique and compelling then gaining buy in should be much easier. Do you have adequate resources for ensuring long-term success? Finally, every corporate virtual world roll-out requires ongoing support in a variety of different domains depending on the over-riding mission of the virtual worlds strategy. For a roll-out focused on training function a business will want to vigilantly plan on having processes in place for initial support and training of users, technical support, internal evangelization and sales of the training efforts and ongoing content or learning experience creation, to name just a few. Virtual worlds, like most good web 2.0 applications, are successfully used and populated by users if the users perceive that “this is where the party is at.” If you don’t provide compelling reasons for your associates to come, learn, and share knowledge, the virtual world real estate will sit barren. If you actively work to populate your virtual world learning space with appropriate and dynamic learning activities and purposes for collaboration, you create motivated learners. There are also technology-related thresholds for adoption. We’ve worked with innumerable companies that are excited about using a virtual world until they realize that the standard issue computers in their office don’t have the processing power or graphics capabilities to even run the software. Is it worth it to replace the computers of everyone on the team? Perhaps your remote learners are on limited bandwidth and can’t get enough connection speed to adequately participate in the training. Is the program worth it to them to upgrade their internet connections or change locations? You may also need a team of people who can support the application and answer questions around the clock if you’re an international organization. Most virtual worlds platforms still have severely lacking customer service, so it you may require having an internal resource available
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to answer common questions or troubleshoot problems that participants encounter. Virtual communities take more than one evangelist to get started and stay in growth mode. Most successful projects have a project manager who is assisted by community managers – who help users and trouble shoot problems – as well as event planners – who work through the details of hosting an event and making sure that everyone can participate as expected. Additionally, you may also need to enlist subject matter experts who can help construct courses and experiences on desired topics. Such subject matter experts may be well versed in their topic area, but not in the virtual world platform, and thus may require significant training or support as well. It takes a village to create a community.
SO YOU’VE DECIDED; NOW WHAT? Virtual world applications require as much planning as traditional approaches if not more so. When you begin to draft your plan you’re doing more than just rationalizing the learning goals; you’re likely drafting a long term plan for a robust learning community which should be at least somewhat self-sustaining after a time. Knowing what this community will look like, how it will function, and why people should want to engage in it will go a long way toward success.
Spelling out the goals Ask yourself these questions: • • •
What is the desired outcome? How long will it take to achieve it? Is the outcome worth the time it will take?
If you hope to develop a long-lived presence in a virtual world, in which many programs will occur and an organizational community will form, it won’t happen overnight. Like any culture, it
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will have to develop over time and be nurtured and encouraged. You can’t, for example, build an island in Second Life and expect a community to form on its own. If your goal is to create a learning community you’ll need to host events, offer training, and provide incentives. It may take months for enough participants to adopt the tools to really see things happening. Can you wait this long? What are your metrics for success? How will you gather the information necessary to know that the community is growing as you’d expect?
Sharing the Plan and Getting Buy in A learning community requires, well, a community! Not just a few avid participants but many. To turn hesitant experimenters into excited evangelists may take significant effort and hand holding. You may want to schedule regular training and information sessions to invite people to become involved. Provide them with as much support as you can until they feel comfortable. Once they’re well acquainted, these first converts will become your first line of evangelists and make the process much more scalable, especially in a large organization. And bear in mind that people learn in different ways. You may need to make videos and handouts or offer one-on-one training. Be flexible and try to meet the needs of those willing to become involved.
Promise, Tool, Bargain: Spelling out the Plan Broad adoption may be a long time in the making and you may encounter snags along the way. This doesn’t mean that you should give up. Find out why the community fails to grow, or why participants fail to learn, and then be ready to try again. We find Clay Shirky’s model of the “Promise, Tool, and Bargain” from his book Here Comes Everybody very useful.
•
•
•
Promise: What users are told that they will get out of the project. This is the compelling “sell” that motivates participants to be willing to give it a try. Tool: The tool that will allow participants to accomplish what they need to accomplish in order to fulfill the Promise. Bargain: An explicit description of what users will have to do to gain what is promised.
First, you’ll need to acknowledge that everyone may not be as excited as you are. They’ll need to be motivated to participate. Be clear about the benefits of the community or program. Give them as many reasons as you can to say ‘yes.’ When we fail at creating compelling promises it usually means that we haven’t thought enough about the benefits to the users, that we haven’t anticipated and met their needs well enough. Keep in mind that groups of people in your organization may need different promises to compel them to become involved. Whatever you do, don’t present the project as being frivolous or just experimental. Don’t make excuses that will make it easy for participants to say no. Second, be sure that you understand the tool well enough to train others to use it and to solve common problems. Hesitant participants will need to feel that you’re in control of the space and can keep them safe and focused. If you, for example, choose a virtual world platform that is unstable and crashes often, then users will see that as an easy reason not to participate. Finally, be transparent and honest about what the participants will need to do to get the most benefit from the program. If being a passive, quiet user will leave them wondering why they’ve come, then be sure to tell them in advance that you’ll expect them to contribute in explicit ways. If you expect them to learn a bit on their own or to experiment with the tool, then tell them that and offer whatever support that they might need. If they fail to do so it will be easy for you to identify the
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points of failure that will need to be addressed in order to get the community rolling again. If they aren’t willing to fulfill their part of the bargain then you should go back to the promise and make it more compelling. Last, but not least, know that training in virtual worlds and building community is something that you’re never finished with. Like a garden, a community requires constant attention and nurturing. You’ll need ongoing programming and support to keep the project going and growing. This is no small task. Nonetheless, provided that it is given the proper consideration, preparation, and resources, a virtual world solution may offer an invaluable new opportunity for your training program.
REFERENCES http://www.kzero.co.uk/blog/?p=854, (n.d.). http://www.pscoe.gov.sg/repository/open/2/522/ Training.htm, (n.d.).
http://www.websitemagazine.com/content/blogs/ posts/articles/second_life_metaverse.aspx (n.d.). Shirky, C. (2008). Here Comes Everybody. New York: Penguin Press.
KEY TERMS AND DEFINITIONS Learning Community: A group of people who are actively engaged in cooperative learning whether formal or informal. Metaverse: Originally coined by Neal Stephenson in Snow Crash (1992), the term has come to be used as a description of al of virtual worlds and the reality and culture they represent. Pedagogy: The art and science of teaching. Return on Investment (ROI): A term commonly used in business to describe the quantifiable financial returns on a business effort. Virtual World: A synchronous, persistent network of people, represented by avatars, facilitated by computers.
http://www.virtualworldsnews.com/2009/02/ ibm-saves-320000-with-second-life-meeting. html, (n.d.).
This work was previously published in Virtual Environments for Corporate Education: Employee Learning and Solutions, edited by William Ritke-Jones, pp. 36-49, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 1.10
Learning Space in Virtual Environments: Understanding the Factors Influencing Training Time M. Kyritsis Brunel University, UK S. R. Gulliver University of Reading, UK S. Morar Consultant, UK
ABSTRACT Learning the spatial layout of an environment is essential in application domains including military and emergency personnel training. Traditionally, whilst learning space from a Virtual Environment (VE), identical training time was used for all users - a one size fits all approach to exposure / training time. This chapter, however, identifies both environmental and individual user differences that influence the training time required to ensure effective virtual environment spatial knowledge acquisition (SKA). We introduce the DOI: 10.4018/978-1-60960-587-2.ch110
problem of contradicting literature in the area of SKA, and discuss how the amount of exposure time given to a person during VE training is responsible for the feasibility of SKA. We then show how certain individual user differences, as well as environmental factors, impact on the required exposure time that a particular person needs within a specific VE. Individual factors discussed include: the importance of knowledge and experience; the importance of gender; the importance of aptitude and spatial orientation skills; and the importance of cognitive styles. Environmental factors discussed include: Size, Spatial layout complexity and landmark distribution. Since people are different, a one-size fits all
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approach to training time does not seem logical. The impact of this research domain is important to VE training in general, however within service and military domains ensuring appropriate spatial training is critical in order to ensure that disorientation does not occur in a life / death scenario.
INTRODUCTION The ability to ‘learn’ the environment before engaging in navigation is an area of interest for a variety of application domains (Egsegian et al., 1993, Foreman et al, 2003). Traditionally spatial training is accomplished by providing users with maps and briefings of an environment. These methods, however, only provide topological (survey) knowledge of the environment, which whilst being more flexible, pays little attention to the details of routes and landmarks (Thorndyke, 1980; Golledge, 1991). Procedural learning has a distinct advantage over survey knowledge, as can be seen in an experiments of Thorndyke and Hayes-Roth (1982) where participants with procedural knowledge of an environment, estimated route distances significantly better than participants who had acquired just survey knowledge. Navigation therefore relies heavily on previously acquired visual information, e.g. the process of re-orientation during navigation in a previously visited environments (Montello, 2005), which relies on previously seen “visual references” in order to adjust bearings during navigation. Maps and other traditional navigational equipment cannot provide the same level of supporting information. VE training, therefore, promises to provide procedural knowledge through exploration, and has caught the attention of a variety of researchers all attempting to discuss whether virtual training is more efficient than training through more traditional methods (Witmer et al., 1995; Goerger et al., 1998; Waller et al., 1998; Foreman et al., 2003). Learning in virtual environments relies on the ability of users to develop an understand-
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ing of space by creating a cognitive map of the environment (Asthmeir et al., 1993; Cobb and d’Cruz, 1994; Silverman and Spiker, 1997; Clark and Wong, 2000; Riva and Gamberini, 2000). Cognitive maps are mental representations of space that people develop in order to acquire an understanding of space, both virtual and real, through either procedural knowledge or survey knowledge (Thorndyke, 1980; Golledge, 1991; Witmer et al., 1995; Goerger et al., 1998). When learning in a procedural manner, cognitive maps are created through the act of navigation (Montello, 2005). Navigation itself is made up of two separate and very distinct processes. The first of these processes is locomotion, which is the movement of a person within an environment. The second process is way-finding, which is the planning of routes that a person undergoes when trying to get to a specific destination (Montello, 2005). It is understood that during self-directed locomotion (where the person is actively moving about in the environment solving problems - such as avoiding obstacles), there is a tendency to acquire more spatial knowledge (Feldman & Acredolo, 1979). Virtual environment training, however, provides self-directed locomotion without the possibility of a dangerous life-threatening situation, making it very suitable for emergency training. Research concerning spatial knowledge acquisition through VEs, have provided a variety of contradicting results. The findings, although conflicting, appear to be subject to a key influencing factor, ‘required exposure time’ (Witmer et al., 1996; Darken & Banker, 1998; Waller et al., 1998; Goerger et al., 1998; and Darken and Peterson, 2001). This factor is the exposure time that a user will spend learning the environment in order to achieve spatial knowledge acquisition.
THE IMPACT OF TRAINING TIME Witmer et al. (1996), Wilson et al. (1996), Waller et al. (1998), and Foreman et al. (2003) all con-
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ducted experiments in order to conclude whether spatial knowledge acquisition can be acquired from a VE representation of the real world. These experiments involved a group of participants navigating through virtual space and acquiring spatial knowledge, and then comparing the results to a group that learned the environment through conventional methods such as maps or photographs. These experiments concluded that a VE can be more beneficial than traditional training. However, this is only the case if a long exposure time is given to the users. Darken and Banker (1998) reported that experts perform better using conventional methods such as maps, while Goerger et al. (1998) reported that all participants had a greater success using conventional methods. Goerger et al. (1998) acknowledge, that with longer exposure times, virtual reality training may in fact be more beneficial, however, this is hard to determine since the exposure times that a user spent in each experiment differed. Waller et al (1998) allowed for two minutes, Darken and Banker allowed for a set 60 minute exposure, and Goerger et al. (1998) allowed for a set 30 minute exposure, yet they referred to this as a short exposure time. It was, therefore unclear how much exposure time is deemed as required, and if in fact various environmental attributes and individual user differences can affect the required exposure time. In an attempt to clarify this situation, Darken et al. (1999) and Koh et al. (1999) discussed why spatial knowledge acquisition research delivers contradictory results. They both made the argument that individual user differences are an extremely important factor in the development of cognitive maps, and that a one-size-fits all situation may not be possible when determining required exposure time. Darken et al. (1999) also examined how cognitive and biological differences affect a series of cognitive processes, which are critical to navigation. They stated that previous knowledge, aptitude, orientation ability, strategy, perceptual motoric and memorial knowledge, all influenced
the navigational skill of the user. According to Koh et al. (1999) and Waller et al. (2001) there is a need to identify these individual differences and to understand how they affect performance when acquiring spatial knowledge. Therefore, this chapter identifies and discusses commonly defined individual differences of users that affect navigation skills, and therefore the exposure time required to acquire spatial knowledge from a VE. Understanding how these individual differences affect navigational skill will help VE trainers understand the required exposure times necessary for a specific user to acquire spatial knowledge from a particular environment. Since people are different, a one-size fits all approach to training time does not seem logical. The individual differences of users that navigate through an environment is not the only factor that influences the required exposure time. Darken and Peterson (2001) reported that required exposure time is also environment dependent. They explained that some environments provide more cues than others and, therefore, that the exposure time needed alters according to relevant cues (Darken & Peterson, 2001). Darken and Peterson (2001) identified that, regardless of whether the training interface is supported with a map or whether other visual cues are used in combination with the environment, the structure of the environment itself contains factors that support user navigation, which can result in a smaller exposure time requirement. It may seem obvious that the size of an environment impacts the time required to navigate through it, however size is only one of many influencing factors that will be discussed in this chapter.
ENVIRONMENAL FACTORS AFFECTING EXPOSURE TIME Many of the factors that affect navigational complexity, which apply to the physical world are applicable in the virtual world (Darken & Banker,
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1998). Darken and Peterson (2001), broke down an environment into a space made up of building blocks or ‘landmarks’ that are connected by routes, which are interconnected to form nodes. These interconnected routes and nodes make up the spatial layout of the environment. Environments can be complex in nature and can therefore affect the exposure time required to acquire spatial knowledge (Darken & Peterson, 2001). Although we have used size as the example, size is only one of the factors that can influence navigation. Research indicates factors include complexity of the spatial layout and landmark information (Darken & Sibert, 1996; Witmer & Sadowski, 1998; Vinson, 1999; and Gouteux & Spelke, 2001). Studies by Goerger et al. (1998) and Gouteux and Spelke (2001), show that spatial layout complexity is an important component of cognitive development. Witmer et al. (1995), Witmer and Sadowski (1998) and Vinson (1999), claim that the number of landmarks and the frequency per square metre, as well as the graphical detail of these landmarks is important. Research also shows that navigational complexity influences various processes that directly affect navigation. These processes are identified by Stankiewicz and Kalia (2004) as: perception (input of cues and other environmental information at a given time during navigation); accessing the cognitive map (ability of each person to develop a cognitive map of the environment and then apply it to navigation); spatial updating (ability to navigate from different positions in the environment); decision making (logical process to reach a certain goal depending on current position and perception). Moreover, Stankiewicz and Kalia (2004) discuss how various environmental factors such as size influence these processes and make navigation more complex, i.e. how large size burdens perception due to a larger area being processed that requires a more complex cognitive map in spatial memory. Spatial updating takes longer since there are more places and objects to consider, and decision strategy is influenced as
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more decisions must be made to reach a certain goal (Stankiewicz and Kalia, 2004). The following sub-sections will discuss critical environmental factors that influence exposure time: size; spatial layout complexity; and landmark potential.
Size For the scope of this chapter, environmental size refers to the overall raw navigational space available to the user. The differentiation between largescale and small-scale environments, however is not clearly defined in literature. To Darken and Banker (1998) a large-scaled environment was described as being 1200*700 metres, which we can consider as being large when comparing it to other virtual spaces that represent a house or building, such as the one in Goerger et al. (1998). Obviously, without visual obstructions, size would not be a confounding factor, however in any nonflat featureless environment, as size increases so does the time taken too move (locomote) from one place to another in order to acquire spatial knowledge, which must then be transformed from visual working memory into long-term memory. What may not be so obvious is that navigational strategy is also affected. Butler et al. (1993) demonstrated that distance plays a significant role when navigating. They found that users will most frequently choose to navigate through shorter paths, even if those paths are more complex. Therefore, as size increases so does the amount of exposure time required by a person to acquire spatial knowledge from the environment. The question that seems to arise, however, is how much time is suitable for a specific size. For a large mountainous region, as used by Darken and Banker (1998), a 60 minute exposure time was considered as being ‘short’, however to our knowledge no justification for this exposure time was given. For a seven story building, as designed by Goerger et al. (1998), an exposure time of 30 minutes was also considered ‘short’,
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however again no justification for this exposure time was given. We have no indication at all, whether navigational complexity increases linearly as size increases when navigating through a virtual environment. If the relationship is not linear, then size becomes more and more critical to consider with respect to exposure time required for SKA.
Spatial Layout Complexity Spatial layout is the geometrical structure of an environment (Gouteux & Spelke, 2001). When trying to determine what makes a layout more complex, without involving size, spatial layout complexity is the number of objects, such as walls, that obstruct a user’s line of sight from reference points, i.e. visible landmarks. This is demonstrated in the work of Kalia and Stankiewicz (2007), who measured the spatial layout complexity in terms of corridors. They found that as the number of corridors in an environment increased, so did its complexity. In virtual environments the architecture of an environment is important to navigation, as demonstrated by Passini (1984), who discussed how Manhattan’s rectangular grid, with visual aids such as numbering of streets and avenues, makes navigation very simple. However, in some cases it is simply not possible to provide architectural simplification (e.g. in a natural mountainous region). Darken and Sibert (1996) explained that environments that do not provide any navigational aids, such as road signs, will be harder to navigate and will ultimately lead to a loss of awareness and disorientation. In an office building, one find signs that point towards different levels and not simply lead to dead ends, however a ‘natural environment’ has few restrictions and does not follow any architectural laws. In general, complex environments, both natural and man-made, tend to have a lot of visual obstructions to visual references. In mountainous regions, this may be
slopes, whilst in a cave or building it may be the walls that obstruct references.
Landmarks Lynch (1960), Vinson (1999) and Stankiewicz and Kalia (2004) identify that an environment is made up of a variety of landmarks that individuals use to navigate. Stankiewicz and Kalia (2004) broke down the term landmarks into two distinct types: structural landmarks and object landmarks. Structural landmarks are distinct geographical features of an environment that can be used for navigating (e.g. a T-junction), whilst object landmarks are objects in the environment that are independent of the structure (e.g. a statue). In general, landmarks differentiate between different parts of an environment (Weisman, 1981). Although it is rather difficult to understand and predict what landmarks a user will choose when navigating, there are theories. Stankiewicz and Kalia (2004) explained that different landmarks have various benefits for the user with landmark potential defined through the three properties that a landmark may possess. The first of these properties is persistence, which is whether the landmark is mobile. A parked car is not the best landmark as it has a high chance of moving by the time the user revisits the site. This can cause confusion as users often navigate initially using object landmarks rather than geographic structure (Newman et al., 2007). The second property is whether the landmark is perceptually salient (i.e. visible), and is determined by factors including landmark size and number of obstructions. The third and final property of a landmark is whether or not the landmark is informative. This is important as it informs an individual of their location. Stankiewicz and Kalia (2004) explain that for a landmark to be informative it must be distinctly different from other landmarks, in fact the reason why users have difficulty using landmarks such as statues (Ruddle et al., 1997) is because they cannot easily distinguish between
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the statues, unless they approach them for a closer inspection. If all three of these factors are satisfied then the landmark can be useful during landmark-based navigational updating, which, as we discussed before, is a process of reorientation that relies on landmarks. Stankiewicz and Kalia (2004) discovered that participants tend to learn structural landmarks better than object landmarks, and that when spatial knowledge acquisition does occur, the environment structure can be remembered by a user, even as far as a year later after the initial encounter. For example, most people will remember the layout of their first school, but few will remember the location of specific objects. Vinson (1999) deducted that the landmarks that are frequently available, and visible from various positions in the environment (i.e. paths), are useful in navigation. Frequent landmarks appear to increase navigational performance. For this to apply, however, landmarks must be unique. In natural environments, such as a forest, there is a large amount of non-unique landmarks, such as trees and rocks. These landmarks overpopulate the area, and cannot be used as reference points (which is a very important part of navigational updating), since one tree may not be distinctly different from another. However, man-made structures in a forest environment would stand out as distinct landmarks (Whittaker, 1996). Therefore, it is not just the frequency of landmarks readily available throughout the environment, but also the number of distinct landmarks available that can help a user orientate, decreasing navigational complexity. This information relates to the need for a landmark to be informative, as was suggested by Stankiewicz and Kalia (2004). The assumption is that for a virtual environment, landmark potential can be measured by the number of visible, non-dynamic (not moving) and distinct landmarks available to the environment as a whole, and the frequency of these landmarks per sector (for which a sector may be the maximum view available to the user: a room or a corridor).
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INDIVIDUAL DIFFERENCES IMPACTING USER NAVIGATION Individual differences have been considered for many years in Visuospatial research, which considers a very broad spectrum of research of understanding concerning images, space and spatial knowledge acquisition (Hegarty and Waller, 2005). This chapter considers the key individual user differences: gender, experience / knowledge, orientation skill, age, and cognitive styles. As suggested by Darken et al. (1999), each of these human attributes influence the navigational skills of the user when they navigate in a novel environment.
Gender Issues in Navigation There is evidence that gender plays a significant role in acquiring spatial knowledge from a VE. Waller et al. (1998) showed that females were particularly disorientated in a virtual maze, since they reported large bearing errors when drawing a retrospective maze map. Although women’s ability is more constrained when learning spatial characteristics of a virtual environment, their difficulty when navigating in the maze may be constrained by strategy rather than ability. Both Sandstrome et al. (1998) and Moffat et al. (1998) have provided explanations as to why male users navigate better in a maze. One of the deficiencies of a maze is that it relies heavily on geometrical navigation, rather than the use of landmark cues. Sandstrome et al. (1998) concluded that women rely heavily on the use of object landmarks for navigation, where men seem to use both structural landmarks and object landmarks. The difficulty that women may face when navigating through an environment with limited landmarks, suggests that the required exposure time required by women to acquire the spatial information is increased when environments lack well placed object landmarks. Accordingly, women have problems navigating environments that are complex by nature (such as a maze),
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however this does not mean that for other types of environments their navigation skills will suffer, or that if given enough exposure time their knowledge of the environment will not equal that of the men. This theory is backed by Vila et al. (2002), who indicate that as exposure time in the environment increases, the navigational differences between the genders decreases.
Knowledge and Experience of Environment and IT System Knowledge concerning the system, whether it is a desktop computer that allows for mouse and keyboard input, or if it an immersive device, can have a limiting effect due to an overload of mental tasks. This overload is described by Booth et al. (2000) and is explained to be a limitation to attention due to unfamiliar controls and interfaces. According to Booth et al (2000) this occurs mainly because there is an attention dividing of tasks, which are required to navigate and perceive the information seen on the screen. More effort is required to understand and interact with the interface, therefore not enough attention is given to creating cognitive maps of the environment. In compensation, a longer exposure time is required. More effort is also required if an environment is novel (i.e. if the user has never navigated through this type of architectural structure). In HCI, the difference during navigation between experts VS novices is critical for interface design (Dix et al., 1993; Eberts, 1994). Kuipers (1975), Brewer (2000) and Mania et al. (2005) explain how experience with a certain type of environment gives rise to certain structures in human knowledge memory. These structures are called schemas and are formed in human memory due to past experiences (Pelagatti et. al. 2009). Schemas consist of perceptual information and language comprehension, and are invoked when interacting with new information. The required exposure time to learn an environment depends on memory performance, which is in turn influenced by Schemas, which
are affected by the consistency of items in the environment, i.e. whether an item is likely to exist in such an environment (Brewer and Nakamura, 1984). Another theory is called the inconsistent effect and argues that inconsistent items positively influence memory (Lampinen et al., 2001). It is clear that schemas are highly relevant to landmark information and that a person with strong past experiences navigating through a certain type of environment will be more able to recognize key landmarks, and therefore create a cognitive map faster than a similar person with no experience navigating within such an environment. Knowledge of the environment was considered to be a variable in the experiment of Darken and Banker (1998), who only selected experienced mountaineers for their experiment. Darken and Banker (1998) reported, however, that the advanced mountaineers did not benefit from the 60 minute exposure time in the VE, yet did benefit from using a map. Interestingly, they did not, to the best of our knowledge, test user orientation skills. Instead, Darken and Banker (1998) used participants that have a large experience with navigating through real wilderness using cues and maps. This does not mean, however, that these participants were experienced with the VE system, or had a high aptitude and orientation skill.
Aptitude and Spatial Orientation Skills The most discussed individual user difference, in the area of spatial knowledge acquisition, is orientation skill. Most experiments testing for spatial knowledge acquisition attempt to keep orientation skill consistent amongst participants (Witmer et al., 1996; Goerger et al., 1998; and Waller et al., 1998). It is obvious that research considers spatial orientation skills as being a very influential attribute during a variety of areas involving human-computer interaction, such as browsing and other visual tasks (Gomez et al., 1986; Vicente et al., 1987; Stanney & Salvendy,
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1995). There is strong evidence that individuals have different orientation abilities, which are simply biological in nature (Smith & Millner, 1981; Maguire et al., 1996; Maguire et al., 1999; Maguire et al., 2000). Research points to the hippocampus area, which is placed in the centre of the brain, as being responsible for providing spatial memory. To measure spatial and spatial orientation, various spatial visualisation and orientation tests that can determine a person’s orientation skill, such as the Guilford-Zimmerman orientation survey (Guilford & Zimmerman, 1948). Other tests exist (such as spatial memory, and spatial scanning tests), but spatial orientation tests are thought to be more successful in determining a user’s ability to acquire spatial knowledge (Waller, 2001). Although the orientation skill of a user is often thought to be the most critical individual difference, there is actually no proof that it has the most impact on the required exposure time. Additional research is required to more fully investigate how orientation skill impacts spatial knowledge acquisition.
Age Differences in Navigation Age plays an important role in navigation due to an overall change in sensory abilities, as well as various knowledge and cognitive skills, which are developed through life (Cohen & Scheupfer, 1980; Mathews, 1992; Wilkniss et al., 1997; Pine et al., 2002). Hasher and Zacks (1979) suggest that spatial ability is an automatic process that does not demand cognitive abilities, and therefore should not be affected by age. According to Cohen and Scheupfer (1980), pre-adolescents navigate through a novel environment just as well as adults if the knowledge being acquired is through procedural means (i.e. direct exploration). Problem occur however when transferring survey knowledge to procedural knowledge, since the ability to navigate through the environment using abstract mental representations is only developed in later stages of adolescence (Mathews, 1992). Cohen and
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Scheupfer (1980) theorized that pre-adolescents are burdened when navigating through a novel environment using survey knowledge and abstract mental information (i.e. from a map). Pine et al. (2002) found that when navigating freely through a virtual city, adolescents reached as many goals and learned the environment as quickly as adults. Pine et al. (2002), however, also found that when asked to recall information, such as label points of interest on a map, adults significantly exceeded adolescents. Adults, therefore, have a better ability of transferring procedural to survey knowledge. As an adult reaches old age they suffer from various issues surrounding both their sensory and orientation skills. Salthouse et al. (1990) argues that as people get older, they find it increasingly hard to process new information, whilst trying to retrieve information from memory. According to Kirasic (2000), navigation becomes increasingly difficult as age increases due to declines in perceptual, cognitive and motor abilities. It seems that disorientation in spatial navigation becomes more and more frequent when a person exceeds the age of seventy, even if there is no sign of mental deterioration (Hunt and Waller, 1999). Research suggests that in terms of learning navigational space, older people find it increasingly hard to retrace routes and learn maps (Wilkniss et al., 1997), orientate with respect to other environmental objects (Aubrey & Dobbs, 1990), as well as make distance and direction judgments (Kirasic, 2000). One of the most difficult problems that older people face is the attention divide (Darroch et al., 2005). Because of this, the ability to acquire spatial knowledge through a virtual medium could be beneficial to older ages, since it would help them learn novel environments without the risk of facing physical tiredness.
Cognitive Styles The concept of people adopting different strategies in order to solve problems and make decisions was first presented by Allport (1937) who presented
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cognitive styles as a person’s preferred way of perceiving, remembering, thinking and problem solving. Since then research has looked into cognitive styles, and has referred to them as persistent strategies adapted by individuals when faced with problem solving tasks (Robertson, 1985). In more detail, cognitive styles affect perceiving, remembering, organizing, processing, thinking and problem solving (Liu & Ginther, 1999). Many different learning strategies are consistently adopted by a user in order to solve a problem. Messick (1976) identified as many as 19 different cognitive styles, and Smith (1984) identified 17. Schmeck (1988) grouped them using two distinctly different, but general, learning styles. The first is a more holist learning style, which is referred to as field-dependent and seems to emerge from activity in the right hemisphere of the brain. The second is a more analytical learning style that is referred to as field-independent and seems to emerge from activity in the left hemisphere of the brain. Field-dependent people are more passive when learning (Witkin et al.,1977), and prefer to learn information by focusing on the information as a whole - rather than breaking it down. Field-independent users are more active when learning new information and prefer to acquire information in a serial fashion by breaking it down (Pask, 1979). Goodenough (1976) and Witkin et al. (1977) stated that field-independent people sample more relevant cues to solve a problem, whilst field-dependent people sample more irrelevant cues to the current problem. In terms of landmarks, which are considered cues for navigation, field-independent users will benefit more from informative landmarks. This is also seen in research concerning ‘hypermedia navigation’ (Chen & Macredie, 2001), which indicates that field-dependent users were more efficient when they had to take a more holistic strategy, and navigate using a map of the overall system. In this research field-independent users benefited more from an analytical strategy, which included
a depth-search of the entire system (Ford and Chen, 2001).
RELATIONSHIP BETWEEN ENVIRONMENTAL AND INDIVIDUAL DIFFERENCES Since people are different, a one-size fits all approach to training time does not seem logical. By summarizing all we have discussed so far, and by closely examining the research presented in the previous sections, we show that certain individual user differences ‘react’ more strongly with specific environmental factors. The reaction between these properties critically influences the overall navigational complexity of the environment and therefore the required exposure time. Figure 1 illustrates the various interactions between the individual user differences and environmental factors, as discussed in this chapter. Figure 1 was developed by the authors in order to accommodate for the significance of various individual user differences during navigation when particular environmental properties are present. The top layer represents the environmental factors, the middle layer represents the individual user differences, and the bottom layer represents the cognitive categorization that these individual user differences belong to, as discussed by Darken et al. (1999). By closely examining Figure 1 we see that most individual user differences impact on all types of environments. The only exception seems to be gender and cognitive styles. This diagram is extracted from supporting literature and is therefore hypothetical in nature.
SUMMARY AND REVIEW OF BUSINESS IMPLICATIONS This chapter presents a variety of literature suggesting that spatial knowledge acquisition through VE navigation is feasible, but is influenced by the
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Figure 1. The stages of the information-processing model affected by environmental factors and individual user differences
exposure time given to a user to learn the environment. It was deducted through a comparison of previous studies, that individual cognitive and biological differences impact on the navigational skill of the user, and lead to higher exposure time requirements for spatial knowledge acquisition. These individual user differences affect various skills such as knowledge, aptitude, ability and strategy and have been identified as gender, age, orientation skills, knowledge / experience and cognitive styles. However, individual differences are not the only properties that affect exposure time requirements. Various structural factors of an environment render the environment more or less environmentally complex, and therefore influence the exposure time needed to acquire spatial knowledge as well (Darken and Peterson, 2001). These environmental factors are: size, spatial complexity, and landmark potential. From a business perspective the fact that i) VEs can be used acquiring spatial knowledge, and ii) that a one-size exposure duration is in appropriate, has significant implications. Much spatial knowledge training relates to real world space that is either under-development or potentially unsafe. In such cases on-site training of service, emergency and support staff is impossible, yet the result of badly trained staff has safety implication 144
in the case of an emergency or security breach. Imagine, in the case of a fire at a major sporting event (e.g. World cup or the Olympic Games), the international implications of emergency staff not knowing the layout of a stadium. What legal and political implications exist for government if it can be shown that the military had not provided soldiers with either appropriate training techniques (i.e. VEs) or VE exposure duration that later led to death. In such cases, learning using maps and briefings is restricted because of the individual user differences of the demographic groups involved. Training each and every member of staff in real-world space cannot practically be achieved, however the implication of badly trained staff has significant legal, political and ethic implications. What is the solution? Considerable research suggests that individual user differences impact exposure time for all types of environments, with two exceptions (i.e. gender and cognitive styles): gender is a critical factor only when navigation in low-landmark maze-like environments (see Figure 1); cognitive style impacts spatial knowledge acquisition with field-independent users acquiring spatial knowledge faster from complex environments, and field-dependent users having the advantage in large environments. Orientation skill and envi-
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ronmental knowledge impacts duration time in all environments, yet these individual differences are not easily trained and require significant periods of prolonged training (i.e. possibly years) before any noticeable improvement can be measured. Since significant periods of prolonged training is not possible to increase natural ability of service or military staff, relevant compensation (i.e. additional training within the specific space in question) must be given to cancel out low natural ability. As exposure of untrained staff to dangerous environments is not appropriate, use of spatial training within a VE is a good option for removing many of these safety concerns. Currently, however, there is no research, to the best of our knowledge that is able to quantify the impact of individual differences on exposure duration. Additional research is needed to facilitate VE designers in their understanding of how learning spatial knowledge for a VE impact different users, and what can be done with cue placement to maximize information acquisition, and limit frustration and disorientation. VE mapping, modeling and use in spatial training is of growing importance. It offers significant potential in the effective training of staff, yet a one-size fits all approach cannot be use justified. Only once individual use differences are quantified, can anyone effectively provide spatial training that is appropriate to the specific user.
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This work was previously published in Virtual Worlds and E-Commerce: Technologies and Applications for Building Customer Relationships, edited by Barbara Ciaramitaro, pp. 216-230, copyright 2011 by Business Science Reference (an imprint of IGI Global). 149
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Chapter 1.11
Business Analytics Success: A Conceptual Framework and an Application to Virtual Organizing Hindupur Ramakrishna University of Redlands, USA Avijit Sarkar University of Redlands, USA Jyoti Bachani University of Redlands, USA
ABSTRACT The chapter presents a conceptual framework that identifies technological and organizational factors that impact the success of business analytics (BA) use in organizations in general and virtual organizations in particular. The framework explores BA success through three business disciplines: decision sciences (DS), information systems (IS), and management. We believe that BA success comes from proper interaction between the three disciplines. Though the concept of BA has been around for a long time in business literature, its DOI: 10.4018/978-1-60960-587-2.ch111
full potential use has not been realized in organizations for a variety of reasons. The information and communication technologies (ICT) that have made virtual organizations, and flattening of the world possible have also created a better infrastructure/environment for use of BA by providing the capability to collect massive amounts of data and by providing easier-to-use analytic tools. Currently, BA is being touted as the next information technology (IT) capability that will generate considerable value including competitive advantage to businesses. In this chapter we present and discuss our framework, discuss its viability through existing examples of BA success, and finally apply the framework to a special emerg-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Business Analytics Success
ing context in organizations, virtual organizing. Implications of this framework for identifying and filling research gaps in this area and implications for managers interested in exploring BA use in their organizations are presented.
INTRODUCTION Though the history of organizational/managerial decision-making is long, its movement from “decision-making as an art” to “decision-making as a science” is more recent. Parallel, and sometimes independent, developments in three fields have aided this evolution. Management theory focused on the typologies and processes of decisionmaking and the behavioral aspects (Henderson & Nutt, 1980; Kepner & Tregoe, 1965; Mintzberg et al, 1976; Simon, 1977; Tydeman et al, 1980)—the softer side. Decision Sciences (DS) as a field was formally defined in the early 1970s, and the field included the work done in management theory and extended it through the use of quantitative techniques—the harder side. Though quantitative techniques, mathematical and statistical, were available for use by organizations and managers, their use was not widespread due to the lack of availability and ease-of-use of the tools and data necessary for quantitative analysis. A parallel development in information systems (IS) that made the necessary tools and data available, and easier to use by most managers, made it possible for organizations to capture/collect/access massive amounts of data regarding the organizational processes and analyze them for decision-making through the use of quantitative analysis. Business analytics (BA)—the use of analytic techniques (driven by data and quantitative analysis) for organizational/managerial decision-making, a new term that has been coined recently—is a result of the parallel developments in the three disciplines, Management, DS, and IS. History of analytic techniques and data to improve organizational decision-making can be traced to
the 1960s to the development of the first decision support systems (DSS) (Power, 2001, 2002, and 20042004). Analytics has also been defined to be a subset of business intelligence (BI). BI includes both data access and reporting, and analytics. More formal definitions of BI and its essential components can be found in Negash and Gray (2003). The terms “data mining” and “business analytics” have also been used interchangeably in the literature (Kohavi, Rothleder, and Simoudis, 2002) to indicate the general process of investigation and subsequent analysis of data to identify the existence of new and meaningful trends. Relatively few formal definitions of BA exist in the literature. Davenport and Harris (2007) define analytics as “the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions.” Davenport & Harris further state that the “analytics may be input for human decisions or may drive fully automated decisions.” While data access and reporting help businesses understand “what happened,” and “what actions are needed,” analytics helps them to understand “why is this happening,” “what if these trends continue,” and perhaps forecast “what will happen next” (Davenport & Harris, 2007). Prior work related to the Management, IS, and DS aspects of BA is extensive in each area. Success in decision-making and problem-solving (including success of different phases) and its relation to different problem-solving methods and individual and group behavior has been studied extensively in the Management literature. Data collection, storage, and access issues have been addressed extensively in IS literature. Extensive work on building a variety of quantitative models exists in DS (sometimes also referred to as Management Science or Operations Research) literature. Some literature also exists that integrates two disciplines – for example, group decision support systems (GDSS) work that integrates Management and IS aspects of BA. Davenport’s (2006) work is the first attempt to link explicitly the three disciplines
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critical to BA success. Davenport identified three key attributes for organizations to be analytically competitive – (1) widespread use of modeling and optimization, (2) an enterprise approach, and (3) senior executive advocates. In the same work, the author argues that organizational success in BA can result if analytics-minded leaders actively recruit analytically competent people who are proficient in the use of technology and can decide “when to run the numbers.” Though some case-based evidence exists, Davenport’s (2006) work represents the only instance in the literature which hints that BA success results from an optimal blend of competence in several business disciplines. However the interrelationship between the disciplines towards the achievement of business analytics success has not been explicitly developed in his research. For BA to be used extensively in organizations and for it to succeed in providing value to organizations, it is important to build and test a conceptual model of BA success – a model that links relevant DS, IS, and Management factors (the independent variable set) to BA success (the dependent variable set). We believe that BA success is derived not only from understanding factors in each discipline but also from a good understanding of the relevant intersections/interactions of the three aspects of BA (DS, IS, and Management). From our review of the literature, it is clear that BA use in organizations is currently limited. Some factors that may have contributed to this are (1) a lack of specialized skill in quantitative modeling both at an individual and organizational level, (2) limited/restrictive IT infrastructure, often with the lack of enterprise-wide support for IT initiatives necessary for BA implementation, and (3) lack of an organizational culture that can successfully engineer a company-wide shift in decision-making paradigm. In addition, there is a clear lack of metrics of BA success that may have prevented companies from linking measures of BA success to their strategic goals or establish a connection between BA-related activities under-
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taken and financial outcomes achieved (Ittner and Larcker, 2003). Further, failures of BA initiatives in organizations have not been documented in the academic literature. Overall it is fair to say that BA success and the factors/actions that lead to it are not well understood. The primary objective of this chapter is to develop and present a framework for BA success. We argue that BA success lies at the intersection of three disciplines (1) decision sciences, (2) information systems, and (3) management. Though a considerable body of literature, and some case-based evidence, exists in different business disciplines as it pertains to BA, prior work has mostly been discipline-specific and not well integrated. We are building our framework based mostly on prior research in the three distinct business disciplines—three different components that are needed for BA success in organizations: (a) basic quantitative modeling and analysis needs with respect to data, tools, models, and interfaces, (b) IT infrastructure needs toward the support and successful implementation of BA technologies, and (c) top-down commitment to make analytics central to strategy coupled with an organizational culture that supports and rewards skillful use of data-driven analysis for the purpose of organizational decision-making. Clearly a oneto-one correspondence between each previous component (a), (b), and (c) and broader business domains of DS, IS, and Management, respectively, is intuitively apparent. If we take one or more of the disciplines/components away, BA success will be compromised. Data and models are key to quantitative analysis. But without adequate IT support, it is not possible to store large-scale data and run computationally intensive algorithms that provide modeling horsepower. An enterprise with access to data, models, and IT infrastructure will not be “BA successful,” however, in the absence of top-level commitment for measuring, testing, and evaluating quantitative evidence for decisionmaking purposes.
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Another unique contribution of this work is the application of our framework to virtual organizing. This application is cognizant of the fact that decision-making in businesses today is increasingly distributed in time and space. The increased use of group-based problem-solving (Davenport, 2006) and virtual teams (Jessup and Valacich, 2007) poses challenges and provides opportunities in each discipline that is a part of our BA success framework. We apply our model to virtual environments and explore several benefits of virtualization and also identify challenges which result due to the ability to span time and space. The chapter is organized as follows: (1) we present some discussion/review of literature on BA and in the three disciplines as they relate to BA, (2) we present our framework, its development, description of the framework, and its application/implications for research and practice, (3) we present the application of the framework to virtual organizing and justification for the application, and (4) we present some conclusions.
RELATED RESEARCH/ DEVELOPMENTS In order to develop a conceptual framework for BA success it is important first to understand developments in BA and related fields in the past few decades. In this section, we explore the developments in BA use in organizations and developments in the three fields/disciplines that are believed to have an impact on BA success: management, DS, and IS.
Business Analytics As we have noted earlier, Davenport and Harris (2007) state that business analytics is a subset of BI. They define BI as “a set of technologies and processes that use data to understand and analyze business performance.” According to Davenport and Harris, BI includes (1) data access and report-
ing, and (2) analytics. While data access and reporting includes tools such as standard reports, ad hoc reports, queries, and alerts, analytics includes tools such as optimization, predictive modeling, forecasting, and statistical analysis. Davenport & Harris suggest that the degree of intelligence increases as analytics complements data access and reporting. The terms “data mining” and “business analytics” have also been used interchangeably in the literature (Kohavi, Rothleder, & Simoudis, 2002) to indicate the general process of investigation and subsequent analysis of data to identify the existence of new and meaningful trends. Like Davenport, Kohavi et al. identify data collection, storage, and processing as issues pertinent to analytics and state that mined data is used extensively by business organizations that employ analytics for everyday operations. Over the last few years groundbreaking analytics-based systems such as online reservations (at American Airlines), predictive maintenance (at Otis Elevator), and revenue management systems (at Marriott International to determine the optimal price of guest rooms) have become more and more common. The fact that analytics can be applied to many business processes to add value and gain competitive advantage has been demonstrated by organizations like Amazon.com, Harrah’s, Capital One, and the Boston Red Sox, which have dominated their respective domains by employing analytics for key strategic decisionmaking purposes. Davenport and Harris (2007) have identified analytical competitors in a variety of industries, including consumer products, telecommunications, financial services, pharmaceuticals, transport, retail, hospitality and entertainment, airlines, and e-commerce. The same work also mentions the use of analytics by various levels of government – national, state, and local, for crime prevention, predictive modeling of contagious diseases, resource (gas, oil, minerals, etc.) optimization, and fraud detection. In fact sales, marketing, supply chain
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optimization, and fraud detection are several areas identified by Kohavi et al (2002) that routinely use business analytics. The same authors have mentioned that organizations in financial, retail, manufacturing, utilities, and telecommunications sectors increasingly want their field personnel to have access to BA information through wireless devices. Apte et al. (2002) state that industries that have derived benefits from data mining include insurance, direct mail marketing, telecommunications, retail, and healthcare. A summary of several successful BA applications is tabulated in Table 1. Each specifically describes the nature of the application, and tools, techniques, methodologies, or paradigms employed by the respective organization, and BA success measures used. A detailed list of several other business functions with scope for application of business analytics, description of the exact nature of usage of analytics (for example in capacity planning, demand-supply matching, location analysis, reducing inventory and preventing stock-outs, etc. toward the effective management of supply chains), and corresponding examples from industry can be found in Davenport (2006). Davenport and Harris (2007) provide the only instances when organizations have not been particularly successful in spite of adopting BA. These organizations are both prominent players in the US aviation industry – United Airlines and American Airlines. Davenport and Harris postulate that two factors have prevented these airlines from succeeding with their analytical strategies – (a) their analytics support an obsolete business model, far superior versions of which have been adopted by their competitors, and (b) other airlines too have adopted BA since airline industry data has become more readily available from associations and external providers. The BA literature is replete with examples of BA success. Several such examples are tabulated earlier in Table 1. In some instances, analogous metrics of BA success have been used. For ex-
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ample, market share at Harrah’s, earnings per share and return on equity at Capital One, market capitalization at Progressive have been used as surrogates for revenue. Negash and Gray state that ROI analysis is frequently necessary for BI projects and list statistics related to ROI figures for given levels of investment. Davenport and Harris (2007) contains similar statistics. Sports teams have often used number of games /titles won or reduction in player injuries as metrics of analytics success. Revenue increase (or cost reduction) is a commonly used (and intuitive) metric of BA success; however, our research did not yield any consistent metrics of business analytics success across industries in different sectors. Davenport et al. (2001) introduced a model for building analytic capability in organizations. The authors discussed the contextual factors in the model (a particular business strategy, a particular set of skills and experiences, a particular set of culture and organizational structure, and a particular set of technology and data capabilities) and also constructed a decision tree for implementing analytical capability. The authors also presented a framework that identifies and articulates the primary success factors which are required to develop broad organizational capabilities for transforming electronic data into knowledge and then into business results. Luecke (2006) cites several characteristics shared by organizations that routinely make good decisions. These include but are not restricted to employees who recognize behavioral traps that lead to bad decisions, decision-makers who understand their roles and possess skills their roles require, development of a number of feasible decision alternatives, availability of an array of decision-making tools and processes, and overall people who are dedicated to improving decision quality. Along similar lines, Davenport (2006) outlines the characteristics and practices at analytics-driven organizations and describes some of the very substantial changes that other organizations must undertake to compete on
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Table 1. Examples of successful BA applications in industry Example #
Organization (Reference)
Specific BA Application
Methodology/Paradigm Employed
BA success measures
1
Capital One (Davenport, 2006; Davenport and Harris, 2007)
Maximized the likelihood that (a) potential customers will sign up for credit cards, and (b) they will actually pay back Capital One once they sign up.
Simulates more than 30,000 scenarios each year with different interest rates, incentives, direct mail advertising, and several other variables of interest
Customer retention has increased by 87% and the cost of acquiring a new account has decreased by 83% over a period of time.
2
Netflix (Davenport and Harris, 2007)
Endeavored to match buying patterns with customer behavior; also in deciding what to pay for the distribution rights of DVDs.
Hired mathematicians who developed algorithms and subsequently computer codes to “define clusters of movies, connect customer movie rankings to the clusters, evaluate thousands of ratings per second, and factor in current Website behavior – all to ensure a personalized Webpage for each visiting customer”.
Has grown from $5 million in revenues in 1999 to $1 billion in 2006.
3
Progressive (Davenport, 2006; Davenport and Harris, 2007)
Profitably insured high risk customers, a constituent that competitors would otherwise ignore blindly assuming that these customers are “loss-making”.
Closely analyzed data to categorize customers into several narrow clusters, each characterized by age, college education, previous accident history, credit scores, etc. in order to rank them as high versus low risk, and then employed regression analysis to identify factors that closely define losses a particular cluster of customers produces.
Market capitalization doubled during the 2003-2007 period to $23 billion.
4
Marriott International (Davenport, 2006)
Established an analytical system for optimal pricing of guest rooms, conference facilities, and catering.
Pioneered the concept of revenue management, in which an analytical model computes and maximizes actual revenues as a percentage of optimal rates that could have been charged to customers; also developed a system to optimize offerings such as price discounts to frequent customers.
Actual revenues when computed as a percentage of optimal rates increased from 83% to 91%; annual profit increased by $86 million in 2004.
5
Harrah’s Entertainment (Davenport and Harris, 2007)
Developed the ability to use realtime data to make decisions on their business processes right down to individual machines where their patrons are gaming.
This is achieved by changing the odds based on the behavior of patrons that are analyzed as soon as they use the Harrah’s card. The incentives required to bring these patrons into the casino and to keep them playing can be manipulated based on exact data collected from their card usage.
Increased market share from 36% to 43% between 1998 and 2004.
6
Proctor and Gamble (Camm et al, 1997)
Successfully redesigned North American supply chain by integrating production, sourcing, and distribution functions.
A group of about 100 analysts from several organizational functions such as operations, supply chain, sales, marketing, etc. worked in tandem. For example, sales and marketing analysts supplied data on opportunities for growth in existing markets to analysts who design supply and distribution networks.
Reduced number of North American plants by almost 20% thereby saving over $200 million in pretax costs per year in the mid 1990s.
continues on following page
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Table 1. conitinued Example #
Organization (Reference)
Specific BA Application
Methodology/Paradigm Employed
BA success measures
7
Sears, Roebuck and Company (Weigel and Cao, 1999)
Tremendously improved their technician dispatching and home-delivery business.
Employing an analytically powerful vehicle routing and scheduling system within a geographic information systems (GIS) based framework to run its delivery and home service fleets more efficiently.
Achieved $9 million in onetime savings and over $42 million in annual savings; were able to consolidate vehicle dispatch facilities by more than 50%.
8
Deere and Company (Davenport and Harris, 2007)
Attempted to reduce inventory and complexity by eliminating product configurations that were difficult to produce and sell.
Worked with academic collaborators and successfully optimized configurations of products on two product lines.
Profits on the two lines increased by 15% due to 3050% reduction in the number of product configurations.
analytics turf. These changes include a top-down commitment to make analytics central to strategy, abundant use of complex data and statistical analysis, significant investment in technology, and executives’ unswerving commitment to change the way employees think, work, and are treated. Davenport (2006) further outlines four factors in defining analytical competition. These are (a) distinctive capability, (b) enterprise-wide analytics, (c) senior management commitment, and (d) large scale ambition. Davenport and Harris (2007) add that it would be a “huge mistake” to call analytics a happy marriage between analytical tools and information technology (IT). The authors argue that “human and organizational aspects” of analytics distinguish the successful exponents of BA in various industries. The hint that BA success stems from an optimal blend of (i) distinctive analyticsfriendly management style with (ii) analytical tools, and (iii) IT is unmistakable. However the fact that (i), (ii), and (iii) each represent one key business discipline has not been explicitly stated in any existing literature. Moreover the current literature also lacks a conceptual framework of BA success. In summary, though BA is a newly defined field, it is clear that research in BA-related fields such as DSS, BI, data mining, etc. have been around for many decades. There have been many successful
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(and some unsuccessful) applications reported in the literature. The applications have been in diverse organizational functions and in diverse industries. In addition, we can speculate that there must have been many unreported BA failures. As the field is fairly new, academic research that assists in developing a good understanding of factors that contribute to BA success (or failure) are scarce (Negash & Gray, 2003), and the evidence from most existing research is anecdotal. While the exact metrics of business analytics success can be industry specific, our review of the literature reveals that understanding of factors and/or disciplines, which combine to generate BA success, is limited. Several examples of BA applications in industry have been documented, and frameworks for classifying organizations competing on analytical turf exist. However, a good understanding of what contributes to BA success, as well as metrics of BA success, is fuzzy and almost non-existent in the literature.
Management Factors for BA Success The field of management has explored managerial/organizational decision-making, one of the core activities of management as identified by Mintzberg (1973), from multiple perspectives. They include: (1) the idea of rational decision-
Business Analytics Success
making that first originated in neo-classical economic theories, (2) the concept of bounded rationality and decision-making as “satisficing” as opposed to optimizing, (3) the garbage can model of decision-making. Management literature has also dealt with many aspects of managerial decision-making. The behavioral theory of the firm focused research on the managerial behaviors and their impact on organizations (Cyert & March, 1992). The pros and cons of individual versus group decision-making and the phenomenon of groupthink have been identified (Janis, 1972). The individual biases in decision-making (Kahneman et al, 1982) and the importance of framing the decisions have been studied. The importance of politics was highlighted by Allison and Zelikow’s (1999) study of the Cuban Missile Crisis and the different ways decisions were made in that situation. The roles of other organizational factors, (e.g. technology or organizational structure) on managerial decisions have also been investigated (Lawrence and Lorsch, 1967; Scott, 2003; Thompson, 1967, 2003; Woodward 1975). The behaviorists have questioned the standard rational model of economics, and bounded rationality is now widely accepted as an alternative assumption for explaining managerial behaviors (Simon 1997). In the meantime, progress in the fields of IS and DS led to better tools, techniques, models, and computational power to allow managers to be increasingly scientific and rational in their decision-making. Evolutionary economics and the theory of the firm were becoming the basis for newer management theories. Together, these changes led to the present situation, when we consider that it is imperative to take a joint look across management, DS and IS, in order to really understand the impact of managerial decisionmaking on organizational success. Firms with managers who know how to deploy IS resources well were better positioned toward (hard) evidence-based decision-making (Ayers, 2007). Thus, IS offered competitive advantage to these firms. According to the resource-based
view of the firm, organizations achieve competitive advantage by securing inimitable and scarce resources (Barney, 1991). With increasing automation and affordable technology, IS is available to all firms as a resource, but only a handful are able to deploy it in a manner that creates competitive advantage. The differentiation comes from having managers who know how to play their decisional role well and are allowed to do so by the organizational context in which they operate. By choosing to focus on the important decisions and knowing the appropriate information to gather and process to inform these decisions, the managers can use IS to build the unique capability that can provide a competitive advantage to their firms. One way to classify organizational decisionmaking contexts is by the organizational and analytic complexity, from simple to complex. Figure 1 presents a 2x2 matrix that shows four possible different decision-making contexts (Bachani, 2005). Analytically complex decisions are those that have a lot of uncertainty in factors that influence the outcome of the decision. An example of an analytically complex decision is when a firm needs to build a new factory at a substantial cost. There are several uncertainties in this decision, such as predicting demand for the product, predicting the competitor’s investment in capacity, forecasting future prices for the product, and so on. Organizationally complex decisions require many people from different parts of the organization to be involved in the process since the choice will impact what they all do. For example, consider managers who are deciding on the features for the new version of a product. There may not be too many changes to the product’s core features, but any change requires coordinated effort that means involving different parts of the organization, from taking into account the voice of customers by consulting the customer service department, the input from the distributors by consulting the sales division of the company, the cost of the new features by getting estimates from the accounting department, the compatibility and production
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Figure 1. Business analytics adoption matrix
capabilities by consulting the operations department, and so on. When a business process is analytically and organizationally simple, there is no need for any investment in developing systems or competencies for handling these situations. Managers make the decisions promptly. If the business process is analytically complex but organizationally simple, then a specific tool to handle the nature of the analytical complexity should be deployed. These include specially designed models like forecasting models, risk analysis models, capacity planning systems, inventory management systems or other tools and techniques that address the special kind of analytical complexity associated with the business process and problem at hand. In the third case, if the business process is analytically simple but organizationally complex, then the best way to address it is through people-related methods – including facilitative leadership, training, redesigning organizational systems and structures to make communication easier, linking people across the various parts of the organization using ICTs, and so on. In the fourth situation where the business process is complex analytically as well as organizationally, there is a real need and potential for BA to make the biggest difference. It
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is in this situation that managers must make the investment in developing the BA capability. Having the right tools and techniques to deal with the analytical complexity as well as having the structures and systems that allow a better handling of organizational complexity will lead to the best outcomes for handling the business processes most efficiently. In summary, there has been an evolution in managerial/organizational decision-making from an art to a science. This has been made possible with parallel evolutions in IS and DS that have made the tools and data available for scientific (hard evidence-based) decision-making. In addition, characteristics of certain decision-making contexts dictate whether BA will lead to success. Managers should develop BA capabilities for those contexts to maximize benefits. With increased managerial acceptance of analytical techniques for decision-making, it appears the time may be ripe for BA to succeed.
Information Systems Factors for BA Success One necessary condition for BA success is the appropriate IT that supports the data, quantity,
Business Analytics Success
quality and availability, and analysis tools needs, availability and ease-of-use. Evolution in IT has made it possible for organizations to have access to massive amounts of useful data, internal as well as external, for BA use. With computerized record-keeping, organizations can access reports about customer demand, in different time periods, order size and content, customers quantities in different locations, segments of the market, account receivables, detailed inventory, and other such information that was much harder to track or consolidate without technology. The cost of data storage over this same time period has decreased at an exponential rate, thus making it possible for organizations to store more data that may be useful. There is also a trend toward sharing massive amounts of data with external entities, like Nielsen, that aggregate data from several sources to make it available to any organization that wishes to purchase it. In addition, massive amounts of demographic and related data are available from sources such as the U.S. Census Bureau. Organizations are also able to collect and store transaction data more easily due to the availability and development of standard, off-the-shelf enterprise-wide software packages that address specific business needs, e.g. enterprise resource planning (ERP) systems, customer relationship management (CRM) systems, and supply chain management (SCM) systems. When these systems are well implemented, they force users to input good quality data and assist in maintaining good data integrity. The evolution of data management technology from file management systems (of the 1960s and 1970s) to database management systems (DBMS) to data warehouses and data marts has created easier access to well integrated data with good integrity. In a related development, IT tools that assist organizations in analyzing the data have also become easier to access and use. The evolution has taken us from custom built packages for specific analysis and specific organizational decision con-
texts to standard off-the-shelf analysis packages and tool kits included as part of database packages. This has resulted in analysis tools that are better integrated with data sources and with interfaces that are easier to use. Another development in BA tools, BA capability as a Web service (as opposed to a product), has made it possible for organizations to benefit from BA without the need for an upfront investment in BA tools implementation. Business Analytics Online (BAO), a service offered by the Environmental Systems Research Institute (ESRI) of Redlands, CA, is an example of this development. Thus, IT evolution has made it easier for organizations to succeed in their BA efforts as they pertain to data and IT tools for analysis. This, in essence, has provided a necessary condition for BA success. However, BA success for any organization initially depends on the extent to which the organization has capitalized on the IT evolution in the areas discussed. For example, there are many organizations in the process of implementing enterprise-wide systems and data warehouses and data marts. As a consequence, BA success for these organizations will be limited due to data access issues. Though some organizations have good data access and, hence, a potential for BA success, many other organizations encounter data access issues. Even with the available data, the use could be limited. In a recent study by Davenport et al (2001), the authors found that less than 10% of the firms that had ERP data could cite examples of the data use for BA. They also found that few retail businesses that collect scanner data use much of that data for BA. In summary, it is clear that there are many IS-related factors that are critical for BA success. Evolution in a variety of (information) technologies has made it possible for organizations to access massive amounts of good quality data for BA success. Analysis tools have evolved from stand-alone tools with limited capability into highly sophisticated ones integrated with tools
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for data access. These developments enhance the possibility of BA success.
Decision Sciences Factors for BA Success One key factor that is critical for BA success is the use of the right quantitative analysis. This involves the application of sophisticated models, algorithms, and heuristics to solve complex business problems in various domains such as capacity planning, demand-supply matching, location planning and analysis, scheduling, and supply chain and logistics optimization. With the evolution of algorithms and computing machinery, prohibitively expensive computation times are a thing of the past. Davenport and Harris (2007) list combinatorial optimization, constraint analysis, Monte Carlo simulation, multiple regression analysis, risk analysis, price optimization, etc. as some analytical applications for various business processes. It is pertinent to mention here that all these applications belong to the broader domain of DS. Most DS models are amenable to the performance of sensitivity analysis that allows a decision-maker to simulate various alternative scenarios. Simulation models (Conchran, Mackulak, and Savory, 1995; Hwarng, 2001; Nance and Sargent, 2002) are widely used for industrial problem-solving and analysis. In several instances, sub-problems of complex industrial problems can be formulated as network optimization models. In several instances, however, a well-established model cannot be forced to fit into an actual industrial problem due to associated problem complexities. In such cases, it usually takes a substantial amount of imagination and modeling skill on the part of the management scientist, teamwork, and communication to transform a particular “real-life” industrial problem description to a well-defined problem which can then be solved using analytical tools or techniques, special purpose algorithms or heuristics, or by the use of software. The importance of creativity in
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modeling and MS overall has been highlighted in Evans (1991, 1992, 1993a, 1993b) and Tsoukas and Papoulias (1996). Hillier and Lieberman (2005) state that it is almost impossible for a single individual to be an expert in all aspects of MS. Therefore, for a full-fledged DS study, a group comprised of individuals with diverse skills and backgrounds must collaborate. Clearly virtualization can play a key role in fostering teamwork and communication among modeling associates, especially when individuals can span space and time. Another important characteristic of DS is the search for an optimal solution, loosely defined as the best solution under the given circumstances. When the search for optimal solutions often becomes prohibitively expensive (in terms of computation time) because industrial problems are simply too complex (too many variables, and/or too many constraints/relationships), heuristic approaches are employed which provide a “near-to” optimal solution. It is pertinent to mention here that top-level management, keeping in mind broader organizational targets and objectives, often decides the optimality gap. With recent advances in computing hardware and software, however, the search for an optimal solution has become faster. Bixby (2002) contains an account on how computation times of various test problems have improved over the last decade, and how the notion of “large” problem instances has evolved over the years. Bixby reports that several test problems were solved in computation times that were 52 times faster when using newer versions of the same commercial solver. The author further adds that a model that might have taken a year to solve could be solved in less than 30 seconds by 2002 due to an increase of several orders of magnitude of computing speed and algorithmic power. DS problems have always been amenable to spreadsheet modeling. Bodily (1986) suggests the use of spreadsheets to solve DS problems in 1986. Since then, spreadsheets and MS have both evolved to the extent that DS practitioners
Business Analytics Success
are solving problems in many functional areas using spreadsheets. Leon, Przasnyski, and Seal (1996) report that some areas of DS such as linear programming, simulation, project management, and forecasting use spreadsheet modeling more than some other areas such as network models and queuing. Dhebar (1993) states that systematic spreadsheet development and documentation of logic are critical in any quantitative analysis and sounds a note of caution related to the accuracy of spreadsheet models. A key step in the quantitative analysis of a problem through the development of a model is the availability and preparation of data required by the model. Data is often referred to as “uncontrollable inputs” and must be specified before analysts can feed the data to a model, specify a solution methodology and obtain meaningful outputs (often decisions). Many quantitative analysts believe that problem definition and development of a model essentially means problem solution and that data collection and preparation are trivial steps in the overall analysis framework. Nothing can be further from the truth, and the importance of data in relation to business analytics cannot be overstated. Often a large database is required to support a quantitative model, and information systems experts may become involved with the data preparation step. There are several other key modeling issues as well. One pertains to the ease of use or flexibility. The models developed in a business analytics framework must have the ability to access data from many different sources such as databases, spreadsheets, or the Internet, giving the user the flexibility to choose the most efficient and convenient way to incorporate data into the model. Another pertains to the issues of interfaces that should be straightforward and intuitive enough such that users can begin building models within minutes of installation; yet the modeling interfaces must possess depth of features to handle the most difficult problem scenarios. The scalability of models —in other words, their ability to handle
and analyze huge volumes of data—is another pertinent issue. To that end, data mining is one of the most general approaches utilized to reduce data in order to explore, analyze and understand it. Several goals that are uniquely addressed by data mining have been identified in Fayyad and Uthurusamy (2002) and include scaling analysis to large databases and scaling to higher-dimensional data and models. In summary, it is clear that many diverse factors related to DS are critical to BA success. The specific factors that will have an impact on BA success are context specific, organizational as well as decision-making. A summary (that presents the current context of BA) of BA-related evolution in the field is presented in Table 2.
FRAMEWORK FOR BA SUCCESS Development The framework for BA success has been developed over the past year. The authors began with a broad survey of existing literature in the field of business analytics in order to better understand this emerging area and the phenomena. Academic articles related to theory and practice in the area as well as trade press reports on the companies adopting and using business analytics were collected and studied. Early on in the process it was clear that the theory and academic research in the area was lagging behind practice. The cases and stories about the various companies’ experiences with adopting business analytics were not described or explained adequately with any theories from the existing literature (For a list of examples of successful BA applications in businesses, please see Table 1). Initially, we derived a list of factors/variables related to BA success from the case material. Next the authors attempted a categorization of these variables, and during the process it was clear that the variables could be classified into three broad categories:
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Table 2. BA-related evolution Evolution of the developments in management, IS, and DS that relate to BA
Current status of BA
The gap
Management €€€€€• Progress from rational decision-making to boundedly rational models of managerial decisions. €€€€€• Management awareness of analytical and computational tools and techniques that can assist decisionmaking. Going beyond IT as a support function to ICTs as a source of sustainable competitive advantage. €€€€€• Better understanding of the impact of technology on organizational structure, culture and form. €€€€€• Organizational boundaries becoming blurred with rise of ICTs and virtualization of many teams and outsourcing of many functions. IS €€€€€• Data management technologies —file management systems to DBMS to data warehouses and data marts €€€€€• Increased availability of external data integrated from many different sources €€€€€• Enterprise-wide systems that integrate & standardize organizational data €€€€€• Better understanding of factors related to IT implementation success €€€€€• Computing speed – Ability to actually solve very large and complex problems within reasonable time has increased tremendously due to (i) advances in computing machinery (hardware and software), and (ii) algorithmic improvements. DS €€€€€• Evolution in modeling tools – For example, evolution in simulation from FORTRAN-based programming to visual interactive modeling using icons, graphical depictions of scenarios, and actual pictures of system elements. €€€€€• Advances in analysis methodologies – For example variance reduction techniques, and extensive input data analysis. €€€€€• Algorithmic improvements – For example, the dual simplex algorithm with steepest edge can help solve complex optimization problems much faster. €€€€€• Popularity of spreadsheets has increased – due to their user friendliness, interactive nature, ability to support what-if analysis, and built-in presentation features. €€€€€• Paradigm shift in industry – decision-making based on hard numbers as more and more data has become available.
Managerial acceptance of technology as being central to business success, not just a support function. Extensive availability of analysis tools Potential for extensive data availability Success in BA use by early adopters
Lack of a good understanding of factors, organizational/managerial, IT, and MS, that lead to BA success.
managerial/organizational, information systems (IS), and decision sciences (DS). Once it was clear to us that these factors had not been identified in the BA literature because these were traditionally studied in three separate disciplines, we returned to do a more in-depth literature review by searching for articles in each
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What is possible Widespread BA use and success in organizations.
of these three disciplines. We used keywords related to the business analytics success factors. For example, we searched articles on modeling, decision-making, data integrity, decision support systems, data mining, business intelligence, etc. Though we could develop a more exhaustive list of factors that could impact BA success, it
Business Analytics Success
Figure 2. Model of business analytics success in organizations
became clear that the interactions between the factors (within and among disciplines) played a critical role. We have presented this idea in a simple model in Figure 2. To operationalize the model into a useable framework for BA success, we developed a list of factors/variables under each of the three disciplines. The framework consists of the dependent variable set (i.e., BA success factors/variables), the three sets of independent variables (i.e., managerial/organizational, IS, and DS variables), and the relationships between the variables (i.e., relationships between independent variables, the interactions, and relationships between dependent and independent variable sets). In the remainder of this section, we present this framework. First, we present our conceptualization of BA success (the dependent variable for our framework). Second, we present the disciplinespecific factors with justification for including each of them. We then explore some interactions, both two-way and three-way, between the three sets of discipline-specific factors that have been discussed in some case studies of successful BA applications. Finally, we conclude this section by presenting the application (or implications) of the framework to managers and researchers.
Components Motivation for any initiative that requires some expenditure (classified either as cost or investment) in an organization usually comes from survival, efficiency, or effectiveness. An initiative with the main motivation as survival usually deals with an organizational capability/need that is necessary just to stay in business. For example, an ATM network for a bank is the cost of doing business (i.e., cost of survival). Efficiency is a measure of output/input – i.e., the efficiency increases as more output is produced with the same level of input. Effectiveness, on the other hand, is a measure of market relevancy of the business. Defined differently, efficiency is “doing the thing right” and effectiveness is “doing the right thing.” Success of an initiative is a measure of how well the (survival, efficiency, or effectiveness) objectives are met. Success of BA initiatives can also be measured in this way. Methodologies/procedures for justifying initiatives vary depending on the context. Some common approaches are net present value (NPV), internal rate of return (IRR), return on investment (ROI), and total cost of ownership (TCO). On the cost side of the computations, there could be one-time or recurring costs or fixed and variable costs. On the benefits side there could be one-time
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and/or recurring benefits from an initiative. These concepts can also be applied to BA initiatives. Our analysis of some successful BA applications (as listed in Table 1) yields the following success measures that have been used: customer retention rate, cost of customer acquisition, reduction in cost of operations, growth in market capitalization, revenue growth, growth in market share, and growth in profit. The first three measures are clearly efficiency measures. It is important to note that efficiency is necessary but not a sufficient condition for continued success. For example, the customer retention rate may not be good if the kind of customers a business is retaining is not value producing. Efficiency combined with effectiveness is a desirable condition always. The last three measures are clearly effectiveness measures. The fourth measure listed is most likely an effectiveness measure. Measures like the one listed are very appropriate for the BA success framework we have developed. These form the dependent variables set for our framework. The independent variables for the framework of BA success are categorized into three disciplines: management, IS, and DS. Most of the variables in each category were either derived from the literature discussed in the previous section (“related developments” section) or from the reported case studies of successful BA applications in organizations (as listed in Table 1). As BA as a field is fairly new, academic research is sparse. Hence some variables were derived through conceptual reasoning. Many of the factors/variables we have listed, in Tables 3A through 3C, can be assigned values on a Likert-type scale (an ordinal scale) or can be explicitly quantified. For example, factors such as level of availability of models and tools (C1 and C2) can be rated on an ordinal scale, while factors such as the amount of per capita investment in modeling infrastructure (factor C3) and percentage of employees with advanced degrees in computational areas (factor C10) can be unequivocally measured. We will discuss managerial
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implications of such factor definitions later in this section under implications for practitioners. It is also important to note that the objective of this work is neither to build an exhaustive list of factors that is critical to BA success, nor to study relative importance of the factors with respect to each other. (We discuss these issues later in this section under implications for researchers.) Hence the factors are not ranked in Table 3A -3C in order of importance. Let’s examine each set of variables. Management factors (or variables) that are critical to BA success in organizations are listed in Table 3A. In tracing the history of business analytics and its predecessors, the computerized modeling-based decision systems, we see that rapid rise and changes in technology have forced management to look at these tools and techniques rather differently today than they did even a decade or two ago. The most important change in management factors responsible for BA success has been this shift in managerial attitude towards evidence, data and analysis-based decisionmaking (A1, A10, A11). While the economicsbased assumption of a rational economic agent was being challenged and replaced with the assumption of a boundedly rational economic agent who satisfices instead of optimizing every economic decision, the progress in technology was offering more sophisticated tools to allow individuals to make more rational choices in their business decisions. Once the senior managers were engaged with the technology and started to see it as central to success of their organizations, they began to hire, train and promote other managers who were computer/modeling savvy (A3, A4 and A5). The acceptance of rational decisions based on data and analysis using models began to spread across the different hierarchical levels within the organization. Many cases mentioned how CEO or top management commitment was crucial to BA success because they drove all the other decisions within the organizations and could influence attitudes towards BA across the organization. They con-
Business Analytics Success
Table 3. Factors/Variables—Management
Source
A1
Level of commitment of senior management to analytics and fact/data driven organizational decision-making—Rational Decision-making
Neo-classical economics.
A2
Level of flexibility in localized decision-making (for example, do regional managers have the ability to override system recommendations)—Organizational Structure and Culuture
Chandler 1962
A3
Level of comfort with models/modeling (mathematical, statistical, etc.) in the organization—Organizational capability
Barney 1991, Teece et al 1997
A4
Per capita investment in training employees to enhance their skills with models/ modeling—Organizational resources
Barney 1991
A5
Level of ability of managers to implement analytical decisions
Mintzberg 1973, Cohen et al 1972
A6
Level of teamwork, communications and partnering skills of employees—Organizational capability
Barney 1991, Janis 1972
A7
Extent of end-user compliance with (and acceptance of) analytical decisions
A8
Level of rewards for employees who support the analytics focus/mission and to insure data integrity (in data input for BA use)
A9
Level of investment in tools, techniques and employees in order to build Business Analytics capability
Teece et al 1997
A10
Level of politics in organizational decision-making and trade-offs in individual versus group decisions
Allison & Zelikow, 1999
A11
Level of bounded rationality and satisficing mentality in organizational decisions
Cyert & March 1992, Kahnemann et al 1982
Factors/Variables—Information Systems (IS)
Source
B1
Level of availability of internal data
Davenport & Harris, 2007; Davenport et al, 2001; Ferguson et al, 2005; Vesset & McDonough, 2007
B2
Level of availability of external data
Davenport & Harris, 2007; Ferguson et al, 2005
B3
Level of access of internal data
Corstjens & Merrihue, 2003
B4
Level of access of external data
B5
Level of quality of internal data
Davenport & Harris, 2007; Davenport et al, 2001
B6
Level of quality of external data
Davenport & Harris, 2007
B7
Level of integration of internal data (from numerous sources)
Corstjens & Merrihue, 2003
B8
Level of integration of internal & external data
B9
Level of availability of tools for analysis
B10
Level of ease-of-use of analysis tools
B11
Level of integration of data (internal & external) with analysis tools
B12
Level of computing power available for BA use
B13
Amount of per capita investment in computer hardware
C1
Ferguson et al, 2005; Kohavi et al, 2002 Davenport & Harris, 2007
Factors/Variables—Decision Sciences (DS)
Source
Level of availability of analytical models (such as scheduling, inventory management, forecasting, vehicle routing, site location, spatial analysis, etc.)
Labe et al. (1999)
continues on following page
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Table 3. continued C2
Level of availability of analytical problem-solving tools such as statistical software, simulation packages, decision analysis software, mathematical programming software, etc.
Labe et al. (1999)
C3
Amount of investment in modeling infrastructure (could be human resources investment or investment in tools/software, etc.) per capita.
Davenport (2006), Davenport & Harris, 2007
C4
Level of use of MS-Excel in the organization.
Leon et al. (1996), Dhebar (1993)
C5
Level of ease of use of models.
Bodily (1986), Weigel and Cao (1999)
C6
Level of ease of use of tools.
Bodily (1986), Weigel and Cao (1999)
C7
Extent of data compatibility of existing models/tools (for example, whether a mathematical programming software can read data from spreadsheets, databases, or data stored as text, and can also write output results to spreadsheets and databases).
Weigel and Cao (1999)
C8
Level of integration between different modeling tools (for example, whether a statistical sub-routine can be called upon from within a simulation package).
Weigel and Cao (1999)
C9
Given size and scale of organizational problems, what is the likelihood that models and tools will solve problems efficiently?
Bixby (2002)
C10
Percentage of employees with advanced degrees (graduate and beyond) in disciplines such as operations research, computer science, mathematics, and statistics (this is a metric of technical expertise, more specifically statistical modeling and analytical problem-solving skills, and also creativity in modeling).
Davenport, 2006, Davenport & Harris, 2007, Davenport et al. (2001), Cochran et al. (1995)
Example #
Organization
Table 3A factors
Table 3B factors
Table 3C factors
1
Capital One
A1
B1, B2, B8
C10
2
Netflix
A1
B1
C3
3
Progressive
B1, B2, B8, B4
C2
4
Marriott
A1, A2
B1
C1
5
Harrah’s
A1, A5, A8
B1
C10
6
Proctor and Gamble
A1, A6
B2
C1, C8, C10
7
Sears, Roebuck, and Co.
A4, A5, A7, A8
B1, B2, B8, B12, B13
C1, C5, C8
8
Burlington Motor Carriers
A7, A8
B5, B6
C1
9
Merrill Lynch
A6
B7, B8
C10
trolled the resources and made investments in technology, training, rewards and teamwork that were needed to set the organization up to succeed in adoption of BA (A6, A7, A8, A9). These changes added up to a change in organizational culture in some places, and there was also a corresponding shift in formal structure (A2, A8 and A10) with more decentralized decisions, better teamwork and changed organizational politics.
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Information systems factors (or variables) that are critical to BA success in organizations are listed in Table 3B. The variables are in the following categories: data, tools, and computing power. Variables B1 and B2 address the availability of internal and external data for BA applications. Availability, the collection and storage or purchase of data, is the necessary condition for BA success. However, access to these data by anyone interested in using it for a BA application is more important
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for BA success. Access many times could be restricted by turf battles in an organization or by a lack of IT support for proper access. Variables B3 and B4 address this. In addition, it is also important to have data that is of good quality, and this can either be ensured by managing internal data collection and storage well or through quality assurance from the vendor supplying the external data. This issue is addressed by variables B5 and B6. For many BA applications it is necessary to have data from a variety of sources (both internal and external) that are well integrated. It is always likely that these integration efforts will lead to discovery of inconsistencies in data from different sources. Variables B7 and B8 address these issues. It is intuitively obvious that well integrated good quality data be available and easily accessible to end-users for their BA applications. Any one of the issues—access, availability, data quality, and/ or integration—could dampen the spirit of the end-user if not addressed properly. Mathematical and statistical tools that are used to perform analysis on the data play a critical role in the success of BA applications. For the end-user, who may not be very sophisticated in quantitative analysis or IT, the availability of the right tools for analysis and the ease-of-use of those tools play an important role in the actual use of the BA application. Variables B9 and B10 address these. In addition, for most users, it is also important to have a seamless integration of data with the tools they are using for their BA applications. Variable B11 addresses this issue. Most BA applications use massive amounts of data and fairly sophisticated mathematical/ statistical analysis. This requires a good level of computing power available to the end-users so as to perform the analysis in a timely manner. Variables B12 and B13 address these. Table 3C includes several DS factors that are critical to BA success. While the relevance of the factors is intuitively understood, the following discussion attempts to justify the importance of the factors relative to BA success by grounding them
in literature and/or (justifying their importance as illustrated by) business applications. Well-defined, easy-to-use, canned models exist in DS for many BA applications. From an end-user’s perspective it is important to have a good set of canned models readily available in order to increase the likelihood of applying those models to potential BA situations. Similarly, it is also important to have readily available, easy-touse tools (statistical and mathematical) available in order to increase the likelihood of use. These are captured in variables C1 and C2. Factor C3 is intuitively understood. The importance of investment in modeling and human resources (factor C3) infrastructure has been highlighted repeatedly by Davenport (2006) and Davenport and Harris (2007). Bodily (1986) reports that practitioners were adopting spreadsheets (factor C4) as a decision-making tool because (a) of their ease-of-use (factors C5 and C6) in data input, solution and report generation, (b) spreadsheets provide a natural interface for model building (factor C1), and (c) their ability to perform whatif analysis. The pervasive use of spreadsheets in modeling and problem-solving (in varying degrees) is documented by Leon et al. (1996). Dhebar (1993) has identified systematic spreadsheet development as one of the ingredients of a sound quantitative analysis methodology. Ease of use of tools and models (factors C5 and C6) can also impact implementation and user compliance (factors A5 and A7 in Table 3A), both critically important to the success of BA. Such issues have been discussed by Weigel and Cao (1999) and Powell et al. (2002). Complex business problems often require the integration of tools and models (factor C8). Very often business analysts/data modelers are hamstrung by the incompatibility of tools/models to data stored in specific storage formats. Seamless data communication between tools/models and data storage interfaces (factor C7) can also help facilitate the validation and implementation of complex customized models. The DS literature is
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replete with such examples. In one such instance, Weigel and Cao (1999) describe the integration of vehicle routing models within a GIS framework in Sears’ Enhanced Home Delivery System, which allows Sears to develop efficient solutions for constrained routing problems in extremely dense street networks. Solution efficiency (in terms of optimality gap and computation time) is a function of the efficacy of available models and tools (factor C9) (Bixby, 2002) and computing horsepower (factor B13 in Table 3B). Finally, Willemain (1994, 1995), and Powell and Baker (2007) identify technical skills and craft skills as key characteristics of good modelers (in relation to factor C10). In a survey conducted by Cochran, Mackulak, and Savory (1995), 21% of the practitioners identified lack of technical background as an obstacle to in-house quantitative (in this case, simulation) analysis. In fact, Davenport et al. (2001) identify regression, data mining, data presentation and report preparation as some of the statistical modeling and analytical skills desirable of business analysts. The importance of factor C10 is clearly established.
Interactions Between Components As stated earlier, our model is based on the premise that BA success hails from distinctive competencies in three broad business disciplines—management, IS, and decision sciences, and also as a result of the interaction between the disciplines. In the following discussion, we illustrate the use of IS in conjunction with decision-making tools and techniques, and aided by analytics-friendly management policies in organizations that have achieved a high level of BA success. More specifically we identify specific management, IS, and DS variables (listed earlier in Tables 3A, 3B, and 3C) and also study interactions between those variables in different organizational contexts. The purpose is to describe and validate our model using exemplars of several successful analytically competitive organizations. Note that while the
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following discussion pertains to the exemplars tabulated earlier in Table 1, we sometimes supplement our discussion with new examples. One key factor for BA success (identified in Table 3 sectionA) is the level of commitment of senior management to analytics and fact/datadriven organizational decision-making (item A1 in Table 3A). Capital One and Netflix (examples 1 and 2, respectively, in Table 1) are classic examples where the founder(s) had the vision to be analytically driven when the company was a startup. Capital One annually collects data of millions of customers pertaining to spending rates, timely installment payments, credit scores, and various other parameters, and integrates (item B8 in Table 3B) these internal data (item B1 in Table 3B) with external data (item B2 in Table 3B) pertaining to conditions of general economic prosperity. Using these disparate data from various sources, Capital One uses analytical models to calculate customers’ willingness to repay loans/balances, maximize customer retention, and minimize the cost of acquiring a new account. The organization also actively recruits analysts who possess a high level of analytical aptitude and the ability to use software applications proficiently (item C10 in Table 3C). This example clearly highlights several discipline-specific variables of consequence to Capital One and also interactions between all three disciplines that lead to BA success. The thrust in analytics at Netflix (example 2 in Table 1) comes from its founder (item A1 in Table 3A). The main objective of analytics at Netflix is to predict customer movie preferences. To that end, Netflix collects data about customers’ rental history and film ratings (item B1 in Table 3B) and has created an overall IS environment with analytics in mind. Moreover Netflix recruits mathematicians with programming experience (item C3 in Table 3C) to write code and devise algorithms to define clusters of movies and then connect customer preference (data) with the movie clusters (based upon customer data collected).
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Progressive (example 3 in Table 1) is a pioneer in the insurance industry in providing policies at competitive rates to “high-risk” customers. Progressive’s internal customer data (item B1 in Table 3B) captures a wide range of attributes such as customer’s age, level of education, credit scores, participation in high-risk activities (such as skydiving) and is integrated (item B8 in Table 3B) with widely available insurance industry external data (item B2 in Table 3B). It is pertinent to note here that pharmaceuticals and other such regulated industries are often hamstrung by the lack of availability and sometimes access to external industry data (item B4 in Table 3B). Progressive then employs regression analysis (item C2 in Table 3C) to determine customers with low credit scores who might actually be risk worthy and also identify those customer attributes that are better predictors of risk than other attributes. High-risk customers are a constituency that is typically neglected by Progressive’s competitors and hence provides competitive advantage. While this example illustrates the IS and DS factors/variables which are key to Progressive, and also illustrates their interaction, it is pertinent that senior management at Progressive chose analytics as a strategic focus (variable A1 in table 3A). An overall culture of analytics perpetrates the entire organization at Marriott (example 4 in Table 1) comprising its employees, regional property managers, vendors, and senior management (item A1 in Table 3A). The focus is on factbased decision-making, which is embedded in the corporate culture since Marriott’s inception. The concept of revenue management, more specifically the revenue opportunity model (item C1 in Table 3C), originated in the hotel part of Marriott’s business and now spans across its restaurants, catering services, and conference facilities. Flexibility in decision-making is a key at Marriott, where regional property managers have the ability to override system recommendations to account for localized events (item A2 in Table 3A). Internal customer data consists of attributes ranging from
the type of service a particular customer prefers to the frequency of visits. Using this data (item B1 in Table 3B), promotions are designed and marketed to online and traditional travel agencies and major corporate customers to help them make informed travel management decisions. While this clearly exemplifies superior management practices at Marriott, the role played by IS and DS towards BA success at Marriott is also immense. At Harrah’s (example 5 in Table 1), CEO Gary Loveman brought with him a customer analytics drive (like Netflix and Capital One) which was broadly distributed but centrally driven (item A1 in Table 3A). Harrah’s, like Marriott, focused on employing analytics at increasing customer loyalty, customer service, pricing, and promotions. The CEO made sure that individual casino property managers implemented (item A5 in Table 3A) the company’s marketing and customer service programs in a uniform fashion. However unlike Marriott, hotel managers are not allowed to override automated analytical decisions since evidence-based decisions outperform those made by individuals. Harrah’s also introduced a novel method to collect customer behavior data via loyalty cards which captured gaming preferences, spending rates, etc. all collected in real time. These internal data (item B1 in Table 3B) were extensively used for a variety of purposes, for example to locate slot machines and guide customers to slower parts of the casino with added incentives during peak business hours. The organizational culture underwent a paradigm shift from paternalism and tenure to one based upon meticulous numbers-driven performance evaluation and customer service (item A8 in Table 3A). Notice that new management impacted overall organizational culture at Harrah’s. However, a new culture of analytics, while necessary, was not sufficient. To that end, the CEO hired a group of statistical experts (item C10 in Table 3C) who designed and implemented quantitatively grounded loyalty programs and marketing campaigns and hence
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played a significant role at Harrah’s in achieving BA excellence. At Proctor and Gamble (P&G, example 6 in Table 1), the primary thrust for analysis comes from two vice-chairpersons (item A1 in Table 3A). P&G uses analytical software and databases to intensively analyze sales data obtained from external sources such as ACNielsen (item B2 in Table 3B) and accordingly designs promotions for its customers. Dozens of analytical professionals (items C10 in Table 3C) support various organizational functions such as operations, supply chain management, and marketing, and report directly to the CIO. During the mid-90s, P&G streamlined its North American product sourcing and distribution systems by successfully blending operations research models and techniques (item C1 in Table 3C) within a GIS framework (item C8 in Table 3C). The importance of teamwork (item A6 in Table 3A) vis-à-vis successful BA initiatives is also highlighted in this application in which over 500 P&G employees worked in approximately 30 teams to complete the supply-chain restructuring. The vehicle routing and scheduling system developed by Sears, Roebuck and Company (example 7 in Table 1) is a perfect example for our model where an optimal marriage between IS, DS, and management resulted in a tremendously successful BA application. To develop the system, internal customer data such as location of customers, type of service required, products to be delivered, delivery time windows, etc. (item B1 in Table 3B) available from mainframe based databases was integrated (item B8 in Table 3B) with commercially available external data such as street networks, congestion, etc. (items B2 in Table 3B) within a geographical information systems (GIS) framework. The problem was modeled as a vehicle routing problem with time windows (item C1 in Table 3C) within a GIS framework (to accurately estimate travel distances) thereby highlighting the integration of modeling tools and software (item C8 in Table 3C). Sears’ investment in hardware (item B13 in
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Table 3B) is apparent as the home delivery and routing systems developed are UNIX-based and operate on either a central server or distributed workstations. Their investment in developing computing horsepower (item B12 in Table 3B) is also apparent; vehicle routing problem instances with approximately two million street network arcs could be solved in less than 20 minutes of computing time. All the IS and DS investments would have proven futile if Sears employees were not trained (item A4 in Table 3A) by an outside firm to overcome difficulties associated with (1) shifting from text-driven terminals to mouse-based GUIs, a fundamental IT paradigm shift, and also (2) to overcome unfamiliarity problems with the various model input parameters (item C5 in Table 3C). Managers in charge of regional routing offices encountered implementation difficulties as technicians and truck drivers resented the online tracking by the systems. However the problem was overcome as field managers gained more confidence in the system and were able to communicate its benefits to truck drivers (end users in this case) and encouraged them to follow the routes the automated systems suggested (items A5, A7, A8 in table 3A). On a related note, but in a different context, Burlington Motor Carriers encountered user compliance (item A7 in Table 3A) problems while assigning drivers to its fleet of 1200 trucks (Powell, Marar, Gelfand, and Bowers, 2002). Fleet planners who were used to doing things in a different way complained vaguely about difficulties encountered in using the assignment model. To overcome these behavioral hazards, management implemented a system that monitored individual user compliance, which was then correlated with monthly bonuses (item A8 in Table 3A). As a result, user compliance rose by 20% over a five-month period. However the organization was still plagued by problems of imperfect, sometimes incomplete, data - clearly data quality issues (items B5 and B6 in Table 3B), and also end-user compliance issues (item A7 in Table 3A) where drivers often devi-
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ated from routes suggested by planners, costing Burlington several thousand dollars in recruiting and training new drivers. Interestingly, some of the key traits of the management science group at Merrill Lynch are technical expertise (item C10 in Table 3C), objectivity, communication skills, proactivity, teamwork (item A6 in Table 3A), integration of various data (items B7 and B8 in Table 3B), data integrity, careful attention to implementation issues (item A5 in Table 3A), and focus on goals of the firm rather than goals of the department. (Labe et al, 1999). Notice that all of these are crucial and relevant for BA success in organizations. Through the examples described earlier, we have attempted to highlight key management, IS and DS factors/variables and explicitly identify interactions between those factors/variables (and disciplines themselves) that have led to BA success in a cross-section of very large organizations. It is pertinent to note that if organizations choose to outsource certain BA specific tasks such as modeling, IT infrastructure development and support, advanced communication technologies can still ensure BA success. In a later section of this chapter, we discuss virtualization and as a special case BA implementation in virtualized settings. In summary, the discipline-specific (management, IS, and DS) variables/factors that interacted in each of the previous examples to ensure BA success have been tabulated in Table 3D. Admittedly the examples did not illustrate the relevance of each and every factor/variable listed in Tables 3A, 3B, and 3C (we have justified each variable in an earlier section). Also the objective of this chapter is not to construct an exhaustive set of variables/factors that lead to BA success and hence that particular task is outlined as a future research direction. Moreover, it is pertinent to observe here that there are too many possible interactions, twoway as well as three-way, between the three sets of factors (listed in Tables 3A, 3B, 3C). Table 3D tabulates only a sample of these interactions, and the previous discussion substantiates them with
the aid of concrete examples found in a variety of industrial settings. Further, we note that the management, IS, DS variables/factors, and interactions between those discipline-specific factors which lead to BA success are purely contextual, almost industry specific. The interactions that cause casinos to attract more customers in gaming may not necessarily be identical to the interactions that help major retailers deliver products/ services to customers more efficiently. Finally we recognize that BA success is clearly a function of the strength of the discipline-specific factors and their interactions. This work has not attempted to evaluate the strength of the various factors and their interactions vis-à-vis BA success.
Framework Use: Practice In the previous discussion, we described the conceptualization and development of the BA success framework. Discipline-specific factors were tabulated, and factor interactions were illustrated using exemplars from the literature. In this section, we outline the procedure to use the framework in practice and also discuss implications for researchers. The framework presented will be useful to practicing managers to evaluate whether a new BA application contemplated by their organization is likely to succeed and/or to assess what needs to be done by the organization to make the initiative succeed. To illustrate the usage of our framework, let us consider a Sears-like scenario where a business manager of a major retailer is attempting to streamline product/service delivery and technician dispatching and routing functions. Let us assume that the Sears-specific success factors (listed in Table 3D) apply in this case, too. The business manager can assign ratings to all these factors on an ordinal scale. For example, factors such as A4 and A5 (management), B1 and B2 (IS), and C1 and C8 (DS) are assigned the highest ratings, factors such as A7 (management), B8, and B13 (IS), and C8 (DS) are assigned medium
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ratings, and the remaining factors A8 and B12 are assigned low ratings. Such a scenario will encourage a practitioner to invest in BA to meet the specified objective. It also helps to highlight the weaker factors, and corrective strengthening measures can be initiated to maximize chances of BA success. Admittedly, such a paradigm to use the BA success framework is simplistic. Also, developing consistent ordinal scales for all factors is a challenging task. Finally, one immediate drawback of this approach is the fact that all factors are considered equally important. To that end, in order to refine usage of the framework, practitioners can also assign weights to the factors which are organizationally or contextually more important. This can facilitate the development of a factor rating approach, a technique that is widely used in personal as well as professional decision-making. Its application in a BA context is outlined as follows: 1. Determine which management, IS, and DS factors are relevant. 2. Assign a weight to each factor which indicates its relative importance. Whether to assign weights on a discipline-specific basis or irrespective of the discipline a factor belongs to is an open-ended question. 3. Decide a common ordinal scale for all factors (e.g. 0 to 100) and set a minimum acceptable threshold score for each factor, if necessary. 4. Multiply each factor’s weight by its score and sum the results to develop a composite score. 5. If the composite score is above a threshold (to be decided organizationally), the chances of BA initiative success are maximized, ceteris paribus. Clearly both approaches described for evaluating potential for BA success are somewhat simplistic. While the second approach refines the first one, several issues such as assigning
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weights to factors and developing thresholds (for individual factors and also a composite threshold) are distinctly tricky. Some sensitivity analysis can be performed to identify factors that are clearly critical to BA success.
Framework Use: Research The conceptual framework of BA success developed in this work is based on the premise that BA success results not only from the individual factors but also from the interactions between three broad disciplines – management, IS, and DS. More specifically, BA success results due to the interactions between several discipline-specific factors which were earlier listed in Tables 3A, 3B, and 3C. The concept of BA success has not been formally defined until now, and the framework presented in this chapter is a novel beginner in that regard. Researchers can further consolidate several aspects of the framework, and some are outlined below. 1. The factors in the tables are illustrative in nature; as a result each discipline-specific table can be populated further. The factors listed are either conceptual or their genesis lies in the literature (case examples from industry). Today BA is a growing phenomenon that is increasingly used in a variety of industrial sectors including retail, healthcare, financial institutions, manufacturing, petroleum, and also by government at various levels for several purposes, including homeland security. A thorough review of the literature for applications in each of these areas will yield several more discipline-specific factors that will consolidate the factor tables, and perhaps help to identify factors that are industry- or domain-specific. 2. Most of the factors listed in the tables are universal in relation to BA success. For example, senior management commitment, availability, access, and quality of internal
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data, and investment in quantitatively proficient analysts are all factors that are critical to BA success irrespective of industry sector, for-profit or government, and any such criterion. However, factors such as availability and perhaps access to external data (for highly regulated industries such as pharmaceutical) and level of organizational politics are arguably industry-specific. It would be worthwhile to categorize the management, IS, and DS discipline-specific factors as either universal or industry-specific. This will certainly aid researchers and practitioners understand the relevance of the factors more in depth. Moreover it can be conjectured that small and medium-sized enterprises (SMEs) are often constrained in relation to several of the factors already listed, for example access to industry-wide external data. Hence classifying the factors with respect to size of organizations is another interesting avenue for future research. 3. As mentioned earlier, the factors listed in the tables have not been ranked in importance. It can be argued that senior management buy-in would perhaps be one of the most important management-specific factors, while employing analysts with advanced computational proficiency would be a key DS factor. Ranking the factors within disciplines (and then perhaps across disciplines) would be valuable. This will help researchers and practitioners alike understand the importance of specific factors and aid in predicting the chances of success of BA initiatives. 4. As the factor tables are consolidated, the scope of interactions increases polynomially. Previous discussion in this section (summarized in Table 3D) has highlighted several such interactions in successful BA applications. Clearly the interactions identified in the exemplars are by no means exhaustive, and more such interactions can be identi-
fied by thorough literature reviews and by conducting industry surveys. 5. Analogous to ranking the individual factors, studying the strength of factor interactions is also valuable. For example, a review of the interactions in Table 3D reveals that interaction between factor A1 (senior management commitment) and factors B1 and B2 (availability of internal and external data) is commonly reported to have contributed to BA success. Such an interaction can hence be defined as a strong interaction. Identifying such interactions and developing an allied framework to measure the strength of the interactions (followed by rank ordering them) will supplement the existing literature and would also be meaningful to managers on the threshold of BA initiatives. We have attempted to outline possible research implications of this work. Clearly research into BA issues such as understanding of BA success – the contributing factors and their interactions is still at a nascent stage, and our framework can be considered part of a growing body of literature. In the following section, we apply our framework to a special case —that of virtual organizations—and discuss how the framework can be adapted for virtual organizing.
VIRTUAL ORGANIZING: APPLICATION OF FRAMEWORK Continued developments in information and communication technologies (ICT) have made it possible to distribute organizational processes/ work spatially and temporally. This phenomenon is often called virtual organizing, and the organizations that use this extensively are called virtual organizations. We witness this through the revolution of the global marketplace for outsourcing of information and knowledge work (Friedman, 2007). One such process or knowledge work that
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can be distributed is organizational/managerial decision-making. Decision-making using analytics, i.e., business analytics, is by extension a good candidate for virtual organizing. The costs and benefits of outsourcing/offshoring knowledge work also apply to virtualizing BA work in organizations. The opportunities and challenges are also similar. In this section we will first present a discussion on virtual organizing (and virtual organizations) and a discussion of the relationship between virtual organizing and BA. We will then discuss how the framework for BA success (presented in the previous section) can be applied to virtual BA work.
Emerging Organizations and Virtualization Extensive availability of reasonably cost-efficient ICT to facilitate collaboration between entities separated spatially and temporally has made it possible for organizations or organizational work/ processes to become somewhat virtual. Though virtualization was possible before the widespread availability of the Internet platform, it became less expensive and easier to develop and use since the development of the World Wide Web. Research on the move towards this virtualization in organizations has been discussed under virtual organizations (Bleecker, 1994; Chesbrough & Teece, 1996; Coyle & Schnarr, 1995; Davidow & Malone, 1992; Dutton, 1999; Fulk & DeSanctis, 1995; Goldman, Nagel, & Preiss, 1995; Hedberg, Dahlgren, Hansson, & Olve, 1997) as a form of organizational structure or under virtual organizing (Negroponte, 1995; Quinn, Anderson, & Finkelstein, 1996; Venkataraman & Henderson, 1998) as an organizational characteristic. However, the essence of virtualization appears to be similar between the two views. According to DeSanctis and Monge (1999), virtualization in organizations implies the following: “(a) highly dynamic processes, (b) contractual relationships among entities, (c) edgeless,
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permeable boundaries, and (d) reconfigurable structures.” A few of the other researchers who have contributed to the development of the concept of virtual organizations are Galbraith (1995), who presented the concept of “company without walls;” Clancy (1994) and Barner (1996), who discussed the concept of “employees who are physically dispersed from one another;” Coyle and Schnarr (1995), who discussed “organizations replete with external ties;” Grenier and Metes (1995) and Lipnack and Stamps (1997), who described virtual organizations consisting of “teams that are assembled and disassembled according to need;” and Bleecker (1994), Grenier and Metes (1995), and Hedberg et al (1997), who discussed the concept of “people working together, regardless of location or who owns them.” . The degree of virtualization varies among organizations depending on their needs. For example, Cisco has developed a virtual relationship with its suppliers that results in their suppliers shipping 70% of the customers’ orders directly without Cisco receiving them at their locations. What aspects of an organization’s processes are virtualized depend on an organization’s need. In the case of Cisco, manufacturing and shipping are highly virtualized and R&D is not as virtualized. The degree of virtualization of any organization is also dynamic. For example, Amazon.com had a vision to be a total virtual organization, i.e., an organization that does not take possession of any of the items it sells. Through the use of ICT, Amazon.com was designed to be an intermediary between the buyers and sellers. However, as the business slowly took shape it became clear that 100% virtualization will not work and Amazon. com had to become partly non-virtual by building warehouses and taking possessions of goods. On the other hand, half.com (now a part of eBay) started out as 100 percent virtual and has stayed that way. Another example of a company that is 100 percent virtual is threadless.com. Virtualization in organizations opens up some opportunities and also results in some challenges as
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they pertain to BA. The availability of somewhat inexpensive global talent leads to better success in BA analytics. It is also possible to divide BA work in organizations to suit local conditions and still derive the benefits of BA. On the other hand the challenges posed through the use of communication technologies and differences in cultures of virtual participants in BA work could pose significant challenges to BA success in organizations. Early work related to virtualization of organizational work and BA has focused on decisionmaking and problem-solving through the use of ICT, the group decision support systems (GDSS) (Armstrong, 1994; Chidambaram & Tung, 2005; DeSanctis & Gallupe, 1987; Fjermestad & Hiltz, 1998; Hiltz, Johnson, & Turoff, 1986; Rao & Jarvenpaa, 1991). The work has focused on the role of technologies, task characteristics, and group dynamics/behavior on the success of problemsolving in a virtualized context. Though the role of appropriate ICT in the success of virtualized BA work is important, we contend that success is also dependent on choosing the right aspects of BA work to virtualize, including the consideration of different phases of problem-solving (see Simon, 1977), the consideration of knowledge transfer needs between members separated by space and time, and on the nature of the BA work that is virtualized (whether it is autonomous where there is very little need for dynamic interactions between members or systemic where dynamic interactions are absolutely necessary). As BA as a concept is fairly recent, very little research exists in the area. However, there is some research related to the issues we have identified for success of virtualized BA work. Chesbrough and Teece (1996) report that (1) virtualization and incentive to take risks are positively related, (2) virtualization and the ability to settle conflicts and coordinate activities are negatively related, and (3) BA work that can be autonomous is more likely to succeed in a virtualized context. In addition,
they also point out the need to consider the type of knowledge transfer (tacit or explicit) needed for success of virtualized BA work. Majchrzak, Malhotra, and John (2005) report that lack of face-to-face cues creates challenges in developing collaborative know-how and that these challenges can be overcome by communicating not just content, but also context. Schmidt, Montoya-Weiss, and Massey (2001) report from their research that virtual teams are the most effective compared to other types of teams in making decisions. Technological factors make it possible for organizations to virtualize BA work. The availability of global talent pools to better address certain aspects of BA work makes it more beneficial for organizations to virtualize the work. However, much more research is necessary to develop a better understanding of the success of virtualized BA work.
Application of the Framework to Virtual BA Work The framework for BA success presented has three sets of independent variables (one set each in management, IS, and DS disciplines) and a set of dependent variables (i.e., measures of BA success – these would usually be context specific for any organization/application). When we apply this framework to virtual settings it is very important to redefine these sets to suit the virtual context. It is possible some of the variables in the four sets could be the same for the new context and some could be different (some eliminated and some added). For example, the typical dependent variable set (as derived from successful BA applications and presented in the previous section) could be customer retention rate, reduction in cost of operations, revenue growth, growth in market share, etc. In a virtual BA setting an additional success measure could be how well organizational intellectual capital has been utilized. In independent variable sets, it is possible that we may need to add the following
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variables: extent of team members’ comfort in working across spatial and temporal boundaries (an addition to variables listed in Table 3A), level of access of internal/external data across spatial and temporal boundaries (variables B1 and B2 modified from Table 3B set or an addition to the existing set), level of availability of analytical models (variable C1 in table 3C) that could be modified to reflect an added set of dimensions, temporal and spatial, etc. Some of the BA work that could be straightforward in a one-location setting could pose a challenge for virtualized settings. Some aspects of the work such as problem definition and preliminary model building would involve considerable interactions between team members, and some activities such as model validation and solving may need lot less interactions. Thus it is important for organizations considering virtual BA work to break down the work to smaller parts and identify the best candidates for distributed work. The following process (modified from the previous section titled “Framework Use: Practice”) could be used by organizations considering virtual BA work: 1. Identify which variables arerelevant as success measures for the application (i.e., identify and specify the dependent variable set). 2. Identify which variables from Tables 3A – 3C are relevant to the virtual BA context, make any changes to the specification of variables, and add any new variables to address the changed context (i.e., identify and specify independent variable set). 3. Assign weights in both sets of variables to indicate their importance to the context. 4. Identify variable interactions (within and among discipline-specific sets) that are believed to have a significant impact on the dependent variables set (i.e., success measures).
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5. Assign weights to the interactions identified in the previous set. 6. Assign values to the variable sets (on an ordinal scale). 7. Use a composite score approach or judgment in deciding whether the BA application is likely to succeed in the virtual context. The process is intentionally simplistic as this is the first attempt at using the new framework developed. As more research validating the framework becomes available and more and more organizations use this approach it is likely that more sophisticated processes for evaluating success will emerge.
CONCLUSION This chapter presents a framework for business analytics success. BA is a novel data-driven quantitative analysis-based capability available to organizations. It is being increasingly used in diverse industry sectors such as retail, insurance, telecommunications, healthcare, financial services, sports and entertainment, manufacturing, and several others. Anecdotal evidence reported in the literature points to cost savings of millions of dollars and increased revenues and profits. Academic research in BA is lagging behind practice and is limited. It is mostly built on the basis of reports on successful business applications in the business and trade press. The limited literature, practitioner accounts, and documentation of BA usage have simply alluded to the fact that datafueled developments in information systems, large scale quantitative analysis, and senior management buy-in have acted as catalysts in successful BA applications in organizations. However, what constitutes BA success is not very well documented and what specific factors result in BA success are not well laid out. The interactions between these factors, if any, are mostly not considered. The framework for BA success that is presented in this
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chapter is the first attempt, to our knowledge, to address this gap in BA research. We consolidate the existing knowledge from reports of BA success in different applications. We review BA-related academic literature that discusses and explains what BA is and how companies are using it to become successful. We integrate the two aspects, accounts of practitioner-based experiences and the current academic thinking to develop a comprehensive framework. This framework offers a definition of BA success, identifies the various factors that have led to BA success in different situations. This chapter goes further to ground this framework in academic theoretical traditions by classifying and grounding these BA success factors under the academic literatures where these have been studied previously. This theoretical grounding reveals how practice has evolved with no regard to our disciplinary boundaries, and how managers have used whatever it takes to achieve business success. The chapter thus makes a call for interdisciplinary research in the area of BA success. We believe that one of the novelties of this research is its inter-disciplinary nature. The framework developed proposes that BA success comes from an optimal blend of factors in three key business disciplines – management, information systems (IS), and decision sciences (DS). We consider both the technological and organizational factors which contribute to and impact BA success. Three tables with details of factors by each of the three disciplines have been explicitly identified (see tables 3A, B and C for management, DS and IS-related factors for BA success). We take this one step further by making the first attempt to define these factors as measurable variables. By using the existing cases of successful BA applications, we demonstrate how BA success results from careful consideration of individual variables and also the critical interactions between these variables. The interactions between the various factors are also explicitly spelled out to the extent that we could make these
connections based on the examples of BA success that we analyzed. In addition to the list of factors important for BA success and their interactions, we lay out a roadmap for managers on how to use this framework to guide their own efforts at implementing BA in their organizations. While the press offers examples of tremendous savings and competitive advantages to be gained from implementing BA in organizations, urging managers to jump on this bandwagon, we actually take a more reasoned approach. We lay out a way to help managers decide if adopting BA is the right solution for their organization or not. In certain business situations, the more appropriate tools may be pure decision models or organizational interventions. BA is not a solution to all problems but is suitable for a subset of specific situations characterized by both organizational and analytical complexity. Once managers decide to adopt BA, they can also use this chapter as a starting point to review all the factors to be considered for BA success and the interactions between these factors. For the academics interested in this area, we draw out the implications of this work. Starting with a call for more inter-disciplinary research, we also have made a call for other researchers to build on this framework further. Since this is the first comprehensive attempt to consolidate the state-of-the-art research and practice in this emerging area, we feel that other researchers have an opportunity to develop further, refine, and validate the framework that has been presented here. The final and perhaps the most crucial contribution of this chapter is to show both academics and managers how to use this framework by discussing in detail one specific application. Virtual organizations are becoming increasingly common. Virtualization offers contemporary challenges for both managers and researchers, and in discussing how to apply our BA success framework in this context, we demonstrate the utility of this work. By walking through an in-depth application in a virtually organized context, a relatively novel
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phenomenon that allows organizations to distribute work spatially and temporally, we show how BA works in a manner that is most likely to yield successful outcomes. While BA applications are proliferating, BA as a research domain is sparsely populated. This work can hence be considered to be one of the first attempts at truly understanding BA success. Practitioner implications of such understanding followed by successful employment and use of BA can be potentially enormous. Clearly a lot more can be achieved given the nascent stage of BA research. The framework can be further consolidated by identifying newer factors, understanding newer interactions, and by classifying the factors so that organizations in various industry domains can explore the use of BA and derive the most value (and perhaps develop competitive advantage) through its extensive adoption and usage.
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This work was previously published in Connectivity and Knowledge Management in Virtual Organizations: Networking and Developing Interactive Communications, edited by Cesar Camison, Daniel Palacios, Fernando Garrigos and Carlos Devece, pp. 222-254, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 1.12
An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines Tomás M. Bañegil Palacios University of Extremadura, Spain Ramón Sanguino Galván University of Extremadura, Spain
ABSTRACT
INTRODUCTION
In line with the increasing importance of the intangible economy within the last few years, a higher number of models have been published. In this sense, the authors main original contribution when measuring Intellectual Capital is related to comparing and assessing the different existent Guidelines, unlike previous published papers. The purpose of this chapter is to present and compare some of the most recent and significant contributions from researchers to the field of the measurement and management of intangibles.
Intangible assets comprise one of the principal factors in the current and future success of organizations. The multidisciplinary character of this work is demonstrated by the fact that an increasing number of specialists, such as sociologists, psychologists, economists, philosophers, intellectuals and professionals, are working in these questions. At the same time, attention has been drawn to the growing importance of the intangible Economy by the publication of a growing number of models. Nevertheless, we have observed that there are no generally accepted models for measuring Intellectual Capital in organizations. In recent years,
DOI: 10.4018/978-1-60960-587-2.ch112
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An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines
several have been proposed, with a number of similar aspects, but differing with regard to their complexity and adaptability. Knowledge Management is a very recent management tool, which, although it has been greatly discussed in the business world, still does not have a significant number of organizations with a formally implanted management program. The results of different studies carried out by consultants, university researchers and innovative companies have materialized in different guidelines for classifying, measuring and reporting on intangibles. Nevertheless, considerable confusion still exists between the concepts used, the practices recommended and the final Intellectual Capital Reports obtained. All these studies follow the line of introducing supplementary information, external to the company’s financial condition, basically a new “information layer” using “narrative reports”. The concept of “value reporting” effectively follows the line of complementing the traditional annual statement of accounts (balance sheet, profit and loss account and management report) with information on intangible assets and non-financial indicators. Our main objectives in this research consist on • •
Performing a comparative study among well-known IC models and Presenting most significant international guidelines which contributed to develop such models.
BACKGROUND In an effort to find instruments capable of “capturing” the real value of a company, many academics and professionals have started to develop models and measurements to quantify and visualize intangibles, directing their attention in particular to a new type of report called Intellectual Capi-
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tal Reports (also known as Intellectual Capital Statement). Considering the different studies and analyses that have been carried out in the past decade and taking into account the lack of an adequate business practice, launching generalised models for the implementation of Knowledge Management systems and the Measurement and Management of Intangibles in the business world (Intellectual Capital) seems premature. According to the MERITUM Project (2002), there isn’t actually an internationally accepted frame of reference for the identification, measurement and diffusion of information on intangibles that determine the value of organisations, instera just some isolated efforts in different parts of the world. In the light of this fact, it would appear opportune to dedicate effort to the development of general guidelines that would make it easier for companies to identify, measure and follow-up their intangibles. The International Community should ensure that the process of elaboration and diffusion of intangible assets produces homogeneous and comparable reports and that, as a result, these be useful for estimating future profits, the risk associated with investments, etc. In the moment we are at, we can consider that the fairly complex task of acquisition, production, use, diffusion and measurement of knowledge is essential. According to Carter (1996), although various attempts have been made to measure knowledge, both at a microeconomic and a macroeconomic level, there is still a long way to go. The inclusion, in their annual accounts, of capital sums invested in intangible elements decreases the results announced by companies. This is the reason why certain professional sectors (managers, analysts, consultants,…) are reticent to invest in intangibles, even though they affirm that they contribute to the creation of value. In recent years, different associations and companies have made great advances in the identification, measurement, management and diffusion of
An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines
their intangibles; even if the criteria adopted for this process have been, in the majority of cases, heterogeneous and, as a consequence, the results obtained difficult to compare and/or verify. For all the foregoing, we understand that it is necessary to have a commonly accepted international frame of reference, which provides companies with a basis for the identification and measurement of their intangibles. These Guidelines will not constitute a proposal for the modification of accounting rules. According to the OECD (1999), changes in accounting rules may be necessary in the future but, for the moment, all the efforts concentrated on the measurement and publication of information, should be subject to testing and applied voluntarily. As it turns out, in the depths of the OECD a certain consensus has been established that, little by little, steps should be taken in the development of voluntary Guidelines to measure, report on and manage intangibles. The European Commission has also commenced a process, similar to the preceding, based on the idea that the key to future competitiveness and wellbeing lies in increasing the knowledge base shared by European citizens. In this regard, Chaminade and Johanson (2002) have summarised the conclusions of the conference held by the European Commission in Växjö in March 2001, in the following way: •
•
There still does not exist a commonly accepted conceptual frame of reference to understand, measure and report on intangibles. This means that the coordination and “fertilization” of initiatives between countries from different parts of Europe is very complex (and due to the growing importance of intangibles, the need for a useful, understandable and commonly accepted conceptual framework -or Guideline- seems urgent). The policies of government agencies, the initiatives of the European Union, as well as the possibility of incorporating organi-
•
sations from different sectors, is the crucial starting point to initiate a Project and for the acceptation and diffusion of the methodologies. Although there is no consensus over how to structure the important questions and that it is not possible to develop a serious and adequate empirical study without the necessary (financial) support, this does not mean that there is not a real interest in the question of intangibles in the business world.
Nevertheless, and despite all the reasons already expressed, there are countries that have not developed their own Guidelines (or have not participated as members of the research team of a European project).
Intellectual Capital Models Next we will make an overview of the main inputs in the last years, in theorist and practical ways. Following Table 1 and having in mind the temporal evolution, we can say that there are three different steps: •
•
In the first step, which refers from the first works until 1998, the investigations were centered in making definitions, classifications, establishing the different components of the Intellectual Capital and develop methodologies in a theorist way which have to be then empirically refuted. It is develop an important and diverse conceptual frame with some consensus relating to Intellectual Capital components2. In this step we highlight the pioneer models of Kaplan and Norton, Edvinsson and Malone, Sveiby and Bontis.3 In the second step, which comes from 1999 until 2001, the investigators are dedicated, mainly, to make a review of the existent literature with comparison models, establish-
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An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines
Table 1. Relevant investigations in Intellectual Capital Definition and Classification Kaplan and Norton (1992)
Literature Revision
Empirical Study
Indicators
Petrash (1996)
X X
Edvinsson (1997)
X X
Edvinsson and Malone (1997)
X
Ross et al (1997)
X
Sveiby (1998)
X X
X
X
Cañibano et al (1999)
X
Bornemann et al (1999)
X
Backhuijs et al (1999)
X
X
X
Westphalen (1999)
X
Andriessen et al (1999)
X
Hoogedoorn et al (1999)
X
X
X
X
Guthrie et al (1999) Petty and Guthrie (2000)
X
Bontis et al (2000)
X
Mouritsen et al (2001)
X
Viedma (2001)
X
Ordóñez (2002)
X
Seetharaman et al (2002)
Measurements
X
Brooking (1996)
Bontis (1998)
Macro Conceptual Development
X X
Bueno et al (2003)
X
X
X
X X X
X
X
X
X
X
Serrano et al (2003) Marr et al (2003)
X
X
X X
X
X
Source: Own work1
•
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ing synergies and differences. Also, empiric studies are made which try to validated the before established models proving the relations between the Intellectual Capital and the value creation in a company. Finally, the publications from 2002 until today reflect a new step in which the models are being improved and adapted to the reality of the organizations, in which they are starting to be implemented (financial entities, services companies, insurance companies, knowledge intensive enterprises, public administration, etc.)
The Guidelines We shall specifically seek to justify the need for general guidelines that provide an adequate reference framework for companies and organization’s interested in developing systems of Knowledge Management and the Measurement of Intellectual Capital. To this end, a comparative analysis of the most rigorous efforts developed in recent years has been carried out. Considering the different studies and analyses that have been carried out in the past decade and taking into account the lack of an adequate busi-
An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines
ness practice, launching generalized models for the implementation of Knowledge Management systems and the Measurement and Management of Intangibles in the business world (Intellectual Capital) seems premature. There isn’t actually an internationally accepted frame of reference for the identification, measurement and diffusion of information on intangibles that determine the value of organizations, instead just some isolated efforts in different parts of the world. In the light of this fact, it would appear opportune to dedicate effort to the development of general guidelines that would make it easier for companies to identify, measure and follow-up their intangibles.
Comparisons Between European Guidelines Due to the growth of the Intangible Economy, a growing number of Guidelines, Recommendations, and similar documents dealing with reporting on intangibles and the state of Intellectual Capital have been published in recent years. There has even been an element of competition between them (Del Bello, 2002). Guimón (2002) agrees that this type of document (Guidelines) consists of a series of recommendations, directed towards company directors, on how to manage and report on Intellectual Capital. At a business level, empirical studies show that innovative companies are more financially robust and generate more employment. The key to the continuity of a company is the successful management of its Intellectual Capital.
1. Presentation of the Guidelines The comparative study of the various Guidelines, to which we have been referring, will concentrate on the most important European ones, those with prestige both in the scientific world as well as in professional and business sectors.
The first Guideline is one of the main results of the MERITUM Project (Measuring Intangibles to Understand and Improve Innovation Management). “Guidelines for the Management and Diffusion of Information on Intangibles (Intellectual Capital Report)”, is the final document published in January 2002, which gathers up the principal conclusions of the three-year study. The second Guideline we analyzed is the result of close cooperation between researchers, companies, organizations, consultancies and official organisms in Denmark. It was financed by the Danish Agency for Trade and Industry (from now on Guidelines DATI4). The third Guideline is the principal outcome of NORDIKA (Nordic Project for measuring Intellectual Capital), an Intellectual Capital project initiated by the Nordic Industrial Fund, in collaboration with a Commission set up by the countries involved and a Round Table or Expert Panel formed by professional and business associations in the Nordic countries (Finland, Iceland, Norway, Sweden and Denmark). The analysis was carried out on two levels. Firstly, a study was made of the manner in which the Guidelines were developed and the end result of the research. The following elements were considered (Bañegil and Sanguino, 2007): 1. Terminology employed 2. Conceptual framework adopted 3. Objectives sought in the development of the Guidelines 4. Research methodology The second level of the analysis related to the recommendations incorporated into each Guideline for the elaboration of Intellectual Capital Reports by companies, taking into account the following aspects: 1. Practices used in its development (Who is going to carry it out?)
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An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines
2. Procedures for implementation (How is it going to be carried out?) 3. Recommendations for the structure of the proposed Intellectual Capital Report (What will the result be?) 4. Character of the proposed Indicators (What instruments will be used for measuring?) 5. Users of the Intellectual Capital Report (To whom is it directed?)
2. Methodology of the investigation Evidently, the use of different methodologies in the development of the Guidelines will have a clear impact on the final results. The MERITUM Project can be considered the most ambitious because it includes various countries. It describes how to prepare an Intellectual Capital Report and also proposes a model for managing intangibles. As it was developed by a wide range of geographically dispersed researchers there were difficulties in arriving at a consensus. The best practices of approximately eighty European companies were analysed and the conclusions validated by a group of experts using a Delphi analysis. The Intellectual Capital Report is, therefore, presented as the logical conclusion of the process of managing intangibles.
The DATI researchers (university professors, members of government and consultants, amongst others) worked much more closely with companies; the majority of which already had experience in managing intangibles and were guided and supervised by the DATI team in the development of Intellectual Capital Reports. On the other hand, the NORDIKA Guidelines are supported by a thorough conceptual revision of the different models in existence, as well as numerous examples and comparisons of companies. The final document is arrived at through a detailed study of the best practices currently employed in the Nordic countries. In table 2 the principal differences and similarities in the first part of the comparative analysis are set out. Reference is made to the final document produced by the studies, the Guideline.
FUTURE TRENDS For all the foregoing, we understand that it is necessary to have a commonly accepted international frame of reference, which provides companies with a basis for the identification and measurement of their intangibles. These guidelines will not constitute a proposal for the modification of accounting rules.
Table 2. Summary of the first level of the analysis Terminology and Conceptual Framework
Objectives
Methodology
MERITUM
“Intellectual Capital Report” There is no definition of knowledge
Points of connection between resources and critical activities are suggested
Developed by a wide range of researchers from six countries using the DELPHI methodology
DATI
“Intellectual Capital Statement” Knowledge in action
Communication tool that involves clients, employees and other users in the process
Works very closely with companies. Prepares reports on these same companies
NORDIKA
“Intellectual Capital Report” Knowledge as a flow not stock
Tool to manage knowledge and other intangibles
Revision of examples, establishment of comparisons and best practice.
Source: own work
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Table 3. Comparative elements in the established recommendations MERITUM
DATI
NORDIKA
Practices used and implementations procedures
Designation of tasks to different subjects in three well defined phases
Directors should commence the process, which will have four phases.
More subjects involved and the organisation must get ready for that
Structure
The most clear: includes vision, resources, activities and indicators
Semi-closed structure, including Auditor’s Report on Intellectual Capital
Doesn’t propose any particular structure
Indicators
Doesn’t establish any, they are specific to each company
Must be strictly related to actions
Lacks a fixed scheme, they should be developed with strategic purposes
Users
Internal (fundamentally directors) and external
Stakeholders
Principally internal, also external
Source: own work
According to the OECD (1999), changes in accounting rules may be necessary in the future but, for the moment, all the efforts concentrated on the measurement and publication of information, should be subject to testing and applied voluntarily. As it turns out, in the depths of the OECD a certain consensus has been established that, little by little, steps should be taken in the development of voluntary guidelines to measure, report on and manage intangibles.
CONCLUSION We have to emphasise that, despite not finding significant differences between the Guidelines analysed, the similarities are still far from configuring a single Conceptual Framework offering comparability and homogeneity for carrying out Intellectual Capital Reports. An effort at benchmarking and cooperation between the researchers of the Guidelines studied, in order to complete the actualisations that are contemplated, would be an excellent starting point for exploiting synergies and achieving a wide consensus in different basic aspects of the measurement of intangibles in general and Intellectual Capital in particular.
So that researchers, consultants, politicians and professionals who work in the field of intangibles can achieve the necessary and desired degree of comparability, governments should promote the development of a commonly accepted Guideline. For this purpose, the identification of best practice in the existing Guidelines, should be the starting point of any initiatives that seek to harmonise the measurement practices for intangibles. Nevertheless, there are forces pushing in the opposite direction. In some countries that are in an early stage of research, and which do not have an established theoretical framework, the main problems to be overcome are: resistance to change and groups that promote certain approximations (research groups, business and professional associations, government, etc). In addition, companies demand freedom and flexibility when they then decide how to handle and report on intangibles and therefore oppose specific regulations and obligations. The final purpose of our efforts seeks to enfazise the fact that those specific guidelines should be internationally accepted. This would allow further empirical studies on those businesses that decide to implement them, particularly and mainly at a sectorial level. In this sense, those indicators used for this purpose should be adjusted to the specific characteristics of each sector.
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Fortunately, various Spanish sectors have been recently mobilizing to set common standards in order to elaborate homogeneous Intellectual Capital Reports. The Banking and Electrical sectors are examples of entities leading this new tendency.
REFERENCES Bañegil, T., & Sanguino, R. (2007). Intangible measurement guidelines: a comparative study in Europe. Journal of Intellectual Capital, 8(2), 192–204. doi:10.1108/14691930710742790 Brennan, N., & Connell, B. (2000). Intellectual Capital; current issues and policy implications. Journal of Intellectual Capital, 1(3), 206–240. doi:10.1108/14691930010350792 Carter, A. (1996). Measuring the performance of a Knowledge-based Economy. OCDE Report Employment and Growth in the Knowledge-based Economy, Paris, OECD. Chaminade, C. (2002). Can guidelines for Intellectual Capital reporting be considered without addressing cultural differences? An explorative paper. In Proceedings The Transparent Enterprise. The value of intangibles. Madrid: Autonomous University of Madrid. Danish Agency for Trade and Industry –DATI. (2000). A guideline for Intellectual Capital Statements. A Key to Knowledge Management. Retrieved June 1, 2009, from http://en.vtu.dk/ publications/2001/a-guideline-for-intellectualcapital-statements/a-guideline-for-intellectualcapital-statements-a-key-to-knowledge-management DATI. (2003). Intellectual Capital Statements – The New Guideline. Retrieved June 1, 2009, from http://www.pnbukh.dk/site/10186.htm
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Del Bello, A. (2002). A regulatory competition? A critical comparison of the existant guidelines and recommendations on ic statements and intangibles reports. In Proceedings The Transparent Enterprise. The value of intangibles. Madrid: Autonomous University of Madrid. Guimón, J. (2002). Guidelines for intellectual capital management and reporting. Comparing the MERITUM and the Danish approaches. In Proceedings The Transparent Enterprise, The value of intangibles. Madrid: Autonomous University of Madrid MERITUM. (2002). Guidelines for managing and reporting on intangibles. Intellectual Capital Report, Ed. Fundación Airtel Móvil. Retrieved June 1, 2009, from http://www.pnbukh.com/site/ files/pdf_filer/MERITUM_Guidelines.pdf. Nordic Industrial Fund. (2001). Intellectual capital. Managing and reporting. A Report from the Nordika Project. Retrieved June 1, 2009, from http://www.nordicinnovation.net/_img/ nordika_report_-_final1.pdf Nordic Industrial Fund. (2002). Nordika – Frame Market Survey. Norway: Author. OCDE. (1999). International Symposium on Measuring and Reporting Intellectual Capital: Experience, Issues and Prospects. Amsterdam: Author. Retrieved June 1, 2009, from www. oecd.org/dsti/sti/industri/indcomp/act/Ams-conf/ symposium.htm
ENDNOTES 1
2
Related to it we can read the article published by Brennan and Connell (2000). Its structure is defined having in mind three capitals: Human Capital, Structural Capital and Relational Capital (or Client Capital).
An Overview of International Intellectual Capital (IC) Models and Applicable Guidelines
3
4
The Kaplan and Norton model can not be considered specifically as a Intellectual Capital Model but, seen that it has been the first which exceeds the only financial vision, we think we must incorporate it to this study. This guideline is base on empirical research as well as a thorough research in this field,
lead by the Copenhagen Business School and the Aarhus School of Business, in cooperation with the consulting enterprise Arthur Andersen in Denmark. Additionally, more than a hundred Danish companies have finalized their intellectual capital reports based on these guidelines.
This work was previously published in Strategic Intellectual Capital Management in Multinational Organizations: Sustainability and Successful Implications, edited by Kevin O’Sullivan, pp. 136-143, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 1.13
Business Models and Organizational Processes Changes Helena Halas SETCCE, Slovenia Tomaž Klobučar Jožef Stefan Institute & SETCCE, Slovenia
ABSTRACT This chapter explores the influence of pervasive computing on companies and their businesses, with the main stress on business models. The role of business models for companies is presented. Introduction to pervasive computing and a survey of existing e-business models classifications are used as a base for our research. The main characteristics of today’s business models are discussed and a method for evaluating business models characteristics is proposed. We concentrate on characteristics of pervasive computing and their DOI: 10.4018/978-1-60960-587-2.ch113
influence on companies’ business processes and business models. The present and future business characteristics and business models are briefly compared, and future research directions on pervasive computing and business models are presented.
INTRODUCTION The future is bringing us more and more challenges, and changes have become an ordinary part of our everyday lives. The same is true for business. Companies constantly face novelties, and it is important that they know how to tackle
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Business Models and Organizational Processes Changes
the new circumstances and how to adjust their business. One of the biggest shifts was caused by appearance of internet, which interconnected the world in many aspects and fundamentally transformed the way companies conduct business. Internet technologies enabled communication and cooperation on different levels between whichever interested parties around the world. As a result of further development of information-communication technologies (ICT), we are approaching the next major change that will affect companies, i.e. appearance of pervasive computing. Pervasive computing is already a fact, although its final form and impact are still not known in detail. However, researchers and practitioners agree that its influence on business will be significant and it will dramatically change business models. Therefore, it is important for companies to become aware of it and to start thinking about what effect pervasive computing and pervasive technologies will have on their businesses. The appearance of pervasive computing needs to be seen as an opportunity for companies to improve their business processes and business as a whole, and not as an (un)necessary evil. New technologies allow companies to improve their business processes, adjust business models, start doing business in a new way, or start completely new business. A question arises here, which of the existing business models will be appropriate for the future environment of pervasive computing and in which way the development of business models will go or what new business models we can expect. It is necessary to investigate which characteristics of pervasive computing will mainly affect future business and which common characteristics of future business models could be exposed. The main objective of the chapter is to examine how pervasive computing affects the way a company organizes its business and how existing business models fit in the environment of pervasive computing. Our work on this topic discusses existing business models that are appropriate for the era of pervasive computing and necessary changes.
We also identify some general characteristics for the future business models. Next, we discuss the means of collaboration between incorporated participants and relations with customers and how will they change with appearance of pervasive technologies. Business models for setting up and operating seamlessly integrated infrastructure are also discussed. The chapter is organized as follows. First, we present the concept of pervasive computing and basics about business processes and business models. In the next step, we concentrate on characteristics of today’s systems and present some existing e-business models taxonomies. At the end of this section, we try to summarize common characteristics of today’s business models. After that, we focus on pervasive computing and the changes caused by appearance of pervasive technologies, and their impact on companies and their business processes. Adequacy of existing business models for pervasive computing environments is investigated and a view on the future business models is presented. Future research directions are given at the end.
PERVASIVE COMPUTING “The most profound technologies are those that disappear. They weave themselves into fabric of everyday life until they are indistinguishable from it.” (Weiser, 1991). Although Mark Weiser proposed this concept under the term ubiquitous computing almost 20 years ago, only recently pervasive computing really has started to affect organizations and their businesses. In the last few years, technology improvement of the networks, connectivity and devices capability have moved borders of possible and facilitated wider use of pervasive computing. Pervasive computing refers to presence of advanced communication and computing technologies everywhere around us in a way they are invisibly embedded in everyday objects and
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people are mostly unaware of their presence. The computing environment is thus available everywhere and is into everything. In the literature, we find several terms for this concept, e.g. pervasive computing, ubiquitous computing and ambient intelligence. Pervasive and ubiquitous computing are usually used almost as synonyms, while ambient intelligence emphasizes more the system infrastructure’s autonomic learning capability and interaction mechanisms for users in particular social contexts (Roussos, Marsh, & Maglavera, 2005). Pervasive and ambient intelligence technologies offer people support and opportunities to make their lives simpler. However, on the other hand they also introduce new security and privacy problems. Embedding informationcommunication technology components into every object immediately raises scruples about privacy, as objects can be tracked everywhere and all the time, and consecutively so do people, who wear or carry them. Pervasive computing environments require seamless communication infrastructure, intelligent intuitive user interfaces and low-power devices, which are sensitive, adaptive, and responsive to human needs. If we focus on ICT technologies, the main attributes of pervasive computing environments and pervasive systems are miniaturization, embedding, networking, ubiquity, and context awareness (Federal Office for Information Security, 2006). Miniaturized ICT components, embedded into everyday objects transform them into smart objects and integrate them into a virtual world. The invisible components are everywhere around us (ubiquity) and connected together in networks, where mobility and ad-hoc networking are important characteristics. Pervasive computing environments have abilities to recognize users and their context (context awareness). Context typically includes, for example, user and devices identity and location, the facts such as proximity, time, or history, network and environment characteristics, or social situation of the user. Personalization services en-
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able pervasive computing environments adjust to the needs of individual users.Technologies that make pervasive computing possible start to become mature. They include: • • •
• •
Communication technology (e.g. 802.11, Bluetooth, UMTS), Identification technology (e.g. RFID tags, visual barcodes), Localisation technology (e.g. satellite supported, such as GPS, cellular-supported, such as GSM, or indoor localisation systems), Sensor and actuator networks and technology, Intelligent user (friendly) interfaces.
With their integration, pervasive environments can be established, and objects and processes in the real world can be linked up with the digital world of information systems without human intervention.
INTRODUCTION TO BUSINESS MODELS In this section we briefly present some business elements that will help us better understand business of a company and impact of changes. Changes are today something ordinarily on the market and their dynamics is increasing. It is on the companies not to resist changes but to accept them as new opportunity for the success. New technology is one of the main factors that bring changes. Business in a company is tightly connected with business processes. A business process is a series of logically connected tasks, which perform with the purpose to reach defined goal (Davenport, Short, 1990). It is about logically connected tasks, procedures, activities, whose result is some planed product or service. As a process, we can define every activity in a company or out of it. However, it is reasonable to consider and define only those
Business Models and Organizational Processes Changes
processes that contribute to the additional value of final products or services (Kovačič, & Bosilij Vukšič, 2005). Therefore, changes in the company bring changes in its business processes. Malone and Weill (2003) define a business model as a description of activities that a company performs to generate revenue or other benefits, and the relationships, information, and product flows a company has with its customers, suppliers, and complementors. Osterwalder, Pigneur and Tucci (2005) define it more precisely, namely as a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams. Generally, a business model is description of company’s business processes and their interconnections. For a company it is essential to have good knowledge of its business and activities. A business model is a great help for expressing the business logic of a company. In the present time of rapid changes, it is reasonable to have this picture always in front of our eyes to be capable to react quickly when the need or opportunity appears.
to electronic business. The fundamental innovations were not just using new technologies, but using technologies to enable new business models (Malone & Weill, 2003). But it is important to be aware that electronic commerce over the internet may run as a complement to traditional business or represent a whole new line of business (Timmers, 1998). At the moment, e-business still plays mainly a role in supporting the basic business, not driving the business. Business models are often viewed from different perspectives and they depend on the field of interest. Because of this there is no unified method to classify acquired knowledge about business models, and approaches often overlay or sometimes even conflict. Osterwalder, Lagha and Pigneur (2002), for example, established that three aspects on business models could be found in the literature: revenue/product aspect, business actor/network aspect and market aspect. In the literature we can find several proposals for business model taxonomies that try to categorize business models into different classes based on various criteria. A survey of some approaches is listed below: •
PRESENT: BUSINESS MODELS The progress in information and communication technology has changed conditions in economics and significantly affected the way companies conduct their business today. With support of ICT companies can easily cooperate or make business with business partners from everywhere.
Today’s Business Models Important changes in business occurred already with expansion of internet, when world moved
•
Timmers (1998) distinguished the following generic models: e-shop, e-procurement, e-auctions, e-malls, 3rd party marketplace, virtual communities, value chain service provider, value chain integrators, collaboration platforms, information brokerage, trust and other third-party services. Bambury (1998): ◦⊦ Translated real-world business models: mail-order model, advertisingbased model, subscription model, free trial model, direct marketing model, real estate model, incentive scheme model, B2B, combinations of the above models; ◦⊦ Native internet business models: library model, freeware model, information barter model, digital products
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•
•
•
•
•
•
•
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and digital delivery model, access provision model, website hosting and other models. Hartman, Sifonis and Kador (1999) identified five extended business models: e-business storefront, infomediary, trust intermediary, e-business enabler, and infrastructure providers/communities of commerce. Viehland (1999) proposed three business models: virtual retailing, distributed storefronts, buyer-led pricing. Linder and Cantrell (2000) differentiated business models according to price model, convenience model, commodity-plus model, experience model, channel model, intermediary model, trust model, innovation model. Tappscott, Ticoll & Lowi (2000) distinguished five value networks: agora, aggregation, value chain, alliance, and distributive network. Applegate (2001) classified models in four categories: ◦⊦ Focused distributor models: retailer, marketplace, aggregator, infomediary, exchange, ◦⊦ Portal models: horizontal portals, vertical portals, affinity portals, ◦⊦ Producer models: manufacturer, service provider, educator, advisor, information and news services, custom supplier, ◦⊦ Infrastructure provider models: infrastructure portals. Weil and Vitale (2002) provided eight atomic e-business models that could be combined in multiple ways: direct to customer, full service provider, whole enterprise, intermediaries, shared infrastructure, virtual community, value net integrator, content provider. Laudon and Traver (2003) categorized business models according to e-commerce sector (B2C, B2B, and C2C). They identi-
•
•
•
fied seven B2C business models: portal, etailer, content provider, transaction broker, market creator, service provider, and community provider. Osterwalder, Pigneur and Tucci (2005) identified nine building blocks for business models: value proposition, target customer, distribution channel, relationship, value configuration, core competency, partner network, cost structure, revenue model. Lai, Weill, & Malone (2006) explained sixteen possible models regarding to what types of rights are being sold (creator, distributor, landlord, broker) and what types of assets are involved (physical, financial, intangible, human), but some of them are not brought into use: entrepreneur, manufacturer, inventor, human creator, financial trader, wholesaler/ retailer, IP trader, human distributor, financial landlord, physical landlord, intellectual landlord, contractor, financial broker, physical broker, IP broker, HR broker. Rappa (2007) defines forty models in nine basic categories, which are in practice often used in combination: ◦⊦ Brokerage model (marketplace exchange, buy/sell fulfilment, demand collection system, auction broker, transaction broker, distributor, search agent, virtual marketplace), ◦⊦ Advertising model (portal, classifieds, user registration, query-based paid placement, contextual advertising, context-target advertising, intromercials, ultramercials), ◦⊦ Infomediary model (advertising networks, audience measurement services, incentive marketing, metamediary), ◦⊦ Merchant model (virtual merchant, catalogue merchant, click and mortar, bit vendor),
Business Models and Organizational Processes Changes
◦⊦
◦⊦ ◦⊦
◦⊦
◦⊦
Manufacturer model (direct) (purchase, lease, license, brand integrated content), Affiliate model (banner exchange, pay-per-click, revenue sharing), Community model (open source, open content, public broadcasting, social networking services), Subscription model (context services, Person-to-person networking services, trust services, internet services providers). Utility model (metered usage, metered subscription).
Lambert (2006) says that in general two basic classification schemes are recognized: special and general. General classification schemes could serve to multiple purposes, special to very specific ones. He also claims that all existing classification schemes in literature are special. They are designed to suit particular views or needs of a researcher and cannot be used for multiple purposes. The need for a general classification scheme for business models has been widely recognized. Lambert (2006) believes that proper general business model typology could be achieved if a large number of business model variables are considered simultaneously, which can only be done objectively using statistical analysis, in particular cluster analysis.
Common Characteristics of E-Business Models Many business models exist and countless combinations are possible and also applied in practice (Jansen, Steenbakkers, & Jägers, 2007). As mentioned before they are often viewed from different perspectives and there is no unified method to classify them. Therefore, we do not concentrate here on specific business models, but try to establish some common characteristics of today’s business models.
Today, a prefix “e” is actually unavoidable. Internet has significantly changed business and the way business is conducted, which resulted also in emergence of new business models for digital environment. Settlement of inter-organizational networks is indispensable as it is impossible to implement these models without the networks. Focus has been put on CRM (customer relationship management), SCM (supply chain management) and ERP (enterprise resource planning) with maximum support of internet technology. Expansion of internet has enabled new markets to emerge online. Electronic marketplace or e-marketplace is a trading community of buyers and suppliers, and makes buying and selling easier for both parties by reducing the number of needed interactions and automation of some processes. To improve business processes business models need to assure improved communication across the supply chain, good collaboration between partners to improve CRM and product development, and optimisation of partnership relations (BuyIT, 2002). In an increasingly dynamic and uncertain business environment it is essential that business models can be easily modified (by business model designers) (Petrovic, Kittl, & Teksten, 2001). Based on a synthesis of existing business model literature Osterwalder (2004) proposed nine business model elements that can be evaluated when characterizing business models: • • •
• • • • •
Value proposition (product or service innovation) Target customer (communities) Distribution channels (the right quantities of the right products or services available at the right place, at the right time) Relationship management (customer integration, personalization) Value configuration (value chain, value shop, value network) Capabilities (management and business) Partnerships (cooperation, competition) Cost structure (low-cost leadership)
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•
Revenue model (sale, registry, subscription, advertisement, transaction, commission)
FUTURE: BUSINESS MODELS Now, it is still hard to estimate which existing e-business models will be appropriate for the pervasive computing environment. Pervasive computing technology is not necessarily going to completely change companies’ business models, but in some cases just improve existing business processes. As the number of business models is getting larger and the new models constantly appear we will rather investigate which characteristics of business models will prevail in the future. Therefore, in this section, we first discuss expected influence of pervasive computing on companies’ business in general and some expected characteristics of the future new business models. Then we present some business models for the environment of pervasive computing.
Impact of Pervasive Computing on Business Processes New technologies can influence business in two ways: by improving business processes or changing business models. Changing business model means that a company runs existing business in a new way, starts new business, or complements existing business. According to the BSI’s pervasive computing study (Federal Office for Information Security, 2006) the main drivers or motivations behind pervasive computing are: • • • •
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Economic incentives of offering new products and services Economic incentives of reducing costs Increasing personal comfort and user friendliness Increasing energy efficiency and materials use efficiency
In this respect, pervasive computing appears to be nothing special comparing to other new technologies. The main difference is in a way how that is achieved. The question is what pervasive computing could do in this direction and what its contribution is. Bohn, Coroamă, Langheinrich, Mattern, and Rohs (2004) claim that two important pervasive technologies form the core of new economic processes and applications: the ability to track real-world entities, and the introspections capabilities of smart objects. Tracking objects in realtime allows for more efficient business processes, while objects that can monitor their own status via embedded sensors allow for a range of innovative business models. Automatic identification, localization and sensor technology can inform us about the current product state, location and presence of other products in its neighbourhood (Strassner, & Schoch, 2002). Focusing on tracking goods, different aspects can be established: SCM, production, CRM, etc. Already the swing of internet influenced business processes considerably, but media breaks and consecutively information delays are still causing processes inefficiencies. With new technologies the breaks between real and virtual world could be avoided and problems with inefficiencies solved. More accurate and continuous tracking of goods within supply chain would prevent losses and mislays of goods and reduce stock quantity as product planning could be improved. Tracking products in time of production would help to detect mistakes shortly after their appearance. “Smart” objects would be able to accept their own decisions on the basis of all available data. New technologies affect companies in such a way that business processes can be more automated and independent of the people and their decisions, what leads to self-management. Thus chances for human errors are reduced or totally eliminated as in the final phase supply chain can be conducted in a fully automated way. Those benefits would impact efficiency improvement and cost reduc-
Business Models and Organizational Processes Changes
tion in various business processes of a company. With today’s technology many improvements could already be realized, but the question of cost justification remains. The optimisation of individual processes has effect on operational efficiency (speeds up processes), availability of goods, product quality and flexibility of process management. Even more important for companies is which novelties the new technology will bring.
Pervasive Computing Business Models Pervasive computing technology will affect companies and their businesses with complete integration of the real and virtual world. Companies will be able to collect more useful data (more accurate, more diverse, more frequent...) and to get real time information. Automation will be on higher level. With full data collection a usage based pricing business model will be useful and efficient to a greater extent. The companies will face the following changes: •
• •
Transforming business model from selling services at a fixed price to usage-based pricing Selling services instead of selling products Selling product related services beside products
Fleisch (2004) believes that pervasive computing technologies will primarily be used in controlling intensive processes. Expected changes can be divided into two classes: •
•
Improvement of existing business processes (faster, more accurate, reliable and cost efficient), where a company changes the way it manages resources (how), but does not change its business model (what) New business model, when company does not ask how to improve existing business
processes but investigates which new services it could be offered to its customers In addition, new ways of collaboration or improved collaboration between different parts of a value chain arise. Pervasive computing is changing the way business and customers are able to access each other. With pervasive computing technologies, the scope of CRM will expand significantly. Location of the customer will become the location of the business, products will be possible to track and communicate with after they are sold, and sold products will be at the same time the best representatives of a company (Gerschman, 2002). Services are in the centre of most pervasive computing opportunities because new technologies and infrastructure enable companies to follow the customer’s needs and truly deliver individualised services anywhere and anytime. It is expected that in pervasive computing the services value will grow significantly. Product lifecycle is connected with many activities and each of them could be an opportunity for the company. Products could be linked with services that extend their functionalities. In addition, services that are not directly connected to a product represent an opportunity. In this way, companies could differ from their competitors and retain customers or even gain new ones. Harbor Research (2005) explains that to understand pervasive business models we must see individual opportunities as elements of an overall business opportunity that can be solo or team opportunity. Further, they define two business models within each category. Four types of business models were established: •
•
Embedded innovator - It allows traditional standalone services to be embedded directly into the product. Solutionist - It provides many or all of the services around the total lifecycle of a product.
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•
•
Aggregator - It integrates the sales and service of the product, as well as the interaction with the customer. Synergist - It is a contributor and a participant in alliance web where no single company “owns” the aggregator function.
Nagumo (2002) identified the following major innovative business models for the era of pervasive computing: •
•
•
“Concierge” business models - The author described them as “very attentive services provided when needed” that support the everyday life of people in a non-intrusive manner. “Knowledge asset management” business models - It enables companies to gather the knowledge available on the network and make the best use of it to develop advanced and efficient services. “Wide-area measurement” business models - It refers to gathering data to resolve public issues.
Bohn et al. (2005) proposed the following innovative business models: • • •
Real-time shopping - People could buy anything from anywhere. Pay-per-weigh - It refers to pay-per-use instead of buying products. No risk, no premium - Also called pay-perrisk, where price of an offer depends on risk involved.
Tracking customers’ possibility will allow price discrimination or dynamic pricing, although question appears when if at all this kind of pricing brings profit. Potential user reaction to price discrimination should also be taken into account before its introduction.
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Willis (2003) presented pervasive business models in respect of participated players: business, consumer, employee, machine, where he foresaw also relation between two machines (M2M business). In pervasive computing environment, business models will be of great significance. Researches still focus mainly on pervasive computing technology and business models classification. More research should be dedicated to analysis of appropriateness of existing business models and to methodologies for developing new business models for the pervasive computing environment. To develop a suitable business model in pervasive computing environment, a logical and systematic development method reflecting the characteristics of pervasive computing is needed (Leem, Jeon, Choi, & Shin, 2005). Table 1 shows a summary of essential characteristics of the present business and business models and expected trend for the future business and business models that will be possible in pervasive computing environment.
CONCLUSION Future is constantly bringing changes. Some of them can be foreseen, others surprise us. Pervasive computing is something certain in the near future, but we cannot foresee exactly in what shape and size it will develop. It is important for companies to be aware of its current situation and to be prepared to take advantage of the opportunity when it appears. Moreover, pervasive computing will surely bring new opportunities for companies. Although many researchers and practitioners have devoted their effort to the domain of business models, there are still many issues to be clarified. There is no unified method to classify acquired knowledge about business models and therefore it cannot be used in such extent and so effectively as it could be. As business models present one of the possibilities for differentiation
Business Models and Organizational Processes Changes
Table 1. Present and future business and business models
BUSINESS MODELS
BUSINESS
PRESENT
FUTURE
Unclear mass of data
On-time information
Partial integration of virtual and real world
Full integration of virtual and real world
Technology as a support to people
People support to technology?
People make decisions
Devices, machines… make decisions
People – machine communication
Machine – machine communication
Partial automation of business processes
Full automation of business processes
Quickly responding business
Real-time business
Customers search products
Products find customers
Easily adaptable business models
Self-configurative business models
Selling services at a fixed price
Usage-based pricing
Selling services at a fixed price
Risk-based pricing
Selling products
Selling services
Selling products
Selling products and related services
Single price
Dynamic pricing
Regular shopping, internet shopping
Real-time-shopping
from competitors and in this way a potential for competitive advantage, the business model domain needs to be researched further, especially in the new circumstances.
FUTURE RESEARCH DIRECTIONS Business models are for a company one of the possibilities for differentiation from competitors and thus a potential for competitive advantage. In order to use the acquired findings more effectively as a base for further research and faster advancement of the business models domain the unified method for classifying existing knowledge about business models in general would be helpful. This would also enable more successful implementation in practice. In further research particular e-business models taxonomy should be selected and examined. Its characteristics should be established and more precisely analysed. Adequacy of the analyzed business models for environment of pervasive computing should be evaluated. The
evaluation of business models characteristics can be performed by the method proposed in the paper. Pervasive computing characteristics in connection with business models should be further discussed in more detail, as well as comparison between present and future business models. Economic issues of pervasive computing infrastructure as one of the fundamental factors for realization of pervasive computing and connected businesses needs to be further investigated. The literature is concerned mostly with needed technology for establishment of pervasive infrastructure. One of the important questions is who will fund the infrastructure costs required to support pervasive computing everywhere and how the use of the infrastructure will be charged. Research should concentrate also on business models appropriate for setting up and operating seamlessly integrated infrastructure.
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REFERENCES Applegate, L. M. (2001). E-Business models: Making sense of the Internet business landscape. In: G. Dickson, W. Gary and G. DeSanctis (Eds.), Information Technology and the Future Enterprise: New Models for Managers. Upper Saddle River, N.J.: Prentice Hall. Bambury, P. (1998). A taxonomy of Internet commerce. First Monday, 3(10). Bohn, J., Coroamă, V., Langheinrich, M., Mattern, F., & Rohs, M. (2005). Social, economic, and ethical implications of ambient intelligence and ubiquitous computing. In: W. Weber,J. Rabaey & E. Aarts (Eds.), Ambient Intelligence, 5-29. Berlin Heidelberg, Germany: Springer. BuyIT (2002). Supplier adoption: Getting ready for E-Business. Section 2: The E-Business Models. BuyIT Best Practice Network. Davenport, T. H., & Short, J. E. (1990). The new industrial engineering: Information technology and business process redesign. Sloan Management Review, (Summer): 11–27. Federal Office for Information Security. (2006). Pervasive computing: Trends and impacts. Bonn, Germany: BSI. Fleisch, E. (2004). Business impact of pervasive technologies: Opportunities and risks. Human and Ecological Risk Assessment, 10(5), 817–829. doi:10.1080/10807030490513838 Gerschman, A. (2002). Ubiquitos commerce – Always on, always aware, always pro-active. IEEE Computer Society, 37-38. Harbor research. (2005). Growth opportunities and business models for the Pervasive Internet. Boston and San Francisco, USA: A Harbor White paper. Hartman, A., Sifonis, J., & Kador, J. (Eds.). (2000). Neat Ready: Strategies for success in the E-Economy. New York: McGraw-Hill.
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Osterwalder, A. (2004). The business model ontology: A proposition in a design science approach. PhD Dissertation. Switzerland: University of Lausanne. Osterwalder, A., Lagha, S. B., & Pigneur, Y. (2002, July). An ontology for developing E-Business models. Proceedings of IFIP DSIAge’2002. Osterwalder, A., Pigneur, Y., & Tucci, C.L. (2005). Clarifying Business models: Origins, present, and future of the concept. CAIS, 15, 751-775. Parliamentary Office of Science and Technology. (2006). Pervasive computing (POST note No. 263). London: The Parliamentary Office of Science and Technology. Retrieved July 14, 2007, from http://www.parliament.uk/documents/ upload/postpn263.pdf Petrovic, O., Kittl, C., & Teksten, R. D. (2001). Developing business models for E-Business. International Conference on Electronic Commerce 2001, Vienna. Rappa, M. (2007). Business models on the Web. Managing the digital enterprise. Retrieved August 3, 2007, from http://digitalenterprise.org/models/ models.html Roussos, G., Marsh, A. J., & Maglavera, S. (2005). Enabling Pervasive Computing with Smart Phones. IEEE Pervasive Computing / IEEE Computer Society [and] IEEE Communications Society, 4(2), 20–27. doi:10.1109/MPRV.2005.30 Strassner, M., & Schoch, T. (2002). Today’s impact of ubiquitous computing on business processes. In: F. Mattern, M. Naghshineh (Eds.), Short Paper Proceedings, International Conference on Pervasive Computing, Pervasive 2002 (pp. 62-74). Zürich. Tapscott, D., Ticoll, D., & Lowi, A. (Eds.). (2000). Digital capital - harnessing the power of business Webs. Boston: Harvard Business School Press.
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ADDITIONAL READING Acquisti, A. (2005). Ubiquitous Computing, Customer Tracking, and Price Discrimination. In: G. Roussos (Ed.), Ubiquitous and Pervasive Commerce: New Frontiers for Electronic Business (pp. 115-132). New York, USA: Springer. Acquisti, A., & Varian, H. R. (2005). Conditioning Prices on Purchase History. Marketing Science, 24(3), 367–381. doi:10.1287/mksc.1040.0103 Akella, K., & Yamashita, A. (1999). Application Framework for e-business: Pervasive computing. IBM. Retrieved June 27, 2007, from http:// www.ibm.com/developerworks/library/wa-pvc/ index.html Albee, J., Kuchal, M., & Jaiswal, R. (2003). Pervasive computing: e-business anywhere, anytime. IBM. Retrieved June 27, 2007, from http://www.ibm.com/developerworks/wireless/ library/wi-pvcapps/
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Amor, D. (2001). Pervasive Computing: The Next Chapter on the Internet. Prentice Hall PTR. Retrieved June 27, 2007, from http://www.informit. com/articles/article.aspx?p=165227&rl=1 Chalmers, D., et al. (2006). Ubiquitous Computing: Experience, Design and Science. Retrieved July 2, 2007, from http://www-dse.doc.ic.ac.uk/ Projects/UbiNet/GC/index.html
Hoare, T., & Milner, R. (Eds.). (2004). Grand Challenges in Computing: Research. Swindon: The British Computer Society. ISTAG. (2003). Ambient Intelligence: from vision to reality. For participation – in society & business. Draft report. Brussels: IST Advisory Group, European Commission.
Fano, A., & Gershman, A. (2002). The Future of Business Services in the Age of Ubiquitous Computing. Communications of the ACM, 45(12), 83–87. doi:10.1145/585597.585620
Jazayeri, M. (2002, September). On the Way to Pervasive Computing. Brazilian Symposium on Software Engineering. Retrieved November 16, 2007, from http://www.infosys.tuwien.ac.at/Staff/ mj/papers/pervasive.pdf
Fleisch, E. (2001). Business Perspectives on Ubiquitous Computing. M-Lab Working Paper, No. 4, Ver. 1.0. Retrieved November 11, 2007, from http://www.m-lab.ch/
Kyoung, J., Jeong-In, J., & Jeong Mu, J. (2006). A Payment & Receipt Business Model in UCommerce Environment. ACM International Conference Proceeding Series, Vol. 156, 319–324.
Fleisch, E., & Tellkamp, C. (2005). The Business Value of Ubiquitous Computing Technologies. In: G. Roussos (Ed.), Ubiquitous and Pervasive Commerce: New Frontiers for Electronic Business (pp. 115-132). New York, USA: Springer.
Lambert, S. (2006). Do We Need “Real” Taxonomy for e-Business Models? School of Commerce Research Paper Series: 06-6. ISSN: 1441-3906. Retrieved August 31, 2007, from http://www.socsci. flinders.edu.au/business/research/papers/06-6.pdf
Gershman, A., & Fano, A. (2005). Ubiquitous Services: Extending Customer Relationship Management. In: G. Roussos (Ed.), Ubiquitous and Pervasive Commerce: New Frontiers for Electronic Business. New York, USA: Springer.
Lee, D. L. (2002). Technological and Business Challenges in Pervasive Computing. SAINT, Proceedings of the 2002 Symposium on Applications and the Internet (pp. 41-42).
Haas, M., Koeszegi, S., & Noester, M. (2007). Current practice and structural patterns in virtual organizations – a qualitative analysis of 30 cases. The Electronic Journal for Virtual Organizations and Networks, 8. Retrieved November 27, 2007, from http://www.virtual-collaboration.org/projects/264/Issues/eJOV%20Vol8/eJOV8_4_Haas_ Current%20practice%20and%20structural%20 patterns.pdf Hertel, G., Geister, S., & Konradt, U. (2005). Managing virtual teams: A review of current empirical research. Human Resource Management Review, 15, 69–95. doi:10.1016/j.hrmr.2005.01.002
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Ley, D. (2007). Emerging Technologies for Learning: Ubiquitous Computing. British Educational Communications and Technology Agency, 2, 64–79. Lyytinen, K., & Yoo, Y. (2002). Issues and Challenges in Ubiquitous Computing. Communications of the ACM, 45(12), 62–96. doi:10.1145/585597.585616 Malone, T. W., Weill, P., Lai, R. K., D’Urso, V. T., Herman, G., Apel, T. G., & Woerner, S. (2006). Do Some Business Models Perform Better than Others? MIT Sloan Research Paper No. 4615-06. Available at SSRN: http://ssrn.com/ abstract=920667.
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Martins, L. L., Gilson, L. L., & Maynard, M. T. (2004). Virtual Teams: What do we know and where do we go from here? Journal of Management, 30. Pateli, A. G., & Giaglis, G. M. (2003). A framework For Understanding and Analysing e-Business Models. Proceedings of the 16th Bled eCommerce Conference, Bled, Slovenia. Roussos, G. (Ed.). (2006). Ubiquitous Computing for Electronic Business. In: Ubiquitous and Pervasive Commerce: New Frontiers for Electronic Business (pp. 1-12). New York, USA: Springer. Roussos, G., Gershman, A., & Kourouthanassis, P. (2003). Ubiquitous Commerce, Ubicomp 2003 Adjunct Proceedings, Seattle, WA, 12-15 October. Saha, D., & Mukherjee, A. (2003). Pervasive Computing: A Paradigm for the 21st Century. IEEE Computer, 36(3), 25–31. Satyanarayanan, M. (2001). Pervasive Computing: Vision and Challenges. IEEE PCM, August, 10-17. Vasilakos, A., & Pedrycz, W. (Eds.). (2006). Ambient Intelligence, Wireless Networking and Ubiquitous Computing. Artech House, ISBN 1-58053-963-7. Verburga, R.M., & Bosch-Sijtsema, P.M. (2007). The limits of virtual work. The Electronic Journal for Virtual Organizations and Networks, 9. Special Issue “The Limits of Virtual Work”, July.
KEY TERMS AND DEFINITIONS Ambient Intelligence (AmI): A vision of the future information society where intelligent interfaces enable people and devices to interact with each other and with the environment. It resembles pervasive or ubiquitous computing, but it emphasizes the system infrastructure’s autonomic learning capability and interaction mechanisms for users in particular social contexts. Business Model (BM): Description of company’s business processes and their interconnections. Business Process (BP): Logically connected tasks, procedures, activities, whose result is some planed product or service. Business Process Management (BPM): Concept or method of managing changes in business process reengineering. Context Awareness: The ability to use any piece of context information to contribute to the environmental situation of an entity (person, place, object), thus rendering human-machine interaction more personalized and efficient. Electronic Business (E-Business): Any business process that relies on an automated information system E-Business Model: Business model that leans on support and possibilities of internet technologies. Pervasive Computing (Ubiquitous Computing): Presence of communication and computing technologies everywhere around us in a way they are invisibly embedded in everyday objects and people are mostly unaware of their presence. The omnipresence of computer power and associated sensors and controls in daily life.
This work was previously published in Risk Assessment and Management in Pervasive Computing: Operational, Legal, Ethical, and Financial Perspectives, edited by Varuna Godara, pp. 155-168, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 1.14
Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B Lena Aggestam University of Skövde, Sweden Eva Söderström University of Skövde, Sweden
ABSTRACT B2B development has been faster in the developed world comparing to developing countries. This chapter proposes a “tool” for managing CSF in B2B settings. The tool is in the form of guidelines, which are concrete and detailed, and which enable a more clear view of actions needed during the preparation stage of B2B projects. We argue that developing countries seldom have the
luxury of affording failure in new B2B ventures, but that they instead must learn from the mistakes already made by the developed countries. Thus, our proposed guidelines are based on an existing framework and experiences made in the developed countries. The guidelines are furthermore discussed with regard to the specific problems and conditions that developing countries face. Much work still remains, and problems still must be resolved. From a global perspective, this is important for all of us!
DOI: 10.4018/978-1-60960-587-2.ch114
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B
INTRODUCTION It is no secret that electronic business between organizations (B2B) is constantly picking up speed and adoption throughout the world. B2B can be defined as the use of Internet and Webtechnologies for conducting interorganizational business transactions (Teo and Ranganathan, 2004). So far, its development has been faster in the developed world than in developing countries (Hawk, 2004; García-Murillo, 2004; Uzoka and Seleka, 2006). In the former, B2B is adopted and used for competitive and collaborative reasons to a larger extent than in developing countries. In particular, the developing world often lacks the infrastructural, economic and socio-political framework to develop e-commerce in comparison to the developed countries (Uzoka and Seleka, 2006). Furthermore, power distance must be considered, since it indicates the ability for organizations to affect change in government. The higher the distance, the faster industry – including e-commerce – can grow (Sparks et al, 2007). Through the use of B2B, companies in developing countries can create and sustain competitive advantage, get access to new and better suppliers and customers, etc (Wood, 2004). Proper attention to specific conditions of these countries can prevent negative effects and slow e-business adoption (García-Murillo, 2004). However, a successful B2B development project requires proper management of different types of Critical Success Factors (CSF). CSF are: “the conditions that need to be met to assure success of the system” (Poon and Wagner, 2001, p.395). CSFs can be categorised as emerging from economic, technological or organizational issues (Ewusi-Mensah and Przasnyski, 1994). Planning considerations should focus on important organizational factors, because they influence the other factors. Circumstances in the developing countries also reveal the importance of trying to resolve organizational factors such as confidence and trust in order to establish a corporate culture where the benefits
of sharing are viewed as important and natural. Leaders initiate this process by imposing his/ her beliefs, values, and assumptions, but culture only arises when the assumptions of individuals lead to shared experiences (Schein, 2004). Thus, developing a culture is a long-term process, and the importance of planning and preparation is clear. Currently, the lack of means for dealing with CSF is accentuated by the fact that many B2B projects fail. Additionally, specific conditions in developing countries such as capacity of organizations to absorb, use, and adapt advances in science and technology must be studied (Salman, 2004). Organizations in developing countries must prepare themselves well to avoid pitfalls and achieve the full benefits of B2B. This is no different compared to developed countries. The difference is that developing countries lack suitable resources for such preparations, with regard to poverty, and inadequacy and instability of various resources in developing countries (Agoulu, 1997; Roy and Biswas, 2007; Purcell and Toland, 2004), together with low B2B maturity. There are barriers to e-commerce such as: low income levels, low literacy rates, lack of payment systems that support online transactions, and cultural resistance to online transaction-making (Ho et al, 2005). Our work contributes to better preparatory routines in organizations in developing countries. This chapter proposes a “tool” for managing CSF in B2B settings. The tool is in the form of guidelines, which are concrete and detailed, and which enable a more clear view of actions needed during the preparation stage of B2B projects. The guidelines can be used during the planning stage of B2B in order to prepare the organization for managing CSF in this context. They are built on experiences in developed countries, and will hence enable organizations in developing countries to avoid redoing the same mistakes. The specific conditions of developing countries are taken into consideration by specific referencing when each guideline is discussed in terms of how they help to alleviate problems. The target audience is B2B
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project managers, since they are in charge of making the B2B venture happen.
BACKGROUND Collaboration is a necessity to survive in the business world regardless of geographical location. Developing countries should strive in this direction. In order to set the scene for the guidelines, we first give some background information on B2B, developing countries, and a framework for managing CSF. The guidelines are developed from these areas.
B2B B2B is defined as the use of Internet and Webtechnologies for conducting inter-organizational business transactions (Teo and Ranganathan, 2004). This section will introduce B2B, and elaborate on an implementation model used as the basis for the work presented in this chapter.
Introduction to B2B To a great extent, B2B is conducted using standards to simplify cooperation (Ersala et al, 2002; Hasselbring, 2000; Ghiladi, 2003). Standards are guidelines for how to structure and manage communication and information sent between organizations (Söderström, 2004). They enable a common language between partners, as well as automation of relevant business processes. However, the associated technology is often complex and expensive, which in itself can be an obstacle for developing countries to enter into world-wide B2B. One reason is that the standards used are flexible and general, and hence difficult to implement (Jakobs et al, 2001). It takes time and resources. Standards should therefore be used with as many partners as possible to be a justifiable option. This requires some economies of scale for quality (Motwani et al, 1999), and is in itself
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is a problem for small organizations, which may not have that many partners. Adopting B2B is a strategic choice, and partner relationships must be carefully managed (Thompson and Ranganathan, 2004).
B2B Standards Implementation Model As a point of origin in our analyzis, we use a model of the B2B standards implementation process developed by Söderström (2004). The three main phases are: preparation, architectural and consolidation. Preparation concerns activities for planning and preparing projects and architectural work. Architectural work concerns making changes to processes and technology to incorporate the standard into the existing infrastructure. Finally, consolidation concerns launching the standard, as well as evaluating and maintaining the system and expanding its use. Our focus is the preparation phase, since careful planning and proper management features are best determined therein. Preparation includes four sub-steps (Figure 1): strategic planning, process analysis, partner alignment, and project planning. The order between the steps is not necessarily the same at all times, and some activities may be conducted parallel (double-headed arrows). In brief, the four steps contain: 1. Strategic planning: Standards and B2B must be part of the business strategy, in order to identify how they can help achieve the business plan (Ramsey, 1998), create new markets, redefine old ones and enable Figure 1. Detailing of the preparation phase
Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B
inter-operability (Bolin, 2004). The lack of strategic vision is a major barrier to justifying IT investments (Love and Irani, 2004). Top management commitment is a necessity (Premkumar et al, 1994). Stakeholders from different organizational levels must be involved early to achieve implementation success. 2. Process analysis: Business processes must be analyzed in order to identify, prioritise and orchestrate which processes to include (Söderström, 2004), which enables a deeper understanding of the organization and its processes (Kosanke and Nell, 1999). Hence, business processes help define project scope regarding which processes to support (Ersala et al, 2002), and how and which part(s) of the organization that will be affected. 3. Partner alignment: B2B partners must identify with whom to trade (Intel, 2003; Söderström, 2004). Partners may have different levels of maturity, and hence varying experience in standards use. Agreements include what, where, how, and scope (WebMethods, 2003). Common goals must be set, responsibilities, time span and resources established, and a commitment given by each partner, for example through Trading Partner Agreements (TPA). 4. Project planning: Details about required technology, infrastructure, and project conduction are determined (RosettaNet 2001; Söderström, 2004). Results from previous phases are utilised in planning, with implementation goals, milestones and resources. Planning is the key to implementing IT (Ramsey, 1998). Agreements between project participants are important to resolve open issues and prepare execution options. This model is the most detailed implementation model of its kind for B2B. It is based on an extensive literature survey, as well as on empirical
material from standards developers, standards users and creators of standards-based software.
Developing Countries One basic difficulty compared to developed countries is the vast population and degree of illiteracy in developing countries. The developed world consists of 20% of the world’s population of which 96% are literate, while 30% of the remaining population in the developing countries still are illiterate (Agoulu, 1997; Hawk, 2004). Developing countries also suffer from poverty, as well as inadequacy and instability of various resources (Agoulu, 1997; Roy and Biswas, 2007; Purcell and Toland, 2004). In a literate world, information is a basic resource that is spread with high speed. In a population where illiteracy is vast, traditional practices remain (Agoulu, 1997; Goodman, 1991). The lack of new technology and an appropriate good infrastructure for communication and information spreading in developing countries is also evident (Agoulu, 1997; Sadowsky, 1993; Singh and Gilchrist, 2002; Purcell and Toland, 2004; Tan et al, 2007). The consequences are effects on if and how e-business is regarded and practiced. Therefore, many developing countries still struggle with basic technology functions, while developed countries can use their infrastructure to address more advanced challenges (Singh and Gilchrist, 2002). Internet use is fairly evident in developed countries, but is far more uncommon in developing nations (Uzoka and Seleka, 2006). An ITU study (Ho et al, 2005) has shown that 11,8% of the world’s population has Internet access. It should be noted, however, that increased Internet use in developing countries does not automatically mean an increase in e-commerce adoption, even if this is the case in developed countries (Sparks et al, 2007). In the latter, e-commerce is more well spread and advanced (Hawk, 2004; García-Murillo, 2004; Uzoka and Seleka, 2006). One potential reason is that even though Internet
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use can be widespread, e-commerce activities are sometimes not as popular (see for example Meskaran & Ghazali on e-commerce in Iran). Empirical evidence also still lag behind theoretical developments (Kshetri, 2007). One contributing factor behind this may be that more basic needs such as food and clean water are of a more primary concern than investments in new technologies. Sharing information between companies and partners in B2B is essential. However, this requires a culture in which the benefits of sharing over protecting assets are important and natural. Such a culture does not exist to the same extent in developing countries compared to in developed ones (Jennex et al, 2004). Still, developing countries may have at least one advantage compared to developed countries, in that they do not have the broad availability of different mechanisms for delivering goods and services. This availability may reduce the benefits of electronic networks, Developing countries can hence get higher payoff faster (Sadowsky, 1993). Table 1 presents an overview of the problems mentioned concerning developing countries and e-business. Each problem has been given an identifier, which will be referenced when discussing the guidelines. Firstly, many people are not aware
of what information can do for them, and what they can use it for. Since information in developed countries is the “nerve” of society, this problem must be addressed. A related aspect is that oral culture still dominates these countries, making written communication something for the “elite”. Face-to-face commerce is also preferred in many countries, such as India. Incorporating electronic meetings and trading into traditional culture and traditions therefore faces great challenges. Neither should replace the other, but consideration must be taken to the conditions and culture of the specific countries. A proper infrastructure for conducting and reaching B2B benefits is essential. Infrastructure not only refers to technology, even if this is important, but also to financial infrastructure, and access to the adequate infrastructure. All perspectives are needed. It also places requirements on the knowledge and skills required for the population, both in terms of the people working with the B2B systems, and the customers that are to use them. It also concerns lack of management knowledge, which is needed for B2B success. The management level concerns company-internal management, as well as government/national management. In the latter, the legal system must
Table 1. Problems for developing countries related to e-business Problem
Reference
People are often unaware of the need for information, and do not exploit information as much as they could (A)
Agoulu, 1997
Oral culture dominates, written communication is “elitistic”, and commerce is preferred face-to-face (B)
Agoulu, 1997; Hawk, 2004; Mwangi, 2006; Kshetri, 2007
Lack of proper infrastructure, both technical, financial and access to (C)
Hawk, 2004; Sadowsky, 1993; Singh and Gilchrist, 2002; Purcell and Toland, 2004; Uzoka and Seleka, 2006; Kshetri, 2007; Sparks et al, 2007;
Lack of qualifications, in staff as well as customers (D)
Hawk, 2004; Sadowsky, 1993; Jennex et al, 2004; Singh and Gilchrist, 2002
Lack of an advanced legal system (E)
Hawk, 2004; Uzoka and Seleka, 2006; Mwangi, 2006; Kshetri, 2007; Sparks et al, 2007
Security and trust issues are not resolved (F)
Jennex et al, 2004; Uzoka and Seleka, 2006; Meskaran & Ghazali, 2007
Unsure quality in products, and unstable markets (G)
Motwani et al, 1999; Wood, 2004; Uzoka and Seleka, 2006
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be evolved to enable handling of new situations due to B2B. Trust is an essential aspect of collaborations, and an important part of the culture needed for successful B2B. Lack of trust and doubts about security are problems that all countries face. However, developing countries do not have as many mechanisms and cultural features in place as developed countries do. Meskaran and Ghazali (2007) claim most developing countries have a collectivistic culture, in which the level of trust is lower than for those countries in which individualistic culture dominates. An understanding of culture helps to develop more suitable strategies to improve trust. Lastly, several literature sources mention that the developed world has doubts concerning the quality of products and the stability of markets in developing countries. Some doubts may origin simply in inexperience in trading with these countries, others from different quality control systems, etc. These problems are not exclusive to, and may not be of the same dignity in all developing countries. Still, they must be addressed. Our work concerns how companies and organizations can better prepare themselves for standards-based B2B. Since developing countries are our centre of attention, we will return to discussing how our suggestions and guidelines help alleviating and/ or reduce these problems later on in the chapter.
users and let them understand what the project is about, how it is going to affect them etc. This contributes to trust, which must be encouraged in particular in developing countries.
The Framework for Managing Critical Success Factors
The System’s Boundary This factor concerns business borders, and not technical ones. Knowing what the system is and defining its boundary is a prerequisite for addressing all success factors and a performing a successful B2B implementation. The system’s boundary constrains what needs to be considered and what can be left outside (van Gigch, 1991). Identifying the boundary triggers an active discussion about what the actual system includes, which related systems and subsystems there are, etc. Related systems may also offer resources in exchange for something.
The framework is developed on a generic level in order to fit all kinds of information systems (IS) development. It is based on organizational success factors and should be used during planning to prepare an organization for a project. We choose this framework since B2B systems are IS, and since this framework, to the best of our knowledge, is the only one focusing on CSF from a preparation point of view. Furthermore, a cornerstone in the framework is to motivate the
Critical Success Factors The Framework Base CSFs are conditions that must be met to avoid failure. The analysis of the factors emerging from organizational issues shows four different CSF (Aggestam, 2004): • • • •
To learn from failed projects To define the system’s boundary, both for the whole system and for relevant subsystems To have a well defined and accepted objective that aligns with the business objectives To involve, motivate and prepare the “right” stakeholders.
The factor To learn from failed projects is a prerequisite whether an organisation is to better perform projects as for example a B2B. Thus, the framework does not explicit need to take this into consideration. Furthermore, for less developed countries it is important to avoid redoing the mistakes already made by the developed counterparts. The reminder of this chapter will elaborate on each of the three remaining CSF.
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The Stakeholders Organizational change is risky, but risk can be minimised by having the right kind of persons on your team (Champy 1997), and to identify important stakeholders and discover their requirements (Kotonya and Sommerville 1997). How well an IS will work in an enterprise depends on the user involvement in the development process (Cherry and Macredie, 1999; Pohl, 1998; Sutcliffe, Economou and Markis, 1999; Saiedian and Dale, 2000; Browne and Ramesh, 2002). The success of the involvement depends on how well people work and communicate (Saiedian and Dale 2000), and communication gaps do exist. According to Champy (1997) stakeholders across the organization have two needs during organizational change: Confidence in the management and knowledge about the meaning of the change. Commitment from the top is crucial if the project affects a large part of the organization (Milis and Mercken, 2002). Strong sponsorship is required even before a project is launched to it being initiated and seeded resources (Poon and Wagner, 2000), and confidence in the management is essential (Proccacino et al, 2001). The Objective A successful IS should meet common business objectives (Ewusi-Mensah and Przasnyski 1994, Milis and Mercken 2002). When the IS strategy reflects organizational objectives, supports business strategies, recognizes external forces and
reflects resource constraints, then the organization more likely uses IS strategically (Kearns and Leder 2000). Defining the goal is fundamental (Clavadetcher 1998) and organizational change must begin here (Champy, 1997). A comprehensive project definition gives a common vision, a cooperation base, terms of reference and prevents boundaries from extending beyond intended limits (Milis and Mercken 2002). An organization should be examined from different perspectives (Pun 2001) which in turn is a prerequisite for defining the goal. We use Bolman and Deal’s (1997) four complementary views/frames (Table 1), but complement them with a fifth frame – Neutral – in order to capture the neutral perspective of the organization in terms of mission (service or manufacture), business plan, size (both turnover and number of employees), ownership (private or public) and so on. The frames are summarised in Table 2. The Neutral frame can be thought of as a starting point for the other frames, because facts from this frame limits an organization and consequently organizational change, and it also limits and influences the other frames. Also the Structural frame focuses on explicit facts about the organization as e.g. rules and policies. The Human resource, Political and Symbolic frames, on the other hand, help to understand and gain knowledge about the organizational culture which is an important influence factors regarding if the B2B project will be a success or not.
Table 2. Overview of the four-frame model, adapted from Bolman and Deal (1997) Structural frame
Human resource frame
Political frame
Symbolic frame
Metaphor for organizations
Factory or machine
Family
Jungle
Carnival, temple, theatre
Central concepts
Rules, roles, goals, policies, technology, environment
Needs, skills, relationship
Power, conflict, competition, organizational politics
Culture, meaning, metaphor, ritual, ceremony, stories, heroes
Image of leadership
Social architecture
Empowerment
Advocacy
Inspiration
Basic leadership challenge
Attune structure to task, technology, environment
Align organizational and human needs
Develop agenda and power base
Create faith, beauty, meaning
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The way an objective will be defined and formulated depends on the level of inquiry at which it has been considered (van Gigch 1991, Beyer and Holtzblatt 1998, Leffingwell and Widrig 2000). Discussions about objectives, often only take place at the action level and/or what-to-do level, but according to van Gigch (1991) all three levels (why, what and how) are necessary. This is in accordance with Bubenko (1993) who claims that the HOW part should be linked to the WHY and WHAT parts. The framework based on the presented organizational factors is presented in next section. The Framework for Managing CSF We argue that preparation based on organizational factors is necessary to increase the chances of success when organizations in developing countries engage in B2B projects. To the best of our knowledge, no other framework takes this point of view. The framework, see Figure 2, stresses a flexible outset adaptable according to stakeholder type, and should be used in planning to prepare the organization for managing CSF in future activities. The framework should also be used iteratively on different levels of abstraction: first to the whole project (“the system”) and then to identified criti-
cal parts (“subsystems”). However, we will use a sequential order in this chapter for simplicity. The target organization should define the system’s boundary and relevant subsystems. Next, the objective must be defined, and relevant stakeholders identified. The objective should be analyzed and described from different complementary frames and at different levels of detail. It should always support the business objective, which requires IS- and business strategies to be clearly aligned. The goal descriptions can be thought of as a tool box aiming to be used in the motivation process. Relevant stakeholders should be motivated and prepared for future participation and involvement in the ISD process. User participation refers to user activities, while user involvement is more a subjective psychological state of individuals. Stakeholder groups are probably a mix of the two. Both motivation and preparation must thus be adapted to the various types of stakeholders. The motivation process should focus on stakeholder knowledge and confidence needs. They feel confident and motivated by a a description of the objective that is adapted to them and explained in a way that they understand how it will affect them and why the project is important. The
Figure 2. A framework to support the information systems development process
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most suitable stakeholder description should be chosen, which could mean more than one description. User participation and user involvement is a communication process. The preparation process should thus focus on educating stakeholders about concepts to make future communication easier and more effective. These processes aim to meet stakeholder needs about confidence and knowledge about changes. This will contribute to positive, motivated and prepared stakeholders, a prerequisite for user involvement and participation, and consequently for reaching user satisfaction with the system. Using the framework results in a clear, well defined and accepted objective, and in positive, motivated and prepared stakeholders which is critical for all types of projects, including a B2B-project.
MAPPING THE CSF FRAMEWORK TO THE B2B SETTING The mapping of the CSF framework to B2B originates from the descriptions of the implementation phases with the intention to identify matches between them and the framework. Since
the framework is based on organizational CSF and has a planning and preparion view, the main matches are found in the three sub-steps: strategic planning, process analysis, and partner alignment (see Table 3). The leftmost column presents the four implementation phases, the middle column includes a brief description of key points therein, and the rightmost column includes comments of in what way the framework can assist in preparing for B2B implementation planning. Starting with strategic planning, the two central issues are: the need for an updated business strategy, and the inclusion of relevant stakeholders. The strategy determines where the organization is heading and which operations matters, and the standards-based solution must be duly incorporated. The framework emphasizes the important why-perspective by stressing the necessity of clear and accepted goals. Commitment from top management is another central building block. This is where strategy is determined and operations are set towards meeting goals. The framework also emphasizes the identification of critical parts such as departments, partners, systems, work groups, processes etc. and their alignment between and to the goals. If the strategic perspective is not
Table 3. Relating B2B standards implementation preparation to Aggestam’s (2004) framework Description
Framework
Strategic planning
Phases
An updated business strategy is essential when implementing B2B standards. As many relevant stakeholder as possible should be involved early on.
It is essential to have a clear and accepted goal, supporting the why perspective. Strengthens the need to identify critical departments, partners, work groups, systems etc. Emphasises relations and alignment between goals, included stakeholders, and identified sub-systems.
Process analysis
Identifying what (parts of) business processes.
The goal and systems boundaries are tightly coupled, and presuppose one another. Contributes to identify important sub-systems/parts of the organization and enhance where to focus.
Partner alignment
The common goal needs to be agreed on and committed to. Responsibility and resource commitment must be agreed upon. To identify requirements placed on each partner
The goal and system boundaries need to be identified. Contributes to identify relevant issues to resolve between partners. Contributes to achieving well accepted goals.
Project planning
Make a detailed plan based on the results from the previous phases.
Is not explicitly managed within the framework, but results from previous phases can be utilized as a basis for project planning.
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clear, the strategy or what is included in the parts must be revised. Identifying critical parts and their relationships includes delimiting the IS by clearly identifying and stating systems boundaries, the whole system and critical sub systems, and to include relevant stakeholders in its preparation. In the implementation model, a crossfunctional/cross-organizational, implementation team is suggested which should co-operate for goal realisation and to conduct B2B implementation. In process analysis, the most essential point is to identify what to include in the B2B venture, in terms of processes, systems and organizational entities. Organizations should analyze their processes to define the scope of projects, and to identify processes that need support. The iterative element in the framework enhances identification of the focus by allowing each goal and subsystem to be “the system”, and use that to identify relevant subsystems in the form of processes, partners, work groups etc. Boundary identification is included in order to set clear goals and delimitations. The tight coupling between goals and boundaries mean that goal definition helps to define systems boundaries as well. The goals are agreed upon by involved stakeholders. In this process, another positive effect may also be a clarification of which partners and actors there are to include. Partner negotiations (or partner alignment) are essential to establish what to do, why, by whom, with what means, and when. Clear responsibilities make better ground for project success. Besides the mentioned focus on goals and system boundaries, using the framework contributes to identify issues that partners need to resolve as well as who has the main responsibility for doing so. Results are agreements on e.g. common and well accepted goals and work distribution, raising the likelihood of success. The project planning phase does not deal directly with the framework, but framework use aims for a more “correct” project planning. Previous phases form the basis for the activities in project
planning. In particular, preparations made in the three phases aim to facilitate and enable mutual agreements between all project participants. The framework does not deal with economic or technological issues, but on organizational ones. However, since organizational issues affect the other two, they are implicitly part of the framework. For example, it is important to know which business processes to include to be able to establish needed economic and technological resources. Our previous work has resulted in generic guidelines (Aggestam and Söderström, 2006). These will be developed into more concrete ones in the coming sections. The three most relevant phases of the B2B standards preparation stage, Strategic planning, Process analysis and Partner alignment, will be used as the main structure. Sub-sections are created for each main aim with a summarizing table. Each table provides the existing generic guideline to the left, and specific guidelines to the right. Problems in developing countries will be discussed. The identifier of each problem (Table 1) is referenced in the discussion.
CONCRETE GUIDELINES FOR STRATEGIC PLANNING Based on the mapping (Table 4) three aims can be identified explaining why the framework is useful in B2B standards implementation concerning strategic planning: • • •
To achieve clear and accepted goals in relation to an updated business strategy To identify critical parts as departments, stakeholders etc To explicitly define how these critical parts relate to one another and to the goals and the strategy.
For each of these aims, we will elaborate on a more generic level on what to do in order to reach them (Aggestam and Söderström, 2006).
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Table 4. Guidelines to achieve clear and accepted goals in relation to an updated business strategy Guidelines
Detailed guidelines
Discuss from different views how the goals of the standards implementation project are useful in helping the organization to achieve its general business goals (G-1)
The goals of B2B should be described from the following frames using a why-perspective: - Neutral: increase the number of standards-based B2B transactions with more partners, to increase the chances of reaching e-business benefits - Structural: identify and describe how the organization needs to change when implementing B2B, in terms of technology, rules, structure, management, etc., to ensure a suitable infrastructure - Symbolic: plan a launch event to contribute to incorporating B2B into the corporate culture - Political: describe how staff at different levels are affected by the changes, and how to achieve collaboration, to get everyone in the organization to work towards a common goal - Human resources: describe what competences that need to be developed to ensure sufficient knowledge on all organizational levels, to ensure that the benefits of B2B are reached
If necessary, review the existing strategy and reformulate the strategy to incorporate the use of standards as a strategic tool (G-2)
Incorporate text on (B2B) standards and their usefulness into the business strategy, to motivate management Define a process for how the strategy and standards perspective therein can be updated on a regular basis.
The generic guidelines are then concretized into more detailed ones, with a specific reference to developing countries and how help them alleviate their specific problems. It should be noted that strategic planning concerns work conducted internally in an organization.
To Achieve and Describe Goals in Relation to an Updated Business Strategy The guidelines are summarised in Table 3. When describing the goals of a B2B project in relation to an updated business strategy, different perspectives are needed. The framework for preparation (Figure 2) makes a clear contribution by emphasising the five frames. The B2B goals should be described in each frame including a whyperspective, as illustrated in Figure 2. Developing countries currently have a low e-business rate, and therefore benefit naturally from all frames since they contribute to creating a culture for sharing and conducting e-business. This takes time, and must be initiated early on. Developing countries may have the advantage of not having to battle already existing cultures. The detailed guidelines thereby address the problems A, B, C, D and F: They clarify the meaning of information, raise
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the competence level and make written communication accessible for more people, contribute to increase the willingness to share, contribute to creating a clear infrastructure on several levels, emphasise education, and by conducting B2B with known partner, they increase the likelihood of partners trusting the transactions made. It is also important to review and revise the existing business strategy to align it better with the B2B intents. The detailed guidelines thereby address the problems C and G by incorporating standards in the business strategy, the number of automated transactions can increase. Standards are then managed more systematically and transactions are consistent, which potentially raises their quality. Standards are made part of the corporate culture, contributing to the change of perspective.
To Identify Critical Parts where the Initial Anchoring Work should Start The first generic guideline in this aim concerns the identification of bottle-necks. These, such as the lack of competence regarding B2B standards, can be identified from the goal descriptions and systems boundaries. By comparing them with the general problems (Table 1), priorities can be made of the importance of the problems. The detailed
Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B
Table 5. Guidelines to identify critical parts where the initial work should start Guidelines
Detailed guidelines
Analyze the goal descriptions to discover potential “bottle-necks”, in terms of people, organizations or systems (G-3)
Identify where the bottle-necks are, both from general problems, and from the company’s specific conditions, to increase the chances of reaching the goals and to remove unnecessary obstacles Prioritise the problems based on their importance and consequences, to ensure that the limited resources are directed towards the most important actions
Plan explicit actions to ensure the inclusion and motivation of “bottle-necks” residing inside the organization (G-4)
Based on the priorities create an action list, a time plan and responsibility assignments, to ensure that actions are made in a reasonable timeframe, and to enable follow-up actions. An example is to plan education activities in, for example, Internet technology
Use the adapted goal descriptions in order to motivate critical stakeholders (G-5)
Use the goal descriptions in activities such as education, meetings, launch events, etc., to motivate relevant stakeholders on different organizational levels
guidelines (Table 5) thereby address the problem A: since it makes people aware of the meaning and importance of information. The problem priority list (what to do) can assist in the creation of an action list (how to do) for removing obstacles, which must be accompanied by a time plan and the assignment of responsibilities. The detailed guidelines thereby address the problems A, B and D since they contribute to raising the awareness of the importance of information and planning. For example, responsibilities must be assigned to ensure the completion of tasks. Furthermore, the staff competence level is raised, and the oral culture is affected in a longterm perspective. In all activities planned based on the priorities, the goals must be explained to the stakeholders in such a way so that they firstly, understand the project, and secondly, how the project affects them. This results in the stakeholders trusting the efforts and the management. The detailed guidelines thereby address the problems A and C since
they make the needs explicit, and give access to information and an infrastructure.
To Explicitly Define Relations Between Goals, the Strategy, Stakeholders, etc. The second and third aims are similar, since both concern why B2B is an important effort, and how things relate. While the second concerns bottlenecks, this aim concerns the relationships between goals, strategies and stakeholders. The generic guideline (Table 6) is focused on relationships, both in terms of identification and awareness. Written documents and oral meetings are needed in all situations. In developing countries, however, the oral tradition is – as mentioned – prevailing, and written communication is elitistic. By face-toface discussions, people can participate regardless of their reading skills, which contributes to trust and inclusion. The detailed guidelines thereby address the problems A, B and C: They show the importance
Table 6. Guidelines to explicitly define relations between critical parts Guidelines Use goal descriptions and discussion seminars to identify relations between goals and raise the awareness of the same (G-6)
Detailed guidelines The project leader reviews the goal descriptions and makes a draft describing goal relations, to provide a basis for discussion Organise at least one seminar with relevant stakeholders to model and discuss around the goals, to get a common view of goals, to find what goals affect what other goals and how, and to identify what stakeholders affect/are affected by the goals
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of written information as a point of origin, create an awareness of the importance of a common view and to share information to achieve this. However, discussions are grounded in the oral tradition and residing culture, which should increase the chance of identifying and anchoring goals. Furthermore, the guidelines provide a clear view of goal relations, which increases the chances of developing a good infrastructure that is accessible to the right users.
CONCRETE GUIDELINES FOR PROCESS ANALYSIS Based on the mapping (Table 2) three aims can be identified explaining why the framework is useful in B2B standards implementation concerning process analysis: • •
•
To have a clear view of the organization’s business processes To identify what business processes to include, and to motivate and prepare relevant stakeholders To identify what systems that support the business process
These aims are derived from the tight coupling needed between goal and system boundaries, and
from the identification of what processes and other sub-parts on which to focus. Similarly to the former section, we elaborate on a more generic level on what to do in order to reach the aims and concretize them into more detailed actions. It should be noted that process analysis concerns work conducted internally in an organization.
To have a Clear View of the Organization’s Business Processes In B2B standards implementation, different business processes are included, such as: procurement, order, invoice and payment (Söderström and Pettersson, 2003). To have a clear view of which these processes are, and which of them that are the most relevant for the future project is important. Guidance is provided by the results from the strategic planning phase in terms of e.g. bottle-necks. The initial step is to map the situation “today” (AS-IS), which is done by studying documents and existing models, talking to relevant people, observe the work, and then construct up-to-date models (see Table 7). These guidelines address the problems B and F: they use the oral culture to extract information and lay the foundation for a solid written documentation (Agoulu, 1997). They can also assist in removing prejudices and assumptions, and
Table 7. Guidelines to enhance a clear view of the business processes Guidelines
Detailed guidelines
Model the business processes according to the current situation (AS-IS) (G-7)
Study existing documents of for example work and process descriptions, to establish a basis for AS-IS process models Speak to different stakeholders on different levels, to obtain their view and a more up-to-date perspective on how the work actually is conducted If possible, participate in and observe the work done Use the results to create process models, preferably through joint discussions, to get a basis for discussion with relevant stakeholder groups
Model the business processes according to the desired future situation (TO-BE) (G-8)
Identify how the organization and work should be structured by originating from existing process models, identified bottle-necks, and documentation from strategic planning, to establish an up-to-date process view Develop new process models, preferably via discussions, to document the process view Anchor the models in all levels of the organization, to ensure commitment
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thereby increase the trust in co-workers and their ways of working. The results from the AS-IS-modeling should be mapped to the goal descriptions from strategic planning in order to identify the desired future (TO-BE). Here as well, a combination of written documentation and oral discussions should be used as a basis. Note that it is essential to disseminate the TO-BE models to everyone involved, for commitment purposes. The detailed guidelines thereby address the problems C and D: They contribute to increasing the modeling skills of the staff, and since they utilize a combination of oral and written information to disseminate information and ensure commitment. Discussions during development and anchoring of the models can be conducted orally, while the end product can be shared in a written format.
To Identify what Business Processes to Include, and to Motivate and Prepare Relevant Stakeholders From the identification of relevant processes, this aim is focused on which processes to include in the B2B venture (see Table 8). This is essential, by removing irrelevant or low-priority processes, and focusing on the right ones. In developed countries, many projects have failed because not proper attention has been paid to the right processes, i.e. on prioritized processes. Furthermore, most
organizations do not learn from their failures; but make the same mistakes over and over again (Ewusi-Mensah and Przasnyski, 1995, Lyytinen and Robey, 1999). This is one mistake developing countries can avoid by doing it right from the beginning. The detailed guidelines thereby address the problem G: they secure quality in a long-term perspective since the business processes and goals are audited and defined more clearly. Motivational actions of different kinds are also important to enable trust and a common purpose among the people involved in the prioritized processes. In terms of the framework, the symbolic perspective comes into play here, since it is not enough to simply distribute written information or just to inform. Some levels of emotions must be included. The detailed guidelines thereby address the problems A and B: They contribute to create awareness of the importance of information, and to creating a common culture with a focus on sharing information and data.
To Identify what Systems that Support the Business Process The guidelines is summarised in Table 9. Besides processes, it is also relevant to identify which systems that are critical, based on the priorities made. Do we need to make any IS/IT investments or do we have what we need? Are our systems in accordance with the strategy? If this work identifies
Table 8. Guidelines to identify what processes to include and to motivate and prepare relevant stakeholders Guidelines
Detailed guidelines
Identify, list and prioritise processes to include in B2B by pairing each goal description with the TO-BE process models (G-9)
Use goal descriptions and identify all processes mentioned therein, to obtain a goal perspective Map the results to the TO-BE models to ensure that the rights relations and processes have been identified Compare the matching results to the priority list, to ensure that efforts are made in the rights areas and in the right order
Take specific actions must to motivate the personnel involved in the selected processes to participate in the project (G-10)
Use the results and identify what staff to involve, to ensure that all relevant staff will be involved in the project Plan events to inform, discuss and commonly plan what to do next, to ensure that everyone feels involved, and to incorporate the project into the corporate culture
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Table 9. Guideline to identify supporting systems Guidelines Identify what IT systems that support the business processes and list relevant systems (G-11)
Detailed guidelines Use the revised list of processes and identify what parts of the organization that is affected, to ensure that the most critical processes are included Identify what IT-systems that are used in these organizational parts Discuss if the organizational parts that lack IT-support can be made more efficient by implementing systems
a need for investments, it is really important that this is aligned to all relevant strategies, including the IT/IS strategy. The activities needed are the same as for identifying and listing processes. In developing countries, the lack of a proper infrastructure, of for example a technical nature, is clear (Kshetri, 2007). This may seem to be a problem, but it can be an advantage. Since there are only a few legacy systems, little effort is needed to integrate new systems with old ones, and there is instead a chance for the companies to start fresh. It is hence possible to learn from mistakes and experiences in developed countries, and our guidelines are one way to do so. The detailed guideline thereby address the problem A, C and F: They provide greater opportunities in managing and using information, provide a more stringent and clear infrastructure to enable e-business, and the overview of the IT systems can be used to identify potential security problems.
CONCRETE GUIDELINES FOR PARTNER ALIGNMENT Based on the mapping (Table 2) three aims can be identified explaining why the framework is useful in B2B standards implementation concerning partner alignment: • • •
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To establish partner readiness To establish legal contracts To form cross-organizational teams
These aims are derived from the need to resolve important issues between partners, and preparing for a successful project. Similarly to the former sections, we elaborate on a more generic level on what to do in order to reach the aims and concretize them into more detailed actions. It should be noted that partner alignment concerns external work between organizations.
To Establish Partner Readiness Partner alignment is all activities involving more than one organization. Basically, it concerns a lot of rework, but this time with the external perspective in mind (see Table 10). Readiness refers to organizations’ awareness of what they become involved in, what human and technological resources it will require, as well as how much time it will demand. Common project goals should be established in joint meetings, where negotiations take place based on internally relevant goals. The detailed guidelines thereby address the problems A, B and D: They concern a better understanding and use of common documents, participating representatives enhance their respective knowledge, and face-to-face meetings are the basis for creating a sense of commonality and acceptance of the ways of working of others. Based on the common goals, the contributions of each partner in terms of resources, competences, activities, etc. must be clarified. Followingly, mutual agreements on responsibilities are necessary. The detailed guidelines thereby address the problem B: they contribute to strengthen the sense of commonality and the corporate culture
Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B
Table 10. Guidelines to establish partner readiness Guidelines
Detailed guidelines
Establish common B2B project goals in a meeting with all partners (G-12)
Discuss what goals the company has with B2B, and develop a dictionary of central concepts and definitions, to be well prepared for common discussions Negotiate on what common goals the B2B project should have based on the separate corporate goals, to establish common grounds
Identify what the project will require from each partner in terms of preparation and work (G-13)
Define what resources and competences that each partner should contribute to the project, what activities to perform and when, and what responsibility assignments to have, to ensure commitment and successful project completion
Establish readiness by matching requirements and internal preparations (G-14)
Based on the mutually established grounds, each partner should review and plan internal project preparations
of collaborating across borders. Lastly, requirements should be matched against conducted internal preparations, to establish what remains to be done to enable the external connection. Possible actions should be planned to address shortcomings. The detailed guidelines thereby address the problem B: they contribute to strengthen the corporate culture of collaborating across borders. Lastly, requirements should be matched against internal preparations, to establish what remains to be done to enable the external connection. Possible actions should be planned to address shortcomings. The detailed guidelines thereby address the problem B: they contribute to strengthen the corporate culture of collaborating across borders.
To Establish Legal Contracts All legal issues need to be resolved by involving legal expertise to draw up the contracts (see Table 11). If “skeleton agreements” exist within an industry, or if standards exist on either a national or an international level, these should be used. This issue highlights the need for a legal system nationwide that takes B2B collaborations into account.
The detailed guideline thereby addresses the problem E by ensuring a correct and legally valid collaboration effort.
To Form Cross-Organizational Teams In the case of cross-organizational teams, stakeholder identification helps facilitate the management of organizational relationships in standards implementation, and the joint teams enable orchestration of implementation activities (see Table 12). The previously developed priority list can facilitate the task. The partners should jointly establish what competences that are needed in the project, using the readiness assessments. If one or more such competences are missing, actions must be taken. The detailed guidelines thereby address the problem B: by maintaining the culture of meeting face-to-face, and by stimulating written culture through the documentation work. Based on the agreements on needed competences, a project team is established with representatives from each partner. The written agreement is crucial in this step, not the least to ensure that the legal agreements (contracts) with the
Table 11. Guideline to establish legal contacts Guideline Establish connections between legal expertises to draw up contracts (G-15)
Detailed guideline Use existing attorneys or legal connections to discuss the B2B project, to establish solid contracts and secure the conditions for the own company
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Table 12. Guidelines to form cross-organizational teams Guidelines
Detailed guidelines
Agree on the team structure and boundaries in terms of number of people, skills required, mandate, resource requirements, etc (G-16)
Document what competences that are needed to succeed with B2B based on the previous agreements, to establish a suitable project organization
Assign appropriate team members based on internal preparations in other phases (G-17)
Internally identify and assign suitable persons to the project, based on contracts and agreements, and create jointly a written agreement on the commitment of each partner, to ensure a successful project result
respective commitments are followed and obtained. The detailed guidelines thereby address the problem B by here as well maintaining the culture of meeting face-to-face, and by stimulating written culture through the documentation work.
CONCLUDING REMARKS Preparation is always important in organizational development projects. Developing countries seldom have the luxury to afford failure in new ventures like in business-to-business. Thus, they should have the possibility to learn from developed countries and hence not redo mistakes already committed by developed countries. By careful preparation, the risk of failure can be reduced, and our guidelines are one approach to use. They aim to prepare the organization from the perspective of CSF, and provide means for dealing with these in B2B. All organizations and nations must prepare themselves well to achieve B2B benefits and gains. Still, our guidelines can help developing countries in particular, since project managers (our target audience) can practically implement them because they: 1. Are based on actual experiences in developed countries 2. Have been developed from factors of critical importance
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3. Are technology-neutral and can hence be used in planning regardless of infrastructural platform used 4. Can be directly implemented in ongoing projects 5. Can be easily adjusted to all types of preparatory/planning projects in B2B 6. Can help organizations to achieve a longterm e-business perspective and increased maturity to perform B2B projects The guidelines are based on an existing framework for ISD, and are therefore in themselves also proof of that existing tools and methods for ISD can be useful in B2B development. The literature on developing countries also shows that the guidelines are suitable to the existing culture in these countries since issues such as the willingness to adopt Internet technologies (Kshetri, 2007), and the collectivistic culture which includes low trust levels, (Meskaran & Ghazali, 2007), can be Table 13. Problems in developing countries versus the guidelines Problem
Guidelines
A
G-1, G-3, G-4, G-5, G-6, G-10, G-11, G-12
B
G-1, G-4, G-6, G-7, G-10, G-12, G-13, G-14, G-16, G-17
C
G-1, G-2, G-5, G-6, G-8, G-11
D
G-1, G-4, G-8, G-12
E
G-15
F
G-1, G-7, G-11
G
G-2, G-9
Guidelines for Preparing Organizations in Developing Countries for Standards-Based B2B
addressed. This is necessary to get commitment to the B2B project, and in developing countries in particular in order to raise the maturity of written communication, and to resolve security and trust issues. In the guidelines, specific references have been made to problems (Table 1) that are particularly important or present in developing countries. Table summarize these references. All problems are addressed to some extent, showing fit of the guidelines to alleviate problems such as lack of proper infrastructure, qualifications and advanced legal systems. The latter (see e.g. Hawk, 2004) can, in a way, be used as an advantage, since developing countries can “start over” and create a suitable and updated legislation to begin with. We therefore argue that the proposed guidelines are one way to give developing countries a real chance to come closer to the developed countries in terms of B2B maturity and increased electronic business use. It should be noted that the guidelines proposed are not explicitly connected to processes, phases or steps in relation to time. The motivation is that firstly, they vary between projects, and secondly, they must be adaptable according to for example project and company size, and maturity level. As experience grows, the time required for each step is also likely to be reduced. Future work will need to address the weaknesses of our guidelines. These include firstly that they are focused on organizational aspects. Complementary methods and/or guidelines must therefore be developed to cover for example economical and technical aspects. Secondly, the guidelines lack elements for measuring the effects. In a long-term perspective this is a difficult issue to resolve. The Neutral frame does provide valuable contributions to measuring, and potential measuring points include the number of B2B transactions, changes in strategies, number of agreements, and B2B partners. The measuring should be performed before preparation as well as during and after the project, after for example 6 months, and after 1 year.
Finally, we can conclude that the proposed guidelines enable the developing countries to climb on the B2B maturity staircase, even though using the guidelines will not take them to the top. There is still work to be done and further problems to be solved. With the words of Becker (2007, p.233): “Under the right conditions, entrepreneurs in developing nations can launch locally viable Internet ventures with real value, but many developing nations also face very real constraints in harnessing the Internet economy.” In our global world, all countries irrespectively of financial status or literacy degree have a contribution to make on the “e-scene”. We hope our work will encourage others to address the issues of developing countries and their e-commerce/B2B adoption. Empirical evidence must be gathered, guidelines be tested, and efforts made to reduce the gap between the developed and developing worlds. From a global perspective, this is important for all of us!
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This work was previously published in Emerging Markets and E-Commerce in Developing Economies, edited by Kamel Rouibah, Omar E. M. Khalil and Aboul Ella Hassanien, pp. 271-292, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Section II
Development and Design Methodologies
This section provides in-depth coverage of conceptual architecture frameworks to provide the reader with a comprehensive understanding of the emerging technological developments within the field of global business. Research fundamentals imperative to the understanding of developmental processes within information/knowledge management are offered. From broad examinations to specific discussions on electronic tools, the research found within this section spans the discipline while offering detailed, specific discussions. From basic designs to abstract development, these chapters serve to expand the reaches of development and design technologies within the global business community. This section includes more than 15 contributions from researchers throughout the world on the topic of global business.
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Chapter 2.1
Building Business Value in E-Commerce Enabled Organizations: An Empirical Study M. Adam Mahmood University of Texas at El Paso, USA Leopoldo Gemoets University of Texas at El Paso, USA Laura Lunstrum Hall University of Texas at El Paso, USA Francisco J. López Macon State College, USA
ABSTRACT This research attempts to identify critical ecommerce success factors essential for building business value within e-commerce enabled organizations. It is important to identify the critical success factors that organizations must pursue in order to facilitate a successful transformation from traditional brick-and-mortar organizations to click-and-brick business models. Diffusion DOI: 10.4018/978-1-60960-587-2.ch201
theory is used to demonstrate how these success factors create business value within an organization. The research model is fully grounded in information technology business value and productivity literature (e.g., Kauffman & Kriebel (1988), Mahmood, Gemoets, Hall, & Lopez (2008) Mahmood & Mann (1993), and Zhu (2004)). The manuscript utilizes an existing sample set consisting of a population of more than 550 company executives who are successfully implementing e-commerce strategies. The research examines constructs found in the literature and focuses on
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two importance dimensions of creating business value through e-commerce strategies: IT alignment to organizational strategies (ITOrS) and the quality and effectiveness of existing online systems (OnSQE). Critical success factors for e-commerce business success were found to include ITOrS (IT alignment to organizational strategies), IOrSA (Quality and effectiveness of online systems, OnSE (Online systems efficiency), and OnSQE (Online systems quality and effectiveness. The research produces empirical evidence that strategic decision making concerning implementation of e-commerce technologies and alignment with top management strategic planning is critical to the success of creating business value for e-commerce enabled organizations. The manuscript concludes with limitations of the research and implications for future research studies.
INTRODUCTION In today’s economic environment it is vital that organizations invest in resources that will build value throughout the entire organization. Implementation of e-commerce strategies have become a popular way of increasing business value. Social networking through popular mediums such as Facebook and MySpace, advanced mobile communication devices, and widespread accessibility has redefined e-commerce and has resulted in an explosion of increased opportunities for e-commerce enabled organizations. Many traditional brick-and-mortar companies have invested and continue to invest heavily in e-commerce technologies due to a huge increase in online opportunities. e-Marketer (June, 2008) reports: In 2007, 133.1 million individuals, nearly four-fifths of US Internet users, shopped online. By 2012, the total will be closer to 158.2 million, or 82.5% of Internet users. From 2007 to 2012, the number of new online shoppers in the US is expected to grow at a 3.5% average annual rate.
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Also in 2007, 110.7 million individuals, nearly two-thirds of US Internet users, made at least one online purchase. By 2012 the number of online buyers is expected to be 141 million, or 73.5% of Internet users. From 2007 to 2012, the number of new online buyers in the US will grow at a 5% average annual rate. (p.1) Forrester Research (2007) estimates that online sales will reach $204 billion this year and $335 billion by 2012. E-commerce currently accounts for 6 percent of all retail sales in the United States. Although forecasts for retailers are currently dismal it is believed that e-commerce retailers will fare better than their brick-and-mortar counterparts (e-Marketer, 2008). The information technology (IT) productivity and business value literature report performance and productivity gains for organizations that evolve to click-and-brick structures. There are many well known examples of click-and-brick organizations including Best Buy, Wal-Mart, Target, Walgreens, Sears, Cisco Systems, Dell Computers, and Boeing Corporation. These are excellent examples of large click-and-brick organizations that have achieved a significant economic benefit by using e-commerce technologies. Cisco, the single largest user of e-commerce in the world, attributes 90% of its 2000 sales to online sales. Also, 82% of its customer inquiries are handled online (McIlvaine, 2000) and 83% of questions concerning support are answered through. Cisco’s web based self service tools (“Customer Care,” 2001) handle 82% of customer inquiries and 83% of technical support requests online. Dell, ranked 49th in the Top 50 Internet properties logged 9.2 million first time visitors with sales of more than $1 million dollars in PC sales online, everyday. Dell Computer reported over 250% return on invested capital from its logistics and order fulfillment systems (Dell.com, November 2000). The importance of the present research stems from the fact that there is very little empirical evidence in the IT productivity and business value literature regarding the critical success factors
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from e-commerce business initiatives, especially for large click-and-brick companies (Brynjolfsson and Kahim, 2000). The fundamental objective of the present research is to define the success indicators of business value in e-commerce technology enabled organizations. The present research investigates firms that are successful in using e-commerce technology and determines the critical success factors responsible for building business value within the organizations.
THEORETICAL FOUNDATIONS Diffusion theory studies the adoption of innovations through (or as a function of) time and identifies and understands the factors that influence adoption behavior. Zhu (2004) assessed e-commerce payoffs indirectly via an interaction effect with IT infrastructure. He found a positive interaction effect between IT infrastructure and e-commerce capability. He also found that this relationship positively contributes to firm performance in terms of sales per employee, inventory turnover, and cost reduction. Clearly Zhu’s study did not look at the stand-alone impact of e-commerce technologies on a firm’s performance. In addition, Zhu used the resource-based theory to ground his research whereas we used Rogers’ (1983) diffusion theory to provide a foundation for our research. While it is true that price (reduction) is an important factor, our contention is that diffusion may be strong even if prices go up (so long as the benefit more than offsets the cost). Therefore, we propose the incorporation of the cost-benefit relation in diffusion models. A complete and thorough analysis would study these models using longitudinal data. Unfortunately, such data are not yet available. Thus this research requires two steps. The first consists of identifying the factors that result in e-commerce business success while the second step incorporates those factors into diffusion models. We are
unable to validate these models in the present research for the lack of longitudinal data. In the present research, we use cross-sectional data to analyze the relationship among the following factors that were selected based on a thorough literature review: a. Inter-organizational systems availability (IOrSA): extent to which e-commerce has helped in integrating the different systems and made workflow processes easier; b. Online systems efficiency (OnSE): availability of uniform operating and highly automated mechanisms using e-commerce technologies; c. IT Alignment to organizational strategies (ITOrS): an indication of how much support for Internet-enabled IT there is in the organization; d. online systems quality and effectiveness (OnSQE): measured in terms of e-commerce site design and availability; and, e. e-commerce business success (ECBS). Since the latter clearly indicates “benefits,” we propose (based on our findings in the present research) incorporating IOrSA, OnSE, ITOrS, and OnSQE in e-commerce diffusion models as indicators of the cost-benefit relationship. Later on, when historical data become available, we will build on the ideas of Gurbaxani and Mendelson (2001) and develop and test (i.e., curve-fit) the corresponding models. Even though it is not yet possible to conduct this research because of lack of data, this idea is an important contribution of the present research.
LITERATURE REVIEW As stated earlier, there is little or no empirical research in the area of e-commerce business value but some important related concepts that have been identified include business value; impact of e-commerce; and success and failure of e-commerce businesses. It is, however, possible to draw useful insights from the IT business value and other related literature. There are a number of studies on factors contributing to the success or failure of an IT system that can be compared to e-commerce success and failure. Thus, the IT
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business value literature provides background information and concrete theoretical support to ground our e-commerce success model. Next, a review of IT business value literature is provided below that suggests incorporation of five constructs in our analysis.
IT Alignment to Organizational Strategies (ITOrS) This construct measures the degree to which the strategies, goals, and objectives of a firm’s information technology are aligned to its parent organization’s strategies, goals, and objectives. When this occurs, top management support for IT initiatives appears to be stronger which, as suggested in previous research, seems to be a critical success factor for any IT project. This type of support takes various forms including appointing an executive level manager as the Chief Information/ Technology Officer and allowing IT to influence, through the adoption of email and other internet technologies, the way the company conducts business. Thus, indicators of alignment include the presence of an IT manager with executive authority; the level of support given by executives to e-commerce and other IT-related initiatives; and whether the organization has a learning and adaptive culture that allows innovations to take root in its functional environment. Segars and Grover (1998) evaluate the strategic impact of IT. They suggest that paying attention to aligning IT strategy with business strategy, understanding the systems processes, and the support of management and end-user groups are crucial to IT planning success. Barua, Kriebel, and Mukhopadhyay (1991) also analyze the strategic use and impact of IT implementation. Reich and Benbasat (2000) found that communication between IT and business executives, the level of connection between IT and business planning processes, and the extent of shared domain knowledge leads to better alignment of IT and business strategies in the short and long terms. Feeny and Ives (1990)
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also focus on sustained strategic advantage generated through IT applications. Teo and Ang (1999) identify top management commitment to the strategic use of IT, IS management business knowledge, and top management confidence in the IS department as critical success factors for an organization. Teo and King (1996, 1997) studied potential inhibitors and facilitators of development of successful IT applications with strategic value. They found that integration of business planning and IT planning results in IT being able to support business strategies more effectively. Kao and Decou (2003) focused on the importance of a strategy-based e-commerce planning model which included seven dimensions with strategy at the core. Clemons and Wang (2000) also provided strategies for electronic commerce initiatives. Shin (2001) also suggested the use of e-commerce for gaining organizational competitive advantage. Additionally, it is obvious that some companies have an explicit way of aligning IT to their organizational strategy. Wal-Mart, for example, has separate e-commerce headquarters in California to fulfill the company’s e-commerce business needs. The following research studies also identify other factors related to the success or value of IT. Teo and King (1997) address the importance of alignment of IT planning with business planning and determine that the business knowledge of the IT executive is the most significant factor in influencing the integration process. Dos Santos and Sussman (2000) indicate that IT investments fail to have an impact on some firms’ value because the companies fail to prepare or respond well to the structural changes of the firm caused by IT.
Inter-Organizational Systems Availability (IOrSA) IOrSA refers to the extent to which e-commerce has helped in integrating the different systems and made workflow processes easier between different organizations, thus creating e-commerce business value. E-commerce technologies such as
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extranets allow businesses to connect their suppliers, customers, and other business partners that result in competitive advantages. E-commerce adds value to a firm by introducing a new channel for buying, selling, and providing information to appropriate stake holders. Some of the readily apparent benefits are reduction in employee costs and communication costs. Hidden benefits include better relationships with upstream and downstream business partners because of a uniform and secure communication system. Dai and Kauffman (2002) point out that firms can conduct successful B2B transactions by creating inter-organizational systems. Barua, Konawa, Whinstone, and Yin (2001) indicate that the readiness of business partners to implement e-commerce technologies is critical to achieving business excellence and online systems efficiency. Bakes (1991) uses economic theory to understand why electronic marketplaces work and when they are of strategic value. Electronic marketplaces, according to Bakos (1991), improve inter-organizational coordination and reduce search costs. Bakos (1997) also points out that commodity and differentiated markets respond differently to the integration enabled by electronic marketplaces. Reduction in search costs, for example, occurs differently in these markets. In a subsequent paper, Bakos (1998) reinforces the points made in the first two by explaining that electronic marketplaces create more efficient and friction-free markets. Steinfield, Markus, and Wigand (2005) used the industry level of analysis to explore inter-organizational systems in the home mortgage industry. Kurnia and Johnston (2005) developed a case study of category management adoption in Australia to model inter-organizational system adoption. According to Benjamin and Scott (1988), one of the reasons for IT success is that it enables, through online databases and telecommunication networks, new forms of integration that result in better cost performance and increased data integration. Kickul and Gundry (2001) argue that maintaining better relationships and integrating
with suppliers is a crucial element of the company sustenance process. Johnston and Vitale (1988) suggested that, if carefully identified and used, inter-organizational systems give significant competitive advantages to organizations.
Online Systems Efficiency (OnSE) Automated, uniform operating mechanisms through e-commerce technologies that function in tandem with existing mechanisms normally result in better online systems efficiency and cost savings. Also, online customer service in terms of FAQ’s, chat rooms, and a link to call centers indicate high levels of online systems efficiency. Banker, Kauffman, and Morey (1990) distinguish between impacts of IT investment on competitive efficiency and on online systems efficiency. Mukhopadhyay and Kekre (1995) study an electronic data interchange system at Chrysler over a period of 10 years and observe that it has caused massive cost savings and has imparted system-wide discipline and integrative value to the company. In 2001, Molla and Licker (2001) extended the IS success model to E – commerce including the construct of system efficiency. Shao and Lin (2001, 2002) define technical efficiency as actual output versus expected output and find a positive correlation between investment in IT and technical efficiency improvement. Stratopoulos and Dehning (2000) show that firms making successful investments in IT are more successful at solving the productivity paradox than those that make failed or abortive investments in IT. Hitt and Brynjolfsson (1997) analyze the effects of IT on the internal firm organization and find that IT is associated with decentralization of authority, increased knowledge work, and decreased observability. Brynjolfsson and Hitt (1998) find that productivity payoffs from computerization are not automatic, but part of a series of productivity changes that eventually make financial sense. Barua, Konana, Whinston, and Yin (2001) show that the readiness of business partners to
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implement e-commerce technologies is critical to achieve business excellence and online systems efficiency. Lee and Barua (1999) find positive correlation between IT inputs and productivity. Tsay and Agrawal (2004) identified various sources of inefficiency in the effect of channel conflict on system efficiency including pricing changes, demand functions, and structural properties.
Online System Quality and Effectiveness (OnSQE) OnSQE has to do with aspects related to online presence effectiveness through the e-commerce site design and availability. Previous research has analyzed factors that make a website successful, which is associated to overall e-business success. E-commerce, via websites, has dramatically improved the interaction of companies with customers. The ability to offer products and services to customers worldwide on a 24/7 basis is a value-adding attribute of an e-business. Also, the website is a means that firms can use to influence customer’s perceptions of its business. Customers perceive website security and access time of the site as critical. This is a reason why firms try to improve users’ perceptions of security by making their website secure and aligning with recognizable internet security agencies and protocols. Other important factors include ease of use, quality of design, and value for the customer. Moon and Kim (2001) argue that the acceptance of the World Wide Web (WWW) is similar to the “perceived ease of use” (PEOU) component of the Technology Acceptance Model. Acceptance of a new technology is likely to vary depending on the kind of technology, the target users, and the context. Moon and Kim (2001) measure online presence effectiveness through the design and availability aspects of the e-commerce site. Gefen and Straub (2000) also argue that the PEOU plays an important role in the actual use and success of systems. A survey by Liu, Arnett, and Litecky (2000) indicates that the attractiveness, qual-
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ity of design, and information available on the e-commerce site are the most important factors influencing the purchase decision of a customer. Zhang, Von Dran, Small, and Barcellos (1999, 2000) use Herzberg’s hygiene-motivation theory to study how the general ‘hygiene’ or perceptual quality of a website affects users’ motivation to use the website. Applying the Kano model of quality to the design of web sites, Zhang and Von Dran (2001) study features that generate ‘delight’, ‘motivation,’ and ‘loyalty’ of website users. Lederer, Maupin, Sena, and Zhuang (2000) point out that the “ease of use” quality is very important for successful web sites. Keeney (1999) stresses the importance of identifying value propositions and developing an e-commerce value model for the customer. Cao, Zhang, and Seydel (2005) conducted an empirical study on web-site quality in a B2C environment and identified, using the IS success model, what constitutes the web site quality and effectiveness. Pather, Erwin, and Remenyi (2003) attempted to measure the effectiveness of e-commerce using a conceptual model. Rose and Straub (1999) identify excessive download time as one of the most serious technological impediments to e-commerce.
E-Commerce Business Success (ECBS) Performance, productivity, and perception are some factors that can be used to measure ECBS. Performance has been measured in the IT business value literature, in terms of financial ratios: return on investment (ROI), return on equity (ROE), return on sales (ROS), growth in revenue (GINR), and net income over invested capital (NIC). Cron and Sobol (1983) and Dos Santos, Peffers, and Mauer (1993) employed ROI. Barua, Kriebel, and Mukhopadhyay (1995); Hitt and Brynjolfsson (1994); and Strassman (1990) used NIC. Hitt and Brynjolfsson (1994) and Mahmood and Mann (1993) applied ROS. Woo and Willard (1983) used GINR. Dehning and Richardson
Building Business Value in E-Commerce Enabled Organizations
(2002) analyze the impact of IT through ROI, ROE, and ROS that can capture system success. Likewise, productivity has been assessed in terms of two ratios: sales to total assets (STA) and sales by employee (SE). Brynjolfsson and Hitt (1993) used a measure similar to STA, total sales. Strassman (1990) employed SE. Perception has been measured through company’s image, customer satisfaction, product service innovation, and the number of return customers. The first three create customer loyalty that results in return purchases. Loyalty is one of the most significant contributors to business profitability (Turban, King, Lee, Warkentin, and Chung (2002)). It can also reduce costs in the sense that it costs five to eight times more to acquire a new customer than to keep an existing one. A comprehensive review of the use of the Internet to foster customer loyalty is provided by Reichheld (2001). In spite of the fact that initial costs are high, continuous support for e-commerce strategy is essential for the success of e-commerce initiatives. Zott, Amit, and Donlevy (2000) study the most successful strategies among European firms to create e-business value. Peteraf (2000) looks at strategies that give competitive advantage to the firm from a resource-based perspective of the firm. Zhu (2004) focused on the firm level to develop a research framework which described the relationships between IT infrastructure and ecommerce capability. Barua et al. (2001) observe that e-business affects large and small companies differently. Smaller companies experience a quick impact because of immediate expanded geographic reach. Larger companies face more complexity and need to pay considerable attention to the drivers and need to establish an appropriate infrastructure before acceptable payback is received. Subramani and Walden (2001) analyze the impact of e-commerce investment on the value perceived by investors. They found a positive correlation between e-commerce initiatives announcements and higher value perceived by investors.
Dekleva (2000) identifies four environmental variables that affect e-businesses: building trust so consumers engage in e-commerce, establishing a legal framework for e-commerce operations, enhancing information systems infrastructure by improving technical resources, and maximizing the benefits provided by such systems via increased integration across systems. Amit and Zott (2001) identified four value creating components in e-commerce companies: efficiency, complimentarity, lock-in, and novelty. Lee and Clark (1997) analyze factors contributing to the successful implementation of electronic market systems. There are other factors that affect ECBS. These are similar to what occurs with IT investment (Mahmood et al., 2000, 2001) as such some of the relevant IT-related literature is also covered in this section. Melville, Kraemer, and Gurbaxani (2004) used an integrative model of IT business value to describe the relationship between information technology and organizational performance. Chan (2000) points out the need to take ‘soft’ factors into account when measuring the value of IT. Chircu and Kauffman (2000) consider hard (e.g., better financial performance and increase in sales) and soft (e.g., better market position and better supplier relationship) IT benefits. DeLone and McLean (1992) review existing research (180 articles) on MIS success and identify six IS success dimensions: system quality, information quality, use, user satisfaction, individual impact, and organizational impact. Davern and Kauffman (2000) differentiate the value realizable from IT into: a) potential value, in the areas of the organization that would have an impact that current systems fail to provide, and b) realizable value, which is the value that can be derived from the system considering the assets that exist in the firm. Kim and Peterson (2001) identify five factors that contribute to IS success from a developer’s perspective: management and user input, project management, characteristics of the project leader, methodology, and characteristics of
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Building Business Value in E-Commerce Enabled Organizations
the team members. Teo and Ang (2000) analyze how IT planning leads to IT success. Teo and Ang (2001) also study major existing problems during the IT planning process. Dos Santos, Peffers, and Mauer (1993) and Im, Dow, and Grover (2001) discuss the effects of IT investments on a firm’s value. Josefek and Kauffman (1997) analyze the potential profitability or success of innovative information systems. As explained earlier, this work is the first of two research steps in the analysis and development of theory on e-commerce technology enabled business value. The fundamental objective and contribution of the current (first step) exploratory research is to formulate and test a model for value creation in e-businesses. Thus, the model can function as a reference framework for strategic managers by offering guidelines for e-business initiatives. Also, the constructs developed in the model can serve as a foundation for further investigation of different e-commerce drivers and their relationships with business value measures. There may be additional environmental factors associated with successful e-commerce implementations. A further goal of this article is to establish theoretically grounded constructs, factors, and ideas that can be used for further research in this field and to enhance the present work. The importance of the research study stems from the fact that it is the first empirical study that directly addresses the business value of e-commerce technologies enabled business initiatives.
MODEL AND HYPOTHESES We used the five constructs that we identified in the IT business value/success literature to build a model that captures the drivers of e-business success and relationships among these drivers. The model appears in Figure 1. The model suggests the way IT alignment to organizational strategies (ITOrS), inter-organizational systems availability (IOrSA), online system
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Figure 1. E-commerce business value model
efficiency (OnSE), and online system quality and effectiveness (OnSQE) interact with each other and together affect e-commerce business success (ECBS). The model also helps one understand the tasks a brick-and-mortar company has to complete as well as the processes that it needs to undertake for it to be successful in an e-commerce initiative.
Hypotheses Hypothesis 1: This proposition examines the relationship between the degrees of IT alignment to organizational strategies (ITOrS) and Inter-organizational systems availability (IOrSA). ITOrS, as stated earlier, measures the degree to which the strategies, goals, and objectives of a firm’s information technology are aligned to its parent organization’s strategies, goals, and objectives. When this occurs, top management support for IT initiatives appears to be stronger, which appears to be a critical success factor for any IT project. Indicators of alignment include the presence of an IT manager with executive authority, the level of support given by executives to e-commerce initiatives, and whether the organization has a learning
Building Business Value in E-Commerce Enabled Organizations
and adaptive culture that allows innovations to take place in its functional environment. What influence might that have on the inter-organizational system availability? If indicators of alignment are present in the firm it should have a positive impact on the extent to which these indicators has helped in integrating the different systems and made workflow processes easier between different organizations. Barua, Konana, Whinston, and Yin (2001) indicate that the readiness of business partners to implement e-commerce technologies is critical to achieving business excellence and online systems efficiency. Thus the degree of IT alignment to organizational strategy will have a positive influence on workflow processes and integration of systems, creating e-commerce business value. Segars and Grover (1998) evaluate the strategic impact of IT. They suggest that paying attention to aligning IT strategy with business strategy, understanding the systems processes, and the support of management and end-user groups are crucial to IT planning success. These lead to the following hypothesis
alignment. Sanders and Premus (2002) classify firms into high-, medium-, and low-level users of IT depending on their level of IT sophistication. They cite efficiencies gained via IT in terms of automation as an enabler for managers to focus on strategic issues and competencies. Lederer, Mirchandani, and Sims (2001) investigate whether strategic advantage can be derived from the World Wide Web. They propose that the efficiencies created by web-enabled systems affect strategic alignment positively by improving customer relations. Banker, Kauffman, and Morey (1990) distinguish between impacts of IT investment on competitive efficiency and on online systems efficiency. Mukhopadhyay and Kekre (1995) study an electronic data interchange system at Chrysler over a period of 10 years and observe that it has caused massive cost savings and has imparted system-wide discipline and integrative value to the company. Shao and Lin (2001, 2002) define technical efficiency as actual output versus input. This leads to the following hypothesis:
H1: There is a positive correlation between high levels of IT alignment to organizational strategies (ITOrS) and high levels of interorganizational systems availability (IOrSA).
H2: There is a positive correlation between businesses with higher levels of IT alignment with organizational strategies (ITOrS) and a high level of online systems efficiency (OnSE).
Hypothesis 2: This proposition considers the relationship between the level of IT alignment to organizational strategies (ITOrS) and the likelihood of obtaining online system efficiency (OnSE). While ITOrS is measured in terms of top management support, existence of a top IT executive, and other similar factors. OnSE is measured by way of impact on productivity and efficiency measures. Online systems with impact on productivity and efficiency will garner more management support which in turns will ensure that these systems are more aligned toward organizational goals and strategies. Huselid and Becker (1997) propose the existence of synergies between implementing efficient systems and their strategic
Hypothesis 3: This hypothesis examines the relationship between ITOrS and online systems quality and effectiveness (OnSQE). The more the company’s IT is aligned to the organization’s strategies the more successful it will be at obtaining management support for creating higher quality and effective online presence. Also, since the online interface presents the so-called gateway to the company, top management is eager to portray an elegant interface reflecting a better image of the company. Kowtha and Choon (2001) mention how the sophistication of a firm’s website reflects the strategic priorities of the firm. They suggest that critical competencies in e-commerce have little to do with technology and more with managerial
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domain and priorities. They furthermore suggest that strategic commitment has substantive and high significant effects on website development. Peak and Guynes (2003, 2003-1) point out that aligning IT with organizational strategies improves information quality which results in improved quality of products and services. These lead to the following hypothesis H3: There is a positive correlation between businesses with higher level of IT alignment to organizational strategies (ITOrS) and online system quality and effectiveness (OnSQE) Hypothesis 4: This hypothesis examines the critical relationship between ITOrS and e-commerce business success (ECBS). Some studies mention top management commitment and involvement in IT projects as singularly important factors for success of IT systems. In fact, lack of their commitment and involvement is pointed out to be among the top ten problems that lead to failure of IT projects (Johnson, Boucher, Conners, and Robinson, 2001). Pollalis (2003) confirms that alignment of IT to organizational strategies leads to better performance of banks. Sun and Hong (2002) find wide support in the literature for a significant direct effect of strategic alignment on business performance in the field of manufacturing strategy. Burn and Szeto (1999) find that it is critically important to align business and IT planning. They point out that business success depends on the linkage of business strategy; IT strategy; organizational infrastructure and processes; and IT infrastructure and processes. They also argue that the role of IT management is to lead and maintain a close alignment between the IT function and business strategy. Brown (2003) suggests that developing appropriate strategic performance metrics for the IT human resource function creates a closer IT alignment with strategic objectives. These lead to the following hypothesis.
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H4: There is a positive correlation between businesses with higher level of IT alignment to organizational strategies (ITOrS)and ecommerce business success (ECBS). Hypothesis 5: This hypothesis examines the critical relationship between Inter-organizational systems availability (IOrSA) and E-commerce business success (ECBS). Dai and Kauffman (2002) point out that firms can conduct successful B2B transactions by creating inter-organizational systems. Barua, Konana, Whinston and Yin (2001) indicate that the readiness of business partners to implement e-commerce technologies is critical to achieving business excellence and online systems efficiency. According to Bakos (1991) electronic marketplaces improve inter-organizational coordination and reduce search costs. Bakos (1998) further explains that electronic marketplaces create more efficient, friction-free markets. According to Benjamin and Scott (1988) one of the reasons for IT success is that it enables, through online databases and telecommunication networks, new forms of integration that result in better cost performance and increased data integration. Kickul and Gundry (2001) argue that maintaining better relationships and integrating with suppliers is a crucial element of the company sustenance process. Johnston and Vitale (1988) defend that if carefully identified and used, inter-organizational systems give significant competitive advantages to organizations. Barua, Konana, Whinston, and Yin (2001) show that the readiness of business partners to implement e-commerce technologies is critical to achieve business excellence and online systems efficiency. Epstein (2000) says that integration of processes and systems directly translates into business success. Huang, Chen, and Frolick (2002) argue that introducing the web as a way of integrating data leads to better business value. Epstein (2000) says that integration of processes and systems directly translates into business success. Huang, Chen, and Frolick (2002) argue that introducing the web as a way of integrating data
Building Business Value in E-Commerce Enabled Organizations
leads to better business value. Dai and Kauffman (2002) point out that firms can conduct successful B2B transactions by creating inter-organizational systems. At least one empirical study mention efficiency benefits from the implementation of integrated inter-organizational systems. Mebane Packaging, for example, achieved better efficiency, and the chain of supermarkets Somerfield Stores improved its business efficiencies with its systems integration project (Thomas, 2003). These lead to the following hypothesis: H5: There is a positive correlation between businesses with higher level of Inter-organizational systems availability (IOrSA) and e-commerce business success (ECBS). Hypothesis 6: Firms with efficient e-commerce systems should be at a relatively better position to achieve better business success. Lederer, Mirchandani, and Sims (2001) point out that strategic advantage from the World Wide Web is created through increased efficiency of processes. Mukhopadhyay and Kekre (1995) study an electronic data interchange system at Chrysler over a period of 10 years and observe that it has caused massive cost savings and has imparted system-wide discipline and integrative value to the company. Stratopoulos and Dehning (2000) show that firms making successful investments in IT are more successful at solving the productivity paradox than those that make failed or abortive investments in IT. Hitt and Brynjolfsson (1997) analyze the effects of IT on the internal firm organization and find that IT is associated with decentralization of authority, increased knowledge work, and decreased observability. These lead to the following hypothesis. H6: There is a positive correlation between businesses with higher online systems efficiency (OnSE) and e-commerce business value (ECBS).
Hypothesis 7: This hypothesis purports that the quality and effectiveness of the website (online presence) drives e-commerce success. Zhu and Kraemer (2002) point out that better e-commerce capability serves to improve the effectiveness of investments on e-commerce initiatives through firm performance. Chaudhury, Mallick, and Rao (2001) mention that enhancement of website quality can improve business value. Huang, Chen, and Frolick (2002) say that evaluating web data quality is important to effectively determining the business value of online data. A survey by Liu, Arnett, and Litecky (2000) indicates that the attractiveness, quality of design, and information available on the e-commerce site are the most important factors influencing the purchase decision of a customer. Lederer, Maupin, Sena, and Zhuang (2000) point out that the “ease of use” quality is very important for successful web sites. Rose and Straub (1999) identify excessive download time as one of the most serious technological impediments to e-commerce. These lead to the following hypothesis. H7: There is a positive correlation between businesses that have a higher level of online system quality and effectiveness (OnSQE) and e-commerce business success.
Data Collection Based on the existing research literature, we designed a questionnaire (Appendix) to gather information on e-business success. It contains 31 items. The respondents were asked to answer each question on a seven-point Likert scale with values ranging from 1 (strongly disagree) to 7 (strongly agree). Each construct was measured using a series of items. ITOrS, for example, comprises five items: i) alignment of IT strategies with top management strategies, ii) whether IT is considered a part of the long term strategies, iii) whether IT executives have decision making roles, iv) IT structure features, and v) overall organizational
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learning environment. IOrSA was measured in terms of whether: i) the firm has an Internetenabled system to share information among upstream and downstream entities, ii) there is an effective automated order changing system, iii) data is automatically transmitted and processed, iv) it is possible to track inventory and purchasing continuously, v) there exists an online procurement system, and vi) internet expertise is an important selection criteria for suppliers/vendors. OnSE contains five items: i) degree of online business transactions, ii) availability of online customer service, iii) availability of a highly automated order tracking system, iv) possibility of resolving customer requests online, and v) availability of a system to monitor orders continuously. OnSQE is based on five e-commerce website features: i) security, ii) attractiveness, iii) navigability, iv) flexibility, and v) continuous availability of the website. Finally, ECBS is measured in terms of i) return on investment; ii) return on sales; iii) growth in revenue; iv) net income over invested capital; v) sales over total assets; vi) sales by employee; vii) company image; viii) customer satisfaction; ix) product /service innovation; and x) return of customers. The data used to test the hypothesized model comes from surveying 550 companies which have been identified as premier companies that have successfully implemented e-commerce technologies or strategies and have been able to create positive value either operationally or financially. These firms were listed in Information week 500 and Internet week 100, two premier computer magazines that survey innovative and successful uses of IT for competitive advantage. A copy of the instrument was mailed to IT executives of these companies. The respondents were allowed to reply via postal mail or answer the questionnaire online. In order to increase the response rate, we sent the instrument to local representatives (managers of the stores) of national chains (e.g., Target and Dillards). Also, we surveyed a group of Boeing executives attending an MBA-level e-
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commerce class. Individual identity and responses were masked to ensure confidentiality. We received 43 responses, seven of which were incomplete. Incomplete responses were not used for analyzing data. Forty one companies had more than 1 million in revenues. The other two companies did not provide revenue information. About 42% of the respondents were executive technology officers; 32% middle managers; and 26% store managers or associates. About 2% of the responses were from companies that engage in all three modes of business: Business to Business (B2B), Business to Consumer (B2C), and Consumer to Consumer (C2C). Overall, there were 60% in B2B, 72% in B2C, and 2% in C2C. About 44% were involved in both B2B and B2C. Around 14% were exclusively B2B and 23% exclusively B2C. The average number of employees of these firms was 98,000. Surveying took about 6 months during the summer and fall of 2002.
RESULTS Analysis In this section we report statistical results with respect to constructs validations; model fit; and hypotheses and paths analysis. The Partial Least Square (PLS) approach is typically suited for problems dealing with a small sample size and is often used for exploratory model testing and validation. We have, however, used an AMOS/ LISREL approach to analyze our structural equation model because it also yields similar results for a small sample size while offering more statistics (AMOS (Arbuckle, J.L., 1989). In the past, the AMOS/LISREL approach has been used for analyzing small data sets. Wold (1989), for example, used this approach to analyze a model based on a data set consisting of 10 cases and 27 variables.
Building Business Value in E-Commerce Enabled Organizations
Unidimensionality
measure convergent validity as a reliability test for the five constructs in the model. ITOrS, IOrSA, OnSE, OnSQE, and ECBS have reliability scores of 0.90, 0.76, 0.67, 0.81, and 0.93, respectively. Nunnally (1978) suggested a Cronbach alpha threshold level of 0.60 for exploratory research. All five constructs met this threshold level. More recently, Hair et al. (1998) suggested the threshold values of 0.60 for exploratory research and 0.80 for confirmatory research. Since the present research is an exploratory study, the aforementioned constructs are also reliable using the guidelines suggested by Hair et al. (1998).
To verify that all items loaded well in their assigned constructs, we used factor analysis to conduct unidimensionality tests with a reference norm of 0.40 as suggested by Mahmood and Sniezek (1989). Table 1 shows results of this test. With the exception of item #2, all remaining five items in construct IOrSA load satisfactorily (> 0.40). All items in OnSE load well (> 0.46). All 5 items in ITOrS load strongly (> 0.82) with the exception of item #3 which loads at 0.59. All five items in OnSQE load well (> 0.58). The 10 items or questions in ECBS, the terminal construct of the model, load well (> 0.59). The average variance extracted (from communalities from factor analysis) is 0.54, 0.42, 0.62, 0.37, and 0.57 for IOrSA, OnSE, ITOrS, OnSQE, and ECBS, respectively.
Validity Table 2 presents the correlations between constructs. Demonstrating divergent or discriminant validity requires that the constructs do not correlate highly with each other (Campbell and Fiske (1959)). As can be seen, almost all the correlations are below 0.50 which indicates that these constructs are valid independently. Note that IOrSA-OnSE, IOrSA-ITOrS, ITOrS-ECBS and OnSQE-ECBS involve some measure of overlap. It is not surprising that all constructs are correlated to some extent as the various processes contributing
Reliability Cronbach’s coefficient alpha, one of the most widely used reliability tests, was carried out to ensure that the items for each factor were internally related in the manner expected. Cronbach’s alpha is based on “internal consistency” of a test: the degree to which variables in the measurement set are homogeneous. We used the Cronbach alpha to
Table 1. Scale development Number of Items or questions
Construct IOrSA OnSE ITOrS OnSQE
ECBS
6 5 5 5
10
Mean 5.00 4.98 5.55 5.24
5.29
Standard Deviation 0.90 0.92 1.01 1.00
0.98
Cronbach Alpha
Variance Extracted
Factor Loadings
0.76
0.501, 0.148, 0.614, 0.763, 0.683, 0.648
0.54
0.67
0.584, 0.701, 0.545, 0.613, 0.459
0.42
0.90
0.861, 0.881, 0.592, 0.837, 0.884
0.62
0.81
0.748, 0.752, 0.890, 0.583, 0.677
0.37
0.93
0.767, 0.796, 0.807, 0.792, 0.751, 0.590, 0.794, 0.833, 0.880, 0.585
0.57
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Table 3. Average variance extracted (AVE)
Table 2. Correlations among constructs Construct
IOrSA
OnSE
ITOrS
OnSQE
IOrSA
1.000
OnSE
0.520
1.000
ITOrS
0.641
0.464
1.000
OnSQE
0.373
0.471
0.403
1.000
ECBS
0.498
0.467
0.609
0.558
ECBS
S1
IOrSA
1.000
to the success of an e-business can be expected to interweave and overlap among themselves. Since the aforementioned analysis does not provide unambiguous results on discriminant validity, we have decided to use a more rigorous factor-based procedure known as the average variance extracted (AVE) method proposed by Fornell and Larcker (1981) (see Tables 3 and 4). The formula for calculating the AVE is provided at the bottom of Table 3. Using this method, one may conclude that constructs are different if the AVE for a given set of constructs is greater than their shared variance. Table 4 provides a matrix of squared covariance of each construct with each other construct. The diagonal elements are replaced with the AVE for the column construct. If there is a discriminant validity among the constructs, then the diagonal element for a given construct (column) should be larger than any of the squared covariances in the column or row in which it is found. Using this benchmark, there is unequivocal evidence that all constructs included in the present study pass the test of discriminant validity.
Results AMOS results showed that the paths ITOrS →IOrSA, ITOrS → OnSE, ITOrS → OnSQE, and ITOrS → ECBS, and OnSQE → ECBS are significant, with coefficients 0.64 (significant at the.01 level), 0.46 (significant at the.05 level), 0.40 (significant at the.05 level), 0.39 (significant at the.05 level), and 0.34 (significant at the.05
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Construct 2.12
S2
AVE
3.88
0.35
OnSE
1.72
3.28
0.34
ITOrS
3.35
1.65
0.67
OnSQE
2.72
2.29
0.54
ECBS
5.85
4.15
0.59
S1 = Sum of squared factor loadings of the indicator variables on the factor representing the construct S2 = Quantity (1 – the squared loading) summed for all indicators AVE = S1/(S1 + S2)
Table 4. Squared covariance and AVE ITOrS
IOrSA
OnSE
OnSQE
ECBS
ITOrS
0.35
0.331
0.198
0.181
0.365
IOrSA
0.331
0.34
0.186
0.116
0.181
OnSE
0.198
0.186
0.67
0.212
0.182
OnSQE
0.181
0.116
0.212
0.54
0.318
ECBS
0.365
0.181
0.182
0.318
0.59
level), respectively. Paths IOrSA → ECBS and OnSE → ECBS, with regression weights of 0.09 and 0.09, respectively, were not significant. The model itself is significant at 0.034 with a chi-square value of 8.681 and 3 df (the chi-square value for SEM type of analyses should not be significant if there is a good model fit to the data) (see Figure 2). The chi-sq is, however, too sensitive to sample size (Bentler and Bonnett (1980)). Instead, for the present research, the chi- sq/df ratio is being used to test the model fit (see Table 5). This ratio is less than 5, the threshold suggested by Hayduck (1987) to move forward with further analyses. Given that the sample size for the present research is small, the comparative fit index (CFI) is first used to test fit between the model and the data. The CFI value for the proposed model is.90 which satisfies the standard suggested by Hu and Bentler (1999). To further test the model-to-data fitness, the goodness-of-fit index (GFI) is used. The value for GFI for the model is 0.91 which surpasses a conservative value on.90 recom-
Building Business Value in E-Commerce Enabled Organizations
Figure 2. Results of the hypothesized model
Table 5. Model fit statistics Model
Chi sq/ df
CFI
GFI
IFI
M1: Hypothesized Model
2.89
0.90
0.91
0.91
M2: Independent Model
6.61
0.00
0.49
0.00
mended by Kline (1998). The final index reported in the present analysis is the incremental fit index (IFI). The IFI value for the present model is 0.91. A value above.90 is an acceptable fit. Aforementioned results related to the proposed model in Figure 2 reveal a good fit of the model to the data.
DISCUSSION Our results confirm H1, that IT alignment to Organizational Strategies (ITOrS) and InterOrganizational System Availability (IOrSA) are critical success factors for building business
value in e-commerce enabled organizations. The results show that evidence of strong decision making power of a chief information officer, strong structure for technology and planning, strong alignment of short term and long term IT strategy with top management strategy, and a positive technology learning environment results in more sophisticated systems integration within the organization. These results are supported by Barua, Konana, Whinston, and Yin (2001) when they indicated that the readiness of business partners to implement e-commerce technologies is critical to achieving business excellence and online systems efficiency. Our results are also supported by Segars and Grover (1998) when they suggested that paying attention to aligning IT strategy with business strategy, understanding the systems processes, and the support of management and end-user groups are crucial to IT planning success. In the same way, strong ITOrs result in a high quantity or percentage of online business and highly automated systems. Our results confirm that higher ITOrS is a critical success factor for achieving online systems efficiency (OnSE) (H2). Our results, as such, support Huselid and Becker’s (1997) suggestion about the existence of synergies between implementing efficient systems and their strategic alignment. Results of the present research study also support Lederer, Mirchandani, and Sims’ (2001) assertion that the efficiencies created by web-enabled systems affect strategic alignment positively by improving customer relations. Our results are also in line with Mukhopadhyay and Kekre’s (1995) findings on EDI at Chrysler that suggest that the EDI system has caused massive cost savings and has imparted system-wide discipline and generated integrative value for the company. Our results confirm that ITOrS is a critical success factor for Online System Quality and Effectiveness (OnSQE) (H3). In other words, the more a company’s IT is aligned to its parent organization’s strategies the more successful it will
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be in obtaining management support for creating higher quality and effective online presence. These results are in line with what is suggested in the literature. Peak and Guynes (2003, 2003-1), for example, point out that aligning IT with organizational strategies improves information quality which resulted in improved quality of products and services. Kowtha and Choon (2001) mention how the sophistication of a firm’s website reflects the strategic priorities of the firm. They further suggest that strategic commitment has substantive and high significant effects on website development. The results of the present research support the critical relationship between IT alignment to organizational strategies and e-commerce business success (ECBS) (H4) by finding that this relationship is significant and positive. This is also in line with what is suggested in the literature. Pollalis (2003), for example, confirms that alignment of IT to organizational strategies leads to better performance of banks. Sun and Hong (2002) find support in the literature for a significant and direct effect of strategic alignment on business performance in the field of manufacturing strategy. Burn and Szeto (1999) find that this alignment is critically important for business success. Our results also support the critical relationship between quality and effectiveness of online systems (OnSQE) and e-commerce business success (H7). We are, therefore, able to agree with Zhu and Kraemer (2002) when they pointed out that better e-commerce capability serves to improve the effectiveness of investments on e-commerce initiatives through firm performance. We are also in a position to agree with Chaudhury, Mallick, and Rao (2001) when they mentioned that enhancement of website quality can improve business value. The same goes for the study by Huang, Chen, and Frolick (2002) when they stated that evaluating web data quality is important to effectively determining the business value of online data. Our results do not support the relationship between inter-organizational system availability
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(IOrSA) and ECBS (H5) as critical success factors. We are, therefore, unable to support Bakos’ (1991) assertion that electronic marketplaces create interorganizational coordination and reduce search costs and increase economic efficiencies. We are also unable to concur with Kickul and Gundry’s (2001) argument that maintaining better relationships and integrating with suppliers is a crucial element of the company sustenance process. We are also unable to agree with Johnston and Vitale’s (1988) contention that, if carefully identified and used, inter-organizational systems give significant competitive advantages to organizations. Our results also do not support the path between online system efficiency and e-commerce business success (H6). It is not known why this path is not significant. One would normally expect for firms with efficient e-commerce systems to be at a relatively better position to achieve better business success. We are, therefore, unable to support Hitt and Brynjolfsson’s (1997) findings with regard to IT’s association with decentralization of authority, increased knowledge work, and decreased observability. We are also unable to agree with Stratopoulos and Dehning (2000) when they stated that firms making successful investments in IT are more successful at solving the productivity paradox than those that make failed or abortive investments in IT.
CONCLUSION In summary, our results clearly identify IT alignment to organizational strategies (ITOrS) and online system quality and effectiveness (OnSQE) as critical success factors toward achieving ebusiness success (ECBS). Our results also suggest that ITOrS impacts inter-organizational system availability (IOrSA), online system efficiency (OnSE), quality and effectiveness of online systems (OnSQE), and e-commerce business success (ECBS). Our results also suggest that OnSQE is a critical success factor towards ECBS.
Building Business Value in E-Commerce Enabled Organizations
Our results showed that IOrSA and OnSE played no significant role towards e-business success. It is obvious, at least according to the present research, the quality and effectiveness of these systems are much more important than their availability and efficiency. These relationships need to be investigated further in future research studies.
Implications of the Research The present research has revealed critical success factors for building business value in e-commerce enabled organizations. The research reveals to practioners that it is crucial to develop strong IT planning strategies for the implementation of e-commerce technologies within organizations. Organizations must understand that the increase in business value of the organization depends on the quality and effectiveness of the systems design.
Limitations and Future Research Although critical success factors for building business value in e-commerce enabled organizations have been identified, further research should include a study determining the strength of the relationships between the constructs as well as their validity across varied e-commerce sectors. The scope of the study should also be expanded in order to include a larger sample size.
ACKNOWLEDGMENT Special acknowledgement to Ritesh Mariadas, University of Texas at El Paso
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APPENDIX Success Factors of Internet Enabled Business Questionnaire (On a Likert Scale with values ranging from 1, strongly disagree, to 7, strongly agree)
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IT Alignment to Organizational Strategies (ITOrS) 1. There is an alignment of information technology (IT) strategy and top management strategy 2. There is agreement within the company that information technology is part of long term strategy 3. The Chief Information Officer has significant decision-making power 4. There is a strong structure within the company for information technology planning and implementation 5. There is a positive environment for organizational learning associated with the use of new information technology Inter-Organizational Systems Availability (IOrSA) 6. An Internet-enabled uniform system of information sharing is available 7. An automatic change order system is available 8. The system permits highly automated transmitting and processing of data 9. Inventory and Purchase tracking systems are continuously monitored 10. The online procurement system is satisfactory 11. Internet expertise is a selection criteria for suppliers/vendors Online Systems Quality and Effectiveness (OnSQE) 12. The website used for purchasing and customer relations is highly secure 13. The website used for purchasing and customer relations is visually attractive 14. The website used for purchasing and customer relations is easily navigable 15. The website used for purchasing and customer relations offers personalized logons 16. The website used for purchasing and customer relations is consistently accessible without experiencing loading delays Online Systems Efficiency (OnSE) 17. There is a high quantity or percentage of online business 18. Online customer service is available 19. Customers requests are resolved online 20. Continuous monitoring of orders is available 21. A highly automated order tracking system is available E-commerce business success (ECBS) 22. Return on Investment has increased 23. Return on Sales has increased 24. Growth in Net Revenue has increased 25. Net Income over Invested Capital has increased 26. Sales over total assets has increased 27. Return on Sales per employee has increased 28. The organization has a positive company image
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29. Customer satisfaction is high 30. The organization engages in product/service innovation 31. There are a large number of return customers Organizational Characteristics Company Name Location Primary products Circle all that applies. Does your business do…? Business to Business Business to Consumer Consumer to Consumer Annual sales (US $ billions) <1 | 2 - 50 | 51 - 100 | 101 - 150 | 151 – 200 Total number of employees Company’s primary customers Personal Characteristics (This information is entirely voluntary, all information will be kept confidential) Name Position/Title Phone Email I would like a copy of the results emailed to me at ________________ (e-mail address) This work was previously published in Transforming E-Business Practices and Applications: Emerging Technologies and Concepts, edited by In Lee, pp. 277-302, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.2
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks Heiko Duin BIBA Bremer Institut für Produktion und Logistik GmbH, Germany Klaus-Dieter Thoben BIBA Bremer Institut für Produktion und Logistik GmbH, Germany
ABSTRACT This chapter introduces virtual organisations (VOs) as a special organisational form of collaborative networks of SMEs to conduct EBusiness projects. VOs are normally not created from scratch, but instantiated from a strategic network or pool of enterprises. This enhances the preparedness of participating members when an E-Business opportunity occurs. The underlying strategic network acts as a breeding environment DOI: 10.4018/978-1-60960-587-2.ch202
for the VOs. Therefore, it is called a VO Breeding Environment (VBE). Examples from the automotive industry are illustrating the development and needs of this concept. Strategic planning is important for such a network in order to increase chances of occurring business opportunities. The remainder of this chapter shows how scenariooriented methods such as cross-impact analysis can be used to support a collaborative strategic planning in such networked organisations. The application of such methods allows long-term foresight and the anticipation of the right technological, financial and business oriented decisions.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
INTRODUCTION The continuing change of producer markets towards buyer markets has a strong impact on the competition between manufacturing enterprises. As a strategic answer collaborative networks such as virtual corporations, virtual enterprises or virtual factories have been discussed since the beginning of the 90ies of last century. Many models and concepts supporting the life cycle of such organisations – consisting of the creation, operation and dissolution phases – have been developed. An important aspect in the creation phase is strategic planning. This phase is supported by concepts of long-term networks like industrial clusters or regional networks which act as a breeding environment and which enable the short-term creation of virtual organisations. Especially this phase needs support of strategic planning which is a part of the strategic management process. The two basic types of collaborative networks are represented by Virtual Organisations (VOs) and by Source Networks (e.g.Kürümlüoglu, Nostdal, & Karvonen, 2005): •
A Virtual Organisation (VO) is a temporary consortium of partners from different organisations established to fulfil a value
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adding task, for example a product or service to a customer. The lifetime of a VO is typically restricted: it is created for a definite task and dissolved after the task has been completed. A synonym for VO is the term Virtual Enterprise. A Source/Support Network is a more stationary, though not static, group of organisational entities which has developed a preparedness to collaborate in case of a specific task / customer demand. Another name for such a network is Breeding Environment.
The relationship between these two forms is that the Breeding Environment prepares the instantiation of VOs. It acts as an incubator for a VO. From the VO point of view, the VO is created when an E-Business opportunity occurs. In order to perform the actual value creation task, the VO can be created from scratch (collecting cooperating partners from an “open universe” of enterprises) or through a VO Breeding Environment (VBE, see Figure 1). When collecting the partners for the VO from the open universe, several steps or activities have to be performed. This includes partner search and selection of the “right” partners, the definition of a common infrastructure to be used by those
Figure 1. Two ways to instantiate VOs
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Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
partners, agreement on common sharing principles and finally the collaboration needs to be fixed in a cooperation agreement resulting in a contract between all participating partners. It is obvious that this process needs a certain amount of time which may result that competitors are faster in preparing their offer. In the second way of Figure 1 all activities which are independent from the E-Business opportunity are prepared in advance. The search and selection of partners fitting to a specific kind of E-Businesses activity results in a pool of known and trusted partners. It should be quite easy to select those partners who have the right competencies and resources to implement a VO to answer the E-Business opportunity. All partners in the pool also agree on cooperation and sharing principles and the common infrastructure to be used in the case of a VO instantiation. This saves a lot of negotiation time and enhances the speed with which such a pool can prepare an offer for an upcoming opportunity. The remaining of this chapter is investigating the situation and needs of SME suppliers in the automotive industry. According to an Accenture study (Baier, 2007) and backed by the FAST-2015 study (Dannenberg & Kleinhans, 2005) the market of the OEMs (Original Equipment Manufacturers) is still consolidating. From 36 independent manufacturers worldwide in 1970 only 19 will still exist in 2010 (in 2006 there were 27). The same situation concerns the supplier industry: while in 2005 about 1,500 – 2,000 suppliers were delivering for an OEM, it is expected that in 2010 this number is reduced to 500 – 700. At the same time the percentage of value added by suppliers’ increases from 65% to 75%. Hüttenrauch & Baum (2008) posit ten hypothesis‘ concerning the future of the automotive industry. The main important ones in the context of this chapter are: •
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Automotive manufacturers will transfer more and more complex tasks to their sup-
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pliers while focussing their own value creation on brand-defining modules. Only a few suppliers with clear business models and very high module-based competences will determine the automotive industry. End users are demanding new ways and more flexible concepts of mobility.
With these trends in mind it is obvious that automotive supplier SMEs do have the need of finding new business models ensure to participate the automotive value creation chain in the future. To establish a Virtual Organisation which acts as one partner (or supplier) is one solution. As end users are demanding new ways and more flexible concepts of mobility, the product “car” will also change. Beside owning just the physical product, services ensuring availability and environmentally friendly transport become more and more important (Becker, 2006). The objective of this chapter is to show how SMEs can enhance their preparedness for conducting E-Business projects in virtual organisations by doing two things. Firstly, the potential partners have to organise as long-term strategic networks with the objective to continuously seek for EBusiness opportunities. Secondly, the strategic networks need to perform continuous strategic planning.
BACKGROUND In order to react fast and effective in the context of the VBE as shown in Figure 1 the E-Business Opportunity needs to be analysed a little more. In difference to traditional thinking (i.e. the development and/or production of physical products) two kinds of E-Business opportunities might be distinguished: •
Electronic Services for businesses, administrations or consumers. As explained
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
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below, there nine different areas on which E-Business applications can be classified. Typical for each E-Business application is that there are no physical products involved. Most E-Business applications just cover the more or less administrative information exchanges within market transactions (e.g. orders and payments). Development and/or production of an Extended Product. The paradigm of the Extended Product is explained by Jansson and Thoben (2005). Extended Products can be defined as a physical product expanded by services which provide benefit(s) for the users. This is one step further than providing a solution. In such a case, it is obvious that especially services provided with the mean of the Internet represent the E-Business opportunities.
Concerning the automotive industry, the extended product can be defined as the provision of mobility. The main benefit is shifting from owning a car towards having a car at hand whenever wanted by the user. This can be realised in many ways, one example is a car sharing programme, where the members pay a monthly fee for the service of using a car at specific times. The car sharing organisation ensures the optimal size and regular maintenance and the necessary insurance of the fleet so that each member has a car at hand whenever wanted. This includes the provision of cars for specific purposes. Often members just need a ‘normal’ car, but sometimes there is e.g. a need for a van. Beside the shared ownership of a vehicle fleet, there are many options to provide additional services combined with the product car. Such services can be information services like weather and traffic information, routing services or to call intention to any interesting points (POI = Point of Interest like sights or infrastructural elements like gasoline stations or motels).
Such an extended product like ‘mobility’ also runs through a product development process. As the OEM of cars is not in the situation to deliver all physical as well as all intangible elements of the final product, it needs to cooperate with partners. This leads to E-Business opportunities of any kind of supplier for such a kind of an extended product.
E-Business Because of the rapid technological changes and the dynamics in the economic environment, the factor information has become more significant than the production factor. Many enterprises and other organisations have implemented business processes utilising the Internet and realizing customer relationships with the help of electronic means, i.e. Information and Communication Technology which led to coining the term Electronic Business (E-Business) (Meier & Stormer, 2009). E-Business describes initiating, arranging, and carrying out electronic business processes, i.e. exchanging services with the help of public or private communication networks via the Internet. This is done with the objective to achieve added value. Enterprises (businesses), public institutions (administration), as well as private persons (mostly they are assumed to be consumers) can be both service providers and service consumers. What is important is that the electronic business relationship generates added value, which may take the form of either a monetary or an intangible contribution. A commonly used typology to distinguish different forms of E-Business is to categorise the involved actors in the groups of consumers, businesses and administrations. Putting providers and consumers of E-Business services onto two different perpendicular axis results in a matrix with nine different fields of relationships: •
Consumer-to-Consumer (C2C): An example is the classified advertisement of other consumer web sites on the own con-
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Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
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sumer’s web site. Another example are the many social networking sites like XING. Consumer-to-Business (C2B): Consumers offer their profiles in social networking sites which are often used by head hunters searching for qualified people for their customer enterprises. Consumer-to-Administration (C2A): Consumers offer to verify and evaluate administrative services. Business-to-Consumer (B2C): This is the classical area of online shops, where enterprises offer goods and services for consumers. Business-to-Business (B2B): All electronic services concerning the supply, production and distribution of products (physical products and services) belong to this area. One example is the electronic Supply Chain Management. Business-to-Administration (B2A): this area includes any services enterprises offer for the administration, e.g. information concerning the emission of carbon dioxide. Administration-to-Consumer (A2C): This is the classical area of E-Government where the authorities offer services to citizens like online registration of cars, etc. Administration-to-Business (A2B): This is another area of E-Government where the authorities offer services to businesses like the online tax declarations, etc. Administration-to-Administration (A2A): Here the authorities offer each other services for collaboration. As an example one might think about the exchange of information on criminals between the different levels of police (national police with Interpol, etc.).
The remainder of this chapter assumes enterprises to be involved in B2B E-Business opportunities.
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The life cycle of a (extended) product can be divided into three major phases. First, the Beginning-of-Life (BOL) phase deals mainly with the product development and its manufacturing. The second phase is called Middle-of-Life (MOL) dealing with all issues of product use and maintenance. Finally, the End-of-Life (EOL) phase includes everything from disassembly, re-usage and recycling of all product parts. In the following this chapter focuses on the BOL phase, i.e. product development and manufacturing of the product. Returning to the example of the automotive industry, there are many opportunities for E-Business in the context of Supply Chain Management (SCM) and Customer Relationship Management (CRM) including E-Marketplaces, E-Procurement, E-Commerce and E-Distribution (Raisinghani et al., 2005). This view supports the manufacturing phase including procurement of parts and distribution of the final product. But the development phase also offers many opportunities of E-Business resulting in the collaborative development of the final product.
Collaborative Business A further development of E-Business is sometimes called C-Business, where the C stands for collaboration. Collaborative Business is a business strategy which animates different partners along a value creation chain to generate additional added value by information exchange (Silberberger, 2003). The concept of Collaborative Business has been some kind the predecessor for Collaborative Networked Organisations which are presented in the following section. The focus of Collaborative Networked Organisations is broader than the concept of Collaborative Business.
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
Collaborative Networked Organisations Camarinha-Matos and Afsarmanesh (2005) propose a new scientific discipline dealing with all aspects of networks of institutions and/or persons which temporarily collaborate in order to follow a common objective. This discipline is called Collaborative Networked Organisations (CNOs). According to Camarinha-Matos & Afsarmanesh (2006), everyone has an intuitive understanding of what collaboration is, but this concept is often confused with cooperation. This confusion reaches even a higher level when related terms such as networking, communication or coordination are considered. Although each of these concepts is an important component of collaboration, they are not equal and none is equivalent to another. An attempt to clarify these various concepts has been presented by Camarinha-Matos & Afsarmanesh (2006): •
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Networking involves communication and information exchange resulting in mutual benefit. An example of networking is the case in which a group of entities shares information about their specific experiences concerning a specific subject. All partners benefit from the information made available and shared, but there is not necessarily a common goal or structure influencing the form and timing of individual contributions. Coordination includes in addition to the exchange of information the alignment of activities resulting in more efficient outcomes. Coordination describes the act of working harmoniously in a concerted way. It is one of the main components of collaboration. An example of coordinated activities occurs when a number of autonomous entities share some information and adjust the timing, e.g. for their lobbying activities for a new subject. Nevertheless each entity
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might have a different goal and use its own resources and methods. Cooperation involves above information exchange and adjustments of activities also the sharing of resources with the objective to achieve compatible or common goals. Cooperation is achieved by dividing tasks among partners. In such a case the aggregated value is the result of the addition of individual contributions to value generated by the single participants. A traditional supply chain is a good example of a cooperative process. Each participant performs its part in series of process steps in a coordinated manner. Each partners behaves following a common plan which is not defined jointly but provided by a single entity the focal organisation in the supply chain. Finally, collaboration describes a “process in which the partners share information, resources and responsibilities to jointly plan, implement, and evaluate a program of activities to achieve a common goal” (Camarinha-Matos & Afsarmanesh, 2006). This concept is based on the Latin word collaborare meaning “to work together”. It implies the sharing of risks, resources, responsibilities, but also the results and rewards. Collaboration involves mutual engagement of participants to solve a problem together, which implies mutual trust. If wanted by the group they can give to an outside observer the image of a joint identity.
The same authors also provide a classification of CNOs (Camarinha-Matos & Afsarmanesh, 2008). Generally CNOs can be divided into goal oriented networks and long-term, strategic networks. The first type can be further sub-divided into continuous production driven networks (such as supply chains) and opportunity grasping networks (like extended enterprises, virtual enterprises and virtual organisations). The second
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Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
type can be further sub-divided into VO Breeding Environments (VBEs) and Professional Virtual Communities. Examples for VBEs are Industry Clusters, Industrial Districts and Business Ecosystems. VBEs provide an environment for the rapid and fluid instantiation of opportunity grasping networks like VOs when opportunities arise.
VO BREEDING ENVIRONMENT (VBE) A Virtual Organisation Breeding Environment (VBE) can be defined as an association of organisations and related supporting institutions, adhering to a base long term cooperation agreement, and adoption of common operating principles and infrastructures, with the main goal of increasing both their chances and their preparedness towards collaboration in potential VOs (Afsarmanesh & Camarinha-Matos, 2009). Members of the VBE must comply with the general rules and policies, e.g. adopting the common infrastructure. But, once an organisation joined the VBE, it has access and shall benefit from its bag of assets including common information, services, and tools as well as common market and distribution channels, common resources and labour pool, common VBE cultural ties and facilities to share the cost of new experiences. The constitution of a VBE is an optimal possibility for SMEs to generate benefits through a networking strategy. The expected main benefit Figure 2. The life cycle phases of a VBE
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for enterprises engaged in automotive clusters is the involvement in strategic developments concerning their main customers, i.e. the OEMs.
VBE Life Cycle As all CNOs, the VBE has a life cycle of the following phases: set-up, operation and dissolution. But, as the VBE is normally planned as a longterm alliance, and considering its valuable bag of assets collected during the lifetime of the VBE, its dissolution is considered as a quite unusual situation. Instead, it is much more probable that the VBE goes through another stage that is called metamorphosis, where it can evolve by changing its form and purpose. This leads to a life cycle for a VBE consisting of five major steps and phases as shown in Figure 2. •
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Preparation. This phase includes the initiation and recruiting of the initial set of members for the VBE. In this phase strategic planning takes place. It ends with the foundation of the VBE. Foundation. This step represents the constitution and the start-up phase. Evolution. From its constitution the VBE is constantly running, i.e. identification of business opportunities, instantiation, operation and dissolution of VOs. It is assumed that this operational phase of the VBE involves some evolutionary steps like the
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
recruitment of additional members are the release of some other members. This affects the form and the bag of assets of the VBE in an evolutionary (slow changing) style, always adapting to the requirements from its environment. Metamorphosis. This step is the revolutionary pendent to the evolution explained above. If the VBE cannot react any long appropriately to the requirements of its environment, a dramatically change concerning its form and purpose is needed. This results in new strategic plans, releasing unnecessary members and recruiting new ones. After the metamorphosis the VBE has completely changed. Dissolution. If a metamorphosis cannot solve the problems the VBE will dissolute. This is the final step in the life cycle of a VBE.
other roles have already been identified including the member, administrator, opportunity broker, VO planner and coordinator (Camarinha-Matos & Afsarmanesh, 2007). The VBE Administrator is a role performed by a member organisation, which is responsible for the VBE operation and evolution, which includes promotion of cooperation among the VBE members, filling the skill/ competency gaps in the VBE by searching and recruiting/inviting new organisations into the VBE and the daily management of the VBE general processes, conflict resolution, preparation of a bag of assets, and making common VBE policies, among others. The responsibility of the VBE administrator needs to be extended by strategic management tasks, when the long-term evolution and metamorphosis of the VBE should occur in a planned and controlled way.
A comprehensive discussion of a management system supporting the all these phases of the life cycle and the roles of actors involved is beyond the scope of this chapter and can be found elsewhere (e.g. Romero Diaz, 2007). The need for strategic planning is most obvious during the preparation and foundation as well as while the metamorphosis takes place. Provider of the strategic planning process should be a steering committee consisting of selected members of the VBE (Duin, 2007b).
The foundation of the VBE can be considered as a special – i.e. the first – metamorphosis in a series a metamorphosis steps. Each of these steps is central for strategic planning activities. As structure follows strategy, the strategic objectives of the network change first. The resulting change in structure represents the implementation of strategy. During the evolutionary phases of a VBE strategic controlling takes place to assure the detection of situations where radical changes within the VBE are necessary to assure long-term survival. The evolutionary phase is characterised by small continuing events such as the gaining of new experiences during the execution of instantiated VOs or small changes in customer demands. The VBE can react with internal resources on each of these events. Only minor changes within the structure are necessary in order to adapt to these changes. As such events and the corresponding responses occur in a continuous way, the VBE is evolving in its environment.
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Continuous Creation of VOs Foundation, evolution and metamorphosis of the VBE may be driven by random or in a planned and controlled way. Camarinha-Matos and Afsarmanesh (2007) do mention a long-term strategy behind the VBE, but the responsibility to develop and implement the strategy has not yet been assigned to one of the roles identified within a VBE. Duin (2007b) proposes to define a steering committee for strategic management tasks. Several
Metamorphosis and Evolution
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Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
Figure 3. Continuous instantiation of VOs by aVBE
The metamorphosis is a step to be taken as an answer to a more radical change in the environment of the VBE. Most commonly, it takes place as a response to one of the following two reasons: •
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A dramatic change within the market where the VBE is operating in can be observed in terms of a change in the competitive situation (new competing VBEs may be formed). The VBE needs to sharpen their competitive profile. The customer driven demand of offered competencies, products or services is changing. The VBE needs to adapt to the changed customer demands. Most often this means the acquisition of new competencies.
In each case, the VBE needs to reflect on such changes in order to redefine its strategy. This includes the change of the structural and componential dimensions of the network by including new members who can fill the gaps of the needed profile. The VBE changes – in comparison to the evolutionary changes – more dramatically so that this step is called a metamorphosis. Within the automotive industry it can be observed that the formation of collaborative networks
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is driven from two sides. The OEMs are interested in restructuring their Supply Chains into Supply Networks. A good example for this development is the Daimler Supplier Network (Daimler, 2009). Daimler is dividing their suppliers into three groups: (1) Strategic Partners, (2) Key Suppliers, and (3) Suppliers. The intention is to include the Strategic Partners into the strategic innovation of the OEM expecting an exceptional reliability but also offering planning security, reliability, information access, trustful collaboration and business opportunities as compensation. Smaller suppliers – which are often SMEs – are very much interested in such close cooperation with OEMs, but are considered due to different reasons (mostly because of their size) not as reliable as necessary. The answer is the foundation of strategic networks such as VBEs in order to arise stronger and more reliable into the market. Especially in the automotive industry the industrial cluster (which is a special manifestation of a VBE) has emerged as a strategic network in the automotive industry.
Examples for VBEs The Automotive Cluster Slovenia (ACS) was founded in November 2001 by 12 Slovenian
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
organisations (10 enterprises, the University of Ljubljana and a regional development agency). After a period of preparation which lasted a few months, the network became operational on 14 March 2002 (ACS, 2002). Currently, the ACS counts 58 members. All members are suppliers in the automotive industry. Their product portfolio is quite manifold reaching from simple parts like tires via interior and window systems to engine parts and gear units. The strategic objectives of the members of the ACS include profitable growth, acquisition of new customers, common promotion and marketing campaigns, optimization of the supply chain, common development of ICT infrastructure, and common knowledge management activities (GzS/ izGTM, 2008). The main objective of the cluster is to develop and sell complex parts with a high added value. In order to reach this goal a clusteroffice has been established to coordinate common activities. Currently a network-wide information system is under development to streamline the interactions among the single members (Jaklic, Svetina, & Zagorsek, 2008). Another strategic objective of the ACS is collaborative networking with other automotive clusters. The ACS is involved in the foundation of a network of clusters covering the region of south-east Europe (Busen, 2004). Customers of the ACS include many of the big OEMs and their first-tier suppliers such as Audi, BMW, Bosch, Ford, MAN, MAGNA Steyr, Mercedes, New Holland, Opel, Renault, SAAB, VALEO, Vis-teon, and Volkswagen. The PANAC (Pannon Automotive Cluster) was established in 2000 representing a coalition of automotive supplier of the region Pannon in the north-west of Hungary with Györ as central town (Santoro & Bifulco, 2005). Because of the nearby locations of manufacturing plants of OEMs like Opel, Suzuki and Audi many SMEs settled in that region to supply in a fest and flexible way. Currently, PANAC counts around 70 members (Grosz, 2008).
Most of the partners of PANAC are secondtier and third-tier suppliers of the region. Most of them understood relatively fast that cooperation instead of competition is more beneficial for each of those enterprises. As a consequence, PANAC was founded with the goal to offer system integration solutions to the OEMs. This allows highly flexible and configurable proposals for the customers, which in turn provides a strong negotiation position for the members. The strategic objectives of the members include the common marketing of the competences of the region, common innovation projects and the development of competitive advantages. The cluster management is performed by a regional development agency. Specific services such as a ‘Automotive-Benchmarking-Club’ and common public relations and marketing activities are offered to its members. The OEMs Audi, Suzuki, and Opel are customers and members of PANAC at the same time.
STRATEGIC PLANNING IN VBES Strategic planning as part of the strategic management process for organisations has been researched extensively during the last few decades (e.g. Mintzberg, Ahlstrand, & Lampel, 1998). The challenges as well as methods and tools to address the need of such kind of long-range planning are well understood. But, with the creation of an own unity, i.e. the collaborative network, the interference of strategic planning within the partner organisations and the network level needs further investigations. For the following of this paper, the planning dimension is considered to be central. Planning has two main aspects: (1) Identification of the long-term (strategic) objectives of the organisation, and (2) Setting up a (strategic) action plan to be implemented by the organisation in order to reach the objectives.
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Strategic Planning in the Partner Organisations In a traditional enterprise, the forms of strategy are (Jagdev, Brennan, & Browne, 2004): •
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Corporate Strategy: Is the overall business strategy of the enterprise based on the vision and mission. The corporate strategy guides the single business strategies. Business Strategy: The enterprise divides their activities into Strategic Business Units (SBUs). For each SBU an own strategy is developed and implemented. Functional Strategy: The functional strategies concern individual business functions and processes, e.g. human resources or marketing.
These three forms of strategy are strictly hierarchical, meaning that the functional strategies are strictly in line with their business strategies and all business strategies are compatible with the corporate strategy. The direction of governance is top down.
Common Strategic Planning on Network Level In comparison to the hierarchical strategy structure, strategy formation in a VBE is different. The corporate level strategies are still top down, but within the VBE, the direction of governance is bottom-up. All members are responsible for strategy at the same time. Sturm et al (2004) outline, that the process of strategic management, which is including the strategic planning, becomes a tedious and time consuming dialog in a network, because the members might have controversial interests and there is a need to find compromises and broadly accepted solutions. The preconditions, which make the execution of a strategy process in a network context to a lengthy procedure are: (1)
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decentralisation, and volatility of decisions, communications and resources, (2) inconsistency of interests and (3) novelty of coordination processes. This applies to open networks, but, this might not apply to VBEs due to: •
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An enterprise joining a VBE has to sign a cooperation agreement. Assuming that this agreement regulates the basic responsibilities, procedures and rules of cooperation, the members shouldn’t have very controversial understandings. The members of the VBE follow a common objective, otherwise they wouldn’t join together into a VBE.
From this point of view, the VBE seems not to be that different to other forms of long-term organisations, where strategic management is – of course – an issue. And this opens the discussion, which of the traditional methods and tools of strategic planning apply best to VBEs.
Cross-Impact Analysis as Strategic Planning Aid Scenario technique (Götze, 1993) or scenario planning (Walton, 2008) is a widely used tool for strategic planning, risk and sensitivity analysis and organisational learning. When dealing with hard (quantitative) approaches of forecasting, the result is often just one single scenario connected with a specific probability of occurrence. But, to anticipate the full range of possible future states, other approaches (like narrative storytelling, simulations with varying parameters) should be applied. The natural time frame for scenario techniques is mid-term to long-range. Concerning the planning of the VOs to be created from a VBE two aspects are important: First, the long-range trends and developments of the VBE and its environment, which form the frame for the VOs, and second the VO itself with focus on the collaboration.
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
Scenario techniques are based on two principles (e.g. Gausemeier, Fink, & Schlake, 1998): •
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Systems thinking: Organisations – in this case the VBE – must perceive their environment as a complex network of inter-related (external as well as internal) factors. Multiple futures: Organisations should not reduce their strategic thinking to exactly one prognosticated future. Instead, alternative future scenarios should be created and considered during strategic planning.
The scenario generation approach adopted by BIBA is based on causal cross-impact analysis (Krauth, Duin, & Schimmel, 1998), which has first been developed by Olaf Helmer (Helmer, 1977; Helmer, 1981). Up to now, BIBA included several enhancements to the causal cross-impact analysis method according to requirements identified during various research projects: delayed impacting, threshold impacting, expression variables and a technique for structuring and managing scenarios in a tree. BIBA implemented a cross-impact modelling and simulation software package called JCrimp, which allows the interactive set-up, simulation and evaluation of causal cross-impact models (Duin, 2007a). The basic idea of cross-impact analysis is to get a systemic picture of the rough structure of a complex system supporting long-term planning and assessment tasks. In difference to other simulation approaches like system dynamics, causal cross-impact analysis is not used to generate prognostic data, but to analyse effects over and above a business-as-usual scenario provided by the end user. The end-user (the steering committee, which will commonly develop the model) generates different scenarios by applying action vectors (representing different strategic options) and/ or setting uncontrollable events, which might strongly influence the system under consideration. The basic elements of cross-impact analysis in
the context of VBEs have been introduced by Eschenbächer and Duin (2009). The ARCON reference model (Afsarmanesh & Camarinha-Matos, 2008) provides a sub-division of the endogenous and exogenous view on any CNO which can be used as a general modelling guideline for the cross-impact analysis. The endogenous view is divided into four dimensions: •
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Structural Dimension. This dimension focuses on the structure or composition of the CNO regarding its constituting elements (members and their mutual interactions) and the roles as performed by the involved actors. Other characteristics of the network nodes such as the location, time, etc. are also included. Componential Dimension. This dimension addresses the tangible and intangible elements in the CNO’s network as a whole including the available resources such as staff, hard- and software resources, data, information and knowledge. Note that not all of those elements are physically existing objects but represent the components the network is based of. Additionally, this dimension also covers ontology and any descriptions of the important basic information. Functional Dimension. This dimension consists of differentiating the ‘base operations’ potentially executed at the network level in terms of time-sequenced flows of operations (processes and procedures). This dimension is related to the operational phase of the life cycle as described above. Behavioural Dimension. This dimension involves all the principles, policies, and governance rules which determine the behaviour of the CNO and its members. This includes elements such as collaboration principles and rules of conduct, any contracts, conflict resolution policies, etc.
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The exogenous view is also divided into four dimensions: •
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Market Dimension. The marketing dimension concerns all issues related to the interactions with customers (or potential beneficiaries) on the one side and the competitors on the other side. Interaction with customers includes elements like transactions and established commitments (contracts), marketing, branding, etc. Competition related issues include market positioning, market strategy, policies, etc. Additionally, the purpose or mission of the CNO, its value proposition, and joint identity is also considered in the scope of this dimension. Support Dimension. This dimension collects all the issues related to support services which are provided by third parties. Examples are: certification services, insurance services, training, consulting, etc. Societal Dimension. This dimension covers all interactions between the network and the society in general. Even if this perspective may has a quite broad scope its purpose is the modelling of any impact the CNO potentially has on the society (e.g. effects on unemployment, sustainability, and ecological situation). This also includes any constraints and facilitating elements such as legal issues, administrative decisions, demographic development, etc. Constituency Dimension. This dimension addresses the interaction of the network with the all potentially new members. General strategic issues like the sustainability of the network, attraction factors, what creates a sense of community, or specific aspects such as rules of adhesion and specific ‘marketing’ policies for members, are considered here.
Table 1 shows how these dimensions can be used to structure the cross-impact model to be developed to support strategic decision making on the network level. A number of variables are defined for each dimension and inter-connected by cross-impacts in a later stage. The presentation and discussion of the complete model and its simulation results goes beyond the scope of this chapter. The presentation and discussion of the complete model and its simulation results goes beyond the scope of this chapter, but it is further elaborated by Duin (Duin, 2008; Duin, Eschenbächer, & Thoben, 2009).
FUTURE RESEARCH DIRECTIONS Currently the focus is changing from VBEs towards Digital Business Ecosystems (DBE) as introduced by Nachira, Dini, & Nicolai (2007). A digital ecosystem can be described as the technical infrastructure, based e.g. on a P2P distributed software technology that transports, finds, and connects services and information over a network like the Internet enabling. This allows the distribution of all the digital ‘objects’ present within the Table 1. Variables defined for cross-impact analysis structured by ARCON views Endogenous View
Exogenous View
Structural Dimension €€€€Number of VBE Members €€€€VBE Complexity
Market Dimension €€€€Market Share €€€€Competition
Componential Dimension €€€€Staff Capabilities €€€€Appropriateness of Resources
Support Dimension €€€€Supporting Completeness €€€€Appropriateness of Supporting Institutions
Functional Dimension €€€€Appropriateness of Functions €€€€Complexity of Functions
Societal Dimension €€€€Society Climate Index €€€€Ecological Sustainability
Behavioural Dimension €€€€Collaboration Index €€€€Openness of VBE
Constituency Dimension €€€€Members’ Satisfaction €€€€VBE Complexity
Enhancing the Preparedness of SMEs for E-Business Opportunities by Collaborative Networks
infrastructure. Such an ‘organisms of the digital world’ encompass useful digital representations that can be interpreted and processed (by computer software or humans), e.g. software applications, services, knowledge, taxonomies, folksonomies, ontologies, descriptions of skills, reputation and trust relationships, training modules, contractual frameworks, laws. A business ecosystem represents an economic community supported by a foundation of interacting organisations and individuals – the ‘organisms of the business world’. This economic community produces goods and services of value for customers, who themselves are members of the ecosystem. A healthy ecosystem is in balance between cooperation and competition in a dynamic free market. The DBE concept is currently the basic concept in ongoing projects like COIN (www.coin-ip.eu) which develops Enterprise Collaboration and Enterprise Interoperability platforms enabling open and dynamic digital business ecosystems. Another prevailing research subject is the ‘Internet of Things’ which refers to a network of objects, such as cars or even parts of a car like the engine. The idea is that physical goods are represented in the Internet providing an interface which allows the exchange of information with that physical part. For an engine this can be e.g. runtime or temperature information. The implementation of such a concept would allow the definition of a new range of business opportunities including E-Business options for SMEs. In June 2009 the Commission of the European Communities communicated the ‘Internet of Things – An Action Plan for Europe’ (CEC, 2009).
CONCLUSION This chapter has introduced the concepts of Virtual Organisations (VO) and their Breeding Environments (VBE). Whereas the VOs are created to respond to occurring E-Business activities, the VBE is responsible to prepare all partners for the
event of occurring E-Business opportunities. The VBE is the organisational frame where strategic planning and management takes place on the network level. Furthermore, this chapter has shown how the strategic planning process could look like on the network level and the cross-impact analysis method can be applied using VBE relevant variables. Especially for SMEs it is important to be prepared for E-Business opportunities. This can only be achieved with the right organisational structure (e.g. enterprise networks, i.e. a Collaborative Networked Organisation) and with appropriate planning and management methods and tools in place.
ACKNOWLEDGMENT This work has been partly funded by the European Commission through IST Integrating Project COIN: COllaboration and INteroperability for networked enterprises (EU FP7 Project 216256; www.coin-ip.eu) of the 7th Framework Research Programme.
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Raisinghani, M. S., Herwick, L. B., Pulamsetti, R., Gunther, T. H., Caisan, V., & Wang, A. (2005). EBusiness in the Global Automotive Industry: Key Value Propositions. In Lan, Y.-C. (Ed.), Global Information Society. Operating Information Systems in a Dynamic Global Business Environment (pp. 240–264). Hershey, PA: Idea Group Publishing. Romero Diaz, D. C. (2007). An Instantiation Methodology for Virtual Breeding Environment Management. Master Thesis. Campus Monterrey, Mexiko. Santoro, R., & Bifulco, A. (2005). Survey of Industriel Case Studies. In Camarinha-Matos, L. M., Afsarmanesh, H., & Ollus, M. (Eds.), Virtual Organizations. Systems and Practices (pp. 201–220). Berlin, Heidelberg, New York: Springer. doi:10.1007/0-387-23757-7_14 Silberberger, H. (2003). Collaborative Business und Web Services. Berlin, Heidelberg, New York: Springer-Verlag.
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This work was previously published in E-Business Issues, Challenges and Opportunities for SMEs: Driving Competitiveness, edited by Maria Manuela Cruz-Cunha and João Varajão, pp. 30-45, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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An Information Technology Planning Framework for an Industry Cluster Albert Wee Kwan Tan National University of Singapore, Singapore
ABSTRACT Strategic IS planning (SISP) has been found to be a key issue of concern for management across organizations in various industries. However, most SISP studies have been conducted in the context of large, for-profit organizations but not at the industry level. An industry approach to SISP has been found to be most effective in Singapore to develop the IT capabilities of each industry. This chapter introduces a framework for planning of information technologies (IT) for the industry cluster. More specifically, the different stages in DOI: 10.4018/978-1-60960-587-2.ch203
planning and executing an industry scale IT project for supply chain management are discussed here based on an example from Singapore. This generic framework proposed can be used in any industry where IT plays a strategic role for industry transformation.
INTRODUCTION According to Michael Porter, similar companies are not the only companies that tend to cluster together. It happens in virtually every business and it has to do with natural competitive advantages created by the clustering process (Porter, 1998).
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An Information Technology Planning Framework for an Industry Cluster
When companies cluster together, they tend to have a mutual reinforcement and the flow of information is enhanced when these companies work in the same field. It is much more efficient to do business within a cluster because companies can turn to suppliers or other companies who are near them, rather than creating everything from zero. It is also easy to find people, new business partners and it is a self-reinforcing process that tends to feed on itself. In fact, the government plays a strategic role to improve the performance of each key industry through the development and deployment of such project. Carlsson and Mudambi (2003) find that one of the primary challenges for policymakers is to create a favorable climate for private entrepreneurship, often related to the formation of clusters. This however cannot be directed, only facilitated. Furthermore, once clusters have been formed, a comprehensive set of facilitating policies, from information provision and networking to tax codes and labor laws, are necessary (Braunerhjelm and Carlsson, 2003). As such, the deployment of innovation is important from the national development point of view, and in order to benefit the stakeholders in the national economy, the deployment should take place in industry level instead of supporting individual companies only. From the companies’ point of view, industry level is a natural environment to enhance their opportunities to do business with the supply chain partners. Therefore it makes sense to examine the IT planning and deployment at an industry level than enterprise level for economic growth. The purpose of the chapter is to examine existing IT planning frameworks that are applicable to industry and if none are found, extend or adapt the frameworks to meet the industry needs. The framework will need to address the following questions:
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•
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Is there existing IT planning frameworks for industry cluster available from the literature? What are the key activities involved and their duration in each phase of the framework? How does each actor add-value during implementation and the key measurements of success in each phase? Are there potential risks that can be avoided when implementing such industry cluster projects?
After reviewing the literatures for SISP, we were not able to find any framework that is meant for industry. We therefore are proposing a new framework to provide a systematic approach to deploy information technologies within an industry cluster. This framework is adapted from Lederer and Salmela (1996) framework and applied to a few industries in Singapore. A case study is used to illustrate its application.
LITERATURE REVIEW Strategic information system planning (SISP) has consistently been identified as one of the most critical issues facing IS executives and academic researchers (King, 1995; Lederer and Salmela, 1996; Segars and Grover, 1999; Teo and Ang, 2000; Li and Chen, 2001; Basu et al., 2002; Lee and Pai, 2003; Newkirk et al., 2003; Brown, 2004). From the surveys of information systems management issues conducted during the recent decade, SISP remains one of the major issues facing IT/IS executives and corporate general managers (Brancheau et al., 1996; Watson et al., 1997; Chou and Jou, 1999; Gottschalk, 2001; Pimchangthong, 2003). SISP has been described as a managerial and interactive learning process for integrating information systems considerations into the corporate planning process, aligning the application of IS to business goals, developing
An Information Technology Planning Framework for an Industry Cluster
detailed IS plans and determining information requirements to achieve business objectives (Earl, 1989; Galliers, 1991; Auer and Reponen, 1997; Teo and King, 1997; Cunningham, 2001; Lee and Pai, 2003). Prior studies found that industry as a whole operates differently from individual enterprises in many aspects. Moreover, organizational theories that are applicable to each enterprise may not fit in an industry setting (Wesh and White, 1981; Lertwongsatien and Wongpinunwatana, 2003). Numerous results of studies target to these enterprises are not suited to the industry as whole since there are many different characteristics that exist between enterprises and industry (Blili and Raymond, 1993). Raymond (2003) indicated that as the result of globalization and e-business, industry faces new challenges and to enhance their competitiveness, industry must re-evaluate the business conditions and environment. Clustering has been a theme in international business research for several decades, but has only become a central concern in the last five to ten years. The line of thinking traditionally is to research on the impact of foreign direct investment on host-country productivity (Blomstrom, 1986; Cantwell, 1986; Caves, 1974; Kokko, 1992). Porter (1990) argued that sustainability is a function of the dynamism of the cluster which, in turn, is a function of the interaction between the four elements of the cluster’s “diamond” (demanding customers, related and supporting industries, factor endowments, and firm structure and rivalry). The supply chain deployment is hardly ever considered as purely technological innovations only but it involves several elements related to industry clustering process at the same time. The deployment may be considered for development of infrastructure, advanced carrier or cargo handling technologies, development of IT - or business processes. Therefore in the deployment of such projects, multiple skills and approaches are pre-requites for industry cluster. This will result in industry cluster development in addition to the
companies dealing directly within the industry. It is common that consortiums are established for projects or development initiatives which later turn into industry cluster, where organizations from related industries and the surrounding society are represented.
AN INFORMATION TECHNOLOGY PLANNING FRAMEWORK FOR INDUSTRY A planning process can defined as a set of partially ordered steps intended to reach a goal. A typical SISP process follows a series of well-defined steps. This process may differ substantially from one organization to another. Some organizations might choose to select or omit some particular steps or the tasks within them (Lederer and Salmela, 1996). Premkumar and King (1994) indicates that the SISP process is the set of activities in analyzing the external environment for opportunities and threats, assessing the internal environment to identify strengths and weaknesses, analyzing the business plan and its implications for the IS functions, forecasting IS technology trends and their effect on the industry and the organization, identifying the users information requirement, and developing an information architecture, and developing a set of strategic programs and plans for managing the IS functions. Researchers have proposed numerous different SISP processes. For example, Mentzas (1997) proposed a five phases of SISP process including strategic awareness, strategic analysis, strategic conception, strategic formulation and strategy implementation planning (Table 1). Lederer and Salmela (1996) proposed an information systems strategic planning theory that encompasses seven important constructs (external environment, internal environment, planning resources, information plan, plan implementation and alignment), as shown in Figure 1. This theoretical SISP framework hypothesizes external and
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Table 1. Phases and stages of the SISP process (Source: adapted from Mentzas, 1997) Phases
Stages
Strategic awareness
Identification of strategic goals Identification of business and IT systems Definition of planning process objectives
Situation analysis
Analysis of business systems Analysis of organizational systems Analysis of external business environment Analysis of external IT environment
Strategy conception
Scanning of the future Identification of alternative scenarios Scenario elaboration
Strategy formulation
Formulation of business architecture Formulation of IT architecture Formulation of organizational solutions Synthesis and prioritization
Strategy implementation planning
Definition of action plan elements Evaluation of plan Definition of follow-up and control procedures
internal environments as well as planning resources as constructs that affects the planning process. Furthermore, Lederer and Salmela (1996) indicated that numerous factors with respect to internal environment influence information systems strategic planning, including organization’s corporate culture, organizational size, organizational structure (mechanistic vs. organic), management style, and maturity of organization’s information systems management experience, information planning goals and objectives. Additionally, this framework showed that a more comprehensive planning process produces a more useful information systems plan. Moreover, it further suggested that a more useful information systems plan produces greater plan implementation, and greater plan implementation produces better alignment. Figure 2 is a proposed framework that is adapted from Lederer and Salmela (1996) framework which can be apply to any industry clusters. The framework assumed a coordinator (a neutral party, for example World Bank, United Nation
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Figure 1. A theoretical model of SISP (Source: Lederer and Salmela, 1996)
Council) to collaborate with industry and government departments to perform each planning process efficiently. The process phases are similar, irrespective of industry (except during pilot implementation where there might be variants) and within each industry, business environment will need to be re-examine as part of industry analysis. The phases/sub processes of the framework are discussed as follows:
Phase 1: Industry Scan Market demand or requirements (potentially the more specific customer needs) and the ability to respond to these requirements determine the performance gaps in each industry. In this phase, the coordinator will conduct survey and gap analysis with industry to identify performance gaps within the industry. The gaps could be operational or strategic in nature. The instruments used can range from field surveys to focus group interviews. Survey can be conducted on a yearly basis to identify trends and best practices in each industry. The potential risk involved in this phase is that the interested party might take too long a
An Information Technology Planning Framework for an Industry Cluster
Figure 2. Framework to deploy information technologies for an indusry cluster
time to complete the study. Economic or structural changes would have taken place that might make the initial study invalid.
Phase 2: Technology and Process Scan The performance gaps detected during the previous phase may be addressed by technology, new organization and process, or a combination of these. The coordinator will seek advice from research institutes and technology providers for solutions to narrow those gaps identified. This may involve more than one technology and a variety of organizational and process changes. Therefore the coordinator will need to form a program to conceptualize the solution for the cluster. Government could also takes the role of mediator as it is in the government’s interest in this phase to facilitate and establish mechanisms and networks required to transfer the information, technologies and knowledge within the cluster. The potential risk at this phase includes recommendation of unproven technologies or if the industry is not ready to embrace the new concept or technology.
Phase 3: Build, Acquire or Lease In order to ensure that the solution is both economically and operationally feasible, it is crucial to consider its financing opportunities, scalabilities, risks and projected life cycle of the solution. The
coordinator and industry could jointly determine whether to build, acquire or lease the solution. Depending on the nature of the project, different approach is recommended for different industry setting. Solution that involves infrastructure might be better to build and safeguard while applications that are non-sensitive can be outsourced. The potential risks involved at this phase include: underestimating the costs of implementations; difficulty in soliciting participation from the industry as they do not want to be guinea pig; or the participating companies may have hidden agenda to make use of this project to secure government funding.
Phase 4: Pilot Implementation The pilot implementation is a test-bed for novel application (in a new environment) that may be based on new innovations and technologies. The coordinator and industry will identify suitable pilot companies to test the solution and manage the project till completion. The coordinator helps to smoothen the implementation process by introducing change management and work closely with training institutes to establish new training programs for the industry so that they are capable of operating the IT systems using their new IT skills and capabilities. This has always been neglected resulting in strong resistance from operation staff in adopting the new system. Funding is used to motivate companies to take part in
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the pilot project and to co-share some of the risks. The potential risks involved in this phase include: pilot companies exiting the project for competitive reason as they are expected to share some of their best practices with other participants; for economic reason if the government changes the funding amount due to overwhelming response; pilot companies are not convinced that the solution is meeting their original objectives.
Phase 5: Industry Deployment Innovation diffusion is the next phase after establishing the innovation or novel application (pilot implementation in practical terms) in order to achieve industry acceptance. The coordinator
will work closely with the solution providers to promote and showcase the solution for the industry to follow. This can be done through trade shows, seminars, and education workshops. The last phase includes analysis of the results and experiences to be shared within the cluster. There is a feedback loop from this deployment experience as part of the input to a new deployment process. Thus a loop of continuous improvement is created at the industry level and innovation is spread widely with the potential to revolutionize the industry. The potential risks involved in this phase include getting buy-in from the industry to adopt the solution due to its high cost or the industry is not ready to make radical process change to adopt such solution.
Table 2. Key activities, actors and outcomes for each phase in the framework Industry Scan
Technology and Process Scan
Build, Acquisition or Lease
Pilot Implementation
Industry Deployment
Main activities in each phase
Field survey Focus group interviews
Gap analysis Gather best practices Technology tracking
Develop Business case Select companies to pilot Evaluate IT solution
Manage pilot project Provide training for users
Awareness and marketing programs Document lessons learnt
Average duration
1 – 3 months
1 – 3 months
6 – 12 months
12-24 months
Ongoing
Key actors in each phase
Coordinator Government Industry
Research institutions Coordinator Technology providers
Coordinator Technology providers Pilot companies
Coordinator Technology providers Government Pilot companies
Coordinator Technology providers Government Industry
Outcome from each phase
Market demand Performance gaps
Potential solutions Trends and best practices
Project organization Solution selected Establishment of project objectives Industry partners selected for pilot implementation Financing plan for solution providers Prototype
Establishment of project team Pilot implementation and skills development Funding schemes and criteria for pilot companies Analysis of results and potential pitfalls to avoid
Scope of implementation Marketing and promotion plans Deployment strategies Measurement of success Analysis of results and follow up actions.
Potential Risks
Study taken too long
Unproven technology Industry not ready for new technology
Under-estimate the cost Industry not keen to participate Companies with hidden agenda Solution too expensive
Users not convince Pilot companies quit project Government changes funding criteria
Industry not keen to adopt Too costly solution even after government funding
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The main activities of each phase, duration, key actors involved, outcome and potential risks for each phase are summarized in Table 2.
CASE STUDY: IT PLANNING AND IMPLEMENTATION FOR THE LOGISTICS INDUSTRY IN SINGAPORE The following example will illustrate how the proposed framework can be applied to the logistics industry in Singapore. The landscape of the logistics industry in Singapore is changing and is no longer just managing warehouses or offering isolated transport services. Instead, logistics companies in Singapore are offering integrated logistics services such as reverse logistics, product configuration and international procurement with regional coverage. With the increased demand for more information about the cargo shipments, more third party logistics companies are investing more IT into their businesses to meet this growing demand. As a result, an IT planning and implementation framework is needed to assist the industry in the transformation.
Phase 1: Industry Scan In 1998, a study sponsored by the government was conducted by Accenture (formerly known as Andersen Consulting) to map out the essential IT functionality to support the logistics industry. The main objectives of this study were to: •
•
Establish an industry-wide logistics best practice using IT that could be adopted by the industry upon completion; Conduct an industry-wide analysis of the logistics sector to determine IT gaps and the functional requirements to narrow those gaps;
•
•
Identify new EDI and Internet message standards that could be deployed to existing EDI networks; and Propose an IT implementation methodology as a guide for the logistics industry.
Eight third parties logistics companies (3PL) from the industry were selected for this study with the majority of them providing more than two types of logistics services (e.g. warehousing, transportation, etc). A focus group interview was conducted for each of these companies at their premises. Each interview lasted about one day and involved a site visit and software demonstration. The interviewees were mainly senior executives and operational managers. Accenture examined the internal processes of the eight companies, and the interactions between them and the other entities (such as the shippers, consignees, carriers and government agencies). The internal processes of the other entities (e.g., the procurement process of consignees and shipping process of shippers) were outside the scope of this study. Within each of the eight 3PLs, key operational processes were relatively straightforward. The management of the eight companies had correctly focused their attention on the need to reduce the cycle time of each process. However, the lack of integrated IT systems to support these processes had resulted in: • •
Duplication of work; and An absence of performance measurements to monitor overall process effectiveness.
Within this industry, there is a large number of interactions between the logistics companies and external entities, similar to a cluster. While most interactions with the government agencies are electronically linked, interactions between the companies and with commercial entities are still mainly paper-based. This had resulted in duplication of effort, increased chances of data errors and longer cycle times. Linking the enti-
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ties electronically within the supply chain would help to reduce the overall cycle time and achieve higher standards, such as: •
•
A cycle time reduction from 5 hours to less than 2 hours to deliver goods from the manufacturers’ premises to the airport; and A cycle time reduction from 8 hours to less than 4 hours to deliver goods from port to consignee.
It is found that most 3PL companies attempt to provide as wide a range of 3PL services to their clients as possible, with warehouse management and operation as the most commonly offered 3PL service. These companies also have extensive regional and international network, and serve a number of industries including the main ones like electronics, chemical, high-tech and computers, and consumer goods. The 3PL industry in Singapore is viewed as growing and is ahead of many of its counterparts in Asia. The key strengths of the industry include numerous factors such as good connectivity and language skill, while its main weaknesses are a shortage of qualified staff and high operating cost. There are a number of concerns and issues raised, such as lack of qualified staff, oversupply of warehousing space in Singapore, competition from the influx of foreign 3PL firms to Singapore, and regulations on free trade zone, seaport and airport, all of which may have policy implications. With regards to global trends, the move towards greater outsourcing is the most frequently singled out broad trend. Others cited include growing pressure from customers, the rise of mega 3PL companies, and the relentless drive towards greater use of IT and e-commerce in the industry. Most of these trends identified are noted to hold in Asia countries including Singapore. The exception is M&A activity that is unlikely to occur in Singapore, due to a lack of interest among the local firms on merger.
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Responding to the trend towards greater globalization, all 3PL companies are noted to expand their overseas network. They however differ in their network expansion plan, with the foreign 3PL firms more likely to focus on global expansion and the local 3PL companies more likely to consider strengthening their Asia network. Many companies are also taking the challenge arising from e-commerce seriously, and most have at least a few e-commerce services such as prealert service and track and trace on offer. While acknowledging that there is potential in B-to-C service, many companies do not appear keen to pursue opportunity in B-to-C actively. The 3PL companies are able to identify various opportunities and challenges arising from the trends discussed. Greater awareness of the need to outsource and of the many capabilities the 3PL firms in rendering such services is the most frequently cited opportunity under the discussion on broad trends. With the trend towards greater globalization, many companies see opportunity to follow their clients overseas to provide logistics support. They also expect globalization to result in greater complexity in network and higher logistics cost in Asia. This presents opportunity as well as challenge to the 3PL firms. As the use of e-commerce proliferates, there is increasing opportunity to provide e-logistics services. The key challenge however is the difficulty in developing, operating and maintaining the e-commerce system due to both the difficulty in recruiting and retaining IT staff. The challenges in providing supply chain management are many. The most frequently factors seem to relate to the various dimensions of customer relationship such as issues like customers not knowing their logistics functions well, customers withholding information, and customers providing unrealistic SCM implementation time frame. To capitalize on the opportunities available and to meet the challenges, most companies are keen to position themselves as supply chain solutions
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providers and would like to leverage on e-commerce, information technology and information system. For the foreign companies, they would also like to position themselves as leading global players. The local companies on the other hand see themselves more as dominant Asia players or player with strong regional network and local knowledge. The critical success factors invariably relate to resources, with having the right people being singled out as the most critical success factor of all. Others include information technology and process. Arising from this study are several implications. With respect to globalization, the trend clearly favours 3PL companies that have extensive overseas network. This holds implication for those that lack the resources to establish such network, as is the case of many local 3PL companies in Singapore. For the larger 3PL local firms in Singapore, their preferred strategy is to expand organically and/or to forge alliances abroad, but not to merge with other local 3PL firms. For the many smaller 3PL local firms that this study has no time to investigate, it is not sure what will be their choices and responses. On e-commerce, it is always said that the ability to fulfill order is key to the success of many dot. com companies. Yet this study reveals a general reluctance of many 3PL firms to service B-to-C
e-commerce, particularly those that are run by companies without good track record. Such being the case, one implication is that some dot. com companies, such as those that are new and lack the track record may experience difficulty in getting 3PL firms to support them. Finally it is also observed that there is a certain level of concern and perhaps frustration voiced out by the 3PL companies against their clients. Invariably, this is detected from the various comments made by the 3PL firms during the personal interview, such as comments like customers do not understand the complexity of and difficulty in providing logistics support in Asia, customers lack the understanding of their logistics process, and customers withhold critical information. Taken together, these comments could imply expectation between the parties is not managed properly, or that there is a gap of understanding and communication between them.
Phase 2: Technology Scan An IT functional framework describing the functional modules needed to support the industry was developed after the study by Accenture, with the aim of facilitating information sharing and exchange. This framework is shown in Figure 3. The core of this functional requirement framework consists of the Customer Relationship
Figure 3. IT functional framework for logistics industry
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Subsystem and the Operational Subsystems. The Customer Relationship Subsystem will help logistics providers to provide integrated logistics services by maintaining contracts spanning all services, delivering a single bill to the customer, tracking performance and managing customer contacts. The Operational Subsystems – Freight Forwarding, Warehouse operations, Land Transportation Operations and Container Depot Operations – will enable end-to-end processing of the key business processes. The implementation of the Customer Relationship Subsystem and the Operational Subsystems will enable the logistics providers to improve customer service and process performance, and provide them with the means to monitor the efficiency of their operations. To support the demand for value-added logistics services and increasing volume of business, a Decision Support Subsystem to model and simulate facilities, networks and customers’ requirements is recommended to help logistics providers to utilize their assets more effectively and be more responsive to their customers. The Track and Trace Subsystem will help to monitor shipments at the level of detail needed by the customer and by selected milestones. The logistics industry is characterized by numerous interactions between the entities and within each entity. The Internal/External Integration Subsystem and the Message Management Subsystem are thus required to manage the flow of information into and out of the core modules using specific integration methods (e.g., API, Servlet) and direct the requests to the appropriate subsystems. With these subsystems in place, there will be a reduction in the overall cycle time across logistics providers and the external entities and Singapore will be better positioned to conduct business electronically as eCommerce gathers momentum. Accenture recommended that government agencies in Singapore to consider the following four recommendations to improve the flow of information within the logistics industry:
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The EDITRANS (EDI for Transportation System) Working Group should consider including additional EDI messages to facilitate information interchange between the logistics companies and other commercial entities. Currently, such information flows are paper-based with a standard format and thus can be automated; Encourage shippers, consignees and carriers to increase their electronic linkages so that the overall processing cycle times can be improved and data errors reduced; Assist logistics companies to develop an internet presence so that they will be wellpositioned to provide logistics service within the region using Singapore as an eCommerce hub; and Provide financial assistance for logistics companies to acquire some of the subsystems identified in the IT functional framework, in particular, those that are common across service providers such as the External/Internal Integration Subsystem and the Message Management Subsystem.
Phase 3: Build, Acquire or Lease Accenture’s recommendation to exploit eCommerce for information and document exchange were implemented by the respective parties to cut down the overall cycle time. For example, Singapore Trade Development Board (TDB) and Infocomm Development Authority of Singapore (IDA) had initiated an IT Action Plan to identify key programs and deliverables to prepare the logistics industry in the face of new opportunities and challenges. The overall goal of this Action Plan was to provide an IT framework for the deployment and integration of information and technologies across the logistics industry. The action plan is needed to meet the needs of the various logistics players with varying capabilities and this resulted in a three-pronged
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thrust in advancing the IT-readiness of the logistics industry. The three key thrusts were: 1. Facilitate intra-company integration to enhance logistics competencies 2. Enhance inter-company connectivity to foster business collaboration 3. Establish international linkages to position Singapore as the Asia Logistics Hub The implementation would evolve in stages, namely internal integration, external integration and international linkages. Each stage would involve different sets of IT requirements and it was important for companies to migrate progressively from stage to stage to ensure that information from earlier stage will form the foundation for the next stage. Funding schemes were made available to attract logistics companies to participate in the pilot program. Potential IT solution identified in the previous phase would be selected by pilot companies for implementation.
Seven EDI messages standards were developed in compliance with UN/EDIFACT in the initial phase. The intention of EDITRANS was to enable freight forwarders to respond faster to shippers’ needs and thus tighten the supply chain and resulting in better customer service. However, after more than a year of promotion and marketing to the shippers and logistics providers, the number of companies using EDITRANS was still relatively small. A closer look into the low penetration rate of EDITRANS revealed several causes:
Phase 4: Pilot Implementation
a. Shippers did not engage logistics companies in the same proportion of buyers to suppliers. For example, shippers could use only one logistics company to manage their full logistics requirements. b. Some shippers have the luxury of having order processing clerks from the logistics providers stationed at their premises to manage their export and import documentation. Therefore, EDI was not crucial in this context.
As a follow-up from Accenture study, EDI for Transportation System (EDITRANS) standard was launched (Figure 4).
With a limited number of shippers interested in using EDITRANS, few logistics providers were keen to implement EDI as cost savings were
Figure 4. Information flows between shippers and the logistics companies
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low without a critical mass. This confirmed the fact that B2B eCommerce would prevail only when there is sufficient critical mass to warrant sustainability. In fact, the logistics industry has refocused their efforts to target shipping lines instead to use EDITRANS for exchanging Bill of Lading information between these shipping lines and freight forwarders. This shift in direction was logical since a single shipping line could be serving many freight forwarders.
Phase 5: Industry Deployment An integrated IT project that manages the flow of trade-related information was launched in June 2004 to leverage on EDITRANS for shippers, freight forwarders, carriers and financial institutions to facilitate the flow of goods within, through and out of Singapore. This single web interface for all trade-related IT systems as shown in Figure 5 will help logistics players cut down on multiple data entry steps with less duplication of manual efforts and reduction in human errors which will ultimately improve efficiency and time to market. The net effect is increased competitiveness for the logistics industry. The integrated IT project will automate the creation and exchange of commercial and regula-
tory documentation necessary for trade. The Singapore government will invest up to S$50 million over five years to develop the system, which will cover project development expenditure, assistance for industry adoption and other project costs. Singapore has a number of electronic systems that manage the flow of regulatory and commercial information for trade. These include PortNet for sea logistics, Cargo Community Network for air logistics and Marinet for dangerous goods declarations. Most pervasively used is TradeNet, the world’s first nationwide electronic trade documentation system which allows the trading community to submit permit applications electronically to the relevant government bodies for processing. TradeNet was launched in January 1989. These existing IT applications have served the trade and logistics communities well for the past 20 years, will be integrated with the platform. When completed in end 2008, the integrated IT system will become the gateway to the new TradeNet system for trade permit applications. Such integration will enhance process and information flow in the entire trade and logistics community which will contribute to improving overall competitiveness of the sector. An InterAgency Steering Committee has been formed to oversee the development, implementation
Figure 5. TradeXchange for shippers, forwarders, banks, ports and governments
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and adoption of the services offered under the integrated IT projected. A tender exercise was conducted to shortlist qualified vendors for the development of the IT systems. This will spin off many opportunities for IT solutions providers to build new and innovative technology capabilities To support the continuous upgrading the capabilities of the logistics industry, the TDB and IDA have also initiated with the Chartered Institute of Logistics and Transport of Singapore and other relevant institutions to formulate a Certified Professional Logisticians or CPL programme. It will be used as the definitive standard for measuring competence and professionalism in logistics and supply chain management as well as give due recognition and accreditation to logistics and supply chain management professionals. The CPL programme will include the development of critical IT skills, necessary for the effective implementation of the IT Action Plan for the logistics industry.
FUTURE RESEARCH AND CONCLUSION The logistics industry mentioned illustrates a systematic approach in the IT planning cycle for an industry cluster. It is apparent that in some clusters, the prerequisites to adopt innovations are more favorable than others due to a number of factors: product life cycle, competition, government policies and directions, etc. This is a limitation in the proposed framework that needs to be addressed. Further research work can be expanded to address these factors either individually or holistically. Although the investigation in this case involves the logistics cluster only, the authors are confident that the framework proposed is generic enough for other industry cluster. By understanding the main activities and outcomes of each phase within the framework, better planning and allocation of resources can be achieved for both the company and the government. Furthermore, the potential
risks identified in each phase can be used by project managers to validate the viability of the project before more investments are committed. What could be more appropriate and attractive would be to develop specific strategy at each phase to engage the companies within each cluster.
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This work was previously published in Strategic Information Technology and Portfolio Management, edited by Albert Wee Kwan Tan and Petros Theodorou, pp. 23-38, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Linking Information Technology, Knowledge Management, and Strategic Experimentation V. K. Narayanan Drexel University, USA
INTRODUCTION Historically, the focus of IT infrastructure had been to capture the knowledge of experts in a centralized repository (Davenport & Prusak, 1998; Grover & Davenport, 2001; Nolan, 2001). The centralized databases contained knowledge that was explicit and historical (e.g., competitor pricing, market share), and the IT infrastructure served to facilitate functional decision making or to automate routine DOI: 10.4018/978-1-60960-587-2.ch204
tasks (as in reengineering). The users of technology approached the repository to obtain data in a narrowly defined domain (Broadbent, Weill, & St. Clair, 1999). Consequently, IT originally played a significant, yet ultimately limited role in the strategy creation process. Management information systems (MISs) arguably generated information that was less applicable to strategy creation, as noted in early writings on the linkage between MIS and strategic planning (e.g., Lientz & Chen, 1981; Shank, Boynton, & Zmud, 1985; Holmes, 1985).
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The active management of knowledge was similarly underdeveloped. Despite the fact that strategic decision makers had always emphasized the role of tacit knowledge, the actual importance of knowledge was not explicitly recognized. Formalized knowledge management (Davenport & Prusak, 1998; Dalkir, 2005), with its associated terminology and tools, is a recent development and as such did not inform the strategic planning process. However, the shifts that have taken place in IT infrastructures over the last decade and the recent developments in knowledge management (KM) have brought them closer to the creators of strategy. Indeed, both IT and knowledge management are increasingly enablers in the contemporary strategic management practice: 1. IT infrastructure is transitioning in its focus from the functional work unit to a process orientation. Whereas computer systems were once the focal point, the new infrastructure is network centric, with an emphasis on business knowledge (Nolan, 2001). For example, traditional search engines utilized rule-based reasoning to identify elements matching specific search criteria; the “state-of-the-art” knowledge management systems employ case-based search techniques to identify all relevant knowledge components meeting the user’s request (Grover & Davenport, 2001). 2. IT now takes into account contexts that include cross-functional experts, knowledgeable on a wide variety of potentially relevant issues. Additionally, there is greater emphasis on the integration of infrastructure with structure, culture (Gold, Malhotra, & Segars, 2001), and organizational roles (Awad & Ghaziri, 2004). In many ways, the newer IT infrastructures have enabled the garnering of explicit knowledge throughout the organization to speed up strategy creation.
The objective of this article is to outline how the developments in IT and KM are facilitating the evolution of strategic management to strategic experimentation to create quantum improvements in strategy creation and unprecedented developmental opportunities for the field if IT.
BACKGROUND For the purposes of this article, information technology (IT) is defined as the physical equipment (hardware), software, and telecommunications technology, including data, image, and voice networks, employed to support business processes (Whitten & Bentley, 1998). The overarching plan for IT deployment within an organization is called the IT architecture. Technology infrastructure refers to the architecture—including the physical facilities, the services, and the management—that support all computing resources in an organization (Turban, McLean, & Wetherbe, 1996). As used in this article, data are objective, explicit pieces or units, information is data with meaning attached, and knowledge is information with an implied element of action. According to Davenport and Prusak (1998): “Knowledge is the fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In organizations, it often becomes embedded not only in documents or repositories but also in organizational routines, processes, practices, and norms.” (p. 5) Knowledge management is “a set of business practices and technologies used to assist an organization to obtain maximum advantage from one of its most important assets—knowledge” (Duffy, 2000, p. 62). In other words, it is actively capturing, sharing, and making use of what is known,
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both tacitly, informally and explicitly, within the organization. IT often facilitates knowledge management initiatives by integrating repositories (e.g., databases), and indexing applications (e.g., search engines) and user interfaces. Awad and Ghaziri (2004) underscore the fact that KM also incorporates traditional management functions: building trust among individuals, allocating resources to KM, and monitoring progress. The concept of “strategy” explicated in strategic management is one of marketplace strategy, that is, winning in the marketplace against competitors, entrenched or incipient. The underlying premise is that “to enjoy continued strategy success, a firm must commit itself to outwitting its rivals” (Fahey & Randall, 2001, p. 30). A large body of literature on strategic management has persuasively argued that effective strategy creation and execution are central to a firm’s performance (e.g., Covin, Slevin, & Schultz, 1994). Strategy creation involves both goal formulation—defined in terms of external stakeholders rather than operational milestones—and crafting of the strategic means by which to accomplish these goals (Hofer & Schendel, 1978). The means typically include business scope, competitive posture, strategic intent, and the organizational mechanisms for implementation. In practice, the process of strategy creation has often taken the form of strategic planning. Comprehensive strategic planning (Gluck, Kaufman, & Walleck 1978) has historically been practiced in large corporations: A celebrated example is the use of scenarios by Royal-Dutch Shell. It usually consisted of several sequential stages of decision making involving diagnosis, alternative development, evaluation and choice, and implementation. In each step, the strategic planners emphasized deliberate juxtaposition of “objective data” and careful analysis, with top management judgment, thus highlighting the role of tacit knowledge. Strategic planning has evolved over the years. Writing in the 1970s, Gluck et al. (1978) identified four phases of evolution: budgeting, long-range
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planning, strategic planning, and strategic management. Each phase of evolution incorporated the lessons from the earlier phases, but also took into account the emerging realities faced by corporations. Gluck et al. (1978) noted that during the 1980s, the “strategic management” phase would represent the cutting edge of practice in the world.
TOWARD STRATEGIC EXPERIMENTATION The 1990s witnessed a revolution in organizational environments often characterized as “hypercompetition.” These environments have created three major imperatives for organizations: time compression, globalization, and technology integration (Narayanan, 2001). In addition, the increased environmental dynamism also contributes to an increase in the degree of uncertainty confronted by strategic managers, calling into question traditional planning practices. Consequently, a new type of strategy creation process is evolving which is termed “strategic experimentation.” With this evolution, the relationship between strategy creation, knowledge management, and IT is undergoing a profound shift. All the four phases of strategic planning documented by Gluck et al. (1978) incorporated a sequential approach to strategy creation and execution, leading to the identification of the one winning strategy that has the highest probability of success. Consequently, firms found it logical to commit the maximum available resources to the implementation of one winning strategy. The goal was to obtain a sustainable competitive advantage vis-à-vis the firm’s rivals, and to reduce uncertainty ex ante using analytical forecasting techniques as well as market research. This approach to planning seems to have been effective during the 1980s, when the environment was moderately dynamic. In hypercompetitive environments, market participants frequently confront great uncertainty
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over technological possibilities, consumer preferences, and viable business models. This high level of ambiguity often results in a situation where: (a) traditional methods of ex ante uncertainty reduction (e.g., market research) fail, and (b) the costs and risks of the traditional “big bet” strategic management approach outweigh its advantages in terms of focus, decisiveness, and concentrated resource commitment. It is in this situation that the emerging strategic experimentation approach holds significant promise. Strategic experimentation (McGrath & MacMillan, 2000) draws on real-options reasoning (e.g., McGrath & Nerkar, 2003), discussions of exploration vs. exploitation (March, 1991), as well as trial-and-error learning (e.g., Van de Ven & Polley, 1992): 1. Companies engaging in strategic experimentation continually start, select, pursue, and drop strategic initiatives before launching aggressively those initiatives whose value is finally revealed (McGrath & MacMillan, 2000, p. 340). 2. Strategic initiatives thus serve as low-cost probes (Brown & Eisenhardt, 1998) that enable the discovery of product technology and market preferences. They also serve as a stepping stone option for future competitive activity in that particular product-market domain. 3. The role of the strategic manager is to administer a portfolio of strategic initiatives that represents an appropriate mix of high and low uncertainty projects, and to maximize the learning from these real options (McGrath & MacMillan, 2000). Strategic experimentation represents a fundamentally different view of the practice of strategic planning and the path to competitive advantage. Movement is emphasized over position in this approach. Thus, competitive advantage is viewed as temporary at best, and hence innovation and
learning are considered crucial to success. Strategic experimentation is especially appropriate for high-velocity environments such as emerging product markets with high uncertainty surrounding both technology and customer preferences (e.g., the early Personal Digital Assistant (PDA), Internet appliance, and satellite-based telephony markets). Here, low-cost probes can be very effective in gaining knowledge and reducing uncertainty while minimizing exposure to the results of faulty assumptions.
THE ROLE OF IT AND KNOWLEDGE MANAGEMENT IN THE ERA OF STRATEGIC EXPERIMENTATION Since “strategic experimentation” represents the cutting edge of ideas in strategic management, we should expect significant advances in tool development and utilization in the next few years that will enable movement of the idea towards normal organizational practice. Strategic experimentation necessitates several major functions to be performed by an organization. KM is critical in strategic experimentation; therefore, it is not surprising that many of the tools currently moving into practice have emerged from the KM. The four major strategic experimentation functions and the associated KM tools are: •
Rapid Decision Making: The ability to quickly garner tacit knowledge in all phases of decision making is a central requirement in strategic experimentation. Current KM tools to support this include visualization and prototyping, group decision facilitation, and knowledge representation. Each method attempts to reduce the time needed for a group to progress from problem identification to solution implementation. These tools help to coordinate the use of data, systems, tools, and techniques to
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interpret relevant information in order to take action (Ruggles, 1997). Integration of Learning from Experiments: Organizational learning, another core concept in strategic experimentation, requires that appropriate learning be distilled from each experiment. This orientation combines decision making and learning: initiatives judged to be failures are not merely weeded out, nor are successes simply alternatives to be financially backed. In contrast, failures become occasions for discovery of root causes; successes often generate potential best practices. Current KM tools in use for this purpose include learning histories (Roth & Kleiner, 1998), group brainstorming, and shared communication platforms (Dalkir, 2005). Diffusion of Learning: Finally, organizational learning must be diffused throughout the organization. Since formal organizational channels may stifle transmission of tacit knowledge (Williams, 2006), diffusion may require interactions among “communities of practice” (Wenger, McDermott, & Snyder, 2002; Narayanan, Douglas, Schirlin, Wess, & Geising, 2004). An organizational architecture, incorporating relevant tools and IT infrastructure, must be designed to support theses interactions. KM tools, such as knowledge maps identifying the experts in specific areas and repositories of case histories, are evolving to include dynamic updating of repositories and focused search tools to reduce information overload. Managing a Portfolio of Strategic experiments: Unlike in previous eras, strategic experimentation requires maintenance and management of a portfolio of initiatives (Narayanan, Buche, & Kemmerer, 2001). This has three major implications. First, the knowledge base for decisions must be broader and richer, simply due to the in-
crease in the number of initiatives. Second, the knowledge base becomes much more complex, since the initiatives themselves differ in terms of the mix of tacit and explicit knowledge. Thus, newer initiatives are likely to be more dependent on tacit knowledge, whereas mature ones can be augmented by explicit knowledge. Finally, the sheer number of people involved in the process will be larger, given specialized pockets of tacit knowledge that would have grown up around specific strategic initiatives. DSSs and other rich data applications, including cognitive mapping, can be used to capture the knowledge and feedback. IT can accelerate the development of strategic experimentation by designing infrastructures that accommodate the new KM demands (Smith & McKeen, 2003; King, Marks, & McCoy, 2002) imposed by this new mode of planning. Consider how each of the following functions can be enhanced by IT infrastructure development: 1. Future developments can significantly reduce the time expended in solution development through real-time displays and expand opportunities for geographically dispersed collaboration. Also, advanced multimedia and communication capabilities would increase the benefits of GSS and DSS tools. 2. Learning from experiments can be enriched by qualitative database construction, multimedia enhancements to communication applications, and open platforms to permit the sharing of knowledge over various communication channels, including wireless media. 3. Today, diffusion is hampered by information overload that has intensified competition for the user’s attention (Hansen & Haas, 2001). To solve the problem, search tools should include separate parameters for content,
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rationale, and purpose of the query, in order to isolate salient responses. Additionally, knowledge repositories must be maintained to ensure the contents are accurate and of high quality. Also, maintenance, currently provided by intermediaries (Markus, 2001), might be performed by faster automated systems. 4. Expert systems or neural networks may be developed to manage and track portfolios, promoting reuse of the knowledge captured. The significant implication for IT infrastructure from our discussion is the need for technology integration (Narayanan, 2001) with both hard and soft technologies. IT infrastructure should exploit the potential for integration with other hard technologies such as telecommunications to enhance the organizational capacity for speed and carrying capacity for tacit knowledge. Similarly, IT should seek to interface with decision sciences to embed AI-based processing tools, and with cognitive theorists to capture the tacit knowledge pervasive in organizations.
FUTURE TRENDS Over the last decade, there has been a greater appreciation of both the importance of knowledge management and its links to IT. Indeed, KM as an organizational function and academic discipline is fast arriving at maturity; the linkage between KM and strategic management has been slow in building. We expect this to change in the coming decade. Platforms for strategic experimentation, built on overlay of KM and IT, are currently in the works among pioneering firms. We expect that the ideas around experimentation will begin to take off, with methods and approaches to identify, codify, and disseminate among organizational members being refined and utilized.
CONCLUSION We have argued that the technological changes of the 1990s have ushered in the need for strategic experimentation as the metaphor for planning practice. Strategic experimentation involves: (a) maintaining a portfolio of strategic thrusts, (b) rapid decision making so that successful experiments are backed and failures are weeded out quickly, (c) learning from both successes and failures, and (d) diffusion of both explicit and tacit knowledge throughout the relevant segments of an organization. This phase requires fundamental shifts in our view of knowledge management: its significance, use, and tools. Finally, we have argued that the shift to strategic experimentation requires fundamental shifts in the development of IT infrastructure. Instead of developing in relative isolation to other disciplines, IT should focus on technology integration, by working in close collaboration with the telecommunication technologies, artificial intelligence community, and managerial cognition scholars.
REFERENCES Awad, E. M., & Ghaziri, H. M. (2004). Knowledge management. Englewood Cliffs, NJ: Prentice Hall. Broadbent, M., Weill, P., & St. Clair, D. (1999). The implications of information technology infrastructure for business process redesign. MIS Quarterly, 23, 159–182. doi:10.2307/249750 Brown, S. L., & Eisenhardt, K. M. (1998). Competing on the edge: Strategy as structured chaos. Boston: Harvard Business School Press. Covin, J. G., Slevin, D. P., & Schultz, R. L. (1994). Implementing strategic missions: Effective strategic, structural and tactical choices. Journal of Management Studies, 31, 481–505. doi:10.1111/j.1467-6486.1994.tb00627.x
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Dalkir, K. (2005). Knowledge management in theory and practice. New York: Elsevier. Davenport, T., & Prusak, L. (1998). Working knowledge: How organizations manage what they know. Boston: Harvard Business School Press. Duffy, J. (2000). The KM technology infrastructure. Information Management Journal, 34, 62–66. Fahey, L., & Randall, R. M. (2001). The portable MBA in strategy (2nd ed.). New York: John Wiley & Sons. Gluck, F.W., Kaufman, S.P., & Walleck, S. (1978, October). The evolution of strategic management. Staff Paper, McKinsey. Gold, A. H., Malhotra, A., & Segars, A. H. (2001). Knowledge management: An organizational capabilities perspective. Journal of Management Information Systems, 18, 185–214. Grover, V., & Davenport, T. (2001). General perspectives on knowledge management: Fostering a research agenda. Journal of Management Information Systems, 18, 5–21. doi:10.1201/107 8/43196.18.3.20010601/31284.1 Hofer, C. W., & Schendel, D. (1978). Strategy formulation: Analytical concepts. St. Paul, MN: West. Holmes, F. W. (1985). The information infrastructure and how to win with it. Information Management Review, 1(2), 9–19. King, Marks, and McCoy. (2002). The most important issues in knowledge management. Communications of the ACM, 35(9), 93–97. doi:10.1145/567498.567505 Lientz, B. P., & Chen, M. (1981). Assessing the impact of new technology in information systems. Long Range Planning, 14(6), 44–50. doi:10.1016/0024-6301(81)90059-5
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March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2, 71–87. doi:10.1287/orsc.2.1.71 Markus, M. L. (2001). Toward a theory of knowledge reuse: Types of knowledge reuse situations and factors in reuse success. Journal of Management Information Systems, 18, 57–93. doi:10.120 1/1078/43196.18.3.20010601/31291.8 McGrath, R. G. (1998). Discovering strategy: Competitive advantage from idiosyncratic experimentation. In G. Hamel, C.K. Prahalad, H. Thomas, & D. O’Neal (Eds.), Strategic flexibility: Managing in a turbulent environment (pp. 351370). Chichester: John Wiley & Sons. McGrath, R. G., & MacMillan, I. (2000). The entrepreneurial mindset. Boston: Harvard Business School Press. McGrath, R. G., & Nerkar, A. (2003). Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms. Strategic Management Journal, 25(1), 1–21. doi:10.1002/ smj.358 Narayanan, V. K. (2001). Managing technology and innovation for competitive advantage. Prentice Hall College Division. Narayanan, V. K., Buche, M., & Kemmerer, B. (2002). From strategic management to strategic experimentation: The convergence of IT, knowledge management, and strategy. In L. Joia (Ed.), IT-based management: Challenges and solutions. Hershey, PA: Idea Group. Narayanan, V. K., Douglas, F., Schirlin, D., Wess, G., & Geising, D. (2004). Virtual communities as an organizational mechanism for embedding knowledge in drug discovery. Journal of Business Chemistry, 1(2), 37–47. Nolan. (2001). Information technology management from 1960-2000. HBS Note # 9-301-147.
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Roth, G., & Kleiner, A. (1998). Developing organizational memory through learning histories. Organizational Dynamics, 27, 43–60. doi:10.1016/ S0090-2616(98)90023-7 Shank, M. E., Boynton, A. C., & Zmud, R. W. (1985). Critical success factor analysis as a methodology for MIS planning. MIS Quarterly, 9, 121–129. doi:10.2307/249113 Smith, H., & McKeen, J. (2003). Developments in practice IX: The evolution of the KM function. Communications of the AIS, 12, 69–79. Turban, E., McLean, E., & Wetherbe, J. (1996). Information technology for management. New York: John Wiley & Sons. Van de Ven, A. H., & Polley, D. (1992). Learning while innovating. Organization Science, 3, 92–116. doi:10.1287/orsc.3.1.92 Wenger, E., McDermott, R., & Snyder, W. (2002). Cultivating communities of practice. Boston: Harvard Business School Press. Whitten, J. L., & Bentley, L. D. (1998). Systems analysis and design methods (4th ed.). Boston: Irwin McGraw-Hill. Williams, R. (2006). Narratives of knowledge and intelligence…beyond the tacit and explicit. Journal of Knowledge Management, 10(4), 81–99. doi:10.1108/13673270610679381
KEY TERMS AND DEFINITIONS Exploration and Exploitation: Exploration refers to process of discovery of knowledge, whereas exploitation refers to utilizing the knowledge. Similar to basic and applied research. Information Technology (IT): The physical equipment (hardware), software, and telecommunications technology, including data, image,
and voice networks, employed to support business processes. Knowledge Management (KM): A set of business practices and technologies used to assist an organization in obtaining maximum advantage of its knowledge. Options: A financial option owes the holder the right but not the obligation to trade in securities at prices fixed earlier. Options in the sense used here confer a firm the rights and obligations to choose a strategic alternative. Strategic Experimentation: A form of strategic management in which firms continually start, select, pursue, and drop strategic initiatives before launching aggressively those initiatives whose value is finally revealed. Strategic Management: The process of strategy creation and implementation. The concept of “strategy” as used here is one of marketplace strategy, that is, winning in the marketplace against competitors, entrenched or incipient. Strategy creation involves both goal formulation—defined in terms of external stakeholders rather than operational milestones—and crafting of the strategic means by which to accomplish these goals. Implementation refers to the means of execution of the created strategy. Technology Integration: Activities involved in combining technologies. It could be combining process technologies as in incorporating biological process in mechanical equipment. Alternately it could be in product development, for example the merging of personal computers and satellite communications. Trial-and-Error Learning: A process of learning through experimentation. Here strategic initiatives judged to be failures are not merely weeded out, nor are successes simply alternatives to be financially backed. In contrast, failures become occasions for discovery of root causes; successes often generate potential best practices.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 2431-2436, copyright 2009 by Information Science Reference (an imprint of IGI Global). 293
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Collaborative Enterprise Architecture for Municipal Environments Leonidas G. Anthopoulos Hellenic Ministry of Foreign Affairs, Greece
ABSTRACT E-government evolves according to strategic plans with the coordination of central Governments. This top-down procedure succeeds in slow but sufficient transformation of public services into e-Government ones. However, public agencies adapt to e-Government with difficulty, requiring holistic guidance and a detailed legal framework provided by the Government. The setting up of common Enterprise Architecture for all public agencies requires careful analysis. Moreover, common Enterprise Architecture could fail to cover DOI: 10.4018/978-1-60960-587-2.ch205
the special needs of small or municipal agencies. The chapter uses data from various major e-Government strategies, together with their enterprise architectures, in order to introduce a development model of municipal Enterprise Architecture. The model is based on the experience collected from the Digital City of Trikala, central Greece, and results in “Collaborative Enterprise Architecture”.
INTRODUCTION Governments worldwide are investing heavily in e-Government, according to ambitious strategic plans aimed at friendlier and more effective public
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Administrations. The strategic plans define the political targets for e-Government, such as “time and cost savings for citizens and public Agencies” (Cap Gemini Ernst & Young, 2003) and “the development of a citizen-centered, results-oriented and market-based public Administration” (Federal Enterprise Architecture, 2002). Moreover, strategic plans set the technological standards that will be followed during e-Government evolution, such as “openness, usability, customization and transparency for public portals” (Gant and Gant, 2002) and “interoperability between e-Government systems” (UK Cabinet Office, Office of the e-Envoy, 2002). Strategic plans are being implemented according to the “top-down procedure” (Anthopoulos, Siozos and Tsoukalas, 2007), meaning that Governments define the primary targets and assign their implementation to central authorities, while e-Government target groups (citizens, enterprises, civil servants) are not involved in the design procedure. Top-down strategic planning defines policies and targets, but not methods and principles for e-Government. Information and Communication Technology (ICT) vendors have provided solutions for e-Government and for digital service execution that are mainly eCommerce-based applications, transformed and parameterized to public Administration methodologies (Lawry, Albrecht, Nunamaker and Lee, 2002). The application of the strategic plan on the public Administration is a difficult procedure, since various Authorities did not participate in the “top-down” strategic planning, they do not know planning extensions and they are not aware of the upcoming changes. Distributed and local authorities require the existence of controlling procedures and of specific legal frameworks in order to adopt changes. Central Agencies defined by Governments are assigned strategic planning implementation, change management and the application of common technical standards in separate e-Government projects. However, central supervision lacks functions (Peristeras and Tarabanis, 2004) that could
establish common standards for interoperable, usable and accessible e-Government projects. The Enterprise Architecture (EA) is a “tool” that can establish standardization in e-Government projects. EA is the “bridge” that joins strategic plans and their implementation (Federal Enterprise Architecture (FEA Group), 2005). Moreover, according to (Adigun and Biyela, 2003), the EA documents the elements that make up e-Government in a form that can be understood by its stakeholders (for example politicians, political parties, councils, heads of departments etc.). EA can assist central e-Government supervisors in understanding and combining technical standards and political aspects. Each strategic plan is now accompanied by a centrally defined EA that can supply all eGovernment projects with common standards and operation principles. However, central EA has to deal with problems similar to the ones that central strategic planning faces (Anthopoulos et. al., 2007): “smooth transition” of the public Agencies from traditional procedures to e-Government, change acceptance by all target groups, and the treatment of individual, local and peripheral needs. The purpose of this chapter is the introduction of the “Collaborative Enterprise Architecture (CEA)” that can be applied in local, state or peripheral governments and Agencies. CEA is the result of: a) the experiences of the strategic plans that are being implemented by central Governments, such as those of the US, the UK, Canada, Germany and the European Union. All have followed the “top-down” planning procedure for e-Government and they have resulted in specific EAs for the public sector. b) The experiences extracted by the implementation of the metropolitan e-Government environment in the Digital City of Trikala, central Greece (Anthopoulos and Tsoukalas, 2005), where the “bottom-up” planning procedure (Anthopoulos et. al., 2007) was followed. Municipal area environments and individual Agencies can follow the “bottom-up” planning procedure for e-Government, and their
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implementation model can be common. The resulting “Collaborative Enterprise Architecture” combines the “bottom-up” planning method, major EAs and groupware tools. In section 2 of this chapter, the background of the proposed CEA is given. In section 3 the contribution of this chapter is analyzed. The main thrust of this chapter is the proposal of the CEA. The notion begins with the key findings from existing e-Government strategies and Enterprise Architectures. All strategies culminate in Enterprise Architectures that have common features. Then, the implementation model that can be followed when a local Administration wishes to enter the e-Government era is analyzed. In the form of a step-by-step guide, the perspectives that public Agencies need to consider are analyzed. Major e-Government case studies and their experiences have to be combined with local needs. The implementation procedure is extracted by the case study performed in the Digital City of Trikala, Central Greece (e-Trikala), where the local Administration decided to move towards the Information Society: e-Government methods and local social needs were analyzed and combined. The result of this initial procedure was the development of an Enterprise Architecture that can extend national EA and is called the Collaborative Enterprise Architecture (CEA).
BACKGROUND There are many definitions of e-Government. Some (Devadoss, Pan, Huang, 2002) refer to the installation and use of IT systems in Public Administration for offering digital public services. Others (Wimmer, Traunmuller, 2000) refer to the transformation of Public Administration, which is based on the re-designing and digitization of public transactions. Moreover, e-Government is related to social participation in policy making (Pavlichev, Garson, 2004) and in the improvement of all public transactions, such as procuring and
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auctioning methods (Schubert, Hausler, 2001). Furthermore, according to the Organization of Economic Co-operation and Development (OECD) (OECD, 2001) e-Government has to do more with “Government” than with the “e”, meaning that e-Government technologies exist, but their application requires the simplification of public services and the modernization of administrative structure and “culture”. The primary target of e-Government is the development of an efficient and citizen-centered Public Administration that will operate according to business methods and profit both citizens and the Public Sector. E-Government projects aim at cost- and time-minimization of public transactions, at the simplification and the elimination of paper production during public services and at the treatment of corruption in Public Administration. The evolution of e-Government is currently based in the centralized design and implementation supervision of Strategic Plans, supported by huge investments in ICT infrastructures. Governments appear satisfied, since they have succeeded in cost and time savings. Moreover, Governments consider that the “pressure” they apply for the transformation of Public Administration will in the end achieve the primary targets of e-Government. Enterprise Architecture is a “tool” that supports the central implementation of a Strategic Plan, by setting targets, principles and methods that can be followed by all public Agencies. According to (Chief Information Officers (CIO), 2001) “Enterprise Architecture (EA) is a strategic information asset base, which defines the mission, the information necessary to perform the mission and the technologies necessary to perform the mission, and the transitional processes for implementing new technologies in response to the changing mission needs. EA includes a baseline architecture, target architecture and a sequence plan”. EA is accompanied with a specific framework (CIO, 1999) containing the proper procedures that each public Agency has to follow in order to implement the EA. The EAs that were investigated for the
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purposes of this chapter have many similarities regarding their development procedures, while their missions have common primary targets. The development of e-Government strategic plans is a “top-down” procedure (Anthopoulos et. al., 2007), meaning that central Governments supervise the design and execution of national e-Government initiatives. The “top-down” procedure is defined in detail by means of educational methods, where an instructor presents the general concept of a system and proceeds to its subsystems. In e-Government initiatives, the instructor is the Government – usually with the support and knowledge of special consultants invited from the private sector – which plans and monitors multiple projects. “Top-down” developed e-Government plans contain policies and targets, but not methods and principles. Information and Telecommunication Technology (ICT) vendors have provided solutions for e-Government and for digital service execution that are mainly eCommerce-based applications, transformed and parameterized to Public Administration methodologies. On the other hand, current centralized design has specified neither citizen nor civil servant needs. Surveys carried out in the US (Accenture, 2005) (ACSI, 2005) show that citizens evaluate digital public services and seem to prefer traditional transactions. Citizens expect more from digital services (Accenture, 2005), while they are not confident regarding security and privacy aspects of e-Government transactions. Furthermore, surveys carried out in the Digital City of Trikala, Central Greece (Anthopoulos, 2005), show that citizens prefer the involvement of public servants in digital transactions, while civil servants appear reluctant to support the diffusion of e-Government. Different points of views show that neither citizens nor civil servants trust e-Government. The Digital City notion is used for the purposes of this chapter. Digital City is defined as “the global municipal area information environment, focusing on the needs of a city area”. The environ-
ment contains Information and Communication Technology (ICT) solutions, but is not designed to offer only digital public services or to create digital communities. The primary targets of the Digital City are: a) to offer digital means for supporting social needs in all daily transactions; b) to acclimate the local community to the notion of the Information Society; and c) to collect official and unofficial information from the local community in order to support sustainable growth of small societies (Anthopoulos and Tsoukalas, 2005). The definition extends previous ones by (Sairamesh, Lee & Anania, 2004), (Sproull & Patterson, 2004), (Widmayer, 1999) and (Ishida, 2002). In the Digital City of Trikala, [on behalf of the local Administration] e-Government issues were investigated (Anthopoulos, Tsoukalas, 2005), and the “bottom-up” planning method was applied. The “bottom-up” design, too, is defined in detail by means of educational methods (Anthopoulos et. al., 2007), where participants consider eGovernment as a hierarchical system consisting of multiple elements (sub-systems) that need to be identified, combined and analyzed – from multiple perspectives – in order for the whole system to be realized. Participants (end-users, public officials, politicians) share knowledge, and support Administration modernization. A comparison of the “bottom-up” and “top-down” design methods is presented in (Figure 1). They start by setting out their expectations with regard to e-Government systems, digital public services and their simplification, and the smooth transition from traditional to ICT-based procedures. The “bottom-up” strategic planning was successful for the e-Trikala case, since in a mid-sized Greek town with a development index under national average values, the investment of more than €4 million for a metropolitan e-Government environment (Anthopoulos and Manos, 2005) was achieved in less than 3 years, and the closing of the digital divide with the contribution of all social groups was performed. E-Trikala can
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Figure 1. Comparing “top-down” and “bottom-up” methods
be a case study for similar cases, where local Agencies, municipal or state Governments wish to enter the e-Government era.
MAIN THRUST OF THIS CHAPTER The main purpose of this chapter is to introduce the Collaborative Enterprise Architecture (CEA): a model that can support local Agencies and municipal or state Governments in their e-Government projects. The CEA was extracted in the e-Trikala case study, where e-Government Strategies were analyzed and combined with individual needs. The summarized process and the data that were used in the e-Trikala case are contained in this section. Initially, the key findings of some major e-Government strategies are presented. This investigation culminates in a common central eGovernment Information System and a common procedure for public service execution. This data is useful for the introduction of CEA, as it was used in the e-Trikala case. CEA contains a mission statement and an implementation model, which follows a number of perspectives and steps that can be common for similar cases. CEA also contains a logical architecture and some technological principles that can be followed by local agencies.
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Key Findings from Existing E-Government Strategies A formal definition of public services suggests that “independent public services are legally grounded business of public organizations in an economical sense”. They represent the development and delivery of products and services of an organized unit to the public. A public service is referenced to a life event or business situation and is analyzed in multiple steps that are executed according to relevant legal restrictions. The US Federal Government’s e-Government action plan (US Federal Government, 2002) aims at the transformation of public administration into a citizen-centered, results-oriented and market-based e-Government. Extensive investment, exceeding $52 billion by the end of 2003, is being made in e-Government projects. About 40,000 Web pages from State Governments and local authorities are accessible from a one-stop e-Government portal called FirstGov (www. firstgov.gov), while the e-Authentication (US Federal Government, 2003) platform provides secure services and preserves privacy during public transactions. The US strategic plan is supported by the Federal Enterprise Architecture (FEA) (CIO, 2001), which was inspired by Zachman’s model (Zachman, 1987), (Sowa, 2000). FEA adopted
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the National Institute of Standards and Technology (NIST) model (CIO, 1999), containing the following layers: business, information, information systems, and data and delivery systems architectures. In Europe, member countries have signed the eEurope Action Plans, describing ways of building a favorable environment for all European citizens to participate in the Information Society. These plans have the power of contract between the member countries, presenting targets for IT projects. According to the previous eEurope 2005 plan (European Commission, 2002) – for instance – public authorities in all member countries should offer digital services by the end of 2005. Recently, the European Council adopted the i2010 Strategic Plan (Reding, 2005), where “innovation” and “inclusion” have become the main priorities for an “open information space” in Europe. European central Agencies did not suggest a specific EA for e-Government in member countries. However, e-Europe strategic plans (http://ec.europa.eu/ information_society/eEurope) set out targets as defined by the Information Society Directorate General (http://ec.europa.eu/information_society) and approved by the European Council. European Directives support the implementation of e-Europe strategic plans, which are coordinated and supervised by the Information Society Directorate General. European member-state national strategies had to adapt to eEurope plans and to their targets. The UK’s Modernizing Government plan (UK Crown, 2000) is one of the major European e-Government projects that matches the eEurope’s targets, while German (http://www.bund. de), French (www.service-public.fr) and Italian (http://www.italia.gov.it) plans follow. European one-stop e-Government portals provide similar procedures to those of FirstGov for the execution of public services. The UK’s strategic plan runs under the management of the Office of the e-Envoy. Two ambitious programs, UK Online and UK Gateway, rooted in the highest level of government. UK
Online developed the current DirectGov portal (http://www.direct.gov.uk), from where public services are offered centrally, while the Government Gateway (http://www.gateway.gov.uk) is a centrally financed infrastructure solution that connects existing systems with different data structures and establishes user authentication for all public agencies and civil servants. The e-GIF (e-Government Interoperability Framework) contains a range of standards for technical data exchange formats and protocols, in order to establish interoperability between different systems in British public Administration. By complying with the technical standards, all public Agencies access central solutions and principles. British Government approved its EA – called the “crossGovernment Enterprise Architecture (xGEA)” – in 2005 (UK CIO, 2005), describing the common “business-led vision” and procedures for British Administration. Germany has designed and followed the BundOnline 2005 strategic plan (German Federal Government, 2003) for its Information Society framework program, which contained specific targets for e-government. The Bund portal (www. bund.de) is the main point of access, where more than 100 agencies are interconnected and endeavour to offer more than 450 different services. The German Federal Government wants to make the Bund portal the main information platform for its public Administration, and a customer-centered and open environment. The German EA is called SAGA Framework (KBSt Publication Series, 2003) and contains centrally selected, common solutions and standards for ICT projects in German Administration. Furthermore, the framework presents different perspectives that the ICT architecture designers in public Administration must follow for e-Government projects. The Federal Government of Canada designed its “Government on-Line (GOL)” e-Government Strategic plan in 1999 (Treasury Board Secretariat, Government of Canada, 2001), aiming at the availability of all digital public services by
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2004. The Canadian strategic plan also aimed at a) spreading Internet use and b) public information offering via citizen-centered methods. In January 2001 both targets were initially achieved and the central e-Government portal was online (www.canada.gc.ca) (Treasury Board Secretariat, Government of Canada, 2001), where more than 450 unique public Websites are interconnected. Government on-Line targets include “the improvement of public transactions (accessibility, quality and response), social participation, transparency in public transactions, improvement of internal public procedures and efficiency in public Administration.” The Government on-Line strategy has evolved the Service Oriented Architecture (SOA) Strategy (Treasury Board Secretariat, Government of Canada, 2006). Service orientation is defined as “the planning and delivery of all services by formally componentizing each of the services and their subordinate services such that the overall collection of services work as a whole and supports a high level master-plan.” The Canadian SOA can be regarded as its EA since it contains the vision,
the rules and the methods for e-Government to be complied with by all public agencies.
A Common Architecture for E-Government Models The e-Government strategic plans presented previously culminate in central information systems and one-stop portals to offer digital public services. Central systems and portals are based on multitier e-Government solutions, which contain the following entities (Figure 2): a. An RDBMS operating as a repository for digital public service descriptions. It can store XML documents (Wesley, Addison, 2003) describing the execution procedure of all available digital public services. b. An optional RDBMS for the legislative rules applied in public services contains the legal framework in LegalXML or LexML format and is available to all software modules of the system.
Figure 2. A logical view of a common central e-Government system. Arrows show possible paths chosen by citizens to access public information or services. Workflow systems in the back-office offer content management and service execution options
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c. Databases with public information (digital records and documents), uploaded or produced during public transactions. They transact with legacy systems already installed in the Public Administration via Web service architecture. d. Authentication systems and security options, which provide security and privacy during transactions, and offer different levels of authentication. e. Interoperability framework based on XML descriptions, are followed for the Web service transactions between the central information system and legacy systems. f. Content Management Systems that administer public information and software engines that execute different steps of the public services. The engines transact with multiple modules of the central Information System and with legacy systems via Web services. g. A government portal operates as the access point and the interface between citizens and public authorities. It uses multiple communication channels such as the Internet, 3rd generation mobile networks and voice communication. The common procedure of a service execution consists of the following steps (Figure 3):
1. Citizen visits a one-stop e-Government portal and selects among the public services offered online, presented in a UDDI catalogue. 2. Citizen is redirected to an authentication environment where he is authenticated according to simple logon methods or Public Key Infrastructure (PKI) credentials. 3. When the citizen is authenticated, he is directed to the back-office where the public service can be executed. 4. An on-line application form that the citizen must fill in is presented, and he either downloads it and follows traditional methods for public transactions or submits it to the back-office. 5. The application is directed to the proper Agency, where a workflow system, matched to the Weberian hierarchical architecture (Tat-Kei Ho, 2002), is installed. The workflow system receives the application form and public executives handle the occasion. 6. Software modules – such as those presented previously – verify submitted data to records in the existing back-office databases or in legacy systems distributed in the public Administration, and execute different steps of the service. The major problems and social issues that the implementation and installation of such an eGovernment system faces are presented below:
Figure 3. The common procedure of service execution
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Figure 4. Major key-findings from investigated case studies
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a. The definition of XML schemas to describe public services and data produced and exchanged. b. The re-designation and simplification of many public services so that they “fit” into specific workflow schemas and can be transformed into fully automated digital services. In Europe it is estimated that only 45% of the total public services (Cap Gemini, Ernst & Young, 2003) can become fully digital, due to the fact that most public services are composite and customized. c. The legislation of the proper framework covering digital transactions. d. The re-organization and transformation of public Agencies to transact with the backoffice environment. e. The training of both citizens and public executives in basic IT skills. f. The minimization of telecommunication costs for citizens and enterprises. In Europe, broadband services are still very expensive for single users and thus hinder the diffusion of e-Government. Public Agencies can select between workflow or service execution environments to cover their needs. On the other hand, they have to deal with all e-Government aspects in order to develop the proper digital environment.
The Collaborative Enterprise Architecture The “bottom-up” strategic planning, where representatives of e-Government target groups participate in the design and implementation procedures, suggests the Collaborative Enterprise Architecture (CEA) notion. The Collaboration Enterprise Architecture (CEA) is an information plan whereby the strategic e-Government mission and the information needed for the mission’s performance are defined with the contribution of representatives of all the target groups and they
meet end-users’ needs. The enterprise lifecycle is executed with the collaboration of the working group, the involved social parties and experts invited from the private and academic sectors. The evaluation of the architecture’s progress is based on end-user satisfaction and acceptance. The implementation methodology is described in the following subsection and suggests the Enterprise Lifecycle of the CEA. CEA was inspired by the US Federal Enterprise Architecture (FEA) (CIO, 1999) and by (Sowa) and consists of the following architecture layers placed in the columns of (Figure 5): a. The organization architecture, dealing with the organization’s physiognomy and vision, and national EA. b. The collaborating architecture that refers to the cooperating schema of the involved participants in the strategic planning and implementation phases. The cooperating schema contains descriptions about the collaborating procedure in different stages (UML rules, connections and data flow), together with groupware systems that establish the participation. c. The technical architecture, which contains the technical standards for the development and interoperability of the architecture’s subsystems. d. The data architecture describing physical storages and repositories, file and records structure, semantics for information exchange, copyright and securing options. e. The accessibility architecture that describes the efficiency of the architecture, since its vision and implementation are being evaluated by members of their target groups.
Applying CEA in Local Administrations Cases The significance of the Collaborative Enterprise Architecture (CEA) can be extracted from cases
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Figure 5. The collaborative enterprise architecture
where a local Administration or an individual public Authority wishes to enter e-Government Era. In such cases the local Administration or public Authority must address certain critical issues that accompany its transformation: a) it must conform to the national EA and b) it must investigate local or individual needs. This section is a common implementation model for individual or local Authorities and is a conclusion drawn from the case study of the Digital City of Trikala, where the municipality decided to approach the Information Society. The implementation model is presented in the form of a guide and it is extracted from the “bottom up” procedure (Anthopoulos et. al, 2007). The implementation model consists of some primary perspectives, which are placed in
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the rows of (Figure 5) and which were considered in the e-Trikala case. These perspectives are not strict and can be differentiated according to custom conditions.
A. Authority’s Perspective: Setting up the Working Group The heads of Agencies or the Municipal Council are the leaders of the Authority that wishes to enter the e-Government era. Agency heads and politicians are probably not aware of ICT in detail, but they can understand local and individual needs, they can diffuse their decisions to the local environments, and they must keep a “leading role” in the initiative. Heads of agencies need to
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invite highly-skilled ICT seniors (academics or staff from the private sector) to cooperate with representatives from the Agency or from the local society’s organized groups. All participants will comprise the “working group” for e-Government transformation. The group will work on political targets, exchange ideas, extract local needs, find e-Government solutions for them conforming to EA architecture, implement these solutions and “close the digital divide” in the local environment. The whole process will deliver a business plan for e-Government. In the case of e-Trikala, the working group was structured with representatives from the Municipality, Academics, people from the private sector and representatives from the organized social groups of the city of Trikala: educational society (students, teachers and parents), teams working on cultural aspects (cultural organizations and local museums), media (local newspapers and radio stations), teams of elderly citizens and citizens with disabilities and from the local market (local chamber of trade, groups of enterprises involved in local tourism and local production).
B. Business Perspective: Discover the Individual Background The first thing the working group must do is to define its resources (ICT, human resources who will use e-Government tools), its individual environment (the geographical field of action and the target-groups) and local needs. In the case of e-Trikala, the resources deal with ICT infrastructures in the town hall and municipal agencies, and ICT-skilled municipal executives, public buildings, telecommunication vendors and connections over the city. Local needs arise from procedures occurring in the Agency or in the City, together with local conditions (social, economic and demographic characteristics, geographical and urban parameters, cultural and educational networks, transportation and telecommunication infrastructures,
etc.). Local needs set the priorities for digital public services and e-Government. Their investigation is based on the contribution of the group members, while social participation may be requested via open dialogue. In e-Trikala the investigation of local needs defined the axes of precedence for e-Government: a) Economy and employment, b) Improvement of everyday life, c) Education, professional training, life-long learning, and d) Tourism and culture. All public services that were implemented according to the above axes of precedence exceed Administrating activities and municipal authorities. However, the digital city is a global e-Government environment where multiple digital environments are combined for the improvement of the local community’s life.
C. Financial Perspective: Secure Funding, Re-Use Infrastructures, Encourage Private Investments and Minimize Maintenance Expenses E-Government planning demands funding for the implementation and maintenance of information systems, software and digital service development, diffusion and training activities, and for telecommunication services. The financial perspective requires the examination of all existing ICT infrastructures and the necessary interoperability or updating costs. In the case of e-Trikala funding was secured by the national Information Society Framework Program, from European Framework Programs and from national resources. The working group also encouraged ICT companies to offer volunteer support with pilot projects, testing their technologies and products in Trikala city. Interoperability between new, legacy and third-party infrastructures was built to comply with the national interoperability framework. The maintenance of the Digital City infrastructures and services will be based on payment policies over operators and digital public services.
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D. Political Perspective: Comply with National EA EA is a tool that can succeed in e-Government initiatives with common standards and interoperable features. However national EA contains priorities that are formulated according to a political and economic background. All unique projects designed for e-Government must comply with the national EA mission and principles, and must comprise an architecture that will also follow EA’s technological standards. Local administrators can define their primary targets, but they have to formulate them in a manner compatible with the national mission. In the e-Trikala case, local needs were defined and assigned to axes of precedence that comply with the Greek strategy. The Greek Information Society strategy conforms to the European strategy and to the principles that are set by the European Council and by the European Information Society Framework Programme. Moreover, the Greek strategy has succeeded in the development of the broadband Network Syzefxis (www.syzefxis.gov.gr), which connects all public agencies; the Greek strategy has also legalized the Citizen Service Offices Information System (www.kep.gov.gr), with which all e-Government initiatives must conform and interoperate. E-Trikala Digital City EA contains interfaces that interoperate with both of the above public infrastructures.
E. Implementation Perspective: Make Use of Experience from International Case Studies “Excellence” is the key to encouraging progress. The European Commission identifies both best and worst practices from all over Europe using Eurostat (http://epp.eurostat.ec.europa.eu) and Eurobarometer (http://ec.europa.eu/public_opinion) services, in order to strengthen competitiveness and prevent further failures in Europe. Individual and municipal Agencies can make use of the
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results extracted from e-Government case studies: they can learn from both success and failure, via understanding the conditions and the factors that influenced results. In the e-Trikala project, the experiences from the major strategic plans presented above were combined with digital city cases. National strategic plans contributed with their visions and their Enterprise Architectures. Digital city case studies were used for the evaluation of their different technological models and for their different physiognomies. The result extracted by this combination is a novel Digital City model, which is a metropolitan e-Government environment, where non-profit, social and administrative public services are offered to citizens (Anthopoulos and Manos, 2005).
F. Technical Perspective: Use Common E-government Architectures and Standards to Cover Individual Needs The implementation of the local e-Government environment requires common ICT infrastructures for the information system, the content management system and the service execution modules. Common tools and procedures were described previously. The local Agency has to opt for the optimal software, hardware and service solutions, according to common national and international standards. The local e-Government environment will interoperate with legacy and external environments, in order to transact data and forward service requests. In e-Trikala the Digital City is based on an n-tier architecture, whose levels are compatible with national and international eGovernment standards. The whole architecture is modular (Anthopoulos and Tsoukalas, 2005) and consists of sub-systems, which also follow the same architecture.
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G. Project Manager’s Perspective: Project Life-Cycle (Design and Implement Projects, Evaluate and Improve the Resulting System) Unique projects must be designed to cover special needs. All projects must comply with the global Architecture and with national EA. The implementation procedure must be administered by groups of experts with specialized knowledge of the projects’ physiognomies. Implementation procedures can be based on common standards (such as PRINCE method), and assign tools for supervision, risk management and evaluation criteria. Specific deliverables must be expected in different phases of the projects, and must be evaluated and redesigned by demand. In e-Trikala, a number of unique projects aimed to cover local needs: a) e-Government information system designed to offer services to citizens all over the province. b) smart transportation system designed to support and improve local mass transport means. c) e-voting and decision-making tools were designed to encourage social participation. d) telecare system designed to support the elderly and citizens with disabilities. e) wireless hotspots and metro-wifi free for use by the citizens were designed and installed to “close” the digital divide. e) All above sub-systems were installed in public buildings, centrally operated and interconnected via a broadband fiber-optic network and mesh networks. The logical architectures of all sub-systems shared the same logical layers, which were also those of the Digital City’s logical architecture. Their implementation was administered by specialists invited from the private and academic sectors who evaluated the quality of project deliverables by measuring end-user satisfaction and acceptance.
H. Administrative Perspective: Define the Operational Procedures and Rules; Diffuse the Results in the Target Groups Local Authority has to define the operational plan and the terms of use of the e-Government environment. The operational plan deals with the organizational structure that will administer the e-Government system: the layers of access, the roles and the rules of involvement for different kinds of users, administrative procedures, crisis management models, disaster recovery plans, etc. Moreover, the operational plan sets the limits, defines criminal activities in the eGovernment environment and presents methods of reaction against different kinds of violation. Finally, different scenarios for communicating the e-Government environment to the target groups are contained. In the e-Trikala case, although the Digital City’s system is central, its sub-systems are distributed and they operate under the responsible municipal Authorities. The technical administration and the monitoring of the whole system are assigned to a specific municipal Agency. This Agency holds different plans for managing, monitoring, securing, recovering and extending the system. The legal framework of the Digital City environment complies with the Greek and the European frameworks, and is applied by national and municipal authorities. The diffusion of the Digital City principles and benefits was supported by the “bottom-up strategic planning” because social representatives participated in the implementation progress and they delivered their feedback to their groups of citizens. Furthermore, technical events and schools have been organized by the Municipal authorities in order to spread technical knowledge to young members of the local community.
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CONCLUSION In this chapter we introduced the notion of the Collaborative Enterprise Architecture (CEA) as an EA that can support individual Agencies and municipal or state Governments who wish to enter the e-Government Era. The CEA was applied in the case of the Digital City of Trikala and it is modeled to support similar cases. The CEA resulted from the investigation of some major e-Government strategies, it considers common information system architecture and service processes, it incorporates participating methods and groupware tools, and it is accompanied by a step-by-step implementation model for e-Government initiatives. Moreover, the CEA suggests some primary principles that are common for all small-area e-Government projects that were verified in the e-Trikala case study. The CEA will also be tested in a Digital Geography case study in central Greece through 2013, where various Digital Cities will comprise a common e-Government environment.
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UK Cabinet Office. Office of the e-Envoy (2002) e-Government Interoperability Framework (e-GIF). Part two: Technical Policies and Specifications. Retrieved August 15th, 2007, from http://www.govtalk.gov.uk/documents/eGIF4Pt2_2002-04-25.pdf UK Chief Information Officers Council (UK CIO). (2005) Enterprise Architecture for UK Government. An overview of the process and deliverables for Release 1. Retrieved August 15th, 2007, from http://www.cio.gov.uk/documents/cto/ pdf/enterprise_architecture_uk.pdf US Federal Government. (2002) e-Government Strategy: Simplified Delivery of Services to Citizens. Executive Office of the President, Office of Management and Budget, US Federal Government – February 2002. Retrieved May 25th, 2006, from http://www.firstgov.gov/Topics/Includes/ Reference/egov_strategy.pdf Wesley, A. (2003). XML Data Management. Native XML and XML-enabled Database Systems. Pearson Education Inc., Boston,U.S.A. Widmayer, P. (1999, July-Aug.). Building Digital Metropolis: Chicago’s Future Networks [IEEE.]. IT Professional, 1(Issue 4), 40–46. doi:10.1109/6294.781624 Wimmer, M., & Traunmuller, R. (2000) Trends in Electronic Government: Managing Distributed Knowledge. In the 11th International Workshop on Database and Expert Systems Applications (IEEE, DEXA’00) Zachman, J. A. (1987). A Framework for Information Systems Architecture. IBM Systems Journal, 26(3), 1987. available at http://www.research.ibm. com/journal/sj/263/ibmsj2603E.pdf.
This work was previously published in Advances in Government Enterprise Architecture, edited by Pallab Saha, pp. 392-408, copyright 2009 by Information Science Reference (an imprint of IGI Global). 310
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Using Enterprise Architecture to Transform Service Delivery: The U.S. Federal Government’s Human Resources Line of Business Timothy Biggert IBM Global Business Services, USA Kunal Suryavanshi IBM Global Business Services, USA Ryan Kobb IBM Global Business Services, USA
ABSTRACT This chapter provides a case study on how the U.S. Office of Personnel Management has led the establishment of the Human Resources Line of Business (HR LOB). It explains how the HR LOB program has used enterprise architecture to drive transformation to a new Human Resources service delivery model across the United States Federal government. The authors propose that the DOI: 10.4018/978-1-60960-587-2.ch206
common view and vocabulary that EA artifacts provide, along with the collaborative governance that took place to create the artifacts, has produced a solid business foundation for this extensive business transformation effort.
INTRODUCTION Enterprise architecture synthesizes a business entity – and much of its complexity – into a single integrated set of structures that can be
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used as a basis for strategy and planning. “In a large modern enterprise, a rigorously defined framework is necessary to be able to capture a vision of the ‘entire system’ in all its dimensions and complexity. Enterprise architecture (EA) is a framework which is able to coordinate the many facets that make up the fundamental essence of an enterprise. It is the master plan which ‘acts as an integrating force’ between aspects of business planning” (Stevenson, 1995, para. 2). The United States Office of Management and Budget has formulated an enterprise architecture strategy for the U.S. government that can help government agencies manage complexity and move toward innovation and transformation – informed and enabled by enterprise architecture. This chapter is about the U.S. Federal government’s transformation of service delivery for Human Resources using enterprise architecture and reinforced by collaborative governance. The Human Resources Line of Business (HR LOB) is driving transformation of Federal Human Resources service delivery via enterprise architecture. The HR LOB enterprise architecture provides a common, government-wide view and vocabulary for the HR function – a view and vocabulary that provide a basis for common, government-wide solutions that agencies will implement to realize the vision and goals of the Federal government’s HR transformation. Using broad-based collaboration as a fundamental governance principle, the HR Line of Business program at the U.S. Office of Personnel Management was able to achieve consensus on its enterprise architecture and use that EA to define shared services-based service delivery expectations for the future Federal HR operation. Under the leadership of the HR LOB program, hundreds of HR professionals representing three dozen agencies came together in dozens of work sessions over a four year period to define a government-wide HR enterprise architecture.
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The results of this collaboration are presented in the pages that follow. This chapter is organized into the following sections: •
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Background: Provides environmental and historical context for the U.S. Government’s electronic government initiatives and the events that led to the formation of the HR LOB program. Enterprise Architecture: Describes how the HR LOB EA helped achieve the vision of standardization of HR processes across the Federal HR function. Governance: Explains how HR LOB used collaborative governance to develop an EA necessary to standardize and modernize HR services delivery. Target Requirements For Shared Service Centers: Describes how the HR LOB EA has been used to drive implementation – by compiling and developing the solution-level target requirements for shared service centers. Lessons Learned: Outlines critical lessons learned while developing an EA for the HR LOB. Future Trends and Research: Provides insight into how EA can be used to help government calibrate how it delivers shared services to its customers.
BACKGROUND Innovation in the use of technology is driving a revolution in business today, enabling the creation of new businesses and business structures. Homeowners can shop for refinance loans from their own homes. Businesses can integrate suppliers and customers into their own end-to-end business processes with seamless precision. Companies can outsource functions to other companies located on the other side of the planet.
Using Enterprise Architecture to Transform Service Delivery
Fueled by technology, the pace of change is in fact accelerating. According to McDavid (1999): Technological innovations give rise to increased opportunities: new ways to do old things better and whole new things to do. These opportunities give rise to business innovations, and companies move in to take over new niches and sub-niches. These changes in the way of doing business create new ideas and expectations of even better, more innovative performance on the part of technology. In turn, pressure is put on technology providers to support still more new and innovative forms of business behavior. (Purpose of a business system architecture section, para. 7) Expectations about innovation do not stop with business; the public expects innovation to thrive throughout government as well. “Polling data from the Pew Foundation, for example, show that over 40 million Americans went online to look at Federal, State and local government policies and over 20 million used the Internet to send their views to governments about those policies. This and similar data show that if the U.S. Government can harness the power of technology, it will be meeting expectations of an increasingly wired citizenry” (Office of Management and Budget [OMB], n.d.a, What the Public Expects section). According to the U.S. Office of Management and Budget (OMB), the goal of the United States Government “is to be the best manager, innovator, and user of information, services, and information systems in the world… There continue to be great opportunities to apply existing and emerging business best practices to government to achieve increases in productivity and delivery of services and information. We remain focused on the customer instead of our traditional approach of focusing on departments and agencies” (OMB, 2006, December, p.1). In his February 2002 budget submission to Congress, the President of the United States proposed his strategy for achieving this shift to a customer focus. The President stated that “our success depends on agencies working as a team
across traditional boundaries to better serve the American people, focusing on citizens rather than individual agency needs” (OMB, n.d.a, The President Urges Agencies to Work Together section). According to OMB (n.d.a) the President’s Management Agenda proposes that this can be accomplished through expanding electronic government – or E-Government – which leverages advances in technology to: • • •
Make it easy for citizens and businesses to interact with the government Save taxpayer dollars Streamline citizen-to-government communications
The United States Government has been a particular beneficiary of information technology: The United States Government continues to be one of the largest users and acquirers of data, information and supporting technology systems in the world, by investing approximately $65 billion annually on Information Technology (IT). The Federal Government has made improvements but continues to strive to be the world’s leader in managing technology and information to achieve the greatest gains of productivity, service and results (OMB, 2006, December, p. 1). The E-Government Act of 2002, signed by the President on December 17, 2002 and made effective on April 17, 2003, codified 24 E-Government initiatives into legislation. The initiatives have already achieved tangible progress. Following are just some of the benefits OMB (2007, February) reported to Congress in the second annual Report to Congress on the Benefits of the E-Government Initiatives. •
GovBenefits.gov: The GovBenefits.gov initiative provides a single point of access for citizens to locate information and determine potential eligibility for government benefits and services. It receives an average of approximately 300,000 visits
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per month by citizens and to date has provided nearly one million citizen referrals to benefit programs. IRS Free File: For the 2006 filing season to date, more than 3.9 million citizens have filed taxes online for free using the Free File E-Government solution. Grants.gov: With over 1,000 grant programs offered by all Federal grant making agencies, Grants.gov provides a means for navigating through the complexity of finding and applying for U.S. Government grants. The initiative has seen a substantial increase in the number of grant application packages posted on Grants.gov since the beginning of fiscal year 2005. In the first quarter of FY05, 252 packages were posted on Grants.gov. By the last quarter of fiscal year 2006, 4,523 packages were posted on Grants.gov, almost 17 times the number at the beginning of fiscal year 2005. SAFECOM: SAFECOM provides research, development, testing, and evaluation, guidance, tools, and templates on communications-related issues to local, tribal, state, and Federal emergency response agencies. In 2006, the initiative increased the number of urban areas that can establish interoperable communications at the command level within one hour of a major event from 10 to 75. Additionally, 66% of public safety agencies report using interoperability to some degree in their operations. E-Travel: E-Gov Travel is a collaborative interagency program the purpose of which is to realize the cost savings and increased service associated with a common, automated, and integrated approach to managing the travel function of the United States Government’s civilian agencies. The Department of Labor, one of the first agencies to complete its migration to an E-Travel service provider, reported a decrease in
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travel voucher costs from approximately $60 per voucher to approximately $25 per voucher (a decrease of about 60%) and a reduction in voucher processing time from seven to three business days. Additionally, both the Department of Transportation and the Department of the Interior are realizing savings of over $1 million per year through the use of online booking. e-Training: The e-Training initiative is transforming learning by creating a premier e-Learning environment to support the development of the Federal workforce and to advance the accomplishment of agency missions through simplified and one-stop access to high quality e-Learning products, tools, and services. To date, over 840,000 Federal employees have registered in the GoLearn.gov Learning Management System. Federal employees have completed more than 2.7 million courses provided through the E-Training initiative. E-Training is assisting the United States Government in maintaining a highly skilled workforce at a fraction of the cost of classroom training alone. E-Payroll: The E-Payroll initiative is consolidating 26 Executive branch Federal payroll providers to just four providers, standardizing payroll policies and procedures, and simplifying and better integrating payroll, human resources, and finance functions. Through migration to one of the four payroll service providers, agencies are able to realize cost savings and improved efficiencies. For example, the Department of Health and Human Services has reduced the annual costs of payroll processing for its more than 65,000 employees from $259 to $90 per employee (an annual savings of almost $11 million) while the Environmental Protection Agency has reduced the cost from $270 to $90 per employee for its staff
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•
of 18,000 (an annual savings of approximately $3.2 million). Recruitment One-Stop. Each month, over 100,000 resumes are created on USAJobs.gov, the branded Web site of Recruitment One-Stop (the Federal online recruitment service). USAJobs.gov receives over 240,000 visits daily from job seekers looking for information regarding career opportunities with the United States Government.
Working across traditional government agency boundaries to achieve business benefits of this magnitude requires a common view that spans government boundaries, a view that enables cross-agency conversation, debate, and collaboration. This common view is achieved through enterprise architecture. Recognizing this, OMB commissioned the Federal Enterprise Architecture (FEA) Program on February 6, 2002. The FEA Program provides specifications for building a comprehensive business-driven blueprint of the entire United States Government. In 2004, OMB appointed the U.S. Office of Personnel Management (OPM) to lead five of the 24 E-Gov initiatives. That appointment constituted a White House challenge to OPM: assume a key role in supporting the transformation of the United States Government – with 1.8 million employees deployed across multiple disparate agencies – into an efficient, cost-effective, performance-driven business. OPM is meeting that goal through its Human Resources Line of Business (HR LOB) – an initiative that is creating a modern, standardized, and interoperable HR function throughout the Federal government. Up to now, each Federal agency has handled its own HR operations, resulting in duplication and waste across hundreds of agency locations. The HR LOB program is driving consolidation of HR data and processes. It has the potential to produce cost savings of hundreds of millions of dollars.
At the onset, OPM convened a task force comprised of 24 Federal agencies to chart the vision and goals for the HR Line of Business. The vision of the HR LOB is “government-wide, modern, cost-effective, standardized, and interoperable HR solutions providing common, core functionality to support the strategic management of human capital and addressing duplicative HR systems and processes.” The goals of the HR LOB program include: • • • •
Improved Government-wide Strategic Management of Human Capital Operational Efficiencies Cost Savings / Avoidance Improved Customer Service
Two dimensions that underlie the HR LOB vision are standardization and common solutions. Standardization implies that solutions are to be developed through a set of common and repeatable processes and tools. This standardization will be a basis for government-wide common solutions that not only provide economies of scale, but also address measurable business improvements. Enterprise architecture has provided the means for making tough decisions around standardization and common solutions. The concepts of standardization and common solutions will in large part be operationalized by the introduction of HR shared services. A small number of agencies have been identified to deliver HR services to other agencies via shared service centers (SSCs). Additionally, private sector providers will also deliver HR services to Federal agencies. Over time, this will enhance competitive market forces in the HR Line of Business, supporting another tenet of the President’s Management Agenda. Shared services is traditionally defined as an operational model in which services are delivered by business entities that are internal to an organization but operate independently – shared service centers (SSCs). SSCs operate as a business and
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have dedicated resources to provide well-defined, process-based or knowledge-based services for more than one unit of a company (division, business unit, or agency). SSCs are fully responsible for managing costs, quality, and timeliness of services. The concept of shared services is not new; the private sector embraced it ten to fifteen years ago. It is just now gaining momentum in the public sector. The HR LOB Concept of Operations states that these HR shared service centers will take a phased approach to delivering HR services. At a minimum, all SSCs will offer the same common core functionality. The solutions that operate at these SSCs will be evaluated and recommended by a multi-agency steering committee that stresses scalability, interoperability, and portability. Agencies will select SSCs on a competitive basis and have choices; they can shop around for the SSCs that best meet their needs. The shared service centers will leverage “plug and play” architecture concepts. In his report on innovation in government, Borins (2006) of the University of Toronto reports that, interestingly, “frontline staff and middle managers are the most frequent initiators of public management innovation” (p.5). The results of his study also reveal that “innovative organizations draw ideas from people at all levels” (p.5). Borins’ conclusions are quite consistent with the HR LOB Program experience: collaboration is key. Since 2004, over 400 participants from 24 Federal agencies have collaborated to produce the business and technical architectures that define this new HR service delivery approach. The HR LOB program is a model for leveraging cross-government expertise and collaboration to develop an enterprise architecture that standardizes business processes, data, performance measures, business services, and technical infrastructure. The Human Resources Line of Business is using enterprise architecture to innovate and transform the HR function throughout the United States Government. The next section of this chap-
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ter, ENTERPRISE ARCHITECTURE, describes how the HR LOB EA helped achieve the vision of standardization of HR processes across the Federal HR function.
ENTERPRISE ARCHITECTURE The Human Resources Line of Business Program established enterprise architecture (EA) as one important means of achieving the vision and objectives of the program. EA provides the common view and vocabulary across 24 United States Federal agencies that enables dialog, debate, and collaboration around standardization, common solutions, and the new shared services-based HR delivery model. Over the course of four years, various workgroups were convened to build out the models. Each workgroup was comprised of government human resources professionals representing the human resources point of view of the HR LOB member agencies. The HR LOB approach to EA was based on a fundamental tenet that would drive the multi-year effort: EA deliverables would comply with OMB’s Federal Enterprise Architecture guidelines and, more important, would provide real business value to agencies. The objective was to produce artifacts that were both compliant and useful. The United States General Accountability Office (2003, November) reports that there are seven EA frameworks in use at various agencies across the United States Federal government. The frameworks in most widespread use are: • •
•
Federal Enterprise Architecture Framework (FEAF) - 61 agencies Federal Enterprise Architecture Program Management Office (FEAPMO) Reference Models - 56 agencies Zachman Framework - 36 agencies
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Other frameworks in use, albeit less popular, include: • • •
•
Treasury Enterprise Architecture Framework (TEAF) National Institute of Standards and Technology Framework (NIST framework) Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) Framework Department of Defense Architecture Framework (DoDAF)
The Office of Management and Budget strongly encouraged the various lines of business to develop their segment architectures using a common framework, the FEAPMO Reference Models. The rationale behind this is simple: the lines of business have been established to consolidate services across the government, reducing or eliminating duplicative services and systems. Having a common framework allows for the segment architectures to roll up to a government-wide view. This provides for discovering duplication of processes, services and /or systems and for
recognizing best of breed that are recommended for use across the government. And although the framework may be specific to the U.S. Federal government, the modeling methods that underlie the framework are not uncommon. FEA Practice Guidance, published by the FEAPMO (2006, December), states that “Segment architecture work products are developed using standard formats and content… Standard work product content and formats promote collaboration and reuse by facilitating the reconciliation of segment architecture work products with the agency EA and relevant cross-agency initiatives found in the Federal Transition Framework” (section 2, p.8). The program facilitated the development and validation of all five models put forward by FEAPMO Reference Model guidelines (Figure 1.). These models are described in more detail in the pages that follow.
HR LOB Business Reference Model The first EA artifact developed by the HR LOB EA workgroup was the Business Reference Model (BRM), an end-to-end process model for the
Figure 1.
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Human Resources function of the United States Government. Although previous efforts had been made to build a government-wide HR process model, this was the most comprehensive to date in terms of the extent of agency participation and the completeness and breadth of the result. Over 300 participants representing 33 agencies met to develop and validate the HR LOB Business Reference Model. According to OMB (2007, July) FEA guidelines: The BRM provides a framework facilitating a functional (rather than organizational) view of the Federal government’s lines of business, including its internal operations and its services for citizens, independent of the agencies, bureaus and offices performing them. The BRM describes the Federal government around common business areas instead of through a stove-piped, agency by agency view. It thus promotes agency collaboration and serves as the underlying foundation for the FEA and E-Gov strategies (p.6). The BRM is structured into a multi-tiered hierarchy. Business areas appear in the topmost tier and include:
government-wide BRM. The entire governmentwide Business Reference Model can be found on OMB’s Web site at:http://www.whitehouse.gov/ omb/egov/a-2-EAModelsNEW2.html Using the government-wide BRM as the context, the HR Line of Business constructed a BRM for the Human Resources function, taking the government-wide model down to a greater level of detail. The HR LOB Business Reference Model, first published on December 31, 2004 and re-validated and re-published in January 2006, provides an end-to-end process view for Human Resources Management. The model consists of ten Human Resources sub-functions, organized by HR life cycle phase. The model is three layers deep. For each line of business, the sub-function layer represents the top layer. Underlying the sub-function is the process layer and underlying the process layer is the activity layer. The HR LOB model was not defined below three layers for three important reasons:
• • • •
•
Services for citizens Mode of delivery Support delivery and services Management of government resources
Business areas are comprised of lines of business. For example, the business area Management of Government Resources is comprised of the following lines of business: • • • • •
Supply Chain Management Human Resources Management Financial Management Administrative Management Information Technology Management
And lines of business are comprised of subfunctions, the lowest level of granularity in the
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•
•
First, it would have been quite impractical and difficult to decompose to the next (task) level; the model would have become unwieldy in terms of size and complexity. It would also have been quite difficult to get agreement across 24 agencies on task level detail. And the downstream business purpose of the model was to be a management tool, not a design document; there was no need to go to the task level.
The HR LOB BRM provides a level of detail that is flexible enough to be applicable to the entire Federal government while remaining tangible enough to be relevant for individual agencies. The HR LOB BRM sub-function view appears in Figure 4. The ten sub-functions decompose to a total of 45 processes. The HR LOB BRM process view appears in Figure 4.
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Figure 2..
An activity flow diagram was constructed for each process showing activities, roles, and major inputs and outputs. A precise narrative definition was written for each activity and information needed to perform the activity (inputs) and information produced as a result of the activity (outputs)
were also listed. Table 1 below provides a sample definition for the activity Determine Qualified / Eligible Applicants. The HR LOB BRM – and the work that led to it – is significant for a number of reasons.
Figure 3. HR LOB BRM – end-to-end process view
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Figure 4. HR LOB BRM – sub-function view
Table 1. Activity definition for determine qualified / eligible applicants Process
3.5 Evaluate Candidate
ID
Activity Name
Activity Definition
3.5.1
Determine Qualified / Eligible Applicants Role: Management HR Organization
Inputs: Recorded Applicant Documentation, Selection Criteria, Eligibility Requirements, Qualification Standards, Selection Factors Determine applicant eligibility and qualifications by reviewing applications for completeness and conformance to eligibility, qualifications and / or legal requirements (e.g., degree accreditation) including ICTAP. Those found to be ineligible are provided no further consideration. This activity includes identifying candidates who qualify for consideration under special appointing authorities. Outputs: List of Qualified/Eligible Applicants, List of Special Authority Candidates, and Candidate Notifications.
•
•
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First, the simple structure, along with the thorough information behind it, provides an easily understood view of HR that could be developed and validated – and subsequently used – by HR professionals with no knowledge of enterprise architecture. The initiative was the most comprehensive collaboration that ever took place regarding U.S. Federal HR process, and over the
•
course of the collaboration HR professionals came to the realization that there is a large degree of commonality across the government. The HR LOB BRM is a springboard for process innovation. Workgroup members were encouraged to be innovative and create a future view of the human resources process in the United States government.
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•
•
However, since the process is driven by legislation and policy, it was quite difficult for them to think outside the current view. Because of its widespread acceptance since its introduction, we can expect the BRM to become a starting point, over time, for innovation. (The BRM does contain kernels of innovation. For example, although the concept of competency management is not well established in the government, it appears as a thread throughout the model.) The BRM is a basis for the subsequent models built and thus serves as the integrating artifact. The activity inputs and outputs provided an important starting point for the HR LOB Data Model. It provided a structure for the HR LOB Performance Model. And it established the basis for identifying the HR services that appear in the HR LOB Service Component Model. Most important, it has become a useful management tool. At the HR LOB program level, for example, all collaborative work sessions are organized by BRM sub-functions. And at the agency level, the General Services Administration has used the BRM to drive transformation of its hiring processes.
The entire HR LOB BRM can be found at the U.S. Office of Personnel Management Web site: http://www.opm.gov/egov/documents/ architecture/#brm
HR LOB Performance Model In January 2006, a workgroup convened to develop the HR LOB Performance Model (PM). The HR LOB PM proposes a common set of performance measures for use throughout the Federal government. These performance measures will gauge how effectively government HR resources are used to support agency mission results, support the effective management of human capital across the government, and provide for effective human resources service delivery to employees, managers / supervisors, and other HR constituents. A total of 49 participants representing 12 agencies met to develop and validate the HR LOB Performance Model. According to FEA guidelines, the PM will ultimately have three main uses: 1. Help produce enhanced performance information to improve strategic and daily decision-making. 2. Improve the alignment – and better articulate the contribution of – inputs to outputs and outcomes, thereby creating a clear “line of sight” to desired results. 3. Identify performance improvement opportunities that span traditional organizational structures and boundaries. The first version of the HR LOB PM focuses only on the end-to-end processes of the core Business Reference Model sub-functions – Compensation Management and Benefits Management – and those BRM activities that result in a personnel action. These areas are the first to be sup-
Table 2. Total compensation as a percent of agency budget Measure Name Total Compensation as a percent of agency budget
Definition Percent of budget allocated to compensation. Compensation Cost includes salary, student loans, benefits, recruiting / retention / relocation incentives
Purpose Shows the percentage of budget allocated to compensation; useful for market comparison. Useful for year over year comparison and trend analysis.
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ported by the new shared service centers because they are highly transactional and administratively intense. FEA guidance describes a hierarchical construct for the PM that has four levels. •
•
•
•
Measurement area is the broadest area and is the high-level organizing framework capturing aspects of performance measures at the output level. The HR LOB falls under the Management of Government Resources Measurement Area. The measurement category level reflects collections within each measurement area describing the attribute or characteristic to be measured. This aligns with the Lines of Business. The measurement grouping level is a further refinement of the measurement category. The groupings align with the BRM sub-functions. The measurement indicator level defines those specific measures identified for the specific sub-function. The indicators evaluate the results of the sub-function’s contribution to agency business results. According to the FEA guidance, each Measurement Grouping (HR LOB subfunction) should have at least one measurement indicator (performance measure) that addresses each of the outcomes and objectives.
For each BRM sub-function (measurement grouping), the workgroup identified and defined a set of performance measures (measurement categories). The group was very careful to identify pragmatic measures, i.e., measures for which results data exists and can be collected. To illustrate the model, for the sub-function Compensation Management the workgroup identified a total of 13 performance measures, one of which is named total compensation as a percentage of agency
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budget. This measurement indicator is defined as follows: The PM provides a framework that links measures to government-wide HR strategic outcomes1 – as defined by the Office of Personnel Management – and to the strategic objectives of the HR LOB program. These linkages are important as the government-wide HR strategic outcomes and HR LOB strategic objectives link to specific agency business objectives. Thus, the PM measures, when implemented, provide tangible evidence of agency business results. To continue the aforementioned illustration, all 13 of the measurement indicators that support the BRM sub-function Compensation Management were linked to HR LOB objectives as shown in table 3 below. This mapping is important because it provides “line of sight” between performance and desired results. The concept of moving highly transactional and administratively intense activities to shared service centers to reduce costs, increase efficiency and even improve employee satisfaction appears on the surface to be a good idea. And the notion that this could free up agency HR personnel to do more valuable HR work is intuitively appealing. However, this new operating model could have negative value. It could in fact cost U.S. taxpayers twice as much, create more inefficiency and create employee dissatisfaction – given the possibility that when agencies migrate to the new model, there is a very real likelihood that they will retain shadow staff to duplicate the work of their service providers. It is thus imperative to baseline current performance and track performance over time as more and more agencies migrate to this new operational model. Having a common set of measures across the government will provide benchmarks that will enable comparative analysis across shared service centers, across agencies, and with private sector enterprises. Having this performance data will help identify high performers whose practices can be replicated. It will also help identify performance
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Table 3. Performance indicators mapped to strategic objectives Strategic Objectives
Compensation Management Measures
Improved Mgmt
€€€€€• Total compensation as a percentage of agency budget €€€€€• Average compensation per agency FTE €€€€€• Employee satisfaction with compensation €€€€€• Compliance
Operational Efficiency
€€€€€• On time project performance €€€€€• Retroactive payroll adjustments €€€€€• Electronic access €€€€€• Amended / corrected time records €€€€€• Payroll certifications €€€€€• Timeliness: time to disburse off-cycle payroll transactions €€€€€• Cycle time: W-2 distribution €€€€€• Quality: W-2 corrections as a percent of total W-2s
Cost Savings / Avoidance
€€€€€• On budget project performance €€€€€• Cost / price per W-2
Improved Customer Service
€€€€€• Quality: Personnel Action corrections – bonus & awards €€€€€• Timeliness: Change Notification €€€€€• Customer Service: Time to resolve / respond to inquiry
issues and provide a basis for improvement programs. The entire HR LOB PM can be found at the U.S. Office of Personnel Management Web site: http:// www.opm.gov/egov/documents/architecture/#pm
HR LOB Service Component Model In March 2006, a workgroup was formed to begin to develop an approach to building the HR LOB Service Component Model (SCM). The SCM lays the groundwork for the new services-based approach to HR service delivery described in the HR LOB Concept of Operations – in a very tangible way. The SCM formalizes a governmentwide view of services by proposing the universe of business services that could be put into place to support the HR processes depicted in the HR LOB BRM, and provides the construct that can be used to realize the shared services vision proposed by the HR LOB. The Service Component Model identifies all the services that could be provided by HR service providers to support BRM processes – the list of potential services from which providers will select to establish their portfolio of services. These
portfolios of services, in turn, provide the menu of services options that customer agencies will have when shopping for services. The HR LOB SCM, thus, provides a brand new services view that is crucial to defining this new line of business. FEA guidelines provide a hierarchical construct for the SCM. Service domains appear at the top of the hierarchy. Service domains are comprised of service types and service types in turn are comprised of service components. The service domain Back Office Services, for example, is comprised of five service types: • • • • •
Data management Human resources Financial management Assets / material management services Human capital management
The HR LOB SCM workgroup, which included 97 participants representing 14 agencies, identified 17 service components under the service type Human Resources (e.g., Pay Administration, Payroll Processing, Benefits Enrollment, Benefits Counseling, Recruiting) and 16 service components under the service type Human Capital
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Management (e.g., Competency Management, Workforce Planning, Succession Planning, Staffing). They also identified 30 service components outside the service types HR and HCM that support HR processes (e.g., Customer Support, Call Center Management, Knowledge Management, Consultative Support, Project Management). The entire HR LOB SCM can be found at the U.S. Office of Personnel Management Web site: http://www.opm.gov/egov/documents/ architecture/#scm The SCM workgroup also constructed a service delivery model. The workgroup identified user types: generic customers or constituents that might take advantage or use a service. The group mapped service component to user types to identify viable usage instances. For each usage instance, the group decided the most appropriate delivery mode: •
•
•
•
Tier 0 direct access: Enables the user to perform an action related to the task or activity without any direct involvement or guidance from another person (e.g., Web, IVR) Tier 1 call center: Enables the user to speak to a Human Resource generalist who utilizes scripts and a knowledge base to respond to a wide variety of questions and issues Tier 2 subject matter expert: Interprets policy to respond to escalated issues and questions Tier 3 decision maker: Interprets policy and has decision-making authority around complex issues, questions and critical incidents
The service delivery model provides a useful planning tool for service providers to understand the skills, resources, and infrastructure required at each tier. The SCM and its companion service delivery model demonstrate in a very real way how en-
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terprise architecture is being used to shape HR service delivery for the United States government. Previously, the processes and activities in the BRM were used as a basis for discussing services. This was quite useful, but imprecise because many of the activities are collaborative (i.e., both provider and customer have a role in the activity). The SCM provides a common view of services that will provide the basis for providers’ portfolios of services. The narrative definitions provide a vocabulary for discussion services. This common view and vocabulary around a common set of services will allow providers to more easily differentiate their services from other providers and will allow customers to compare offerings across providers. It will also conceivably provide a more solid basis for customers and providers to negotiate service level agreements (SLAs). Since Target Requirements (described in a subsequent section) will be mapped to service components, those requirements help set expectations between the customer agency and service provider regarding how the provider is expected to meet each requirement that is linked to each service being negotiated. Thus, very specific expectations can be set. According to the OPM HR LOB SCM Report (2007): The HR LOB Common Solution(s) White Paper and Concept of Operations (CONOPS), developed by the HR LOB Common Solution and Target Architecture Workgroup under the multi-agency HR LOB Task Force in 2004, discussed two dimensions that would be very important to any Federal line of business: common solutions and standardization. The concept of common solutions is based on a model that provides a business-driven approach to deliver standardized, scalable, and portable HR services across the Federal Government. Shared service centers would be a keystone for common solutions, producing economies of scale
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and supporting the four goals of the HR Line of Business: reduced cost, better efficiency, improved customer service, and improved management of human capital. Standardization defines common and repeatable processes that make common solutions possible. Enterprise architecture provides the framework and vocabulary for deciding what is to be standardized. Two desirable outcomes result from building out these dimensions – reusability and interoperability. •
•
Reusability is the ability to utilize a business asset in more than one context – by multiple organizations or across multiple processes. Interoperability is the ability to exchange assets for like assets without undue impact. It enables the purchaser of an asset to trade out one asset for another. And because the asset is self-contained and independent in terms of what it accomplishes and the resources it needs, there is minimum rippling effect when the trade-out occurs.
Identifying these assets is one step toward achieving the concepts of reusability and interoperability (pp. 4-5). The HR LOB Service Component Model identifies and defines reusable assets at the business services level. The real value of the SCM is that it promotes the concept of reusable asset at the business services level. The various lines of business will submit their models to OMB and OMB will consolidate the models into a consolidated government-wide reference model. This government-wide model will be available to help agencies identify opportunities for collaboration and sharing of assets. Thus, this EA artifact has real potential to contribute directly to innovation and cost savings throughout the United States Government.
HR LOB Data Model In July 2005, a workgroup of 42 participants representing 10 agencies convened to launch the HR LOB Data Model (DM) initiative. Using the activity inputs and outputs in the Business Reference Model as a starting point, the DM workgroup identified and modeled the data required to perform the BRM activities. According to OMB (2005, November) Federal Enterprise Architecture guidelines, the DM can provide value to agencies by: •
•
•
Providing a means to consistently describe data architectures. The DM’s approach to Data Description, Data Context, and Data Sharing enables data architecture initiatives to uniformly describe their data artifacts, resulting in increased opportunities for cross-agency and cross-COI data sharing. Bridging data architectures. The DM provides a “Rosetta Stone” to facilitate communications between enterprise and data architects about data and data architecture in their efforts to support the business/mission needs of the enterprises that they support. Facilitating compliance with requirements for good data architectures. The DM’s standardization areas provide a foundation for agency data architecture initiatives to put forth requirements that can result in increased compatibility between agency data architectures. (p. 4)
The objectives of the HR LOB DM initiative were to: •
Promote common identification, use, and appropriate sharing of HR LOB data and information across the United States government. Since existing data structures do not allow for easy data exchange between
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•
•
agencies, shared service centers, and the Office of Personnel Management, this standardized data structure will facilitate information sharing. It will also define common data elements and structures needed to share data across BRM processes. Provide a standard for service providers and point solutions. It will delineate a vision for a standardized version of how the data is stored and transmitted, providing for the ability to share information. Specify future solution design data format. It will provide a standardized data structure that provides a basis for future detailed design documents, including governmentwide standard reports.
The HR LOB DM provides two levels of detail. The conceptual data model consists of an entity relationship diagram (ERD) for data that supports the entire breadth of the end-to-end human resources process depicted by the BRM. The ERD shows data objects and it names and defines relationships between data objects. Additionally, a definition was written for each data object. A logical data model was also created for a subset of the above – data that is likely to be shared between agencies and shared service centers. For this subset of data objects, data elements were identified and defined. The logical data model also identified information exchange packages, specific recurring data exchanges between a shared service center and an agency or a shared service center and a third party. These information exchange packages lay the groundwork for interoperability. They are groupings of data attributes from various data entities that come together for a particular business purpose. Examples include: • • • •
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Personnel action Approved time and attendance Thrift savings plan enrollment Payroll disbursement
All of these information exchange packages contain data elements from multiple data entities that are compiled into a single grouping of data that serves a business purpose. This model is important because data sharing is a key element of interoperability. Technology components cannot work together unless those components can send and receive data in a coherent fashion. The DM provides a view of data and the common data definitions that will be the basis for this data sharing. And again, HR professionals were recruited to participate in the workgroup and business-oriented facilitators worked with the workgroup to build the models. A technical architect was also assigned to the workgroup to ensure the model was technically viable. The entire HR LOB DM can be found at the U.S. Office of Personnel Management Web site: http:// www.opm.gov/egov/documents/architecture/#dm
HR LOB Technical Model The HR LOB Technical Model (TM) initiative was launched in June 2007 to establish a common view of technology for the line of business and to compile a set of standards for each of the technology services that appear in the model. According to OMB (2007, July) Federal Enterprise Architecture guidelines, the TM: is a component-driven, technical framework categorizing the standards and technologies to support and enable the delivery of Service Components and capabilities. It also … provides a foundation to advance the reuse and standardization of technology and service components from a government-wide perspective. Aligning agency capital investments to the Technical Model leverages a common, standardized vocabulary, allowing interagency discovery, collaboration, and interoperability. Agencies and the Federal government will benefit from economies of scale by identifying and reusing the best solutions and technologies to support their business functions, mission, and target architecture. (p. 7)
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The HR LOB Technical Model along with standards profile and best practices will facilitate the reusability of service components at both business and technical levels and promotes interoperability of technical service components. Conceptually, the TM provides two things. First, it provides a model of technology that proposes a view of and vocabulary for technology services and interfaces. It also provides a set of standards for the technology. This is important because common standards are an important means for achieving interoperability across disparate technologies. OMB (2007, July) FEA guidelines specify a hierarchical construct for the Technical Model comprised of three layers: •
•
•
Service areas represent a technical tier supporting the secure construction, exchange, and delivery of service components. Each service area consists of multiple service categories, which in turn group technologies and standards that directly support the service area. Service categories classify lower levels of technologies and standards with respect to the business or technology function they serve. Each service category is comprised of one or more service standards. Service standards define the technologies and standards that support the service category. To support agency mapping into the TM, many of the Service Standards provide illustrative specifications or technologies as examples.
The HR LOB Technical Model is a component-driven, technical framework that identifies the standards, specifications, and technologies that support and enable the delivery of service components and capabilities. It is not a specific system or solution design. Rather it establishes a common vocabulary and defines a set of services and interfaces common to the solutions. The Technical Model will also identify and organize
the standards that apply to the technology components that appear in the model. It will provide a standards profile, which is a database of facts and guidance relative to technology standards. The standards profile will point to standards that come from many sources: from formal standards bodies such as NIST, ANSI, ISO or IEEE; from authoritative consortia, like the World Wide Web Consortium and the Object Management Group; and from internal sources, such as agency HRIS development standards. Over time, this compendium of standards will become an important basis for interoperability across disparate systems and technologies (Prabandham, 2007). Unlike the other four artifacts, the HR LOB Technical Model has been developed by technical architects. It has, however, traceability to the HR LOB business architectures via the HR LOB Service Component Model. The SCM shows that service components are delivered to user types using a delivery structure. The TM shows the technology components that enable this service delivery, directed by a standards profile. This business to technology view is called the delivery process-action chain. The delivery process-action chain is not an implementation design or a solution specification; rather, it is a traceability and linkage structure between the SCM and the TM. The concept of process-action chain is illustrated in Figure 5 (Prabandham, 2007). The Technical Model will contribute to efficiency and cost reduction by enabling interoperability across systems that support the line of business. In the absence of a Technical Model, systems interfaces are based on ad hoc efforts leading to rigid information infrastructures, duplicate efforts, continual reinvention of the wheel, and as many systems with interfaces as potential partners. According to Prabandham (2007) the goal of the TM is to ensure services components achieve effective levels of reusability and interoperability by promoting:
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Figure 5. Delivery process-action chain
•
• • • •
A consistent and common lexicon for description of interoperability requirements between diverse systems, A means for consistent specification and comparison of system/service architecture, Support for commonality across systems, The consistent use of standards, and Comprehensive identification of information exchange and interface requirements
Over time, HR LOB architects will work with architects across other lines of business to compile a government-wide technology model and standards profile with the goal of achieving these objectives on an even broader scale.
HR LOB Enterprise Architecture The HR LOB EA was developed in alignment with FEA guidelines and consists of the five models: Business Reference Model, Performance Model, Service Component Model, Data Model, and Technical Model. Agencies and shared service centers use these models as useful business tools for business planning, performance measurement, and IT investment. The next section of this chapter, GOVERNANCE, explains how HR
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LOB used collaborative governance to develop an EA necessary to standardize and modernize HR services delivery.
GOVERNANCE The dynamics of innovation are enormously complex. Innovation changes continuously, while the pace of innovation change accelerates. Innovation is more open, spans virtually all disciplines, is increasingly global, and starts in more places. Understanding the dynamics of innovation is a first step toward exploiting it to make the government more effective. What approaches to human capital management foster innovation? What management systems and cultures support a climate that accepts innovation? What business processes are conducive to innovation? As increasing economies of scale and use of IT encourage more partnering, what approaches foster getting more innovation from those partners? Most governments have been actively reforming their operations for several decades. Initially, these efforts were relatively straightforward ones of improving efficiency, reforming management practices, streamlining program operations, and
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outsourcing commercial or non-core activities. Public sector organizations are now under everincreasing pressure for more profound changes to better address growing fiscal pressures, terrorism, and new requirements of contemporary society. Transforming Government. Governments at all levels – Federal, state, local, and especially defense and homeland security organizations – are challenged to reposition, reinvent, and realign themselves in light of an increasing demand for a more cost effective, citizen-centric, and networked government. A combination of economic, political, strategic business and technical advances has positioned the public sector to transform the way it orchestrates the business of government. Can a public sector organization truly reinvent itself? Do transformation efforts work? If so, what are the critical success factors and lessons learned? E-Government. Information technology continues to trigger disruptive change in the U.S. economy. Many business processes can be incrementally improved but many need to be completely transformed to capture the full benefits. Areas of interest include: electronic delivery of information, programs, and services; web 2.0 and the expansion of social networking, blogging, wikis, etc.; electronic communications to increase citizen engagement; and the use of new cross servicing arrangements. What issues occur when the government adopts private sector practices? Inter-departmental / Inter-agency Collaboration. Government lines of business are realigning traditional agency boundaries. Areas of interest include the enhancing of public sector performance or mission-centric operations through end-to-end operating models that extend traditional organizational boundaries and models for effective integration of organizations and processes. Shared Services – Beyond the Back Office. The private sector has increased efficiency and effectiveness through the use of shared services for many internal operations. Public sector organizations are increasingly following suit. What
are the best practices? Which private sector approaches work in the public sector and which do not? What governance frameworks are needed for success (Breul & Morales, 2007)? Human Capital Management. A more effective back office frees up resources to do the more strategic work of HR. Areas of interest include: the strategic alignment of human capital with organizational objectives; workforce planning and deployment; the recruitment, retention and development of talent; results-oriented performance culture; leadership and knowledge management; e-learning; workforce development; workforce security; human resource service delivery models; accountability; and use of contractors versus government employees. According to Breul (2006), to drive innovation, governments need more sophisticated strategies for governing transformation than they have generally had to date. This section describes the governance strategy employed by the U.S. Office of Personnel Management (OPM) to address the challenges incurred in leading the Human Resources Line of Business. OPM is the Managing Partner agency responsible for the HR LOB. The Office of the HR LOB, a division within OPM, serves as the Program Management Office (PMO) for the HR LOB. The PMO brings focus and provides momentum for the HR LOB. The HR LOB PMO is staffed with senior executive staff personnel steeped in HR services and payroll delivery expertise. These senior Federal managers are supported by IBM consultants with expertise in program management, facilitation, change management, and Federal HR and enterprise architecture principles. The HR LOB governance was set up in early 2004 to establish the vision, goals, and objectives of the HR LOB. The Director of the Office of HR LOB, in conjunction with the Heads of OPM and the E-Government Directorate of the Office of Management and Budget (OMB), invited 22 agencies to join OPM and OMB in a task force
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that set the vision and timeline for transformation of the Federal HR function. The success of the 2004 HR LOB Task Force in building consensus and acceptance of the vision and timeline for HR transformation provided impetus to the Director of HR LOB to establish, in 2005, a permanent governance body of the 24 agency coalition. This permanent chartered body, referred to as the Multi-Agency Executive Strategy Committee (MAESC), reports to the Director of OPM and the Director of E-Government and IT Reform at OMB. The HR LOB governance structure comprises of three broad tiers: Strategy / Policy, Planning and Oversight. The 24-agency MAESC is the primary decision making body that sets the strategic direction for the HR LOB. The MAESC meets regularly to take key decisions – on human resources strategy, architecture, and concept of operations – that will impact the 1.8 million civilian employees of the Federal government. The MAESC is co-chaired by the Director of HR LOB and the OMB Portfolio Manager for the e-Government portfolio of Internal Efficiency and Effectiveness (IEE). The Strategy / Policy, Planning and Oversight tier of the HR LOB governance structure also includes the Requirements Board which is led by OPM’s Strategic Human Resources Policy (SHRP) Division. The Requirements Board is the ultimate arbiter of the target requirements for the shared service centers from an HR policy perspective. User Requirements. This tier of the governance structure is comprised of workgroups or sub-committees focused on developing requirements from the customer or user perspective. These sub-committees of HR subject matter experts (SMEs) are typically employees at or between levels 12 through 15 on the Federal General Schedule (level 15 is the highest level) and have been recommended by the MAESC members for their specialized HR skills and expertise. The User Requirements workgroups have played a seminal
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role in developing HR LOB deliverables. Some of the notable workgroups under the User Requirements tier are as follows: •
•
•
•
Customer Council. This standing council is comprised of members from agencies that are or will receive HR services from HR service providers and represents the “voice of the customer”. This council also plays an important role in evaluating and selecting public and private sector shared service centers. Business Reference Model (BRM) Workgroup. This ad-hoc workgroup developed the first ever government-wide endto-end business process mapping of the HR sub-function. This workgroup comprised of HR subject matter experts from over 30 agencies defined the ten sub-functions of the HR LOB and mapped out the processes, activities, definitions, and inputs and outputs of the HR function. Target Requirements Workgroups. These ad-hoc workgroups developed the detailed business and technical requirements for the shared service centers. These workgroups took policy inputs from the Requirements Board and developed detailed requirements for government-wide delivery of HR functions. Service Component Model (SCM) Workgroup. This ad-hoc workgroup developed standardized definitions for HR services and the service delivery channels that deliver those services to customers of the services.
The architecture and requirements workgroups met in many sessions over the past four years to establish a body of knowledge that is visionary and evolve-able. When developing these models, agencies focused on their similarities rather than their differences. The notable feature of all the aforementioned workgroups has been their
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dedication to improving Federal HR and their passion for standardizing definitions, processes, and requirements under the HR function. Operations and Delivery. This tier of the HR LOB governance provided the “voice of the provider” and was comprised of operationallyfocused members from the Federal designated shared service centers and e-Payroll providers. The Shared Service Center Advisory Council (SSCAC) meets on a regular basis to discuss the operational challenges of delivering the HR and payroll services and other issues related to meeting the target requirements established by the HR LOB.Figure 6 shows the three tiered HR LOB governance structure. The HR LOB organizational structure provided a forum for collaborative governance that led agencies to put aside their differences and work together to modernize and standardize HR services delivery. This HR LOB model of col-
laborative governance produced some valuable insights: •
•
•
Perspective. Through asking the HR LOB governance bodies to review and comment on strategic and architectural deliverables, the HR LOB was able to gain information and insight from many different points of view. This enabled agencies to have a “seat at the table” in making strategic decisions and provided OPM with a governmentwide perspective to set HR policy. Buy-in. The model of collaborative governance worked because we involved people who are going to be affected by the vision in defining the vision. People buy into results when they feel they have been involved in producing the results. Change Advocacy. Any governance body will have its skeptics, but there will also be the bright lights that “get it”. Initiatives
Figure 6. HR LOB governance structure
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•
•
must leverage their support and really use them to advocate change. Education and Outreach. People get smart when they get involved. Encourage the stakeholders on your governance bodies and workgroups to take what they learn and tell it to others. Provide them with tools (presentations, newsletters, etc.) they can use to do outreach. Leadership. The objective is to be collaborative, but ultimately you are going to ask your governance body to make some tough decisions and resolve cross-organizational issues. The governance body must consist of leaders who are willing to step up and make tough decisions and then represent those decisions to their stakeholders.
Governance is critical to the success of any EA program. The HR LOB used governance to achieve stakeholder buy-in from the beginning; this is one of its key triumphs. The next section of this chapter, TARGET REQUIREMENTS FOR SHARED SERVICE CENTERS, describes how the HR LOB EA has been used to drive implementation – by compiling and validating the solution-level target requirements for shared service centers.
TARGET REQUIREMENTS FOR SHARED SERVICE CENTERS The HR LOB EA artifacts were produced with a very particular business outcome in mind: the successful adoption of a new shared services-based HR delivery model. This new delivery model has been put forward with some very real objectives in mind: reduced costs, increased efficiencies, improved customer satisfaction, and enhanced management of human capital throughout the government. From the onset, the EA artifacts have been used to conceive this new operating model and in turn advance the program toward its busi-
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ness objectives. Presented here is an illustration of how the HR LOB leveraged its EA to yield business results in alignment with the vision and goals of the program. One of the first real uses of the HR LOB EA artifacts involved using the Business Reference Model as a basis for discussing and organizing business and technical requirements. While EA provides the conceptual framework for standardizing business processes, data, and services across the government, there existed a need to define more specific expectations for shared service center operations. Government legislation and policy is very specific about how certain operations are conducted, including human resources. A comprehensive set of business and technical requirements was compiled and validated to document SSC operational expectations. According to OPM HR LOB (n.d.), the HR LOB Target Requirements for Shared Service Centers represents the first-ever governmentwide set of detailed business, technical, and data requirements for human resources. The target requirements report provides the detailed requirements outlining the expectations of shared service centers (SSC) by describing the role of the SSC in the HR process and providing specifications for the efficient and successful delivery of services and solutions. The target requirements also outline the expectations the Federal government strives to achieve through the implementation of the HR LOB service delivery model (OPM HR LOB, 2006). The HR LOB Target Requirements for Shared Service Centers is publicly available on the OPM Web site at: http://www.opm.gov/ egov/documents/requirements/ Scope of the Target Requirements The HR LOB Business Reference Model (BRM) provided the overall framework to define the scope of the requirements effort and to develop the target requirements. Every BRM activity was scrutinized to determine whether it should be supported by a shared service center in the future or continue to be performed at the agency. Each
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BRM activity was then given one of the following designations:
• •
1. The activity will be performed in the future by the agency only. 2. The activity will be performed in the future by an SSC only. 3. The activity may be collaboratively performed in the future by some combination of both the agency and an SSC.
•
These designations provided the basis for the scope of the target requirements. Since the intention of the target requirements is to set expectations of shared service centers, requirements were gathered and linked to those activities that will or could be supported by SSCs (2 and 3). Agencyonly requirements (1) were not included.
Development of the Target Requirements The HR LOB Target Requirements for Shared Service Centers (SSCs) is the result of landmark cross-agency collaboration between hundreds of HR subject matter experts working over a two-year period to define target requirements for both “core” and “non-core” services that may be offered by HR LOB SSCs. The HR LOB leveraged a phased approach to the development of the requirements by addressing in FY 2005 the requirements that SSCs will provide (“core”) to agencies, deferring to FY 2006 the development of the requirements that SSCs may provide (“non-core”) to agencies. According to OPM HR LOB (2006) in January 2005 an initiative was launched to define business and technical requirements around the BRM. The HR LOB program designated three highly transactional, administratively intense areas to be the focus of this effort. Eighty-eight representatives from 24 agencies validated these requirements in a series of work sessions completed in the second half of 2005 and produced “core requirements” that specify services and supporting technology for:
Personnel Actions Compensation Management sub-function (Payroll related) Benefits Management sub-function
In Fiscal Year 2006, the HR LOB completed the development of the target requirements by addressing the remaining sub-functions for requirements not defined in the version 1.0 report. One hundred and seventy-one representatives from 29 agencies participated in a series of work sessions to validate the “non-core requirements” that specify services and supporting technology for activities that fall within the remaining BRM sub-functions: • • • • • • • • •
Human resources strategy Organization and position management Staff acquisition Performance management Compensation management (beyond payroll) Human resources development Employee relations Labor relations Separation management
THE TARGET REQUIREMENTS REPORT The HR LOB Target Requirements for Shared Service Centers provides SSCs and agencies with two views of the target requirements. The first view, the Conceptual Design, provides a descriptive view of the role of the shared service center in the end-to-end HR process depicted by the HR LOB BRM. It also describes SSC innovation, outlining how SSC performance will change agencies’ service delivery. The report also provides a very detailed view, listing all the business and technical requirements that support each BRM sub-function. The require-
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Table 4. HR LOB requirements format Primary Reference
Lists policy references for each requirement
Unique ID
The ID by which requirements are identified
Requirements Description The requirements statement
ments are presented in a matrix format as seen below in Table 4. Each requirement is linked to the activity(s) it supports. This linkage serves to further define the requirement; some requirements are more easily understood when the process context is understood.
Downstream Use and Next Steps Changing Requirements. Defining the target requirements for service delivery was an important achievement but is only a first step. The requirements defined and validated in version 2.0 of the report (September 2006) reflect the current state of HR service delivery as it pertains to existing Federal HR policy, technology, and best business practices. The reality is that the Federal HR landscape is continually changing as new policies are written and old policies revised, and as innovation drives business practices forward. To meet the challenges of the continually changing Federal HR landscape, the HR LOB has defined a requirements change process to provide over time the same level of participation that took place when the requirements were initially defined. The change process is outlined in the HR LOB Target Requirements for Shared Service Centers version 2.0. The change process is currently being operationalized as the HR LOB is validating a series of changes based on requirements use and changes to Federal HR policy. The results of this update to the target requirements will be reflected in version 3.0 to be published in
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Type
Policy, Service, Technology, Performance
Priority
Who
Mandatory, Critical, Useful
SSC, SSC / Agency
Process Linkages The BRM activities the requirement links to
September 2007. It is expected that updates to the target requirements will be published on annual basis into the future. Design Documentation. Requirements describe business outcomes that a shared service center could produce for each BRM sub-function and are not meant to provide design-level detail. SSCs will be responsible for translating target requirements into design-level blueprints that meet customer expectations. The expectation is that this approach was taken to foster innovation among SSCs, to encourage competition, to encourage customer involvement, and to decrease the need for maintenance over time. (OPM HR LOB, 2006, September) SSC Selection. The target requirements support the evaluation and selection of SSCs at two levels: at the program level and at the agency level. At the program level, HR LOB shared service centers’ ability to deliver the target requirements to agencies is part of the criteria to become shared service centers. To be selected as an HR LOB SSC, the candidate SSCs provided self-evaluations of their ability to meet the target requirements. SSCs that do not fully meet the target requirements are subject to ongoing improvement reviews from the HR LOB Customer Council, a group consisting of customer agencies that ensures that customer needs are addressed by the SSCs. At the agency level, the self-evaluation results are an important set of criteria supporting an agency’s selection of an SSC to provide services to the agency. In defining its future HR operational model, each agency will identify which services
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to migrate to an SSC and which HR processes to retain within the agency. Having identified the scope of services for the SSC, the agency will leverage the results of the self-evaluations to identify the appropriate SSCs to compete for its HR services and to justify its best value selection of an SSC. SCM-Requirements Mapping. Based on agency and SSC recommendations, the HR LOB is undertaking an initiative to map the requirements to Service Component Model (SCM) service components. According to OPM HR LOB (2007, September), understanding the collection of requirements that supports each service component would help to define that service component in terms of customer expectations (requirements) for the service. It could be a very important basis for negotiation between customer and provider. A number of benefits could be achieved from this mapping: •
•
•
•
•
It will provide detailed content to the SLA and be a very tangible basis for SLA negotiation. It will reduce risk because expectations will be clarified and thus surprises will, conceivably, also be reduced. It will provide a means for delineating basic service (defined by those requirements designated as SSC only) and premium service (defined by those requirements designated as SSC/agency). It will enable providers to better predict their involvement in the whole process and thus be better able to project staffing, infrastructure, and other resource requirements. It will afford a real basis for providers to price their services.
The Target Requirements for Shared Service Centers serve as a tangible example of how the HR LOB used EA to develop detailed business and technical requirements that will serve as the cornerstone for the successful implementation of
shared services across the Federal government. The next section of this chapter, LESSONS LEARNED, outlines critical lessons learned while developing the EA for the HR LOB.
LESSONS LEARNED The HR LOB program has taken an innovative approach to make EA a relevant and useful tool for conceiving and managing this new line of business. The potential fiscal benefits of the program are staggering; it has the potential to save U.S. taxpayers many millions of dollars through consolidation of services and supporting technology and infrastructure. The business case, however, is long-term; agencies will not begin to migrate to service centers until year five of the program and benefits will not begin to accrue for at least three years beyond that. Maintaining the momentum of any government program that does not have demonstrable short-term benefits can be a struggle, even if the long-term business case is clear. The HR LOB program continues to exist in part because of the experience and insight of the program management team. Some of that insight is shared below.
Sponsorship No EA initiative can survive without a credible executive sponsor who is willing to visibly and vocally support it. The HR LOB program’s sponsor reports directly to the Director of the U.S. Office of Personnel Management. The placement of the program at this high level provides the program with a credibility that would not exist had the program been buried in the organization. The program director came from the private sector, bringing his 40+-year career experience to this directorship. During his tenure, he reached out to a variety of stakeholders and interests – including the Office of Management and Budget, participating agency HR executives, shared ser-
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The HR LOB EA artifacts (with the exception of the Technical Model) were produced by HR professionals with a very particular business outcome in mind: the successful adoption of a new shared services-based HR delivery model. The agencies that provided resources to participate in EA workgroups saw the link between these artifacts and the outcome. They knew that, because the EA artifacts were intended to be the blueprints for the new operating model, participating in the construction of these blueprints gave them an active voice in designing the new model. The artifacts were never meant to be an abstraction of a theoretical to-be state but are blueprints for very real impending change. This relevance motivated solid participation and this participation resulted in deliverables that reflect a broad government-wide point of view on an unparalleled scale. This broad participation also strengthened buy-in into a program that had many skeptics at the inception of the program. Lesson learned: Find relevant business reasons to do EA; make sure people understand the links between EA and those business outcomes and involve them in the development of the solution to increase buy-in and win hearts and minds.
a tremendously complex undertaking. Cultivating their support and soliciting meaningful involvement required significant resources and more than a little tenacity. It also required a thoughtful approach to communicating certain concepts and plans. Although program managers made efforts to communicate as much as possible as frequently as possible, sometimes the messages were necessarily shaped by political correctness: certain topics were understated and certain words were avoided. Communication was some times watered down and messages, at times, became mixed. Communication frequently required a balancing act to address disparate concerns. Certainly, candor is discouraged in many environments – in both the private sector and the public sector – but the public sector can be particularly restrained. For example, an early version of the HR LOB Target Requirements for Shared Service Centers referred to shared service centers providing business process and technology support for selected core functions. There was disagreement among the stakeholders concerning the mention of business process support because the original HR LOB business case was based on savings from technology consolidation and the original Concept of Operations therefore also focused on technology consolidation. Most stakeholders agreed to the SSCs taking on administrative process support as well as technology support, but the concerns were addressed by deleting the words “process and” from the report narrative, leaving just “technology support”. Ironically, there remained target requirements in the addenda of the report that spoke to business process support. Lesson learned: Work hard to communicate clearly and openly, but political correctness may at times triumph over candid, open communication.
Political Correctness
Change Management
Working with a consortium of 24 diverse government agencies to produce defined EA deliverables with limited resources in a specific time frame was
The EA efforts of the HR LOB program demonstrate that business enterprise architecture can drive transformation. However, business profes-
vices providers, and professional organizations – on the relevance of EA to the overall HR LOB transformation effort. This program has made great progress in four years in large part due to the experienced leadership of this director. Lesson learned: Engage an executive sponsor who is both capable and willing to take on an active leadership role to drive the EA initiative to succeed.
Relevance
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sionals can be quite skeptical of EA and claim it is time consuming, irrelevant, and esoteric. Even when you can demonstrate true business relevance, you have to convince your stakeholders. A formal change management program can help. In the beginning, HR LOB EA efforts did not have the support they eventually came to have. The HR LOB Business Reference Model was the first of the EA artifacts to be developed and many BRM workgroup participants told us they attended BRM work sessions “because they were told to”. In some instances, participants told subordinates to attend. A formal change management program identifies the potential change issues and addresses them in a holistic way. A change management program identifies pockets of resistance, strategies about how to overcome this resistance, and puts actionable plans into place to achieve the strategy. It also provides a coherent communication program that orchestrates the various messages that are provided to various stakeholder groups. And it encourages broad-based participation that produces both results and buy-in into the results. Lesson learned: Don’t assume everyone understands the value of EA. Implement a formal change management program to educate stakeholders on the value of EA, address resistance to doing EA, and increase the probability of having a successful, relevant result. Developing an EA across a broad-based community such as the U.S. Federal government requires innovation and enthusiasm to maintain momentum. The next section of this chapter, FUTURE TRENDS AND RESEARCH, provides insight into how EA can be used to help government calibrate how it delivers shared services to its customers.
FUTURE TRENDS AND RESEARCH A widening resource gap in government has produced an imperative for challenging any and
all government budgets that do not contribute directly to government services. The issue is global in nature and based on a fundamental reality: demographics. As nations’ populations age, tax bases taper down thereby reducing funds available for government programs. At the same time, aging populations have basic health and welfare needs that increase the need for government spending. Costs go up while revenues go down. In this climate, administrative budgets are certainly likely to be reduced. High cost operating models for administrative services are becoming a phenomenon of the past. Furthermore, the maturing of government workforces is producing a drain on government talent resulting in a shrinking knowledge base around policies and practices. It is estimated that over the next ten years, 60% of the United States Federal government workforce will become eligible for retirement (Springer, n.d.). The inevitable loss of experience and intellectual capital could dramatically degrade government services. Agency Transformation through Shared Services In this era of funding constraints and diminished intellectual capital, we must find innovative ways to effectively deliver government services with the resources that remain. The Human Resources Line of Business has chosen to adopt a shared services-based HR service delivery model, an operational model that has yielded profound benefits in the private sector for quite some time and is now gaining ground in the U.S public sector: EquaTerra and the International Public Management Association for Human Resources (2006) report that 58% of Federal agencies surveyed already employ some shared services to deliver HR services. The HR LOB is working toward expansion of this operating model throughout the United States Federal government to: •
Reduce costs by moving transactional and administrative processes to shared service centers
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•
Leverage the knowledge and experience of HR professionals that remain at the agency level to do the more valuable, strategic work of Human Capital Management for the agency
The UK government embraced the concept some time ago, having identified shared services as a key enabler of “Transformational Government”. They believe that shared services… “offers the opportunity to accelerate change in the culture of Public Sector organizations and improve the delivery of services to citizens. Unless taxes and other revenues rise dramatically (one unacceptable, the other unlikely), it follows that maximizing Public Value requires not only greater efficiency but genuine and significant Public Sector transformation. This must not only occur within individual organizations but critically across organizations; removing unnecessary complexity and duplication at all levels. The move to shared services will greatly improve the main focus of Public Sector Transformation – improved citizen service – through delivering Efficiency, Effectiveness, and Employee Experience.” And since the cost of a public sector back office in the U.K. is estimated to be two and a half times the cost of its private sector counterpart, shared services also has the potential to significantly reduce cost (BuyIT Best Practice Network & Shared Services Advisory Group, 2006).
The HR Line of Business is looking at shared services as a strategy for realizing comparable benefits through transforming the Human Resources function across the United States government. Agencies currently apply a majority of their HR resources to administrative and transactional work and far fewer resources to performance enhancement and strategic work. If a preponderance of administrative and transactional activities were moved to shared service centers, resources that remain at agency HR departments could be shifted to more valuable work. A shared services-based operating model would have fewer agency HR personnel doing administrative and transactional work, allowing a major shift of resources to performance enhancement work and strategy. This new operational model will enable agency HR departments to do more with less (see figure 7). Enterprise Architecture proved invaluable to devising the new operational model. The HR LOB Service Component Model has identified the reusable business services that have been proposed to be candidate shared services. The collaboration that took place to build this model provided an objective technique and forum for discussing those services that could become part of a provider’s portfolio of services. The Business Reference Model, similarly, provides a government-wide reference for those more value-adding processes that will remain with the agency HR operations. And the Technical Model provides a common
Figure 7. Transformation of the HR function — resources will shift
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government-wide abstraction of the technology that will enable these services plus the standards and specifications that will promote reusability and interoperability at the technical services level.
Future of Enterprise Architecture in the U.S. Federal Government The FEAPMO (2006, December) advocates the concept of segment architecture. A segment architecture is “a shared vision for business and IT transformation within a core Mission area or common service.” Segment architectures have been formed around each of the Federal lines of business, including the HR Line of Business (section 2, p.9). Over the years, resource management at the individual agency level has resulted in a stovepiped approach to agency business processes, services and technology. One might surmise that adding the segment layer opens up an opportunity for a whole new layer of stovepipes! The FEA framework, however, works to prohibit this. Segment architectures roll up to governmentwide reference models which provide visibility across segments and thus serve to identify and help manage redundancy. More important, this government-wide perspective helps identify opportunities for collaboration and sharing across lines of business. This has the potential for a fun-
damental shift in the management of government resources in the future. And just as government-wide reference models provide a means for consolidating segment architectures, segment architectures provide a means for consolidating solution level architectures – and the means for identifying opportunities for cross-agency collaboration and sharing at this level. Figure 8, published by the FEA PMO (2006, December), “illustrates the relationships between enterprise architecture, segment architecture, and solution architecture” (section 1, p.9).
Plug and Play: The Future of Shared Services Given funding and time constraints, shared service providers will not have the luxury to design and build solutions. Public sector providers will likely not be appropriated the funds for these capital outlays; private sector providers will not have the time or expertise to develop new solutions. Providers will likely partner with best of breed providers to link together best of breed composite solutions. The ability to rapidly provide these solutions to customers on demand will be critical to the success or failure of any shared service provider. Segment architectures will be the key to identifying these partnerships and defining these solutions for rapid deployment to a provider’s customer base.
Figure 8. Architectural levels and attributes
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Figure 9.
CONCLUSION
THOUGHTS ON FUTURE RESEARCH
This chapter demonstrated how the HR LOB is driving transformation of Federal Human Resources service delivery via enterprise architecture. The Office of Management and Budget formulated an enterprise architecture strategy for the U.S. government to help government agencies manage complexity and move toward innovation and transformation. The HR LOB used this strategy and developed an enterprise architecture that provides a common, government-wide view and vocabulary for the HR function – a view and vocabulary that provide a basis for common, government-wide solutions that agencies will implement to realize the vision and goals of the Federal government’s HR transformation. Using broad-based collaboration as its fundamental governance principle, the HR LOB program achieved consensus on its enterprise architecture and is using that EA to define shared services-based service delivery expectations and drive agency transformation to this new operational model.
1. As enterprise architecture programs mature throughout the U.S Federal government, opportunities may exist to identify services for reuse that span lines of business. Future research could explore how other public sector enterprises have leveraged EA across lines of business to realize process improvements, cost savings, and reuse of assets. 2. Shared service centers will likely seek to partner with other public and/or private sector providers to supply best of breed solutions quickly and effectively. Future research could explore how shared service centers have used EA to build partnering capability and to manage the multi-provider supply chain.
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United States. Executive Office of the President. Office of Management and Budget [OMB]. (2007, July). FEA Consolidated Reference Model Document Version 2.2. Retrieved 16 July 2007 from the OMB E-Gov Web site: http://www.whitehouse. gov/omb/egov/documents/FEA_CRM_v22_Final_July_2007.pdf United States. Executive Office of the President. Office of Management and Budget [OMB]. Federal Enterprise Architecture Program Management Office [FEAPMO]. (2006, December). FEA Practice Guidance. Retrieved 22 October 2007 from the OMB E-Gov Web site: http://www.whitehouse. gov/omb/egov/documents/FEA_Practice_Guidance.pdf United States. Executive Office of the President. Office of Management and Budget [OMB]. (n.d.a). E-Gov Background. Retrieved 8 May 2007 from the OMB E-Gov Web site: http://www.whitehouse. gov/omb/egov/g-1-background.html United States. Executive Office of the President. Office of Management and Budget [OMB]. (n.d.b) Federal Enterprise Architecture. Retrieved 22 May 2007 from the OMB E-Gov Web site: http://www. whitehouse.gov/omb/egov/a-1-fea.html United States. General Accountability Office [GAO]. (2003, November). Information Technology: Leadership Remains Key to Agencies Making Progress on Enterprise Architecture Efforts. Retrieved 10 October 2007 from the GAO Web site: http://www.gao.gov/new.items/d0440.pdf United States. Office of Personnel Management [OPM]. GoLearn. (n.d.) The Office of Personnel Management’s GoLearn Program. Retrieved 24 October 2007 from the GoLearn Web site: http:// www.golearn.gov/MaestroC/index.cfm?room=w elcome&roomaction=about
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United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (2006, February). HR LOB Data Model version 1. Retrieved 23 April 2007 from the OPM HR LOB Web site: http://www.opm.gov/egov/ documents/architecture/HRLOB_DM.pdf United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (2006, January). HR LOB Business Reference Model version 2. Retrieved 23 April 2007 from the OPM HR LOB Web site: http:// www.opm.gov/egov/documents/architecture/ BRM_Report_V2.pdf United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (2006, June). HR LOB Performance Model version 1. Retrieved 23 April 2007 from the OPM HR LOB Web site: http://www.opm.gov/egov/ documents/architecture/HRLOB_PM_6.30.06. pdf United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (2006, September). HR LOB Service Component Model version 1. Retrieved 23 April 2007 from the OPM HR LOB Web site: http:// www.opm.gov/egov/documents/architecture/ HRLOBSCMv1.pdf United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (2006, September). HR LOB Target Requirements for Shared Service Centers version 2.0. Retrieved 23 April 2007 from the OPM HR LOB Web site: http://www.opm.gov/egov/documents/requirements/Reqv2.pdf United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (2007, September). HR LOB Service Component Model version 2. Retrieved 15 November 2007 from the OPM HR LOB Web site: http:// www.opm.gov/egov/documents/architecture/ HRLOBSCMv2.pdf
Using Enterprise Architecture to Transform Service Delivery
United States. Office of Personnel Management [OPM]. Human Resources Line of Business [HR LOB]. (n.d.). HR LOB Benefits and Accomplishments. Retrieved 30 May 2007 from the OPM HR LOB Web site: http://www.opm.gov/egov/ HR_LOB/benefits/
ENDNOTE 1
See Office of Personnel Management [OPM] (n.d.), for more information on these outcomes defined in the HCAAF.
United States. Office of Personnel Management [OPM]. (n.d.). Human Capital Assessment and Accountability Framework [HCAAF]. Retrieved 18 May 2007 from the OPM Web site: http://www. opm.gov/hcaaf_resource_center/2-2.asp This work was previously published in Advances in Government Enterprise Architecture, edited by Pallab Saha, pp. 307-339, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.7
An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing for Effective Supply-Chain Linkages N. K. Kwak Saint Louis University, USA Chang Won Lee Jinju National University, Korea
ABSTRACT An appropriate outsourcing and supply-chain planning strategy needs to be based on compromise and more objective decision-making procedures. Although factors affecting business performance in manufacturing firms have been explored in the past, focuses are on financial performance and measurement, neglecting intangible and nonfinancial factors in the decision-making planning DOI: 10.4018/978-1-60960-587-2.ch207
process. This study presents development of an integrated multi-criteria decision-making (MCDM) model. This model aids in allocating outsourcing and supply-chain resources pertinent to strategic planning by providing a satisfying solution. The model was developed based on the data obtained from a business firm producing intelligent home system devices. This developed model will reinforce a firm’s ongoing outsourcing strategies to meet defined requirements while positioning the supply-chain system to respond to a new growth and innovation.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
INTRODUCTION In today’s global age, business firms are no longer able to manage all supply-chain processes from new product development to retailing. In order to obtain a successful business performance, appropriate outsourcing and supply-chain practices should be identified, established, and implemented within the firm. The growth of business scale and scope forces business decision-makers to resolve many of the challenges confronting business firms. These tasks and activities are often not well-defined and ill-structured. This new paradigm in business practices can deliver unprecedented opportunities to establish the strategic outsourcing and supply-chain planning in business firms (Heikkila, 2002; Li & O’Brien, 2001). Due to the technology and market paradigm shift, strategic outsourcing and supply-chain planning process in business firms may become more tightly coupled with new product research and development, capacity and financial planning, product launching, project management, strategic business alliances, and revenue planning. Successful linkages of these complicated processes play a critical role affecting business performance in manufacturing settings (Cohen & Lee, 1988; Fisher, 1997; Min & Zhou, 2002; Quinn & Hilmer, 1994). Strategic outsourcing and supply-chain planning is a growing requirement for improving productivity and profitability. Many outsourcing studies have been conducted with supply-chain linkages directly and indirectly as follows: capacity planning (Lee & Hsu, 2004), downsizing (Schniederjans & Hoffman, 1999), dual sourcing (Klotz & Chatterjee, 1995), information system decision (Ngwenyama & Bryson, 1999), line balancing (Liu & Chen, 2002), service selection (Bertolini, Bevilacqua, Braglia, & Frosolini, 2004), transportation mode choice (Vannieuwenhuyse, Gelders, & Pintelon, 2003), and vendor selection (Karpak, Kumcu & Kasuganti, 1999).
In spite of a plethora of outsourcing studies in the existing literature, multi-criteria decision making (MCDM) applications are scarce and seldom identified as the best practice in business areas. Especially, an integrated MCDM model comprising goal programming (GP) and analytic hierarchy process (AHP) is rarely applied to manage an emerging outsourcing and supply-chain concern. This chapter has dual purposes: (1) to develop a decision-making model that aims at designing a strategic outsourcing and supply-chain plan, and (2) to provide the decision-makers with an implication for effectively managing strategic outsourcing and supply-chain planning in business firms and other similar settings. The chapter is organized in the following manner. The “Introduction” section presents current research issues in both strategic outsourcing and supply-chain planning and MCDM in a business setting. The next section “Multicriteria Decision Making” provides a review of MCDM models. After that, a problem statement of the case study along with description of data collection is described. The model development to a real-world setting and the model results and a sensitivity analysis are provided, followed by concluding remarks.
MULTI-CRITERIA DECISION MAKING Multi-criteria decision making (especially integrated MCDM) is defined as an applied linear programming model for a decision process that allows the decision-maker to evaluate various competing alternatives to achieve certain goals. Relative importance is assigned to the goal with respect to a set of chosen criteria. MCDM is appropriate for situations in which the decisionmaker needs to consider multiple criteria in arriving at the best overall decisions. In MCDM, a decision-makers select the best strategy among a number of alternatives that they evaluate on the basis of two or more criteria. The alternatives can
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involve risks and uncertainties; they may require sequential actions at different times; and a set of alternatives might be either finite or infinite. A decision-maker acts to maximize a value or utility function that depends on the chosen criteria. Since MCDM assumes that a decision-maker is to select among a set of alternatives, its objective function values are known with certainty. Many MCDM problems are formulated as multiple objective linear, integer, nonlinear, and/or interactive mathematical programming problems. One of the most widely used MCDM models is goal programming (GP). Charnes and Cooper (1961) conceptualized the GP technique and applied to an analytical process that solves multiple, conflicting, and noncommensurate problems. There are many different methods and models used to generate solutions for GP models. The natural decision-making heuristic is to concentrate initially on improving what appears to be the most critical problem area (criterion), until it has been improved to some satisfactory level of performance. Classical GP assumes that there are some absolute target levels that can be specified. This means that any solution cannot always satisfy all the goals. Thus, the objective of GP is to find a solution which comes as close as possible to the target. The formulation of a GP model assumes that all problem constraints become goals from which to determine the best possible solution. There are two types of constraints in GP: goal constraints and systems constraints. Goal constraints are called the goal equations or soft constraints. Systems constraints are called the ordinary linear programming constraints or hard constraints which cannot be violated. One major limitation of GP is that the decision-makers must subjectively prioritize goals in advance. The concept of nondominated (noninferior) solutions for noncommensurable goals cannot make an improvement of one goal without degrading other conflicting goals. Regardless
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of the weighting structures and the goals, GP can lead to inefficient and suboptimal solutions. These solutions are not necessarily optimal for the decision-maker to acquire so that a satisfying solution is provided. Among the MCDM models, the analytical hierarchy process (AHP) is another popular decision-making tool for multi-criteria decisionmaking problems. AHP provides a method to assess goals and objectives by decomposing the problem into measurable pieces for evaluation using a hierarchical structure. The procedure requires the decision-maker to provide judgments about the relative importance of each criterion and then specify a preference on each criterion for decision alternatives. The output of AHP is a prioritized ranking indicating the overall preference for each of the decision alternatives. An advantage of AHP is that it enables the decision-maker to handle problems in which the subjective judgment of an individual decision-maker constitutes an important role of the decision-making process (see Saaty, 1980 for a detailed analysis).
PROBLEM BACKGROUND Problem Statement A consortium of seven different firms developing and manufacturing the related products of the smart home system for home security was established in Korea. The consortium firm has recently released the smart home system to the general public. The consortium firm secured $20 million for new product development in the 5-year period (2004-2008). It currently possesses a world-class frontier for developing a smart home system. Each member company has its own unique, special knowledge and human resources to carry on required manufacturing. There are five primary systems for making a smart home system: (1) multifunction home server with an Internet gateway function, (2) intelligent context awareness-based
An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
agent system, (3) digital video recorder for home security and applications, (4) biokey system with fingerprint access control solution, and (5) wireless digital home controller functions. It is intended to support a further growth and innovation in home security, home automation, remote controlling, and mobile multimedia functions. The infusion of additional information technology must be consistent with the business mission, strategic direction, business plans, and priorities of the consortium firm. This special project for an integrated intelligent information technology is intended to address the dramatic growth in information technology use, to foster continued innovation and adoption of new technologies, and to expand information technology foundation for the next-generation smart home system. Thus, the consortium’s information technology investment strategies throughout the next five years have been developed.
Data Collection The data utilized to formulate this MCDM model was collected from the consortium of business firms developing and manufacturing the smart home system for home security. All the necessary data on budget, technical services, and personnel resources was gathered through the consortium’s
strategic business units. Additional data for establishing the consortium’s resource allocation model was collected through the consortium’s international business development directors who are in charge of outsourcing and supply-chain management. Project managers participated in the strategic planning process and identified the necessary goals and criteria derived from the proposal for strategic outsourcing and supplychain planning. The data was validated by the consortium decision-makers in the outsourcing and supplychain planning process. The validation of the consortium’s resource allocation model is critical to accept the model solutions and to implement the result. The validation process provides the management with a meaningful source to ensure the input, decision-making process, and the outcomes. The success of the model is based on the accurate measurement of the established goals and criteria. Decision-makers involved in the current outsourcing and supply-chain planning process to complete the validation reviewed the results of both prioritization of the goals, as well as the related projects/alternatives. Figure 1 presents a framework for strategic goals and related criteria.
Figure 1. Strategic goals and criteria
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An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
MODEL DEVELOPMENT
data exists for each goal combination, the decisionmaker will make pairwise comparisons of each goal with all others, using the AHP judgment scale. The AHP values for goal prioritization provide their eigenvalue and consistency ratio. There are four derived criteria, such as financial (C1), customer (C2), internal business (C3), and innovation and learning criteria (C4). Strategic outsourcing and supply-chain management is prioritized with AHP weights as follows: quality improvement (G1), cost effectiveness (G2), customer satisfaction (G3), customizing services (G4), manpower quality (G5), supplier competency (G6), and strategic partnership (G7).
Goal Decomposition and Prioritization In the MCDM model development of outsourcing and supply-chain planning process, the AHP has been utilized for establishing goal decomposition and prioritization. In order to obtain the overall relative importance of the seven goals, a synthesized priority is calculated for each goal. The proposed model requires the evaluation of goals with respect to how much these goals affect the overall effectiveness of strategic outsourcing and supply-chain planning for resource allocation in the consortium firm. Since no prior quantitative Table 1. AHP results for goal prioritization Criteria
Goal Decomposition G1
GEV
G2
G3
G4
G5
G6
G7
CEV
CR
C1
G1 G2 G3 G4 G5 G6 G7
4
3 2
4 2 3
6 4 3 3
8 6 5 4 2
8 7 6 5 3 2
.352 .218 .144 .139 .070 .044 .032
.165
.083
C2
G1 G2 G3 G4 G5 G6 G7
4
3 2
4 2 3
6 4 3 3
8 6 5 4 2
8 7 6 5 3 2
.404 .200 .168 .110 .056 .035 .026
.620
.046
C3
G1 G2 G3 G4 G5 G6 G7
4
3 2
4 2 3
6 4 3 3
8 6 5 4 2
8 7 6 5 3 2
.342 .238 .158 .116 .078 .034 .034
.142
.086
C4
G1 G2 G3 G4 G5 G6 G7
4
3 2
4 2 3
6 4 3 3
8 6 5 4 2
8 7 6 5 3 2
.334 .258 .174 .099 .067 .041 .026
.073
.059
.244
.168
.106
.068
.040
.028
Goal Priority
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An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
1 if ith project is selected Xpij = 0 otherwise
Decision Variables The integrated GP problem consists of two types of decision variables in this study. The consortium firm wants to contract for the supply of five different smart home system components. Five outsourcing suppliers are being considered for contracting on the system components. Tables 2 and 3 present the necessary information for decision variables and constraints. The decision variables are: Xsij = decision variables for demand levels assigned to different types of component i (i = 1,2,..,5) to beselected with various suppliers j (j = 1,2,..,5) indemand capacity where Xsi ≥ 0. Xpij = decision variables for project i (1, 2, 3, and 4) to which available amounts can be allocated over three-stage period j (1,2 and 3) where:
Constraints The MCDM model has 37 constraints: 14 systems constraints and 23 goal constraints. Systems constraints for this consortium firm’s outsourcing and supply-chain planning are (1) demand-supply constraints for each system component, and (2) supply-chain linkages on the number of certain projects development. Systems constraint 1: Set the demand-supply constraints for five components. 14,400 units [displayed as 144(00)]. Xs11 + Xs12 + Xs13 + Xs14 + Xs15 ≤ 144(00)
(1)
Table 2. Estimated price ($) per system component in each supplier group Outsourcing Supplier Group
System Component
Home Server Awareness Agent Recorder Database Biokey Controller Box Monthly Supply Level (00 units)
Monthly Demand Level (00 units)
1
2
3
4
5
80 90 75 85 90 300
75 85 90 80 85 300
90 75 80 90 75 300
90 80 90 75 80 300
85 90 75 90 90 300
144 360 380 420 320
Table 3. Project categories and available budgets for three stages Project Category
Security Automation Remote control Mobile multimedia Total
Available Project Budget ($000)
Product Development Stage 1
Stage 2
Stage 3
150 120 100 150 520
100 200 60 110 470
130 130 70 100 430
380 450 230 360 1,420
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Xs21 + Xs22 + Xs23 + Xs24 + Xs25 ≤ 360
(2)
Xs31 + Xs32 + Xs33 + Xs34 + Xs35 ≤ 380
(3)
X 41 + X 42 + X 43 + X 44 + X 45 ≤ 420
(4)
Xs51 + Xs52 + Xs53 + Xs54 + Xs55 ≤ 320
(5)
Xs11 + Xs21 + Xs31 + Xs41 + Xs51 = 300
(6)
Xs12 + Xs22 + Xs32 + Xs42 + Xs52 = 300
(7)
Xs13 + Xs23 + Xs33 + Xs43 + Xs53 = 300
(8)
Xs14 + Xs24 + Xs34 + Xs44 + Xs54 = 300
(9)
Xs15 + Xs25 + Xs35 + Xs45 + Xs55 = 300
(10)
s
s
s
s
s
Systems constraint 2: Select one project for supply-chain management perspectives in each development stage. Xp11 + Xp12 + Xp13 = 1
(11)
X 21 + X 22 + X 23 = 1
(12)
Xp31 + Xp32 + Xp33 = 1
(13)
Xp41 + Xp42 + Xp43 = 1
(14)
p
p
p
There are seven goals to achieve in this study. Necessary goal priorities are presented next. Priority 1 (P1): Avoid overachievement of the financial resource level by providing appropriate system resources in terms of a continuous quality improvement goal (G1), (See Table 3). 150Xp11 + 120Xp21 + 100Xp31 + 150Xp41 + 100Xp12 + 200Xp22 + 60Xp32 + 110Xp42 + 130Xp13 + 130Xp23 + 70Xp33 + 100Xp43 - d+1 = 1,420 (15) Priority 2 (P2): Avoid underachievement of the budget level meeting to all outsourcing suppliers
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of $138(00,000) in terms of cost effectiveness goal (G2), (See Table 2). 80Xs11 + 75Xs12 + 90Xs13 + 90Xs14 + 85Xs15 + 90Xs21 + 85Xs22 + 75Xs23 + 80Xs24 + 90Xs25 + 75Xs31 + 90Xs32 + 80Xs33 + 90Xs34 + 75Xs35 + 85Xs41 + 80Xs42 + 90Xs43 + 75Xs44 + 90Xs45 + 90Xs51 + 85Xs52 + 75Xs53 + 80Xs54 + 90Xs55 + d-2 = 138 (16) Priority 3 (P3): Do not overutilize the available market resource level for each product development stage in terms of customer satisfaction goal (G3), (See Table 3). 150Xp11 + 120Xp21 + 100Xp31 + 150Xp41 – d+3 = 520 (17) 100Xp12 + 200Xp22 + 60Xp32 + 110Xp42 - d+4 = 470 (18) 130Xp13 + 130Xp23 + 70Xp33 + 100Xp43 - d+5 = 430 (19) Priority 4 (P4): In terms of customizing services goal (G4), avoid underachievement of resources to select an outsourcing supplier by using a total budget amount ($000) for (1) a home server outsourcing of $1,200; (2) an awareness agent component outsourcing of $3,060; (3) a digital recorder database component outsourcing of $3,200; (4) a biokey component outsourcing of $3,500; and (5) a controller box component outsourcing of $2,700 (see Table 2). 80Xs11 + 90Xs21 + 75Xs31 + 85Xs41 + 90Xs51 + d-6 = 1,200 (20) 75Xs12 + 85Xs22 + 90Xs32 + 80Xs42 + 85Xs52 + d-7 = 3,060 (21) 90Xs13 + 75Xs23 + 80Xs33 + 90Xs43 + 75Xs53 + d-8 = 3,200 (22) 90Xs14 + 80Xs24 + 90Xs34 + 75Xs44 + 80Xs54 + d-9 = 3,500 (23)
An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
85Xs15 + 90Xs25 + 75Xs35 + 90Xs45 + 90Xs55 + d-10 = 2,700 (24)
Xs13 + Xs23 + Xs33 + Xs43 + Xs53 + d-21 – d+21 = 1 (35)
Priority 5 (P5): Implement projects in the three product development stages in terms of manpower balancing goal (G5).
Xs14 + Xs24 + Xs34 + Xs44 + Xs54 + d-22 – d+22 = 1 (36)
Xp11 + Xp12 + Xp13 + Xp14 + d-11 – d+11 = 1
(25)
Xp21 + Xp22 + Xp23 + Xp24 + d-12 - d+12 = 1
(26)
X 31 + X 32 + X 33 + X 34 + d 13 - d
(27)
p
p
p
p
-
+
13
=1
Priority 6 (P6): Determine the demand capacity in each supplier to assign an appropriate outsourcing supplier group in terms of supplier competency goal (G6). Xs11 + Xs12 + Xs13 + Xs14 + Xs15 + d-14 – d+14 = 1 (28) Xs21 + Xs22 + Xs23 + Xs24 + Xs25 + d-15 – d+15 = 1 (29) Xs31 + Xs32 + Xs33 + Xs34 + Xs35 + d-16 – d+16 = 1 (30) X 41 + X 42 + X 43 + X 44 + X 45 + d 17 – d s
s
s
s
s
-
+
17
=1 (31)
Xs51 + Xs52 + Xs53 + Xs54 + Xs55 + d-18 – d+18 = 1 (32) Priority 7 (P7): In terms of strategic supplier partnership goal (G7), decision-makers in the consortium firm decide that all suppliers are assigned to supply a certain component. Xs11 + Xs21 + Xs31 + Xs41 + Xs51 + d-19 – d+19 = 1 (33) Xs12 + Xs22 + Xs32 + Xs42 + Xs52 + d-20 – d+20 = 1 (34)
Xs15 + Xs25 + Xs35 + Xs45 + Xs55 + d-23 – d+23 = 1 (37)
Objective Function The objective of this MCDM problem is to minimize the sum of the deviational variable values subject to constraints (1)-(37), satisfying the preemptive priority rules. The objective function depends on the preemptive priority sequence of the goals that have seven priorities. 5
Minimize: Z = P1d+1 + P2d-2 + P3 ∑ d+i i=3
10
+ P4 ∑ d-i + P5 i=6
13
∑ i=11
(d+i + d-i)
18
23
i=14
i=19
+ P6 ∑ (d+i + d-i) + P7 ∑ (d+i + d-i)
MODEL ANALYSIS Model Solution and Discussion In this MCDM model, decision-makers seek a solution that satisfies as close as possible a set of goals. Thus, GP requires the concept of measuring discrepancy from the goals. The concept of nondominated solutions for noncommensurable goals cannot make an improvement of one goal without a trade-off of other conflicting goals. In the GP problem, a nondominated solution is examined. A nondominated solution is defined in the following manner: a feasible solution to an MCDM problem which is efficient, if no
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An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
Table 4. Analysis of the objective function Priority
Goal Achievement
P1 P2 P3 P4 P5 P6 P7
Satisfied Satisfied Satisfied Satisfied Partially satisfied Partially satisfied Partially satisfied
Values 0 0 0 0 1 1,495 1,495
other feasible solutions yield an improvement in one goal, without sacrificing another goal. This MCDM model was solved using AB: QM system software (Lee, 1996). Table 4 presents an analysis of the objective function. Table 5 exhibits the results of both decision and deviational variables. Priority 1 (P1) is to avoid overachievement of the financial resource level for continuous quality improvement (i.e., G1). Priority 1 is fully satisfied (P1 = 0). The related deviational variable (d+1) is zero.
Priority 2 (P2) is to avoid underutilization of the budget level for cost effectiveness. Priority 2 is fully satisfied (P2 = 0). The related deviational variable (d-2) is zero. Priority 3 (P3) is to not overutilize the available market resource level in each product development period for customer satisfaction. The management desires that their market resource of outsourcing should not be overutilized in each development stage 1 (d+3), stage 2 (d+4), and stage 3 (d+5). This third priority goal is fully satisfied (P3 = 0), and its related deviational variables (d+3, d+4, and d+5,) are zero. Priority 4 (P4) is to avoid underachievement of resources to select outsourcing suppliers who have the industrial leading knowledge in five different smart home system components, since the management considers that all five technology resources are highly unattainable. This priority goal is fully satisfied (P4 = 0). Its related deviational
Table 5. Analysis of decision and deviational variables Decision Variable (supplier)
Solution Value Xs11 Xs12 Xs13 Xs14 Xs15 Xs21 Xs22 Xs23 Xs24 Xs25 Xs31 Xs32 Xs33 Xs34 Xs35 Xs41 Xs42 Xs43 Xs44 Xs45 Xs51 Xs52 Xs53 Xs54 Xs55
352
0 0 0 144 0 0 0 0 36 200 0 280 0 0 100 300 0 0 120 0 0 20 300 0 0
Decision Variable (project) Xp11 Xp12 Xp13 Xp21 Xp22 Xp23 Xp31 Xp32 Xp33 Xs41 Xs42 Xs43 Xs44
Solution Value 0 0 1 0 1 0 1 0 0 1 0 0
Deviational Variable* d-1 = 1030 d+2 = 125,102 d-3 = 420 d-4 = 310 d-5 = 300 d+6 = 24,300 d+7 = 23,840 d+8 = 19,300 d+9 = 21,340 d+10 = 22,800 d+11 = 1 d+14 = 143 d+15 = 235 d+16 = 379 d+17 = 419 d+18 = 319 d+19 = 299 d+20 = 299 d+21 = 299 d+22 = 299 d+23 = 299 * All other deviational variables are zero.
An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
variables are all zero: underachievement in home server technology outsourcing resources (d-6 = 0); underachievement in awareness agent technology outsourcing resources (d-7 = 0); underachievement in recorder database technology outsourcing resources (d-8 = 0); underachievement in biokey technology outsourcing resources (d-9 = 0); and underachievement in controller box technology outsourcing resources (d-10 = 0). Priority 5 (P5) is to implement appropriately four projects in the three product development periods for securing outsourcing manpower balancing. This priority goal is partially satisfied (P5 = 1). Its related deviational variables are not all zero (d+11 = 1, d+12 = 0, d+13 = 0, d-11 = 0, d-12 = 0, d-13 = 0). There is one project with overachievement. However, this does not mean that the goal is not achieved because four projects should be assigned in any product development stage. Priority 6 (P6) is to meet the demand-supply level to select an appropriate outsourcing supplier group for a supplier competency goal. This priority goal is partially satisfied (P6 = 1,495). Its related deviational variables are not all zero (d+14 = 143, d+15 = 235, d+16 = 379, d+17 = 419, d+18 = 319, d-14 = 0, d-15 = 0, d-16 = 0, d-17 = 0, d-18 = 0). Table 6 indicates demand levels that are assigned to supplier groups for each system component. Supplier 1 is assigned to a demand level of 300 biokey components. Likewise, supplier 2 has demand levels of 280 recorder database and 20
Table 6. Demand level assigned supplier groups to system components System Component
Outsourcing Supplier Group 1
Home Server Awareness Agent Recorder Database Biokey Controller Box
2
3
4 144 36
300
280 20
300
120
5 200 100
control box components; supplier 3 for a demand level of 300 control box components; supplier 4 for demand levels of 144 home server, 36 awareness, and 120 biokey components; and supplier 5 for demand levels of 200 awareness agent and 100 recorder database components. Priority 7 (P7) is to assign certain contracts to supplier groups to achieve a strategic partnership goal. This priority goal is partially satisfied (P6 = 1,495). Its related deviational variables are not all zero (d+19 = 299, d+20 = 299, d+21 = 299, d+22 = 299, d+23 = 299, d-19 = 0, d-20 = 0, d-21 = 0, d-22 = 0, d-23 = 0). Table 7 presents the selected projects assigned to each development stage. In stage 1, remote control function and mobile multimedia function will be recommended to develop. Home automation function will be developed in stage 2 and home security function in stage 3. Outsourcing and supply-chain planning in supply-chain management perspective has become a significant and integral activity of strategic planning in a firm. The goals surrounding outsourcing and supply-chain planning decisions are complex and conflicting. Like other business decision making problems, outsourcing problems cannot derive a single optimal solution. Most top decision-makers agree that this planning process ultimately depends on a firm’s business strategies, competitiveness roadmap, and business value and mission. In order to improve the system’s overall effectiveness, decision-makers should recognize the ways to improve product quality, to enhance the internal and external customer satisfaction, to provide more strong commitment to manpower Table 7. Assigned projects in each development stage Project Category
Product Development Stage 1
Security Automation Remote control Mobile multimedia
X X
Stage 2 X
Stage 3 X
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An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
management, and to establish a sound alliance and collaboration with other business partners.
Sensitivity Analysis Sensitivity analysis is an evaluation tool that is used once a satisfying solution has been found. It provides an insight into how satisfying solutions are affected by changes in the input data. Sensitivity analysis is performed with two scenarios. The management considers three goals (G1, G6, and G7)
to be evaluated. Quality improvement goal (G1) and supplier competency goal (G6) are changed (i.e., P6→ P1 and P1→ P6); and quality improvement goal (G1) and strategic partnership goal (G7) are changed (i.e., P7→ P1 and P1→ P7). With sensitivity analysis available for the management, various scenarios can be evaluated more easily at less cost. Table 8 presents the results of two scenarios. It shows an important implication for strategic planning considering effective outsourcing and supplier management.
Table 8. Sensitivity analysis with two scenarios Original Option
354
Revised Scenario 1
Revised Scenario 2
Decision Variables
Solution Value
Decision Variables
Solution Value
Decision Variables
Solution Value
Xs11 Xs12 Xs13 Xs14 Xs15 Xs21 Xs22 Xs23 Xs24 Xs25 Xs31 Xs32 Xs33 Xs34 Xs35 Xs41 Xs42 Xs43 Xs44 Xs45 Xs51 Xs52 Xs53 Xs54 Xs55 Xp11 Xp12 Xp13 Xp21 Xp22 Xp23 Xp31 Xp32 Xp33 Xs41 Xs42 Xs43
0 0 0 144 0 0 0 0 36 200 0 280 0 0 100 300 0 0 120 0 0 20 300 0 0 0 0 1 0 1 0 1 0 0 1 0 0
Xs11 Xs12 Xs13 Xs14 Xs15 Xs21 Xs22 Xs23 Xs24 Xs25 Xs31 Xs32 Xs33 Xs34 Xs35 Xs41 Xs42 Xs43 Xs44 Xs45 Xs51 Xs52 Xs53 Xs54 Xs55 Xp11 Xp12 Xp13 Xp21 Xp22 Xp23 Xp31 Xp32 Xp33 Xs41 Xs42 Xs43
144 0 0 0 0 0 256 0 0 0 80 0 0 0 300 76 44 0 300 0 0 0 300 0 0 0 0 1 0 1 0 1 0 0 1 0 0
Xs11 Xs12 Xs13 Xs14 Xs15 Xs21 Xs22 Xs23 Xs24 Xs25 Xs31 Xs32 Xs33 Xs34 Xs35 Xs41 Xs42 Xs43 Xs44 Xs45 Xs51 Xs52 Xs53 Xs54 Xs55 Xp11 Xp12 Xp13 Xp21 Xp22 Xp23 Xp31 Xp32 Xp33 Xs41 Xs42 Xs43
0 64 0 0 80 0 236 0 0 0 0 0 0 180 200 300 0 0 120 0 0 0 300 0 0 0 0 1 0 1 0 1 0 0 1 0 0
An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
Solution values of supplier decision variables in the original option and the revised scenarios indicate the new demand levels that are assigned to the supplier groups. The top decision-makers in the consortium firm have accepted the final results as valid and feasible for implementing the outsourcing planning in their real business setting. The consortium firm has started its strategic outsourcing and supplier-customer management planning with ongoing base. The effects from these model outputs will be evaluated in the next fiscal year or two. The future outsourcing and supplier management planning agenda will be identified to compare with this proposed MCDM model for the strategic outsourcing planning. The strategic outsourcing planning based on the proposed MCDM model will provide the management with a significant insight to set an appropriate outsourcing strategy, while enhancing customer satisfaction and relationship management, and improving the firm’s global competitiveness. Thus, the consortium firm currently reviews all these alternatives as possible outsourcing strategies.
different levels but also link or integrate the efforts of these different levels to meeting the objectives of the supply chain. When management considers several conflicting goals to achieve, subject to a set of constraints, MCDM models can provide effective decisionmaking results for strategic outsourcing and supply-chain planning in business operational environments. Subjective decision-making processes can make the multiple and complicated business problems into the worst situation of both business performance and business partnership due to the potential irrational decision-making. Thus, an appropriate use of MCDM models for effective decision-making is essential to create a long-term strategic plan for a competitive advantage and survival of any business organization in challenging environments.
ACKNOWLEDGMENT This work was supported by the Korea Research Foundation Grant (KRF 2003-041-B20171).
CONCLUSION
REFERENCES
This study presents an MCDM model for outsourcing and supply-chain planning in a smart home system components manufacturing industry in Korea. The proposed MCDM model will provide the management with better understanding of outsourcing and supply-chain planning. This proposed model would give a practical decision-making way for analyzing the outsourcing resource planning. This study indicates that the effective decision-making process in outsourcing and supply-chain planning can enforce the firm’s competitive advantages and improve the firm’s business performance. It is necessary to be able to assess the relative contribution of the individual member organizations within the supply chain. This requires a performance measurement system that can not only operate at several
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An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing
Heikkila, J. (2002). From supply to demand chain management: Efficiency and customer satisfaction. Journal of Operations Management, 20(6), 747–767. doi:10.1016/S0272-6963(02)00038-4
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Karpak, B., Kumcu, E., & Kasuganti, R. (1999). An application of visual interactive goal programming: A case in vendor selection decisions. Journal of Multi-Criteria Decision Analysis, 8(2), 93–105. doi:10.1002/ (SICI)1099-1360(199903)8:2<93::AIDMCDA235>3.0.CO;2-#
Min, H., & Zhou, G. (2002). Supply chain modeling: Past, present, and future. Computers & Industrial Engineering, 4, 231–249. doi:10.1016/ S0360-8352(02)00066-9
Klotz, D., & Chatterjee, K. (1995). Dual sourcing in repeated procurement competition. Management Science, 41(8), 1317–1327. doi:10.1287/ mnsc.41.8.1317 Lee, C.-E., & Hsu, S.-C. (2004). Outsourcing capacity planning for an IC design house. International Journal of Advanced Manufacturing Technology, 24(3-4), 306–320. Lee, S. M. (1996). AB:QM system software. Englewood Cliffs, NJ: Prentice Hall. Li, D., & O’Brien, C. (2001). A quantitative analysis of relationships between product types and supply chain strategies. International Journal of Production Economics, 73(1), 29–39. doi:10.1016/S0925-5273(01)00094-9
Ngwenyama, O. K., & Bryson, N. (1999). Making the information systems outsourcing decision: A transaction cost approach to analyzing outsourcing decision problems. European Journal of Operational Research, 115, 351–367. doi:10.1016/ S0377-2217(97)00171-9 Quinn, J. B., & Hilmer, F. G. (1994). Strategic outsourcing. Sloan Management Review, 35(4), 43–55. Saaty, T. L. (1980). The analytic hierarchy process. New York: McGraw-Hill. Schniederjans, M. J., & Hoffman, J. J. (1999). Downsizing production/operations with multiobjective programming. International Journal of Operations & Production Management, 19(1), 79–91. doi:10.1108/01443579910244241 Vannieuwenhuyse, B., Gelders, G., & Pintelon, L. (2003). An online decision support system for transportation mode choice. Journal of Enterprise Information Management, 16(2), 125–133.
This work was previously published in Selected Readings on Strategic Information Systems, edited by M. Gordon Hunter, pp. 223-236, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.8
Reverse Supply Chain Design: A Neural Network Approach Kishore K. Pochampally Southern New Hampshire University, USA Surendra M. Gupta Northeastern University, USA
ABSTRACT The success of a reverse supply chain heavily relies on the efficiency of the collection facilities and recovery facilities chosen while designing that reverse supply chain. In this chapter, we propose a neural network approach to evaluate the efficiency of a facility (collection or recovery) of interest, which is being considered for inclusion in a reverse supply chain, using the available linguistic data of facilities that already exist in the reverse supply chain. The approach is carried out in four phases, as follows: In phase I, we identify criteria DOI: 10.4018/978-1-60960-587-2.ch208
for evaluation of the facility of interest, for each group participating in the reverse supply chain. Then, in phase II, we use fuzzy ratings of already existing facilities to construct a neural network that gives impacts (importance values) of criteria identified for each group in phase I. Then, in phase III, using the impacts obtained in phase II, we employ a fuzzy TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) approach to obtain the overall rating of the facility of interest, as calculated by each group. Finally, in phase IV, we employ Borda’s choice rule to calculate the maximized consensus (among the groups considered) rating of the facility of interest.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Reverse Supply Chain Design
MOTIVATION Although companies tend to spend more time and money in fine-tuning their forward supply chains, in today’s competitive business environment, they can no longer ignore reverse supply chains due to the two most important factors, viz., environmental regulations and profitability (Fleischmann, 2001; Gungor & Gupta, 1999). A reverse supply chain, which is the series of activities required to retrieve used products from consumers and either recover their left-over market values or dispose of them, utilizes at least the following (see Figure 1): collection facilities where used products are collected, recovery facilities where reprocessing, viz., disassembly, remanufacturing, or recycling, are performed, and demand centers where re-processed goods are sold. Evidently, the success of a reverse supply chain heavily relies on the efficiency of the collection facilities and the recovery facilities chosen while designing (also called strategic planning) of that reverse supply chain. The efficiency of a collection or recovery facility depends on the participation (in the reverse supply chain) of three different groups who have multiple, conflicting, and incommensurate goals, as follows: 1. Consumers whose primary concern is convenience, 2. Local government officials whose primary concern is environmental consciousness, and 3. Supply chain company executives whose primary concern is profit. Figure 1. A generic reverse supply chain network
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Therefore, the evaluation of a facility must be based upon the maximized consensus among the three groups. In this chapter, we propose a neural network approach to evaluate the efficiency of a facility (collection or recovery) of interest, which is being considered for inclusion in a reverse supply chain, using the available linguistic data of facilities that already exist in the reverse supply chain. The approach is carried out in four phases, as follows: In phase I, we identify criteria for evaluating the efficiency of the facility of interest, for each group participating in the reverse supply chain. Then, in phase II, we use fuzzy ratings (Zadeh, 1965) of existing facilities to construct a neural network that gives impacts (importance values) of criteria identified for each group in phase I. Then, in phase III, using the impacts obtained in phase II, we employ a fuzzy TOPSIS approach (Chu, 2002), that is, a combination of the fuzzy set theory (Zadeh, 1965) and the TOPSIS (Technique for Order Preference by Similarity to Ideal Solution; Triantaphyllou & Lin, 1996), to obtain the overall rating of the facility of interest, as calculated for each group. Finally, in phase IV, we employ Borda’s choice rule (Hwang, 1987) to calculate the maximized consensus (among the groups considered) rating of the facility of interest. In the next section, we review a few important papers in the literature, which propose models to design a reverse supply chain. Then, we briefly introduce the techniques, viz., the fuzzy set theory, the TOPSIS, and the Borda’s choice rule used in our approach, and present the approach to evaluate the efficiency of a collection facility of interest.
Reverse Supply Chain Design
Next, we present the approach to evaluate the efficiency of a recovery facility of interest, give some conclusions, and present the future research directions. Finally, we give additional reading material in the field of reverse supply chain design.
LITERATURE REVIEW Many papers in the literature propose how to design a reverse supply chain (for a good review, see Fleischmann, 2001). However, every paper assumes that all of the recovery facilities that are engaged in the supply chain are profited by reprocessing economical used products, and also that these facilities have sufficient potential to efficiently reprocess the incoming used products. Motivated by the risk of reprocessing uneconomical used products in inefficient recovery facilities, Pochampally and Gupta (2003) proposed an approach that employs linear programming to select economical used products for reprocessing in a reverse supply chain and analytic hierarchy process (AHP) (Saaty, 1980) to identify efficient recovery facilities operating in a region where that supply chain is to be designed. Furthermore, realizing the increasing enforcement of environmental consciousness by governmental regulations (Gungor & Gupta, 1999), and the developing practice of collection and reprocessing of used products being carried out by the same parties that are involved in a forward supply chain (the series of activities required to produce new products from raw material), they developed an integrated approach to design a closed-loop supply chain. To that end, they formulated a fuzzy (Zadeh, 1965) cost-benefit function that can be used to perform a multicriteria economic analysis to select economical products to process in the closed-loop supply chain (Pochampally, Gupta, & Cullinane, 2003), and proposed a fuzzy TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) approach (Chu, 2002) to evaluate production facilities in a region where that closed-loop
supply chain is to be designed, in terms of both environmental consciousness (mainly associated with the forward supply chain) and efficiency (mainly associated with the reverse supply chain) (Pochampally, Gupta, & Kamarthi, 2003). Despite all of the papers cited above, there is no paper in the literature which proposes how to identify efficient collection facilities. Moreover, no one has looked at the problem of evaluating recovery facilities based upon the consensus among all of the important groups participating in the reverse supply chain, viz., the consumers, local government officials, and the supply chain company executives. This chapter attempts to fill both the voids. The traditional/forward supply chain design models in the literature cannot be applied to designing a reverse supply chain due to the following challenges in the reverse supply chain: uncertainty in supply rate of used products, unknown condition of used products, and imperfect correlation between supply of used products and demand for reprocessed goods. For example, Talluri, Baker, and Sarkis’s model (1999) that uses data envelopment analysis and integer goal programming and Talluri and Baker’s (2002) model that uses multiphase mathematical programming to select partners in a traditional supply chain, do not consider the reverse flow of products after their end of use.
TECHNIQUES USED IN THIS CHAPTER This section introduces the fuzzy set theory, the TOPSIS, and the Borda’s choice rule.
Fuzzy Set Theory Expressions such as “not very clear,” “probably so,” and “very likely” are often heard in daily life. The commonality in such expressions is that they are tainted with imprecision. This imprecision or
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Reverse Supply Chain Design
vagueness of human decision-making is called “fuzziness” in the scientific literature. With different decision-making problems of varied intensity, the results can be misleading if fuzziness is not taken into account. However, since Zadeh (1965) first proposed fuzzy set theory, an increasing number of studies have dealt with imprecision (fuzziness) in problems by applying the fuzzy set theory. The concepts of the fuzzy set theory, which we utilize in this chapter, are as follows.
Linguistic Values and Fuzzy Sets When dealing with imprecision, decision-makers may be provided with information characterized by vague language such as: high risk, low profit, and good customer service. By using linguistic values like “high,” “low,” “good,” “medium,” “cheap,” and so forth, people are usually attempting to describe factors with uncertain or imprecise values. For example, “weight” of an object may be a factor with an uncertain or imprecise value and so, its linguistic value can be “very low,” “low,” “medium,” “high,” “very high,” and so forth. The fuzzy set theory is primarily concerned with quantifying the vagueness in human thoughts and perceptions. The transition from vagueness to quantification is performed by applying the fuzzy set theory as depicted in Figure 2. To deal with quantifying vagueness, Zadeh proposed a membership function which associates with each quantified linguistic value a grade of membership belonging to the interval [0, 1]. Thus, a fuzzy set is defined as: ∀x∈X, μA(x)∈[0,1] Figure 2. Application of fuzzy set theory
360
where μA(x) is the degree of membership, ranging from 0 to 1, of a quantity x of the linguistic value, A, over the universe of quantified linguistic values, X. X is essentially a set of real numbers. The more x fits A, the larger the degree of membership of x. If a quantity has a degree of membership equal to 1, this reflects a complete fitness between the quantity and the vague description (linguistic value). On the other hand, if the degree of membership of a quantity is 0, then that quantity does not belong to the vague description. The membership function can be viewed as an expert’s opinion. We use the term “expert” because an expert usually holds some required knowledge about relative problems while a layperson may not. For example, when a financial manager is asked what a “high annual interest rate” is, the possibility of 20% being “high annual interest rate” would be higher than that of 3%, 5%, or 9%. Thus, the membership function, here, can be explained as the possibility of an interest rate being considered as “high.” A reasonable mapping from interest rate to its degree of membership about the fuzzy set “high annual interest rate” is depicted in Figure 3. This membership function looks like a typical cumulative probability function; however, here, the value of the membership function represents the possibility of a fuzzy event, while the value of a cumulative probability function represents the cumulative probability of a statistical event.
Triangular Fuzzy Numbers A triangular fuzzy number (TFN) (Tsaur, Chang, & Yen, 2002) is a fuzzy set with three parameters, each representing a quantity of a linguistic value associated with a degree of membership of either
Reverse Supply Chain Design
Figure 3. Mapping of quantified “high” interest values to their degrees of membership
0 or 1. It is graphically depicted in Figure 4. The parameters a, b, and c respectively denote the smallest possible quantity, the most promising quantity and the largest possible quantity that describe the linguistic value. Each TFN, P, has linear representations on its left and right side such that its membership function can be defined as: μP = 0, x < a
(1)
= (x-a) / (b-a) a ≤ x ≤ b
(2)
= (c-x) / (c-b) b ≤ x ≤ c (3) = 0, x ≥ c.
(4)
For each quantity x increasing from a to b, its corresponding degree of membership linearly increases from 0 to 1. While x increases from b to c, its corresponding degree of membership linearly decreases from 1 to 0. The membership function is a mapping from any given x to its corresponding degree of membership.
Figure 4. Triangular fuzzy number
The TFN is mathematically easy to implement, and more importantly, it represents the rational basis for quantifying the vague knowledge in most decision-making problems.The basic operations on triangular fuzzy numbers are as follows (Tsaur et al., 2002):For example, P1 = (a, b, c) and P2 = (d, e, f). P1 + P2 = (a+d, b+e, c+f) addition;
(5)
P1 – P2 = (a-f, b-e, c-d) subtraction;
(6)
P1*P2 = (a*d, b*e, c*f) where a ≥ 0 and d ≥ 0 multiplication; (7) P1 / P2 = (a/f, b/e, c/d) where a ≥ 0 and d > 0 division. (8)
Defuzzification Defuzzification is a technique to convert a fuzzy number into a crisp real number. There are several methods to serve this purpose. For example, the Centre-of-Area method (Tsaur et al., 2002) converts a fuzzy number P = (a, b, c) into a crisp real number Q where Q=
(c − a ) + (b − a ) +a 3
(9)
Defuzzification might become necessary in two situations: (i) When comparison between two or more fuzzy numbers is difficult to perform, and (ii) When a fuzzy number to be operated on has negative parameters (in other words, we make sure that upon performing an arithmetic operation on one or more TFNs, we get a TFN only; for example, squaring TFN (-1, 0, 1) using Equation 7 will lead to (1, 0, 1) that is not a TFN and so, we defuzzify (-1, 0, 1) before squaring it).
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Reverse Supply Chain Design
TOPSIS Method The basic concept of the TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) method (Triantaphyllou & Lin, 1996) is that the rating of the alternative selected as the best from a set of different alternatives, should have the shortest distance from the ideal solution and the farthest distance from the negative-ideal solution in a geometrical (i.e., Euclidean) sense. The TOPSIS method evaluates the following decision matrix, which refers to m alternatives that are evaluated in terms of n criteria (see Figure 5).where Ai is the ith alternative, Cj is the jth criterion, wj is the weight (importance value) assigned to the jth criterion, and zij is the rating (e.g., on a scale of 1-10, the higher the rating, the better it is) of the ith alternative in terms of the jth criterion.The following steps are performed: Step 1: Construct the normalized decision matrix. This step converts the various dimensional measures of performance into nondimensional attributes. An element rij of the normalized decision matrix R is calculated as follows: rij =
zij
∑ i =1 zij2
Figure 5.
362
m
(10)
Step 2: Construct the weighted normalized decision matrix. A set of weights W = (w1, w2, … wn) (such that ∑wj = 1), specified by the decisionmaker, is used in conjunction with the normalized decision matrix R to determine the weighted normalized matrix V defined by V = (vij) = (rijwj). Step 3: Determine the ideal and the negativeideal solutions. The ideal (A*) and the negativeideal (A-) solutions are defined as follows:
{
A* = max vij i
}
for i = 1, 2, 3, ....., m (11)
= {p1, p2, p3, ….., pn}
{
A− = min vij i
}
for i = 1, 2, 3, ....., m (12)
= {q1, q2, q3, …..., qn} With respect to each criterion, the decisionmaker desires to choose the alternative with the maximum rating (it is important to note that this choice varies with the way he or she awards ratings to the alternatives). Obviously, A* indicates the most preferable (ideal) solution. Similarly, A- indicates the least preferable (negative-ideal) solution.
Reverse Supply Chain Design
Step 4: Calculate the separation distances. In this step, the concept of the n-dimensional Euclidean distance is used to measure the separation distances of the rating of each alternative from the ideal solution and the negative-ideal solution. The corresponding formulae are Si * =
∑ (v
ij
− pj )2
for i = 1, 2, 3, ..., m
(13)
where Si* is the separation (in the Euclidean sense) of the rating of alternative i from the ideal solution, and Si − =
∑ (v
ij
− qj )2
for i = 1, 2, 3, ..., m
(14)
where Si- is the separation (in the Euclidean sense) of the rating of alternative i from the negativeideal solution. Step 5: Calculate the relative coefficient. The relative closeness coefficient for alternative Ai with respect to the ideal solution A* is defined as follows: Si − Ci* = Si * +Si −
(15)
Step 6: Rank the preference order. The best alternative can now be decided according to preference order of Ci*. It is the one with the rating that has the shortest distance to the ideal solution. The way the alternatives are processed in the previous steps reveals that if an alternative has the rating with the shortest distance to the ideal solution, then that rating is guaranteed to have the longest distance to the negative-ideal solution. That means, the higher the Ci*, the better the alternative.
Borda’s Choice Rule Borda (Hwang, 1987) proposed a rank-order method for group decision-making in which marks of m-1, m-2, ……., 1, 0 are assigned to the first ranked, second ranked, ……, last ranked alternative, for each decision maker (group, in our case). That means that a larger mark corresponds to more importance. Borda score (maximized consensus rating) for each alternative is then determined as the sum of the individual marks for that alternative. Then, the alternative with the highest Borda score is declared the winner. That means that the different decision makers unanimously choose the alternative that obtains the largest Borda score as the most preferred one. Besides the above techniques, some concepts of constructing and training a neural network are implemented in phase II of our approach. Introduction to those concepts is beyond the scope of this chapter. The reader is referred to any of the hundreds of introductory neural network books available in the literature.
EVALUATION OF EFFICIENCIES OF COLLECTION FACILITIES In this section, we present our four-phase approach to evaluate the efficiency of a collection facility of interest, through a numerical example. Phases I, II, III, and IV are presented.
Phase-I of the Approach We consider the following sets of criteria for the three groups, for evaluating the efficiency of a collection facility of interest:
Consumers •
Incentives from collection facility (IC) (higher incentives imply higher motivation to participate)
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Reverse Supply Chain Design
•
• •
• •
Proximity to the residential area (PH) (higher proximity implies more motivation to participate) Proximity to roads (PR) (higher proximity implies more motivation to participate) Simplicity of the collection process (SP) (simpler process implies more motivation to participate) Employment opportunity (EO) (the more the better) Salary (SA) (the higher the better)
Local Government Officials •
•
Proximity to residential area (PH) (higher proximity implies greater collection and hence lower disposal) Proximity to roads (PR) (higher proximity implies greater collection and hence lower disposal)
Supply Chain Company Executives •
• • • •
•
•
364
Per capital income of the people in the residential area (PI) (the higher it is, the more the number of “resourceful” used products, and the less the people will care about the incentives from the collection facility) Space cost (SC) (the lower the better) Labor cost (LC) (the lower the better) Utilization of incentives from local government (UI) (the higher the better) Proximity to residential area (PH) (higher proximity implies greater collection and hence greater profit) Proximity to roads (PR) (higher proximity implies greater collection and hence greater profit) Incentives from local government (IG) (higher incentives from local government imply higher incentives to consumers)
Phase-II of the Approach Suppose that we have the linguistic ratings of 10 existing collection facilities, as given by an expert in each group described in phase I. Using the fuzzy set theory, these linguistic ratings are converted into TFNs (fuzzy ratings). Table 1 shows not only one of the many ways for conversion of linguistic ratings into TFNs but also the defuzzified ratings of the corresponding TFNs. Tables 2, 3, and 4 show the defuzzified overall rating of each existing collection facility, as well as its (collection facility’s) defuzzified rating with respect to each criterion, as evaluated by the consumers, the local government officials, and the supply chain company executives, respectively.
Table 1. Conversion table for ratings Linguistic rating
TFN
Defuzzified rating
Very Good (VG)
(7, 10, 10)
9
Good (G)
(5, 7, 10)
7.3
Fair (F)
(2, 5, 8)
5
Poor (P)
(1, 3, 5)
3
Very Poor (VP)
(0, 0, 3)
1
Table 2. Consumer ratings of existing collection facilities Collection Facility
IC
PH
PR
SP
EO
SA
Overall
C1
1
3
5
3
5
9
5
C2
9
1
3
5
7.3
9
7.3
C3
3
1
3
1
9
1
3
C4
3
9
1
7.3
1
7.3
5
C5
5
1
3
5
1
3
7.3
C6
9
3
7.3
3
5
7.3
3
C7
5
7.3
9
1
7.3
9
1
C8
1
5
1
5
3
1
9
C9
1
5
5
9
9
5
5
C10
5
9
5
3
9
3
1
Reverse Supply Chain Design
Table 3. Local government officials ratings of existing collection facilities Collection Facility
PH
PR
Overall
C1
1
3
5
C2
9
1
7.3
C3
3
1
3
C4
3
9
5
C5
5
1
7.3
C6
9
3
3
C7
5
7.3
1
C8
1
5
9
C9
1
5
5
C10
5
9
1
Table 4. Supply chain company executives’ratings of existing collection facilities Collection Facility
PI
SC
LC
UI
PH
PR
IG
Overall
C1
1
3
1
3
5
1
3
5
C2
9
1
3
7.3
3
5
7.3
7.3
C3
3
1
7.3
9
1
7.3
9
3
C4
3
9
5
1
5
3
1
5
C5
5
1
5
5
9
9
5
7.3
C6
9
3
9
5
3
9
3
3
C7
5
7.3
3
1
7.3
9
1
1
C8
1
5
1
3
1
3
5
9
C9
1
5
3
5
9
9
1
5
C10
5
9
1
3
5
7.3
7.3
1
sidered by the corresponding group. For example, Figure 6 shows the neural network constructed and trained for the group of consumers. After each neural network is trained, Equation 16 (Cha & Jung, 2003) is used to calculate the impacts of criteria considered by the corresponding group. Here, absolute value of Wvk is the impact of the vth input node upon kth output node, nV is the number of input nodes, nO is the number of output nodes (one, in our case), nH is the number of hidden nodes, Iij is the connection weight from the ith input node to the jth hidden node, and Ojk is the connection weight from the jth hidden node to the kth output node. Ivj ∑ nV Ojk j ∑ Iij i | Wvk |= nV nH Ivj O jk ∑ ∑ nV v j I ij ∑ i nH
(16)
Tables 5, 6, and 7 show the impacts of the criteria considered by the consumers, the local government officials, and the supply chain company executives, respectively. Figure 6. Neural network for consumers (Phase II)
A neural network is constructed and trained for each group, using the defuzzified ratings of the existing collection facilities with respect to criteria as input sets, and their (collection facilities) defuzzified overall ratings as corresponding outputs. In our example, there are 10 input-output pairs for each neural network because there are 10 existing collection facilities. Also, we consider three layers in each network, with 5 nodes in the hidden layer. The number of nodes in the output layer is one (for overall rating), and that in the input layer is the number of criteria con-
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Table 5. Impacts of criteria of consumers Criterion
IC
PH
PR
SP
EO
SA
Impact
0.01
0.13
0.06
0.18
0.19
0.43
rating of collection facility, C12, with respect to criterion, PH (see Tables 8 and 10), is calculated using Equation 10 as follows: r22 =
Table 6. Impacts of criteria of local government officials Criterion
PH
PR
Impact
0.33
0.67
Table 7. Impacts of criteria of supply chain company executives Criterion
PI
SC
LC
UI
PH
PR
IG
Impact
0.24
0.09
0
0.18
0.25
0.1
0.13
Phase-III of the Approach Suppose that there are three collection facilities, C11, C12, and C13, of interest. We employ a fuzzy TOPSIS (Chu, 2002) approach that uses the weights obtained in phase-II, to calculate the overall ratings of the three collection facilities. The decision matrices formed by the consumers, the local government officials, and the supply chain company executives (with defuzzified ratings for C11, C12, and C13) in this example are shown in Tables 8, 9, and 10, respectively (we use Table 1 here too, to convert linguistic ratings given by each group into TFNs). Now, we are ready to perform the six steps in the TOPSIS for each group. The following steps show the implementation of the TOPSIS for the consumers, to evaluate C11, C12, and C13. Step 1: Construct the normalized decision matrix. Table 11 shows the normalized decision matrix formed by applying Equation 10 on each element of Table 8 (decision matrix formed by the consumers). For example, the normalized
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1 92 + 12 + 32
= 0.105.
Step 2: Construct the weighted normalized decision matrix. Table 12 shows the weighted normalized decision matrix for the consumers. This is constructed using the impacts of the criteria listed in Table 5 and the normalized decision matrix in Table 11. For example, the weighted normalized rank of collection facility, C12, with respect to criterion, PH, that is, 0.014 (see Table 12), is calculated by multiplying the impact of PH, that is, 0.129 (see Table 5) with the normal-
Table 8. Decision matrix formed by consumers Collection Facility
IC
PH
PR
C11
3
9
1
7.33
SP
1
EO
7.33
SA
C12
5
1
3
5
1
3
C13
9
3
7.33
3
5
7.33
Table 9. Decision matrix formed for local government officials Collection Facility
PH
PR
C11
3
9
C12
5
1
C13
9
3
Table 10. Decision matrix formed by supply chain company executives Collection Facility
PI
SC
LC
UI
C11
5
1
5
5
C12
9
3
9
C13
5
7.33
3
PH
PR
IG
9
9
5
5
3
9
3
1
7.33
9
1
Reverse Supply Chain Design
Table 11. Normalized decision matrix formed by consumers for collection facilities Collection Facility
IC
PH
PR
SP
EO
SA
C11
0.278
0.943
0.125
0.783
0.192
0.679
C12
0.466
0.105
0.376
0.534
0.192
C13
0.839
0.314
0.918
0.320
0.962
Table 12. Weighted normalized decision matrix formed by consumers for collection facilities IC
PH
PR
SP
EO
SA
C11
0.004
0.122
0.007
0.140
0.036
0.294
0.278
C12
0.006
0.014
0.022
0.095
0.036
0.120
0.679
C13
0.011
0.041
0.053
0.057
0.181
0.294
ized rating of C12 with respect to PH, that is, 0.105 (see Table 11). Step 3: Determine the ideal and the negativedeal solution. Each column in the weighted normalized decision matrix shown in Table 12 has a maximum rating (found using Equation 11) and a minimum rating (found using Equation 12). They are the ideal and the negative-ideal solutions, respectively, for the corresponding criterion. For example (see Table 12), with respect to criterion, PH, the ideal solution (maximum rating) is 0.122, and the negative-ideal solution (minimum rating) is 0.014. Step 4: Calculate the separation distances. The separation distances (see Table 13) for each collection facility, are calculated using Equations 13 and 14. For example, the positive separation distance for collection facility, C12 (see Table 13), is calculated using Equation 13 that contains the weighted normalized ratings of C12 (see Table 12) and the ideal solutions (obtained in step 3) for the criteria. Step 5: Calculate the relative closeness coefficient. Using Equation 15, we calculate the relative closeness coefficient for each collection facility (see Table 14). For example, relative closeness coefficient (i.e., 0.137) for collection facility C12 (see Table 14) is the ratio of C12’s negative separation distance (i.e., 0.041) to the sum (i.e., 0.041 + 0.257 = 0.298) of its negative and positive separation distances (see Table 13). Step 6: Rank the preference order. Since the best alternative is the one with the highest relative closeness coefficient, the preference order for the
Collection Facility
Table 13. Separation distances calculated by consumers for collection facilities Collection Facility
S*
S-
C11
0.152
0.221
C12
0.257
0.041
C13
0.116
0.233
Table 14. Relative closeness coefficients calculated byconsumers for collection facilities Collection Facility
C*
C11
0.592
C12
0.137
C13
0.668
collection facilities is C13, C11, and C12 (that means, C13 is the best collection facility, as evaluated by the consumers). The TOPSIS is implemented for the local government officials and the supply chain company executives as well. The relative closeness coefficients of the collection facilities, as calculated by those two groups, are shown in Table 15.
Phase-IV of the Approach Table 16 shows the marks of the collection facilities as given using Borda’s choice rule (Hwang, 1987) for the consumers, the local government officials, and the supply chain company executives. Borda scores (maximized consensus rating) calculated for C11, C12, and C13 (viz., 5, 1, and 3,
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Reverse Supply Chain Design
Table 15. Relative closeness coefficients calculated by local government and supply chain company for collection facilities Collection Facility
Local govt.
Consumers •
Supply chain company
C11
0.754
0.619
C12
0.096
0.502
C13
0.354
0.415
•
•
Table 16. Marks and Borda scores of collection facilities Collection Facility
Consumers
Local government
Supply chain company
Borda score
C11
1
2
2
5
C12
0
0
1
1
C13
2
1
0
3
respectively) are also shown. For example, Borda score for C12 (i.e., 1) is calculated by summing the marks of C12 for the consumers, the local government officials, and the supply chain company executives (i.e., 0 + 0 + 1). Since C11 has the highest Borda score, it is the best of the lot.
EVALUATION OF EFFICIENCIES OF RECOVERY FACILITIES In this section, we present only the first phase of our approach to evaluate the efficiency of a recovery facility of interest because the remaining three phases are similar to the ones for a collection facility. We consider the following sets of criteria for the three groups, for evaluating the efficiency of a recovery facility of interest:
•
Proximity to surface water (PS) (lower proximity implies more suitability, that is, less hazardous) Proximity to residential area (PH) (lower proximity implies more suitability, that is, less hazardous) Employment opportunity (EO) (the more the better) Salary (the higher the better)
Local Government Officials •
•
Proximity to surface water (PS) (lower proximity implies more suitability, that is, less hazardous) Proximity to residential area (PH) (lower proximity implies more suitability, that is, less hazardous)
Supply Chain Company Executives • • • •
• • • •
Space cost (SC) (the lower the better) Labor cost (LC) (the lower the better) Proximity to roads (PR) (higher proximity implies easier transportation) Quality of reprocessed products (QO) – Quality of used-products (QI) (the higher the better) Throughput (TP) /Supply (SU) (the higher the better) Throughput (TP) * Disassembly time (DT) (the higher the better) Utilization of incentives from local government (UI) (the higher the better) Pollution control (PC) (the higher the better)
Unlike in a forward supply chain, components of incoming goods (used-products) of even the same type in a recovery facility are likely to be of varied quality (worn-out, low-performing, etc.). Though
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the average quality of reprocessed goods (QO) is a criterion that can evaluate a recovery facility, it is not justified to use QO as an independent criterion for evaluation because QO depends on average quality of incoming products (QI). However, QI must not be taken as an independent criterion too because it cannot evaluate the recovery facility. So, the idea is to take the difference between QO and QI as a criterion for evaluation. The only driver to design a forward supply chain is the demand for new products and so if there is low demand for new products, there is practically no forward supply chain. However, this is not the case in some reverse supply chains where even if there is a low supply of used-products (SU), reverse supply chain must be administered due to the possible drivers like environmental regulations and asset recovery. In supply-driven cases like these, it is unfair to judge a recovery facility without considering SU for evaluation. Although throughput (TP) is a criterion that can evaluate a recovery facility, it is not justified to use TP as an independent criterion because TP depends on SU. However, SU must not be taken as an independent criterion too because it cannot evaluate the recovery facility. Furthermore, a low SU might lead to a low TP and a high SU might lead to a high TP. So, the idea is to take (TP)/(SU) as a criterion for evaluation. Thus, we compensate for the effect of a low TP by dividing TP with a possibly low SU, in order not to underestimate the facility under consideration. Similarly, we dampen the effect of a high TP by dividing TP with a possibly high SU, in order not to overestimate the facility under consideration. Average disassembly time (DT) is not exactly the inverse of TP because TP takes into account the whole reprocessing (disassembly plus recovery) time. Unlike in a forward supply chain, components of incoming goods (used-products) in a recovery facility are likely to be deformed or broken or different in number even for the same type of products. Hence, incoming products of the same type might have different reprocessing
times, unlike in a forward supply chain where manufacturing time and assembly time are predetermined and equal for products of the same type. Since TP of a recovery facility depends upon the DT, it is unfair to not consider DT for evaluation. However, DT must not be taken as an independent criterion because it cannot evaluate the recovery facility. Furthermore, a high DT might lead to a low TP and a low DT might lead to a high TP. So, the idea is to take (TP)*(DT) as a criterion for evaluation. Thus, we compensate for the effect of a low TP by multiplying TP with a possibly high DT, in order not to underestimate the facility under consideration. Similarly, we dampen the effect of a high TP by multiplying TP with a possibly low DT, in order not to overestimate the facility under consideration.
CONCLUSION In this chapter, a neural network approach to evaluate the efficiency of a facility (collection or recovery) of interest, which is being considered for inclusion in a reverse supply chain, using the available linguistic data of facilities (collection or recovery) that already exist in the supply chain, was proposed. The approach was carried out in four phases as follows: In phase I, criteria for evaluation of the facility of interest, by each group participating in the reverse supply chain, were identified. Then, in phase II, fuzzy ratings of existing facilities were used to construct a neural network that gives impacts of criteria identified for each group in phase I. Then, in phase III, using the impacts obtained in phase II, a fuzzy TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) approach was employed to obtain the overall rating of the facility of interest, as calculated by each group. Finally, in phase IV, Borda’s choice rule was employed to calculate the maximized consensus (among the groups considered) rating of the facility of interest.
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FUTURE RESEARCH For their future research, the authors plan to propose quantitative models for the following additional issues faced by decision-makers in the area of reverse supply chain design: • •
• •
Selection of economical used products to reprocess in a reverse supply chain Optimization of transportation of goods (used and reprocessed) across a reverse supply chain Evaluation of marketing strategies for success of a reverse supply chain Selection of potential second-hand markets to sell reprocessed goods
ACKNOWLEDGMENT The authors are indebted to Dr. Sagar V. Kamarthi for letting them use his neural network software.
Hwang, C. L. (1987). Group decision making under multi-criteria: Methods and applications. New York: Springer-Verlag. Pochampally, K. K., & Gupta, S. M. (2003). A multi-phase mathematical programming approach to strategic planning of an efficient reverse supply chain network. In Proceedings of the IEEE International Symposium on the Electronics and the Environment (pp. 72-78). Pochampally, K. K., Gupta, S. M., & Cullinane, T. P. (2003). A fuzzy cost-benefit function to select economical used products for re-processing. In Proceedings of the SPIE International Conference on Environmentally Conscious Manufacturing (CD-ROM). Pochampally, K. K., Gupta, S. M., & Kamarthi, S. V. (2003). Evaluation of production facilities in a closed-loop supply chain: A fuzzy TOPSIS approach. In Proceedings of the SPIE International Conference on Environmentally Conscious Manufacturing (CD-ROM).
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ADDITIONAL READING Readers interested in the area of reverse supply chain design are referred to the following additional articles. Alshamrani, A., Mathur, K., & Ballou, R. H. (2007). Reverse logistics: Simultaneous design of delivery routes and return strategies. Computers & Operations Research, 34, 595–619. doi:10.1016/j. cor.2005.03.015 Amini, M. M., Retzlaff-Roberts, D., & Bienstock, C. C. (2005). Designing a reverse logistics operation for short cycle time repair services. International Journal of Production Economics, 96(3), 367–380. doi:10.1016/j.ijpe.2004.05.010
Dowlatshahi, S. (2005). A strategic framework for the design and implementation of remanufacturing operations in reverse logistics. International Journal of Production Research, 43(16), 3455–3480. doi:10.1080/00207540500118118 Gautam, A. K., & Kumar, S. (2005). Strategic planning of recycling options by multi-objective programming in a GIS environment. Clean Technologies and Environmental Policy, 7(4), 306–316. doi:10.1007/s10098-005-0006-7 Hu, T., Sheu, J., & Huan, K. (2002). A reverse logistics cost minimization model for the treatment of hazardous wastes. Transportation Research Part E, Logistics and Transportation Review, 38, 457–473. doi:10.1016/S1366-5545(02)00020-0
Ammons, J. C., Realff, M. J., & Newton, D. J. (1999). Carpet recycling: Determining the reverse production system design. Polymer-Plastics Technology and Engineering, 38(3), 547–567. doi:10.1080/03602559909351599
Krikke, H., Bloemhof-Ruwaard, J., & Van Wassenhove, L. N. (2003). Concurrent product and closed-loop supply chain design with an application to refrigerators. International Journal of Production Research, 41(16), 3689–3719. doi:10.1080/0020754031000120087
Barros, A. I., Dekker, R., & Scholten, V. (1998). A two-level network for recycling sand: A case study. European Journal of Operational Research, 110, 199–214. doi:10.1016/S0377-2217(98)00093-9
Krikke, H., Leblanc, I., & van de Velde, S. (2004). Product modularity and the design of closed-loop supply chains. California Management Review, 46(2), 23–39.
Bautista, J., & Pereira, J. (2006). Modeling the problem of locating collection areas for urban waste management. An application to the metropolitan area of Barcelona. Omega, 34(6), 617–629. doi:10.1016/j.omega.2005.01.013
Krikke, H. R., Van harten, A., & Schuur, P. C. (1999). Business case: Reverse logistic network redesign for copiers. OR-Spektrum, 21(3), 381–409. doi:10.1007/s002910050095
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Kroon, L., & Vrijens, G. (1995). Returnable containers: An example of reverse logistics. International Journal of Physical Distribution and Logistics Management, 25(2), 56–68. doi:10.1108/09600039510083934
Ravi, V., Ravi, S., & Tiwari, M. K. (2005). Analyzing alternatives in reverse logistics for endof-life computers: ANP and balanced scorecard approach. Computers & Industrial Engineering, 48(2), 327–356. doi:10.1016/j.cie.2005.01.017
Lieckens, K., & Vandaele, N. (2007). Reverse logistics network design with stochastic lead times. Computers & Operations Research, 34, 395–416. doi:10.1016/j.cor.2005.03.006
Salema, M. I. G., Barbosa-Povoa, A. P., & Novais, A. Q. (2007). An optimization model for the design of a capacitated multi-product reverse logistics network with uncertainty. European Journal of Operational Research, 179, 1063–1077. doi:10.1016/j.ejor.2005.05.032
Lim, G. H., Kasumastuti, R. D., & Piplani, R. (2005). Designing a reverse supply chain network for product refurbishment. In Proceedings of the International Conference of Simulation and Modeling. Listes, O. (2007). A generic stochastic model for supply-and-return network design. Computers & Operations Research, 34(2), 417–442. doi:10.1016/j.cor.2005.03.007 Listes, O., & Dekker, R. (2005). A stochastic approach to a case study for a product recovery network design. European Journal of Operational Research, 160, 268–287. doi:10.1016/j. ejor.2001.12.001 Louwers, D., Kip, B. J., Peters, E., Souren, F., & Flapper, S. D. P. (1999). A facility location allocation model for reusing carpet materials. Computers & Industrial Engineering, 36(4), 855–869. doi:10.1016/S0360-8352(99)00168-0 Lu, Z., & Bostel, N. (2007). A facility location model for logistics system including reverse flows: The case of remanufacturing activities. Computers & Operations Research, 34, 299–323. doi:10.1016/j.cor.2005.03.002
Savaskan, R., & Van Wassenhove, L. N. (2006). Reverse channel design: The case of competing retailers. Management Science, 52(1), 1–14. doi:10.1287/mnsc.1050.0454 Savaskan, R. C., Bhattacharya, S., & Van Wassenhove, L. N. (2004). Closed-loop supply chain models with product remanufacturing. Management Science, 50(2), 239–252. doi:10.1287/ mnsc.1030.0186 Veerakamolmal, P., & Gupta, S. M. (1999). Analysis of design efficiency for the disassembly of modular electronic products. Journal of Electronics Manufacturing, 9(1), 79–95. doi:10.1142/ S0960313199000301 Wojanowski, R., Verter, V., & Boyaci, T. (2007). Retail-collection network design under depositrefund. Computers & Operations Research, 34(2), 324–345. doi:10.1016/j.cor.2005.03.003
This work was previously published in Web-Based Green Products Life Cycle Management Systems: Reverse Supply Chain Utilization, edited by Hsiao-Fan Wang, pp. 283-300, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.9
Semantic Interoperability Enablement in E-Business Modeling Janina Fengel University of Applied Sciences Darmstadt, Germany
ABSTRACT Businesses all over the world are faced with the challenge of having to flexibly react to change and to dynamically work with varying business partners. For establishing electronic business, the underlying processes and subsequent IT-support need to be described clearly. For doing so, conceptual modeling has become an indispensable means. Models describe interrelated business objects and activities, expressed in a certain modeling language with elements labeled in natural language.
If the decision for the labels is not dominated by rules, models are semantically heterogeneous, not only concerning their modeling language, but more importantly, concerning their domain language, making their comparison or integration a non-trivial task. For its alleviation Semantic-Web technologies are applied. Transforming legacy models of different types into ontologies allows for reusing and connecting the domain facts modeled. Here, the novel method of semantic model referencing developed for this task is used, and this chapter will show how it can provide the basis for semantic integration.
DOI: 10.4018/978-1-60960-587-2.ch209
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Semantic Interoperability Enablement in E-Business Modeling
INTRODUCTION One of the core tasks in business management is the design and continuous improvement of business processing according to changing needs and expectations and the allocation of all necessary resources (Schreyögg, 2008). The increasing speed of globalization demands from enterprises of all sizes to adequately adapt in an ever quickening pace to changing business conditions and varying market requirements (Scheer, & Nüttgens, 2000). The motivation mostly arises from increasing cost pressure and intensifying competition as well as new legal regulations, the need to follow standards or for incorporating new innovative technologies (Österle, 2007). Therefore, it is mandatory to engineer business in an agile manner for ongoing optimization or reengineering (Scheer, Nüttgens, & Zimmermann, 1995; Hammer, & Champy, 2006). Continuous shaping and reshaping of business processes and the supporting or even enabling IT is a critical success factor for a business’s competitiveness (Frank, 2004). In daily operation, businesses are faced with the challenge of having to dynamically work with varying business partners. Establishing business relationships does not only require strategic decisions, but also efforts in integrating the partners’ business processes and subsequent information exchange. Enterprises need to be able to couple their business processes without huge preparation efforts. The basis for designing and engineering ebusiness in enterprises and B2B-collaborations is their comprehensive correct description. For setting-up interactions in and between organizations, all applicable business processes need to be described clearly and in an unambiguous manner. Such descriptions are the basis for engineering and managing them as well as for optimization or integration purposes. Often, this is achieved through abstraction by means of conceptual models, in particular for describing the support by IT-systems (Frank, 1994; Scheer, 1996).
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Consequently, managing all required models in a comprehensive and consistent manner is the prerequisite for engineering integrated process execution. One of the major tasks is the integration of existing, actively used models. Business process models frequently have to be matched for the purpose of reuse or integration (Hepp, & Roman, 2007). They do not only have to be matched for the purpose of integration or reuse in intraorganizational settings, e.g., when implementing ERP-systems, optimizing business processes or in cases of business-IT-alignment as well as process and application integrations due to reorganizations, but even more so inter-organizationally at the time of company mergers and acquisitions, the realization of supply chain management and the set-up of B2B-collaborations. Unfortunately, in practice, process matching is frequently hindered, as models very often differ considerably not only syntactically, but mostly semantically (Pfeiffer, 2007). Semantic heterogeneity arises not only through the differences between the constructs of the various modeling languages chosen for building models, but also through the different ways in applying natural language for labeling the model elements, which is independent from the choice of the modeling language (Thomas, & Fellmann, 2007, p. 29). This observation holds true for models in general. In case no predefined domain vocabulary or rules for assigning labels to model elements are in place, terms are chosen individually on a case-by-casebasis. Therefore, as a result, models are often semantically heterogeneous concerning the domain language. Hence, a lot of models are semantically incompatible, especially when several modelers or decentralized teams are involved, as incoherent labeling leads to model mismatches (Hadar, & Soffer, 2006, p. 570). This is in particular the case in B2B-collaborations, where the models to be integrated originate from different independent sources. As a result, differing types of models and dissimilarly applied business terminology prevent direct automated business process inter-
Semantic Interoperability Enablement in E-Business Modeling
actions without prior manual preparation efforts for resolving discrepancies. For easing this task, we suggest to apply ontology engineering. We here report on our research and continue with presenting the foundations and related works, followed by a description of our method of semantic model referencing based on Semantic-Web technologies and show its application. Our method foresees the reengineering of existing models of different kinds and types into ontologies, thus enabling the use of ontology matching techniques for relating them semantically. The result is a terminological domain ontology derived bottom-up in an automated manner, capturing the authentic business language actually in use. The emergent ontology can be improved and further developed in a collaborative manner and be utilized for semantic integration in business modeling scenarios. At the end, we show possible future research directions and conclude with a brief discussion of our proposition.
BACKGROUND The usage of models for describing data, processes and organizations has become an indispensable means for implementing electronically supported business conduction and enterprise modeling provides enterprise-wide views of an organization as the basis for decision making (Uschold, King,
Moralee, & Zorgios, 1997). Basically, in this context, a model is an abstraction intended to reduce complexity (Mahr, 2009). Thereby, an object may be a model of something, i.e., a description of an as-is status or original, or it may be a model for something, i.e., a prescription of a to-be status (Stachowiak, 1983). Models represent reality by leaving out irrelevant aspects from or by adding extending attributes to the object to be described, as they serve a specific purpose (Stachowiak, 1973, pp. 139ff, 155ff). Creating models allows using something that is simpler, safer or cheaper than reality instead of reality (Rothenberg, 1989). In this, a model represents a system, as it offers a simplified image of it (Kurtev, Bézivin, Jouault, & Valduriez, 2006). Thereby, according to General System Theory, a system is a set of elements standing in interaction. Models are written in a certain language offering language constructs with a syntax providing the construction rules, a semantics defining the constructs’ meaning and a notation for visualization, which can be graphical (Krallmann, Frank, & Gronau, 2002, p. 85). A modeling language is defined by its meta model to which the model conforms. A meta model is a model describing models (Strahringer, 1998). Figure 1 illustrates the levels of modeling. A model describes the business theme of interest in general, e.g., the process of booking travel arrangements, expressed by means of the constructs provided by the modeling language, e.g.,
Figure 1. Levels in modeling
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Semantic Interoperability Enablement in E-Business Modeling
EPC, and is realized in practice repeatedly, e.g., one as a travel booking with the ID 10-10-09/6745 for a certain customer at a specific date. In the object-oriented approach by the OMG called Model-Driven Architecture, meta-meta models are introduced on top of the meta-model level. Such models conform to themselves and are applicable for defining meta models, so that transformations between models can become feasible (OMG, 2003). Conceptualization denotes the abstraction of ideas into concepts and the relations between them (Mizoguchi, 2003). Thereby, the vocabulary for denoting the same concept can be different (Guarino, 1998). Conceptual modeling provides for models describing business objects and activities from a business-centric point-of-view independently from technical considerations and computational implementation specifications (OMG, 2003). Over the past decades, for conceptual modeling various different modeling languages have been developed, both from the field of academy and the industry, either being freely available as a standard or being proprietary to a certain modeling method, tool or company. These languages are focusing on specific aspects and facilitate the creation of unconnectedly usable models. They express and detail domain-specific expert knowledge, whereas languages such as the Unified Modeling Language (UML) are mainly used for software system engineering (OMG, 2009b); (OMG, 2009c). For describing business processes for example Petri Nets (Petri, 1962), Event-Driven Process Chains (EPC) (Keller, Nüttgens, & Scheer, 1992), activity diagrams in the UML, or more recently models in the Business Process Modeling Notation (BPMN) (OMG, 2009a) are popular. All these languages offer a graphic visualization and enable the description of sequences of activities. Although these business process modeling languages differ considerably in detail, the intended meanings of their basic concepts resemble each other, even if these similar notions are designated differently and comprise
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slightly different scope. The behavioural aspects described may be enhanced through the inclusion of resources such as business documents, business data or organizational agents. However, for modeling static business information in detail, the use of Entity-Relationship models (ERM) (Chen, 1976) and class diagrams of the UML have become common for describing conceptual database schemas. Depicting functional requirements of potential IT-system users can be done by means of use case or sequence models from the UML. The need for capturing inter-connections between the various existing models are tackled by approaches such as enterprise architecture, which provide special modeling languages for creating integrated enterprise models offering partial or overall views (Op’t Land, Proper, Waage, Cloo, & Steghuis, 2009; Lankhorst, 2009; Aier, Riege, & Winter, 2008; Ferstl, & Sinz, 2006, p. 185; Scheer, 2002). Figure 2 shows some example models, an EPC (adapted from Havey, 2005), an UML Activity Model (adapted from IBM, 2010) and a UML Class Model (adapted from Database Answers, 2010). Even though models may be created for the same subject theme, they are often unrelated and differ regarding the domain language used and are expressed in different modeling languages. The process models here describe a similar business operation, which is the booking of travel services, using different domain expressions as model element labels. Upon comparison differences in the domain language usage can be detected, e.g., “Request airline reservation” would correspond to “flight reservation” and “vehicle reservation” to “car reservation”. Before resolving these differences, a comparison of the flow of activities cannot be done. The class model describes a possible database design usable within the given scenario, also using differing labels. Linking one of the processes to the information required as in- and output to the information of the class model would need resolution of the labels’
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Figure 2. Example models
meanings, e.g., “vehicle” in the EPC to “car” in the activity model and “reservation” to “booking”. In practice, often differing unrelated nonaligned legacy models exist. There are efforts in matching models concentrating on the aspect of model language semantics based on migration or transformation from one modeling language into another (Murzek, & Kramler, 2007; Gehlert, 2007; Kensche, Quix, Chatti, & Jarke, 2007), matching models via their meta models (Kappel, Kramler, Kapsammer, Reiter, Retschitzegger, & Schwinger, 2005) or concentrating on managing models of the same kind (Melnik, Rahm, & Bernstein, 2003). The aspect of heterogeneously used domain language is not addressed in these approaches, instead the
model element labels are transferred and retained unchanged for further use. However, for consolidation models need to be compared regarding the intended meaning of their elements and their structure, whereas structural analysis cannot be performed until successful alignment of the domain language (Simon, & Mendling, 2007). The differences occurring there are similar to the ones found in knowledge modeling. In particular, variations can be found in the terminology applied, such as the choice of natural language and encoding or naming mismatches due to the occurrence of synonymy or homonymy, next to differences in granularity, scope or modeling style and the perspective and intended usage of a model (Klein, 2001; Kalfoglou, & Schorlemmer,
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2005, p.5). Especially, as seen also in the example above, naming conflicts hinder model integration (Becker, Rosemann, & Schütte, 1996; Thomas, & Fellmann, 2006). As a solution for preventing semantic differences concerning the domain language used in modeling, the use of agreed-upon sets of terms for creating labels for model elements has been suggested (Thomas, & Fellmann, 2007; Kugeler, & Rosemann, 1998). Such a set may be a business or domain model on the conceptual (Kugeler, & Rosemann, 1998) or business level (OMG, 2003, p. 2-5), a domain specific language (Pfeiffer, 2007; Kurtev et al., 2006) or more generally a domain ontology (Hepp et al., 2007; Saeki & Kaiya, 2006; Goméz-Pérez, Fernandéz-López, & Corcho, 2004) or more specific an enterprise ontology (Grüninger, Atefi, & Fox, 2000; Dietz, & Hoogervorst, 2008). These approaches assume the prior existence before modeling or a separate top-down development of such domain models. Present suggestions at integrating process models follow this notion by assuming the existence of a separately top-down developed domain ontology for providing mutual understanding of the element’s meaning (Weske, 2007; Becker, & Pfeiffer, 2008). Works in the field of semantic business process management foreseeing process model matching including the aspects of the domain language often rely on such a pre-defined business terminology (Hepp, Leymann, Domingue, Wahler, & Fensel, 2005; Brockmans, Ehrig, Koschmider, Oberweis, & Studer, 2006; Thomas, & Fellmann, 2007). This is combined with a semantic description of the business process modeling language for the purpose of automatedly supporting process modeling. However, the creation of a centrally defined, manually created, unified language model cannot solve the problem of semantic ambiguity completely. The development and maintenance of a shared standard is usually a very time-consuming and cost-intensive undertaking, since a group of experts needs to be installed for such a project.
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Usually, substantial work has to be done for determining the meaning of terms (d’Aquin, Motta, Sabou, Angeletou, Gridinoc, Lopez et al., 2008). Also, most of these tasks are repetitive, as changes over time need to be considered. The difficulty of the creation as well as the challenge of correctly elicitating the domain facts has been examined for the field of software engineering for the construction of domain models (Ambler, 2008) and formal domain specific (programming) languages (Hillairet, Bertrand, & Lafaye, 2008) as well as in knowledge engineering for ontology construction (d’Aquin et al., 2008; Hepp, 2007). Even the usage of public e-business standards cannot solve the problem, as the multitude of standards available and actively in use at the same time, moves the question of semantic interoperability only onto a higher level (Rebstock, Fengel, & Paulheim, 2008). So despite the development of e-business standards, the integration of business processes and business information is still a non-trivial issue, as business partners often use different e-business standards or their own individual language for describing their processes. Furthermore, the models to be integrated are actively is use and cannot easily be recreated or amended according to new guidelines or rules for business conduction with each specific partner. Nevertheless, for enabling integrated business process execution, managing and relating all required models is required, so that seamless electronic support of business usage scenarios such as the one mentioned above, is provided. Existing models need to be related to others for content clarification, while new models may have labels following newly defined specifications. For enabling meaningful comparisons of the sequence of activities described by business process models, resolving semantic discrepancies in the area of the domain language present is of the essence. Yet, models already represent domain knowledge in structured form. Furthermore, since conceptual models are an important source of information, automated support for retrieving the
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knowledge contained can increase the models’ usefulness (Becker, & Pfeiffer, 2007, p. 153). Employing semantic technologies for extracting this domain knowledge has been suggested. In the field of ontology engineering, the inclusion of ontology learning from unstructured resources such as texts (Cimiano, Hotho, Stumme, & Tane, 2004), matchmaking for ontology evolution (Castano, Ferrara, & Montanelli, 2006), and user participation (Braun, Schmidt, Walter, & Zacharias, 2008; Siorpaes & Hepp, 2007) have been proposed. Recently, automated derivation of a domain glossary from a specific model type has been suggested (Delfmann, Herwig, & Lis, 2009). Still, the realization of electronic business concerns all aspects of information processing. Similar to the areas subsumed by the notion of enterprise modeling, process, data and organization models together need to be considered. So far there are no propositions for solutions how to semantically coordinate business knowledge contained in models of different kinds and types for integrating the semantics of the modeling and the domain language together. We here suggest a new method for reengineering semi-structured and structured resources into ontologies for obtaining machine-processable semantic descriptions. It is a bottom-up approach by mining the models for the domain semantics contained achieving knowledge reuse without huge manual preparation efforts. Having presented the background and motivation of our work, we continue in the following chapter by introducing our novel approach. In that it is domain-semantics oriented, it addresses the challenge of semantic heterogeneity not only from a modeling language perspective. We are basing our solution on applying semantic technologies for integrating conceptual models concerning the domain language used for naming model elements. Next, we present the method developed, called semantic model referencing. We show the conceptual foundations and our approach at ontologizing models together with the supporting ontologies specifically developed for this business
challenge at hand. The semantic model integration is achieved based on leveraging semantic technologies, in particular ontology matching. The application of our method is shown by use of the example models presented above.
SEMANTIC REFERENCING The recent high acceptance and spread of the World Wide Web as an ubiquitous infrastructure for business conduction on a global level led to a quickly growing diffusion of electronic support for a variety of internal and external business conduction. With the advent of the Semantic Web and the technologies for its realization, also the possibilities for utilizing ontologies as a means to enabling semantic interoperability become more and more accepted. The idea of annotating information resources in the Web with meta data enables the representation of knowledge in structured, machine-processable form building on internet technologies, readable for humans as well as machines (Shadbolt, Berners-Lee, Hendler, & Hall, 2006). Thus, information processing can be automated. Since the manual collection and definition of knowledge to be shared may be tedious, we suggest to apply these information processing techniques for support. By reusing the wealth of domain knowledge hidden in existing data, business process or any other models, a knowledge model of the business terminology used can be established in a pragmatic bottom-up approach for resolving semantic heterogeneity in the area of the domain language present in business modeling. The idea is to extract and relate it, so that a comprehensive conceptual overview can be established. In turn, this can be used for improving and refining relations obtained in an integrative manner, combining automatic means with human input. Over time, the authentic semantics in use can become evident and be turned into a specific domain ontology generated in a bottom-up manner without initial ramp-up efforts.
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This is further usable for creating new models as well as for model matching.
Ontologies as Semantic Foundations Formalizing fact collections in well-defined semantics is the basis for interpreting the meaning of terms. Such representations are commonly referred to as ontologies (Goméz-Pérez et al., 2004, pp. 8ff). The notion of ontology emanates from philosophy. It denotes the science of being and the descriptions for the organization, designation and categorization of existence (Gruber, 1993). Ontology aims to explain the nature of the world. Carried over to computer science in the fields of artificial intelligence and information technologies, an ontology is understood as a semantic model and serves for specifying the knowledge about a certain universe of discourse in structured form (Allemang, & Hendler, 2008). One of the most popular definitions describes an ontology as an explicit specification of a conceptualization (Gruber, 1993). Hereby, this led to the formation of ontologies as a plural of what was originally used in philosophy solely as the singular ontology, since in many knowledge Figure 3. Extract from an example ontology
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domains several representations can coexist side by side (Hesse, 2005). An ontology captures the recognized and conceived in a knowledge domain for the purpose of representing and communicating the intended meaning of its concepts’ descriptions. A precise knowledge description is usually done in a logic-based language with well-defined semantics allowing for machine processing and logical deducting for the discovery of tacitly inherent knowledge (Uschold, & Gruninger, 2004). Often, a graphic visualization is done in the form of a semantic net, as shown in Figure 3, which shows an extract of an example ontology about travel (Knublauch, 2010). Basically, ontologies can be understood as collections of definitions of elements and their relationships. For the development, usually consensus is established between a group of modelers (Staab, Studer, Schnurr, & Sure, 2001). It is jointly decided which specific terms define a unique meaning within a commonly shared vocabulary and how these terms are related (Daconta, Obrst, & Smith, 2003, pp. 181ff). Thus, an ontology allows for sharing and reusing knowledge in an unambiguous manner serving as a model, as it provides a simplified abstract view of the
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world formally described by representational vocabulary for a shared domain of discourse (Gruber, 1993). In this it resembles a conceptual schema, similar to database schemas (Antoniou, Franconi, & van Harmelen, 2005). Its elements are classes or concepts representing a set of objects with common properties, instances representing the individual objects, relations and axioms, which are formalized statements or assertions, assumed to be true without having to be proved for modeling nondeductible knowledge. Thereby, ontologies can have different degrees of formality. The plainest form is the aggregation of facts as a semi-structured text. A first step towards formalization is the definition of a hierarchical structure. By adding predefined semantic relations, thesauri can be created. A formal semantics facilitates the definition of the intended meaning of the terms collected and their relations. The most powerful ontology forms are strictly formalized descriptions derived according to first-order logic, as this allows for quantified statements of objects and relations (Russell, & Norvig, 2003). Thereby, properties are defined by means of mathematical equations containing values of other properties or by logical statements defining disjoint or inverse classes or part-whole relations (Uschold, & Gruninger, 2004). Ontologies become more expressive with a higher degree of formality and thus increasing amount of meaning specified, so that ambiguity decreases (McGuiness, 2003; Uschold, & Grüninger, 1996). Accordingly, they can be distinguished regarding the extent of explication provided (Stuckenschmidt, & Harmelen, 2005). Lexicons and dictionaries are considered to be terminological ontologies, as they specify terms used in a domain (van Heijst, Schreiber, & Wielinga, 1997). Vocabularies, glossaries, thesauri, classifications and taxonomies are often called lightweight ontologies (Goméz-Pérez et al., 2004, pp. 8ff; Euzenat, & Shvaiko, 2007, pp. 29-30). They describe concepts with their relations and attributes and form a hierarchically structured network of relations. Data models are
less lightweight. They are also called information ontologies (van Heijst et al., 1997). Data models and formal ontologies which contain additional interlinking through relations of the concepts, stated as axioms and constraints in terms of predefined conditions, are called heavyweight ontologies (Goméz-Pérez et al., 2004, pp. 8ff; Euzenat, & Shvaiko, 2007, pp. 29-30). For the representation of Web-based ontologies, different languages exist, out of which the XML-based RDF Schema for basic lightweight ontologies or one of the dialects of the formal Web Ontology Language provided by the World Wide Web Consortium, called OWL, for more heavyweight ontologies are the most popular. In order to allow for automated processing, any model describing concepts needs to be formal, since formal ontologies can be reasoned upon (Blumauer, & Pellegrini, 2006). For this purpose, often the description logic based OWL DL is chosen for representing an ontology, because the more expressive OWL Full is not decidable (Smith, Welty, & McGuinness, 2004). Rules for inference can be defined based on the relationships contained in the ontology (Saeki, & Kaiya, 2006). Through inference new knowledge can be derived through logical deduction and the ontology evolves (Antoniou et al., 2005). Description-logic based languages are determinable, sufficiently expressive first-order-logic subsets. They provide welldefined formal semantics without variables in the formalism of predicates. Concepts, relations and individuals can be described independently of each other (de Bruijn, 2004). The use of these subsets solves the problem of non-determinability or semideterminability occurring when using inference engines with ontologies in first-order-logic-based languages. Languages are determinable if their characteristic function can be calculated fully or, at least, partly. A description-logic-based language consists of two parts. Figure 4 shows the modeling levels of an ontology in description logic in comparison to conceptual business models.
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Figure 4. Ontology and modeling levels
The TBox, the terminological box, defines the terminology of a domain’s concepts and with this all predicates and relations. The ABox, the assertional box, describes facts and assertions regarding the defining properties of entities and concept instances and their relations. This corresponds to the representation of the state of the modeled part of the real world. Thus, new concepts may be automatically classified into the hierarchy and instances may be automatically classified as well. Of central importance in description logic is the subsumption relation and complex general terms (Russell, & Norvig, 2003).
Types of Ontologies Aside from classifying ontologies according to their structural scope, they may also be distinguished by the task they are meant to fulfill
(Goméz-Pérez et al., 2004, pp. 47ff). Accordingly, some important ones can be identified. Table 1 shows examples. The terms contained in lower-level ontologies such as domain ontologies, can be linked to the notions given in top-level ontologies for the purpose of interlinking, thus specifying them. In this, domain ontologies specialize the terms of toplevel ontology. In the area of e-business, there are various standards available, for the most part in semistructured, machine-readable form. These knowledge representations at least define a common vocabulary and hold some relations between the terms, mostly subsumptions. Therefore, e-business standards can be understood as light-weight ontologies as well (Goméz-Pérez et al., 2004, p. 86). Presently, several standards and ontologies of various types exist, as presented in Table 2.
Table 1. Types of ontologies Ontology type
Scope
Examples
Knowledge representation ontologies
Primitives for knowledge formalization
Representation used in the context of the Semantic Web: RDF, RDF Schema, OWL
Top-level or upper-level ontologies
Knowledge about the world in general independent of a particular domain (space, matter, time, etc.)
Cyc (Cycorp, 2009), Suggested Upper Merged Ontology (SUMO) (IEEE, 2009), Descriptive Ontology for Linguistic and Cognitive Engineering (DOLCE) (Laboratory for Applied Ontology, 2009)
Lexical ontologies
Natural language
For English: WordNet (Princeton University, 2009)
Domain ontologies, task ontologies
Reusable vocabularies with their relations describing a specific domain or activity
E-Business, culture heritage, chemistry, biology or health and medicine
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Table 2. Overview of e-business ontologies E-Business Ontology type
Scope
Examples
Identification standards
Designations for business terms, participants, goods
ISBN, GLN, GTIN, EAN
Classification standards
Designations for master data formatting
UNSPSC (unspsc.org, 2009), eclass (eclass, 2005), catalog exchange formats
Transaction standards
Business document structures and document flow
UN/EDIFACT (UNECE, 2006), XCBL (xcbl.org, 2003), cXML (cxml.org).
Process standards
Business process structures
ebXML (OASIS), RosettaNet (GS1 US, 2009)
Enterprise ontologies
Knowledge about enterprises’ structure and operations
Enterprise Ontology (Uschold et al., 1997), TOVE Ontology (Fox, 1992), Enterprise Ontology (Dietz, 2006), FEA-RMO (GSA, 2005), SUPER ontologies (SUPER Integrated Project, 2009)
Product and service classifications are rather basic ontologies in the form of taxonomies with a lot of concepts (Omelayenko, 2001). Transaction standards focus on the automation of complex workflows in and between enterprises and contain many different document types (Omelayenko, 2001). Process-oriented standards provide standardization of complex workflows within and between businesses. An extensive overview is provided in (Rebstock et al., 2008). Overall, ebusiness standards, even if created for the same purpose or same domain, can differ considerably and it seems highly unlikely that one universal, globally accepted standard will become prevailing in the near future (Rebstock et al., 2008, p. 78). Enterprise ontologies are intended at defining terms and organizing knowledge about enterprises and their structure and operations, usable for engineering enterprises focusing on operations, transactions, organization, communication and coordination. All these types of ontologies have in common that they are vocabularies of particular domains with specifications of the meaning of terms and concepts (Uschold, & Gruninger, 2004). Thereby, their taxonomic structure describing generalization and specialization expressed as subclass relations can be understood as their backbone (Euzenat & Shvaiko, 2007, p. 99). As an approach for capturing semantics, the use of
ontologies is becoming popular, also in corporate settings (Uschold, & Grüninger, 1996). Ontologies present a means to accumulate and describe the knowledge of an enterprise in one single spot and facilitate the reconciliation of semantically heterogeneous information. Usually, the development of an ontology by an enterprise is motivated by the wish for enabling the structuring of its knowledge (Zelewski, 1999). Using ontologies within enterprises or B2B-collaboration networks facilitates capturing and sharing knowledge in an unambiguous manner to solve business tasks. The benefit lies in the support provided for semantic integration works within and across enterprise boundaries (de Bruijn, 2004). Thereby, for facilitating seamless processing, achieving mutual understanding about information is intended. Within information exchanges the information needs to be unambiguous and carry the same meaning for both the sender and the recipient, regardless whether they are humans or computers, so costly process interruptions can be avoided (Wigand, Picot, & Reichwald, 1997, pp. 60ff).
Relating Ontologies Expressing collections of concepts as ontologies allows rendering the semantics in machineprocessable form. This provides the basis for consolidating information from different sources.
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However, thereby the questions concerning semantic integration need to be faced, which is one of the major research challenges in this field (Stuckenschmidt, 2009, p. 73). Ontologies usually are developed independently of each other for different purposes, as described above, similar to conceptual business modeling. The existing e-business ontologies do not match and it seems unlikely that future ontologies, used either publicly or exclusively by an individual enterprise, will do so. Nevertheless, business interactions depend on interoperability on the semantic level (de Bruijn, 2004, pp. 2-3). Semantic interoperability denotes the enablement to share and reuse business knowledge upon integrating heterogeneous sources of information concerning their intended meaning, thus making this knowledge compatible. For extending the captured specialist knowledge or relating it to other domains, the ontologies have to be related. Thereby, identifying logical connections for fusing enables semantic integration (Uschold, & Menzel, 2005). Solutions for the challenges around semantic interoperability and integration have been suggested (Kalfoglou, Schorlemmer, Sheth, Staab, & Uschold, 2005; Alexiev & Breu, 2005; Stuckenschmidt & Harmelen, 2005; Noy, 2004). The techniques available are ontology matching and mapping. Converting non-ontological resources, such a models, and simple semantic models, such as company terminologies and e-business standards, into OWL DL allows for applying ontology matching technologies. These methods facilitate automated searches between the elements of one or more ontologies, which are related on the conceptual level and thus express semantic correspondence. Such relations may serve as semantic references between terms for the purpose of comparison and reconciliation. Thereby, the power of automated computing supports the process of having to compare labels manually and establish mappings. Ontology matching systems search for pairs of entities from different ontologies
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with the same intended meaning (Euzenat, Mocan, & Scharffe, 2008). The ontologies are reconciled for discovering semantic correspondences, which can be understood as mappings. Statements such as “A from Ontology X corresponds to B from Ontology Y” are functions describable as: mapping (e1)= {e2|e2∈O2}, e1∈O1
The correspondences found express equivalence or similarity. They can be stored for further usage (Euzenat et al., 2008). This is especially helpful, if the related ontologies are to be kept individually and not to be merged. Usually, existing models, terminologies and ontologies cannot be amended according to new demands once they have been created and are actively in use. The mappings found serve as means to a virtual integration and the aligned ontologies can remain in their original form and in usage in parallel without changes. The techniques available for matching ontologies can be distinguished in element- and structurebased techniques. Matching techniques on the element-level analyze ontology entities regardless of the relations they have with the other entities. Thereby, names or strings can be compared and linguistic resources can be included as background information. Edit-distance based methods, such as the Levenshtein distance, measure the distance between expressions by computing the number of edit operations required for achieving equality, whereas measures based on the Jaro metric compare the number and sequence of strings. Token-based methods perform such measuring on sets of strings (Cohen, Ravikumar, & Fienberg, 2003). In contrast, structure-based techniques include the information of the entities’ neighborhoods and analyze the structure of an ontology. Very often, structural analysis relies on hierarchical relations being present. Thereby, also non-trivial correspondences can be found. Comprehensive overviews can be found in (Euzenat, & Shvaiko, 2007; Kalfoglou & Schorlemmer, 2005).
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Basically, all matching systems have a similar approach, in that they process entities of two or more ontologies with the aid of some external information, preset parameters and, if available, supporting information (Euzenat, & Shvaiko, 2007). External information supporting the matching process can be dictionaries and top-level ontologies, linguistic ontologies or domain ontologies, such as e-business standards (Goméz-Pérez et al., 2004; Noy, 2004). The output consists of unidirectional mappings that can reflect non-symmetrical relating, mostly by listing related concepts in both ontologies in form of one-to-one mappings. An approach at generating more complex types of mappings including more than one entity from each ontology is presented in (Hu, & Qu, 2006). Furthermore, for achieving results of higher quality, there are different approaches for combining matching tools, since a combined approach can exploit more possibilities due to the diversity of the various methods utilized.
Ontologizing Models Reengineering non-ontological resources allows for employing previous intellectual achievements and reusing the wealth of domain knowledge contained in models of all kinds. In order to benefit from the possibilities for obtaining semantic relations through ontology matching techniques, existing models and terminologies in non-ontological form need to be transformed into ontologies. Converting non-ontological resources into OWL DL facilitates machine processability, as all model ontologies have the same expressivity and are represented in the same syntax and degree of formality. Furthermore, the use of OWL DL provides for reasoning as well.
Reengineering Terminologies Terminologies such as company glossaries and dictionaries as well as most of the e-business standards are semantic models in non-ontological
form. When they are available in XML or XSDformat, eXtensible Stylesheet Language Transformations (XSLT) can be developed. They serve for describing modification from one XML dialect into another, whereas here the target is OWL DL. Thereby, for each terminology transformation a different XSLT-sheet is required, as the models differ. Due to their diversity various criteria have to be considered for setting the approach usable for transforming their elements into ontology entities, i.e., classes, properties and applicable restrictions. So far, our research has revealed that no single commonly usable XSLT-sheet can be developed. However, in order to convert legacy semantic models without modifications in an automated manner, we combined and adapted the works of Klein, Fensel, van Harmelen, and Horrocks (2001), Bohring and Auer (2005) and García and Gil (2007) on a case-by-case basis. Thereby, a general approach could be established in that the core components called xsd:element are turned into owl:Class. Accordingly, classification categories and document structure fields are transformed into ontology classes related by subsumption. The resulting ontologies reflect the original models, also including any inconsistencies they may possess. For example, in product and service taxonomies a rather informal use of subclass relationships sometimes does not depict actual hierarchical, but instead mereologic relations describing part-whole-relationships (Hepp, & de Bruijn, 2007). However, our procedure allows for a fully automated transformation of huge amounts of information in a short time and preserves the original domain semantics as-is. If terminologies, on the other hand, are only available in an unstructured format, such as natural language in text documents or on webpages, ontology learning mechanisms may be employed for converting those descriptions to ontologies and extracting relevant terms.
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Reengineering Models Nowadays, modeling is mostly done with the help of modeling tools, thus the information is persistently electronically available and can be exported in an XML-based interchange format such as XML Metadata Interchange (XMI). Therefore, in principle transformations into OWL DL can be performed by means of XSLT. Unfortunately, even though XMI is an often used standard, our research showed that the exports differ profoundly, as each tool is creating its XMI-files in a different way. As a result, subject matter expertise is required for developing specific XSLT-sheets for each model type a modeling tool is supporting. Therefore, no universal basis, as it was possible for the reengineering of terminologies, could be established. Instead, individual transformation prescriptions are required for realizing a pragmatic attempt to convert models into ontologies. We have based this on the general considerations as shown here in the following. For creating a conceptual model of any kind, awareness of the modeling language specifics and of the applicable business terminology is Figure 5. Composition of a conceptual model
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required. This has been demonstrated for EPCs, but holds true for other models as well (Thomas, & Fellmann, 2006). Thereby, models contain input from two areas, as illustrated in Figure 5 for the composition of a business process model, here the EPC introduced already above. In that they are a composition of a set of model elements and model element labels, models possess two language spaces (Bézivin, Devedzic, Djuric, Favreau, Gasevic, & Jouault, 2006). The domain language designates the specific conceptual knowledge of a problem domain concerned in natural language, while the modeling language provides a means for sorting it (Fengel & Rebstock, 2009). Reversing the modeling process facilitates the decomposition of models. A model and its elements can be split into two separate models represented as ontologies, which together describe the model with its model type and name and the model elements with their model element types and labels. Thereby, the domain facts expressed in the natural domain language are separated from the type of element they are connected with. This type information resembles attaching provenance in-
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Figure 6. Meta models used for model decomposition
formation. For doing so, the idea of indexing the domain facts in a manner similar to indexing in librarianship in form of Topic Maps has been adopted (ISO/IEC, 2002). Figure 6 shows the meta models of thus decomposed models. The model ontology on the left hand side describes the domain knowledge in natural language as owl:Classes and the relations between them as properties with restrictions as needed. This model ontology imports the model type ontology. As a linking point they both contain a
concept called “domain entity”. For each modeling language a specific modeling language ontology can be developed in advance for continuous reuse. Such a Modeling Concept Ontology (MCO) contains the modeling concepts. They are associated by part-whole-relations, thus following the notion of strict meta modeling (Atkinson, & Kühne, 2002). This way the domain knowledge contained in the logical relations between model elements as the means for setting the specific models’ element order is preserved together with
Figure 7. Extract of a decomposed EPC
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the domain facts in the model ontology, not in the MCO. XSLT-sheets for transforming models exported in XMI have been developed accordingly for various modeling languages. Applying the decomposition to our EPC for example, returns a model ontology linked to its corresponding modeling concepts ontology, as shown in Figure 7 for an extract. In principle, for any type of model an MCO can be developed. All business process modeling languages provide the means for describing sequences of activities. They offer the idea of activities, either being called activities, tasks, functions or actions, which start and end with an event and are linked by flows. For the description of the behavioral aspect of processes, the flows can be tied to logical connectors for making decisions and showing alternative flow paths (Murzek, & Kramler, 2007). In detail the semantics of the modeling languages are not equivalent, so that models cannot be translated directly without loss of information (Kensche et al., 2007). However, the fundamental intensions of the concepts are comparable. The same observation can be made for models describing static business information. Conceptual data models can be represented as entity-relationship models, UML class models or directly as OWL-ontologies. Thereby, the entities of an ERM or classes of a class model correspond to the classes of an ontology, while the attributes and relationships correspond to the relations or properties in most ontology languages (Uschold, & Gruninger, 2004). Often, UML class models are even used for ontology modeling (Gašević, Djurić, Devedžić, & Damjanović, 2004; Brockmans, Volz, Eberhart, & Löffler, 2004). Research in the field of enterprise ontology is concentrating on defining common conceptualization for describing enterprise operations. In this, those ontologies can be used as a common ground for setting migration rules (Gehlert, 2007). The use of meta models for the purpose of migrating models is also being followed within the MDAapproach. Meta modeling for the purpose of in-
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tegrating models has been used for migrating conceptual models (Gehlert, 2007) and in the field of enterprise modeling (Müller, 1998) and for the development of the Unified Enterprise Modelling Language UEML (University of Bergen, 2009). In contrast, the approach presented here concentrates on elicitating the semantics of the domain language used for modeling. We transform the model name and model element labels into ontology classes with reference relations linking them to the modeling language semantics described in the separate modeling concept ontology. All labels are presently taken without further processing, so that not only terms, but complete expressions are transferred. Often, domain knowledge in the field of business processing lies in the combination of objects and the execution of activities, which is preserved this way. Basically, the suggested decomposition method abstracts from the statement a model intends to do and leaves the model as is for further active use. In order to be able to link the ontologies resulting from the conversion as described, the MCOs enable references between models of the same type. For further enabling also the referencing of models of the same kind, but different type as well as also models of different kind, we suggest to use the Unifying Modeling Concepts Ontology (UMCO), which we have developed specifically for this purpose. It provides a unifying model concept for each type of modeling concept with a similar intention. Input for its design has been found in the existing enterprise ontologies. For our purpose of integrating models, we have defined general modeling concepts and declared them equivalent to corresponding concepts in the various modeling languages for the purpose of integration. For example, an EPC is defined compliant with an UML activity model and a BPMN model, and these concepts are set to be equivalent to the UMCO concept called UMCO:Process; EPC_MCO:function in an EPC, UML_AM_MCO:action in an UML activity model and BPMN:task in a BPMN model are set
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Figure 8. Meta models with UMCO
equal to UMCO:Activity. Accordingly, all modeling concepts found in the various languages can be unified and related. The UMCO is extensible as needed for including further MCO-ontologies, which are rather small ontologies serving as bridge ontologies. The UMCO further extends the above depicted meta model, as shown in Figure 8. Developing MCOs not only for process models, but for data and organization models as well, allows connecting knowledge about resources used in process models, such as documents or participants etc., to the data models providing details about them. The conversion of models as suggested supplies lightweight individual ontologies. Each of them is a knowledge model of the concepts in use in a particular model and in principle all models can be processed in this manner.
Enabling Semantic Referencing Usually, the creation and ongoing care of a domain ontology is a major task. To ease this workload, we automate this step by reengineering the conceptual
domain knowledge contained in existing models as shown and relate it semantically for establishing semantic references between the model ontologies as an initial core of an emergent domain ontology. As an example for semantic model integration in the described manner, we develop the MODI (Model Integration) Framework as an application of our method for integrating models. Over the past years, extensive work has been done in developing ontology engineering tools and frameworks. Furthermore, we could draw on our experience gained from previous works in developing the ORBI Ontology Mediator used for reconciling e-business standards in the field of e-commerce (Rebstock et al., 2008). It was applied for realizing semantic synchronization between business partners during electronically supported multi-attribute negotiations (Fengel, Paulheim, & Rebstock, 2009). Building on these foundations, we are implementing our solution for facilitating the reconciliation of differing terminologies in non-ontological semantic models and conceptual models from the field of business
Figure 9. Process of semantic model referencing
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modeling as described above. Our framework is implemented in Java and can be accessed by a web service interface, so that it may be integrated with arbitrary applications. It consists of a core component, to which tools for mapping and reasoning can be variably connected by adapters. The focus of our work is on the realization of matching and establishing semantic references between models. Figure 9 depicts this process, which we call semantic model referencing. Having performed the model conversions as described above, ontology matching can be performed without merging any of the input model ontologies. Since the model ontologies obtained by transformation from process models do not contain hierarchical or mereologic relations, only element-based techniques return meaningful mappings. In the case of transformed ERM and class models as well as taxonomies, also structure-based techniques can be used, as here in most cases subsumption and aggregation associations return exploitable ontology structures. Since the domain facts are not transferred as instances of their individual model type, it is prevented that matchings return references between model element types. These links are provided without creating workload for the matchers through the introduction of the MCOs and the UMCO. Furthermore, avoiding such an undesired hierarchically structure focuses the matching efforts onto the domain language independently of the original modeling language used. The works for semantic referencing can be performed successively as needed. Results are obtainable from the beginning, especially after having included lexical background information for supporting the matching process from WordNet or also e-business standards. In principle, the ontologies of semantic terminology models and conceptual models as described can be matched with each other as well as with any other existing ontology as needed, e.g. an enterprise ontology. The mappings found as a result of matchings performed are preserved and stored in a
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reference repository. Additionally, user may add mappings manually. Collecting the semantic correspondences found creates persistent semantic interlinkages for further enhancement. The model ontologies as well as any other added ontologies are kept in their original form, whereas the references between them may be created, changed or deleted in the repository. As models are often big and rather complex, their transformation leads to large-scale ontologies. Using the matching tools and frameworks having become available over the past years, we found that only a few are capable of handling such large-scale ontologies. Presently the matching framework Malasco is used, which partitions ontologies for coping with the scalability problem for finding mappings (Fengel et al., 2009). For smaller ontologies, the further connected CROSI Matching System facilitates choices of various name and structure matchers for combination and parameter setting (Kalfoglou, Hu, Reynolds, & Shadbolt, 2005). Thus, an initial reference base is being established by means of automated tools. It serves as a starting point facilitating user-driven growth and quality improvement over time. Users can contribute to the reference collection by creating new references and adding new ontologies. At the time of using the resulting reference ontology, the automatically derived information is evaluated by its users. Usually, the results produced by matching tools are not perfect and require user input for quality enhancement. Even though the need for manual work is reduced, the mappings found are usually not perfect, but may be ambiguous or incorrect. For optimization and disambiguation usually human involvement is required (Zhdanova et al., 2004). Therefore our system facilitates user participation by enabling adding, editing and feedback provision. This way otherwise hidden knowledge is extracted, shared and made usable. Providing the possibility for community user participation in the process of disambiguation offers a wealth of specific background information concerning the domain
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context. Tapping into the users’ tacit knowledge in an implicit manner allows for exploiting existing knowledge and its combination with the automatically derived mappings without requiring tedious additional work. Capturing the implicit part of domain knowledge provides important subject matter expertise needed for resolving uncertainties and ambiguities. In this, technologies for collaboration and semantic technologies can complement each other (Gruber, 2007). The mappings found are stored as 5-tupels (Rebstock et al., 2008, p. 155-156): <e1,e2,R,c,a> whereby: • • •
•
e1 and e2 are the entities of the ontologies between which a relation is assumed, R is the type of semantic relation between the entities, e.g., equivalence or similarity, c is the confidence qualifying the relation, expressed as a numerical value between 1 and 0 being a fuzzy degree, a is a numerical value between 0 and 1 describing the degree of reputation and trust in the assumed relation.
The acceptance can be computed out of the users’ feedback, in the simplest form submitted directly by manual input or, alternatively, through transparent observation of a user’s choice in order not to impose additional workload. Each time an acceptance value is added, a relation is made more trustworthy and can become more precise and stable over time. With his selection decision, the user thus contributes to improving the quality of the respective reference. The referencing process is iterative and executed each time new references are added or existing references are used and rated by the users. Thus, the system can grow and improve over time. With an increasing number of models included, first tendencies towards commonly used terms can become obvious. An initial terminologi-
cal domain ontology emerges, consisting of the various independent model ontologies, which are linked through the references. The evolving reference repository can be queried for semantic references. Thereby, a user may request references for a specific term or directly compare two ontologies. Furthermore, also queries without specifying a source or destination ontology are possible. This provides for searching semantic correspondences for a term in question, returning references to all available ontologies, thus also showing the frequency of its occurrence. Alternatively, direct ontology comparisons are facilitated. The system searches the knowledge base like a dictionary, out of which machine-generated suggestions are extracted and presented to the users in form of a list of suitable references for selection. From this users can select a reference, or, when none of the suggestions is considered appropriate, create a new one. Alternatively, users may proceed without selecting from the list. Figure 10 shows the prototypically implemented suggestion list for a comparison of the two example business processes presented here. Aside from the standard user interface shown here for retrieving references and supplying feedback to the system, there is an additional interface for expert users for administration and data management options. The emerging ontology can be used at the time of creating new models searching for a suitable element label as well as and for explaining the intended meaning in existing models that need to be compared and related semantically. Figure 11 shows extracts of the related model ontologies of the example process models with some semantic correspondences verified by users. In addition, the emerging ontology is directly exploitable for further development by means of an ontology editor. Combining the model ontologies with our upper-level ontologies allows for searching for specific model types, e.g., searching for all EPCs available, as well as for models of all types of a certain kind, e.g., such as process
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Figure 10. List of suggested semantic references in MODI
Figure 11. Extracts of semantically integrated heterogeneous process models
models either being EPC or UML Activity Models, through utilizing the corresponding unifying concept, here UMCO:Process, for detailing the query. Alternatively, searches for UMCO:Activity shows all business operations. With the method described, not only models of the same kind can be matched and related. Instead, linking different models is possible as well with the help of a specific MCO, here one for UML Class Models. The class model as given in Figure 1 can then be linked at the occurrences
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of the notions of “customer” and “payment” to the correspondences in the given example EPC. Alternatively, an e-business standard or company glossary can be matched for comparing existing processes and product and service descriptions.
FUTURE RESEARCH DIRECTIONS The system developed and presented here has been implemented as a prototypical solution and is being
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evaluated. Its practical application has proven the conceptual strength and practical relevance of our approach. Still, a number of aspects remain to be researched for further improvement. Since the system is based on coupling existing tools for ontology matching and storing via adapters, evaluation concerning their efficiency and performance in different domains and with huge amounts of data is of interest. Research regarding the comparison and combination of mapping tools has been conducted. Thereby, scalability is one of the main technical issues. In its present experimental status we have used freely available tools for demonstration and evaluation purposes. Additionally, research on interoperability and coordination of the different tools is necessary, as this may help in finding more customizable solutions. Furthermore, potential parallel usage could be further examined, in particular questions as to how meaningful result combinations can be achieved, focusing on possibilities for calculating adaptively computed weighted result combinations and measuring their quality at run time. Presently, depending on the number of words contained in the concepts terms, name matching performs well only on smaller-sized terms, whereas term-frequency-based methods show better result for larger-sized terms, as they can often be found in the model element labels of process models. Our immediate next steps are the finalizing of the implementation works by adding user support in form of semantic net visualization and the extension to include knowledge processing of further types of models.
CONCLUSION We have shown here an approach using ontologies for achieving semantic interoperability of conceptual models describing e-business. A method for reusing existing models and relating the conceptual knowledge contained without huge manual efforts is developed. We have created a way for
reengineering non-ontological resources of different types and formats for meaningful relating with the help of supporting ontologies especially created for this purpose. The related models can be analyzed and compared regarding the intended meaning of their elements. The automatically produced results provide an ontology basis without initial manual laborintensive preparation and creation efforts. Through including user input, a possibility for overcoming the shortcomings of automated knowledge computing is presented, as human support is included for assessing and improving the quality of the mappings found by way of automated matching. The resulting reference collection provides support for the clarification of uncertainties and resolving of ambiguities in the domain language and allows for integrating models of any type. Our system works as a mediating medium and helps providing the grounds for concentrating on the actual questions of process integration and activity sequencing. With this example of putting ontology technologies to use, we can propose a method towards resolving real-world interoperability issues in electronic business. However, its adoption into everyday business requires more research to prove user acceptance and deal with user evaluation. Similar to social software systems, our system needs a critical mass of users in order to be useful. Since the collection of semantic references is envisioned to evolve and improve over time through user feedback, users actively adopting and engaging in sharing their knowledge are crucial to achieving this growth. It needs to be proven that the method and therefore our framework delivers sufficient benefits and is easy to use. In general, the objective when working with ontologies should to be to limit the amount of technical knowledge required of business users and to supply them with the most easy-to-use interface possible for easing the spread of this technology. The field of ontologies for electronic business is very lively, as can be seen from the huge
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number of terminologies and ontologies already available. However, analysis as well as ontology development requires expertise from knowledge engineers and domain experts alike. We found experience in modeling to be helpful for introducing the possibilities semantic technologies can offer. However, due the novelty in applying semantic technologies, using or developing own ontologies for business modeling purposes is not easily performed by domain experts. The introduction to the new technologies can be complicated due to the prototypical status of many freely available tools. Furthermore, so far, there are not many professional tools available offering interfaces for domain experts without a lot of knowledge engineering expertise. Overall, the idea of modeling ontologies for the Semantic Web and relating them has lead to new possibilities for realizing electronic business and enabling interoperability by semantically integrating these ontologies. Exploiting the World Wide Web and benefitting from it has become an accepted means for businesses. With our pragmatic approach of semantic model referencing and its implementation we hope to be able to contribute to propagating ontology usage in business modeling.
ACKNOWLEDGMENT These works have been supported by the by the German Federal Ministry of Education and Research (BMBF) under grant no. 1728X07 MODI.
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KEY TERMS AND DEFINITIONS
language with elements labeled in the natural language as applicable in the respective domain. In business its purpose is to describe business objects, business activities and events from a business-oriented point-of-view independent from technical and implementation specific details. Domain Semantics: Specific terminology in natural language, used in a certain domain. Electronic Business: Conduction of business supported by information technology. Mapping: Description of a semantic relation found as the result of ontology matching. Ontology: A semantic model capturing and describing knowledge for the purpose of understanding and sharing in an unambiguous manner. Ontologies may have different scopes and degrees of formality, depending on their purpose. A Webbased ontology is represented in an XML-based language. Ontology Matching: Process of reconciling two ontologies for searching for equivalences between the ontologies’ elements. Semantic Interoperability: Enablement to share and reuse business knowledge upon integrating heterogeneous sources of information concerning their intended meaning, thus making this knowledge compatible. Semantic Model Referencing: Method for semantically integrating heterogeneous models of different kinds and types concerning their modeling and domain languages.
Conceptual Model: An abstracted representation of reality, expressed in a certain modeling
This work was previously published in Electronic Business Interoperability: Concepts, Opportunities and Challenges, edited by Ejub Kajan, pp. 331-361, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Semantic Competence Pull:
A Semantics-Based Architecture for Filling Competency Gaps in Organizations Ricardo Colomo-Palacios Universidad Carlos III de Madrid, Spain Marcos Ruano-Mayoral Universidad Carlos III de Madrid, Spain Juan Miguel Gómez-Berbís Universidad Carlos III de Madrid, Spain Ángel García-Crespo Universidad Carlos III de Madrid, Spain
ABSTRACT Despite its considerable growth and development during the last decades, the software industry has had to endure several significant problems and drawbacks which have undoubtedly had negative effects. One of these aspects is the lack of alignment between the curricula offered by Universities and other kinds of education and training centres and the professional profiles demanded by companies and organizations. This problem defines DOI: 10.4018/978-1-60960-587-2.ch210
the objective of this work: to provide a set of mechanisms and a solution to allow companies to define and express their competency gaps and, at the same time, allow education centres to analyse those gaps and define the training plans to meet those needs.
INTRODUCTION The software industry has become one of the main streams of development all around the world. In
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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Spain, the information technology market generated a volume of 17,716 million € in 2006, which represents an increase of 7.8% with respect to the market volume in 2005 (MITC, 2007). The information services submarket experienced the highest rate of increase at 10.5%, representing 4 975 million €, and the software market sector volume was 1,600 million € (MITC, 2007). Traditionally, the information technology market demonstrated an insufficient number of practitioners due to the increasing demand for information technology professionals. Nowadays, demand continues to be relevant but it has experienced a deceleration accompanied by the appearance of market niches with unstable demand rates. Due to the scarce barriers to entry for practitioners (Joseph, 2005) work teams are formed by people from many different educational backgrounds and with diverse academic levels and training profiles (McConnell, 2003): bachelor and master graduates in Computer Science, graduates in other disciplines, licensed practitioners and undergraduate and unlicensed practitioners. During the 1990s, the demand for IT professionals exceeded the supply of qualified persons for several years (Koong, Liu & Liu, 2002). In 1999, there were 722,158 unfilled IT jobs in the United States. It was predicted that the shortage would grow to about 846,901 jobs by 2002 (Goodwin, 2000). While it is true that the economy has slowed down since the last quarter of 2000, many companies are still hiring persons with critical IT skills while other workers are being laid off (Armour, 2001; Gladwin, 2001). Additionally, the software industry has been characterized by a problem that was first identified at the beginning of the 1970s (Brooks, 1987). This problem is the inability to finish and deliver software products within the established time schedule, and not being able to remain within the planned budget, and was referred to as the ‘software crisis’ (Nauer, 1969). Latter analyses of the problem and the related literature have confirmed the clear difficulty in building software (Brooks, 1987) and have redefined the crisis as
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a breakdown or a chronic disease (Gibbs, 1994). Several key elements have been established to combat the effects of the crisis (Pressman, 2005): Project, Product, Development process and Personnel. Regarding the latter, human factors, considered by many authors as Peopleware (DeMarco, 1987), are proving as crucial aspects in the field of software development. Boehm (1981) points out that subsequent to the size of the product, personnel factors have the most important influence on the total effort necessary for the development of a software project, and that personnel characteristics and human resources related activities constitute the most relevant source of opportunities for improving software development (Boehm, 2000). On the same issue, some other authors state that inadequate competence verification of software engineers is one of the principal problems when it comes to carrying out any software development project (McConnell, 2003). In the information and communications technologies (ICT) field, software is a critical element. Failure rates associated with software projects are really high, and the personnel included in software development teams is one of the most decisive aspects for projects and their deficiencies (Pressman, 2005). The teams should be comprised of practitioners having heterogeneous education and experience (McConnell, 2003) and human resources management systems should be easily able to identify and assess the engineers’ professional training with the objective of improving the workforce’s competence level (Curtis, 2001).
Current Labour Market Situation This section presents both the current situation and the evolution of the labour market from the point of view of the demand for practitioners and their competency profiles. Historically, employment in the field of Information Technologies has been impacted by several crises such as the bankruptcy of dotcom companies, the delays in the adoption
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of new technologies and the worldwide economical crisis (Zamorano, 2003). These circumstances lead to a wave of dismissals and factory closures (Zamorano, 2003) and to an intense modification of the competences demanded in practitioners. The volume of the workforce required and the reorganization of labour markets define a constantly changing environment shifting towards an increase of the competency level. This consequently instigates a deceleration of the increase in salaries (Mallet, 1997), which forces the practitioners to improve their education and training. Historically, the professional environment in the Information Technologies labour market has been characterized by a strong lack of qualified practitioners (Casanovas, 2004). In 2003, according to AETIC (Asociación de Empresas de Electrónica, Tecnologías de la Información y Telecomunicaciones, Spanish Association of Electronics, Information Technologies and Telecommunications Companies), the ICT market grew 6%, up to a volume of 75,818╯million╯€. However, direct employment in the sector showed a recession of 4.1% and there was an 8,000 reduction in the number of jobs (Ruiz, 2004). In 2004 the ICT market grew 9% up to 82,535 million € (MITC, 2005); and direct employment displayed an increase, however, the growth was trivial. The contribution of the ICT sector to production in that year represented 11.811 million €, growing 4.7%. This indicates that the sector underwent a smaller growth compared to the overall activity in Spain, whose GDP was 6.6%. These figures, viewed in the international economic context, show that the ICT sector in Spain rather grows at a higher rate than the European average (2.8%), although at an inadequate pace for conformance with the convergence plans for the relevance of the sector in the European economy. An overview of the current situation of labour markets is provided by the RENTIC report (Fernández, 2002). This report shows the results obtained from an analysis of the job vacancies in ICT sector published in relevant Spanish newspa-
pers. The analysis was focused on the specific ICT knowledge profile required in the offers, as well as some other complementary requirements such as languages, degree, and behaviour competences. The study was carried out using 249 published job offers. Such a reduced data population does not allow a detailed analysis of its conclusions, but it should be noted that the relevance granted by the study to ‘personal competences’ is a reflection of the general (De Ansorena, 1996) or generic (González & Wagenaar, 2003) competences required. The report concludes that there is an evident interest on hiring personnel with both technical and general competences, and a requirement for education and training centres to meet companies’ requests. Lastly, the author remarks that there is an insufficient description of competences in the curriculums of candidates. Some of the conclusions provided by the RENTIC report show latent similarities with the analysis provided by the Bureau of Labor Statistics. This report discusses the tendency of hiring IT practitioners with strong technical, interpersonal and business skills in a labour market in which software engineering is projected to be one of the fastest-growing occupations from 2004 to 2014 (Bureau of Labor Statistics, 2006). This scene should result in very good opportunities for those college graduates with at least a bachelor’s degree in computer engineering or computer science. Another significant trend with implications in both the business and labour market is the two-way flow of foreign project contracts and software-skilled immigrants. On the one hand, firms may aim to cut costs by shifting operations to lower wage foreign countries with highly educated workers who have strong technical skills (Bureau of Labor Statistics, 2006). On the other hand, countries like India, where about 100,000 English-speaking software professionals graduate per year, can be a source of practitioners to compensate for the lack of qualified resources in developed countries.
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In short, the labour market situation for ICT, and particularly Software Engineering, situation is significantly changing. Additionally, this knowledge area shows an extremely rapid evolution: its knowledge doubles every three years, and competences have a mean lifetime of two and a half years (Ang, 2000). The proliferation of new areas will continue to grow from rapidly evolving technologies such as e-commerce, WWW applications, cyber security, mobile technologies, and wireless networks, among others (Bureau of Labor Statistics, 2006). The combination of these two facts forces practitioners to retrain almost constantly and, thus, organizations must implement mechanisms to measure the evolution of the competences of their personnel, and establish policies to allow the monitoring of the evolution of recently acquired competences.
Problem Statement In the previous sections, a labour market situation has been described which indicates a clear misalignment between the demand for qualified staff and supply of college graduates. Organizations require either the hiring of skilled practitioners, or the training of their personnel in order to comply with business changes, improve productivity or start new projects. Moreover, traditional education channels are slow and rarely specific; there is no connection between the organisation’s needs and the educational content, and if a connection exists, its effects are trivial (McConnell, 2003). The lack of specification with respect to defining and fulfilment of professional careers can hinder the adaptation of graduates’ professional competencies to the requests of labour markets. This circumstance is threatening countries’ prosperity (Career Space, 2001) and is forcing organizations to create and finance “Corporate Universities” (Casanovas, Colom, Morlán, Pont & Sancho, 2004). This not only delays the incorporation of professionals to development projects, but also implies an increase in costs for organizations.
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Considering this scenario, corporate universities are not the solution, since they combine the characteristics of both businesses and educational centres, and they are usually created and based upon non formal contacts between organizations. Moreover, according to the point of view of LifeLong learning, “enterprises need lifelong learning – that is, studies that one pursues during life and particularly during one’s working career. It includes basic education, further and continuous education, graduate and postgraduate studies, work/job-related and general studies, and a general interest in trying to understand the evolution of society and of work. Lifelong learning is a way to update and upgrade competence systematically; in fact, it is a form of “human recycling”, especially in situations where employees move from one job to another (Otala, 1994, pp. 13). The integration of the concepts of a pull strategy and LifeLong learning allows the creation of a solution to the problem described in this work, with which organizations will be able to fulfil their competency gaps. At the same time, it will allow professionals to follow a progressive development of their competences during their careers and adapt this development to specific market and emerging requirements as fast and precisely as possible.
PROPOSED SOLUTION This section presents a novel and promising architecture that applies and takes advantage of the best capabilities of semantics in the field of competence management. The objectives of the research and an overview of the architecture will be discussed.
Objectives Semantic Competence Pull has been defined as one main objective, which is comprised of a set of inherent sub objectives. The main objective is to minimize the misalignment between educational
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centres and organizations’ competency needs by determining competency gaps in the organizations, defining the training plan to fill in those gaps, and thus identifying the necessary personnel with the required competency profile. In order to fulfill this objective, organizations should be able to express and define their professional profiles and competency needs by means of a unified mechanism, and training centres and education systems should be able to define the profiles of their graduates in an equivalent way. Another interesting objective is the implementation of a mechanism to allow the exchange of information between both organizations and training centres so that they can establish a fluent and productive communication.
Overview An overview of Semantic Competence Pull is presented in Figure 1. The figure shows organizations which represent any enterprise or company with competency gaps in their personnel. These gaps can originate from market or technology changes, new business lines, new commercial relationships, or other economic or business factors. By means of a description based on competences, the organizations express their needs in terms of training
current workers or hiring trained professionals. On the other side of the system, Semantic Competence Pull allows education and training centres to analyse the gaps existing in the organizations and consequently determine, or design if necessary, the training plans constructed to fulfil the competency requirements of the organizations. The next section provides a detailed definition of the components of Semantic Competence Pull that permit the implementation of the aforementioned functions.
SOLUTION DETAILS In this section, we present a novel and promising architecture and a set of algorithms to provide a potential solution to the situation depicted in the previous section. We propose a tailor-made value-adding technological solution which addresses the aforementioned challenges and solves the integration problem with respect to searching, finding, and integrating heterogeneous sources through semantic technologies.
Figure 1. Semantic competence pull overview
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Knowledge-Extraction Algorithms First of all, we propose the application of a set of algorithms and knowledge extraction techniques to the various sources of information, where we obtain the semantic descriptions of each and every organization involved. These algorithms are usually applied in Information Retrieval, so their use in this domain is a novel contribution of the work presented. The first algorithm is the Vector Space Model (Salton, Wong & Yang, 1975), an algebraic model used for information filtering, information retrieval, indexing and relevancy rankings. It represents natural language documents (or any objects, in general) in a formal manner through the use of vectors (of identifiers, such as, for example, index terms) in a multi-dimensional linear space. Documents are represented as vectors of index terms (keywords). The set of terms is a predefined collection of terms, for example the set of all unique words occurring in the document corpus. Relevancy rankings of documents in a keyword search can be calculated, using the assumptions of document similarities theory, by comparing the deviation of angles between each document vector and the original query vector, where the query is represented as the same type of vector as the documents. The second algorithm applies Latent Semantic Analysis (LSA) (Deerwester, Dumais, Furnas, Landauer & Harshman, 1990), an algorithm for analyzing relationships between a set of documents and the terms they contain by producing a set of concepts related to the documents and terms. LSA uses a term-document matrix which describes the occurrences of terms in documents. A typical example of the weighting of the elements of the matrix is the TF-IDF (Term Frequency–Inverse Document Frequency): the element of the matrix is proportional to the number of times the terms appear in each document, where rare terms are up-weighted to reflect their relative importance. Finally, we validate the set of terms extracted from the different organizations with online lexi-
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cal resources, such as Wordnet. Dictionaries are generally considered as a valuable and reliable source containing information about the relationships among terms (e.g. synonyms). Also, Wordnet can add conceptual meaning to the tags, and there is an RDF transcript available.
Functional Architecture Competency gaps can be expressed as a set of instances, belonging to a particular organization whereby the organization to which it belongs to and the role it plays are clearly defined in a specific ontology. Each role has a particular policy (or policies). A Policy (P) represents a conceptual feature reserved for each role in a community and expressed through a set of Rules (R1,R2,...,Rn). Essentially a Rule is a function that takes an access request as input and results in an action (permit, deny or not-applicable). A rule is composed of the triple Subject (S), Resource (R) and Action (A) that must be fulfilled for a rule to apply to a given request. In the proposed conceptualization, Subjects are the identities that play specific Roles such as project leader, IT Supervisors, Customer Relationship Management (CRM) expert and sales manager. A resource is the organizations’ training resources such as deliverables, documents etc. So, the Rule is simplified as: R = {S,R,A} If “Mark Maedche” is an expert on formal methods for software validation and verification and a particular organization is interested in this knowledge, he might be subject of a training “call for experts” of that organization. Rules are then defined by means of Subject (“Mark Maedche”), Resource (“Software V&V expertise”) and Action (“Call for Experts”). Obviously, Policies are defined over the Rule, so an organization could simply list or cluster a number of organizational competences of interest. These Policies will imply
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a set of Rules that can be inferred by means of an underlying logical formalism. The framework presented would not have any real use if the inference capability of the framework were not taken into account. Defining the needs of an organisation according to Policies and Rules encapsulates a body of knowledge which represents the structure of the requirements of the organisation. Thus, further knowledge can be inferred from the established relationships to describe both the organisation and the application of the knowledge. Languages defined for providing Semantics give great support for reasoning properties, since when they were defined, requisites were established to guarantee enough expressive power and reasoning support. Any ontology language for Semantic Web is based on formal semantics, which means that the ontologies semantics defined by the language are not influenced by either subjective intuitions or open interpretations (Antoniou & Van Harmelen, 2004). This has particular relevance to mathematical logic, since it allows one-way inference from the knowledge expressed in a non explicit manner. The ontologies inference capacity also allows the identification of any instance with a class although it is not directly declared in it. For instance, if an employee has hierarchical relationships with other employees, we can deduce that he is a boss. In summary, automatic reasoning allows the verification of more cases that can be checked manually, since it evaluates all the ontology singularities and the characteristics declared in it. Consequently, the framework domain can establish relationships which are a closer representation of the real organization based on logical relationships. Unfortunately, an ontology language’s inference capacity and its expressivity are two divergent questions. The greater the expressive capacity of the language, the less inference, since the computationality cannot be guaranteed. Because of this, OWL language (W3C, OWL Web Ontology Language Overview, 2004), nowadays the most widespread ontology Semantic Web language,
offers three language versions that differ in their expressivity capacity: OWL Full, OWL DL and OWL Lite. OWL can be considered as being comprised of three sublanguages with increasing expressivity capacities (Gasevic, Djuric, & Devedzic, 2006). OWL Lite gives support to hierarchical constructions and simple restrictions. However, OWL DL offers maximum expressivity, based on Description Logics that can guarantee the ontologies computability, which means that it can be processed in a finite time. OWL Full offers maximum possible expressivity, based on FirstOrder-Logic, and a syntactic freedom, however, it does not guarantee ontology computability nor decidability. In the present context, the maximum expressivity capacities are intended since we need an ontology which most closely reflects the real world. In contrast, inference capacities cannot be affected since they are highly needed to infer privileges. Due to the inference restrictions of OWL Full, it has to be discarded, OWL Lite is also discarded since it places too many limitations on the expressivity of ontologies. However, OWL DL offers enough expressive power, guaranteeing the inference capacity for the framework. The ontology languages expressivity shows inherent limitations due to their tree-like structure. Some logic suppositions cannot be inferred natively; for example, if a person has a brother and a son, the uncle-nephew relationship cannot be inferred. This limitation is solved by applying horn logic languages on top of ontologies. Horn Logic languages are Rule-like languages where knowledge is defined by: A1,...,An → B where {Ai and B} are atomic formulas that can understood as, if {A1 … An} are true, then B is also true. These languages are the perfect complement to the logic offered by ontology languages. Horn Logic and Predicate Logic are orthogonal between them, which means that none of the
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logics is subset of the other. Languages based on Horn Logic have been defined to lie on an upper layer of ontology languages, integrating both expressivity and reasoning power. However, the decidability guarantee in Horn Logic languages needs to impose some restrictions on its expressiveness (W3C, SWRLSWRLSWRLSWRL: A Semantic Web Rule Language, 2004) and adds some additional complexity to the framework. In this section, a logics-based knowledgeenriched functional architecture has been outlined, which fully supports formally the approach and conceptual model for the Semantic Competence Pull. In the following section, the actual software architecture underlying the functional architecture will be discussed.
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Software Architecture Our architecture is a service oriented architecture (SOA), which is a software system consisting of a set of collaborating software components with well-defined interfaces that combined perform a task. These components may be distributed and executed in different network locations, connected through different communication protocols. Also, these components can be plugged-in and pluggedout from the system. The Semantic Competence Pull Architecture is composed by a number of components depicted in Figure 2. These components will now be described:
Figure 2. Semantic competence pull architecture
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Competence-oriented semantic descriptions: Competences are stored by means of semantic descriptions, which are based on the fundamental traits of the competencies. Particularly, Policies and Rules originating from the different organizations. RDF repository: The RDF repository is a semantic data store system that allows semantic querying and offers a higher abstraction layer to enable fast storage and retrieval of large amounts of RDF, while maintaining a lightweight architecture approach. An example of such a system is the OpenRDF Sesame RDF Storage system (Open RDF Sesame, http://www.openrdf. org), which deals with data integration. The advantages of using RDF as a “lightweight” ontology language partially rely on Faceted Search and Browsing techniques. These techniques will be analyzed at the end of this section. GUI: This is the component that interacts with the user. It collects the users request and presents the results obtained. In our particular architecture, the GUI will collect requests pertaining to search criteria, such as, for example, “competences related to Information Systems”. The GUI communicates with the Manager component providing the user request and displays the results provided as a response from the Manager component.
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Reasoning engine: The Reasoning Engine component uses Description Logics, which can guarantee the ontologies computability. As previously stated, this allows the processing of queries in a finite time. The selected reasoning engine is Pellet, a Javabased DL reasoning engine.
The workflow of the different components of the architecture is supported by the Functional Architecture described in the previous sections. Fundamentally, organizations define their core competencies using the Policies, Rules and Subject (S), Resource (R), Action (A) model. These descriptions can be extracted using the knowledgeextraction set of algorithms depicted previously, and they are stored by means of semantics in the Storage Component. Organizations interested in bridging their competencies gap can browse and search (by means of faceted search or browse or structured search, for example) the competencies of their organizations using Semantic Competence Pull. Since their needs in terms of competencies are also defined using the Policies- Rules model, inference serves as a basis for recommendation, and the Semantic Competence Pull provides a well-defined architecture providing matching functionality.
Example: Using Semantic Competence Pull Finally, we would like to illustrate the use of Semantic Competence Pull with a real-world case study scenario which demonstrates the breakthroughs of our system. Enterprise Inc. needs to fill twenty Software Engineering positions. The profile of the required professionals must include expertise in the Software Engineering Management knowledge area of SWEBOK (Abran & Moore, 2004). The competence level of the professionals should be above the level specified by SWEBOK for software engineers having four years of experience. Given this situation,
Enterprise Inc. establishes a complete competence description of the desired professional profile, paying special attention to the competency gap existing in Software Engineering Management, and more specifically in Software Process Planning. This necessity is defined by means of Semantic Competence Pull. The system would perform a careful analysis of the competency profile to determine, in this case, that professionals with a specific undergraduate level in Software Process Planning are required. The next step is a search in the system’s repository to retrieve those courses with competence specifications equivalent to those demanded by Enterprise Inc. At this point there are two possible situations: there are courses matching the established criteria or there are not. In the first case, the system would return the list of retrieved courses, so that education and training centres could satisfy the competency needs, contributing professionals which match the desired requirements. In the latter case, Semantic Competence Evaluation would propose the description of a specific course to the training centres. Upon receiving the request, those centres interested in teaching the course and having the necessary personnel, would design and implement the course, would enrol students fulfilling the aforementioned requirements, and the correct termination of the course would be contingent upon the subsequent hiring of the professionals by Enterprise Inc.
ALTERNATIVES Semantic Competence Pull confronts the problem of competency gaps by providing organizations with specifically trained practitioners to make up for their lack of competences in certain areas. Thus, the solution offered to solve the problem is unique and innovative. However, there are other alternatives to deal with these kinds of situations or similar ones. A set of possible alternatives is presented in this section.
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One of the most relevant solutions to produce professionals which conform perfectly to companies’ needs is the creation of tailored and specific degrees by means of joint ventures between academic institutions and the companies. The degrees are usually an adaptation of official or widespread degrees which include some tracks or sets of elective courses designed and given by the companies and that include those areas and topics of interest to them. These kinds of educational solutions can only be afforded by relevant companies which periodically need large groups of people with a certain profile. Additionally, if the designed degree is very distinct from the official one it may cause accreditation problems to graduates, with consequent loss of interest in the course. Some companies opt for the creation of their own corporate universities. In this way they can design, establish and implement the training plans they consider necessary. Similar to the previous alternative, this solution can only be afforded by large corporations. Even so, the construction of the necessary structures to finance the school signifies a major economic and investment effort for the companies, which may make it highly unprofitable. Corporate Universities have been subjected to numerous studies and have received considerable investments since the foundation of Disney University (Solomon, 1989). The importance of this phenomenon is highlighted by specific studies carried out in the USA (Prince & Stewart, 2002), China (Sham, 2007), Germany (Andresen & Lichtenberger, 2007) and worldwide (Holland & Pyman, 2006). The Universities-Companies collaboration has been identified as one of the key factors for business development regardless as full integration or achieved by the new capacities provided by the Internet (Hilse & Nicolai, 2004). Another possibility for the integration of hiring and training processes is the creation of a new generation of employment positions from the adaptation of currently existing ones, for example, those offered by Monster, among others.
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The offer of these portals should be an aggregation of job positions and the training options that candidates should follow to improve their fit to the positions and, hence, increase the probability of being hired. Dixon (2000), pointed out that generally, e-recruiters come in two varieties: corporate recruiters and third-party recruiters. Third-party recruiters do not restrict the types of jobs posted by the employers or select specific job seekers résumés. They function as a centre for all sorts of employment. Niche recruiters which focus on smaller market segments are aimed towards more specialised types of employment. However, the major players are the executive recruiters, hightech recruiters, and medical recruiters. One common characteristic of the solutions presented so far, including Semantic Competence Pull, is that all of them seek the incorporation of new human resources to the organization. Nevertheless, in order to meet companies’ competency needs, it may not be necessary to contract additional practitioners. This is the approach proposed by Prolink (Gómez-Berbís, ColomoPalacios, Ruiz-Mezcua & García-Crespo, 2008), which considers the creation of a social network with semantic characteristics to share and reuse knowledge, expertise and lessons learned from previously conducted projects.
COST AND BENEFITS This section presents an overview of the costs associated with the implementation of the Semantic Competence Pull solution. The cost analysis has been performed taking into account development, infrastructure, operation and maintenance costs. Due to the size of the problem, the development costs have been estimated to be similar to an average COCOMO II project (Boehm et al., 2000) with a temporal cost of 14,500 man-hours. This cost can be assumed as a differential cost of implementing the solution.
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Infrastructure and operation costs of adopting Semantic Competence Pull could be integrated into the current infrastructure and operation costs, because the solution could be added to the existing structure of the organisation. The only requirement with respect to infrastructure is that the solution should be accessible via Web, and the connection should have enough capacity to withstand the traffic generated by the system. Maintenance tasks for Semantic Competence Pull entail a significant human cost. There should be personnel dedicated to the addition, modification and maintenance of the information processed within the system. This information includes professional profiles, course plans, competence descriptions and needs, etc., and the tasks should be performed at both sides of the solution: the organizations as well as the training and education centres. In summary, the economic costs for implementing and adopting Semantic Competence Pull are not significantly excessive. However the adoption of such a solution must be accompanied by a modification of the traditional way of working in the organizations and the educational bodies, mainly because of the adaptation of the current profiles and requirements for the competency paradigm.
RISK ASSESSMENT A risk analysis of the implementation and adoption of Semantic Competence Pull has been made by means of a SWOT analysis. The strengths of the solution stem from the combination of two solid foundations. On the one hand, the application of the most novel academic recommendations which focus their efforts on the definition of professional profiles, academic degrees and training plans in terms of competences; and which are fully aligned with the emerging standardised educational framework in Europe. On the other hand, the adaptation of a set of widespread standards and tools (HR-XML,
OpenRDF Sesame, YARS, Semantic Web …) that perfectly complement the architecture contribute to the construction of this solution. When considering those aspects which might hinder the successful implantation of Semantic Competence Pull, two features should be outlined. The first one is the possible inability of the organizations to express and define professional roles and needs in terms of competences. This fact implies a profound change in the traditional structure of those organizations which have historically defined their needs according to legacy, stovepipe frameworks. In other words, defining competences in a static way, without their integration into the IT infrastructure of the organisation. The second issue is representative of the same weakness, but on the academic supply side. Universities and official education centres must adopt the competency paradigm into their models because of the standardisation of the European Higher Education Area. Non-official private centres should adopt the aforementioned paradigm in order to be able to use Semantic Competence Pull. Undoubtedly, the implantation of Semantic Competence Pull can take advantage of the current economic situation which promotes a buoyant labour market which will welcome the solution presented in this research. Moreover, the novelty of Semantic Competence Pull, in terms of technology and methodology, must be definitely considered as a positive aspect. Lastly, the intensive increase in the utilization of Internet and Semantic Web technologies paves the way for the globalization of the resources. Finally, two closely related threats to Semantic Competence Pull should be discussed. The first one is the evident shortage of training and education in the Information Technologies market, which is directly linked to the lack of consciousness of IT practitioners with respect to continuous improvement, education and training. The risk assessment performed in this section is summarized in Figure 3.
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Figure 3. SWOT analysis
FUTURE RESEARCH DIRECTIONS The definition of new academic initiatives for university degrees incorporating competences descriptions has been a widespread trend across Europe since the advent of the European Higher Education Area. According to the guidelines established by the European directive and the academic initiatives sponsored by the IEEE/ACM joint initiative, the creation of undergraduate and master university degrees oriented to the verification of semantic scenarios such as those presented in this work have been proposed. Secondly, it would be interesting to define and create career paths incorporating specific suggestions with regard to competency levels and the necessary courses and accreditations to reach all the defined levels. According to McConnell (2003), organizations currently do not provide career paths for ICT workers and Software Engineers. However, this aspect has proven to be a characteristic feature of mature professions (Ford & Gibbs, 1996). Taking into account previous works on Competence Management, from the perspective of either ontology creation (Sicilia, 2005), the construction of integrated systems for specific organizations (Lindgren, Stenmark & Ljungberg, 2003), or their exchange among isolated systems via HR-XML, the definition and development of competences must be performed not only following their veri-
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fication for a specific position or project, but should enrich learning organizations in an strategic way, providing a sound basis upon which to build a long term competitive advantage. This competitive advantage is achieved, in the case of the cited works, by means of the classification and management of the competences in organizations and, in the case of our work, by the collaboration between the providers and receivers of knowledge and those who harness it.
CONCLUSION Semantic Competence Pull, the technological solution introduced in this chapter represents a tailor-made value adding contribution aimed to the fulfilment of competency gaps in organizations, encompassing the distinctive features of semantic technologies. The solution comprises the software architecture of an information system supporting this solution. The main contribution of Semantic Competence Pull is the integration of a novel and promising architecture and the concept of realtime alignment of the necessities of companies with the possibilities of training professionals in education centres. The main objective of the presented solution is to fulfil competency needs in the fastest and most precise way as possible; which subsequently reduces the elapsed time for
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the incorporation of new subjects and courses to curricula. This is particularly interesting at master and specialization courses level because it increases the knowledge that training centres have about companies’ requirements. On the other hand, Semantic Competence Pull exhibits an evident drawback due to the fact that its implantation could imply a profound modification in the stakeholders’ way of working. Nevertheless, the significant benefits that it can produce for all parties identify it as an attractive solution to be adopted and supported.
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Brooks, F. P. (1987). No Silver Bullet: Essence and Accidents of Software Engineering. Computer, 20(4), 10–19. doi:10.1109/MC.1987.1663532 Bureau of Labor Statistics (Ed.). (2006). Computer Software Engineers. Occupational Outlook Handbook, 2006-07 Edition. U.S. Department of Labor. Career Space (Ed.). (2001). Directrices para el desarrollo curricular. Nuevos currículos de TIC para el siglo XXI: el diseño de la educación del mañana. International Co-operation Europe Ltd, Luxembourg. Casanovas, J., Colom, J. M., Morlán, I., Pont, A., & Sancho, M. R. (2004). Libro Blanco sobre las titulaciones universitarias de informática en el nuevo espacio europeo de educación superior. Proyecto Eice, ANECA. Curtis, B., Hefley, W. E. & Miller, S. A. (2001). People Capability Maturity Model (P-CMM®) Version 2.0. CMU/SEI-2001-MM-01. De Ansorena, A. (1996). 15 pasos para la selección de personal con éxito. Métodos e instrumentos. Paidos, Barcelona. Deerwester, S. Dumais, Furnas, G. W. Landauer, T. K. Harshman, R. (1990). Indexing by Latent Semantic Analysis. Journal of the Society for Information Science, 41(6), 391–407. doi:10.1002/ (SICI)1097-4571(199009)41:6<391::AIDASI1>3.0.CO;2-9 DeMarco, T., & Lister, T. R. (1987). Peopleware: Productive Projects and Teams. Dorset House, New York. Dixon, P. (2000). Job Searching Online for Dummies. IDG Books Worldwide Inc., Boston, MA. Fernández Sanz, F. (2002). Estudio de la oferta de empleo en Nuevas Tecnologías de la Información y de las Comunicaciones. Requisitos para el empleo. Universidad Europea de Madrid.
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Ford, G., & Gibbs, N. E. (1996). A Mature Profession of Software Engineering. Software Engineering Institute, Technical Report CMU/ SEI-96-TR-004 ESC-TR-96-004. Gaaevic, D., Djuric, D., Devedzic, V., & Selic, B. (2006). Model Driven Architecture and Ontology Development. Springer-Verlag. Gibbs, W. (1994). Software’s Chronic Crisis. Scientific American, 271(3), 72–81. Gladwin, L. (2001). Dot-Com Bust A Mixed Bag for IT Staffing. Computerworld (39), May 7, p. 38. Gomez, J. M., Colomo Palacios, R., Ruiz Mezcua, B., & García Crespo, A. (2008). ProLink: A Semantics-based Social Network for Software Project. International Journal of Information Technology and Management, 7(4), 392–404. doi:10.1504/IJITM.2008.018656 González, J., & Wagenaar, R. (2003). Tuning Educational Structures in Europe. Universidad de Deusto. Bilbao. Goodwin, B. (2000). Government Slashes Red Tape to Let in Overseas IT Workers. Computer Weekly, May 11. Harth, A., & Decker, S. (2005). Optimized Index Structures for Querying RDF from the Web. Proceedings of the 3rd Latin American Web Congress. Hilse, H., & Nicolai, A. T. (2004). Strategic learning in Germany’s largest companies: empirical evidence on the role of corporate universities within strategy processes. Journal of Management Development, 23(4), 374–400. doi:10.1108/02621710410529811 Holland, P., & Pyman, A. (2006). Corporate universities: a catalyst for strategic human resource development? Journal of European Industrial Training, 30(1), 19–31. doi:10.1108/03090590610643851
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Prince, C., & Stewart, J. (2002). Corporate universities – an analytical framework. Journal of Management Development, 21(10), 794–811. doi:10.1108/02621710210448057 Prud’hommeaux, E., & Seaborne, A. (2004). SPARQL Query Language for RDF. World Wide Web Consortium. Ruiz Antón, F. (in press). (2004). La Gaceta de los negocios. Salton, G., Wong, A., & Yang, C. S. (1975). A Vector Space Model for Automatic Indexing. Communications of the ACM, 18(11), 613–620. doi:10.1145/361219.361220 Sham, C. (2007). An exploratory study of corporate universities in China. Journal of Workplace Learning, 19(4), 257–264. doi:10.1108/13665620710747933
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This work was previously published in Semantic Web for Business: Cases and Applications, edited by Roberto Garcia, pp. 321-335, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Model on KnowledgeGovernance: Collaboration Focus and Communities of Practice Eduardo Bueno Campos University of Madrid, Spain Carlos Merino Moreno University of Madrid, Spain Reinaldo Plaz Landaeta University of Madrid, Spain
ABSTRACT The aim of this chapter is to deepen the concept of ‘Communities of Practice’ (CoPs) from the understanding of a reference framework for knowledge governance, stressing the grey area which distinguishes such governance from the traditional term ‘Knowledge Management,’ since knowledge governance means not just the management of such assets but also their creation and development, which generates a richer and more appropriate meaning or sense. Without DOI: 10.4018/978-1-60960-587-2.ch211
entering into exhaustive referential analyses, we attempt to offer the reader a practical approach which allows structuring an action plan that, in this case, will be explicated for the field of CoPs. Identification and measurement of assets based on information and knowledge and the processes carried out towards its improvement create the convergence of the dynamic of intellectual capital and the afore-mentioned knowledge governance as complementary subjects for an appropriate exploitation and monitoring of the impact which the organizational fostering of this strategic-reality has on business.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Model on Knowledge-Governance
VALUATION OF ORGANIZATIONAL INTANGIBLE ASSETS The strategic approach of businesses in the current economy has an important part related with certain support processes linked to analysis tasks corresponding to dynamic processes of decision making, as an attempt to diminish the risks inherent to such processes. In this sense, such argument on intelligent or learning-capable organizations (Senge, 1990) gains a high value for the extraction of information and the creation of both appropriate internal and external knowledge. This approach insists on the importance of basic resources for strategic management focused on the couple information-knowledge (Itami, 1987; Vassiliadis et al., 2000) and on derived individual and organizational learning. In this case, corporative philosophy should create the necessary atmosphere to recognize the value of intangible assets, very close to the understanding of the theory of resources and abilities, which does not only take into account those resources related with the tangible field but also those linked to non-physical elements located in the organizational ‘roots’ (1). Obviously, it arises a requirement around a model or scheme of analysis; firstly, for the identification and measurement of such typology of assets, and also to facilitate a structured framework of reflection and analysis, an area covered by the intellectual-capital approach (Itami & Roehl, 1991; Grant, 1991; Bontis, 1999; Bueno & Salmador, 2000; Ordoñez, 2000). This thematic area of intangible assets —which we could qualify as emerging if study cases are observed, although it is has been historically tackled in organizational literature within the field of the theory of resources and abilities (Wernerfelt, 1984; Barney, 1991; Grant, 1991; Peteraf, 1993)— had already collected, in different ways, contributions which helped to the valuation of non-tangible assets.
The basic models of intellectual capital (2) are generally structured by three basic components (IADE-CIC, 2003). Firstly, human capital —where attitudes, competency and abilities are analysed developing a profile to identify and measure knowledge from an individual viewpoint. On the other hand, structural capital (3) —responsible for knowledge diagnosis of organizational nature (Nonaka & Takeuchi, 1995; Brown & Duguid, 1991 and 1998; Teece, 1998 and 2000; Nonaka et2000 al., 2000; Tsoukas & Vladimirou, 2001) — considers aspects such as organizational design, reported culture and processes, and also a technology reality related with efforts in I+D such as tools and results which facilitate and make knowledge tangible (Brooking, 1996). Finally, relational capital —which is explained by knowledge and information flows derived from the framework of alliances directly related with business processes (customers, suppliers, etc.) or involved with the social environment (4) (Nahapiet & Ghosal, 1996). However, measurement only lacks of sense without a sustainable exertion allowing the analysis of different initiatives developed to improve the stock of intellectual capital. Such initiatives are processes related with the idea of ‘knowledge in action’ (Davenport & Prusak, 1998), creating a requirement of a holistic model integrating different alternatives and options, and also avoiding the common error linked to the consideration of strategic plans for knowledge governance or management just as a mere accumulations of initiatives. This accumulative approach creates difficulty and complexity in understanding certain dimensions and interactions among assets, generates chaos and includes contradictions among different programmes. The result of such intellectual capital is centred on a ‘photograph’ (Bontis, 1999) as a traditional balance showing the status of the basic intangible assets identified by the organization; however, this approach may present a double objective —that is, the improvement of internal management and
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external communication through the information for stakeholders about a more complete organizational reality (5). The general argument of ‘knowledge in action’ is traditionally linked to ‘knowledge governance or management’, processes which develop intellectual capital looking for improving the results of the initial measurement scheme. In this sense, there is a basic difference between intellectual capital and knowledge governance, bearing in mind a static or dynamic perspective, respectively. However, the need for a complete exercise of management beyond the traditional financialaccountant approach creates an emerging line for the development of new areas within the structure of organizational responsibilities with a specific demand of abilities.
COLLABORATION APPROACH WITHIN KNOWLEDGE GOVERNANCE Organizations consider in their strategies those factors to which they recognize significant value contributions (Barney, 1991; Grant, 1991; Peteraf, 1993), certainly measurable or at least as presumptions. This initial argument means the possibility of different strategic approaches according to business orientation or awareness showed by the organization towards the relevance of the different types of assets it owns. In Figure 1 it is observed a distinct evolution and evidence towards the consideration of knowledge as a key asset (6), as an organizational value —that is, as a resource to which a significant contribution is recognized openly. Without deepening into the theoretical framework associated to the concept of knowledge, this resource owns a characteristic linked to its intangibility which is that of enriching through the exchange among the large agents owning it (Nonaka, 1994; Nonaka & Takeuchi, 1995; Grant, 1996; Kogut & Zander, 1992 and 1996; Spender,
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1996; Tsoukas, 1996), which implies the consideration of certain transference and exchange schemes as means supporting its advance and development. Individual knowledge is transformed and is the base of the collective since it is transmitted through oral, written, encoded, sign, etc. language. For Spender (1996), Von Krogh & Ross (1995) and Cook & Brown (1999), among others, social knowledge is not merely the sum of individual knowledge, but something else, different from that, which is especially important for organization survival and development in the long run. This transference pattern means that individual knowledge is enriched in the process of exchange and transmission adding a contextual dimension to it, which gives it organizational value. In this sense, individual knowledge is idiosyncratic by nature and owns strong links to the organizational context in which it is developed. Knowledge transference, from this perspective, is necessarily social and conclusively outdistances from the schemes of electronic transference of data and information. Social knowledge is built up from networks of agents creating a system of relations which facilitates, fosters and allows that individual knowledge is transferred and, at the same time, enriched, giving rise to social or organizational knowledge. It is precisely in this point where we can identify the difference between Knowledge Management and governance. In the first, management occurs Figure 1. Evolution of the economic paradigms (Source: Gorey & Dobat (1996) and Bueno & Salvador (2000))
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around an explicit and encoded object or entity which we call, usually in a wrong manner, knowledge, when in fact it is data or information. In the latter, we rather talk about a system of relations among agents governed by a series of guidelines, norms and rules regulating, leading and guiding knowledge flows or processes. In this system, the centre of attention is the subject of knowledge, which involves a more organic viewpoint of the concept —contemplating in a clear manner its different dimensions: explicit and tacit— and its relation with the context in which it is created and developed. From a viewpoint of governance, thinking of guiding knowledge processes transcends the very meaning of the expression. Many authors insist that knowledge, in an abstract sense, cannot be managed (Drucker, 2001). Knowledge, as we have already mentioned, lies in people and responds to mental models of behaviour intrinsic to the very nature of individuals. At most, we can induce certain behaviours in subjects. It is possible to give them tools and competences to exercise and develop their mental and cognitive abilities with the aim of increasing their knowledge stock and use. From this viewpoint, and in the field of cognitive processes, each individual will build patterns of social behaviour linked to processes of understanding, assimilation, learning and application of new knowledge (Bueno, 2005). In the sense of the contributions by Foss (2006), this knowledge governance is close to a double level —micro (individual) and macro (collective), where it is important to consider not just tools, but also those attitudes and motivations which come into play in this reality of behaviours. These processes are endogenous by nature and, therefore, they do not admit norms, rules and external intervention. A pedagogical method for learning, for instance, is nothing more than an instrument or tool to facilitate learning. However, its effectiveness will depend, deep down, on the individual’s ability, interest and motivation for learning. We can induce or favour behaviours and
stimulate processes; however, the governance of what-is-known is a subject concerning the individual him/herself and depends on his/her context (Cook & Brown, 1999). Organizations are increasingly giving more importance to the administration of their intangible assets and to the forms in which such assets contribute to generate business value (Bueno, 2003). In this sense, the processes of professional learning and development are oriented at the improvement of competences for innovation, allowing their articulation in organizational models and systems which in turn become differentiating elements to achieve competitive positioning in markets. This knowledge approach adopts an open and systemic viewpoint of the organizational processes —in which interactions, relations and collaboration processes act as channels for newknowledge transmission and assimilation (Plaz & Gonzalez, 2005). From this viewpoint, an ontological approach of knowledge centred on the governance of processes of social relations emerges. It is in this context that the transference of knowledge flows takes place, causing expressions of knowledge organization, codification and specification in the form of organizational records. It is this way how relations and relational capital, for instance, constitute key sources of organization enrichment and a means to keep the dynamic of knowledge renovation (Bueno, 2005). This approach has recently distinguished between individual knowledge and the creation (development), management or governance of organizational knowledge (Nonaka, 1994 and 1995; Bueno & Plaz, 2005). Such distinction is important since it focuses the discussion on Knowledge Management at the level of organizational system and its management. Knowledge management or administration places the debate in the field of governance of the exchange flows and key organizational processes which increase the value of intangible assets. In this sense, talking about organization
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implies referring to the system of relations and connexions allowing the interaction of agents and individuals, and that knowledge flows —as a part of such process— are produced in the same directions of such interaction. It is important to stand out that Knowledge Management —considered from this viewpoint and with a sense of governance— means the definition of policies, guidelines, channels, proceedings and resources to create optimum conditions for fostering, channelling, catalysing and promoting such flows of organizational knowledge.
PROPOSAL OF FRAMEWORK MODEL FOR KNOWLEDGE GOVERNANCE Talking about organizational-knowledge governance and development therefore means creating support structures for the processes of interaction individual-individual, individual-organizational system, and organizational system-organizational system. These structures facilitate knowledge flows and allow at the same time leaving a trace or record. This record is the result of specifying tacit knowledge to convert it into explicit codes leading to the definition of routines of organizational behaviour and progressively acquiring an own identity. Organizational culture is nothing but the historic trace of individual behaviours grounded on a collective expression. Stating that an organization owns a determined working culture makes us date back to and look for —in its founders and previous leaders— those behaviours which have been progressively modelled and have become in reference and standard. These processes are initiated through relations and interactions among knowledge agents or subjects from a determined viewpoint or strategic thought, given a context of reference which incardinates the process of knowledge. Information technologies are only the catalyser
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to facilitate collaboration among subjects and propose knowledge exchange as a common resource, which —once it is developed by action of practice— will be transformed from explicit into tacit, and from individual into social. Without this conviction, at least in its top-down version (7), it is very complex to face —moving away from the approach of simple fashion— a scheme aimed at a more appropriate way to tackle knowledge, or more precisely, the socalled knowledge governance (Plaz & Gonzalez, 2005), than just management, given that this term should gather those tasks related to creation and development. Going back to the argument on knowledge governance, such governance is obviously configured from a structure of processes acting as drivers of the business in question, assuring the exploitation of all organizational knowledge —an aspect which doubtlessly should be imbricated with a system of organizational intelligence (8) acting as a supplier of informative inputs for the recycling and updating of the organization’s knowledge base (Vassiliadis et al., 2000; Merino, 2004). The dynamics of creation of value occur around the tasks of internal transference of tacit and explicit knowledge, as well as around those tasks of incorporation of external knowledge or that created by other agents, generating learning cycles which build up the new knowledge within a process of transformation of essential competences which generate intangible or intellectual-capital assets (see Figure 2), as Bueno (2002) proposes in the new conception of the company as an economic system based on knowledge. Accompanying this overall framework and prior to tackling the projection of the model of knowledge governance on the role of transference and collaborative approaches, it should be stood out the need to aligning such structure with a series of business objectives which allow clarifying, visualizing and understanding the returns or impacts involved in knowledge valuation and acting in consequence. Those returns, beyond a
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Figure 2. Company as a system based on knowledge (Source: Bueno, 2002)
short-term period, will adjust to the context of the organization, looking for action lines adapted to its level of organizational and technological maturity, considering a set of possible key factors for success (Plaz & Gonzalez, 2005). At the same time, the achievement of results will require an appropriate scheme of measures which allow an appropriate evaluation not just of those variables of a finalist nature for business, but also of the statistics associated with the afore-mentioned chain of knowledge creation, development and management. For both analysis and fixation of objectives and the reality of these processes linked to knowledge governance, we may use the dynamic of a balanced scorecard (Kaplan & Norton, 1992) and even for more specific themes, like the support for the control panel, several instruments such as the model of the European Foundation for Quality Management (EFQM) or the models of intellectual capital (10) can be used.
Undoubtedly, the action on knowledge governance should pursue the improvement of the organization’s intellectual capital as a way to get to know the suitability of the actions aimed at putting into practice a strategy in the line of knowledge valuation (see Figure 3). The approach of processes which shapes the model of knowledge governance makes clear an action loop (Bueno & Plaz, 2005; Nonaka, 1991 and 1994; Kogut &1994 Zander, 1992; Blumentritt & Johnston, 1999; Shin et al., 2001; Alavi & Leidner, 2001; Staples et al., 2001; Zahra & George, 2002; Argote et al., 2003; Zack, 2003) around the dynamics of understanding, register, storage (Walsh & Ungson, 1991; Davenport & Prusak, 1998; Teece, 2000; Staples et al., 2001; McGrath & Argote, 2002), diffusion (Davenport & Prusak, 1998; Szulanski, 2000), use and improvement of information and knowledge, where the organization should consider the way of putting it into practice or value, already counting on
Figure 3. Improvement of intellectual capital (Source: Personal compilation)
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a traditional approach based on certain support departments —namely, documentation centres, system departments, training units, quality areas, etc.— whose mission is clearly positioned in relation to the afore-mentioned loop. In any case, it would be convenient to integrate the set of dynamics specified in a modelled framework which allows visualizing, in a complete manner, the reach of knowledge governance in order to be able to face its display properly. In this case, literature revision (Gupta & Govindarajan, 2000; Alavi & Leidner, 2001; Shin et al., 2001; Staples et al., 2001; Zack, 2003; Argote et al., 2003; among others) describes a wide range of references which partially raise the different viewpoints of the afore-mentioned knowledge governance, losing a reference of holistic sense. The configuration of this model joins the dynamic of the afore-mentioned loop and the stages which achieve its alignment with the key strategy and factors of the business, apart from the corresponding evaluation of impacts (see Figure 4). All this is included within a scheme characterized by complexity, given that the ‘act or fact of knowing’ is complex in itself, as well as the different knowledge processes (flows), given their diversity and functionality, which justify under-
standing governance as an action aimed at guiding such complexity. This decrease in the terms alluding knowledge government allows translating its conceptual framework into a series of action lines recognized by all organizations and that, therefore, own a history, a record, programmes and tools which in many cases merely lack of integration; that is, a model for knowledge governance is not about accumulating programmes. These action lines are centred on the afore-mentioned organizational intelligence, expert management, communication, quality, learning-training, I+D and documental management, and on the strategies/mechanisms briefly described next: •
•
Organizational intelligence is an action line which pursues the configuration of an alert system for the organization (Escorsa & Maspons, 2001; Kurtyka, 2003; Almeida et al., 2003). The activities linked to technological vigilance, competitive intelligence, benchmarking, etc., are practices recognized within this kind of action. Expert management is a mechanism mainly based on collaborative approaches, networks, communities of practice, etc., where knowledge exchange, especially
Figure 4. Knowledge-governance model (Source: Bueno & Plaz (2005) and personal compilation)
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•
•
•
•
•
that of tacit knowledge, becomes a key objective. Communication, strategy based on the information about the organization’s abilities, resources, results, etc., where communication models, existing channels, etc., play essential roles (Davenport & Prusak, 1998; Szulanski, 2000). Content management is centred on the systems allowing appropriate tackling and accessibility to documents through data bases. Individual learning —bearing in mind the dynamics of training, offer and demand, attendance and on-line, which generate cycles (Nonaka & Takeuchi, 1995) of knowledge recycling where performance of the learnt concepts is an important objective. Organizational learning is an action line based on the development of exchange and collaboration areas where the concept of communities in practice may favour knowledge register in organizational memory and the improvement of its degree of advance when shaping thematic groups of interest (Easterby-Smith & Lyles, 2003), and Innovation and improvement is centred on the organization’s efforts on I+D and the obtained results (Zack, 1999). Thus, those dynamics favouring creativity, incentives and recognition are an important part of this strategy.
Once the breadth of knowledge governance is observed, we can clearly state that the central positioning of collaboration dynamics in this matter goes further than the documental approaches which have characterized the first stages of the strategies of those companies concerned with Knowledge Management, in which great efforts for digitalization have also been raised. As a result, we have come to the subsequent replacement of knowledge stock by knowledge flow.
Once we have reached this point, and from the double dimension (see Figure 5) which intersects between the loop and the action lines, it is important to emphasize the enriching effect on coordination and individual and organizational learning derived from a collaborative working approach. Therefore, transference and exchange dynamics appear as recipes of high strategic interest from the couple collaboration-communication, where we can reflect, design and explore areas, channels and subject matters. From the field of collaboration, the main axes of action are centred, on one hand, on the creation of appropriate areas —attendance or virtual— which facilitate sharing ideas and documents, and, on the other hand, on establishing a culture prone to share, in which leadership, awareness and recognition exertion become key elements for its operation. Therefore, the phenomenon of transference as a communication process influenced by a set of causal contingencies or variables of contextual nature —so that we have to take into account the attitudes, competency and abilities of the emitter and receiver agents, and the existence, on one hand, of a wide range of messages (information and knowledge) with a comprehensive and available approach of added value and, on the other hand, of the appropriate channels for their transmission according to the nature of such messages with the aim of eliminating or avoiding, as much as possible, mechanic, semantic and contextual noises and interferences. Regarding the latter, message is linked to the information and the knowledge we attempt to transfer, both if it is of documental or tacit nature, all set in a specific cultural context. Thus, from the beginning, in spite of counting on a significant value offer, it may occur that the set of resources and abilities of the emitter or receiver may benefit or limit the process. This way, it should be emphasized that it would be more interesting to count on a motivated and capable emitter with a first-level offer, since —to a large
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Figure 5. Field of action for knowledge governance (Source: personal compilation)
extent— a relevant number of requirements are not found in the vanguard of knowledge. To sum up, we attempt to reach understanding between both extremes of the transference process, for which the channel or means should be adjusted to the nature of knowledge —whether it is explicit or tacit, intellectual or collective, since each of them will raise specific and different requirements. Active and passive communication may also be taken into account, bearing in mind those mechanisms which allow the message to reach its addressee (systems of selective information diffusion) or, on the contrary, others needing willingness from the addressee in order to achieve the objective of communication (e.g., notice-boards), according to the dimensions characterizing knowledge (epistemological, ontological, systemic and strategic), which leads to the design of different operative programmes of management of knowledge processes, according to the LICI index (Level of Information, Complexity and Imagination) of the transferred knowledge (Bueno, 2002). Among all options occurring nowadays on the subject of collaboration, it is to stand out communities of practice as a concept of high strategic interest, given its linkage to an area of specific knowledge and interest for organization which
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includes collaboration within a process from which a result is expected.
THE CONCEPT OF COMMUNITIES OF PRACTICE (COP) The purpose of existence of the communities of practice (Wenger, 2001; Wenger & Sneyder, 2000) is oriented towards the creation of a common area for individual meeting in order to interact in benefit of the generation, exchange and assimilation of experiences around specific application areas with clearly defined objectives. This common area should use, on one hand, the cycle of knowledge reception, diffusion, assimilation and renovation in the organizational data base, structuring the experiences and facilitating its members’ searches and contributions. This way, we can apply to CoP, as an agent, the whole model of knowledge governance from the viewpoint of both the loop and the seven defined strategies (see Figure 6). On the other hand, it should also facilitate the relation among community members beyond mere information exchange, which is the only way to make non-specified knowledge appear in reports
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Figure 6. Knowledge processes (Source: Personal compilation)
of formal nature. This exchange dynamic is only possible if mission and objective internalization occurs within the context of the community, since that internalization would facilitate the flow of the interaction cycle which will favour cohesion among its members. A consolidated community of practice represents the natural place we turn to when we need to seek for advice or raise requests linked to its field. The development of practice and attention to requests raised to the community facilitates the replication of experiences in order to dynamize and accelerate the velocity of the organizational learning cycle. Community of Practice is grounded on three basic pillars which provide it with a management framework and the necessary support tools for its operation: •
•
Technology provides with the necessary tools and means to create effective collaboration areas from an operational viewpoint. The organizational environment and the necessary culture to meet the objectives and necessities of the community, the organization and its individuals, in order to achieve an identity and generate policies and appropriate management plans grounded on a solid base of training, awareness (communication) and motivation (incentives and recognitions), and
•
The management model through which the rules of the game are established, the definition of flows and work processes, identification of actors (roles), knowledge types and their associated taxonomy.
In this sense, Figure 7 shows the relations of these three components with the community, as well as its linkage with the expected impact at the level of individuals, organization, business and the community itself, fields which lead to visualize the different returns which may be derived of an approach of CoPs. Therefore, monitoring of practice in the community is carried out through indicators linked to four dimensions —namely, people, group, organization and business— which allow measuring the impact of the results, the generated and seized know-how and, through that, establishing strategies of impulse/monitoring which contribute to the creation of improvements and the alignment of objectives and actions.
THE PROCESS OF CREATION AND DEVELOPMENT OF A COP The creation of a CoP may be mainly linked to two approaches:
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Figure 7. Overall approach of CoP (Source: Personal compilation)
1. A push one, declared by the organization, in which practices structuring the community are decided and chosen by headship, involving a previous exercise of strategic reflection, and 2. A pull one, whose approach is based on providing resources and support to those groups developing a certain successful collaboration labour within the organization. Obviously, success expectancy of both options may turn out to be very unequal, especially if we bear in mind the predisposition to collaboration showed by both alternatives. In any case, the process goes through a series of stages (see Figure 8): •
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Stage 1: Identification: It is linked to the strategic priorities of the organization, which may be originated from the previously-mentioned push and pull viewpoints.
•
•
•
•
Stage 2: Design: The generation of a model which adjusts to collaboration necessities; that is, identifying the processes developed in its area and their fundamental requirements. Stage 3: Construction: Articulation of the preliminary organizational structure of the community, with its defined and necessary objectives, roles, responsibilities, and resources. In this case, the institutionalization of the CoP may be achieved through the formal recognition of its existence and certain responsibilities within the practice in question. Stage 4: Implementation: Turning on of a functional model through the generation of an area or platform supporting collaboration, an aspect in which non-area criteria prevail nowadays. Stage 5: Growth: Development of an extensive approach of the communities in-
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Figure 8. Process of creation of a CoP (Source: Personal compilation)
•
volving a higher number of people and, therefore, exceeding the idea of the organization’s preliminary structure. In this sense, preliminary stages can entitle the role of ‘observer’ as an agent which shows interest in becoming a part of the CoP in the future. This expansion clearly impacts in the ambiguity of the organizations’ limits, and Stage 6: Improvements: Establishment of a self-diagnosis policy, consolidating the benefits which it contributes to the community, especially through the generation of an organized set of indicators.
FINAL REFLECTION Through the approach of Communities of Practice we make clear important benefits which enable the identification of opportunities for growth and development of an organizational culture centred on the seizing of talent and continuous improvement. Among the most obvious general benefits of this approach we can emphasize the following:
1. Boast a structured and common data base containing relevant information for the different projects and activities carried out in the organization in the context of the influence areas of the CoPs. 2. Count on technological resources which allow creating new virtual areas of collaborative work for the generation and construction of documents in an asynchronic and ubiquitous manner, facilitating the exchange of documents and opinions among group members without depending on attendance meetings. 3. This interaction will work to generate —in real time— a record of all documents generated by the group, which may be consulted. 4. Facilitate and accelerate the processes of generation of records and work around the conclusions and commitments established in a meeting, and 5. Boast instruments and platforms which facilitate assessment processes of suppliers and the creation of a common data base on suppliers, an interface which optimize the actions of diffusion and access to informa-
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tion on suppliers, and registers (records) of the result of relevant indicators for CoPs in order to facilitate the activities related to benchmarking. Therefore, given the concept of CoP, the pillars on which its turning-on is grounded, and the general process which may act as a roadmap, we have come to meet a specific reality as a tool which —from a collaborative viewpoint— insists on the approach of the knowledge-governance model, making a proper use of transference and exchange dynamics, which is the aim of this chapter.
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ENDNOTES 1
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It is important to consider not just the aspect of resource and ability property but also their availability —that is, the existence of an external offer of added value, frequently within the area or environment in which the organization is located. In the line of the model EFQM, intellectualcapital models propose a set of factors for reflection on organizational intangible assets. Due to management criteria, structural capital is composed by organizational capital and technological capital, where the first establishes a set of structural and non-technological factors and the second establishes all those elements linked to the use of technology and the results of innovation (intellectual and industrial property). In the case of public organizations, social capital is related with the task of public service. This consideration may transfer social capital to structural capital, since it is shaped as a nucleus which legitimizes the organization’s labour.
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In this case, the interest towards intellectual capital is oriented at better information for investors and other stakeholders who may be found within certain levels of technical or economic relations with the organization. Knowledge should be emphasized as a strategic key of the current economy, embodied in a person, transferred to the organization or social group according to real or moral contracts, and valued as a productive resource and dynamic competence. Where it is necessary to raise an appropriate management style articulated on the base of a leadership, awareness, etc. exercise which permeates the organization’s culture. Systems turning around the concept of corporate radar, as an antenna which feeds the organization on information and basic knowledge. Instrument which favours organizational diagnosis according to a series of key criteria looking for certain fields of improvement and strengthens, and Tool for reflection and report on the organization’s intangible assets, in its side of identification and measurement.
This work was previously published in Connectivity and Knowledge Management in Virtual Organizations: Networking and Developing Interactive Communications, edited by Cesar Camison, Daniel Palacios, Fernando Garrigos and Carlos Devece, pp. 89-105, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Knowledge Integration through Inter-Organizational Virtual Organizations Montserrat Boronat Navarro Universitat Jaume I, Spain Ana Villar López Universitat Jaume I, Spain
ABSTRACT In this study we adopt an inter-organizational view to examine virtual organizations. Thus, we understand this phenomenon as a strategic agreement between organizations that collaborate and coordinate their work through information technologies. This dimension adds greater flexibility to the strategic alliance, which in turn is beneficial for the integration of knowledge. In high technology industries, inter-organizational virtual organizations add further advantages to this option of knowledge integration through DOI: 10.4018/978-1-60960-587-2.ch212
strategic alliances because of the importance of speed and flexibility. We put forward a series of propositions, following an initial approximation to this phenomenon through the combination of the strategic alliances, virtual organizations and the knowledge-based view literatures.
INTRODUCTION Progress in information and communication technologies has led to the development and increasing importance of virtual organizations. There are various definitions of this term. Greis and Kasarda (1997) recognize a common factor
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in all definitions: that a virtual organization is a related group of companies formed to enable collaboration toward mutually agreed on goals. One of the main features of virtual organizations is that people are linked not by face-to-face relationships but by sharing information through electronic networks (Weber, 2002); hence virtual organizations are associated with an intense use of computer networks and information technologies to support cooperation. Moreover, adaptability, flexibility and the ability to react quickly to changes in the market are properties that are usually assigned to virtual organizations (Grabowski and Roberts, 1999). We adopt an inter-organizational view to examine virtual organizations. Thus, we understand this phenomenon as a strategic agreement between organizations that collaborate and coordinate their work through information technologies. This last dimension lends greater flexibility to the strategic alliance, which in turn is beneficial for the integration of knowledge. According to the knowledge-based view (Nonaka, 1994; Nonaka and Takeuchi, 1995; Grant, 1996; Spender, 1996), knowledge integration is one of the main capabilities that organizations must possess in today’s markets. In some industries, such as biotechnology, that need to integrate different bases of specialized expertise, the sources of knowledge are distributed across a great variety of organizations. Strategic alliances are an option that may solve problems of speed or cost in these cases. Hence, in this chapter we draw on the knowledge-based view and strategic alliances literatures to identify advantages that inter-organizational virtual organizations may have in the creation of knowledge. The study begins with an overview of virtual organizations and their properties. We then review the idea of strategic alliances and networks as a way of integrating knowledge, explaining their advantages and placing special emphasis on the case of strategic alliances in which the main
aim is the joint creation of knowledge between partners and not simply the appropriation of this knowledge by one of the members of the agreement. In the following section, we argue that inter-organizational virtual organizations add more advantages to this type of alliance because of these special features. The latter two sections include some propositions, and the chapter closes with our conclusions.
VIRTUAL ORGANIZATION Since the concept of virtual organization was introduced by Mowshowitz (1986) and popularized by Davidow and Malone (1992), it has become increasingly used in management theory and, in particular, in the information systems literature. An initial approach to this term suggests that a virtual organization is a geographically distributed organization whose members are bound by a longterm common interest, and who communicate and coordinate their work through information technologies (Ahuja and Carley, 1999). Computers and information technologies favour the linking of corporate processes (Davidow and Malone, 1992) and the shift towards virtual organizations entails fundamental changes in managing daily operations and coordination tasks. According to some authors (e.g. Kasper-Fuehrer and Ashkanasy, 2003), there are two approaches to studying virtual organizations, depending on the unit of analysis: the intra-organizational view, in which virtual organization is a collaboration of business units within an organization, or the inter-organizational view, in which different organizations collaborate to form a cooperative agreement. We focus on the second approach since our interest lies in the integration of knowledge through various firms. Virtual organizations use information technologies such as electronic mail to share information and coordinate their work, and this characteristic enables a group to create and sustain its identity
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without a shared physical setting (Ahuja and Carley, 1999). The structure of a virtual organization allows a high degree of flexibility, competitiveness and cost efficiency (Fitzpatrick and Burke, 2000). In line with the inter-organizational approach, we consider a virtual corporation as a temporary network of independent companies linked by information technology to share skills and costs or to accomplish other specific objectives (Byrne, 1993). Other definitions exist, but all of them share the idea that a virtual corporation involves a loosely related group of companies formed to enable collaboration toward mutually agreed on goals (Greis and Kasarda, 1997). Technology allows sharing and communication of information, but virtual organizations also need a high level of trust between individuals involved in the network. As Daniels (1998) states, a cultural network that links people together is perhaps more important than the technology network on its own. Thorne (2004) reflects on some important characteristics of this type of organization: flow of information, permeable internal and external boundaries, shifting work responsibilities, shifting line of authority, and work practices which are more about communication and information than about any material structure. A key feature of virtual alliances or networks is their high degree of adaptability and flexibility (Grabowski and Robert, 1999; Weber, 2002), essential if they are to respond quickly to changes in today’s markets.
STRATEGIC ALLIANCES AS A SOURCE OF KNOWLEDGE INTEGRATION Strategic Alliances Strategic alliances may be an important source of the distinctive competencies that are at the root of competitive advantages (Ireland, Hitt andVaidyanath, 2002). The knowledge-based view (KBV) has acquired particular weight in strategic
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alliance research. This approach has highlighted knowledge and learning capabilities as the most valuable assets that partners can obtain or create through strategic alliances. The specialized literature has also generally accepted that distinctive competencies in knowledge creation and learning through strategic alliances have a positive effect on business performance (Emden, Yaprak and Cavusgil, 2005; George et al., 2001; Shrader, 2001; Dyer and Singh, 1998; Simonin, 1997; Powell, Koput and Smith-Doerr, 1996). The aim of strategic alliances may be to develop necessary resources or capabilities jointly or to gain access to them when other partners have complementary and valuable assets (Hamel, Doz and Prahalad, 1989; Buckley and Casson, 1988). Access to certain resources or capabilities lacking in the cooperating companies is an important underlying factor in the establishment of strategic alliances (Ireland, Hitt and Vaidyanath, 2002; Harrison et al., 2001; Rothaermel, 2001; Das and Teng, 2000; Gulati, 1999; Dyer and Singh, 1998; Madhok and Tallman, 1998; Eisenhardt and Schoonhoven, 1996; Glaister and Buckley, 1996; Grant, 1996; Mitchell and Singh, 1996; Crossan and Inkpen, 1994). Firms decide to stablish a strategic alliance when they find themselves in a vulnerable strategic position because they need resources or capabilities that cannot be developed internally at a reasonable cost in a reasonable time (Das and Teng, 2000), or cannot be achieved through an exchange on the market (Eisenhardt and Schoonhoven, 1996) because there are no organized markets in which they can be acquired, or because these capabilities can be learned or assimilated through cooperation (Ireland, Hitt and Vaidyanath, 2002; Cohen and Levinthal, 1990). Companies that need particular assets that they cannot efficiently transfer on markets or develop internally will seek alternative means of obtaining them. Strategic alliances appear especially attractive as they are a fast, flexible method and also involve a much lower commitment in terms
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of cost and resources than other possible options such as mergers. Environmental uncertainty in today’s markets and rapidly changing technologies need quick responses, which are more easily achieved through the establishment of strategic alliances than in isolation (Dodgson, 1993). Through the extension and combination of the partner firms’ assets, strategic alliance partners are able to learn by establishing valuable assets that can lead to sustainable competitive advantages, and therefore to economic rents (Ireland, Hitt and Vaidyanath, 2002; George et al., 2001; Shrader, 2001; Dyer andSingh, 1998; Simonin, 1997; Powell, Koput and Smith-Doerr, 1996). In this way, companies can create greater value through cooperation than that which they could generate by acting independently.
Alternatives in the Integration of Knowledge Integration of knowledge is a capability that may be developed in the context of a strategic alliance. According to the knowledge-based view, organization is a distributed system of knowledge (Tsoukas, 1996). Kogut and Zander (1992) advance the idea that the justification for the existence of organizations lies in the frame that these provide– like social communities of actions constructed on organizational principles, which cannot be provided by isolated individuals. The creation and transference of knowledge occurs efficiently within the organization (Kogut and Zander, 1992). Therefore, the main aim of organizations and the reason for their existence is the integration of knowledge (Grant, 1996). This is due to the fact that knowledge is stored in the individuals in the shape of specialized knowledge, which allows the creation of new knowledge to advance. Nevertheless, progress in the creation of value through processes of transformation of knowledge into new products and services requires a
combination of more than one type of specialized knowledge. Individuals have limits to make this knowledge integration.. Integration into the market is also problematic, due to difficulties in appropriating explicit knowledge by means of market contracts, or in transference of tacit knowledge, since it requires specific transactions associated with major investments. The organization has also been considered as a community of practice where collective knowledge is absorbed (Brown and Duguid, 1991; Lave and Wegner, 1992). This is also similar to the notion proposed by Tsoukas (1996) in which the organization is a distributed system of knowledge. This author believes that it is a distributed system, not only because it is diffused in the organization, but also because it is indeterminate. The evolution of the system cannot advance, and moreover, it is dependent on the context. Nonaka, Toyama and Nagata (2000) also argue that continuous creation of knowledge is the main aim of an organization. Nevertheless, this approach proposes that strategic alliances and networks also constitute a mechanism for integration of knowledge (Grant, 1996). Grant (1996) justifies the existence of strategic alliances and networks in the creation of knowledge, in some situations. The first of these refers to the transference of explicit knowledge that is not absorbed in specific products, and therefore, cannot be transferred across the market, yet due to uncertainty over its use and sources, neither can it be efficiently created internally. Secondly, an efficient utilization of knowledge requires a correspondence between knowledge and how it can be used, that is to say, how it develops firms’ products (Grant, 1996). When the company’s knowledge base does not match its product portfolio, or when uncertainty surrounds the relation between the two, collaboration between organizations will be an efficient mechanism for the integration of knowledge (Grant, 1996). This is because collaboration enables specialized knowledge to be utilized, since different organizations with different knowledge
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bases may find it easier to apply this specialized knowledge and also find more connections between new knowledge and products that can be developed through this knowledge. The third situation that justifies collaboration in this context is when the speed of innovation is an important factor in competition. In rapidly changing environments, collaboration provides a faster way of innovating (Grant, 1996). The importance of the time factor means internal development is not viable and the acquisition and merger option can turn out to be more expensive than alliances as there is a high degree of uncertainty over what is being acquired (Deeds and Rothaermel, 2003; Lambe and Spekman, 1997). The appropriation or imitation of tacit knowledge, such as technological know-how, is practically impossible mainly because there are no organized markets in which firms can acquire it, and because of the causal ambiguity and social complexity on which knowledge is based. In these conditions, strategic alliances are the main vehicle through which the company can access and internalize external knowledge (Das and Teng, 2000; Kogut, 1988). This value increases when the competencies are heterogeneous among the companies taking part in the agreement (Sakakibara, 1997). Grant (1996) indicates that, under certain circumstances, strategic alliances are the most effective option for integrating knowledge. One situation is- the case where the speed with which the company extends its knowledge is a fundamental issue in creating competitive advantage. Another situation is the case where there is a lack of fit between the knowledge the company has and its product portfolio. Even if the knowledge the firm needs could be obtained through an exchange in the market, it may be that its value deteriorates notably because it is embedded in either organizational routines or other assets possessed by the organization from which it is difficult to separate (Madhok and Tallman, 1998; Pucik, 1988). One characteristic of organizational know-how is precisely its cumulative
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nature, and the exchange of know-how among companies requires long-term relationships to be established (Kogut and Zander, 1992). Organizations in today’s markets need innovation as well as flexibility and efficiency, but they also concentrate their resources on core capabilities. Therefore, self-sufficiency is increasingly difficult (Inkpen, 1996). Grant (1996) postulates this idea when he states that flexibility is one of the characteristics essential to the integration of knowledge if it is to be capable of creating competitive advantage. Flexibility in the integration of knowledge is the degree to which a firm accesses additional knowledge and re-shapes existing knowledge (Grant, 1996), and it is one of the most important factors for the development of capabilities in hyper-competitive environments. In the search for this flexibility, advantages can be found in integration through collaboration with other organizations in some competitive industries such as biotechnology, since they allow access to a wider range of relations between knowledge and its possible applications. Therefore, collaboration provides a mechanism that will facilitate knowledge integration. The justification of the superiority of alliances over the market and over a single organization is therefore determined by the existence of imbalances between knowledge and its application, that is to say, products (Grant, 1996). Nevertheless, rather than conditioning efficiency of knowledge creation through inter-organizational collaboration to the situations proposed by Grant (1996) and Grant and Baden-Fuller (2004), we agree with Powell, Koput and Smith-Doerr (1996) that, in rapidly changing environments and in industries with particularly fast technological development, the specialized knowledge necessary to make innovations is distributed across a great variety of organizations. It is difficult for an isolated organization to have all the necessary capabilities to innovate continuously.
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This is more evident in high technology industries, where the knowledge needed to produce innovations rapidly and effectively is rarely found in a single, isolated firm. Hence, cooperation arises between companies as a mechanism that increases organizational learning and knowledge (Powell, Koput and Smith-Doerr, 1996; Hamel, 1991; Dogson 1993). Therefore, we propose that organizational collaboration is a mechanism which facilitates knowledge creation in certain circumstances. This idea is shared by some authors who contend that organizational performance and differences between companies cannot be understood nowadays without considering the collaboration and social networks in which they are situated. Gulati, Nohria and Zaheer (2000) analyze how the incorporation of strategic collaboration enriches discussion in different areas of strategic research. Our proposition suggests that external knowledge development through collaboration complements rather than substitutes internal knowledge integration (Powell, Koput and Smith-Doerr, 1996).Therefore, we put forward the following proposition: Proposition 1. In rapidly changing and hypercompetitive environments, knowledge sources are distributed across organizations and the establishment of strategic alliances will provide a superior mechanism that enables the generation of knowledge creation capabilities.
Specific Learning Alliances On the other hand, knowledge-related strategic alliances may be established in order to acquire knowledge from the partner or to jointly develop new knowledge. We agree with Grant and BadenFuller (2004) when they argue that strategic alliances will be more positive to all of the partners if their aim is to share diverse frameworks of specialized knowledge. Knowledge is distributed between different entities (Powell, Koput and Smith-Doerr, 1996) and the collaboration between
them will favour learning (Levinthal and March, 1994). Learning in collaboration will depend on sharing knowledge and also on sharing dynamic capabilities that allow it to be used and exploited (Powell, Koput and Smith-Doerr, 1996). Alliances whose chief aim is learning have been termed learning alliances (Lane and Lubatkin, 1998; Khanna, Gulati and Nohria, 1998). In this type of alliance, the process of establishing and implementing the alliance will be more important than the final result, since this process presents an opportunity for mutual learning (Khanna, Gulati and Nohria, 1998), rather than acting as a passive receptor of the partner’s capabilities (Hamel et al., 1989). Joint knowledge creation in the alliance will provide common benefits to partners, as opposed to the private benefits that will be only derive from copying partners’ skills for later application in individual operations (Khanna, Gulati and Nohria, 1998). These authors propose the concept of common benefits as those that every alliance partner accumulates from the collective application of the learning that organizations obtain as a consequence of forming part of an alliance (Khanna, Gulati and Nohria, 1998: 195). Hence, they implicitly recognize the joint creation of knowledge, or at least, that both partners learn. We therefore believe that the purpose of the alliance should be to create new knowledge together, and not to absorb the partner’s knowledge. New knowledge arising from the alliance has not previously existed for either of the partners (Phan and Peridis, 2000). This line of research is still in its first stages, since it differs from studies that analyze alliances as a way of accessing the partner’s knowledge. These studies do not specifically address the joint creation of knowledge. One of the few studies in this line is by Phan and Peridis (2000) who compare research into acquiring knowledge to single-loop learning, whereas, for new knowledge to be created, double-loop learning should take place.
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Double loop or second order learning (Argyris and Schon, 1978, 1996) also changes the paradigms on which organizational thought is based. For this type of learning to occur in alliances, the mental models partners use to resolve problems or to interpret conclusions must be changed. It provides a new way of drawing conclusions and of resolving conflicts in the alliance and therefore, of creating knowledge that will be new for the partners. Lubatkin, Florin and Lane (2001) follow a similar view. They study reciprocal learning, taking as their unit of analysis the two organizations that collaborate on a project rather than only one of the firms. The partners therefore become interdependent. These authors assimilate this type of learning to the concept of double loop learning proposed by Argyris and Schon (1978). Nevertheless, cooperation across strategic alliances is an organizational learning process through which companies internalize competencies from their partners (Kale, Singh and Permutter, 2000) or configure new knowledge together. It is not unusual to find companies that only take part in strategic alliances to gain access to their partners’ knowledge, but make no attempt to integrate this knowledge into their own operations. Therefore, we do not deny the existence of strategic alliances in which the main aim is the transference, acquisition or absorption of knowledge. The type of company that acts in this way may even make up the most numerous group. Lubatkin, Florin and Lane (2001) propose a typology of these types of alliances in which learning is the principal objective, depending on how tacit the knowledge the alliance attempts to create or acquire is, and on how difficult the governance of the alliance is. Reciprocal learning alliances are one of the proposed types: they are characterized by low levels of difficulty in governance and the creation of tacit knowledge. This is the type of alliance in which our interest lies, since our area of study concerns markets characterized by hyper-competition and rapid change. The same authors also argue that this type of alliance will become more common
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as a result of global competition, the convergence of technologies and the need to develop capabilities more rapidly. In these circumstances, the absorption of the partner’s knowledge, which may frequently be unfamiliar to the firm attempting to absorb this knowledge, may be a slow process. Therefore, our second proposition is: Proposition 2. In environments that demand rapid innovations, all partners in alliances based on the joint creation of knowledge will perform better than those in alliances in which the aim is to absorb knowledge from one of the organizations.
KNOWLEDGE INTEGRATION THROUGH INTER-ORGANIZATIONAL VIRTUAL ORGANIZATIONS We now turn to virtual organizations and the advantages this form of virtual collaboration may have in the integration of knowledge. Information and communication technology is the essential enabler of virtual organizations, defined as a conglomerate of firms that collaborate in a strategic alliance (Kasper-Fuehrer and Ashkanasy, 2004). This technology allows greater flexibility, which is an important characteristic to obtain competitive advantage in dynamic environments. Following the arguments of some authors (e.g., D’Aveni, 1994) who claim that traditional organizational designs such as functional structures are too rigid in today’s hyper-competitive markets, new inter-organizational structures need more dynamic and flexible ways of organizing. New information and communication technologies have the particular attributes to support the virtuality of these inter-organizational structures (Scholz, 1996), and add dynamism and flexibility. Temporal and distance barriers can easily be jumped with the use of these new technologies (Byrne et al., 1993; Mowshowithz, 1994; Goldman et al., 1995), which also facilitate global
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collaboration by allowing organizations to cross distance barriers (Byrne et al., 1993). As stated above, compared to the option of internal development, strategic alliances are a fast and flexible means to develop new resources, such as knowledge, and have lower costs than other options such as mergers. All of these advantages multiply in the context of inter-organizational virtual organizations, since they have the same properties as a strategic alliance, but with greater flexibility and reduced temporal and spatial barriers. If strategic alliances are the most effective option to integrate knowledge when speed is a fundamental issue in creating competitive advantage (Grant, 1996), the case of inter-organizational virtual organizations may be even more beneficial. This idea is embraced in our next proposition. Proposition 3. Inter-organizational virtual organizations contribute to increase flexibility in the collaboration between organizations and therefore they are superior to other options in the integration of knowledge in rapidly changing and hyper-competitive environments. Furthermore, one of the properties of knowledge integration that Grant (1996) explains is flexibility or the degree to which an organization accesses additional knowledge and reconfigures its existing knowledge. Since flexibility is an essential feature of knowledge integration, it must be present in the case of alliances in which the main objective is the creation of knowledge. In the context of a changing knowledge environment, flexibility is a requirement for the integration of knowledge (Van den Bosch, Volberda and de Boer, 1999) since this context demands that firms have different types of knowledge that are distributed across companies. Through collaboration, organizations can easily create a network between different blocks of knowledge and gain access to a wider application of this knowledge (Grant, 1996). Inter-organizational
virtual organizations facilitate this access because they reduce temporal and spatial barriers. Individuals from different organizations working together must be also trained to deal with their partners’ diverse organizational cultures. This training also enables individuals to break out of the mental prisons that prevent them from adopting an innovative attitude because of an organization’s strong identity and values. In this vein, Van den Bosch, Volberda and de Boer (1999) state that a strong culture makes flexibility for knowledge absorption more difficult, a perspective we adopt in the integration of knowledge from different organizations. Furthermore, strong cultures can cause - “xenophobia” (Ouchi, 1981). The wide range of knowledge necessary to create innovations in hyper-competitive environments could be constrained by this strong organizational culture. In the case of strategic alliances, cultural boundaries must be relaxed in order to deal with other partners. Introducing features from interorganizational virtual organizations is beneficial to the day-to-day working with different organizational cultures. The reasoning here is that individuals become used to the way other organizations do things if communication and information technologies connect these daily operations easily, without considering spatial barriers.Therefore, we make the following proposition: Proposition 4. Flexibility in the integration of knowledge is facilitated by inter-organizational virtual organizations due to their easy access to global collaboration without temporal and spatial barriers.
CONCLUSION This study examines virtual organizations from an inter-organizational point of view. Connections between organizations may be easier through the new communication and information technologies. Employees carry out their daily operations
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with other organizations without concern for spatial barriers. We apply this idea to strategic alliances since we define virtual organizations as a network of independent companies linked by information technology to share skills and costs or to accomplish specific objectives (Byrne, 1993). In this vein, we argue that the virtual factor may provide strategic alliances with certain advantages, specifically in alliances whose main purpose is knowledge integration. Knowledge integration is one of the main capabilities that organizations must possess in today’s markets (Grant, 1996). Organizations pertaining to high technology industries need to accelerate the speed with which they introduce innovations in the market in order to survive in hyper-competitive environments. Nevertheless, sources of knowledge are often distributed across a great variety of organizations. We propose that strategic alliances are a superior mechanism that enables the creation of new knowledge in this type of environment. We also argue that the advantage could be even greater in the case of alliances in which the main aim is the joint creation of knowledge, as compared to other kinds of agreements in which one partner absorbs knowledge from other partners. Common benefits to all of the partners may be higher if their objective is mutual learning and creating new knowledge (Khanna, Gulati and Nohria, 1998) as a consequence of being part of the alliance because of the distribution of expertise across organizations. In high technology industries, inter-organizational virtual organizations add further advantages to this option of knowledge integration through strategic alliances because of the importance of speed and flexibility. Moreover, one of the properties or dimensions in the integration of knowledge according to Grant (1996) is the flexibility or the degree in which an organization accesses additional knowledge and reconfigures its existing knowledge. We also argue that inter-organizational virtual organizations facilitate this knowledge
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reconfiguration because they reduce temporal and spatial barriers. Implications for managers concern the option of considering this kind of inter-organizational virtual agreement as an alternative and an opportunity to integrate knowledge faster than in isolation. This is an important strategic decision that they should bear in mind. Where their organizations participate in this type of collaboration, they should also consider changing the way daily operations are undertaken, and the fact that these changes can have both positive and negative effects. Our study has some limitations derived from its theoretical nature. We cannot confirm and generalize our arguments without testing the propositions through an empirical study. A deeper analysis is therefore required in order to prove whether the advantages of strategic alliances over other alternatives consist of superior forms of organizing in the case of knowledge integration in high technology industries and whether including the virtual dimension in these linkages adds even more advantages. Further research should also extract and contrast the true, specific characteristics of inter-organizational virtual organizations as compared to traditional strategic alliances and what their possible strengths may be. However, this is an initial approach to the phenomenon from a point of view in which we combine strategic alliances, virtual organizations and knowledge-based view literatures.
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ENDNOTE a
The present study is part of a wider research project, which has received financial support through a grant (SEC2003-01825/ECO) from the Spanish Ministryof Science and Technology and FEDER (European Fund for Regional Development) andfrom the Valencian Institute of Economic Research (Convocatoria de a yudas a la investigación 2006).
This work was previously published in Connectivity and Knowledge Management in Virtual Organizations: Networking and Developing Interactive Communications, edited by Cesar Camison, Daniel Palacios, Fernando Garrigos and Carlos Devece, pp. 61-72, copyright 2009 by Information Science Reference (an imprint of IGI Global). 445
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The Development of Knowledge and Information Networks in Tourism Destinations Júlio da Costa Mendes University of Algarve, Portugal
ABSTRACT This chapter looks to analyse new paradigms in the relationship between public and private organisations towards tourism destinations. It proposes new approaches for increased performance both at the competitive and the organisational level. Based on the literature review, this chapter suggests new organisational forms of being and interaction directed at increased customer needs and growing competitiveness on the tourism industry. The development of public-private partnerships and knowledge networking in destinations and in organisations are issues also addressed. FurtherDOI: 10.4018/978-1-60960-587-2.ch213
more, the implementation of inter-organisational networks in a cooperative environment is important in developing and maintaining an adequate environment with shared objectives and practices in tourist destinations.
INTRODUCTION Globalisation has had a decisive impact on the changing environment and one in which nowadays economies are facing. This fact has stimulated growing interest from researchers who have turned their attention to issues of globalisation, the digital era, innovation and Knowledge Management.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Development of Knowledge and Information Networks in Tourism Destinations
The rise of the so-called New Digital Economy, characterised by the spread of new information and communication technologies, has provoked over recent years a revolution in the world of business and more specifically in tourism, causing changes in corporate strategies and organisational structures. For the majority of countries, the tourism sector represents an important service industry, socio-economically significant for hosting regions. This is not only related to dynamic sector growth but also to the multiple effects generated by globalisation to other sectors of the economy. Nowadays, tourism organisations face a dynamic and uncertain environment that require flexible and fast results essential to changing businesses. This, linked to the need for cooperation between the various actors in the value chain of the tourist destination, has generated the onset and development of several inter-organisational networks, aimed at improving competitiveness of destinations and involved organisations. Developing a climate of cooperation in tourist destinations implies firstly that actors are aware that they belong to a chain where their performance complements and contributes to the value of the tourist experience. The introduction of programmes and integrated projects, common visions, cooperative agreements and collaboration between public and private entities based on the pursuit of greater global objectives, is a networking reality for tourism destinations. The interactive process of close and coherent collaboration between all actors and organisations, public and private, at the regional, national and even international scale, is of central importance for competitiveness in tourist destinations. This creates synergies for networking providers and allows the development of a common vision towards tourism building based on concerted efforts from involved parties. Based on the review of the literature focused on the concepts of tourism destination and virtual knowledge and information networks, the paper
intends to discuss, in theoretical terms, the benefits of the establishment of partnerships and cooperation networks between public and private tourism organisations, contributing for the development and implementation of improvement competitiveness strategies in tourism destinations. To the effect, the paper begins by clarifying the tourism destination concept and characterizing the kind of consumption product that consubstantiates the tourism experience. Than, it discusses the need for new approaches in terms of tourism destination management, assuming that the main objective of the Destination Management Organisations is to maximize the synergies of the value chain, ensuring high levels of satisfaction for tourists as much as stakeholders. Finally, it suggests that the constitution of partnerships and the sharing of knowledge and information between the tourism sector organisations is a strategic issue for the competitiveness of the tourism destinations and, in that sense, it must be an object of the greatest attention from the Destination Management Organisations intending to succeed in terms of performance.
TOURISM DESTINATION Tourism destination is closely linked to new experiences and associated memories. Although a composite unit representing a region’s supply, it is considered a paradigmatic example of virtual organisation. As a setting comprising economic, cultural and social activities, the tourism destination has come to be understood as a product on offer, and thus the public institutions responsible for that destination and the regional tourism organisations operating within that destination see themselves as obliged to establish a set of facilities and actions that ensure the best possible positioning in a highly competitive market when it comes to attracting tourists (Beerli & Martin, 2004)
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The studies carried out by Butler (1980), Gunn (1993), Laws (1995) and Pearce (1989) regard tourism destination as a system containing a number of components such as attractions, accommodation, transport and other services and facilities. The tourism destination generally comprises different types of complementary and competing organisations, multiple sectors, facilities and an array of public/private linkages that create a diverse and highly fragmented structure (Pavlovich, 2003). The complexity of the system arises from the interactive environment and complementarity that characterises the relations that develop between the different types of service providers and their acting influence. Under a complex system of the provision of services, with product and services being provided simultaneously by different units of an organisation, or different organisations, involved agents should interact efficiently, so that no situation contributes negatively on the global tourist experience. Given the close and complementary interrelationships established between the different types of industry organisations, it becomes important to ensure efficient coordination of flow of information between organisations of the sector (Bouncken, 2000; Hope & Muhlemann, 1998; Smith, 1994; Pizam, 1991). In this sense, besides the organic structure embodied, the tourism destination develops its activity essentially through the pursuit of common objectives and strategic implementation grounded on a Web of relations and contacts with organisation of the sector. The destination must be considered as a whole – a system with inputs and outputs (Tinsley & Lynch, 2001).
The Composite Product The global or composite product, by definition is an interactive product that results from the total supply made available to tourists. Structurally, it is a product developed around a combination of
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experiences which are central to the expectations and overall assessment by customers. In this sense, it can be analysed as “an intangible composite of many interrelated components” (Pizam, Neumann & Reichel, 1978: p. 316) or as a combination of rendered and used services in a dynamic, multifaceted environment, domestic or international, where controversial issues and conflicting interests are always present (Silva, 1991; Papadopoulos, 1989; Guibilato, 1983). Klein (2000) considers that the tourist product is the destination and the process that results from the overall experience of tourists, while the subproducts are transports, excursions, food and drink, accommodation, entertainment and services, as well as the respective management. The same point of view is held by Silva, Mendes & Guerreiro (2001) and by Rita (1995) among others. The value chain joins actors and consumers, representing a chain link to an experience that the tourist classifies in terms of satisfaction and value. Managing the chain and maximising the value of experiences of customers by interacting with several chain links is a task which transcends the sectorial boundaries of industry. The break of a chain link, disfunctionality, an ill-established contact or an unpleasant surprise may result negatively in terms of tourist satisfaction and contribute toward a negative image of the destination. The “halo effect” can still occur, which means that satisfaction or dissatisfaction with one of the components leads to satisfaction or dissatisfaction with the total tourist product (Weiermair, 2000a,b; Stauss & Weinlich, 1997; Brathwaite, 1992; Pizam et al., 1978). Once the value is added at each level of the production process, it becomes important to understand to some degree of certainty how the tourist production chain for a specific destination or destination package will combine to produce added value for the different types of consumers and market segments. The tourists, in consuming the destination-product, look to obtain the greatest value for the least effort which assumes the maxi-
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mum destination competitiveness (Martín, 2000; Huete, 1994; Smith, 1994; Weiermair, 1994).
Tourism Experience The leisure and tourism experience has been described as an “a subjective mental state felt by participants” (Otto & Ritchie, 1996, p.166). While products are fungible and services intangible, the value of the experience remains in the memory of individuals investing in the event. For intangible services, the experiences are regarded as events that commit people in a particular manner and, as such, are memorable. While the supply of services ends with the experience of visitors to a destination, it begins before arrival and ends with memories and future visit plans (Pine & Gilmore, 1999; Commission Européenne, 1999). Various authors refer to the composite product associating it to the complex experience that the tourist has from the moment he or she leaves the place of residence until the moment he or she returns home (Silva et al., 2001; Davidson & Maitland, 1997; Smith, 1994; Papadopoulos, 1989; Buckley, 1987). For consumers that deal with a number of meetings during a stay, it is the sum of services that is at the origin of forming perceptions and not the specific products or isolated meetings of services. Regardless of the evaluation or perception of specific quality of subproducts, tourists assess the tourism experience as a whole. This suggests that what is consumed and evaluated in a holistic manner should also be produced and managed holistically (Weiermair, 2000a; Fayos-Solá & Moro, 1995; Gummesson, 1994; Brathwaite, 1992). The process by which the tourist perceives and recollects a destination travel experience is complex and multifaceted precisely because there are a significant number of involved actors in the experience. Consequently, complete destination experience results from a wide combination of
individual experiences by tourists, separated in time and space. In conceptual terms, the tourist experience consists in the continuous flow of services related and integrated, and which are acquired during a limited period of time, most often in different geographical areas. Most businesses that supply tourist products or services do so in the form of a package which includes a combination of physical items, services; interactions that a tourist experiences at different occasions and holds in perceived memory his or her tourist experience. Increasingly, how these packages are conceived and operated influence the experience of tourists at the destination (Albrecht & Zemke, 2002; Kandampully, 2000; Denmann, 1998; Ritchie & Crouch, 1997; Haywood, 1993; Michaud, Planque & Barbaza, 1991). Research in service marketing recognises that, although the performance of services is supported by tangible goods, in the case of tourism, what is actually bought by tourists is an experience, that is, an array of interactions, interpersonal relations that result from various contacts established between service providers and tourists during the period spent at the destination (Frochot & Hughes, 2000; Kandampully, 2000; Ritchie & Crouch, 2000; Weiermair, 2000a). During his or her stay, the tourist consumes not only reality but also representations and symbols of reality, asserting what Lutz & Ryan (1993, p.356) refer to as the rise of “consumption aesthetics”. In this sense, trying to attribute rationalism to the tourist experience may confuse the reason behind tourist motivation and behaviour, more so when there is an awareness that emotions and confusion that tourists reveal are part and parcel of the tourist phenomenon (Ryan, 1995). In this sense, the experience is embodied around a combination of emotions, experiences, in essence a holistic product, which has significant implication in terms of repositioning the supply of tourism destinations. On the other hand, it is clear that the tourist embarks on this experience with
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knowledge and demand levels increasingly more developed, resulting from comparisons with past experience, greater awareness to details, through communication and informal messages, word of mouth, etc. The paradigm of experimental vision analyses the experience consumption as “a subjective fundamental level of knowledge with a variety of symbolic meaning, hedonistic responses and aesthetic criteria (…) focused on caring answers by each person, including, though not limited to, fantasies, sentiments and enjoyment” (Otto & Ritchie, 1995, p. 38). The experience is affected by a vast set of factors, many of which are not directly related with the purchase of a specific product. It is the combination of inherent factors in terms of context and satisfaction of each of the purchased services, consumed throughout the unfolding holistic experience, which determines the overall level of tourist satisfaction. The quality of the experience is generally recognised as a more subjective measure, while quality service is often obtained in more objectively. While quality of service focuses generally on a specific service commitment, the quality of the experience includes a larger combination of commitments. A more comprehensive concept and greater temporal horizon on the quality context of the experience tends to highlight the hedonistic component of the relation that visitors establish with the tourist destinations (Ritchie & Crouch, 1997). The tourists look to obtain working benefits that are symbolic and experiences through activities and services that make up the tourist experience. In fact, the tourist experience is a continuum moment of truth, the quality of which is reached only when reality coincides with consumer expectations. But consumers are different; possessing different expectations transforms the concept of quality into one that is relative. Quality cannot be regarded in a singular manner rather it is diverse composed by different market segments (Vega, Casielles & Martín, 1995; Bordas, 1994).
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The tourist experience is thus consolidated around a vast set of components offered by several organisations with different objectives and form of operation. Service suppliers should recognise that satisfaction of visitors with organisation is influenced by several pre-arrival and post-arrival services. The success of the destination product depends on the provision of the right combination of components to satisfy the demands of visitors, requiring coordination, cooperation and partnerships. From the management point of view of Destination Management Organisations, it is clear that it is impossible to control many of the factors that contribute to a destination quality experience. On the other hand, the skills and possibilities of actors and operators controlling these factors are diverse and distinct; some of which are by separate organisations, other not yet controlled. This can compromise the standards promised or proposed in campaigns affecting how tourists experience their stay.
Competitiveness of Tourism Destinations Competitiveness is one of the central concerns by tourist destination managers. Improving performance levels of tourist destinations in order to meet stakeholder expectations, adapted to accommodate sustaining needs related to environment, heritage and culture of hosting regions, constitutes a challenge and an investment for most Destination Management Organisations. The challenges for organisational management and other local or regional virtual systems are today particularly high. In the case of tourist destinations, they are expected to react clearly and intelligently, to act simultaneously according to plans, to reinforce identity and added supply value, to conceive alliances for coordinated and cooperative networking actions, stressing product quality and culture service. Analysis, planning, implementation and control of programs intended
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to influence the visiting customer choice, especially before arriving at the destination, strategy selection, and destination marketing plans, represent the importance given to competitiveness of tourist destinations (Leoni, 1999; Ridley, 1995; Middleton, 1994). The issue is even more relevant when there is an awareness that “tourism is a highly decentralized industry consisting of enterprises different in size, location, functions, type of organization, range of services provided and methods used to market and sell them. In addition, a variety of trade associations, co-operative institutions and official or semi-official organisations at the local, regional and national and international level play an important role in the industry “(Schmoll, 1997, p.30). Most of these organisations are small-scale, constituting an added challenge for Destination Management organisers who among others should assume a dynamic or facilitating role in the process of formalising cooperation in the entrepreneurial sector. “Networking is also important for small and medium-sized enterprises, in that it offers a way of combining advantages such as flexibility, with economies of scale which networks offer” (Corvelo, Moreira e Carvalho, 2001, p. 23). The performance of the tourist destination benefits greatly if based on knowledge sharing and long-life learning and innovation. Maximising information flows for all those involved is essential to consolidate the learning process of involved actors (Klein, 2000; EFQM 1999). The need to learn, to generate greater value and differentiate supply constitutes nowadays a key component for competing systems. The competitive advantage is gained only by bringing together the knowledge, expertise, capital and other resources of the various tourism organizations (Fayall & Garrod, 2004).
NEW ORGANISATIONAL AND MANAGEMENT PARADIGMS IN THE CONTEXT OF TOURISM DESTINATIONS In this environment of great complexity, instability and uncertainty, organisational changes have been regarded as one of the main vehicles in structuring and exploring the new world of business (Toledo & Loures, 2006). The advent of the information era has made many of the fundamental assumptions of the industry obsolete and the more boundaries lessen the more involved corporate strategies and identity change. New organisational forms are possible because information technology has the capacity to modify the traditional space-time interaction (Schultze & Boland, 2000). The virtual reality, or the process of virtual reality, possesses two main characteristics that facilitate its use on organisations. Detachment of the here and now according to Lévy (1996), an organisation which virtualises itself, deterritorialises itself, becoming “non-present”. Customers can contact organisations virtually, regardless of where they may be as long as they possess access to a computer and modem. The second characteristic stated by the author is the passing from the interior to the exterior and the exterior to the interior, suggesting that there are no longer limits, place and time commix. Virtual organisation appears as an organisational model of the 21st century, sustained by a radical change of classical organisational concepts and work division. Previous research suggests that virtual organisations tend to be non-hierarchical (Goldman, Nagel & Preiss, 1995; Beyerlein, Johnson & Beyerlein, 1994; Camilus, 1993; Mills 1991) and decentralised (Baker 1992). Researchers have found that network structures explain organisational behaviour better than formal structures (Krackhard & Hanson 1993; Bacharach & Lawer 1980).
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The concept of virtual organisations can be understood as a form of cooperation between businesses and organisations, thus becoming true dynamic cooperation networks, which through the use of new information and communication technology have as objectives increasing competitiveness of network partners and enabling exploration of new market opportunities. The components of this new organisational form essentially develop from partnerships, response capacity in terms of market demands, quality of products and services rendered and greater awareness and environmental responsibility (Tapscoot & Caston, 1993). This strategic option which consists in supervising the running and organisation of business for virtualisation is one of the options being followed by organisations that seek sustainable competitive advantages. In recent literature, virtual organisations are presented as success models, suggesting that ultimately virtual reality represents innovation, a widening of the corporate value chain, better information flows and corporate decision-making (Toledo & Loures, 2006). There is a proliferation of terms used to define emerging “new organisations”: agile organisations, network organisations, virtual organisations, extended enterprises, knowledge enterprises, learning organisations and smart organisation (Carbo, Molina & Davila, 2003; Aladwani, 2002; Baker, Georgakopoulos, Schuster & Cichocki, 2002; Bradner 2002; CastelFranchi 2002; Merali, 2002; Ricci, Omicini & Denti, 2002; Shumar & Renninger, 2002; Inkpen & Ross, 2001; Burnett 2000; Devine & Filos 2000; Filos & Banaham, 2000; Frenkel, Afsaermanesh, Garita & Hertzberger, 2000; Goranson 2000; Molina & Flores 2000; Mundim & Bremer, 2000; Riempp 1998;). According to Devine & Filos (2000), a virtual organisation is a collection of geographicallydistributed and operating entities that may or may not be culturally diverse and use information and communication technologies supported by lateral and dynamic relationships for coordinated action needs.
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On the other hand, Frenkel et al., (2000), considers that virtual organisations should be seen as a group collaboration of self-governing and existing organisations, who share expertise, skills and resources in order to achieve a common product or service.. Molina & Flores (2000) define virtual organisations as temporary networks of independent organisations connected through information technology who share skills, facilities and business processes with the aim of responding to specific market demand. Finally, Ricci et al., (2002) argue that virtual organisations occur as a response to consumer needs and a temporary assemblage of self-governing and possibly heterogeneous organisations, conceived to provide flexibility and adaptability to the frequent changes that characterise business scenarios. We are therefore before a new organisational format that exceeds the physical boundaries of organisations in a process that includes complex relationships with partners, customers, suppliers and the market (Mowshowitz, 1997). The paradigm of virtual or network organisations assumes the presence of various service providers, operating autonomously and flexibly, though directed in the same direction as a result of a common culture, an information management system. This allows information sharing of crucial business information and an infrastructure in charge of controlling and developing the overall management process of the tourist destination (Martín, 2000; Valles, 1999; McHugh, Merli & Wheeler, 1995; Gummesson, 1994). The main challenges that these types of organisations face involve maintaining the balance between people and culture, maintaining the organisation in tune to processes, information and technology, and finally issues related to leadership in a new organisational structure format. Basic technologies supporting virtual organisations include the Internet and the World Wide Web, telecommunications, electronic mail, groupware
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such as Lotus Notes and video conferencing. It is important to note that understanding the technology is not enough. According to Strausak (1998), there are currently two different approaches of virtual organisations. The first identifies the virtual organisation as a business that relies more heavily on information and communication technology than on physical presence in order to interact and drive their businesses. The attribute “virtual” is used to define an organisational logic, where boundaries of time, geographical space, organisational units and information access are less important, while the use of communication technologies is considered highly useful. (Siebert 2000; Zimmerman, 2000; Kluber, 1998). The second approach considers virtual organisation as a network of independent organisations that possess a temporary characteristic through the use of information and communication technologies, in this way gaining greater competitive advantage. Regardless of the first or second approach, there are several motives that can prompt organisations to opt for a virtual solution. These include the sharing of resources and skills, the need to innovate, to divide risks, the need to reduce costs, market access, agility, better productivity, quality and competitiveness (Lipnack, 1993). Given this, incorporating both approaches need to be considered in order to provide a more consistent and operational concept in practical terms. In fact, both perspectives complement each other and it difficult to separate the two. The virtual organisation reflects both internally, when assuming a new structural form and more importantly when assuming a new form of thinking and positioning in the business world and relationally as with other sector and non sector organisations. The logic behind this process of strategic redirection of organisations has no defined boundaries and, as such, the concept should be assumed in a flexible and wide-ranging manner, interrelating
internal changes to new relational and interacting forms in the surrounding environment. To implement the virtual organisational concept, Les Pang (2001) recognises that there are a set of good practices that should be considered by all those that have a mission to impel organisations towards this new paradigm by: fostering cooperation, trust and empowerment; ensuring that each partner contributes to an identifiable strength or asset; ensuring skills and competences are complementary and not overlapping; ensuring that partners are adaptable; ensuring that contractual agreements are clear and specific on roles and deliverables; not replacing face-to-face interaction entirely, provide training which is critical to team success; recognising that it takes time to develop a team; ensuring that technology is compatible and reliable; and, providing technical assistance that is competent and available. In terms of the virtual organisations concept application to the specific context of tourism, it is argued that the new organisational paradigm be grounded on four fundamental pillars: cooperation, innovation, flexibility and knowledge. The first pillar is represented in terms of inter-organisational networking and in the sharing of resources and know-how. The second is essentially related to promoting creativity between organisations and the search of new solutions for business management problems. The third involves adapting organisations to the surrounding environment and to quick solutions to environmental changes. Lastly, knowledge is a fundamental requirement which upholds the concept of “learning organisation” and what it entails in terms of sharing and free information access. This new organisational structure, which should be undertaken and lead by the Destination Management Organisations, will have as a mission to promote the creation of new value systems and a new culture in the relationship between stakeholders. The restructuring of organisational and architectural models will give rise to the development of new management paradigms
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both at the organisational and tourist destination management levels. A new managerial style is required because of the special issues one must face in an interorganisational environment. As Tapscoot (1995) states, interactive multimedia technologies and the information highway contribute to a new economic order based on human intelligent networks. According to this author, it is possible to foresee the document and paper circuits as well as traditional forms of running businesses. So that the Destination Management Organisation can begin the prepare the future and the transition for these new organisational and management paradigms, it becomes important to rethink its role in terms of considering how actors are influenced, redefining a vision intended for the destination, re-equating aspects of technical and logistic order of cooperation networks, identifying benefits of various technologies that support virtual organisations and lastly, considering new forms of operation in terms of partner relationships and managements and stakeholders in the field of tourist destination. In this context, and considering that the tourism sector essentially comprises small and medium enterprises, it is crucial that tourism destination management directors assume leadership in the process of change and, from the first moment, create a basis for active participation from the majority of stakeholders. Besides following through with mega projects and the involvement of small and medium enterprises in this process, it is important to make entrepreneurs and managers aware of the advantages in knowledge and information sharing based on commitment with new forms of greater and continued cooperation in tourist destinations.
THE COOPERATIVE ENVIRONMENT IN TOURISM DESTINATIONS In a growing scenario of competitiveness and for reasons related to the need to overcome the
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specific difficulties or pursuit of common objectives at the tourist destination level, it has become common practice to create ways to cooperate inter-organisationally in tourist destinations. The “relational” perspective is particularly relevant in the tourism industry, as groupings of organisations cluster together to form a destination context. Bjork and Virtanen (2005) consider that the necessity of well functioning co-operation networks is well articulated in the tourism literature, whether in terms of destination marketing (von Friedrichs Grangsjo, 2002), destination planning (Jamal & Getz, 1995; Ladkin & Betramini, 2002) or development of tourism partnerships (Selin & Chavez 1995). Different forms of inter-organizational relations (e.g., co-ordination, network, collaboration, partnership, cooperation) have started to receive growing attention in recent years from researchers worldwide as a means of finding solutions to resource management and destination development problems (Augustyn & Knowles, 2000; Bramwell & Lane, 2000; Hall, 2000; Selin, 2000; Timothy, 1998; Jamal & Getz, 1995; Selin & Myers, 1995; Benson, 1975). These forms of inter-organisational cooperation in tourist destinations are all the more necessary when there is a clear understanding that objectives can only be fulfilled with the effort and participation of all destination actors and organisations. In this context, the involvement of organisations with partnerships is increasingly greater, going beyond traditional organisational boundaries in order to achieve consumer needs more rapidly (Glendinning, 2003; Austin, 2002, Bradner, 2002; Molina & Flores, 2000; Riempp, 1998). According to Pearce (1989), tourist organisations can better achieve their objectives when they are able to coordinate the activities of the vast participants who contribute towards to composite product and the tourist experience. Watkins and Bell (2002, p.20) believe that “the experience of co-operation was described as stimulating more
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business through working together to share information and engage in joint activities”. Collaboration can be regarded as a process of shared decision-making among key stakeholders regarding future issues. Joint decision-making is important for all those parties having an interest or stake in tourism destinations (Gray, 1985). Usually, what arises from these cooperative projects are cooperation and formal agreements established by the organisations involved and the common objective that justifies and polarises joint efforts. What is equally relevant is to understand the expectations, objectives and benefits that the managers wish to obtain in exchange. Wang & Fesenmaier (2005) identified four broad issues related to collaboration in the area of marketing, which can be adopted for the tourism case: the precondition construct, which delineates the economic, social, and environmental conditions for alliance and network formation; the motivation construct which attempts to explain why organisations choose to enter into strategic alliances and networks to achieve their specific goals; the stage construct which captures the dynamics of collaborative process and the outcome construct which attempts to describe the consequences of collaborative activities. This type of inter-organisational cooperation should rely on some degree of virtuality in order to offer greater ease and response to market changes, stakeholders and unexpected alterations, besides repercussions in the performance of involved organisations, profitability level productivity and quality of rendered services. Actors should recognise and understand that cooperation facilitates the introduction of change, enabling strategic direction for organisations, stimulating and facilitating learning for all, developing business interaction and providing better relationship between actors. It is important, however, not to lose sight that cooperative effort is based on a relationship of interests, costs and expected benefits. It can be assumed then that as a question of principle, the synergy effects that are created as a combination
should reverberate in better organisational performance. This reflects a need to analyse information and monitor systems that support the evaluation process of performance results, whether in terms of organisational networks whether in terms of determining the reciprocal impact established between both levels of decision-making. The development and consolidation of these types of tourist destination networks should begin to by interiorising in the set of actors the need to adopt new management paradigms based on a culture of chain relationships, driven by quality principles and entrepreneurial excellence in the entire region. Given the developing processes, whether in terms of costs or benefits, it is important to comprehend that from the first moment, the advantages to be gained by each participant will be greater if there is an awareness that businesses will continue to compete with one another in line with the less or more advanced cooperative ties established. The climate of cooperation and collaboration between the various actors represents significant importance for a sustained global vision of the tourist product. The development of partnerships, especially between the public and private sector, constitutes one of the more effective formulas for the development of tourist destinations and the exploration of local resources, as well as the key for destinations to offer quality products (Buhalis, 2000; Leoni, 1999; Manente & Furlan, 1998; Ritchie & Crouch, 1997; Wanhill, 1995). Participation and engagement in a tourism network relies on favourable behavioural disposition influenced by the individual participant’s attitude and, more specifically, his or her values. From an integrated management perspective, what is sought is a balanced development of behaviour, attitude, equipment and other facilities to satisfy consumer and stakeholder requirements in the service sector. Increasingly, tourist destination competitiveness and the image of countries and regions, that represent tourist destinations and providers of quality service, depend essentially
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on the creative capacity of people, introduction of new technologies, the use of new processes and new organisational forms (Gibson, Lynch & Morrison, 2005; Sancho, 1993). According to Yuksel and Yuksel (2005), factors critical for the success of inter-organizational relations which include recognising a high degree of interdependence in the planning and managing of the domain/project; recognising individual and/or mutual benefits to be derived from the collaborative process; understanding that decisions arrived at will be implemented; including key stakeholder groups; appointing legitimate convenors to initiate and facilitate community-based collaboration; and, formulating aims and objectives. Some of these key tasks of Destination Management Organisations are related with the need to conciliate diverging interests of the different actor, with balance and satisfaction of the relevant needs of stakeholders (industry professionals, clients, suppliers and society in general), with the adoption of strategies that incorporate ethical principles based on sustainability and regional development (Silva et al., 2001; Davidson & Maitland, 1997; O’Neill, Watson & Mckenna, 1994). In order to achieve these objectives, it is strategically important that organizations and leaders possess the necessary skills to motivate and involve all those interested in an integrated vision of destination and common projects that result from a social contract allowing for a coordinated, responsible and beneficial performance for all (Laszlo, 1999). There are several major types of environmental forces that lead to interaction among potential partners. Some of the reasons more frequently referred to in the literature as reasons for the construction and development of networks in tourism are: crises – which direct energies of potential partners towards a specific problem (Croitts & Wilson, 1995; Fosler & Berger, 1982); existing networks which introduce members of a potential partnership to each other (Fyall & Garrod, 2004); visionary leadership - which is embodied in an
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individual as opposed to a group (Fyall, Callod & Edwards, 2003; Gray, 1985); economic and technological change in which individual organizations are not able to compete successfully by acting alone (Wahab & Cooper, 2001; Poon, 1993) and finally the existence of a third party convener, providing a forum or opportunity for interaction (Hall, 1999).
DEVELOPMENT OF INTERORGANISATIONAL NETWORKS IN TOURISM DESTINATIONS As World Tourism Organisation recognised in the 2000 report, two key forces, globalisation and technology, are transforming the tourism sector into a dynamic economic force that has never been possible before. New forms of organisations arise in different cultural contexts, adapting to the new information era and witnessing a point of historical discontinuity (Castells, 1996). Due to the need of exceeding specific difficulties or proceeding with common objectives at the destination level, the creation of public-private partnerships has become a common practice. This fact has been widely recognized by the tourism literature, which emphasises the substantial importance of networks and partnership for tourism sector (Costa, 1996). In spite of the popularity of partnerships, few empirical investigations have been done in order to explain the processes occurred whenever these interactions are implemented (Selin & Chavez, 1995). The need for the cooperation at a destination is inevitable, given the recognised importance of the cooperation networks integrated in the analysis of the production systems of goods and services. However, and according to Framke (2001), only in marketing-driven organisations has cooperation reached its meaning. Also, according to this author, the cooperation theme at the tourism level has not been properly investigated, mainly where
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its meaning is concerned and the importance of the relationship between tourism enterprises. According to Easton (1992), a network can be defined generically as a model or metaphor which describes a generally high number of linked entities. Van de Ven and Ferry (1980) regards a network as a complete pattern of relationships between organisations that act with a view towards common objectives. Networks can be observed as a set of ties and social relationships that unite organizations (Lundgren, 1995), as a specific type of relation linking a set of persons, objects or events (Knoke & Kuklinski, 1983) or a set of actors that control resources and perform activities (Hakansson & Snehota, 1995; Hakansson & Johanson, 1992). The Scottish-Scandinavian Discussion Group (2001), referred to in Gibson, Lynch, and Morrison (2005) regard a network as belonging to a set relationships between individuals acting in an organisational and/or private capacity to achieve a particular purpose. Such networks may be of three types: formal – a formalised set of actors who interact in the context of identified aims; semi-formal – a formalised set of actors who interact in the context of identified aims, and informal – a set of actors who meet mainly for social purposes but also exchange information which has instrumental (business) value. In essence, the tourism virtual networks are characterised by a variety of participants that transcend organisational boundaries and structures (Mars, 1998; Rhodes, 1997; Howlett and Ramesh, 1995) and are recognised as stimulators of interorganizational coordination of policies (Selin & Myers, 1998; Costa, 1996). Dredge (2006, p 269), believes that “networks operate within and around tourism’s formal organisations, between industry actors, different government agencies and civil society to provide an important forum for the development and communication of interests and strategies.”
“A networking organisation appears as a form of inter-entrepreneurial organisation able to overcome some of the inherent market and hierarchical restrictions, whether from the point of view of reduced transaction costs, whether from the decrease of diseconomies of scale, though, more importantly as another form of inter-entrepreneurial relationship with individual virtues that surpass these benefits and belong to domains that are nowadays essential: innovation, learning and knowledge.” (Corvelo et al., 2001, p 76.) Network theory assumes that “relationships do not occur within a vacuum of dyadic ties, but rather in a network of influences, where a firm’s stakeholders are likely to have direct relationship with one another” (Rowley, 1997, p. 980) and, nowadays, plays a critical role in determining the way planning and management solutions are designed (Miguéns e Costa, 2006). The need to learn, in order to generate greater differentiated value, becomes in reality one of the crucial issues of the competing system. In this sense, and as recognised by Corvelo et al. (2001, p. 78), “networking, through the arrangement and type of commitment between actors, there is a more favourable environment in terms of satisfaction of needs since no imposed obstacles are encountered from hierarchical rigidness, nor sporadic or more distant market relationships.” Corvelo et al. (2001, p. 78) assert yet that, “in fact networking works as a last measure, as a privileged system of creation and exploration of value because this is constructed and generated as a “constellation” in the sense that economies of scale are not only considered together with the supply of production variety, but as greater customisation, given the set of distinctive skills from markets which and unattainable through individual network actors, act so as a group and in a synergetic manner.” The impacts that tourism provokes in the environmental, cultural and societal systems require that the construction and the development of networks be developed through holistic approaches,
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framed in wider and multidimensional contexts, where besides business profitability and purely economic visions be considered aspects of social responsibility of all involved parties. According to Helgensen (1995), the organisational architecture in the form of a network is recommended based on the following reasons: (1) the context in which firms currently operate is characterised by a high level of change, in the face of growing innovation and complexity; (2) the assertion of globalisation from markets and original technology to worldwide distribution of value and wealth; (3) the needs of specialising in skills and focusing on the specific links in the value chain; (4) the shortening of the life cycle of products and technologies; (5) the need to place products in the market, more speedily, less costly and of higher quality; (6) the increase in cost and risk, associated to the development of new products. The performance of the tourist destination is maximised when based on the sharing of knowledge and a culture of continued learning and innovation. Maximising information flows for all those involved is essential in order to consolidate the learning process of involved actors. As such, “networks are best seen as primarily a cultural phenomena, that is, as sets of meanings, norms and expectations usually linked with behavioural correlates of various kinds“(Curran, Jarvis, Blackburn & Black, 1993). In this context, setting up partnerships, especially between the public and private sectors, constitute one of the more efficient formulas for the development of tourist locations and the exploration of local resources, as well as the key for destinations to offer quality products (Buhalis, 2000; Leoni, 1999; Manente & Furlan, 1998; Ritchie & Crouch, 1997; Wanhill, 1995). Another possible form of prompting and institutionalizing cooperation between the actors in tourist destinations would be through the creation of “holonic networks”. The concept, introduced by McHugh et al. (1995), looks to bring a new form of being and response from organizations
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based on establishing communication platforms, the exchange of information and efficient response to market needs. This new operational concept in the service chain is based on a process of business reengineering, centred on customer satisfaction and the success of organizations in a competitive environment, has been applied successfully in the tourism destination context and meets the needs of cooperation between actors organizations and other regional entities. The concern with customers is the focal point of the holonic system. Holonic organisational networks share common objectives, and uses total quality as well as other management techniques so that all participants work towards greater level of customer satisfaction (McHugh et al., 1995). The holonic network can be described as a group of organizations that act in an integrated form and are organically linked. The following characteristics of the network include: (1) the network not organizationally hierarchical, (2) each business or holon containing whole network characteristics and identical to others, (3) being dynamically balanced, (4) auto-regulated, (5) open access and exchange of information, (6) an evolutionary network in constant interaction with the environment, and (7) a knowledge network and auto-learning. Each organisation, with its specific set of skills, is referred to as a holon. For the tourism case and through a set of competences, the network assumes a specific arrangement, known as virtual organisation whose purpose is to manage each business opportunity observed in the market and in this way contribute to better performance and service of each organisation of the tourist destination. As already mentioned, the fundamental concept associated to a network of information sharing is the creation of a network of contacts between the different parties for the sharing of knowledge, experience and practice, and information dissemination (electronic or personal) in order to improve competitiveness, sustainability and quality of activities and products. Finally, information
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sharing networks in tourist destinations can: (1) promote and develop an interactive dynamic system in constant evolution between agents, public or private, involved in the tourist sector, (2) help the different actor to plan and manage activities in a coordinated and efficient manner, (3) develop benchmarking systems, (4) promote cooperation and development of partnerships between actors, (5) develop good practices and lines of action for integrated quality management, and (6) to offer support and manage information sharing with other institutions. The cooperation lays in a relationship between expected interests, costs and benefits, and synergism should reflect on the best performance of organisations. This thought leads to the need of analysing the information and monitoring systems which will support the evaluation process of the expected performance results, in terms of the partnership and organisations as well as in terms of the study of mutual impacts established between both decision levels. Different organisations, with different organisational cultures will inherently have different views on how a network should be managed and developed (Allen, Colligan & Finnie, 1999).
CONCLUSION From the literature review we can infer that the constitution of information and knowledge networks should be seen as a strategic issue for the greater part of public and private organisations. The tourism sector is no exception and the development of ways of virtual cooperation in the tourism destinations, no doubt constitutes a challenge to overcome. In effect, without this kind of interaction and commitment structures between the organisations in a specific tourism region, it becomes hard for a Destination Management Organisation to, efficiently, manage the value chain and take re-
sponsibility in terms of the tourism destination’s global performance On the other hand, it is noted that the virtual networks’ characteristics are perfectly adequate for the structure that the Destination Management Organisations must develop with the remaining stakeholders in order to ensure the fulfilment of goals and the competitive positioning facing other competitors. Tourism destinations currently face challenges and problems that require quick decision making and a collective effort to adapt to a constantly changing reality. Times are changing, whether in terms of organisational arrangement and new attitudes in the relationship of actors in tourist destinations, whether in terms of vision and pursuits by destination management organisations. The development of processes for continued improvement of global performance and competitiveness of tourist destination, aims above all to redirect tourist activity to adopt new management paradigms based on a culture of network relations guided by principles of sustainability, quality and entrepreneurial excellence. The cooperation and collaborative environment between actors is of crucial importance in order to achieve a sustained global vision of the tourist product. This chapter presents an overview of research concerned with destination competitiveness, the concept of virtual organisations, cooperative environments, new organisational and management paradigms and the development of interorganisational cooperation networks. Based on a theoretical framework the chapter contributes to enlighten the applicableness of the virtual networks concept in a tourism destination context. All the while, it highlights the need and the opportunity the Destination Management Organisations have to assimilates and implement this kind of structures and strategies leading to a news organisational and management paradigms. It must be admitted that the chapter has the limitations inherent to a reflection developed only around the theoretical knowledge on the subject.
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Furthermore, the chapter doesn’t consider the specificities that characterize and differentiate the coastal tourism destinations from the urban and rural ones. The entrepreneurial fabric that supports each of these kinds of tourism destinations is substantially different; witch may imply different formats of partnerships to be established between stakeholders. In terms of future research, several possibilities must be considered. First of all, it is important to reinforce the theoretical knowledge framework on the cooperation between public and private organisations of the tourism sector, as much as the research on costs, benefits, expectations and the other aspects of the virtual partnerships from management process in the tourism destinations. The paper also stimulates the development of empirical research in different kinds of tourism destinations, promoting comparison between formats, methodologies, good practices and results of the implementation of virtual networks between organisations in a cooperative environment of tourism destinations.
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This work was previously published in Connectivity and Knowledge Management in Virtual Organizations: Networking and Developing Interactive Communications, edited by Cesar Camison, Daniel Palacios, Fernando Garrigos and Carlos Devece, pp. 183-204, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.14
Designing Digital Marketplaces for Competitive Advantage Dinesh Rathi University of Alberta, Canada Lisa M. Given University of Alberta, Canada
ABSTRACT In today’s digital world the majority of companies, including small and medium-sized enterprises (SMEs) and large firms, aim to have an online presence. However, SMEs differ from large-sized companies in terms of financial and staffing resources, which have implications for the development of e-business strategies. Thus, SMEs must not only overcome these barriers but must also take care of critical success factors (CSFs), including developing a good website and ensuring that their websites are listed among the DOI: 10.4018/978-1-60960-587-2.ch214
top search engine results. This chapter discusses three elements (i.e., design principles, web usability and search engine optimization), which are vital to the effective design of a successful digital marketplace. The chapter discusses the importance of integrating these three elements in website design especially for SMEs.
INTRODUCTION Consumers (or users of business services) have different types of informational and goods/services needs. There are generally two ways that individuals explore digital spaces to satisfy their
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perceived needs: 1) either users know of specific resources (e.g., websites where they can find the answers they need); or, users use search engines (such as Google, Altavista, Yahoo and MSN) to identify available resources in cyberspace. In cases when users rely on search engines to identify resources, users formulate a query based on their perceived needs and enter the query term(s) in the search box of the search engine. Generally, users’ queries are presented in natural language and the search engines are designed to handle queries in this form (Ding, et al., 2004). A large number of published papers and books (e.g., Brin and Page (1998); Morgan and Hunt (2006)) have described details regarding how search engines work, including how users query search engines, mechanisms for indexing billions of webpages, the different types of data collected from webpages (e.g., contents, title, tag and link details) and the complexities involved in webpage ranking and search engine optimization (SEO) techniques. Search engines match the indexed webpages with the user’s query terms and then return results which include both paid search results (i.e., where companies have paid for ranking and placement in the search engine’s results) and organic search results (i.e., where pages are retrieved based on metadata relevant to the query). The organic search results presented to the user are ordered based on relevance criteria determined by a complex page rank algorithm which uses a large number
of criteria to rank the webpages. The user then explores the search results to seek answers to his/ her perceived needs. Xing and Lin (2004) reported survey results from a study conducted at the Georgia Tech University in which it was found that 85 percent of users use search engines. The findings of the study reflect the importance of search engines in identifying resources for consumers and, at the same time, highlight the value of having a website indexed by the search engine and consistently retrieved among the top ranked websites. Once users identify useful resources (i.e., websites), users will then explore these sites to satisfy perceived needs. This leads to the next issue of how well the consumer can explore the website, itself (i.e., web usability), and how easy it is for the user to complete the information-seeking activity. For example, in an e-commerce context, how easy is it for the user to search for a particular product on a company’s website, place an order for that selected product and complete the sales transaction? All of these steps are dependent on the usability aspects of the website (e.g., ease of navigation; intuitive organization of information) which emanates from appropriate website design. Thus from the perspective of both search engine optimization and usability, a well-designed website is integral to ensuring consumer success in looking for web-based information and goods/ services (see Figure 1).
Figure 1. Inter-relatedness of Website design, Usability and SEO
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Schmid (1999) and Meffert (2000) as cited by Schmees (2003) defined electronic market place (e-marketplace) as a place where all or some business transactions (i.e., goods, services and/or information transfer (Ordanini and Pol, 2001)) are done by using Information and Communication Technologies (ICT). According to Issa et al. (2003) electronic market places are also known as online exchanges, internet markets, digital marketplaces, virtual store, virtual marketplace, e-market, etc. Thus, in this chapter, a digital marketplace is defined as a virtual place (i.e., a website) where consumers and buyers come together to interact; it is the online space where an organization engages with its customers. A well-designed website is not only vital for successful (and satisfactory) interactions between buyers and sellers but also has implications for search engine optimization. A website is one of the critical elements in the success of any type of e-commerce models (i.e., B2B [Business-to-Business] or B2C [Business-to-Consumer] or G2C [Governmentto-Citizen] or C2C [Consumer-to-Consumer]). Out of the four e-commerce models, B2B and B2C are the key models for web transactions for small to medium-sized enterprises (SMEs). It is estimated that B2B is much larger than B2C, which constitutes only 10% of all e-commerce transactions (Connor, Galvin, Evans, 2004). According to E-Stats (http://www.census.gov/retail/ mrts/www/data/pdf/09Q1.pdf), e-commerce retail sales (i.e., online sales) were over $120 billion in 2007 in the United States alone. According to Aspedia.com, a study done by “Forrester in May 2007 estimates that around $400 billion of in-store sales are influenced by the web” (http://aspedia. net/index.php?module=pagesetter&func=viewp ub&tid=4&pid=48) and, in the next five years, this value is expected to be around $1 trillion. This value represents the significance of the ecommerce activity in the business domain. The e-commerce activities are important for every type of organization (including small and medium types of organizations) in order to have wider
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outreach, lowering spatial and temporal barriers and increasing interactivity with customers at a relatively low cost. However SMEs differ from large companies in many ways, which have a bearing on the adoption of e-business models for these organizations. SMEs are in a resource deficit position, as compared to large firms (Mosey, 2005), in terms of financial capabilities, technology use, availability of technologically competent employees and staff time (Tödtling and Kaufmann, 2001; Rostro and Grudzewski, 2008; Mosey, 2005; Pelham and Wilson, 1996; Hamill, 1997; Urwin, 2000; Harker and Akkeren, 2002; Hill and Wright, 2001). There are other barriers, as well, which can adversely affect the adoption of e-commerce; these include: SME managers who are not willing to take responsibility for technological changes; SME managers’ and employees’ misunderstandings of the importance of e-business; an overall lack of awareness of (or concerns for) the processes and different elements of e-business (e.g., technology, security, etc.); and other issues like trust and help within the organization (Simpson and Docherty, 2004). Thus, SMEs must not only overcome these barriers but must also take care of critical success factors (CSFs) in implementing an e-business strategy. Some of the identified CSFs include: having simple business processes (e.g., simple order placement, payment process, etc.); recognizing local culture and regulations; having good communication with consumers; being listed among the top search engine results (i.e., SEO); and implementing a good website design (i.e., creating a usable website) (Jennex, et al., 2004; Taylor and Murphy, 2004; Feindt, et al., 2001; Eid et al., 2002). This chapter will focus on two of these CSFs i.e., usable website design and SEO. Barnard and Wesson (2003) state that large brick-and-mortar businesses have the finances to locate themselves at a prime location and thus have competitive advantage than small businesses; however, they also argue that the Internet provides SMEs comparatively the
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opportunity to level the playing field. Thus, a good, usable website is a prerequisite for success (Barnard and Wesson, 2003) and is “one of the key potential sources of competitive advantage for SMEs engaging in Internet adoptions” (Griffin, 2004, p. 134). According to Murphy and Kielgast, (2008) who conducted research on SMEs (small hotel businesses), SMEs that have a very basic online presence and are not using their website effectively risk losing business opportunities to competitors who are able to provide a good online experience to the customers. Thus, an organization that has a well designed website (e.g. appropriate layout, usable navigation) will have a competitive advantage compared to an organization that has a website with design flaws (Elsammani, et al., 2004; Grigoroudis et al., 2008).
DIGITAL MARKETPLACE Digital Marketplace Design There are many reasons identified in the literature for businesses to have a digital presence. These include wider market access, competitive advantage, online distribution, connection to consumers, lower transaction costs and improved and quick consumer feedback (Iyer, 2005; O’Connor, Galvin and Evans, 2004; Wilson and Abel, 2002). Advances in internet technologies have led to a proliferation in online businesses, with low entry and exit barriers for both corporations and consumers. This has created opportunities for global expansion for even small and medium-sized companies (Wilson and Able, 2002). Thus, organizations from every domain are venturing into the digital space; however, in order to succeed in an online business model, the organization needs to design a digital marketplace which is both usable and searchable. Well designed marketplaces will be attractive, accurate and convenient for consumers (Reedy and Schullo, 2004), they will build trust with consumers (Egger, 2001), they will allow for
successful online transactions (Oppenheim and Ward, 2006) and for quick response by the web manager, when needed (dellaert and kahn, 1999). Although the human-computer interaction (hci) literature highlights the importance of designing good and usable websites, in e-business this focus has been sidelined as many organizations focus on business strategies alone. There are two key aspects to building a successful digital marketplace: first, whether the website has been indexed by search engines for organic results display; and second, whether the website displayed in an organic results list is usable or not. The design concepts and usability principles discussed in this chapter are important elements of e-business strategies which are, unfortunately, not given prominence in e-business books. A well designed website can address most usability and SEO issues, which will (in turn) enhance an organization’s overall business strategy. A website is a very important element of an e-commerce business model. However, in many e-business books the importance of a well designed digital market is often discussed only briefly; this is counter-productive in planning for e-business success, as consumers experience the 4Ps (i.e., Product, Price, Place, and Promotion) of marketing at the same time and in the same place in a web-based environment (Constantinides, 2002a). A few researchers have argued strongly in favour of re-visiting the current 4Ps of marketing management in the current context of e-commerce. For example, Constantinides (2002a, 2002b) proposed a new 4S (i.e., Site, Scope, Synergy and System) web-marketing mixed model, which included Site design as one of the core elements for success in an e-commerce environment because the “website is the counter, helpdesk and sales outlet where the actual commercial or non-commercial transaction takes place. Moreover for products delivered in digital form, the site fulfills even the task of the physical distributor by allowing the product delivery online” (p. 3). With the growth and increased penetration of the internet
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and the subsequent expansion of business into the online domain, organizations’ websites have started playing a crucial role in business. Today, websites have become an important channel to disseminate organizational promotional plans, to support and enhance the brand image of products and the organization, itself (Singh and Dalal, 1999), and to distribute products online such as software, photos, movies and music. Thus the web is becoming progressively not only a medium of communication but also an “important component of promotional strategy” (Geissler, et al., 2006, p. 69) and distribution strategy (Dholakia et al., 1999) for a large number of organizations. Many online ventures have failed not because of the products that are being sold on the website but due to the poor design of the website itself. For example, one of the reasons for the failure of Boo.com was “… its ambitious Web site, which was graphics heavy, meaning for users with a 56K modem, it could take several minutes to load” (Wood, 2000 as presented in Shabazz, 2004, p. 123), and which created antipathy among consumers using the website. This idea is echoed by Constantinides (2002a, 2002b) who notes that there should be a particular focus on different aspects of site design, such as findability and speed, to suit users’ needs. Mandel and Johnson (1999) (as presented in Fortina et al. 2002) argued that “even minute changes in the design and configuration of the interface of a website have significant effects on consumer attitudes and intentions” (p. 626). These effects could arise, for example, due to web changes that inadvertently result in poor usability; where an organization redesigns or changes its e-market interface it must take care to ensure that those changes do not render the website less usable from the customer’s perspective. Hence it is important to consider the design of the digital marketplace so that it meets users’ preferences and needs; unfortunately, this aspect of e-business is often neglected by organizations (especially small and medium-sized enterprises, where the resources to have a dedicated informa-
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tion technology department to support and manage effective web design may be cost prohibitive). Poor design of a digital marketplace has an impact not only on the consumers’ attitude (resulting, potentially, in a loss of business) (Oppenheim and Ward, 2006) but also on search engine optimization. The design of a good digital marketplace is not the sole determinant of the success of a business venture, but it will certainly act as one of the key “hygiene factors” outlined in Herzberg’s Motivation-Hygiene Theory in Organizational Behaviour. Hygiene factors are those elements which do not give positive satisfaction, but whose absence can lead to dissatisfaction among users (Zhang, et al., 2000), resulting in a loss of business to competitors. For example, Zhang et al. (2003) identified dead links (or ‘broken links’) as hygiene factor because users assume that the links on the website will work but if the links are not working (i.e., are dead or broken) then users will be disappointed. Hence, organizations must strive to minimize the impact of hygiene factors on e-business. A well designed website will evoke positive emotions, perceptions and attitudes among consumers due to the “the impact the user’s attitude towards the Web site’s content, advertised products, company, credibility and site usability” can have on the business itself (Chen, 2009, p. articles/062009news.html). A recent study conducted by Geissler, et al. (2006) noted that design principles such as the home page length, graphics, links and text affect the user’s perception of the website, which has a bearing on consumers’ attitudes and purchase intentions. A well designed website will provide a strong visual appeal which will lead to quick judgment among users, positively affecting consumers’ buying behaviors and “influence brand perception and credibility” (Chen, 2009, p. articles/062009news. html). According to Lindgaard et al. (2006) the visual appeal of the website can be assessed within 50 milliseconds (ms), so it is vitally important that businesses get the design right, the first time.
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Large organizations with significant budgets to devote to web design often do understand (and design for) the concepts of usability and SEO optimization; however (as discussed previously), SMEs often lack the resources to implement web usability and SEO concepts. A large number of organizations fail to understand the integrated nature of the three activities (i.e., website design, SEO and usability). Often, the web designer is not aware of the impact their design will have on SEO; similarly, copywriters (i.e., website content writers) may not realize how the choice of the words, placement of the words, etc., can affect SEO and usability. This is because the designers and copywriters are, typically, not trained in usability principles and are not experts in SEO techniques. Hence, it becomes imperative that the design and development of a digital marketplace should happen in a collaborative and integrated manner, with team members with varied expertise working together, rather than in silos. A well designed marketplace can lead to competitive advantages in many ways; for example, having the website among the top ranked sites in an organic results list can lead to repeated visits by users and a greater likelihood of repeated transactions (e.g., higher sales). If users are not able to find a website in the search results, there is a greater likelihood that the user will not visit the website and the company will lose the business opportunity. However, being ranked in the top list of returned results is only half of the equation; if a user cannot navigate the website and complete the transaction, then the user will leave the website and go to a competitor’s website, resulting in a gain for that competitor. In the section that follows, we will outline the central design principles that small and mediumsized enterprises should consider, followed by an overview of key usability principles and methods, including the impact of good website design on SEO techniques.
Website Design Principles There are a large number of research papers on website design principles; different research papers have highlighted the importance of different website design elements that can make websites effective and attract users’ attention in a visually appealing way, in a very short period of time. Oppenheim and Ward (2006) have identified numerous design elements, such as presentation, content, accessibility, navigation, language, transaction pages, security, privacy and authority. Liu and Arnett (2000) note the importance of information quality and playfulness in effective design. Palmer (2002) and Ranganathan and Ganapathy (2002) have noted content quality, security, privacy and navigation as central to good design. Webb and Webb (2004) have identified navigability, accuracy, security, trust and representation relevancy. Cao, et al. (2005) have outlined four main elements (and a few sub-elements) for quality evaluation of e-commerce websites, specifically, including System Quality (i.e., search, multimedia and responsiveness), Information Quality (i.e., accuracy and relevance), Service Quality (i.e., trust and empathy) and Attractiveness (i.e., playfulness). Similarly, Gehrke and Turban (1999) identified a few important website design factors and emphasized in their conclusion that “cool stuff is on its way out. Revolving wingdings, flashing banner ads, grotesque background colors and textures, and a meaningless multitude of multimedia effects that require endless plug-ins will be extinct as electronic commerce continues to advance” (p. 6-7). Interestingly, although the latter paper was published a decade ago, many e-business websites continue to privilege “cool stuff” while ignoring many of these key principles of quality design, which customers crave. E-business must embrace the principles of effective design and move away from flashy trends in web design, which often do not satisfy customers’ web-based needs.
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The findings of these research projects have been compiled and summarized in a number of guides, including U.S. Department of Health and Human Services (2006 ed.) that is available at the website www.usability.gov, ‘an official U.S. Government Web site managed by the U.S. Department of Health & Human Services’. A comprehensive and detailed description of key design principles and practical solutions are presented on this site, which was developed based on findings from different domains, including “cognitive psychology, computer science, human factors, technical communication, and usability” (http://www.usability.gov/pdfs/guidelines.html). The following are identified as high level elements for website design: •
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Design Process and Details: e.g., identifying website goals and detailed users’ requirements; Accessibility: e.g., support for assistive technologies and presenting webpages in text only format; Homepage: e.g., designing a website to allow home page access from any page of the website; Page Layout: e.g., organization and structuring pages for easy and quick comprehension; Navigation: includes the ability to find information on the website by adopting consistent policies on different elements such as tabs, heading, listing, layout, layering of menus, etc.; Scrolling and Paging: e.g., designing appropriate page length for the content presented (i.e., longer page length for reading comprehension; minimizing horizontal scrolling); Text Appearance: e.g., use of familiar font size, bold, background and text color combination, font consistent across webpages;
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Lists: e.g., providing headings for lists and ordering elements to support quick scans of the purpose of the list; Widgets: e.g., consistent use of buttons, check boxes, drop down lists, etc.; Graphics and Multimedia: e.g., appropriate image-text ratio, size of graphics to minimize impact on downloading speed, corporate logo placement consistency; Search: e.g., having search features on the website, full website search capability, case- insensitive and natural language search support; Links: e.g., appropriate colors and labels for links, checking for dead links and relevancy of links; Content and Content Organization: e.g., placement of critical information near the top of the page; consistency and clarity of organization of information at the website, page, paragraph and list levels; Heading, Titles and Labels: e.g., use of correct HTML tags (h1, h2, p, …), appropriate and meaningful page headings, meta tags; Hardware and Software Configuration: e.g., designing the website of (all or) commonly used web browsers by the target audience, typical user connection speed; Practice Web Standards: e.g., using website design standards such xHTML standards, validations, etc. Meet Accessibility Guidelines: e.g., use alt-tags for images, avoid the use of frames, etc.
An appropriate adoption and deployment of each of these design elements will enhance the e-commerce website’s usability (i.e., ease of use) and attractiveness. Some of the above-listed design elements, such as content, heading, title, content organization and page layout, will also have an impact on both usability and SEO. In the next sec-
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tion, we discuss usability principles and evaluation methods, followed by a section on SEO. In addition, websites should explicitly address how customers’ privacy will be maintained (e.g., how users’ confidential financial information will be managed). Similarly, companies must maintain secure transactions with consumers by implementing technologies such as SET (Secure Electronic Transaction), SSL (Secure Sockets Layer) and digital ID (Gehrke and Turban, 1999) and displaying the logos and icons that represent these technologies. When consumers see a padlock icon or an “s” added to the http code, they gain an enhanced sense of security and see that it is safe to complete a transaction on that company’s website.
Usability According to Gullikson et al. (1999) the visual appearance, utility aspect (i.e., “the ability of the web site to do functionally what it is supposed to do” (p. 294)) and usability are the three important aspects of a well-designed website. A website should enhance visual appeal and utility while reducing usability problems, substantially. Often, website designers primarily focus on the “look and feel” (Gullikson et al., 1999) of a site, so that the usability aspects are ignored. Usability is about the ease with which users’ interact with a system or website (Nielsen and Mack, 1994; Nielsen, 2000) as they search for information or place product orders on the web (Benbunan-Fich, 2001; Nah and Davis, 2002). There are different usability definitions proposed in the literature; for example, Matera et al., 2006 define usability as “the extent to which a product can be used by specified users to achieve goals with effectiveness, efficiency and satisfaction in a specified context of use” (p. 4). The most cited usability definition is from Jacob Nielsen’s work; Nielsen (2003) defined usability as “a quality attribute that assesses how easy user interfaces are to use” and “refers to methods for improving ease-of-use during the design process” (p. http://www.useit.com/alertbox/20030825.
html). Nielsen (2003) identified five elements of usability which include learnability (i.e., ease of use even in the first instance of interaction), efficiency (i.e., the ability to undertake an activity quickly after learning the design), memorability (i.e., the ability to undertake an activity efficiently after prolonged absence from the site), errors (i.e., the types of errors, their severity and the ability to recover from them), and satisfaction (i.e., enjoyment of the site in use). Nielsen (2003) has also presented a few misconceptions about usability. First, usability is often considered as an expensive exercise and many corporations are not inclined to undertake it. However, the objective of the usability study dictates the cost of the exercise. In some cases, usability testing can cost many thousands of dollars; however, this is typically only if the usability project involves multiple websites, which are examined over a long period of time. However, as small and medium-sized organizations typically have small-scale websites, often with a smaller target audience than a large organization, these studies can be undertaken at a very low (or even no) cost. A low cost usability exercise could capture a large number of problems in a website, resulting in resolutions of major issues that can lead to increased sales with only a few changes to the organization’s website. The rule of thumb proposed by Jacob Nielsen is that “on average, best practices call for spending 10% of a design budget on usability” (p. Alertbox, September 8, 2003). A second myth is that usability testing will delay a website launch; however, employing a usercentered design process throughout can minimize the impact of time needed to incorporate changes to a site, resulting in an on-time launch that will meet users’ website needs. According to Maguire (2001) the design process and usability testing were originally considered independent events, but the new approach to design (as reflected, for example, in the ISO 13407 human-centred design framework) integrates these steps, so that usability is now part of the website development process.
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A third myth is that usability can kill creativity. However, Nielsen has been firm in noting that “following design conventions doesn’t destroy creativity” (Nielsen, 2003, p. Alertbox, September 8, 2003); rather, finding creative solutions that support customers’ intentions can enhance design creativity, while serving customers’needs. A fourth myth is that users do not need to use the website to do usability testing; i.e., that the website can be evaluated by using market research techniques such as customer satisfaction survey. According to Nielsen (2003), in actual practice, market research might not always be able to provide insight into usability issues of the website because the websites that “look incredibly cool and compelling, yet they almost never work in actual use” (p. Alertbox, September 8, 2003). In the HCI literature, three different major usability methods and techniques (i.e., inquiry, testing and inspection), have been proposed (Paas and Firssova; 2004; Folmer and Bosch; 2004; Nielsen, 1994). In a Usability Inquiry method, data are collected by talking to users about their experiences with websites when they try to engage in real-life tasks. This could be done by using instruments such as questionnaires, focus groups, panel discussions and interviews (Paas and Firssova; 2004; Folmer and Bosch; 2004). In Usability Testing methods, experts evaluate how the website would support the user to complete tasks; data are collected by observing users as they engage in representative tasks on prototype models. Data collection methods include think aloud protocols, co-discovery learning, trial runs, coaching methods, etc (Nielsen, 1993; Paas and Firssova; 2004; Folmer and Bosch; 2004). In Usability Inspection, the experts play the role of users’ (in addition to relying on their expert knowledge) as they review websites using various formal and informal methods; these include heuristic evaluation cognitive walkthrough, pluralistic walkthrough, feature inspection, and standard inspection (Nielsen, 1994; Paas and Firssova; 2004; Folmer and Bosch; 2004; Maguire, 2001). The
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most commonly used usability inspection method is heuristic evaluation and Nielsen (1994) has identified ten heuristic principles: visibility of system status; the match between the system and the real world; user control and freedom; consistency and standards; error prevention; recognition rather than recall; flexibility and efficiency of use; aesthetic and minimalist design; helping users recognize, diagnose, and recover from errors; and help and documentation (www.useit.com/papers/heuristic/ heuristic_list.html). Although inspection methods can give a designer (and an organization) a clear sense of areas for development (e.g., to audit a website for its adherence to accessibility design principles), these approaches should be used in conjunction with – not, in isolation from – methods that engage real users in real web searching tasks. As experts cannot anticipate a user’s potential use of a given website, it is vital to include members of the site’s target audience in the web design and evaluation process, prior to launch. A large number of studies have discussed and propagated the importance of usability, but many organizations continue to fail to understand its importance; for this reason, websites continue to be designed with usability errors (Nah and Davis, 2002, p. 98) and customers continue to be lost. The commonly identified problems on websites are poor navigability, low response times and confusing content (Nielsen, 1999; Nah and Davis, 2002). Tedeschi (1999) [as reported by Benbunan-Fich, 2001] argued that “better usability will result in more efficient interaction between the user and the site and will increase the probability that the user will return and/or make a purchase” (p. 151). If website usability is not addressed in the design of a site, this will lead to loss of customers and will risk the economic viability of the e-business enterprise (Nah and Davis, 2002). Nielsen (1998) cited a research report by Forrester (1998) that reflects the loss of potential business opportunities due to poor usability caused by poor website design. The author noted that there is expected to be a
Designing Digital Marketplaces for Competitive Advantage
“loss of approximately 50% of the potential sales from the site as people can’t find stuff” in addition to “losing repeat visits from 40% of the users who do not return to a site when their first visit resulted in a negative experience” (Nielsen, 1998, p. Alertbox for October 18, 1998). This potential loss was confirmed by Konradt et. al (2003). The authors in their work presented an interesting finding from a study conducted by Manhartsberger and Musil (2001) in which the 100 consumers who participated were given a task to buy products from the websites; the e-business companies involved lost 63% (USD 5,645 out of USD 9,000) of the potential revenue as consumers were not able to locate the product of their choice. These studies are just a few examples that reflect the idea that poorly designed websites with poor usability can lead to loss of potential business opportunities. As Nielsen (2003) notes, “the first law of e-commerce is that if users cannot find the product, they cannot buy it either” (p. alertbox/20030825.html).
Search Engine Optimization (SEO) The growth of the internet is demonstrated in the increasing number of registered domains; there were 174 million, 150 million and 120 million domains registered at the end of the third quarter of 2008, at the end of 2007 and 2006 respectively (http://www.verisign.com/domain-nameservices/domain-information-center/domainname-resources/domain-name-report-dec08.pdf). Verisign.com report has also reported that annual domain renewal is in the range of 74% to 77% for years 2006 and 2007. Thus the high renewal rate and continuous registration of new domains is leading to a crowding of the internet search space as every domain vies for a slot in the search engine results space. E-commerce websites must compete not only with the competitors from their own business domains but also with other websites (e.g., informational websites; entertainment
sites) for users’ attention. Research in HCI and information science demonstrates that users will reduce the cognitive load involved in searching for information by (for example) scanning only through the first page of results retrieved by search engines (Sen, 2005). Hence it becomes imperative for businesses to design a marketplace which not only adheres to website design principles and is usable, but that is also indexed by search engines so that the website will be listed among the top 20 organic search results (i.e., the first page) for a user query. There are two major ways in which a website can be included in the search engine results. First, a business can design a search enginefriendly website, so that it will be indexed by the search engine (i.e., organic results); or, second, a business can pay the search engine company to ensure that their website is displayed in the search engine results list (i.e., paid results) (Yu and Lin. 2007). Paid results are of two types, i.e., paid inclusion and paid placement. Paid inclusion means paying the search engine to “guarantee a web site’s pages are stored in the search index” (Moran and Hunt, 2006, p. 513); however, in this approach, there is no guarantee for a high search result ranking for the website. Paid placement, on the other hand, involves paying the search engine to show the pages of the website in the search results in response to the particular set of query (or search) terms “regardless of how closely the page matches” the query (or search) terms (Moran and Hunt, 2006, p. 5). For example, with paid placement the website links display as sponsored links by Google on the top of the search results or on the right side of the search result pages. The main revenue model for search engine for paid placement is CPC (cost per click) (Xing and Lin, 2004). The organic results are the “best pages found for the words the searcher entered” (Moran and Hunt, 2006, p. 5) by the search engine, which is commonly linked to SEO. SEO is a technique to optimize the website so that it has a better ranking in the organic search
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(Moran and Hunt, 2006; Xing and Lin, 2004; Joshi and Motwani, 2006; Sen, 2005). There is always competition between paid placement and SEO but there are contradictory assessments among researchers. Sen (2005) argued that a large number of businesses do not want to invest in SEO because the organizations believe that adopting SEO strategies is more expensive than investing in paid placement; however, SEO might become more attractive to companies than paid placement if SEO costs are controlled. Xing and Lin (2004) argued that SEO is more popular than paid placement because unbiased organic results appeal more to the consumers. Also the CPC have problem of fraudulent clicks which is estimated to be in the range of 20-35% (i.e., 20-35% clicks are fraudulent) when using generic keywords (e.g., automobile, cell phones) (Quinton and Khan, 2009). Malaga (2007) compared the SEO cost vis-à-vis CPC rate for an iPod-related website; the author found that their CPC for their SEO project was $0.16 (as the website had 7500 unique visitors per month and their SEO cost was 1200, hence 1200/7500=$0.16) while the CPC rate for iPod related keywords was $0.40 and $0.30 for Google and Yahoo respectively. SEO is important because websites need to be high in the ranking in the organic search results, especially as most consumers browse top-listed websites of the organic search results (Sen, 2005) which affects traffic onto the website (Yu and Lin, 2007). The results from the survey conducted by Georgia Tech University and by the Search Engine Marketing Professional Organization (SEMPO) as reported in Xing and Lin (2004) indicate that 70% of users prefer organic results; paid listings only received about 24.6% of clicks. This was confirmed by Moran and Hunt (2006) who noted that organic search results are important because “searchers click organic results 60 percent of the time” (p. 5). The number of people using search engines to search and browse for information and products is constantly increasing. Hence it is important for companies involved in e-business (either in
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online commerce or information dissemination businesses) to include SEO strategies in the design phase for their websites because 62% of users generally examine the first page search results, only, and a very few users (less than 10%) browse the search results beyond third page of the search results (Malaga, 2008; Malaga, 2007; Zhang and Dimitroff, 2005; Yu and Lin, 2007). There are a large number of organizations that are involved in search engine marketing, an important marketing activity in e-business. These organizations specialize in the area of SEO. In their services for SEO, these search engine marketing organizations such as Wordtracker.com, Yahoo (Small Business), Google, and Marketleap.com offer (one or more) services that include keyword analyses, word trackers (i.e., to highlight the best keywords for your website), keyword selection (i.e., choosing the right keywords for marketing), website ranking evaluation, link popularity analysis and Meta tag generators. These elements all have an impact on SEO. The SEO can be done by making changes in the website design and code (Sen, 2005; Zhang and Dimitroff, 2005; Moran and Hunt, 2006; Abel, 2002). Hence, the design of the digital marketplace requires an approach that interweaves website design principles and theories and SEO techniques in the early development stage. By incorporating SEO techniques during the design phase, the organization can save substantial amounts of money by not needing to pay SEO consultants at a later stage, to increase website traffic. According to Malaga (2007), many SEO consultants charge more than $5000 for a SEO research project. The design elements that can affect SEO include: headings, titles, website content and content organization, tags (such as meta tags and image tags), links, as well as web standards and the design process itself (Joshi and Motwani, 2006; Moran and Hunt, 2006; Wilson and Abel, 2002; Zhang and Dimitroff, 2005; Yu and Lin, 2007; Weideman and Schwenke, 2006; Malaga, 2007).
Designing Digital Marketplaces for Competitive Advantage
In the following paragraphs, some of the design elements that impact SEO will be discussed.
Impact of Different Design Elements on SEO Organizations with a digital presence need to identify the website’s goals (Design Process and Details) and align these with the organization’s goals. This is important because this will inform the choice of a target audience for the site and an understanding of what search engine would best meet the potential customers’ requirements, as different search engines have different ranking criteria and indexing strategies (Zhang and Dimitroff, 2005). By identify the goals and objectives, the organization can target particular search engines. Even though there are over 30,000 search engines in existence (Zhang and Dimitroff 2005), the three most prominent search engines (i.e., Google, Yahoo and MSN) account for over 80% of the search engine market (Malaga, 2007). There is a crowding of cyberspace with an increasing number of websites in the digital space. Hence, search engines are working towards developing more and more innovative algorithms to better the search results. A large number of design elements can affect a site’s ranking in major search engines. The design elements such as heading, title, website content and content organization have an impact on SEO as they affect keyword selection, keyword density, keyword proximity and keyword prominence. Keyword density (also known as keyword weight) is the ratio of the total number of times a word occurs on a page to the total count of all words in a page (Moran and Hunt, 2006; Malaga, 2007). Previously, a search engine gave importance to a term count (i.e., a page that had a higher number of instances of the query term was considered ‘good’); more recently, search engines changed to examine keyword density, so that the target density should be around 7% (Moran and Hunt, 2006, p. 39). Keyword proximity is the distance
between the query terms on a page (i.e. if the user uses more than one query term, how far are these query terms from one another on the webpage). Thus, the closer the query terms the better it is from a retrieval standpoint re: the relevance of the page to the query itself. For example, if a user employs the query terms ‘cell phones’, then having both the terms next to each other is better than the term ‘cell’ separated from the term ‘phone’ by a few words or in a separate paragraph (Moran and Hunt, 2006). Keyword prominence refers to the location of the keywords on the page (i.e. whether they are in the header, title, or top of the page) (Moran and Hunt, 2006); here, the higher the prominence of the keyword, the more likely that the page will match the relevance content of the user’s query. The quality, relevance, completeness and currency (Konradt et al., 2003) of the content are not only important factors in consumers’ buying decision processes, but also have an impact on the SEO. Cole et al. (2003), Agarwal and Venkatesh (2002), and Kim and Lee (2002) [as referenced in Konradt et al. (2003)] have highlighted the importance of quality of content on websites. The quality of the content will influence the selection of keywords along with density, proximity and prominence. Wilson and Abel (2002) noted that it is important to optimize the content of the web with the appropriate choice of keywords and to ensure that those keywords are positioned in an important area of the page (i.e., top of the page); this notion was also supported by Sen (2005) who suggested that companies can improve their website page ranking by modifying the website title tag, heading tags, etc. Hence, content writers and website designers are required to work in close collaboration to ensure SEO. Content writers need to identify the important keywords which they feel reflect their business and are frequently used by consumers to identify specific business websites. For example, if a the company is in the business of online selling of cameras, content writers need to identify which keywords
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users will use to find websites that sell cameras. One of the keywords that users might commonly use is ‘digital camera’. The company’s website should have keywords ‘digital’ and ‘camera’ in close proximity to each other and on the top of the webpage. The top keywords that users use to find webpages can be identified by using online resources such as wordtracker (available at http:// www.wordtracker.com/). The importance of keyword density and prominence in title and main text is confirmed by the results that Zhang and Dimitroff (2005) found in their experimental study. Zhang and Dimitroff (2005) note that the website achieved a better search ranking by having the same keywords used multiple times (i.e., increasing keyword density) and also by having the same keywords both in the title and in the initial part of the full-text, which is, generally, on the top of the webpage (i.e., increasing keyword prominence) (Malaga, 2007; Zhang and Dimitroff, 2005; Curran, 2004). Yu and Lin (2007) have identified over 41 different types of tools that can be used in SEO. For example, the keyword density tool provided by SEO Chat (available at http://www.seochat.com/seo-tools/) can help both content writers and website designers, as they can make informed decisions on the choice of keywords to be included in the webpage. However, companies should also be ethical in their practices in use of SEO techniques. The use of unethical practices (e.g., artificially increasing the keyword density by using the same term multiple times in the content or changing the font color of the keyword to white so that the high visibility of the keyword does not irritate the user or alter the content flow, while increasing the term count) could lead to penalization such as “worse placement in the SERPs (Search Engine Result Pages) or an outright ban from the search engine” (Malaga 2008, p. 147; Malaga, 2007). For example, BMW used unethical practice in order to have a high page ranking for its German website in Google organic search results. The company used a technique called ‘doorway page’ (Malaga 2008) which
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means that the company had two separate sets of webpages, where one set of webpages were for indexing purposes while the other set of pages were for users to view. Google thus banned the website because the webpages that were indexed by Google were not shown to the users but were redirected to different sets of webpages. Another element that needs to be addressed in the design process, which affects SEO, is the appropriate and effective use of meta tags and image tags. Meta-tags are the tags that provide additional data (e.g., such as keywords, description) from a page to search engines (Joshi and Motwani, 2006; Sen, 2005; Malaga, 2007; Wilson and Abel, 2002). The meta tags are part of the head element of an HTML and xHTML document, and “are typically used to specify page description, keywords, author of the document, last modified and other metadata” (http://w3schools.com/tags/tag_meta. asp) of HTML/xHTML page (Malet, et al., 1999). For example: <meta name=”description” content= “E-business Book Chapter” /> and <meta name=”keywords” content= “SEO, Usability, Digital Market, Website Design” />. “Meta tags are important pieces of code that many search engines use to analyze, categorize and rank a website” (http://www.mailworkz.com/tools.htm). According to Joshi and Motwani (2006), a large number of websites include important keywords in meta tags, which are crawled by search engine spiders (or crawlers). Spiders are computer programs that continuously traverse the Web and download the pages, collect webpage location information and store them on the server for indexing purpose (Heydon and Najork, 1999; http:// www.kbkmarketing.com/other-seo-definitions. php). Some search engines use meta tags in page ranking while others collect the meta tag data but do not use them in page ranking (Wilson and Abel, 2002). For example, Google does not make use of meta tags in ranking of search results (http:// searchenginewatch.com/2167931). In addition, other tags such as image tags (e.g., ALT) i.e., text associate with images or text in comment are
Designing Digital Marketplaces for Competitive Advantage
indexed by some of the search engines such as Google and AltaVista (http://searchenginewatch. com). Hence designers need to pay attention in naming or commenting on the images. Search engines such as Google use link analysis to enhance the organic search results of websites (Moran and Hunt, 2006; Sen, 2005; Weideman and Mgidana, 2004; Yu and Lin, 2007; Zhang and Dimitroff, 2005; Wilson and Able, 2002). Link analysis used by a search engine has its grounding in the Hub and Authority model, proposed by Jon Kleinberg (Kleinberg, 1999a; 1999b), which aims to harness the “diversity roles among different types of pages” (Kleinberg, 1999b, p. 2). Kleinberg proposed that the hubs are those pages which act as guides and resource to users by recommending them to a website which is an authority on the content; and, authorities are those pages which are the primary sources of the information. For example, www.useit.com is the authority (website) on usability and any other website providing the link to this website will be the hub for the topic. The presence of the links as well as the anchor text (i.e., label name) given to the link on the website has been identified as one of the techniques for SEO (Moran and Hunt, 2006). For example, a website (say, ‘www.helloworld. com’) is in the business of usability consultancy. This website has many usability related links including ‘http://www.useit.com’, which has the anchor text label ‘Heuristic Evaluation by Jacob Nielsen’. The website (www.helloworld.com) is a ‘hub’ for usability and ‘www.useit.com’ is the ‘authority’ on usability (as many other websites also point to www.useit.com for usability-related concepts). Now, when a user uses the query terms ‘Heuristic’ and ‘Nielsen’, the search engines used for link analysis to rank ‘www.helloworld. com’ would evaluate both the link itself (www. useit.com) and the anchor text label (‘Heuristic Evaluation by Jacob Nielsen’). Hence. SMEs’ in designing their webpages, should consider the link analysis element and should strive to become hubs
for information in their specialty area by providing links to other websites (i.e., authorities). Finally, following the website design standards such as those proposed by W3C (World Wide Web Consortium) (www.w3.org) is a good design practice, and certainly would support in optimizing the website for search engine indexing as “the search engine spider/crawlers can easily understand the content of your page and follow all the links throughout your site. Web standards were developed with specific accessibility issues in mind and following these standards not only aids those visiting your site with visual impairment, it also helps search engine spiders understand the graphical content of your site as well. Another key component to building pages with Web standards is separating content from page structure, formatting and functionality. In doing this it helps load times, assists the search engine spiders in focusing on content and decreases the ratio of code to content” (Hendrikse, 2008, p. 7-8).
CONCLUSION AND FUTURE RESEARCH DIRECTIONS In today’s digital world, firms should have an online presence and should explore the ways to harness the internet’s potential to advance their business goals. The firms (whether large or small and medium-sized) should take care of critical success factors (including those discussed in this chapter) required to benefit from e-commerce. One of the critical success factors is the online presence of a business via a website. However, the mere online presence of a firm is not adequate; consumers should also be able to search the website easily and place the order quickly. Thus, the firm’s website should be designed so that it is not only usable but also optimized to support search engine marketing. This requires an investment of time and human resources; although large firms generally have adequate resources (e.g., skilled manpower,
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technological base, and financial strength) to support their website design process, usability testing and SEO for search engine marketing, small-scale firms may have limited resources to devote to these activities. These organizations should strive to optimize their resources by carefully planning their online strategies; this includes planning well ahead before designing of the website and involving consumers throughout the design process, to manage time and finances devoted to usability, effectively. SMEs should strive to achieve multiple goals, such as usable website and optimized for search engine, in their website design phase by carefully adopting the design principles and incorporating SEO technique. A large number of usability elements and SEO techniques can be done at low cost and do not require expensive consultants to undertake these activities. All of these factors are crucial – and doable – for small and medium-sized enterprises that plan to embark on (or enhance) e-business activities. In future, we would like to examine the current practices of SMEs in terms of usability and SEO practices; i.e., how usability is being currently practiced in SMEs, what SEO techniques SMEs are using to enhance their ranking on the web, what resources (i.e., external consultants or internal expertise) SMEs are using in SEO techniques implementation. Finally, there is a need to develop a set of best practices for SMEs for designing, usable and SEO-compliant websites.
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This work was previously published in E-Business Issues, Challenges and Opportunities for SMEs: Driving Competitiveness, edited by Maria Manuela Cruz-Cunha and João Varajão, pp. 1-19, copyright 2011 by Business Science Reference (an imprint of IGI Global). 486
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Business Models for Insurance of Business Web Services Liu Wenyin City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China An Liu University of Science & Technology of China, China & City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China Qing Li City University of Hong Kong, China & CityU-USTC Advanced Research Institute, China Liusheng Huang University of Science & Technology of China, China & CityU-USTC Advanced Research Institute, China
ABSTRACT A new business—insurance on business Web services—is proposed. As more and more Web services will be developed to fulfill the ever increasing needs of e-Business, the e-marketplace for Web services will soon be established. However, the qualities of these business Web services are unknown without real experiences and users can
hardly make decisions on service selection. We propose that insurance can help build trust in the market of Web services. In this chapter, we propose three insurance models for business Web services and enabling technologies, including quality description, reputation scheme, transaction analysis, etc. We believe that the insurance of business Web services will help service competition and hence boost the development of more and more business Web services, and the software industry at large.
DOI: 10.4018/978-1-60960-587-2.ch215
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Business Models for Insurance of Business Web Services
INTRODUCTION Electronic Business, or e-Business, is the business that can be conducted via computers and software over information networks. It is a revolutionary business paradigm that has emerged with the advent of the Internet era. It is currently transforming the commercial world. E-Business features automatic information transfer on the Web and automatic information processing at the nodes of the Web, known as Web servers. Software applications are playing critical roles in automating these tasks. Currently, software applications on the Web can deliver a wide variety of solutions to address a wide variety of customer and business needs. Electronic purchase orders, payments, negotiations, collaborative work, stock trading, are just a few examples of these applications in e-Business. What a server can provide can be called services in general. Hence, traditionally, what a Web server can provide has also been called Web services. However, just in the recent several years, Web services have been mainly used to refer to those platform-neutral, self-describing software components that implement business functions and can be automatically discovered and engaged with other Web components to complete complex tasks over the Internet. In other words, Web services are just software components that are networked—instead of applications that are networked. The Web services approach can greatly simplify B2B collaboration and provides a new model for the way businesses share their data and systems. By packaging business processes as software components, Web services will drive much of the still-to-be-developed e-business landscape. Web services will be the main driver of e-business as more business processes are transformed into software elements. Most of such Web services that implement core functions of business will be delivered to customers with service charge and we refer to this kind of Web services as business
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Web services. Gartner says that the market of software as a service (SaaS) will reach $9.6 billion in 2009, a 21.9 percent increase from 2008 revenue of $6.6 billion, and will show consistent growth through 2013 when worldwide SaaS revenue will total $16 billion for the enterprise application markets. Therefore, in the remaining parts of this paper, we also mean “business Web services” when we talk about “Web services”, if it is not clearly specified. Many experts have highly evaluated the impact of Web services, which will fundamentally transform Web-based applications by enabling them to participate more broadly as an integrated component to an e-Business solution. As pointed out by Alexander Linden, research director for Gartner, Web services will facilitate much faster software development and integration, enable businesses to become more agile, and help them focus on their core competencies (Coursey, 2001). Gartner had predicted that software Web services will be the next big business IT trend, picking up speed soon. Several companies have already seen the potential commercial opportunities and have invested largely on the Web services infrastructures, which can facilitate the development, delivery, and integration of Web services. For instances, Microsoft has already released their Web service platform, known as Microsoft.NET (http://www. microsoft.com/net/); Sun Microsystems has also launched their own counterpart project, which is named Sun Open Net Environment, or in short, Sun ONE (http://www.sun.com/sunone/), to compete with Microsoft.NET. Other big companies also join this competition, including IBM Web Services Toolkit (http://www.alphaworks.ibm.com/ tech/webservicestoolkit/) and HP Web Service Platform (http://www.bluestone.com/products/ hp_web_services/). Actually, competition will not be limited on Web services platforms. The Web service technologies can also bring competition among different Web services and service providers (Cheng, Chang
Business Models for Insurance of Business Web Services
& Zhang, 2007). It can be expected that, with the facilities of advanced Web service technologies, more and more Web services of various functions will be developed, deployed, published soon on the Web and users will have more opportunities to choose among these services. The factors that may affect a user’s decision on service selection (from the service marketplace) include service price and quality (we use the term “quality” in this paper to refer to the general performance of Web services, including security, stability, correctness, accuracy, responsive speed, and information processing speed, etc). Just like other kind of services, people have to make tradeoffs between price and quality (Liu et al., 2008). Some services with the same functions or qualities may ask for different prices, which may not be worthy of (or matching) their qualities. It is quite hard for a user to choose a service provider and its service from available ones (of the same or similar kinds). Actually, users may require different levels of qualities of services for different purposes of businesses and different qualities of services should deserve different prices. For those critical businesses, users usually are willing to pay a higher price for a more reliable service, and for non-critical businesses, a moderate quality with a lower price is more preferable. However, users are usually unable to know the qualities of these services in detail before really using them. They usually get to know these services and their qualities from their providers’ own reports or advertisements. No objective, thirdparty, independent report is currently available. Sometimes, quality of service is more critical in the success of a business since potential lost due to quality of service is risky (Kokash & D’Andrea, 2007). Losses caused by the software services can be huge, depending on the role of the services in the entire business. Similar to hardware devices and equipments, software products or services also cannot be technically and completely guaranteed to function as expected all the time. Hence,
the customers of these software products and services are suffering some critical losses while benefiting from their functionalities. Actually, Standish Group has reported that software bugs have cost US companies about 100 billion dollars in 2001. And that does not include the cost of losing angry customers. A concrete example is that, eBay Inc. had ever suffered a 22-hour outage of its E-commerce Web site, traced to a bug in the Solaris operating system (product of Sun Microsystems) that corrupted information in an Oracle database. Sun CEO Scott McNealy had acknowledged a known bug that caused the problem. Due to the impossibility of complete testing (Liu, Jia & Au, 2002), no matter how many time spent on software testing, we cannot test all inputs or all combinations of inputs. This even does not include the case of potential problems of the complicated Internet environment, which makes the testing more difficult. Hence, the situation of buggy software or services is very likely to stay for a long period of time. Before the quality of a service (or the potential risk due to service failure) is completely known, insurance of Web services is absolutely one means among the others to increase the service quality in some sense, at least in the sense that customers can trust the service quality more, though additional cost may be needed. Web service providers can also use insurance to survive the coming fierce competition. Thus, it is necessary for insurance companies to step into this area and cover the insurance of Web services, which will become a new prosperous business to greatly help and push the development and pervasion of insured Web services. We define an insured business Web service as a Web service with a service charge, whose service quality, including operation correctness, response time, and other quantitative performance, is insured such that any deteriorated quality/performance causing any kind of loss from its clients can result in a claim for compensation.
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THE STATE OF THE ART OF SOFTWARE INSURANCE The insurance industry began in the middle of 19th century as the engineering insurance emerged with the advent of steam power (Daley, 1999). After that, it took more than one hundred years for the insurance industry to get full development. In the last half century, especially, in the last 20 years, insurance has been expanded to many new areas, e.g., medical insurance and liability insurance, and has become more and more popular in our daily lives and works. However, software, as either products or services, has constantly been out of from the policy coverage of insurance companies. As Voas (Voas, 1999) pointed out, the reason is that the insurers do not have enough time to collect sufficient historical data for actuaries to estimate premium before a software product becomes obsolete. Another reason is that the intrinsic software quality is usually not guaranteed. For example, it was estimated that the well-known Y2K problem might have needed 300~600 billion dollars for the massive repair effort, which might be beyond the capability of the entire insurance industry. The high risk of software mishap has kept insurers away from this area. Only in recent years, several companies (SpamEater. Net, 2004; Voas, 1999) began to offer insurance on certain types of software/service hazards, such as security breach. A general framework for insurance for such cyber-risks has been discussed by Gordon et al. (Gordon et al., 2003). However, the compensation is usually in fixed amounts and the coverage is too limited. Users can hardly benefit from such insurance.
THE SIGNIFICANCE OF INSURANCE ON WEB SERVICES Sriram et al. (Sriram et al., 2001) have predicted that more and more commercial off-the-shelf software component will be developed and put on the
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market for search and integration. To fulfill the ever increasing needs of e-Business, the e-marketplace for Web services will soon be established. It means that someday there will also be a wide variety of Web services available and e-Business systems can automatically search from the market for those that will meet their requirements. Actually, there are already some Web services available (e.g., at www.xmethods.com), which have been developed on several different platforms. However, whatever the market type, the key barrier to entry is trust (Norris, 2000). People especially do not trust those automatic systems they had never experienced before. Linketscher and Child (Linketscher & Child, 2001) have found that users would be nervous relinquishing total control to such systems from the outset. They would like to be able to develop a relationship with the system over time and when trust has been established, to increase delegation and reduce their monitoring of the system. We believe that providing insurance on these systems (or Web services) can help reduce the initial mistrust (or doubt) of their users and gradually establish such trust. Once their reputations have been built, they can also help reduce the insurance premium and eventually benefit the system owners or the service providers.
BUSINESS MODELS OF INSURANCE OF BUSINESS WEB SERVICES Figure 1 is the working model of Web services. In such a model, a Web service is registered in a Web service directory and its client searches from the directory, and requests the service and binds (calls) it within itself. Currently, this working model is supported by the following three core technologies: Web Services Description Languages (WSDL); Universal Description, Discovery and Integration (UDDI); and the Simple Object Access Protocol (SOAP). WSDL is a language that programmers can use to describe the programmatic interfaces
Business Models for Insurance of Business Web Services
Figure 1. The working model of Web services
of the Web services. UDDI lets Web services register their characteristics with a registry so that other Web applications can look them up. SOAP provides the means for communication between Web services and client applications. We propose three business models for insurance of Web services: service provider insurance, service user insurance and service agent insurance. Figure 2 shows the relationship among stakeholders in the service provider insurance model. In this model, the service provider requests insurance for his service in total from the insurance company. Once a service user/client claims for compensation, the provider first claims and obtains
the compensation from the insurance company and then pays to the service user/client. In this case, the service charge includes the premium paid to the insurance company. Figure 3 shows the relationship among stakeholders in the service user insurance model. In this model, the service user/client requests insurance for this service as individual from the insurance company. The service user should claims for compensation from the insurance company directly once a loss happens. In this case, the service charge requested by the service provider can be lower since it should not include the premium. But the insurance company might need to estimate
Figure 2. The business model for service provider insurance
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Figure 3. The business model for service user insurance
the insurance premium for each individual case of the applications of this Web service. Figure 4 illustrates the relationship among the stakeholders in the service agent insurance model. In this model, a new party---web service agent is introduced. Unlike the above two models, web service user and web service provider do not communicate directly in the service agent model but through a web service agent. This is based on the observation that the web service user may not be familiar with the provider. When a user decides to purchase a web service, the information obtained by searching the web service directory is not enough. He would probably need to pay a lot of effort to investigate the details of the service provider and compare between different vendors. In this situation, a delegated web service agent is useful. The web service agent is supposed to be familiar with the web service market and know the advantage and disadvantage of each provider. Hence, when the user raises his requirements, the web service agent is able to provide the user with a good suggestion and specific training for the
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user to consume the web service. Since the web service agent has a profound insight on the market, it can better estimate the risk of using specific web service and buy the suitable insurance accordingly for the user. The process is transparent to the user. The user just needs to provide his requirements, pay the service charges (which includes the premium, and service charge of web service and agent), and receive compensation from the agent if any problem occurs. In other words, the web service agent plays a role similar to the retailer between the factory and the user, and the consulting firm between the market and the client. Each model may be suitable for certain types of services. The service provider insurance model is more suitable for those services focusing on calculation and generation of data in a core business solution. The providers of such services are responsible for the correctness, speed, and other internally responsible qualities of these services. Hence, it is the liability of service providers to buy insurance on such services. For
Business Models for Insurance of Business Web Services
Figure 4. The business model for service agent insurance
example, a service provider can buy insurance on his security service, such as a 128-bit encryption scheme, which will need billions of years to test all the keys to break the code. Although it can also be very lucky to find the key on the first attempt, this possibility is very low (e.g., a billionth per year in this case), and the insurance company can estimate on the premium based on this possibility. The service user insurance model is more suitable for those services focusing on communication, delivery of data, and other externally dependent functionalities. The quality of such services can hardly be controlled by the providers. E.g., the delivery of data can be delayed due to network congestion. Since the data channel is public and involves more factors and can hardly be guaranteed by few providers, users can buy insurance on such services for themselves. Actually, current software insurance practices are mainly of this model. The service agent model is more suitable for those large services which have plenteous budget and require high quality. Generally, in large software projects, investigation to the market to choose a suitable middleware may be crucial to the final quality and cost of the whole project. By delegating this as well as the insurance affair to a
professional agent, the web service user can focus on his own affair. Furthermore, as a third party, the web service agent can provide an objective to the web service quality, which has strong influence on how much insurance that the user should buy in his optimal case.
CASE STUDIES In this section, we use three Web services as examples to show how insurance can help Web services serve users better. They are services that can help filter computer viruses, filter spams from emails sent to users, and outsource software components.
Virus Data Update Service The first example service is related to anti-virus software. In order to do virus scan and cleaning, the software (or its end user) should frequently download the virus update files (DAT files) in order to know what viruses are and what not. Usually the DAT files are owned by the same software company (e.g., McAfee or Symantec). Now in the Web service model, the DAT files can
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be provided as an online Web service by a provider independent to all anti-virus software companies. The DAT service provider can focus on this service and hence can do it much better, e.g., provide very quicker update when a new virus emerges. It is quite possible since it can focus all its efforts on this matter. Then all anti-virus software can call this online Web service when they want to do virus scan. Suppose the service is called VirusUp2date (it is just a coincidence if this name has been used by some company). In order to compete with other similar services, VirusUp2date guarantees no virus infections (due to late update of virus data files or unavailability) to end users if they pay a monthly fee (say at $19.99). If a data loss due to this reason happens, VirusUp2date promises to pay $1,000 each time to the end user. Actually, the monthly service fee ($19.99) has already included a premium and hence in overall the VirusUp2date service provider can still make a big amount of money even though it may pay some compensation to some early virus victims. The effect is similar if the service provider pays these premiums to an insurance company and if this insurance company trusts this provider. Actually, this scenario follows the business model of service provider insurance. The effect of the service user insurance model is similar but the end users should pay premiums to and claim compensations from the insurance company directly. One of the key issues here is how to know the exact reason of the data loss since there is another stakeholder got involved—the independent anti-virus software. Is it due to service or due to the anti-virus software? The operating system should keep a log of the usage such that the exact reason should be identified. Another issue is how the insurance companies trust the reliability of the service. In the earlier stage of this service, it may be a good idea for the provider to pay the loss to the end users. At a later stage, after sufficient data are collected, the insurance company can calculate a more reasonable premium value for this service and its compensation scheme and then insure this service.
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Spam Filtering Service The second example service is related to spam filtering. Spam, or junk mail, refers to unsolicited commercial e-mail (UCE) and unsolicited bulk e-mail (UBE), e.g., unsolicited advertisements. Spam spreads everywhere on the Internet nowadays and create problems to most of the e-mail users. Although e-mail companies and standards bodies are trying to work on new ways to deal with this problem, receiving junk mail is still unavoidable with today’s e-mail standards and technology. All parties are trying their best to cut down the number of spam. Hence, anti-spam is also a good business. Actually, some companies, including SpamEater.Net, have already provided services for spam filtering. It charges a monthly fee to end users (or enterprise users) for filtering the spam from the emails sent to the users bypassing its server. However the accuracy cannot be 100%. For example, SpamEater.Net claims that they can catch more than 96% spam with a less than 1% false alarm (i.e., wrongly filter out a good email) rate. SpamEater.Net has already noticed this problem and promise to refund back the money paid if the user is not satisfied with the anti-spam effect within 30 days. This is a kind of insurance in some sense. However, if they are confident in their accuracy, they may still make an insurance scheme, like 1$ payback for each wrong spam identification or even higher for those caused bigger loss or inconvenience. By doing so, the users may want to continue with this service. Another spam filtering service, SpamAssasin (SpamAssasin, 2009), does not really remove suspected spam. Instead, it just labels it with a likelihood tag. The email reader at the client (user) side can do the final action to these suspected emails. Since the accuracy is not 100%. The end user can also do necessary actions to manually check those emails with lower likelihood. In this sense, if an insurance scheme is applied, the risk is not high and therefore the premium can be much lower for each wrongly identified email. But the overall
Business Models for Insurance of Business Web Services
monthly service fee should also be lower since the end user may have to conduct manual check and hence reduce his/her productivity.
Software Components Outsourcing Services Nowadays, outsourcing has become a very popular way to software development due to the large laboring expense differences between different countries and areas. According to the statistics studies by the marketing researchers, the US IT offshore outsourcing market is growing in a rate of 14.4% annually and will nearly double to 14.7 billion dollars by year 2009 (IDC, 2005), and it is reported (Global Outsourcing Report, 2005) that three quarters of US companies outsourced some or all their information technology activities in year 2004, and this percentage is expected to increase furthermore in 2005. Nearly three quarters of the international software outsourcing companies expect to grow their revenues by 11% within the next 12 months (ComputerWeekly, 2005). Web service, as a platform neutral technology, is a very convenient and reliable framework to the outsourcing industry. The whole software project can be divided into several functional components by the development company, and some of them could be outsourced, which could be implemented in web service technology. Since the web service technology has few requirements on caller components, such a way can utilize many existing software modules, without consideration of their platforms. For example, there may be some existing modules in Linux and using web service technology can reduce the migration/re-development cost greatly. Furthermore, the whole infrastructure, e.g., the hardware, of the components could be outsourced. In such a software development process, every task could be much more specialized, and dispatched to an experienced or low cost company. The developing efficiency could be boosted while the cost could be reduced. However, web service components also bring the risk into the whole
project. The quality of outsourced components is beyond the control of the project development company, and there may be some interoperability bugs between the distributed components. Though the full system testing could fix the bugs within and between components and reduce the risk, it is not sufficient to guarantee the overall quality. In this situation, the web service insurance of component outsourcing could be introduced to further guarantee the quality of the whole product, such that the project development company can be compensated in case of any individual or interoperability problem occurs.
KEY TECHNOLOGIES FOR INSURANCE OF BUSINESS WEB SERVICE In either model, the key technologies are how to estimate the premium for an insured Web service and how to determine the loss and compensation due to this service. Other related technologies, including how to test/evaluate Web services qualities, how to improve Web services qualities, and how to build and manage the reputation record of Web services, are also important in the insurance business of Web services. How to estimate premium? Although the role of a Web service in a business solution can also affect the premium, we focus on the influence of the quality of service in this paper. As we mentioned before that the reason why insurance companies do not want to get involved in software insurance is that the insurers do not have enough time to collect sufficient historical data for actuaries to estimate premium before a software product becomes obsolete. While in the case of Web services, they will not expire since they will frequently be upgraded and maintained as the same services. Through a period of time in service, the reputation of the services can be built. Currently, most Web services are generally not concerned about the level of quality of service presented to
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their users/client. However, the quality of service that is experienced by its users will become a dominant factor for the success of a business Web service. First of all, the principle quality attributes these users can perceive include those related to the “responsiveness” of the service, i.e., the service availability and timeliness. A service that is frequently unavailable may have the effect of tarnishing the reputation of the service provider or result in loss of opportunity. Secondly, security level of the services is also a reputation. Those websites frequently be hacked will definitely lose reputations. Finally, other qualities, including functionality correctness and stabilities, caused by software bugs can also affect the reputation of a service. Hence, Web service quality test/ evaluation is a key technology for insurance of Web services. For example, active monitoring and user feedbacks could be used to evaluate nondeterministic qualities such as service availability and timeliness (Liu, Ngu & Zhang, 2004; Jurca, Binder & Faltings, 2007) Related technologies that could help users experience better services, e.g., work load balancing and exception notification of Web services (Liu, Jia & Au, 2002), are also useful in the insurance business of Web services. Insurance premium can also be set differently at different times, like temporal fares for telephone systems. Some service can guarantee more immediate response at non-busy period, e.g., in weekends; but others may heavily rely on human supports, which are more expensive in weekends. Either they can change such service prices or they can change the insurance premium. How to determine loss and compensation? Every transaction of the Web service execution, including the situation of the environment, e.g., input/output, time, network status, etc., should be logged such that the execution of this service can be repeated. Once a claim on loss compensation happens, the cause of such loss can be found through transaction analysis and the loss and compensation can then be calculated according to related insurance terms. For example, Liu et
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al. (2008) proposed a methodology to predict the expected loss and profit of service-oriented business applications. Moreover, transaction analysis can also help find other quality problems of the Web services. Currently, since there is no exercise of such insurance compensation, there should be much research work to do in this aspect for the insurance business of Web services. How to build and manage a reputation record of (insured) business Web services? A historical record of users’ rating can help. A mechanism similar to Platform for Internet Content Selection (PICS) can also help. For new services, third party testing can also help build initial quality rating. The insurance company can also hold a website like www.methodx.com and rate all services for users to look up and choose among them. The original quality level claimed by the service providers can also be used to compare with the real qualities and reputations. Both the quality level (in all aspects) and the reputation should be included into the description of services. Currently, WSDL and UDDI specifications do not support QoS description and query, but they provide extension mechanisms that can be used to advertise QoS. For example, service providers can attach execution price to the operation elements in the WSDL to specify how much the service consumer should pay to the service provider when invoking these operations. In addition, UDDI can be extended to support publish and query QoS (Zhou et al., 2004). However, these approaches need to modify WSDL and UDDI. To follow the design strategy, separation of concern, which is widely accepted in the service oriented architecture, some other approaches are proposed recently. For example, Web services agreement specification (Andrieux et al., 2007) is a piece of work that allows service providers to advertize QoS separately. We hope that the future versions of WSDL, UDDI, and SOAP can also include or help automation of contract signing, accepting the insurance terms and prices, negotiations, payment, fulfill-
Business Models for Insurance of Business Web Services
ment reputation records, etc. In this case, decision on service selection can also be automated.
CONCLUSION We have proposed the insurance on business Web services as a new business, which can help both to build trust in the e-marketplace of business Web services and to ensure lossless e-Business. Three insurance models for business Web services—service provider insurance, service user insurance and service agent insurance—have been proposed. Their enabling technologies, including reputation scheme, quality description, transaction analysis, have been discussed. We believe that the insurance of business Web services will help service competition and hence boost the development of more and more business Web services, and the software industry at large. To further promote business Web services and the software industry at large and reduce the risk of e-Business (including risks of both service providers and services customers), we also advocate the impact of governments and legislatures on Web service insurance and Web service qualities. The governments’ attitudes to the Y2K problem have successfully helped the world pass that time smoothly. We hope they can help again in the insurance of business Web services.
ComputerWeekly. (2005). UK jobs to benefit from outsourcing growth. Retrieved from http:// www.computerweekly.com/Article138576. htm?src=rssNews Coursey, D. (2001). The four biggest biz-tech trends of the coming decade. ZDNet/AnchorDesk, http://www.zdnet.com/anchordesk/stories/ story/0,10738,2816779,00.html Daley, A. (1999). Towards safer electrical installations: The insurer’s view. In Proceedings of IEE Colloquium on toward safer electrical installations - learning the lessons (pp. 1-6). Global Outsourcing Report. (2005). Release of the Global Outsourcing Report. Retrieved from http:// pdfserver.prweb.com/pdfdownload/220341/ pr.pdf Gordon, L. A., Loeb, M. P., & Sohail, T. (2003). A framework for insurance for cyber-risk management. Communications of the ACM, 46(3), 81–85. doi:10.1145/636772.636774 IDC. (2005). US off shoring to double to $14.7 billion by 2009. Retrieved from http://www. financialexpress.com/fe_full_story.php?content_ id=102877 Jurca, R., Binder, W., & Faltings, B. (2007). Reliable QoS Monitoring based on client feedback. In Proceedings of International Conference on World Wide Web (pp. 1003-1011).
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This work was previously published in Service Intelligence and Service Science: Evolutionary Technologies and Challenges, edited by Ho-fung Leung, Dickson K.W. Chiu and Patrick C.K. Hung, pp. 261-272, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.16
Business Model of Internet Banks Jean-Michel Sahut Amiens School of Management, France
ABSTRACT
INTRODUCTION
Internet is not simply one more distribution channel among the multi-channel strategies used by the financial industry; it is fostering new “e-Business Models” such as Internet-primary banks. However, in spite of its strong development potential, this type of bank has often achieved a weak breakthrough onto this market and shows modest financial results. The goal of this chapter is to study the “e-Business Model” of Internet-primary banks and to determine if it can perform better than the “Business Model” of a traditional bank.
The development of Information and Communication Technologies, and more specifically Internet, has increased competition in the banking sector and brought about the separation of production from the distribution of financial services and products. The arrival of Internet has given a new dimension to the convergence and the deconstruction of the value chain by making it possible to lower information costs, and by reducing barriers to entry into the financial sector.
DOI: 10.4018/978-1-60960-587-2.ch216
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Business Model of Internet Banks
Convergence has taken place on three levels: •
•
•
convergence of offers; by widening their product range, banks and insurance companies have entered into direct competition, convergence of the sub-sectors of the financial industry; banking, insurance and asset management activities increasingly overlap, financial institutions and non-finance actors have become more closely linked
Previously, deconstruction came mainly from the offer side, i.e. from the emergence of new entrants (e.g. consumer credit). With Internet, it comes from the demand side: customers can choose the best supplier depending on their preferences (e.g. real estate loans, online brokering). With the appearance of banks which mainly sell their services by Internet (Internet-primary banks), the major competitive advantage of traditional banks - a network of local branches - has been diminished for certain types of customer. These customers have been attracted by the prospect of accessing their accounts and carrying out bank transactions 24 hours a day, seven days a week without having to go anywhere, and sometimes with a better quality of service than was offered by a bank branch. Online brokers were the first to offer private individuals the opportunity to invest on the stock exchange via Internet. Moreover, the vast majority of Internet-primary banks charge lower account administration fees than those charged by traditional banks. This has often been used as an argument to attract customers in a nearly saturated market. The goal of this chapter is to study the “Electronic Business Model” of Internet-primary banks and to determine if it can out perform the “Business Model” of a traditional bank. After having defined the Business Model and e-Business Model (e-BM) concepts, we will analyze the e-BM of online banks as an economic model through the study of its revenue sources, costs incurred, and how it
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creates value for customers. Then, we will question its strategic development prospects. Lastly, we look at Internet’s impact on performance in the case of both traditional institutions as well as Internet-primary banks.
BUSINESS MODELS IN THE FINANCIAL SECTOR Business Models and Electronic Business Models The objective of this section is to better understand the “Business model” (BM) concept. Many papers have already been written which attempt to clarify this concept due to its dynamic dimension. We will look at how this concept has been applied to electronic services: the “Electronic Business Model” (e-BM). One of the first workable definitions of this concept was provided by Timmers (1998). He defines a BM as being: •
• •
the architecture for product, services and information flows including a description of the model’s various business actors and their roles; a description of the potential benefits for each business actor involved; a description of the sources of revenue.
Other writers have since expanded this idea. Linder and Cantrell (2000) state: “It’s a rich, tacit understanding about how all the pieces work together to make money”. These authors confirm this vision of BMs by the fact that 62% of the company directors they interviewed found it difficult to describe their BM over and above its success1. While for Loilier and Tellier (2001), a BM can be likened to a firm’s value creation method. In fact, defining what a BM is can be a difficult exercise because this concept is associated with dynamic dimensions such as value creation,
Business Model of Internet Banks
competitiveness and organizational change. Porter (2001) in particular described this concept as “fuzzy”, “superficial”, and “theoretically difficult to grasp”. Magretta (2002) specifies that the usual error with respect to BMs is to regard them as being a strategy: “Business modeling is the managerial equivalent of scientific method - you start with a hypothesis, which you can test in action and revise when necessary”. For this author, the BM describes in system form, how the firm manufactures and sells a service or a product. Equally, for Afuah and Tucci (2003), the BM is a basket of activities which allows a business to earn money in a sustainable way. Along the same lines, Demil et al. (2004) approach it as an intermediate concept used to make strategies operational. They define the BM as all the choices which a firm makes in order to generate revenue. Whatever definition you choose, it is important to dissociate the concept of BM from that of strategy and to regard it as a dynamic concept which is constantly reconsidered according to market conditions, technology, regulations, inter-company relations, etc. The development of ICTs, and specifically the Internet, has generated new activities resulting either from technological innovation (for example Internet portals), from the deintegration of value chains (e.g. loan comparison sites), or from new channels (e.g. online brokers). These activities then brought about the appearance of new BMs or redefined those which already existed (Applegate, 2001). For example, Internet strengthens the Research and Development function (a support service according to Porter’s value chain concept) by helping in the collective design of products between sites and participants in the value system, by listing the concepts accessible to all the branches of the business and by giving access in real-time to all the sales and services databases. Also, Internet makes it possible to reduce order transmission times by automating both customer and supplier contacts and enables a truly integrated management system to be put in place. The impact
of such practices on work efficiency creates an additional added value for the firm (Porter, 2001). The term “Electronic Business Model” (eBM) has since appeared to qualify the BM of these new activities. As the concept is derived from that of BMs, it is also difficult to define and can be understood in different ways. This is why many authors have tried to define it using a heuristic approach, in other words starting from their observations of the market. The result has been a wide diversity of studies which cover both the number of e-BMs identified and their characteristics: Timmers (1998) counted eleven different types, Loilier and Tellier (2001) counted five and Rappa (2001) nine. Even if many similarities are identified, convergence between these typologies started to take place in 2001 with the analysis of value creation. Indeed, Timmers (1998) has a vision which focuses on the internal dynamics of e-BMs and on their interaction with the environment. As for Mahadevan (2000), he prefers a “macro” vision in which e-BMs depend on the types of relations which exist between actors from the same market. Applegate’s article (2001) marks a transition by putting forward a very precise classification of e-BMs concerning value creation for the e-BM (sources of differentiation, revenue and costs incurred), but the value created for customers is not a central issue. It wasn’t until Novak and Hoffman’s article (2001) that the different dimensions of e-BMs were brought closer together. Novak and Hoffman present “Customer Model Integration” in which the definition of an e-BM is jointly linked to both value models for customers and revenue models. More precisely Novak and Hoffman identify the twelve value models shown in Table 1. However, these revenue or value models created for customers cannot be regarded as exhaustive for two primary reasons: •
Given the difficulty of defining only one typology of e-BM, it is possible to present
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Figure 1. Values, revenues and customer model integration •
as many models as there are combinations of sources of revenue; the appearance of a new e-BM means the existence of new
original combination of sources of revenue, even the creation of a new element for generating revenue; It would seem that revenue sources other than those presented by Novak and Hoffman can exist, for example the sale of customer data (e-mail, addresses, purchasing behavior, etc), a purchase made in a store following the consultation of the product on Internet, etc.
Moreover, the type of activity strongly influences the structure of an industry (Porter, 2001). As a result e-BMs are very different from one sector to another. Hereafter, we will look at the financial sector and at the different e-BMs which
Table 1. Value models for customers (Novak & Hoffman, 2001) Value Models
Value created for the customer
Example of e-BM
Brokerage
Facilitates bringing buyers and sellers together (B2B, B2C or C2C).
VerticalNet PaperExchange.com
Content
Meets all types of customers’ information needs.
About.com
Search
Targets the information the customer is looking for.
Google.com
Incentive
Gives customer access to certain services and products after they have accumulated points (loyalty scheme)
Beenz.com MyPoints.com Webmiles.com
Freeware
Customers are given free access to software which is useful to them.
Blue Mountain Freemerchant.com
Communication
Provision of an e-mail service or free computer-to-phone calls.
Net2phone
Control
Pressure from customer groups concerning protection of their private life, intellectual property rights of content and the boycott of unethical content is a source of customer value.
Anonymizer Copyright Agent
Outsourcing
The customer is directly connected by Internet-ERP to the producer for greater control over his requirements.
I Print.com servicelane.com
Entertainment
The concept is based on the offer of information specific to a field of specific interest.
Sportingbet.com eMode
Transaction
The customer benefits from access to stores not (or not easily) accessible geographically.
Retromodern.com
Affiliate
This model is mainly for SMEs which want to make themselves known on the web. Payment for advertising costs is limited to the number of clicks to their ad banner.
Amazon.com Art.com PayTrust American Express
Community
Provides like-minded people with range of services relating to their center of interest as well as services for putting people in contact and exchanging information (forum, email, etc)
Epinions.com Participate.com
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characterize it, and more specifically, at Internet banks.
Typology of E-Business Models for Financial Services Due to their apparent contradictions, it is difficult to come to any firm conclusions on the positioning of Internet-primary Banks compared to more general e-BMs. On the other hand, if one focuses on the specific sector of financial services, a greater convergence of e-BMs can be clarified by studying the work of Muylle (2001) and Sahut (2001) and Horsti et al. (2005). Between these different e-BMs for financial services, there exist several forms of exchange, partnership and strategic alliances. In particular, portals offer virtual banking agencies, aggregators and financial actors in general a space to advertise and be referenced. Moreover, certain portals
develop co-branding strategies (coproduction) by coming together with certain producers to produce or sell joint services. Thus while calling into question the comparative advantages of traditional actors, the financial service sector on Internet has become very competitive and obliges actors to innovate by creating alliances, partnerships or mergers making it possible to build up new comparative advantages, to catch up with competitors, or to break into new markets. The movement which recently saw a consolidation of online brokers in Europe illustrates this phenomenon. Between 2002 and 2006, 22 brokers were taken over or merged in France (Les Echos, n° 19783, 30/10/2006). Moreover, it is difficult to understand the financial equilibrium of e-BMs because not only have they brought about new commercial concepts but, above all they have provided a new logic for value creation. In the start-up phase, companies in the
Table 2. Typology of e-BMs for financial services Type
Characteristics
Revenue Created
Value Model
Vertical Portal Financial Portal [MUY 01] Portals [SAH 01]
They mainly offer general or specialized information services in several fields. Some have created “personal finance spaces”, like Yahoo with “Yahoo Finance”, which proposes, in addition to informational services, transaction services (credit card, account aggregation, advice about stock market investments, etc).
Advertising, Affiliation, Commission, Sale of products and services.
Brokerage; Content; Search; Communication; Community; Affiliate, Transaction.
Aggregator [MUY 01] Aggregators: • Brokers • Quoters [SAH 01]
These are sites whose role is to act as online intermediary between different actors. “Quoters”, contrary to brokers, do not carry out the transaction, they are infomediaries which bring business to virtual agencies, or compare offers for consumers.
Brokers: Sale of products and services. Quoters: Commission, Advertising, Affiliation.
Brokers: Content, Transaction. Quoters: Content, Brokerage.
Speciality manufacturer [MUY 01] Suppliers [SAH 01]
These are producers of financial services (like Visa, equity funds, traditional banks, etc) which distribute them through their own network, or external networks (resale or co-branding).
Commission, Sale of products and services.
Outsourcing, Transaction.
Company sites [ Company web sites [MUY 01] Virtual agencies (banks, insurance, or broking on line) [SAH 01]
These are online banking, investment or insurance services. The sites with the best performance offer, in addition to advanced information and transaction services, customer relations management services (tools to help in decision-making, online advice, development of personalized products, etc). The main difference with brokers/aggregators is that they are not satisfied to aggregate the existing offer. They mainly sell products in their brand.
Product sales and services, Commission, Advertising.
Outsourcing, Transaction, Content, Brokerage, Community.
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e-business field generate large negative free cash flows for a certain length of time, before turning round and progressing exponentially. This type of cycle which is more marked than for traditional industries can be explained in particular through the theory of the network economy (Shapiro and Varian, 2003). In fact, the main specificities of e-BMs which develop in an economy based on networks show that: •
•
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profitability is only achieved by developing the use of a good or product (one speaks about “an experience good”) because the consumers are not motivated to buy or carry out transactions on line when they have doubts about the quality of the products or the operation’s level of security. Once the “reputation” of the e-BM has been made, this type of psychological barrier decreases; profitability is determined by “the attention” paid to the e-BM. In fact, Internet provides an important mass of information with rapid, permanent and inexpensive access. Many BMs therefore try to benefit from this by setting up an informational website. Thus, gradually, competition in the physical markets has moved onto Internet. However, there are so many websites for companies selling the same products that saturation has been reached: far from increasing their visibility, these companies have provoked an “attention shortage”. It is therefore imperative for an online bank wishing to “grab the attention” of customers from other banks already offering Internet Banking services, to propose superior value to that offered by its competitors. This requires big investment (in the development of services and the acquisition of customers) and explains the high level of negative free cash flows suffered by e-BMs at the beginning of their life cycle;
•
profitability depends on the technological infrastructure and the capacity to give added value to the offer on Internet. In fact, contrary to a BM, e-BMs are characterised by the high costs of technological infrastructure (computers, software, data-base servers, computer maintenance, network equipment, etc.). This technological infrastructure can be the basis for the acquisition of a competitive advantage as soon as it improves capacity for storing, researching, sorting, filtering and sending out information (Applegate 2001). It increases, at the same time, the value of the information itself (and the service provided to the customers in general). But the high fixed cost that technology represents can not be amortized until a critical number of customers has been reached. However, such an acquisition takes a long time to achieve.
Lastly, we can notice that the profits expected by Internet Banking services are more indirect, in other words they come from efficiency to the detriment of productivity in value. Even before the appearance of Internet banks, Rowe (1994) had noticed that the IT expenditure of French banks was increasing faster than productivity. He saw this phenomenon as confirmation of “the Solow paradox”. Should we therefore call into question Internet’s productivity and its contribution as a channel of distribution? Will the traditional banks continue to perform the same with or without Internet? What are an online bank’s real prospects for profitability?
IMPACT OF INTERNET BANKS ON PERFORMANCE After having analyzed different e-BMs, their sources of revenue, their costs and their method of creating value, we study the profitability of Internet banking services.
Business Model of Internet Banks
The few studies which have looked into this aspect are divided into two categories: those interested in the introduction of Internet banking services on the profitability of traditional banks (known as click-and-mortar), those comparing the performance of Internet banks with other banks. The first studies tried to show whether or not the introduction of Internet banking services in traditional banks in the USA increased their profitability (Egland et al, 1998; Carlson et al, 2000; Furst et al, 2002). But, these services represented too small a proportion of the activity to really influence the profitability of these banks. Similarly, Sullivan (2000) showed that the multichannel banks of the 10th Federal Reserve District do not appear more profitable on average when they have a transactional website. In Italy, Hasan et al. (2005) demonstrate a positive relationship, over the 1993–2001 period, between Internet adoption and the profitability of click-and-mortar banks. More recently, Degado et al. (2007) studied the impact of the adoption of Internet Banking services on the performance of 72 commercial banks in Spain over the period 1994-2002. They conclude that the effects of this adoption take time to appear and result in a fall of overhead expenses. One needs 1 year and a half to notice a significant increase in ROA (return on assets) and three years for ROE (return on equity). In this context, Internet is used more as a complementary channel than as a substitute to the physical branches. These contrasting conclusions are debatable because they are based on average results obtained at the beginning of the development of these services. Thus they depended more on the customers’ adoption of Internet than on the real contribution of Internet Banking services on the overall profitability of the bank. In fact, these studies have mainly highlighted the problems of measuring the profitability of these services. The second wave of studies tried to free themselves from these limits by defining a broader measurement of the performance of Internet banks compared to that of the other banks. We are go-
ing to concern ourselves mainly with this second type of study. But beforehand, we will look at performance measurement in the banking sector.
How to Measure Profitability? Demirguc-Kunt and Huizinga (2000) highlight that “the approach to profitability in banking and finance is characterized by its complexity and its multiform aspect”. They explain their analysis through five main points: •
•
•
•
•
The merging of “raw material”, “money deposited”, “final product” and “money loaned”: the fungibility of money makes it more complicated to calculate profitability due to the difficulty of dissociating resources from their uses; The impossibility of establishing provisions of profitability in the short term because of the existence of several uncertainties which are part of bank-customer relations (loan prepayment, litigation, change of address, etc.); The difficulty in establishing profitability per product because traditional banking is based on linked product sales which have high indirect costs; The strong regulation (or commoditization) of some products: an innovation in the banking sector cannot be patented and can easily be copied; The strong constraint of rigidity of costs in banking which are mainly “overhead costs” and indirect. Defining the profitability of a product, a customer segment or a center of responsibility (branch, area, etc) is a complicated task and depends on method of indirect cost allocation.
For all these reasons, banks performances are assessed ex-post starting from general accounting indicators such as the level of deposits, the losses on loans, the ROA (return on assets) or
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the ROE (return on equity). But, in the case of a comparison of the performance of newly created Internet banks with that of traditional banks, these indicators (ROA and ROE) are not very relevant because the net income can be negative (because the activity is starting up), and they do not take into account other elements such as “possible market power” (Shepherd et al., 1999). Among the other methods used, the most famous is the profit efficiency model (DeYoung, 2005). This method allows us to identify between the technology-based scale effects and the technology-based experience effects, showing whether the profitability gaps evaporate as Internet banks grow larger, gain experience and capture economies of scale. For Cyree et al. (2008):“Profit efficiency indicates how well management produces outputs for a given input mix along with other market characteristics and is measured as the distance from the best-practice frontier”. Moreover, this methodology captures “technology-based experience” and “technology-based scale” effects.
Do Internet Banks Give a Superior Performance? On the basis of the idea that “experience” could be a determinant of cost reduction and production efficiency, DeYoung (2001) presented a first comparison of the ROA between newly chartered banks (newly created traditional banks) and Internet banks (Internet-primary banks) between 1997 and 1999. He notes that the Internet-primary banks show significantly lower profits than those achieved by the newly chartered banks because of difficulties generating deposit accounts and higher non-interest expenses. The gap is very wide during the first two years but is reduced quickly thanks to technology experience effects. The growth rate of the Internet-primary banks declines to meet that of the newly chartered banks. The banks then progress at the same rate except for the deposit-toasset ratio. The maturity effects are similar for the
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two types of bank. Lastly, Internet-primary banks, just like the newly chartered banks, can only reach the same profitability (ROA) as traditional banks at the end of approximately 10 years of activity (DeYoung, 2001). In a second study, DeYoung (2005) confirms these results by using the profit efficiency model. He shows that the Internet-primary bank startups tended to underperform the branch bank startups over the period 1997-2001 in the USA. This seems to call into question the viability of the Internet bank e-BM. One can conclude from this that the success of an Internet bank is only possible if it reaches a sufficient level of economy of scale and has efficient management practices, particularly for cost management. The more recent results from Cyree et al. (2008), which study the performance of Internetprimary banks and newly chartered traditional banks from 1996 to 2003, provide more details of these performance gaps with certain conflicting conclusions to the studies of DeYoung (2001, 2005). Their univariate analysis shows that Internet-primary banks have lower ROA, ROE, loan losses, and net-interest margin, compared to newly chartered traditional banks. But, they indicate that the Internet-primary banks are more profit efficient than the newly chartered traditional banks. In fact, several elements can justify the performance gap of Internet banks with traditional banks especially when starting up (Les Echos n° 19586, 18/01/2006): •
•
Incompressible structural costs: These are expenses inherent to all banking activities and are mainly composed of high fixed charges and costs of IT development. In the case of Axa Banque, these IT costs account for 30% of total operating costs, A high turnover of advisers and the difficulty of arranging schedules spread over 12 or even 24 hours to man a hot-line,
Business Model of Internet Banks
•
A very high cost of customer acquisition: For Axa Banque, this cost must not exceed 300 euros per customer recruited to be profitable. This stumbling block can only be overcome with a diversification of customer recruitment methods, loss leaders, and precise customer targeting.
•
On the other hand, other factors are favorable to the development of online services including (Les Echos n° 19586, 1/18/2006; EFMA, 2007): •
•
•
•
the specific characteristics of customers who use on line banks: 20% are on average expert users in Europe (48% in the Netherlands). This clientele is autonomous in decision making, they are mainly men, managers, with a high income who subscribe regularly to financial products on line; Internauts are more profitable than noninternaut customers: In the case of Axa Banque, their internaut customers bring in 15% more revenue than the non-internaut customers as soon as they join and achieve the target revenue after 18 months instead of 30 months on average; the potential of productivity for online banks is higher than that of the traditional bank: in the case of Axa Banque, the productivity by employee is 405 customers (which is a higher performance than the average French bank) with a productivity potential which can reach double that of a traditional bank; the structure of the net banking income from an online bank is very different from that of a traditional bank: for example, Axa Banque draws 70% of its net banking income from payment methods. The remaining 30% comes from the banking offer (credit, savings and stock exchange transactions) which have strong development potential;
the backing of a big group means that certain costs can be minimised by benefiting from a phenomenon of material synergy (compensation operations, debit and credit cards, etc.) and intangible synergy (experience, notoriety, etc.). For example, the Midland Bank provided First Direct with a back office of 7 000 ATMs in Great Britain which was the basis of its success. The risk of the cannibalisation of channels, competition between the online bank and the mother company (traditional bank) is low because the banks attract a different clientele.
In fact, these studies and research show that the success of an online bank is mainly conditioned by: •
•
Building a strong competitive advantage which lies in access to customers and a good understanding of their behaviour and tastes. Many banks believed that the competitive advantage depended on the technology used; however, technological advances are very quickly copied. This advantage makes it possible to control the cost of acquiring a new clientele. The support of an institution delivering financial services (insurance, supermarkets, banks, etc), the creation of an attractive loss leader (savings accounts with a high interest rate like ING Direct, etc) or an innovating service (for example: online brokers at the end of the 90s, etc) are the main means of building up a competitive advantage; The difficulty of maintaining continuous investments without making profits forces certain online financial operators to merge with each other. This was specially the case of certain online brokers who, when they started dealing on the stock exchange, were able to collect large funds. But, as their period of investing at a loss lengthened, they had difficulties accessing other
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•
investments. The only way out for those in most difficulty was to merge. One finds several examples in the case of online banks such as the absorption of ZeBank by Egg (which gave it access to the French market), the merger of First-e (Ireland) and Uno-e (Spain), etc; A strong brand which inspires trust from potential customers and which also helps reduce the cost of acquiring new customers.
These conditions highlight the difficulty of creating an online bank for actors from outside the banking sector.
CONCLUSION In conclusion, we have shown that the dynamic of the financial services sector on Internet is intensifying and that a certain structuring of the sector can be observed. Indeed, the actors are looking for new “revenues-created values” combinations following the example of online brokers, such as Schwab, who have become information providers for the portals, and are trying to reach a critical size via mergers and strategic alliances. However, the shape of an e-BM specific to online banks hasn’t clearly emerged. Despite the strong development potential of online banks, their survival as a specific e-BM can be questioned because of their weak breakthrough onto the international and national markets and their modest financial results. The most successful actors have concentrated on market niches, like ING Direct in Europe. One can question the capacity of online banks, as e-BMs, to remain banks which are virtual, independent and generalist. In this case, it is extremely probable that they will have to develop their own physical sales network (like Schwab) or enter into partnerships with traditional establishments. Otherwise, they are likely to disappear or be ab-
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sorbed by traditional banks and become gradually integrated into their multi-channel strategy.
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DeYoung R. (2001), The financial progress of pure-play internet banks Bank for International Settlements, Monetary and Economic Department, BIS Papers n°7, 80-86. DeYoung, R. (2005). The Performance of Internet-Based Business Models: Evidence from the Banking Industry. The Journal of Business, 78(3), 893–947. doi:10.1086/429648 EFMA (2007). Online consumer behaviour in retail financial services, with Novametrie, Capgemini and Microsoft, EFMA Studies, December Egland, K. L., Robertson, D., Furst, K., Nolle, D. E., & Robertson, D. (1998). Banking over the Internet. Office of the Comptroller of the Currency. Currency Quarterly, 17, 25–30. Essayan, M., Rutstein, C., & Wetenhall, P. (2002). Activate and Integrate: Optimizing the Value of Online Banking. Boston: Boston Consulting Group. Furst, K., Lang, W. W., & Nolle, D. E. (2002). Internet banking. Journal of Financial Services Research, 22, 95–117. doi:10.1023/A:1016012703620 Hasan, I., Zazzara, C., & Ciciretti, R. (2005). Internet, Innovation and Performance of Banks: Italian Experience. unpublished manuscript. Hensman, M., Van den Bosch, F. A., & Volberda, H. (2001). Clicks vs. Bricks in the Emerging Online Financial Services Industry. Long Range Planning Journal, 34, 33–235. Hernando, I., & Nieto, M. J. (2007). Is the Internet delivery channel changing banks’ performance? The case of Spanish banks. Journal of Banking & Finance, 31(4), 1083–1099. doi:10.1016/j. jbankfin.2006.10.011 Horsti, A., Tuunainen, V. K., & Tolonen, J. (2005). Evaluation of Electronic Business Model Success: Survey among Leading Finnish Companies.Proceedings of the 38th Annual Hawaii International Conference on System Sciences, Volume 7.
Linder, J., & Cantrell, S. (2000). Changing Business Models: Surveying the Landscape. Accenture Institute for Strategic Change. Loilier, T., & Tellier, A. (2001). Nouvelle Economie, Net organisations. Paris: EMS Eds. Magretta, J. (2002). Why Business Models Matter? Harvard Business Review, (May): 90–91. Mahadevan, B. (2000). Business Models for Internet-based e-Commerce: An anatomy. California Management Review, 42(4), 55–69. Muylle, S. (2001).e-Business in Financial Services”, KPMG,Retrieved from http://www.einvestments.be/KPMG.pdf. Novak, T.P., & Hoffman, D.L. (2001). Profitability on the Web: Business Models and Revenue Streams. eLab Position Paper, Owen Graduate School of Management, Vanderbilt University, January: 9-18. Porter, M.E. (2001).Strategy and the Interne. Boston: Harvard Business Review, June. Rappa, M. (2001)Business models on the Web. Retrieved from http://digitalenterprise.org/models/models.html. Rowe, F. (1994). Des Banques et des Réseaux: Productivité et Avantages Concurrentiels. ENSPTT-Economica, janvier: 246-247 Sahut, J.M. (2000), L’impact de l’Internet sur les métiers de la banque. Les Cahiers du Numérique, septembre: 158-162. Sahut, J.M. (2001).Vers une révolution du secteur bancaire ? La Revue du Financier n°131, 34-38. Sahut, J. M. (2004). Why does SSL dominate the e-payment market? Journal of Internet Banking and Commerce, 9(1). Shapiro, C., & Varian, H. R. (2003). Information rule. Ethics and Information Technology, 5(1).
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Sullivan, RJ (2000), How has the adoption of internet banking affected performance and risk in banks? Federal Reserve Bank of Kansas City, Financial Perspectives, December: 1-16.
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ADDITIONAL READING Berry L., A., Parasuraman, V., & Zeithaml V. (1990). Delivering Quality Service: Balancing Customer Perceptions and Expectacions. The Free Press, March. Chen, S.-H., & Chen, H.-H. (2009). The empirical study of customer satisfaction and continued behavioural intention towards self-service banking: technology readiness as an antecedent. International Journal of Electronic Finance, 3(1). doi:10.1504/IJEF.2009.024270
Liljander, V., van Rien A., & Pura M. (2002). Customer Satisfaction with e-Services: The case of an Online Recruitement Portal. Published in the Yearbook of Services Management 2002 – e-Services. Migdadi, Y. K. A. (2009). Quantitative Evaluation of the Internet Banking Service Encounter’s Quality: Comparative Study between Jordan and the UK Retail Banks. Journal of Internet Banking and Commerce, 14(1). Sahut, J. M. (2006). Electronic wallets in danger. Journal of Internet Banking and Commerce, 11(2).
Claessens, S., Glaessner, T., & Klingebiel, D. (2002). Electronic Finance: Reshaping the Financial Landscape Around the World. Journal of Financial Services Research, 22(1), October, Available at SSRN: http://ssrn.com/abstract=382932
Sahut, J. M. (2008). Internet Payment and Banks. International Journal of Business, 13(4).
Dong, J., & Bliemel, M. (2008). Strategies for Increased Integration of Online and In-Branch Services of Banks in Canada. Journal of Internet Banking and Commerce, 13(3).
Sahut, JM. (2008). On-line Brokerage in Europe: Actors & Strategies. Journal of Internet Banking and Commerce, 8(1), June 2003
Ghobadian, A. (1994). Service Quality: Concepts and Models. International Journal of Quality & Reliability Management, 11(9). doi:10.1108/02656719410074297 Ghobadian, A., Speller, S., & Jones, M. (1994). Service quality: concepts and models. International Journal of Quality & Reliability Management, 11(9). doi:10.1108/02656719410074297
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Sahut, J. M., & Hrnciar, H. (2003). Problématique de la qualité des services d’Internet Banking. Gestion, 2000(2). Sahut, J. M., & Jegham, M. (2008). ICT acceptation: The case of CRM project. Gestion, 2000(2). Sahut, JM., & Kucerova, Z. (2005). Improving End-User Experience via Quality Performance Evaluation: Internet Banking Case. La revue du Financier, October.
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Sahut, J. M., & Kucerova, Z. (2005). Enhance Internet Banking Service Quality with Quality Function Deployment Approach. Journal of Internet Banking and Commerce, 8(2). Schaechter, A. (2002)., Issues in Electronic Banking: An Overview. IMF Policy Discussion Paper No. 02/6, Washington: International Monetary Fund. Settlements, Bank for International (2001), Electronic Finance: A New Perspective and Challenges. BIS Paper No. 7, November, Available at SSRN: http://ssrn.com/abstract=1187567 Tam, Ch. T. W., Leung, T. K. P., & Wong, Y. H. (2003). An integrated model of online customer loyalty. [Brussels, Belgium.]. Proceedings of ABAS International Conference, 2003(July), 11–13. Van Riel, A. C. R., Liljander, V., & Jurriens, P. (2001). Exploring consumer evaluation of eservices: a portal site. International Journal of Service Industry Management, 12(4).
KEY TERMS AND DEFINITIONS Bank Performance: Any of many different mathematical measures to evaluate how well a company is using its resources to make a profit (Farlex dictionary). Business Model: All the choices which a firm makes in order to generate revenue.
Click-and-Mortar Banks: Traditional banks. Distribution Channel Strategy: The route by which a product or service is moved from a producer or supplier to customers (bnet dictionary). Electronic Business Model: Qualify the BM of electronic activities. Information and Communication Technology (ICT): “Is an umbrella term that covers all technical means for processing and communicating information. While this technically encompasses pre-digital technologies, including paper-based writing, it is most often used to describe digital technologies including methods for communication (communication protocols, transmission techniques, communications equipment, media (communication)), as well as techniques for storing and processing information (computing, data storage, etc.) The term has gained popularity partially due to the convergence of information technology (IT) and telecom technology.” (Wikipedia) Online Banking: A system allowing individuals to access to remote bank services, via the internet and/or phone. Profitability: The ability to earn a profit. Pure Player Banks: All the bank activity is only accessible via Internet oand/or phone.
ENDNOTES 1
Study carried out by Accenture Institute for Strategic Change.
This work was previously published in E-Banking and Emerging Multidisciplinary Processes: Social, Economical and Organizational Models, edited by Mohammad Ali Sarlak and Asghar Abolhasani Hastiani, pp. 101-113, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Chapter 2.17
A Reverse Auction-Based E-Business Model for B2C Service Markets1 Tobias Kollmann University of Duisburg-Essen, Germany Matthias Häsel University of Duisburg-Essen, Germany
ABSTRACT LetsWorkIt.de is a German B2C platform for different kinds of service and handcraft orders. Based on the concept of reverse auctions, demanders compose descriptions of the required services to place orders on the platform. The supplier bidding lowest at the end of the auction obtains the right to carry out the order. Drawing upon and widely confirming existing theories on e-marketplaces, this chapter examines the underlying e-business model and the competitive strategy of LetsWorkIt. The case provides evidence
that the reverse auction-based intermediation of handcraft and service orders is suitable to form the basis of an e-marketplace and points out that for such ventures, a combination of public relations, performance marketing, and cooperation, represents an ideal strategy to increase the number of demanders and suppliers. Moreover, the case suggests that, depending on the business model, it may be feasible to concentrate marketing activities on one of these two customer groups, since LetsWorkIt has managed to achieve a significant number of successful, high-quality auctions by primarily aligning its competitive strategy with the demand side.
DOI: 10.4018/978-1-60960-587-2.ch217
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
A Reverse Auction-Based E-Business Model for B2C Service Markets
COMPANY OVERVIEW AND HISTORY In early 2004, Alexander Bugge, Carsten Seel and Jörg Holtmann were wondering whether, in spite of the burst of the dot com bubble, an Internet-based business could become the center of their professional life. At that time, the idea of LetsWorkIt.de, a German business-to-consumer (B2C) auction platform for different kinds of service and handcraft orders, was born. Service auctions to be placed on the platform would include, for instance, gardening, wallpapering a flat, repairing a car, or printing advertising brochures. Although there was already a first-mover offering such auctions, the corresponding market was hardly existent and the publicity for placing service and handcraft orders on the web was still low. Bearing in mind the success of eBay and the fact that the target group of craftsmen was becoming increasingly affine to the World Wide Web, the three entrepreneurs began to develop their business idea and formulated their mission: “to become the leading electronic marketplace for service and handcraft orders and to provide our customers a high level of quality at a fair price.” According to their respective competencies, Bugge, holding a degree in business administration, took over the areas of finance and marketing, whereas Seel, an experienced web developer with a degree in communication science, was responsible for the technical implementation issues and content management. Holtmann, also holding a degree in communication science, would focus on customer relations and PR work. However, having these highly complementary skills would not guarantee LetsWorkIt’s activities from a liquidity point of view. On the one hand, there was a significant need for investing in technology and in establishing the company; whereby, on the other hand, the free-cash-flow could not be too negatively influenced. Consequently, the founders decided to manage without salary in the beginning phase, and each of them subscribed a limited amount of capital. Moreover, they were
supported by a business angel, an external expert on e-marketplaces who helped them from both a financial and a professional point of view. In order to minimize development costs, Seel went for conducting the technical implementation of LetsWorkIt.de and the underlying database on his own, while his two colleagues carefully designed the electronic business processes to be implemented. For the server-side programming of the platform, Seel applied Microsoft’s ASP technology. “Concerning hardware, we decided to fall back on a quality service provider ensuring that the platform would be available twenty-fourseven”, Seel remembers. After less than half a year of exhaustive work, LetsWorkIt.de went online on July 1st, 2004. The main concept is as follows: demanders position orders in form of reverse auctions and compose descriptions of the required services. The duration of an auction can be between one day and six weeks. Suppliers then bid on these orders. The supplier bidding lowest at the end of the auction obtains the right to carry out the order – and is legally obliged to do so since there is a legally binding contract (i.e. a work or services contract) between demander and supplier. This contract is based on the description of the demander and the price of the supplier. Demanders include private persons, enterprises and tradesmen. Suppliers, however, are required to be enterprises or registered craftsmen and have to verify their accreditation. “LetsWorkIt provides some obvious advantages for both demanders and suppliers”, Holtmann states. For the demander, these advantages include: • • • • •
Saving money when placing handcraft and service orders, Being sure to pay the lowest price, Finding a service provider or craftsman very easily and quickly, Avoidance of unpleasant negotiations, and Reaching a wider range of service providers or craftsmen.
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Advantages for the supplier include: • • •
Acquiring orders in a simple and innovative way, Increasing the workload of the own business, and Saving advertising and distribution costs.
Acting as an intermediary between supply and demand that offers aggregation and matching functions, LetsWorkIt.de can be referred to as an electronic marketplace (Bakos, 1997; Kollmann, 2000; Dai & Kauffmann, 2002). “Our unique selling proposition is that placing orders on our platform is free of charge”, Bugge stated when he was asked about competitive strategy. Even after a successful auction procedure there are no costs for the demander. Solely the service providers or craftsmen are charged with a intermediation fee after a successful auction. The amount of this fee for the intermediation of supply and demand depends on the contract value. Payment flows and activities between demander, supplier and LetsWorkIt.de are illustrated in Figure 1. The founders were aware that the success of LetsWorkIt would not only depend on the successful realization of their business model, but also on the continued development and appropriate adjustment to market demands. Since the start Figure 1. Payment flows and activities between demander, supplier and LetsWorkIt.de
of the operating business, the three founders therefore, as described in the remainder of this chapter, continued their activities focusing on three main areas: • • •
Acquiring investors and cooperation partners (Bugge), Improving and extending platform functionality (Seel), and Investing high efforts in marketing and public relations (Holtmann).
In the first quarter of 2005, both the number of registered participants and LetsWorkIt’s revenues grew by approximately 350%. Having obviously proven the potential of the concept of service and handcraft auctions, LetWorkIt.de became a public limited company (GmbH) on May 1st, 2005. Three months later, the platform had about 12,000 registered demanders and 5,500 registered suppliers. On average, there were 1,800 new auctions per month. The auction success rate figured 60%. The continuing success of LetsWorkIt is based on two interrelated factors – their innovative business model and their efforts in cooperation, marketing and public relations. Building on current literature, the two subsequent sections will consequently analyze the electronic business model and the competitive strategy of LetsWorkIt.
ELECTRONIC BUSINESS MODEL LetsWorkIt.de is a true company of the so-called Net Economy, i.e. a pure Internet-based business (Kollmann, 2006): With the heightened importance of the factor information, new possibilities resulted with respect to how enterprises create value (Amit & Zott, 2001; Lumpkin & Dess, 2004). An enterprise can create customer value not only through physical activities on the real level, but also through the creation of value on the electronic level (Weiber & Kollmann, 1998). These electronic value creation activities are,
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however, not comparable with the physical value creation activities presented by Porter (1985), rather they are characterized by the way in which information is used. In the case of LetsWorkIt.de, these activities include the collection, systemization, selection and distribution of information on orders and marketplace participants. An electronic value chain manifests itself through these specific activities of creating value that originates in and impacts only the Net Economy.
plex and varied, and the corresponding markets seem to be highly fragmented, platforms such as LetsWorkIt.de can add value by simplifying information search, respectively, reducing search costs (Giaglis, Klein, & O’Keefe, 2002; Bakos, 1997). According to a classification suggested by Kollmann (2006), the resulting customer value comprises these three aspects: •
The Electronic Creation of Customer Value The basis of a Net Economy venture’s income must be formed by the added value for the customer. In the case of LetsWorkIt, customer value is not necessarily just the service or handcraft order. “In the first instance, value rests in our platform functionality related to an auction and the availability of information – regardless of temporal and spatial restrictions”, Bugge explains. “This electronic product is made possible only through the use of information technologies”, he further elaborates. Thus, the creation of customer value only occurs at the electronic level. This does not mean that LetsWorkIt does not require real resources such as personnel. LetsWorkIt also possesses a physical value chain, which plays, however, only a supporting role in order to successfully offer the electronic creation of value (Weiber and Kollmann, 1998). Such physical activities include the permanently staffed customer hotline – which, however, results in additional charge for the customers. Building upon the underlying value chain in the Net Economy, it must also be determined what form of electronic value is created in the eyes of the customer for which he would be prepared to pay, i.e. what makes LetsWorkIt.de attractive from the customer’s point of view. When implementing their idea, the most pertinent question for the three founders was: What kind of value is created for the demanders and the suppliers? As purchase decisions in the service sector are com-
•
•
Overview value: The aspect that LetsWorkIt.de provides an overview of a large amount of information that would otherwise involve the arduous gathering of information. By structuring service and handcraft orders in many different categoriesa and presenting them in a common format, overview value is especially created for the suppliers looking for orders they can bid on. Also, demanders might browse the categories, orders, as well as detailed supplier profiles to get a first impression of the marketplace and its participants. Selection value: By submitting database queries, consumers can locate exactly the desired information/services more quickly and, thus, more efficiently. LetsWorkIt. de creates selection value by offering a search form that allows querying the database by keywords, order category, or zip code. Furthermore, after registering to the platform, suppliers have the possibility to apply for an e-mail-based “auction alarm” functionality that automatically informs them about new orders that are requested in their specific region. Matching value: This aspect deals with the ability, when using an online offer, to more efficiently and effectively match supply and demand (Bakos, 1998). LetsWorkIt. de collects service offerings and the demanders’ wishes, coordinates the participants and offers them a suitable trading partner. In the optimal case, both market partners (i.e. demanders and suppliers) will
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be matched with the best overall market allocation. Considering these aspects, it becomes obvious that LetsWorkIt.de creates several different types of value and that both overview value as well as selection and matching values are created. In combination, these values result in an increased market transparency, an optimal price finding, greater efficiency through electronic order completion, cutting down transaction costs and convenience. Still, the question how these values are created remains. For the purpose of answering this question, the previously introduced electronic value chain can be applied. The electronic value chain separates an e-business into strategically relevant activities in order to better understand cost behavior and recognize present and potential sources of differentiation (Kollmann, 2006). Thus, the electronic value chain represents respectively those value activities which, for example, involve collecting, systemizing and distributing information. Through specific value activities, an electronic information product is created that presents value for which the LetsWorkIt customer is willing to pay. Therefore, the electronic value chain embodies the total value that is generated by the individual electronic value activities plus the profit margin. The electronic creation of value on LetsWorkIt. de is depicted in Figure 2: The business idea is based upon reversely auctioning all kinds of service and handcraft orders on an e-marketplace (founder view). The electronic value creation is directly reflected in the resulting added value for the user (customer view) and refers centrally to the overview, selection and matching functions. An example: Both the supplier and the demander would be prepared to pay for the matching function, whereas only the supplier would be eventually willing to pay a fee for the selection function. In order to realize this creation of value, LetsWorkIt’s founders applied the value chain concept to identify particularly those value activities that form
516
the core of value creation. Simplified, information on an order must be first collected; secondly, the location and the demander of the order must be determined and, in a third step, systematically stored in the database. Using this database, information is then offered to the potential suppliers who can formulate a query using appropriate search mechanisms. If a match is found through the query process, then the accompanying information pertinent to the request is exchanged. If all of this occurs, the final product is a transaction. The electronic process of creating value is thus collecting information, processing and transferring it (company view).
Electronic Value Creation Processes As already noted, the business principle of LetsWorkIt.de applies reverse auctions for finding the lowest price for a given service or handcraft order. In opposite to forward auctions (as, for instance, known from eBay), the respective electronic value creation processes usually begin with the demander who places an order on the platform. While the price is decreasing, it is the suppliers who have to bid. So far, downward price auctions have mainly been applied in the business-to-business (B2B) area, in particular for direct material purchasing (Emiliani, 2000). In this context, LetsWorkIt.de represents one of the first business models transferring the concept to B2C, with private consumers initiating the pricing process. The respective electronic value creation involves both the core and service processes (Kollmann, 2006). Core processes such as placing an order (demander side) or bidding on an order (supplier side) hold a true function in the creation of value, whereas service processes support the business processes along the value chain. Service processes are for instance initiated in connection with the rating system of LetsWorkIt.de: After an order has been completed, demanders are asked to fill out an electronic evaluation form on the
A Reverse Auction-Based E-Business Model for B2C Service Markets
Figure 2. Electronic creation of value on LetsWorkIt.de (according to Kollmann, 2006)
supplier. The data collected is then used to update the supplier profile and finally displayed when the supplier is engaged in subsequent auctions. Within the reverse auction principle, LetsWorkIt.de features two different auction types: standard auctions and, so-called “selective” auctions. A standard auction features the placement of an auction for a certain time period, and every registered supplier is able to place a bid on the auction. At the end, the supplier bidding lowest obtains the job. Consequently, the demander is required to accept the supplier’s offer and pay the agreed price. In contrast, a selective auction features the possibility to reject bidders. Before being able to place a bid on a selective auction, the bidder has to address the demander and request participation; the demander may then decide whether the bidder meets the specific requirements. During
the auction, bids are hidden. However, suppliers are informed in case of being underbid and may then bid again. Figure 3 illustrates the concept of selective auctions. For both auction types, the electronic value chain process begins with the input of information. In order to provide the targeted added value (i.e. the matching function), the required information must first be gathered. In the next step, the information is processed internally such that it can then be transferred on to the customer in the desired form as information output and in a way that specifically adds value for that customer. With this in mind, the processes of LetsWorkIt.de can be characterized as follows: •
Information collection: The first step involves gathering relevant data that serves
Figure 3. Concept of selective auctions
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A Reverse Auction-Based E-Business Model for B2C Service Markets
•
518
as information input for the additional creation of value. LetsWorkIt.de features category-specific central questions when placing new auctions: By specifying details for the order, e.g. relating to material, period and particularities, the demander provides potential bidders with a basis for calculating their bids respectively deciding whether to apply for a selective auction or not. An important detail is the maximum price the demander is willing to pay. Based on this price, suppliers can place bids on the requested services. In the case of a selective auction, information collection also includes asking demanders which of the respective suppliers should be selected. Prior to this, the demander also needs to provide the suppliers with information pertaining to how he values some nonprice attributes (Beil & Wein, 2003), such as experience and proficiency. Seel states that the question behind gathering information on LetsWorkIt.de is: “who demands what at which level of quality and who offers this for the lowest price?” Information processing: The second step involves the conversion of the collected data into an information product for the customer. For LetsWorkIt, information processing includes matching the demanders’ requests with supplier profiles (as it is the case for abovementioned auction alarm functionality), matching the suppliers’ search queries with appropriate orders that match their capabilities, as well as comparing the incoming bids. Building on the concept known from eBay, an incoming bid is passed to a bidding agent that treats the bid as the minimum price at which the bidder would accept the order and automatically decreases the bid by the amount necessary to win the auction. Also, with respect to the rating system, information processing in-
•
cludes updating supplier profiles with the abovementioned evaluation results. Information transfer: The third step involves actually implementing the newly acquired or confirmed knowledge obtained from collected, saved, processed and evaluated data for the benefit of customer. The result is an output of information which creates value. Outputs of LetsWorkIt.de include displaying auction details, sending e-mails that inform suppliers about appropriate orders (auction alarm) and being underbid, as well as displaying the member profiles of suppliers that have placed a bid respectively applied for a selective auction. As only the bidder with the lowest bid at the end of the auction wins the order, information transfer finally also includes informing both demander and supplier(s) about the end of the auction.
It is important to recognize that it is not sufficient for LetsWorkIt.de to go through this sequence of electronic value creation just once. Rather, it is a continual process of acquiring, processing and transferring information, which is necessary. This is even more essential, as the underlying information – such as the current price – is constantly subject to change. The most important value creation processes of LetsWorkIt. de are summarized in Figure 4.
Proceeds Model An e-marketplace operator’s income may result from fixed participation fees or variable, transaction-based provisions, as well as from banner advertising, cross-selling or selling gathered market information. Direct proceeds of LetsWorkIt result from successfully completed auctions and are variable provisions. For the demander, all services offered by LetsWorkIt are free of charge. Successful bidders, however, have to pay a com-
A Reverse Auction-Based E-Business Model for B2C Service Markets
Figure 4. Electronic value processes of LetsWorkIt.de
Table 1. Proceeds model of LetsWorkIt.de Order volume (€)
Commision fee (+VAT)
<=
5,000.00
4,00%
5,000.01
to
50,000.00
3,00%
50,000.01
to
100,000.00
2,00%
>=
100,000.01
1,00%
mission fee based on the order volume. Table 1 shows the proceeds model of LetsWorkIt.de.
COMPETITIVE STRATEGY Due to the nature of electronic processing, customer’s switching costs of switching from one e-marketplace to another are nearly none (Porter, 2001). The decision to participate on a platform is more or less made by mouse-click (Kollmann, 2000). Due to the fact that switching barriers for
the market they were operating in are so low, the three founders soon realized the necessity to differentiate their electronic product from the competition.
Market Situation Shortly after LetsWorkIt.de entered the German market for service and handcraft auctions as a second-mover in summer 2004, two additional competitors joined the market. As a result of this development, competition between the four site operators took on a greater importance. “At the beginning, our competitors were as weak as ourselves”, Bugge stated. “Hefty competition, however, became quickly visible. What’s more, we feared that a big-budget player such as eBay could enter the market”, he further elaborated. “Fortunately, this has not happened up to now.” However, competitors have become significantly stronger. Although all competitors follow the same
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A Reverse Auction-Based E-Business Model for B2C Service Markets
they helped to form the market for service and handcraft auctions. Actually, they did a good deal making the concept of reverse auctions known to the general public.” However, Holtmann and his two friends were aware that they were operating in a winner-takes-all market and that, on the long run, there would be no reward for being second best. Consequently, they made some important business decisions with respect to their competitive strategy. The main question was fairly simple: How could LetsWorkIt.de promote its performance and sustain competitive advantage in spite of its low marketing budget?
main principle, they differ in the variety of services and in details relating to the bidding process: •
•
•
Undertool.de, founded in October 2003, became the first German e-marketplace for service and handcraft orders. Although the venture held the highest number of registered customers, they were unable to transfer this advantage to a higher number of running auctions. Jobdoo.de launched its e-marketplace in August 2004, facing a similar market position as LetsWorkIt. After one year of operating business, the venture counted 11,000 registered customers and an average of 1,000 running auctions – and thus held a leading position until the market entrance of the fourth player in the market. My-Hammer.de is the youngest, and soon also became LetsWorkIt’s most threatening competitor. It went online in May 2005, accompanied by a big advertising campaign on federal TV stations. With an average of 1,000 running auctions in September 2005, the venture had quickly catched up with both LetsWorkIt.de and Jobdoo.de.
Bilateral Marketing Particularly at the beginning, LetsWorkIt.de was confronted with start-up problems that were related to critical masses, as e-marketplace success requires a critical mass of both supplier and demander participation (Yoo, Choudhary, & Mukhopadhyay, 2002). For the supplier, a certain number of demanders of a certain quality had to be present to make the marketplace attractive. At the same time, a certain number of suppliers with certain characteristics had to exist so that demanders enter the marketplace. In other words, an e-marketplace faces a two-sided network effect, with demanders reacting to suppliers, and suppliers reacting to demanders (Galbreth, March, Scudder, & Shor, 2005). It is characterized by the presence of two distinct sides whose ultimate benefit comes from interacting through the marketplace platform. Consequently, also LetsWorkIt needed to address this “chicken and-egg problem” and be careful to get both sides on board (Rochet &
Table 2 summarizes the competitive situation in September 2005. Due to high marketing expenses in the following months, My-Hammer. de soon reached higher brand awareness than its competitors and very quickly attained a leading market position. “First, we thought that we would not been able to keep up with them”, Holtmann remembers. “But then I realized that their TV spots were also boosting our sales – probably because
Table 2. LetsWorkIt.de and its three main competitors in September 2005 Undertool.de Platform launch
October 2003
Jobdoo.de August 2004
My-Hammer.de May 2005
LetsWorkIt.de July 2004
Users
70,000
11,000
1,000
14,000
Auctions per month
1,000
1,200
1,000
1,000
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A Reverse Auction-Based E-Business Model for B2C Service Markets
Tirole, 2003). The need for a balanced ratio of marketplace participants implicates a constant bilateral marketing strategy that is aiming at both demanders and suppliers (Kollmann, 1998). The three founders were well aware of this necessity. However, a custom-tailored marketing for both target groups would have gone far beyond their financial means. “Marketing was already making up 65% of our expenses. We had to carefully examine what to spend our money on”, Holtmann says. Consequently, the founders conducted a thorough analysis of their customers, especially concerning their role on the e-marketplace. Bugge: “We were thinking about whether – from the marketing point of view – one target group might be more relevant than the other.” They soon realized that it would be reasonable to focus their activities on the demand side. The rationale behind this decision is as follows: •
•
First, in the real transaction process, the demander turns into a customer of the supplier. As the suppliers are per se interested in acquiring new orders on a regular and recurring basis, as well as increasing the workload of their own business, they do not necessarily need to be attracted to LetsWorkIt.de. In fact, ignoring LetsWorkIt as an additional distribution channel would be unwise for the suppliers. Second, suppliers participating on the competitors’ platforms do not harm
•
LetsWorkIt’s revenues, as they may bid on multiple orders at the same time. Demanders, however, can place a single order only on one of the platforms, and thus represent a required, but not sufficient criterion for turning an auction into revenue. Third, the orders placed by the demanders are directly visible on the platform and thus represent the main criterion that customers and the media apply to compare the available e-marketplaces for service and handcraft orders.
“Actually, suppliers are not the bottleneck. If one disregards auctions that have an unattractive starting price, our regular suppliers do fully cover the demand”, Bugge concludes. “Although a quantitative definition of balance currently lacks empirical data, our estimations propose that a sufficient ratio between suppliers and demanders is one to three.” Comparing demanders and suppliers from different perspectives, Table 3 summarizes the rationale for focusing on the demander as the primary target group. As a consequence, LetsWorkIt particularly aligned its whole marketing mix with the demander. At the beginning, increasing the sheer quantity of new auctions and getting ahead of the competition in terms of numbers became the focus of LetsWorkIt’s competitive strategy. As described in the following, the respective
Table 3. Comparing demanders and suppliers Perspective
Demander
Supplier
Customer Relationship
Registered participant
Registered participant
Transaction process
Real recipient of service
Real renderer of service
Matching process
Places order
Bids on orders
Frequency
Irregular and infrequent need
Regular and recurring need
Market participation
One order, one platform
Multiple orders, multiple platforms
Transparency
Directly visible on platform
Only indirectly visible
Revenue
Uses LetsWorkIt free of charge
Pays for successful intermediation
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communication and distribution strategies of LetsWorkIt.de grounded on three distinct building blocks from the very beginning: public relations, performance marketing and cooperation.
Public Relations “We have strongly benefited from the mass media”, Holtmann replies when asked about public relations. Due to several reports on federal radio and TV stationsb as well as in the pressc, the concept of service and handcraft auctions in general, as well as LetsWorkIt.de in particular, became known to the wide public. “After appearing on TV, the number of auctions was boosting by up to 300%”, Holtmann explains. The same phenomenon could be observed when the press dealt with the subject. To fully leverage the potential of the mass media, the founders soon decided to engage a PR agency that continually releases news items about LetsWorkIt.de. Bugge: “This was certainly one of our most important marketing decisions. They are really doing a good job.”
Performance Marketing Despite the success of the abovementioned PR campaigns, the major advertising channels for LetsWorkIt.de are, of course, web-based. One of the major advantages of online advertising is the possibility to measure detailed metrics for the respective channel, such as the number of page impressions and click-trough rates. The utilization of advertising channels that are paid on a performance basis can be referred to as performance marketing. For LetsWorkIt.de, this concept became the basis of a very cost-effective marketing controlling: “From the very beginning, we strongly aligned our online marketing campaigns with clear-cut performance targets”, Bugge explains. In order to measure a channel’s performance, this first means defining a target cost for each metric – for example, a target cost of €2.00 for a new registration. Thereafter, the
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campaign is continually adjusted regarding both qualitative and quantitative aspects in order to generate as many prospects as possible within the given campaign budget. LetsWorkIt.de focused on two main performance marketing measures: •
•
Keyword advertising: Via Google’s Adwords program, LetsWorkIt purchased sponsored links that guarantee a top Google rank in searches for relevant keywords like “Handwerk” (handcraft) or “Dienstleistung” (services). This classical Internet advertising effort was especially intended to raise overall brand awareness for LetsWorkIt.de. Affiliate advertising: Instead of implementing a software solution to control online advertising channels, LetsWorkIt decided to make use of affilinet.de, an affiliate network provider that offers a standardized solution to efficiently acquire many small advertising partners and effectively control the performance metrics of the respective channel. LetsWorkIt’s affiliate program includes miscellaneous banners and links that can be integrated into the affiliates’ websites. The program features attractive remuneration terms that have already attracted a lot of affiliates (€2.00 for a new registration, €10.00 for a new registration followed by an auction placement). The program started in August 2005. Two months later, a total of 1,300 affiliates had mediated 250 registrations and 60 auctions.
After some time, LetsWorkIt was able to identify notably diligent affiliates and individually approached them in order to transform the respective business connections into more effective, strategic partnerships. “Beyond that, I began to personally approach web portals offering information and services related to the topic of service and handcraft orders”, Bugge remembers. Strategic cooperation soon became the third
A Reverse Auction-Based E-Business Model for B2C Service Markets
building block of LetsWorkIt’s communication and distribution strategy.
Strategic Cooperation As a lack of financial means often leads to deficits in the areas of sales and market positioning, cooperation strategies play an elementary role regarding the growth of Internet-based ventures (Kollmann & Häsel, 2006a; Kollmann & Häsel, 2006b; Volkmann & Tokarski, 2006). Cooperative agreements with topic-related partner sites thus have become a fundamental building block of LetsWorkIt’s competitive strategy, intended to decrease the high acquisition costs per customer. Table 4 lists the most important partner sites cooperating with LetsWorkIt.de. With each partner, LetsWorkIt.de negotiated one of the following cooperation modes, depending on the scope of integration into the partner’s website: •
•
•
Banner/link integration: This merely refers to integrating a banner, button or a text link into the partners website, pointing to LetsWorkIt.de. Editorial integration: The partner seamlessly integrates an editorial content that actively promotes LetsWorkIt.de. Content frame sharing: This cooperation mode features the possibility of directly displaying a list of current auctions
•
on the partner’s website. Depending on the website visitors, the partner may follow different strategies: Being redirected to LetsWorkIt.de, potential bidders can directly bid on the respective orders. Potential demanders, on the other hand, can experience the different kinds of auctions placed on the e-marketplace. Co-branded marketplace: Applying this cooperation mode, LetsWorkIt offers its partners to adapt the LetsWorkIt.de platform and offer it as a supplementary service. The affiliate can choose between either a co-branded version of the marketplace opened in a new browser window (with the website header and colours adapted to the partner’s look and feel), or a version that is directly integrated into the partner website. Both versions are hosted on LetsWorkIt’s web server.
Applying these cooperation modes, the partners enhance their own offers by a complementary product that represents an added value for their customers. In banner/link or editorial integration modes, the partner is additionally remunerated for new registrations, respectively, registrations followed by an auction placement. Particularly in connection with the co-branded marketplace mode however, the partner is remunerated by revenue sharing, i.e. the revenue generated on the
Table 4. Cooperation partners in January 2006 Partner
Platform description
Cooperation mode
ImmobilienScout24.de
Real estate marketplace (catalogue)
Co-branded marketplace
Immoauktionen.de
Real estate marketplace (auctions)
Banner/link integration
Bauen.com
Building portal
Content frame sharing
Bauen.de
Building portal
Co-branded marketplace
Quoka.de
Publishing house (small advertisements)
Link integration
Sebworld.de
Insolvencies, mortgages and auctions
Link integration
Meldebox.de
Moving house portal
Content frame sharing
Baubeteiligte.de
Building/real estate web directory
Editorial integration
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basis of the adapted platform is shared between LetsWorkIt.de and its strategic partner. The ratio depends on the acquisition potential of the partner. “Current models feature ratios between 30% and 50% for the partner”, Bugge says.
Product Strategy Besides the quantitative problem of acquiring marketplace participants, e-marketplaces also needed to provide for qualitative marketing problems in their competitive strategy. The number of participants as such on the demander and supplier side does not yet allow any conclusions about the level and quality of the assigned transaction partners. Therefore, it has to be clarified to what extent the demand on both sides can be satisfied (Kollmann, 1998). “At the beginning, many auctions were simply unattractive for the suppliers – either because of the starting price, or in terms of descriptions that have been just too opaque to be used as a basis for calculating the amount of work to be done”, Seel says. Apparently, the decision to actively participate in the marketplace also depends on the way transactions are coordinated, i.e. the design and features of the matching function. This goes along with research by Soh, Markus, & Goh (2006), who find that differences in features such as content creation are important because they not only contribute to the strategic alignment between value creation activities and the target market(s), but also are highly consequential for the benefits demander and suppliers get from an e-marketplace. Consequently, only a few months after launching the initial version of the platform, Seel revised the core process of placing an order, adding central questions and pieces of advice depending on the type of order to be placed. Additionally, the number of auctions that have been concluded does not say anything about the quality of the respective business deal, i.e. form, degree and dimension of transactions done and their effect on the whole market system. Cor-
524
respondingly, as revenues result from a market fee that depends on the order volume, the value of each transaction plays an important role for LetsWorkIt. “Unfortunately, order volumes have been alarmingly low at the beginning. People were lacking trust into the concept of service and handcraft auctions”, Holtmann says. “Probably they first wanted to gain experience with low-volume orders, or simply minimize risk”, Bugge amends. “This is why we introduced the concept of selective auctions at a very early stage – outrunning our competitors, who did not offer such a concept.” As illustrated in Figure 5, the concept of selective auctions is intended for high-priced orders with a high demand of quality. “As the demander may rather control the actual outcome of the auction, the introduction of selective auctions significantly increased the average order volume, and thus our revenues“, Seel remembers. Similarly, LetsWorkIt’s rating system became part of a product strategy that emphasized quality aspects as key to success. An experimental study conducted by Ba & Pavlou (2003) confirms that demanders develop trust in a supplier’s credibility as a result of feedback mechanisms. “The rating system builds trust into the transaction partner, and is an important instrument for deciding which suppliers to select for a selective auction”, Seel states. The system makes the quality of work directly visible on the platform. “BasiFigure 5. Selective auctions as an essential part of product strategy
A Reverse Auction-Based E-Business Model for B2C Service Markets
cally, due to the transparency of the rating system, our suppliers cannot afford to provide bad quality”, he adds. Indeed, results from Ba & Pavlou (2003) indicate that negative ratings carry a much stronger effect than positive ones on a demander’s trust level and consequently the individual order volumes that a demander is willing to handle via the platform. Concerning its product strategy, LetsWorkIt still needs to achieve an advantage over other competing marketplaces so that the coordination via LetsWorkIt.de would be more reliable than via comparable platforms. However, the management team still has to assure that the coordination is based on a balanced ratio of emarketplace participants. “The reason for this is the comparison that is performed by both demanders and suppliers”, Holtmann says. It is this comparison that determines the participation of quality-oriented demanders and suppliers. Against this background, it can be expected that in the course of the expansion of LetsWorkIt.de, quality aspects will be of primary importance. Apparently, over time, a shift oft the relevance from the quantitative to the qualitative problem area can be postulated for being competitive in the market of service and handcraft auctions. Figure 6 illustrates the development of coordination problems on LetsWorkIt.de. Before reaching the quantitative critical masses, the acquisition of further market participants is in the foreground. For LetsWorkIt.de, this is still the case. However, as LetsWorkIt’s proceeds model builds on order volume, a product strategy focusing on the quality of individual transactions has already become a key component of the venture’s competitive strategy. “It is the form and the number of real business deals that decides whether we will be successful or not”, Bugge summarizes.
Figure 6. The development of coordinating problems (according to Kollmann, 1998)
leading German e-marketplaces for service and handcraft auctions. “Competition has become even stronger. But we are confident that we will be able to stand up to them. Currently, we are number two in the German market”, the three founders state. And they are no longer alone: in early 2006, LetsWorkIt was officially taken over by Quotatis S.A., a French competitor expanding its business to the German market. Since May 1st, 2006, LetsWorkIt.de is officially named “Quotatis” and has recruited six new employees, including a new chief executive officer. Chief marketing officer Bugge: “At last, the take-over strengthened our marketing budget.” Renaming the e-marketplace was accompanied by a TV campaign with commercials during do-it-yourself and interior design shows on five German TV channels, as well as a new online advertising concept that includes cooperation with several well-known German portal sites. With 3,500 orders per month and 60,000 marketplace participants, Quotatis is now number two in the German market for service and handcraft auctions (see Table 5). It will remain exciting to watch this market and, in particular, to keep track of the competitive strategy of Quotatis.
From LetsWorkIt to Quotatis
CONCLUSION
Looking back on two years of operative business now, LetsWorkIt.de has evolved into one of the
The case of LetsWorkIt.de provides evidence that the intermediation of handcraft and service orders
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A Reverse Auction-Based E-Business Model for B2C Service Markets
Table 5. Quotatis and its three main competitors in May 2006 Undertool.de
Jobdoo.de
My-Hammer.de
Quotatis.de
Orders per month (compared to September 2005)
1,400 (+40%)
1,500 (+25%)
5,500 (+450%)
3,500 (+350%)
Users
87,000
31,000
60,000
60,000
is suitable to form the basis of an Internet-based B2C business model. This solely electronic business model is based upon a concept that involves the electronic creation of customer value by matching supply and demand on an electronic platform of the Net Economy. In this regard, the case confirms existing theory postulating that e-marketplaces can add value by simplifying information search in highly fragmented markets, where purchase decisions are complex and varied (Giaglis, Klein, & O’Keefe, 2002). For the service sector, reverse auctions have proven to represent an ideal matching mechanism. However, introducing the concept of selective auctions, the case also suggests that especially for high-priced orders with a high demand of quality, demanders should be enabled to minimize risk by rejecting non-compatible bidders. Furthermore, this case study points out that for Internet-based ventures, which are unknown and have limited capital, an ideal combination of public relations, performance marketing and strategic cooperation represents a very effective communication and distribution strategy. In particular, e-marketplaces are well advised to make use of such approaches to overcome quantitative marketing problems in the early phases of business development. The case underlines the importance of considering the complex interrelations of two-sided network effects and confirms the chicken-and-egg problem that is well-documented in current literature on electronic markets (Galbreth, March, Scudder, & Shor, 2005; Rochet & Tirole, 2003). Finally, supplementing existing theory that postulates a well-balanced bilateral marketing
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(Kollmann, 1998), the case of LetsWorkIt.de suggests that, depending on the concrete business model, it may be feasible for an e-marketplace to concentrate marketing activities on a primary customer group. By primarily aligning competitive strategy with the demand side, LetsWorkIt was able to reach a sufficient number of successful auctions. Besides quantitative aspects, strategy must include qualitative means that positively affect the form of the real business transactions standing behind an auction. The strategic combination of selective auctions and feedback mechanisms supports existing theory on the positive effects that rating systems may have on the demander’s trust level (Ba & Pavlou, 2003), respectively, the individual order volumes that a demander is willing to handle via the platform. As revenues depend on the order volume, a product strategy covering the whole range of the demander’s quality expectations, while at the same time signaling trustworthiness, turned out to be the key to success.
REFERENCES Amit, R., & Zott, C. (2001). Value creation in E-business. Strategic Management Journal, 22, 493520. doi:10.1002/smj.187 Ba, S., & Pavlou, P. A. (2003). Evidence of the effect of trust building technology in electronic markets: price premiums and buyer behavior. MIS Quarterly, 26(3), 243–286. doi:10.2307/4132332 Bakos, J. Y. (1997). Reducing buyer search costs: Implications for electronic marketplaces. Management Science, 44(12), 1676–1692. doi:10.1287/ mnsc.43.12.1676
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Bakos, J. Y. (1998). The emerging role of electronic marketplaces on the Internet. Communications of the ACM, 41(8), 35–42. doi:10.1145/280324.280330 Bein, D. R., & Weil, L. M. (2003). An inverseoptimization-based suction mechanism to support a multiattribute RFQ process. Management Science, 49(11), 1529–1545. doi:10.1287/ mnsc.49.11.1529.20588 Dai, Q., & Kauffmann, R. J. (2002). Business models for Internet-based B2B electronic markets. International Journal of Electronic Commerce, 6(4), 41–72. Emiliani, M. L. (2000). Business-to-business online auctions: key issues for purchasing process improvement. Supply Chain Management: An International Journal, 5(4), 176186. doi:10.1108/13598540010347299 Galbreth, M. R., March, S. T., Scudder, G. D., & Shor, M. (2005). A game-theoretic model of Emarketplace participation growth. Journal of Management Information Systems, 22(1), 295–319. Giaglis, G. M., Klein, S., & O’Keefe, R. M. (2002). The role of intermediaries in electronic marketplaces: developing a contingency model. Information Systems Journal, 12, 231–246. doi:10.1046/j.1365-2575.2002.00123.x Kollmann, T. (1998). Marketing for electronic market places – The relevance of two “critical points of success”. Electronic Markets, 8(3), 36–39. doi:10.1080/10196789800000039 Kollmann, T. (2000). Competitive strategies for electronic marketplaces – A study of Germanlanguage trading sites for used cars on the World Wide Web. Electronic Markets, 10(2), 102–109. doi:10.1080/10196780050138155 Kollmann, T. (2006). What is E-entrepreneurship? – Fundamentals of company founding in the Net economy. International Journal of Technology Management, 33(4), 322–340. doi:10.1504/ IJTM.2006.009247
Kollmann, T., & Häsel, M. (2006a). Cross-Channel Cooperation: The Bundling of Online and Offline Business Models. Wiesbaden, Germany: Deutscher Universitäts-Verlag. Kollmann, T., & Häsel, M. (2006b). Cross-channel cooperation: A collaborative approach of integrating online and offline business models. In F. Feltz, B. Otjacques, A. Oberweis, & N. Poussing (Ed.), AIM 2006 – Information Systems and Collaboration: State of the Art and Perspectives (pp. 69-82). Bonn: Gesellschaft für Informatik. Lumpkin, G. T., & Dess, G. G. (2004). E-business strategies and Internet business models: How the Internet adds value. Organizational Dynamics, 33(2), 161–173. doi:10.1016/j.orgdyn.2004.01.004 Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York, NY: Free Press. Porter, M. E. (2001). Strategy and the Internet. Harvard Business Review, 79(3), 62–78. Rochet, J.-C., & Tirole, J. (2003). Platform competition in two-sided markets. Journal of the European Economic Association, 1(4), 990–1029. doi:10.1162/154247603322493212 Soh, C., Markus, M. L., & Goh, K. H. (2006). Electronic marketplaces and price transparency: strategy, information technology, and Success. MIS Quarterly, 30(3), 705–723. Volkmann, C., & Tokarski, K. O. (2006). Growth strategies for young E-ventures through structured collaboration. International Journal of Services Technology and Management, 7(1), 68–84. Weiber, R., & Kollmann, T. (1998). Competitive advantages in virtual markets perspectives of “information-based marketing” in the cyberspace. European Journal of Marketing, 32(7/8), 603–615. doi:10.1108/03090569810224010
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Yoo, B., Choudhary, V., & Mukhopadhyay, T. (2002). A model of neutral B2B intermediaries. Journal of Management Information Systems, 19(3), 43–68.
ENDNOTES 1
A prior version of this chapter titled ‘Reverse Auctions in the Service Sector: The Case of LetsWorkIt.de’ has been published in the International Journal of E-Business Research, 3(3), 57-73.
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According to the sales numbers in September 2005, the most successful categories have been: building & renovating, painters & varnishers, gardening, moving & transports, heating installation & sanitary, and furniture & furnishing. TV reports about LetsWorkIt.de have been broadcasted on PRO7 (BIZZ), ARD (Ratgeber Geld), ZDF (WISO), and KABEL1 (K1 Journal). Articles about LetsWorkIt.de have been published in BILD am Sonntag, Stern, Focus, DIE WELT, and Tommorow, among others.
This work was previously published in Emergent Strategies for E-Business Processes, Services and Implications: Advancing Corporate Frameworks, edited by In Lee, pp. 155-173, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.18
Multi-Tier Design Assessment in the Development of Complex Organizational Systems Melissa A. Dyehouse Purdue University, USA John Y. Baek Center for Advancement of Informal Science Education, USA Richard A. Lesh Indiana University, USA
ABSTRACT This chapter describes a model for evaluating complex organizations or systems. The design assessment model the authors propose is a response to current notions of assessment. There are assumptions we make about learning and the functioning of complex systems such as academic programs that do not match assumptions that are inherent in traditional forms of assessment. The authors use a case study of Purdue University’s DOI: 10.4018/978-1-60960-587-2.ch218
strategic planning process to provide the context for describing how design assessment takes place in a higher education setting. Based on interviews and observations, we identify areas problematic for some notions of assessment and distinguish several implications based on these findings. The design assessment model may be useful when assessing complex educational organizations or programs, such as when (a) educational entities at the university level need to assess new programs or curriculum materials; or (b) curriculum developers need to assess new software or tools for instruction.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Multi-Tier Design Assessment in the Development of Complex Organizational Systems
INTRODUCTION Assessment and evaluation are increasingly important to evaluate programs or initiatives in higher educational settings. For example, a National Science Foundation (NSF) grant proposal must include an evaluation component (Frechtling, 2002). However, how does one go about evaluating a complex educational entity (i.e., with many interacting/conflicting components, stakeholders, and ideas) in a way that will produce valid and accurate results while balancing time and budgetary constraints? The kind of multi-tier design assessment procedures discussed in this chapter are based on principles that are well established in “design sciences” such as engineering where: (a) the goals of projects typically involve the development of complex tools, and (b) the underlying design is one of the most important components of the product being assessed. Thus, the development of documentation, as well as knowledge, proceeds in parallel and interactively through sequences of rigorous testing and revising cycles. The proposed design assessment model is contrasted with other types of assessments that are not appropriate for accomplishing the particular goals of the complex organization under investigation. Purdue University’s strategic planning process uses many of the same methods and has characteristics that are similar to a design assessment model. This research uses a case study method, drawing upon interviews of key stakeholders involved in a higher educational organization as well as observations that took place during a university strategic planning process for a new Department of Engineering Education. Using this method, we document the main challenges inherent to assessing a complex organization that is attempting to meet the goals outlined in a strategic plan. Next we weave together the process employed by the design researchers in the strategic planning process to the multiple tiers and processes that are used in
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the design assessment model. The design assessment model, which is based on design research principles, provides a solution to the problems frequently encountered in assessment and evaluation situations in higher education settings. The main objectives of this chapter are as follows: •
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Identify areas problematic for some notions of assessment (e.g., existing curriculum and assessment standards describe goals for instruction that often do little to clarify how relevant achievements can be assessed, particularly for higher education programs); Use a case study of the strategic planning process as an example of how design assessment practices are employed; and Describe a model of design assessment that is based on design research principles.
BACKGROUND We recently published a book about our NSFfunded research on design research principles (Kelly, Lesh, & Baek, in press) and believe that design assessment is the next logical step. Design research is an approach that is becoming more widespread in educational research (Kelly, Lesh, & Baek, in press; Kelly, 2003; Lesh, 2002). Design researchers make use of existing research to develop a product using techniques that engineers commonly employ in cycles of designing, testing, and revising. Several studies have found positive outcomes about the effects of design research experiences for students’ learning and developmental process, which is summarized by Lesh, Kelly, and Yoon (in press): …the power and the range of usefulness of their underlying ways of thinking tend to increase significantly. This is because every time they design
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a new, thought-revealing tool, they are extending and revising the underlying ways of thinking that the tools embody. As a result, the development of the tools involves significant forms of learning, and, as learning occurs, the tools produce auditable trails of documentation that reveal important information about the constructs and conceptual systems that the students are developing. Hence, the activities contribute to both learning and assessment. Design research, viewed from an engineering perspective, is a type of research that takes place in higher education settings with the purpose of designing important products and systems, which leads to the development of a product such as a strategic plan, curricula, interventions, or tools (Middleton, Gorard, Taylor, & Bannan-Ritland, in press). We believe that the design research approach can be extended to assessment and evaluation in higher education settings. Similar to the design research model, design assessment employs several phases that occur in the assessment and evaluation process. The phases include: (a) the creation of an artifact or product, (b) the cyclical testing and revision of a product that is used as a tool, (c) the utilization of multiple models and theories, and (d) the results are generalized to similar settings. It is important to note that the participants are not passive during the phases, but instead are referred to as agents who take part in the collaborative design/evaluation process. There is a difference between the terms design assessment and assessment design. Assessment design has clear objectives and an agreed upon method of measurement. Design assessment, on the other hand, has unclear objectives and no agreed upon methods of measurement. To more clearly explain the reasoning for design assessment, we must first briefly discuss assessment in general.
ASSESSMENT Assessment is the process of collecting data that will be used to provide relevant information to decision makers (Jackman, 2001). Assessment is most effective when it reflects an understanding of learning as multidimensional, integrated, and revealed in performance over time (Pellegrino, Chudowsky, & Glaser, 2001). Because the purpose of assessment is to provide information for decision makers, assessment designs (and accompanying instruments and analysis procedures) need to be based on appropriate assumptions about: (a) who these decision makers are, (b) what decisions are priorities to make, (c) which kind of information is most important to consider—as well as on appropriate assumptions about the nature of the “subjects” (e.g., programs, curriculum materials, participants) being assessed. Every assessment design presupposes a model that determines principles for selecting, filtering, and organizing information and that expresses patterns, regularities, or relationships that are presumed to lie beneath surface-level data. There is no such thing as a methodology that is “scientific” for all purposes and situations. Unscientific methodologies are those that are ignorant of their own assumptions and models, and/or those whose underlying models are inconsistent with reasonable assumptions. For instance, take the following situations: (a) when educational entities at the university level need to assess new programs or curriculum materials, or (b) when curriculum developers need to assess new software or tools for instruction. However, unlike higher education settings in particular, existing curriculum and assessment standards describe goals for instruction that often do little to clarify how relevant achievements can be assessed. For example, consider the following Accreditation Board for Engineering and Technology (ABET) criteria for accrediting engineering programs:
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Engineering programs must demonstrate that their students attain the following outcomes:
CHARACTERISTICS OF A HIGHQUALITY ASSESSMENT
a. An ability to apply knowledge of mathematics, science, and engineering; b. An ability to design and conduct experiments, as well as to analyze and interpret data; c. An ability to design a system, component, or process to meet desired needs within realistic constraints such as economic, environmental, social, political, ethical, health and safety, manufacturability, and sustainability; d. An ability to function on multi-disciplinary teams; e. An ability to identify, formulate, and solve engineering problems; f. An understanding of professional and ethical responsibility; g. An ability to communicate effectively; h. The broad education necessary to understand the impact of engineering solutions in a global, economic, environmental, and societal context; i. A recognition of the need for, and an ability to engage in life-long learning; j. A knowledge of contemporary issues; and k. An ability to use the techniques, skills, and modern engineering tools necessary for engineering practice (ABET, 2007).
This section makes the following points: (a) the properties of what is being assessed should be examined to help decide which type of measure is most appropriate, (b) four different categories are described that can help to determine the type of assessment tool that is needed, and (c) a discussion about the assumptions of a high-quality assessment. Ruiz-Primo (2002) characterizes a quality assessment system as one which is multifaceted and that has a coherent, comprehensive, and continuous structure. The coherency of an assessment relates to the alignment to the other activities and goals of the program. Therefore, a quality assessment will not run at cross-purposes with other types of measures being used at each level of the system. In addition to having coherency, the assessment should be comprehensive enough to provide a variety of evidence to support decisionmaking. Having the right amount of information from a variety of sources is necessary to making informed decisions. Furthermore, a quality assessment should be continuous so that it can measure progress over time. Consider a pre-test and post-test that is given once before and once after an intervention or a program. By using a measure that can only capture two fixed points in time one cannot be certain how or why these changes took place. Without this rich body of evidence a decision-maker may not be equipped to make the best decisions. Consideration of the type and structure of the assessment is important; however of equal importance are the properties of that which is being assessed. For example, see Figure 1. These are different kinds of entities/activities that must be measured using very different methods. Consider speed, which is commonly measured using a speedometer. Measuring speed will not have an effect on what speed the car is traveling while a speedometer provides a standardized way of
Consider criterion g. Is an ability to communicate effectively really a “thing” to be learned? Or is it—like cooking or carpentry—simply the name for a large category of things to be learned? (M. Dark, personal communication, February 2003) Is anyone ever really an all-purpose, content-independent, context-independent “good” communicator? Certainly it is meaningful to speak about students “developing communication abilities”; and certainly, there are some obvious ways that such abilities can be emphasized in instruction, but how can a given student’s level of development be documented or assessed?
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measuring it. Based on interviews with Purdue’s strategic planning committee as well as administrators in charge of assessment and decision-making, there are four main categories of properties to assess, which are: (a) objectively, (b) subjectively, (c) changes by interaction, and (d) the consumer decides. See Figure 2 for examples from each type of category. For that reason, it may not be the best choice to use traditional standardized tests when attempting to assess a complex system because certain measures function differently depending on the system to be assessed. Several implications can be derived from these types of measurement properties. One implication that is central to design assessment is the consideration of both the properties being assessed and the type of assessment to be used. In other words, it is possible to assess something by using any number of measures; however it should be noted that certain measures work best to measure certain types of things. With this in mind, these properties were divided into several categories, which will aid in determining how to most effectively measure them. These categories are: (a) properties that can be measured with standardized instruments and will not change by being measured, (b) activities that cannot be clearly defined and
for which there are no standardized instruments, (c) systems for which interaction changes what is being measured and are associated with multiple layers and tradeoffs, and (d) activities or systems whose indicators change depending on the consumer or stakeholder.
A DESIGN ASSESSMENT MODEL This section explains the main components of a design assessment model and how they work, including: (a) agents making up a multi-tiered system, (b) artifacts and tools, (c) feedback, (d) evaluation, and (e) the end-in-view. The assessment of complex organizational systems (e.g., a new engineering education program) entails a unique set of challenges for those developing appropriate assessment tools. Often, we are not sure how it is we will define precisely what it is that we are trying to measure. For example, what defines a successful science and math education program? Everybody has different ideas about what this really means. Additionally, there are many different things going on in a complex organization and often very large numbers of people, which makes measuring every
Figure 1. Examples of different measurements and methods
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Figure 2. Categories of measurement properties
person and every variable a difficult and costly process. We propose a design assessment model to overcome many of these obstacles. First, we make three assumptions that are fundamental to design assessment: (a) that people see things differently over time, (b) that we care about how those agents see things, and (c) that a measure of how they see things can be obtained. Essentially, design assessment is a method of designing the system as it is being measured. Design assessment models the organizational system of interacting parts (tiers) such as professors, administrators, and students who produce
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documentation (artifacts) that can be used to track changes over time (tools). Methods of design assessment are reviewed retrospectively because they are an emergent property of the process of interacting with the system.
Agents The agents make up different levels, or tiers of the system that is being assessed. Because all agents in the system (such as administrators, faculty, and students) make up the designed system, it is important to obtain documentation across all of
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these tiers. This is called a multi-tiered system. Decision-makers are a critical element in the system because they need to get this information in order to act and to make the most effective decisions. The role of the designer is to bring design processes and theoretical knowledge to the change process, to make sure information gets to the decision-makers as needed, and to ensure that the design assessment process is functioning as intended. A designer might be selected internally or alternatively may serve the role of an external evaluator.
Artifacts and Tools The instruments, or tools, refer to a measure of how agents view things. Documentation, or artifacts, refers to the evidence used to design the tools. Artifacts may be viewed simply as all documentation that is collected while the tools constitute the relevant artifacts. Constant documentation over the course of the project is necessary to reveal changes over time. An example of an artifact is a course syllabus produced by a faculty member. Over time, by using feedback from students, faculty may develop and revise the course format and syllabus to reflect new ideas of how to best present the course material. The changes in the syllabus over time will be used as a tool reflecting how the faculty thinks about how the students are learning and thinking. Agents’ underlying conceptual systems are embedded in the tools; therefore when the tools are tested and revised so are agents’ conceptual systems. There is no need for additional assessment instruments because artifacts are produced from what people are already doing.
Feedback Loops Evaluation occurs by the process of feedback. Feedback is an essential component of the design assessment process because it allows for the testing of the tools. This can occur in many ways, one
of which is comparison with other agents who are doing the same thing and getting feedback on what works or does not. For example, faculty meetings provide an opportunity to voice thoughts and receive other opinions and feedback from colleagues. Feedback can also come from other tiers, or levels in the organization. For example, feedback occurs during the process of teaching and learning when an instructor receives feedback from students and accordingly revises the method of instruction. Feedback occurs in a circular manner, with several iterations of revising and testing the tools.
Evaluation Evaluation occurs as part of the assessment process. The agents who make up each tier will evaluate, reiterate, and continuously refine ideas without the need of external analysis. The actual results of the assessment are the designs that underlie the tools (i.e., the changes over time to the current tool). In this way each tier will be coevaluators rather than taking a top-down approach to evaluation. The following section describes how a bottom-up approach using feedback has been successful in a business setting.
Example of a Business Approach to Design Assessment Principles Typically, business has a top-down approach to decision-making and evaluation. In the case of Target Corporation, a less hierarchical approach was taken regarding a person’s reviews and feedback. Target is a discount chain that has become one of America’s most profitable retailers (Rowley, 2003). Rowley (2003) describes Target’s innovative assessment techniques, which have allowed learning, improvement, and the monitoring of all aspects of the organization.
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Feedback from all Levels Including people from all levels is a critical part of the assessment strategy for Target Corporation. Besides getting input from outside tiers, Target encouraged workers at all levels to identify problems and then implemented the recommended strategies given by the employees. This kind of feedback addressed the real issues that other people higher up could not spot and subsequently helped to improve business. For example, the people working the floor (lower level of the tiers) were asked what things were problems. They listed issues that managers had overlooked and when asked for their suggestions to fix or improve the situation the business operated more smoothly as a result.
Evaluation Self-evaluations were introduced for professionals at all levels in order to compare with the reviews made by other people and to encourage them to stay on track. For example, if a person’s self-evaluation did not match with another person’s evaluation of them, then the two would be compared to iron out any inconsistencies or to discuss the problem. Self-evaluations and feedback allow people to take part in monitoring their own progress and to have a say in the assessment and evaluation process. Self-monitoring and including all levels of agents to participate in the feedback and assessment process is a key component of design assessment.
End-in-View Another component of design assessment is the end-in-view. Ends-in-view, unlike objectives, metrics or goals are the overall purpose or aim of the assessment and should not change, even though the goals and other measurable ways to achieve the end-in-views might change. That is, the method of arriving at the end-in-view may change but the end-in-view itself remains the
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same. This serves the purpose of making sure the standards are not lowered while attempting to achieve the aims and to provide a sense of direction and purpose. For example, an end-in-view might be to develop an efficient method of providing new students with guidance upon arrival at the university. There may not be a clear definition at the beginning about what exactly constitutes an “efficient” method, but as time progresses new techniques and ideas will be developed and refined. In this way the best techniques will be selected, meeting the end-in-view of an efficient method of providing guidance for new students.
Figure 3. A design assessment model
Multi-Tier Design Assessment in the Development of Complex Organizational Systems
Figure 3 provides a visual representation of a design assessment model. Key questions to address when using a design assessment model are: (a) What system is being designed and measured? (b) Who are the agents? What are their interpretations? (c) What were the artifacts? What changed? (d) What tools were designed to capture interpretations? (e) What feedback occurred? and (f) What was the end-inview? Design assessment is meant to eliminate many challenges inherent to assessing complex educational organizations. The time-consuming nature of traditional assessments is eliminated because the trail of documentation is something that is already being done. Large numbers of people can be assessed at the same time because each agent collects his or her own tools. The nature of this type of assessment may also preclude the reporting of false results. Finally, because all agents hold differing opinions it is not necessary to precisely define what to measure because what is being measured can differ for each agent. Figure 4 lists some possible objections and counters to design assessment.
HOW ASSESSMENT WORKS IN COMPLEX SYSTEMS To discuss general issues of design assessment, this section focuses on a specific example - Purdue University’s strategic planning process. The participants in the case study were stakeholders in the strategic planning process, including university administrators and assessment personnel. Interviews and observations took place from October 2003 to August 2004. Content analysis was used to find common themes about assessment. Methods of design assessment are reviewed retrospectively because they were an emergent property of the strategic planning process interacting with the complex organizational system.
Strategic Planning The strategic planning process is a good example of how to assess and evaluate a complex organization. The assessment of organizations or programs at a university, a business, or a school system share several characteristics that include a high-stakes evaluation, a summative report, feedback, many agents/people involved, decision-makers, constant change, and the use of indices such as metrics to assess progress. These features of complex organizations lead to unique challenges in assessment
Figure 4. Possible issues encountered when implementing a design assessment model
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that cannot be adequately solved by using more traditional methods. The strategic planning process is one method that has been used as a means to assess and evaluate a complex organization. The strategic plan works within a high-stakes setting to address issues like performance reviews, summative reports, decision-makers, and many agents. All relevant pieces of the plan are monitored, including people (administrators, faculty, deans, and students) and programs (departments, centers, and schools). These pieces are monitored using criteria that can measure progress such as goals, strategies, metrics, and benchmarks. The plan creates the impetus for continuous improvement and creates a focus for progressing toward the vision of the organization. A critical component of the process is to determine who the decision-makers are so that relevant information can be provided in an efficient manner.
Implications Based upon interviews and research on Purdue’s strategic planning process, we have constructed several implications based upon these findings. The following implications are described using the strategic planning process as an example.
Implication 1: Decision-Makers Selecting and informing decision-makers is, according to the director of strategic planning and assessment at Purdue University, one of the most important elements of the strategic planning process. For example, one of the decision-makers in a university setting is a departmental dean who must determine how to allocate funding to different departmental programs based on the data. Therefore, it is critical that the dean get the appropriate reports and data so that he is able to make suitable decisions about which programs should receive more funding. To identify the decisionmakers the strategic planning process involves what is called an action plan, which identifies
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who does what. The next step in action planning is to determine who has what responsibility. For example, an action plan might state that the dean has the responsibility of making departmental funding decisions. In a university setting, the main decision-makers are usually internal, such as the president, provost, dean, department, and faculty. Clearly delineating every agent’s task makes accountability clear in addition to fostering a sense of ownership of the plan. The action planning process also specifies an annual list of priorities including what has been learned, future directions, who is responsible, what the investments are, and what the timeline is. Then the provost does an annual review of each school in the university to see if these targets have been met. For example, if the School of Engineering has not completed a goal within a certain timeline, action will be taken to determine why this did not happen and what can be done. The action planning process keeps everything moving forward and on track. Without feedback and evaluation, the plan cannot work because schools and programs falling behind will not be recognized. A decision-maker is not necessarily just one person; there can be several different levels of decision-makers. For example, the dean may decide that more resources should be allocated to a program that is falling behind and a faculty member can make the decision on how to best use the resources for program improvement. Other decisions rest with an individual but are carried out by groups, such as decisions made by the dean and carried out by several departmental deans. Decision-makers may also be groups of people, such as planning committees. Distinctions are made between people, (e.g., the faculty) who have input but are not the ultimate authority. In most cases the decision-makers are the heads, deans, key staff, and a couple of faculty, with the dean having the veto authority over all. However, due to the uniqueness of universities, it is difficult to have a top-down process because of the independence of faculty, who will have strong input in
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the decisions being made. In some cases, every stakeholder will be a decision-maker. For example, surveys may be used to get a broad opinion from all of the stakeholders, which are then analyzed and used to inform decisions. Certain elements come from the upper administration, but a good number of decisions come from middle management and the faculty. The president might decide to increase discovery, but the decision as to how this will be accomplished is made at the faculty level. Similar to a design assessment model, there is not a top-down assessment; rather, input/feedback comes from all levels. There is a clear delineation of tasks and a system of accountability that keeps agents on track.
Implication 2: Prioritizing Decisions In a complex organization, there are a large number of decisions that must be made and a limited amount of time and resources. It is therefore essential to establish the decisions that will be prioritized so that the most important tasks will get accomplished first. Strategic planning teams have several ways of determining priorities. One of these ways is through the use of dashboard metrics. Dashboard metrics are the most salient metrics that must provide instant feedback and be monitored continuously. These metrics are also termed “self-fulfilling” metrics because they encourage people to make progress towards the goals. Dashboard metrics relate to the third diagram in Figure 2 illustrating how the activity being measured changes with interaction. With a metric targeting a specific skill for example, people will try to perform well if they know that their progress is being monitored.
Implication 3: Relevant Information Consider the dilemma of a dean who must decide if it is worth the large cost of adding an additional department to the university. The strategic planning process devotes a considerable amount of
effort to deciding what information is the most important to consider so that these decision-makers can most effectively determine what to do. The strategic planning committee determines this by looking at an investment return analysis, which is an analysis of the resources (inputs) and the returns (outputs). This analysis involves variables like costs and benefits that run at cross-purposes. For example, when deciding whether to add a new department to the university, several variables are considered such as: the costs of hiring new faculty, constructing and planning new facilities, and ways to recruit new students. These variables are contrasted with the eventual benefits of retaining a diverse and outstanding faculty, bringing new funding into the university, and adding to the prestige and recognition of the university. This allows for a view of how much is invested and what the potential returns will be. Similar to a design assessment model, the selection and revision of these tools provides the means for which the most meaningful information is retained; that is, the best tools for the purpose of the assessment. This testing of the tools is also a process of experimentation.
Implication 4: Divergence and Experimentation There are at least two ways that people and organizations deal with decision-making: convergence and divergence. Convergence occurs when a decision-maker specifies what agents should do in order to reach a goal and then the agents converge to that goal. For example, if a dean decides to create a new program she will tell the faculty exactly how to go about doing so and the faculty will subsequently adjust their ideas to converge to this goal. If agents are told what to do in order to achieve a goal there is no sharing of diverse ideas and no experimentation that leads to the development of the best ideas. Thus, convergence to a goal will most likely not
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produce the potentially superior results that might have been obtained by divergence. Another way that people and organizations can make decisions is by divergence. Divergence takes place when the decision-maker specifies the goal but not the means of arriving there. If directions about how to reach a goal are not immediately specified then people can exchange ideas and receive feedback in a cycle of express→test→revise to select the best ideas. For example, using a design assessment model, agents will collect artifacts, express ideas about how and why to use the artifacts as tools, select and test the artifacts, obtain feedback, and revise the tools. In this way, a culture of experimentation and divergence is formed. Divergence is a multi-tiered approach where decision-making is informed from all levels, which also encourages diversity. People and ideologies, especially in academic institutions, can vary greatly. In a university setting in particular it is vital to allow for diversity but at the same time allow people to integrate their ideas. Agents can Figure 5. Convergence and divergence
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have different foci and still remain consistent with the university’s plan yet separate with their own character. Figure 5 represents how divergence and convergence differ. A distinctive feature of a system like the academic sector is a higher agility factor. Agility refers to decision-making and the free exchange of ideas coming from all levels of the system. Higher agility means that the bottom tiers are given more say in the decision-making process and that decisions may be informed from the bottom-up. Higher agility helps to create a culture of experimentation rather than a top-down culture of conformity/convergence. With the end-in-view in mind different departments in the university are able to develop their own strategic plans in relation to the end-in-view.
Implication 5: Metrics Even in cases where existing standardized tests provide sensible “indicators” of progress, they
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seldom constitute acceptable “operational definitions” of the constructs they are used to assess. Operational definitions allow for the separation of behavioral objectives into individual components (Lesh, 2002). The situations, tools, and criteria are able to be treated separately and occur in natural situations (see Figure 6). Naturalistic observations allow greater interpretability in the context where the behavior occurs, allow for the examination of behavior that cannot be adequately captured by traditional measures, and the behavior can occur over an extended period of time. On the other hand, most standardized tests use behavioral objectives in the form of restricted and easy-to-administer-and-score formats that usually prevent them from emphasizing deep or complex achievements (see Figure 7). For this reason, teaching to tests usually is not a prudent policy. In much the same way that it is possible to change the time or the weather, improving test scores often does little to improve the development of understandings and abilities for which they were intended to be indicators. In fact, because of feedback loops, tests that are used in isolation as the only indicator of progress often have strong
influences on what is taught and how it is taught. So, if tests emphasize narrow and shallow conceptions of achievement, then instruction often tends to do likewise. This is one reason why strategic plans for businesses, or universities, or Schools of Engineering tend to identify a variety of benchmarks, indicators, and metrics to monitor and assess their progress. Complex organizations involve multiple levels, interacting and often conflicting agents, feedback loops, and constant change. Because of this complexity a linear condition-action rule that is commonly used in traditional assessments is not appropriate for assessing a complex organization. Because of the strategic plan’s broad scope there must be a variety of indicators to obtain information on all pieces of the organization. In the case of Purdue’s strategic plan, selecting indicators for the faculty in one department while overlooking another department is unwise because each part will provide different information. In addition, having a large number of indicators can eliminate selective comparison of these indicators in order to obtain a more favorable evaluation. On the other
Figure 6. Operational definitions
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Figure 7. Behavioral objectives
hand, too many indicators lead to an overwhelming amount of data and a loss of focus on what is most important. To resolve this issue, Purdue’s strategic planning process identifies metrics that are most important, which are selected by outcomes that: (a) have the most impact, (b) for which data are readily obtainable, (c) for repeatable processes, and (d) are useful for tracking performance as well as directing resources. Purdue’s strategic planning process uses criteria that are formed using judgments based on empirical data from reported national institutions (e.g., retention rates, graduation statistics). Next, a collective review of all of metrics and benchmarks takes place to decide if any criteria should be added or dropped. The indicators are refined and changed on an ongoing basis as well as re-examined yearly. Having a variety of indicators, or criteria, is a property of the design assessment model because the tools are designed for different purposes, people, situations, and associated tradeoffs. Useful assessment results tend to resemble consumer guidebook criteria or strategic plans that contain a variety of indicators and benchmarks for tracking progress (Lesh, et al., in press). To decide what criteria to use, first consider why: come up with a set of factors that are deemed most important. Then look at the purpose of picking certain indices (i.e., for making external comparisons). See the last category in Figure 1 for a description of how things are measured using these criteria. Instead of
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being a reflection of daily operations, indicators are most effective when they are related to future directions, or the end-in-view. The following section describes some of these strategic planning metrics in more detail.
Types of Metrics Purdue’s strategic plan contains a variety of different criteria that can be used to measure progress. Each of these criteria serves different functions and includes goals, actions, metrics, and benchmarks. A strategic plan also includes broad overarching strategies, such as the vision or end-in-view, which can be considered the most unquantifiable component of the plan. The following is a list of several types of metrics and their descriptions: •
•
•
Goals are broad standards of performance that are broken down into small pieces to be measured as indicators. Indicators are distinctive from other outcomes because they describe what must occur to meet a certain benchmark. They are measurable states that allow the assessment of whether or not associated objectives are being met and are often called metrics or trends. Objectives are descriptions of measurable expectations based on a goal, but they only measure a small part of something.
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•
Objectives are referred to as targets, criteria, and outcomes. Benchmarking can be defined as a method of evaluation based on referencing and comparison to an ideal. Benchmarks, also called exemplars or anchors, are developed following a set of criteria that represent such things as desired attributes or principles. Some characteristics of benchmarks are that they can differ can differ for each peer, they are changeable, the characteristics by which the peers are selected may not change, and they serve the function of assessing competitiveness with peers.
In contrast, characteristics of the end-in-view are that it: • • • •
•
Describes the desired outcome, Does not say how to reach the outcome, Is unchangeable, May use an operational definition to state the desired outcome and whether or not it has been achieved, and Restricts lowering the standards because the desired outcome is always the same no matter what method is used to achieve it.
For example, a goal for Purdue is to achieve and sustain preeminence in discovery. A strategy for this goal is to create incentives that encourage faculty productivity in research and scholarship. The associated metric is the number of publications/citations of faculty.
Implication 6: The End-In-View How can there be accountability if the goals or indicators are subject to change? Oftentimes when developing these indices you know where you want to end up and what the aim is, but are not quite sure how to get there. As a consequence the first attempt at laying out the metrics may not result in the best version. However, through this process
you will become smarter about how to achieve the end-in-view as you receive feedback, gain experience, or discover new ways of conceptualizing success. For that reason, changing the goals and indicators over time is simply the result of becoming smarter and more informed about how to achieve the end-in-view. The strategic planning process is one example of how a complex organization can adapt rapidly to change and become smarter in the process. The strategic plan must be somewhat resilient, yet still able to change and adapt when necessary. Picture a high-rise building that sways with the wind versus a wind toppling the building because it is too rigid. To allow for change, the end-in-view must remain constant while allowing for different means of arriving there. Goals, however, may be changeable depending on their level of abstraction and context. Thus, a changeable goal is less abstract and more concrete. For example, an abstract goal from Purdue’s strategic plan is a mission of service (service to the state, students, etc.). On the other hand, a related, but more concrete goal is to increase service learning opportunities. Because some of the goals may change, most people recognize that the associated metrics will too. On the other hand, very broad levels of the strategic plan probably will not change. For example, Purdue’s broad mission of discovery, learning, and engagement is not likely to change. The function of the vision, or end-in-view, is to allow the desired outcome to remain the same. Therefore, the standards will not be lowered no matter what other metrics change because the desired outcome remains the same. The end-in-view serves the same function in a design assessment model in that the tools are expected to change over time but the end-in-view does not.
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Implication 7: Continuous Feedback Loops The university keeps track of each part of the organization using a holistic, or systems approach. A systems approach is derived from systems theory, whereby examining the big picture and seeing patterns of change rather than focusing on the detailed parts of a system provides a means to better understand and explain the workings of complex organizations. Essentially, the parts of the system will act differently if viewed in isolation because of the complex interrelationships between the parts. All decisions and learning in a system take place within the context of feedback loops (Sterman, 1994). Feedback loops show how actions can reinforce or counteract one another (Senge, 1990). In a simple model of a systems feedback concept, learning takes place in an iterative cycle of invention, observation, reflection, and action. For example, decision-makers in a single feedback loop compare information about the state of the real world to various goals, perceive discrepancies between desired and actual states, and take actions they believe will cause the real world to move toward the desired state based on mental models and feedback. When assessing a complex organization such as a School of Engineering Education, a systems approach maintains that any preoccupation with individual elements of the system mean that the unity of the whole system is missed. In a design assessment model, each level of the organization (e.g., students, teachers, researchers, administrators) cannot be understood completely without taking the others into account. For instance, if the dean of the School of Engineering Education had to wait until the annual report to obtain any data about the department’s programs, problems could not be corrected right away. The deans, faculty, and other tiers must have access to relevant information at all times. The process requires holistic, conceptual thinking because
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the agents must have the ability to understand the relationship between the goals and how the goals relate to everyday tasks. For this reason agents in each tier must gradually be empowered to take information and use it appropriately. Even bottom-level tiers should have access to relevant information so they are not reliant on the central power.
Implication 8: Reports Reports are the means by which relevant information is provided to the decision-makers and may differ depending on their purpose. For the type of situation in which the consumer must decide based on a set of criteria, it is necessary to have all the information at one time in order to make an informed decision. For example, decision-makers for Purdue University’s admissions committee must have all of the admissions documentation from a prospective student because there are tradeoffs to be considered (e.g., an in-state student with a lower G.P.A. versus an out-of-state student with a higher G.P.A.). The information can be laid out in a flowchart so that a decision-maker can see the more relevant information at the top as well as consider all criteria at the same time. For example, examining a flowchart based upon Purdue University’s selection process for admitting undergraduate students might look like the following: At the top of the flowchart are all students who applied to the university. From there, students are filtered through the next level of the chart by (a) when they applied, (b) if they are an in-state resident, and (c) if they meet departmental requirements. The students who have been selected based on these criteria are filtered through to the next level of the chart, where standards such as G.P.A. and letters of recommendation are considered. This process continues until all students are selected. In contrast, examining all the criteria at one time is not necessary for other types of reports. For example, in the context of Purdue University’s strategic planning process priority progress
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reports monitor the progress of the most important priorities. In evaluating Purdue’s strategic plan for instance, the leadership team chooses ten of the most salient priorities to focus on and then selects metrics from the strategic plan to use as the milestone guides for measuring success. The main functions of these reports are to decide what types of redirects to make, how to allocate resources, and as a communication tool. Reports serve a useful function in a design assessment model. If there is a gap in the report that is widening it compels people to ask what is being done and why. Thus, the report becomes a tool for the decision-makers.
Is Design Assessment Appropriate? The stakeholders who were interviewed for this case study perceived several challenges inherent in the assessment of a higher education organization. These challenges may be turned into questions to determine whether design assessment is appropriate given the conditions of the situation and the goals for the assessment. In many cases, design assessment is proposed when other types of assessment might not be appropriate for accomplishing the particular goals of the project or when other types of assessment might violate aspects of the system under investigation.
Are There Clear Definitions of Objectives? If there are no clear definitions of objectives, design assessment may be useful. Defining what is to be accomplished by the design process means operationally defining what is desired and how participants will know when the objective has been met. For example, in a recent engineering study, one objective was to design curricula to help students learn more about teamwork. However, the research team had to determine what “good” teamwork would look like, how good teamwork would be measured, and how good teamwork
would be encouraged. Students who were enrolled in an undergraduate engineering course were asked to write a code of cooperation for their team that described the team’s agreed-upon rules, procedures for working together, and explicitly defined “good” teamwork. In order to evaluate the effectiveness of their teamwork, the students were asked to evaluate their team members based on the code of cooperation and to make revisions if necessary. The faculty uses the code of cooperation as a tool to analyze students’ changing interpretations of “good” teamwork and by students’ peer evaluations based on their codes of cooperation. There are two parts to an objective—the goal and how to measure the goal. Accordingly the measurement devices used for the goals should both match the goal and not infringe upon achievement of the goal. Take the previous example of teamwork in an undergraduate engineering class. Performance on traditional multiple-choice tests is not a good measure of teamwork given that group interactions and problem-solving involve multiple complex, interacting variables. Therefore more appropriate indicators (e.g., a code of cooperation) can be used to measure the quality of teamwork.
Are There Clear and Understandable Methods for Mastering Objectives? If there are no clear and understandable methods for mastering objectives, design assessment may be an appropriate way of evaluating whether the objectives are met while designing the indicators to measure them. For example, the Department of Engineering Education would like to know whether first-year students can work in teams to solve an engineering task. Teamwork is a complex activity that involves many factors such as the experiences of the team members, the task at hand, the context for the teamwork, and the goals for working in teams. Simply stating that students have worked in teams is not enough to document whether they are prepared for teamwork in future courses and in the workplace. Consequently, sys-
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tems are designed that allow students to design teamwork goals for themselves, evaluate their teams’ adherence to the goals, and revise the goals given more experience working in teams. Furthermore, the department is simultaneously learning about what it means to work in a team on an engineering project.
Do Indicators of Improvement Involve Different Agents’ Evolving Conceptions of What it Means to Achieve the Goals? Design assessment is useful in organizations where objectives and indicators are not clearly defined. In these situations it does not make sense to align the indicators of improvement with the current conceptions of what it means to achieve certain goals when those goals are also evolving. Design assessment allows for movement between the goals and the indicators of improvement as both evolve and represent evolving understandings of the agents in the organization. For example, the Department of Engineering Education has evolving notions of what it means for a team of students to work effectively together.
Is the Program One that is Evolving or Changing and for Which Long-Term Data is Needed? If the program or organization is meant to evolve and undergo significant changes, design assessment may overcome limitations of other types of assessments. Because design assessment is based on evolving ideas of what it means to achieve a certain goal or end-in-view, the organization is undergoing design as it is being measured. For example a pre- and post- assessment is only capable of capturing two fixed points in time, which does not provide important information about how or why these changes occurred. In contrast, the design assessment process creates a trail of documenta-
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tion over time so that a rich body of information is provided. Progress is driven by repeated cycles of testing and revision with feedback at each stage.
Are There Many Agents from Whom Information is Needed or is Relevant Information Embedded in Several Sources? When attempting to assess a large number of agents or programs in an organization, issues such as time and resources can make this a difficult if not impossible task. In many cases relevant information will be overlooked or excluded for these reasons. However, if a design assessment model is implemented information can be collected from all agents, their interactions, and their development. These artifacts can be collected from many sources and by means of things that agents are already doing. Thus, time is saved because participants in the assessment process will not have to do something that they are not already doing, which in turn makes the assessment more meaningful. Each agent is responsible for his or her own tools that illustrate evolving conceptions, which eliminates a large amount of data analysis.
Is the Assessment High-Stakes and Have Significant Impacts? In a high-stakes environment where the assessment will have significant impacts on the people involved, it is of critical importance that the assessment measure what it is supposed to with a high level of accuracy. As mentioned earlier, it is more difficult to measure complex systems or concepts with traditional types of assessments; one reason is that there is no clear definition of the concept that is being assessed. Design assessment on the other hand does not presuppose any one definition of the concept or how the concept should be measured. For these reasons, design assessment may be more appropriate to use in a high-stakes
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environment where there could be significant negative impacts when using an assessment that does not function well for complex organizations or concepts. To summarize, the challenges that may be overcome using design assessment include: • • •
• •
•
The program objectives are not clearly defined, There are no clear and understandable methods for mastering the objectives, Stakeholders have differing conceptions of what it means to achieve the end-in-view or goals, The program is evolving or changing and for which long-term data is needed, There are many stakeholders from whom information is needed and the relevant information should come from a variety of sources, and The program or organization is high-stakes and has significant impacts.
CONCLUSION The complex nature of many organizations calls for an assessment that can take into account the many challenges and elements that make up an organization that is continuously evolving. We have used a case study to demonstrate how features of Purdue University’s strategic planning process can be used to assess a complex organization in higher education. One reason that design assessment is most useful for assessing these types of complex organizations is because of the iterative nature of the process and how design assessment fits with what is already being done. Information can come from many sources, formative feedback is provided at each cycle, and decision-makers select the best ideas and methods in order to constantly improve. Each objective is assessed using artifacts from what agents are already do-
ing. These tools reveal changes over time and are used by the decision-maker to select the best ideas. This multi-tiered assessment method uses a holistic approach that makes design assessment particularly useful as an assessment model for complex organizations in higher education. We hope that this chapter provokes discussion about assessing complex organizations in higher education and ways in which to ensure a valid and quality measure of progress. We also wish to stimulate research about design assessment, for example: (a) how design assessment works in practice, (b) how design assessment works at different levels (e.g., university-level, undergraduatelevel, programmatic level, classroom level), and (c) the viability of the design assessment model.
REFERENCES Accreditation Board for Engineering and Technology (ABET). (2007). Criteria for accrediting engineering programs: Effective for evaluations during the 2008-2009 accreditation cycle. Retrieved June 16, 2008, from http://www.abet.org/ forms.shtml Frechtling, J. (2002). The 2002 user-friendly handbook for project evaluation. REC 99-12175. Arlington, VA: NSF. Jackman, H. L. (2001). Early education curriculum: A child’s connection to the world (2nd ed.). Albany, NY: Delmar. Kelly, A. E. (Ed.). (2003). Theme issue: The role of design in educational research. [Special issue]. Educational Researcher, 32(1). doi:10.3102/0013189X032001003 Kelly, A. E., Lesh, R. A., & Baek, J. Y. (Eds.). (in press). Handbook of design research methods in education: Innovations in science, technology, engineering, and mathematics education. New York: Routledge.
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Lesh, R. A. (2002). Research design in mathematics education: Focusing on design experiments. In L. English (Ed.), Handbook of international research in mathematics education (pp. 27–49). Mahwah, NJ: Lawrence Erlbaum Associates.
Sterman, J. D. (1994). Learning in and about complex systems. System Dynamics Review, 10(2-3), 291–330. doi:10.1002/sdr.4260100214
Lesh, R. A., Kelly, A. E., & Yoon, C. (in press). Multitier design experiments in mathematics, science, and technology education. In A. E. Kelly, R. A. Lesh, & J. Y. Baek (Eds.), Handbook of design research methods in education: Innovations in science, technology, engineering, and mathematics education. New York: Routledge.
KEY TERMS AND DEFINITIONS
Middleton, J., Gorard, S., Taylor, C., & BannanRitland, B. (in press). The “compleat” design experiment: From soup to nuts. In A. E. Kelly, R. A. Lesh, & J. Y. Baek (Eds.), Handbook of design research methods in education: Innovations in science, technology, engineering, and mathematics education. New York: Routledge. Pellegrino, J. W., Chudowsky, N., & Glaser, R. (Eds.). (2001). Knowing what students know: The science and design of educational assessment. National Research Council Committee on the Foundations of Assessment. Division of Behavioral and Social Sciences and Education. Washington, DC: National Academy Press. Ruiz-Primo, M. A. (2002, February). Seamless science education. On a seamless assessment system. Symposium conducted at the annual meeting of the American Association for the Advancement of Science, Boston. Senge, P. M. (1990). The fifth discipline: The art and practice of the learning organization. New York: Doubleday.
Agents: Participants who are part of the organization at all levels and capacities. Artifacts: Documentation, or a measure of how agents view things. Assessment: The process of gathering data in order to make decisions. Assessment is the collection of data while evaluation (see below) uses these data to determine the quality of that which is being assessed and whether or not the goals have been met (Jackman, 2001). Design Assessment: A method of designing the organization/product as it is being measured, which models a system of interacting parts such as professors, administrators, and students who produce documentation that can be used to track changes over time. Design Research: A type of research often taking place in higher education settings with the purpose of developing a product such as curricula or tools by using techniques that engineers commonly employ in cycles of designing, testing, and revising. Evaluation: The use of assessment data to determine whether goals are being met. Goals: Broad standards of performance that cannot be measured directly. Indicators: Measurable states that are used to determine if associated objectives are being met. Tiers: The levels made up of agents from various parts of the organization. Tools: Auditable trails of documentation used to evaluate changes over time.
This work was previously published in Handbook of Research on Assessment Technologies, Methods, and Applications in Higher Education, edited by Christopher S. Schreiner, pp. 1-21, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 2.19
EBDMSS:
A Web-Based Decision Making Support System for Strategic E-Business Management Fen Wang Central Washington University, USA Natalie Lupton Central Washington University, USA David Rawlinson Central Washington University, USA Xingguo Zhang Aging and Disability Service Administration, USA
ABSTRACT This paper describes a Web-based intelligent decision making support system (DMSS) to deliver balanced scorecard (BSC) based modelling and analysis in support of strategic E-business management. This framework supports E-business managers during the strategy making process in a comprehensive, integrated, and continuous manner. The paper demonstrates how practitioners DOI: 10.4018/978-1-60960-587-2.ch219
can use this system to deliver a wide range of embodied E-business strategy expertise in support of real-time decision making.
INTROUCTION E-business has evolved into an accepted way of doing business and has opened new channels for communication and selling (Whelan & Maxelon, 2001; Laudon & Traver, 2007; Phillips & Wright, 2009). It provides a new source of data on every-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
EBDMSS
thing from customers to competitors and changes the face of competition tremendously (Hong & Zhu, 2006; Ba, Stallaert & Zhang, 2007; Sanders, 2007). As Raisinghani and Schkade (2001) pointed out: “perhaps, one of the best ways to succeed in the world of E-business is to start off with a dynamic and new E-business strategy” (p. 601). In earlier studies, an E-business balanced scorecard based model (EBBSC) for strategic management was established and estimated with real business data (Wang & Forgionne, 2005, 2007). Figure 1 presents the EBBSC model which consists of a business core, analytic e-CRM, process structure, and e-knowledge network perspectives. Wang and Forgionne (2007) explained this model could be utilized to translate E-business strategies into conceptual blueprints for strategic management control and performance evaluation as well as provide a stable point of reference for businesses to understand and explore E-business initiatives effectively. In practice, such a framework can assist Ebusiness managers in overcoming deficiencies in awareness and proficiency regarding the business models useful to generate effective strategies (Forgionne, 2000; Forgionne & Kohli, 2000; Holian, 2002). When analytical and technical skills are not available in-house, the specialized
modelling and analysis expertise suggested by the EBBSC framework can be delivered through an intelligent decision making support system (DMSS). Figure 2 depicts a conceptual functional framework of such a system for strategic E-business management, which is referred to as the EBDMSS hereafter. As Figure 2 indicates, the EBDMSS is the delivery vehicle for the EBBSC model functionality. This paper presents the EBDMSS and its role in supporting effective and efficient E-business strategy development. First, a literature review of the evolution of intelligent support for decision making in E-business is presented. Next, the paper presents the EBDMSS architecture. Then, a prototype EBDMSS is depicted to illustrate the system’s potential as a strategic E-business management tool. The paper concludes with implications for decision making support and E-business management.
BACKGROUND REVIEW: THE EVOLUTION OF INTELLIGENT SUPPORT Decision making support systems (DMSS) have evolved over time and across disciplines (For-
Figure 1. The comprehensive EBBSC framework (adapted from Wang & Forgionne, 2007)
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Figure 2. EBDMSS functional framework
gionne, 2000; Arnott, 2004; Turban et al., 2007). DMSS has progressed from simple data access and reporting to complex analytical, creative, and intelligent support. With the rapid development of Internet technology, web-based decision support has become part of the evolution. Whether web-based or local, an intelligent DMSS is an interactive and dynamic management system that supports non-routine decision-making and evaluation (Marakas, 2003). Figure 3 sketches this evolution by highlighting the dominant decision support techniques during each decade. Attention has focused on decision technology in support of various E-business activities, but there has been a paucity of research exploring DMSS for E-business strategy development. Some research surveys the state of the art or the trends and potentials of decision technology mediated
E-business (Eom, 1999; Papazoglou, 2001; Carlsson & Turban, 2002; Gregg & Philippakis, 2002; Shim et al., 2002; Ganguly & Gupta, 2004; Hayes & Finnegan, 2005; Bhargava et al., 2007; Valente & Mitra, 2007). Most researches agree that rapid advancements in data warehousing, OLAP, data mining, intelligent agents, and the web technology add new and powerful capabilities to decision making support systems. Other studies offer conceptual decision support models in support of general E-business applications (Mavetera & Kadyamatimba, 2003; O’Brien, 2007; Syam & Bhatnagar, in press). A number of these studies focus on web-based decision support from the online customer’s perspective (O’keefe & Mceachern, 1998; Chiasson & Lovato, 2001; Grenci & Todd, 2002; Manshady & Dai, 2005; Levent, 2007; Kim et al., 2007; Razmerita &
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Figure 3. Evolution of decision support techniques
Kirchner, 2010). Most of these studies focused on conceptual models without establishing practical decision support prototypes. A third group of studies present DMSS prototypes to facilitate particular E-business activities. Examples include a worldwide real-time decision support system that delivers operations research (OR) tools to facilitate E-commerce applications (Kalakota et al., 1996), web-based decision support applications using SAS software for data management, statistical analysis, and forecasting (Cohen et al., 2001), and a web-based physician profiling system to manage customer relationships through E-business decision support applications (Kohli et al., 2001). Others present intelligent product recommendation systems for E-commerce (Xiao et al., 2003), a business to business (B2B) approach that deals with E-business people interactions and negotiation to settle strategic differences (Ramos et al., 2003), and agent-based merchandise management support systems for B2B e-commerce
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(Park & Park, 2003). Still others offer a web-based consumer-oriented intelligent decision support system for personalized e-services (Yu, 2004). Al-Qaed and Sutcliffe (2006) designed an adaptive decision support system for E-Commerce that matches the appropriate tool support and decision strategy advice to the user’s preferences and motivations. Their focus was on providing proper system advice during operation rather than providing an integrated decision support framework to guide strategies. In addition, McGregor et al. (2006) presented a shareable, web service-based intelligent decision support system for on-demand business process management. More recently, Denguir-Rekik et al. (2009) developed a multicriteria decision making support system to aid the marketing team of an e-commerce organization in its activities. In Chongwatpol and Sharda (in press), a spreadsheet-oriented decision support system was implemented to help making telecommunications pricing decisions for state networks.
EBDMSS
None of the previous studies offer comprehensive decision support architecture to facilitate E-business strategies in real applications. The EBDMSS architecture promises to close this research gap by linking business strategies to a broad range of measures, examining important business issues facing E-business managers, and providing a complete and integrated view of Ebusiness management.
EBDMSS ARCHITECTURE SPECIFICATION The EBDMSS aims to assist E-business managers in: (1) precisely forecasting the E-market demand/ supply quantity and total profit, (2) accurately making long-term and short-term E-business strategy plans, (3) explaining, justifying, and reporting
the outcome forecasts and recommendations, (4) performing effective simulation experiments with proposed policy changes (pricing, advertising etc.) and marketing conditions (competition, coordination etc.). In the process, the EBDMSS will support managerial decision making in a comprehensive, integrated, and continuous manner (Forgionne, 2000).
EBDMSS CONCEPTUAL ARCHITECTURE The proposed EBDMSS, like its DMSS predecessors, has the conceptual architecture shown in Figure 4 (Wang & Forgionne, 2007). As the figure illustrates, the architecture is organized around the paradigm of inputs, processing, and outputs.
Figure 4. EBDMSS conceptual architecture
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EBDMSS
Inputs The EBDMSS has a data base, knowledge base, and model base. The data base contains critical problem and attribute data directly relevant to E-business strategy, including the values for uncontrollable events, decision alternatives, and decision criteria. Critical problem data includes relevant elements needed to estimate marketing requirements, network performance, and personnel skill sets, among Figure 2’s EBDMSS functions. Attribute data consist of the economic variables needed to perform the strategic analyses and the e-marketing characteristics of interest to E-business managers. The knowledge base holds problem knowledge, such as formulas for converting available data into the EBDMSS model’s parameters, guidance for selecting decision alternatives and problem relationships, production rules describing the relationships between the screen interactions and desired display reports, or advice in interpreting possible outcomes. Intelligent and real-time assistance will be available when the user selects system functions dealing with model, data, and dialog management. A final input is the model base, a repository for the fully specified E-business strategy models and the methodology for developing results (simulations and solutions) from the models. The model is delivering intelligent support dynamically by delivering the economic, management science, and other expertise embedded in the stored accounting, economic, and management science constructs. Processing E-business managers utilize webbased computer technology to process the inputs into problem-relevant outputs. Figure 5 illustrates the EBDMSS processing architecture with the major measures (depicted in squares) and the corresponding decision factors (depicted in ovals) and relationships (depicted as arrow lines) specified. Processing will involve: (1) organizing problem parameters – accessing the data base, extracting the decision data, and organizing the information in the form needed by the EBDMSS decision model and solution methodology; (2) structur-
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ing the decision problem – accessing the model base, retrieving the EBDMSS decision model, and operationalizing (attaching organized parameters to the EBDMSS decision model components); (3) simulating policies and events – using the operationalized EBDMSS model to perform the computations needed to simulate outcomes from user-specified alternatives and then identifying the alternative (or alternatives) that best meets the decision criterion (or criteria) among those tested; (4) Finding the best problem solution – accessing the model base, retrieving the appropriate solution method, and using the retrieved method to systematically determine the strategy alternative (or alternatives), among all possible alternatives, that best meets the decision criterion (or criteria). The EBDMSS can use E-business component problem ideas, concepts, and knowledge drawn from the knowledge base to assist users in performing these processing tasks. Such intelligent assistance distinguishes the proposed system from a traditional decision support system. Meanwhile, as indicated by the top feedback loop in Figure 4, the data and reports created during the Ebusiness strategy analyses and evaluations can be captured and stored as INPUTS for future processing. These captured inputs are stored as additional or revised fields and records, and the data base is dynamically updated accordingly. As in DMSS predecessors, the EBDMSS input feedback helps to support the E-business manager’s strategic decision making process in a continuous and interactive manner (Cook, 1993; Balasubramaniana et al., 1999; Forgionne, 2000). Outputs Processing will automatically generate visual displays of the status reports, forecasts, recommendations, and explanations desired by E-business managers (Figure 5). The status reports will identify relevant EBDMSS uncontrollable events, decision alternatives and criteria, and show the current values for these problem elements. Forecasts will report the events and alternatives specified in the E-business strategy simulations and the resulting projected values of the deci-
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Figure 5. EBDMSS processing architecture
sion criteria. The recommendations will suggest the values for the E-business strategy decision alternatives that best meet the criteria, and the corresponding criteria values, under current and forecasted values for the uncontrollable events. Explanations of the variables and reports, which are offered to the user through readily accessible Help screens, will justify the recommendations and offer advice on further processing. Such advice may include suggestions on interpreting the output as well as guidance for examining additional scenarios. As indicated by the bottom feedback loop in Figure 4, the E-business manager can utilize the outputs to guide further EBDMSS processing before exiting the system. Typically, the OUTPUTS feedback will involve E-business strategy outcomes, cognitive information, task models, and what-if, goal-seeking, and other types of
sensitivity analyses. As with DMSS predecessors, the EBDMSS output feedback can be used to extend or modify the original strategy analyses and evaluations and can also help to support Ebusiness strategy decision-making in a continuous manner (Steiger, 1998; Forgionne, 2000). The proposed EBDMSS can support all phases of the E-business strategy decision making process in a complete, integrated, and continuous manner. Critical problem data can be captured in the data base. The EBDMSS can be used to organize this captured information, generate timely focused reports, and project E-business strategy-relevant trends. Such processing helps the decision maker to quickly monitor the E-business decision environment, set objectives, and evaluate the processed information for strategic opportunities or problems, thereby supporting the intelligence phase of decision making.
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The EBDMSS can provide the analyses in vivid detail with tables, graphs, and other supporting material. Such material will increase the E-business manager’s confidence in the recommendations, improve the manager’s perception of system effectiveness, and enable the E-business manager to better explain, justify, and communicate the strategic decisions during the implementation process. Along with the original analyses and evaluations, the EBDMSS feedback loops also increase the E-business manager’s confidence in the recommendations.
EBDMSS COMPONENTS The EBDMSS supports the decision making phases introduced in Simon (1960). As Figure 6 indicates, the integrated system delivers the functions of an executive information system (EIS), a decision making support system (DMSS), and an expert system (ES), while supporting all phases of the decision process in the E-business strategy making situation. The embedded EIS is an integrated series of applications that enables E-business managers to easily access critical information related to Ebusiness strategy. Like most executive information systems, it locates and extracts pertinent EFigure 6. EBDMSS components
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business data, captures the extracted data, and automatically forms the data warehouse needed to perform the EBDMSS analyses and evaluations. This EIS component helps users discern E-business strategy problems and opportunities and gather pertinent environmental information, which supports decision making intelligence. As with EIS predecessors, E-business managers can utilize the EBDMSS EIS functionality to interactively filter and focus the relevant information, utilize the information to operationalize E-business strategy models, and justify the system’s reports with explanatory details (Forgionne, 1997). This is realized by setting up filters in the query which can be defined from a list of parameters, for example, time window, market sector, region, etc. With expert system (ES) assistance, the EBDMSS EIS, like its IDMSS predecessors, also displays reports from the user’s specific queries (Forgionne & Kohli, 2000). By using the EBDMSS’s DMSS component, and with the aid of the embedded ES and EIS components, E-business managers can utilize the information gathered through the intelligence phase of strategy making to generate decision alternatives and to establish the environmental variable levels for the models (Design phase). These operationalized models can then be used with the DMSS component and the embedded ES
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component to help E-business managers evaluate the alternatives and select the best one (Choice phase). For example, SAS ETS Times Series Forecasting System is capable of making forecasts for time series data from beginning to end, managing data, building model, and providing all reasonable forecast models and delivering them in different file format to users. The system chooses the best model according to certain statistics criteria, but other alternatives are available. The EIS and ES components can offer problem ideas, concepts, and knowledge drawn from the knowledge base to help users gain confidence in, and execute, the selected E-business strategies. Such support promotes the Implementation phase of decision making (Sauter, 1997; Forgionne, 2000; Forgionne & Kohli, 2000). The E-business implementation assistance is offered through readily accessible EBDMSS Help screens. Within the help screens, the E-business manager can browse archived and categorized problem knowledge, or conduct keyword and advanced searches through the extensible EBDMSS knowledge base. These captured inputs, after being properly parsed and verified, will be added to the EBDMSS Knowledge Base for future usage.
EBDMSS SYSTEM IMPLEMENTATION Successful application of DMSS techniques involves understanding the risks and addressing them in implementing the system (Gallegos, 1999). To promote this notion, a Web-based prototype system was developed for E-business applications using the proposed EBDMSS framework.
EBDMSS Implementation Methodology The current version of the EBDMSS prototype is based on the Client-Intermediary-Server network technology. A software integration and prototyp-
ing approach was adopted for facilitating system implementation and operation. Microsoft Windows Server 2008, running Internet Information Server (IIS) and Microsoft Visual Studio.Net, provides the backend and web-server functionality. Microsoft’s recommended hardware was implemented for optimal performance. To efficiently and effectively implement the EBDMSS for specific E-business applications, we utilize an Object-Oriented conceptual modelling approach to uniformly represent classes and relationships of items, services, consumers, vendors, as well as decision procedures, data, models, and knowledge. To enable intensive, dynamic, and speedy applications of data inquiry, update, and management to support strategic decision making, we implement MS Access database technologies enhanced with the ADO.Net connection, which provides easy and consistent access to data sources. At this stage, the dot Net (.Net) based approach is selected as the desired development and implementation environment. The.Net approach was favored in this case because it offered a consistent, secure, cost-effective, and more flexible development and implementation than the available alternatives. This approach lends itself well to Object-Oriented design and web-based applications. The ultimate goal is to distribute the EBDMSS applications over the Internet, for easy and timely access, and the.Net approach facilitates this goal. Future implementations may make use of Service-Oriented Architecture (SOA) and/or Representational State Transfer (REST) architectures. Using the web as the front-end, the current EBDMSS can facilitate E-business strategy-making efficiently and effectively in the dynamic and fast-changing global business environment. From the data perspective, when a query or a request to model forecast occurs, a connection is made to the database where the business critical data (including historical records and simulation results) are stored (Pol & Ahuja, 2007). The data
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adaptor is then created with the desired SQL query statement on the data storage. While processing the query or the model forecast simulation, a dataset is generated to store the query or forecasting output. Different control methods can be employed on the dataset to create illustrating forms and diagrams. Also, by building the connection to the database via ADO.NET, records can be added, updated, or deleted from the database whenever needed. In brief, the EBDMSS is implemented as a web-based decision support application. Once in the system, the user performs the E-business management analysis and evaluations by navigating with point and click operations through the display pages of the system. These operations invoke the EIS, DMSS, and ES functions of the integrated EBDMSS. While all major operations
Figure 7. EBDMSS sample system displays
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are described briefly, only some are displayed (Figure 7) for the sake of brevity.
EBDMSS System Illustration In a typical E-business strategy session, the manager will explore new opportunities and problems or conduct a strategy evaluation. If the session involves exploration, management will be facilitated if available patterns are presented and suggestions are presented for consideration and refinement. Strategy evaluation can be facilitated by providing a vehicle for the E-business manager to quickly examine potential alternatives, study the consequences, and refine the analyses dynamically as the results unfold. These typical
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scenarios are fully supported by the EBDMSS Web-based prototype. As displayed in Figure7a, the WELCOME page enables the user to access the EBDMSS. Once in the system, the user can interactively select the EIS or go directly to the DMSS. Selecting the EIS button will lead the user to the EIS page of EBDMSS. From the EIS page, the user will be asked to interactively select the desired data range (e.g., year 2010 by month or September 2010 by day) from the predefined drop-down list (which is called from the EBDMSS data base), as shown in Figure 7b. The system will ensure the user has selected the “REQUIRED” Installation (i.e. data reports during a certain time period). If not, a warning message window will pop up to remind the user to choose properly. After choosing the required data source from the drop-down list, the user can further select desired information operations, such as the “View” and “Update” buttons, offered from the EIS screen. Selecting the first “View” button will access the Information View page. From the Information View page, the user can select to “Sort” the current data records by specifying a sort criteria (e.g., by date or the value of Unit Cost) or to “Filter” the current data set by specifying the filter property (e.g., to show the data records with Quantity Demanded higher than 10), and these selections will generate customized reports of the selected data records, and therefore offer an ad hoc view of the E-business critical data of interest during a specified time period. Alternatively, selecting the “Update” button will put the user in the Information Update Page. From the update screen, the user can obtain Information on the proper format needed to input the data successfully into the EBDMSS, modify the current records if necessary by clicking the “Edit” link at the beginning of each record, or add new records by selecting the “Add new data” button above the data table. Once in the proper format, the updated data will be read into the EBDMSS
database for further and future processing. The user can also choose to delete any existing record by clicking the “Delete” link at the end of each record. By using the Visual Basic.Net data form classes, it is possible to protect columns and validate data entries, to generate audit trails which record who changed what and when, and to handle user input interactions. Selecting the “Analyze” button will lead the user to the Information Analyze page as displayed in Figure 7c. From this screen, the user can select the desired variable from the list on the left column, in the range which has been specified by the data selection from the previous EIS page. When the user has chosen a certain variable, s/he can then view the corresponding analysis histograms for the specified time range. As illustrated in Figure 7c, variable “SC” (sales cycle) has been selected and the chart shows the resulting histograms for the period specified at the previous data selection page (Figure 7b). The user can also change the variable and analyze other available variables from the specified data source on this page. Within the EIS page, if desired, all ad hoc query reports, data updates, and analysis reports can be printed by clicking the “Print” button embedded in the IE window. The user can return to the EIS page by clicking the “Go-back” link on every sub-page anytime and select other data sources for further information analysis. Selecting the DMSS button from the Welcome display will invoke the functions of the DMSS component. Within this module, the user can compute and estimate the E-business revenue and cost with specified input, and generate the Ebusiness forecasting and strategy reports. Prior to the forecasting and simulation, a brief introduction to the DMSS session will be displayed (Figure 7d). E-business strategy involves a wide range of measures and corresponding decision factors. These elements will influence the feasibility and desirability of strategy initiatives. The EBDMSS contains a fully specified decision model, which uses such predictors to forecast outcomes from
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these initiatives. To use the model, the user must specify the required initiatives such as quantity supplied (QS), unit cost of the product/service (UC), and company’s fixed cost (FC) such as utility and management overhead. Selecting the “Forecast” button will take the user to the forecasting session, from where the user will be able to enter proposed inputs and view the forecasted outcomes. Alternatively, if the user selects the “Analyze” button, s/he will enter the strategy analysis session and s/he can compare and analyze multiple strategy plans and corresponding outcomes. Selecting the “Forecast” button on the DMSS introduction page will display an electronic form that enables the user to enter such input for forecasting (Figure 7e). From the Forecast Input Specification page, the user can specify the required E-business strategy initiatives and get a corresponding outcome forecast. There is a list of required inputs and explanations for such inputs and general guidance for selecting decision alternatives and problem relationships are readily available by clicking the “Help” button (a sample pop-up page is shown). After entering the inputs, the user can select the “Run” button to generate the forecast report and display the forecasted outcomes. From the FORECAST REPORTS page (Figure 7f) the user can obtain detailed explanations to support outcome reports by selecting the “Details” button. The detail reports offer explanatory computations that justify the summary report. For instance, selecting the “Business Core” button yields the Business Core Report, while the “Analytical eCRM” selection generates the e-CRM Report. Alternatively, the user can select the “Print” button to print the forecast report in a printer-friendly version. Selecting the “Back” button will return the user to the DMSS introduction page. By selecting the “Analyze” button from the DMSS introduction page, the user will enter the strategy analysis session from where s/he can compare and analyze multiple strategy plans and corresponding outcomes. To start the strategy
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analysis session, the user can select the “Start to Play” button and enter an electronic input form page that looks similar to the forecast input specification page. Different from the forecast input page, here the user must click the “Confirm” button after entering the required input data. Then selecting the “Run” button will lead the user to the accumulative outcome analysis page, which enables him/her to compare multiple inputs and outcomes simultaneously. With the plot chart analysis, the user will obtain a clear picture of the projected relationship between a specific input plan and the forecasted outcome. As a result, the user will understand better the effect of the input decisions on the outcomes and plan better accordingly. If the user wants to start a new analysis session, s/he can click the “Clear and play again” link from the output page.
EBDMSS IMPLEMENTATION STRATEGIES In designing a system, information system specialists often consult with end users, identify current and potential requirements, and then design the system to meet the identified requirements with prototyping and other rapid application development (RAD) tools (Dzida & Freitag, 1998; Chandar & Krovi, 1998; Forgionne, 2000; Sauter & Free, 2005). Through exploratory study with managers, the desire to establish an information center typically staffed with information system specialists to assist practitioners with the application and identify potential enhancements is recognized (Forgionne, 1997; Shen-Hsieh & Schindler, 2002; Sauter & Free, 2005). As noted by Forgionne (1997), the focus has been put on efficiency, cost effectiveness, and user acceptance. In the context of this paper, three basic requirements for such an EBDMSS were identified at the beginning: (1) the practitioners should be provided a friendly and adaptive interface (Jolly-Desodta et al., 2002; Al-Qaed & Sutcliffe, 2006); (2) the users
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should be able to manage data in a transparent and visual way (Zhang & Pu, 2006; Levent, 2007); (3) the managers should get timely and intelligent support throughout the decision making process (Forgionne, 2000; McGregor et al., 2006). Set against this current field setting, the EBDMSS was designed, developed, and implemented with an adaptive design strategy that relied on rapid prototyping and interfacing, and other forms of RAD tools. Besides the heavy use of prototyping, several new strategies were utilized and evaluated in the process. These strategies, which involved but were not limited to adaptive development tools, team composition, and organizational issues, offer important lessons for successful design, development, and implementation of future decision making support systems. Generally, the strategy relied heavily on computer software engineering (CASE) and ObjectOriented Analysis (OOA), using the dot Net-based approach the Visual Studio.Net System. As with previous studies, these approaches have led to greater clarity of usage, more ease of development, and reusability for future enhancements (Pol & Ahuja, 2007). The Visual Studio.Net system based E-business planning reports or graphs can be viewed in corresponding HTML format for rapid distribution via the Web and can also be saved to the local computer for future reference. The current Visual Studio.Net version provides new Web-enabled data visualization capabilities which enable us to embed interactive graphics in a Web page (Pol & Ahuja, 2007). The design and development experiences suggest that decision making support systems can be effectively implemented through an adaptive design strategy. While the Visual Studio.Net system offers one such suite, there are others available, such as the SAS System for Information delivery. Studies that utilize such alternative integration tools can broaden the application base, and confirm or refute the findings from this study. Empirical experiences also suggest that DMSS design, development, and implementation should
be a team effort (Forgionne, 1997; Ruland & Bakken, 2002). As suggested by Forgionne (2000), the team should be composed of the affected managers, information system personnel, and technological specialists proficient with the tools needed to address the management problems. A single information system specialist is unlikely to be proficient with, or even aware of, all the pertinent tools (Nader & Merten, 1998; Forgionne, 2000; Al-Qaed & Sutcliffe, 2006). Therefore, several specialists with problem-specific technological expertise are needed to design and develop a decision making support system. The current E-business planning application required personnel with econometric, management science, marketing science, and information systems expertise.
EBDMSS Implications The EBDMSS can be expected to improve the efficiency and effectiveness of the E-business strategic decision making process and outcome. By supporting all phases of decision making in a complete and integrated manner, the system can be expected to help the E-business manager recognize more strategic opportunities and problems, better identify the important strategy alternatives and events, more systematically and scientifically evaluate strategic alternatives, and generate pertinent justification to facilitate strategy implementation than current largely unguided approaches. These process improvements can be expected to yield more attractive E-business plans with resulting lower costs, higher revenues, and increased profits when compared to current efforts. The effort should also improve the strategy making skills of the E-business manager. Empirical studies will be needed to evaluate the theoretical gains. In the context of E-business management, the outcome evaluation criteria are mainly concerned with the business core and customer relationship perspectives, which can be manifested by the strategic measures and factors under each perspective in the EBDMSS frame-
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work. Such measures can be objectively recorded in a field setting or a simulated experiment. Staff proficiency properly measures the learning and maturation of the E-business decision maker. In addition to a periodical staff qualification assessment, users’ feedback can be assessed through a directed self evaluation survey on their experiences or acquired knowledge and skills with the use of the decision aid (Adelman, 1991). Process improvements may be assessed using two major measures: process effectiveness and efficiency. Process effectiveness is concerned with decision outputs, such as the quality of e-services with the decision aid and the number of products offered for sale or shipped out during a certain period, while process efficiency is concerned with how resources are used to achieve the objectives, such as the time for a sales cycle, the lead time (order-to-deliver time), and the general cycle time. Such process effectiveness and efficiency assessments can be objectively recorded in a field setting or a simulated experimental setting. Using the multiple criteria EBDMSS framework (as shown in Figure 5), the E-business manager can establish an evaluation model for strategic e-business decision support. Figure 8 shows such a strategy evaluation model utilizing the strategic measures specified in the framework. Based on the Analytic Hierarchy Process (AHP) concept (Forgionne, 1999), this strategy evaluation model associates a hierarchy of evaluation Figure 8. EBDMSS strategy evaluation model
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measures (for both decision making process and outcome assessment) relevant to the context of E-business strategy in an integrated fashion. Using the hierarchy in Figure 8, the E-business manager can make pairwise comparisons of alternative support systems, including the EBDMSS, across the multiple decision criteria. The AHP methodology then will convert the multiple measures into an overall scorecard value for each considered system. This AHP-based EBDMSS evaluation model, then, will identify, in rank order, the most best performing E-business strategy making support systems. The specifications of the evaluation model will be determined by the specific application settings and the data sources selected to operationalize the model and system. By collecting pertinent data and performing an AHP analysis on Figure 8’s hierarchy, the E-business manager can determine if there was more strategic decision value with or without the DMSS. The improvement, if any, can be expressed in relative terms and tied to the specific sources (measures) generating the improvement by working down the hierarchy. Moreover, this examination will reveal which sources contributed most to the improvement. Other sources, then, will be candidates for Ebusiness remedial efforts in the future.
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CONCLUSION The ongoing Internet and WWW revolution is dramatically changing the way individuals, groups, and organizations live, work, and conduct and manage business globally. In this paper, we investigated the decision support issues embedded in strategic E-business management by developing, operationalizing, and illustrating the integrated and comprehensive EBDMSS framework. Web-based decision making support systems, such as the EBDMSS, are ideal delivery vehicles for tools that provide dynamic and intelligent decision support to E-business managers (Forgionne, 1991, 1997; Marakas, 2003; Turban et al., 2007). The EBDMSS delivers, through web-based computing technology, econometric and heuristic programming models, statistical methodologies, data conversion formulas, production rules, and data warehousing techniques to assist E-business management in specifying a variety of decision factors, establishing profitable E-business plans, and forecasting for future development. As such, the EBDMSS is effectively delivering to practitioners, in a virtual and adaptive manner, a wide range of embodied expertise particularly focused on the E-business strategy making process. The proposed EBDMSS can enable practitioners to improve the decision making required in the E-business planning process by providing: (1) quicker and more accurate sensitivity analysis of market conditions and their impact on the demand relationships, (2) more timely sensitivity analyses of the proposed policy changes and their impact on profit, (3) operationally and computationally errorfree outcome evaluations and forecasts, (4) more intelligent, adaptive, and effective decision support for the long-term and short-term E-business planning process. As such, this system supports the managers during the E-business planning process in a comprehensive, integrated, and continuous manner. Using the web as front-end, the EBDMSS can facilitate E-business strategy making
more efficiently and effectively in the dynamic and fast-changing global business environment. The design of the EBDMSS illustrates how a link from E-business strategy to an E-business decision model could be established and how the model could be physically delivered through a DMSS. The EBDMSS framework also indicates that E-business strategy making will involve multiple decision criteria. Using this framework, the decision maker can establish an evaluation model for strategic e-business decision support, such as an AHP-based EBDMSS evaluation model. In practice, the EBDMSS architecture provides a means of identifying E-business opportunities and threats in the internal and external environment, analyzing current E-business capabilities and resources to address the opportunities and threats, and generating effective E-business strategies that would improve the company’s overall business performance and profitability. The EBDMSS also provides a stable point of reference for E-business companies to understand and manage the fundamental changes introduced by E-business initiatives, and it enables E-business managers to plan and allocate resources (including tangible and intangible strategic assets) more effectively and align strategic objectives with performance results. The reported EBDMSS implementation strategies also add value to information systems project management practice by identifying adaptive design approaches, tools, and experiences. We hope that this article stimulates additional research to overcome some limitations of this research. This paper offered a generic system for E-business strategic decision making. There is a need for additional studies that test alternative EBDMSS configurations, including the application of Service-Oriented Architecture (SOA) and/or Representational State Transfer (REST) based architectures, or utilize other integration tools. Further research could empirically test the proposed EBDMSS architecture within a corporate E-business and evaluate the effectiveness and efficiency of the system in the real E-business
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world. Multiple test users will be experimenting with the system and their behaviour and personal productivity will be tracked and recorded. Then using the AHP-based EBDMSS evaluation model (Figure 8), or an operationalized and updated version of the evaluation model, testing results can be generated to verify the significant improvement, or lack thereof, in both E-business decision making process and outcome with the use of the EBDMSS framework.
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This work was previously published in International Journal of Decision Support System Technology (IJDSST), Volume 2, Issue 4, edited by Pascale Zarate, pp. 50-68, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Section III
Tools and Technologies
This section presents an extensive coverage of various tools and technologies available in the field of global business that practitioners and academicians alike can utilize to develop different techniques. These chapters enlighten readers about fundamental research on the many methods used to facilitate and enhance the integration of this worldwide industry by exploring the usage of such tools as supply chain design, IT strategy, and new business models, all increasingly pertinent research areas. It is through these rigorously researched chapters that the reader is provided with countless examples of the up-and-coming tools and technologies emerging from the field of global business. With more than 20 chapters, this section offers a broad treatment of some of the many tools and technologies within the global business community.
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Chapter 3.1
MICA:
A Mobile Support System for Warehouse Workers Christian R. Prause Fraunhofer FIT, Germany Marc Jentsch Fraunhofer FIT, Germany Markus Eisenhauer Fraunhofer FIT, Germany
ABSTRACT Thousands of small and medium-sized companies world-wide have non-automated warehouses. Picking orders are manually processed by bluecollar workers; however, this process is highly error-prone. There are various kinds of picking errors that can occur, which cause immense costs and aggravate customers. Even experienced workers are not immune to this problem. In turn, this puts a high pressure on the warehouse personnel. In this paper, the authors present a mobile assis-
tance system for warehouse workers that realize the new Interaction-by-Doing principle. MICA unobtrusively navigates the worker through the warehouse and effectively prevents picking errors using RFID. In a pilot project at a medium-sized enterprise the authors evaluate the usability, efficiency, and sales potential of MICA. Findings show that MICA effectively reduces picking times and error rates. Consequentially, job training periods are shortened, while at the same time pressure put on the individual worker is reduced. This leads to lower costs for warehouse operators and an increased customer satisfaction.
DOI: 10.4018/978-1-60960-587-2.ch301
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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INTRODUCTION The four fundamental processes of a warehouse are (Tompkins & Smith, 1998): 1. To receive incoming goods for storing, 2. To store goods until they are required, 3. To prepare requested goods for shipping (picking), and 4. To ship the picked goods (sometimes called packing). Among all the processes of logistics, picking is the most problematic one because it is highly error-prone (Miller, 2004). Many different types of errors are known (Lolling, 2003): picking of wrong types or quantities of articles, complete omission of a type, and insufficient quality of delivered articles (see Figure 2). All these errors cause high costs for manufacturers and warehouse operators. Either because extra shipments and returns are necessary, or, in the worst case, because contract penalties have to be paid. In today’s lean production, where only small resource reserves are kept at the manufacturing site, the resources necessary for production are usually delivered to a customer just when he needs them. The orders are possibly known to the warehouse weeks before but delivery is expected exactly at the specified date. If an important item from the order is missing, this can mean that the whole production has to stop, incurring extra costs for the warehouse for courier delivery, and the customer who then lets the warehouse pay for the financial damage of the production halt. Besides causing huge costs, this certainly has potential to annoy customers. Accordingly, the primary goal for warehouses is to eliminate or at least reduce the number of errors. Especially warehouses with human workers are confronted with returns caused by incorrect delivery of items. But although humans constitute the soft spot in this process, completely automated solutions are not an option for most warehouses
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because human workers are much more flexible (see Figure 1). During economic peak times, warehouses are forced to employ unskilled workers in order to cope with the increased workload. These unexperienced workers are not familiar with the structure and organization of the warehouse, yet have to be operational in a short time. They do not have the time to learn from experienced workers where an ordered article can be found, what the fastest routes through the warehouse are, what the exact processes are, or what a certain article looks like. Nevertheless, work has to be completed without errors and under the same high time pressure that also skilled workers face. Picking errors and time pressure constitute the major problems for unskilled and skilled workers. Hence, there is a need for an intelligent assistance system that supports the workers. By preventing errors, such system also reduces the pressure put on each single warehouse worker. An assistance system for employees needs to support untrained workers as well as experienced workers in their usual way of working and not force them to change habits. Based on an initial requirement analysis, we propose the Interaction-by-Doing paradigm, which was realized in a first MICA prototype. Its success led to the development of the second MICA pilot for field testing in a productive environment. Figure 1. Worker in a non-automated warehouse
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Figure 2. Picking errors
In a field test we evaluated MICA’s usability, its effect on worker efficiency and estimated its world-wide sales potential. Finally, we present related work and conclude.
REQUIREMENTS AND CONCEPTS In collaboration with two medium-sized nonautomated warehouses, we initially collected requirements for our envisioned MICA system. Such system would reduce the pressure put on workers by assisting them with their tasks, and by preventing errors and the costly effects thereof.
For end-users and designers, design proposals can be understood as design probes to explore the characteristics and usefulness of a proposed system. When a prototype is available, end-users can try it and gain personal experience with it. The active involvement of users and a clear understanding of their tasks is the key for a successful system development. The ISO 13407 “Human-centred design processes for interactive systems” standard does not prescribe specific methods for how to achieve these goals; they are to be chosen according to what is state of the art and what is appropriate under the respective project circumstances. Based on practical experiences from other projects, we
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have devised a scenario-based approach, combined with user interviews, participatory observation and expert analysis, based on the structure proposed by Robertson and Robertson (1999) for mastering requirements. Their Volere process ensures that all important aspects of requirements are carefully addressed and that the methods applied have proven their value in practical work. The Volere process makes a distinction between global constraints affecting the project, functional requirements and non-functional requirements. Associated with this process is the Volere template. The template makes fine-grained distinctions between different types of requirements and requires that they are assessed in various categorizations. It also captures the rationale for each requirement as well as fit criteria. These criteria are used to evaluate customer satisfaction and dissatisfaction if a requirement is implemented or not. Hence, the Volere process ensures that all important aspects of requirements are carefully addressed.
REQUIREMENTS The requirements gathering process was directed by interviews with all stakeholders and focus groups at the two involved warehouses. These provided valuable insight into the work at the warehouse and contributed to a worthwhile understanding of the current and immanent problems, limits, tasks and benefits of a future support system. But much more important than the interviews and focus groups was the participative observation of the work in the warehouses for several days. Initially, the warehouse workers were quite cautious to work exactly to rule but soon they completely forgot the presence of the observers and reverted to their old habits. Quite remarkably this brought to light several important issues that would never have been discovered with interviews or focus groups: we could observe workers that were deliberately
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committing errors. For example, when an item was missing or broken they scanned in the correct bar code from the shelf and put another (wrong) item into the order box, thus producing two severe errors: an order with a wrong item (mix-up error) and removing another item from the warehouse that would leave the warehouse inventory in an inconsistent state, causing a missing article in a subsequent order. The reason for this observed behavior was the cumbersome process that had to be followed when an item of an order was missing or broken: the warehouse worker had to stop his picking and take the warehouse manager in. First he needed to find the warehouse manager in his office – usually on the other side of the warehouse – then inform him that an item was broken or missing. This could lead to some awkward situations due to the short-tempered nature of the warehouse manager. After that both had to go back to the location in the warehouse, so that the warehouse manager could investigate the situation. Then, mostly not without anew critique, the warehouse manager had to go back to his office, enter the error into the system and restart the picking order. Only now the worker could continue picking. This easily could consume more than 30 minutes. All in all we collected over 50 requirements that were prioritized by our own observation and by experienced workers and warehouse managers. The most important requirements can be summarized as follows: 1. Reduce error-rates. To be effective, MICA must reduce error-rates compared to existing assistance systems. Only this alleviates the workers’ fear of picking errors, while at the same time justifying the use of MICA from an economic point of view. 2. Provide the opportunity to process several picking orders at the same time. As experienced workers tend to process several orders at the same time to reduce walking distance.
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3. Support trained and untrained workers. MICA must support trained as well as untrained workers, because at peak times the permanent staff is reinforced with unskilled workers. Both groups have inherently different needs. Unskilled workers need a certain time to acquire the knowledge where to find an article. Navigation assistance should help to avoid making detours and to find articles on the picking list. At the same time, MICA should not interfere with habits of experienced workers. 4. Unobtrusive guidance. A novel technology gets rejected if people have to change their way of working or if they feel patronized. To achieve acceptance, a guidance system may not require much attention but should work in the background. It should only draw attention to prevent a picking error. 5. Usability. Interfaces should be intuitive, provide a good overview and be easy to learn because user training is expensive. Keeping the system responsive enables seamless user interaction and avoids idle time for workers. 6. Working hands-free. Simultaneous handling of mouse or keyboard would disrupt picking. Additionally, workers are usually unfamiliar with computer user interfaces. 7. Environmental conditions. Different environmental conditions play an important role for MICA. For example, the display should remain readable under unfavorable light conditions, while sound should remain hearable despite ambient noise.
in the sections below. Interaction-by-Doing is an enhancement of Interaction-by-Movement (Lorenz, Zimmermann, & Eisenhauer, 2005). Interaction-by-Movement means that moving towards a location is recognized by the system, which reacts with a proactive help. In Interactionby-Doing, interaction is not reduced to movement only but to multiple kinds of behavior. By this, no explicit interaction is necessary. A practical example is the picking process: when picking with support of a scanner, the worker passes articles by his scanner. The scanner confirms with an acoustical response. Not till then may the worker continue picking. In contrast, when the process is extended with an Interaction-by-Doing system, the worker just puts an article into the box. The Interaction-by-Doing system identifies the article in the background and interrupts the worker (using an appropriate modality) only in case of an error. Interaction-by-Doing eliminates the additional control process in picking and automatically helps with solving the problem by telling the user to remove the wrong article.
INTERACTION-BY-DOING
IMPLICIT INTERACTION
From above requirements, we derive MICA’s Interaction-by-Doing concept that builds on multi-modal and implicit interaction with a calm computing system that provides pro-active help to users with different experience levels. The different concepts’ implications are described
In explicit forms of interaction the user assertively communicates his wishes to the system via specific IT devices like mouse, keyboard or touch screen, and well-known interaction rules like clicking, dragging or typing. Other explicit interaction forms like gesture recognition can be socially
MULTI-MODALITY People’s interaction in a completely engineered environment relies on different modalities because a single modality may fail in a certain situation. For example, people in motion cannot focus their full attention on the interaction with a touch screen (Brewster, 2002). In contrast, noisy environments make speech less reasonable than other modalities.
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obtrusive if they involve sweeping gestures. When such gestures are required for interaction, the user might feel embarrassed because it looks strange to casual bystanders. Still, even if more subtle gestures (like a small tilting) are used, the user wants to explicitly and consciously communicate something to the machine. Implicit interaction is a passive form of formulating wishes. The idea is to analyze natural movement of the user and to derive reactions by the system. To be able to extract interaction information the system needs to know the tasks and intentions of the user in the specific context. Implicit interactions are unobtrusive but are also less reliable. Yet the success of a system is highly dependent on its usability because simple and intuitive interaction increases user acceptance. Natural interaction means multi-modal interaction with explicit and implicit interaction modalities. Therefore, the idea of MICA is to offer a suitable interaction modality to every particular situation.
CALM COMPUTING Weiser and Brown came up with the term of calm computing. They demanded that technology engages both the center and the periphery of our attention, and in fact moves back and forth between the two (Weiser & Brown, 1997). In MICA, the normal picking process remains the center of the worker’s attention. MICA stays in the periphery where additional information about the current task can be retrieved. It only moves to the center if an error occurs. A system based on the Interactionby-Doing principle beholds the workers’ actions with various sensors to detect problems.
PROACTIVE HELP Proactive applications want to give adequate help when the user is expected to need it (Kaufmann
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et al., 2007). A computer system offers proactive help if it deems that this could reduce a worker’s stress or if he is about to make an error. The intention is not to point out that the worker errs but to avoid errors. This saves time and reduces worker frustration. Because of that, help is presented as a non-binding offer. This is necessary so that the worker does not feel patronized. Furthermore, wrong reactions of the system – i.e., the worker’s intention was not predicted correctly and hence the system reacts in an undesired way – do not cause unnecessary disturbance as the worker is never explicitly interrupted in his work. One example is well-known from navigation systems: if the user leaves the proposed path, the route is silently recalculated accounting for the deviation. Hence, the proactive help assures that the optimal path is always displayed without interrupting the user with error messages or commandments. Similarly, MICA does not interrupt the current workflow when it recognizes a deviation. Instead, it just highlights the help button, so that appropriate help can be obtained with a single click. Concrete situations or problems are identified by observing the worker’s actions. Systems’ reactions rely on the analysis of the movement history. Hence, movement sensors and a positioning technology are necessary.
DIFFERENT EXPERIENCE LEVELS Calm computing makes it possible that experienced users are not interrupted by system alerts addressed to unskilled workers. They can work in the efficient ways they are familiar with. As Interaction-by-Doing facilitates implicit interaction, less explicit interaction forms have to be learned by users. This supports both, skilled and unskilled users. Proactive help is designed as a non-binding offer so that experienced workers are not disturbed. At the same time, unexperienced workers are thankful for the help when in need.
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DEVELOPMENT METHODOLOGY OF MICA
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The first MICA project started in 2004 running until 2006. The goal of the project was to prototypically explore the possibilities of supporting humans in their every-day working environment using technologies like context-awareness and user modeling with mobile devices. For this exploration it did not matter what working environment that was. The prototype served three purposes: firstly, it allowed us to gather first experiences with a variety of hardware and software technologies used in MICA. Secondly, it shows the technical feasibility of the concept. And thirdly, early feedback from potential users and customers can be collected. For example, it is possible to run user tests under laboratory conditions, or to show the prototype on trade fairs. This helps to review the general concept and shows opportunities for future development. Depending on success and reception of the prototype, a second project can be set up. For this successor the prototype is reworked, and a more mature pilot version is then tested in the field, i.e., in a productive environment.
•
FIRST PROTOTYPE As a first setting for MICA, a warehouse scenario was chosen, where MICA would assist warehouse workers in the picking process. However, the MICA architecture was not meant to be constrained to this specific setting but to be a platform for realizing very different scenarios. The major challenges of the first MICA prototype are: • •
Workers need hands-free support, Interaction modalities for system input must fit the current situation and task,
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Volume levels of audio output must automatically adapt to environment noise levels, A display must react to rapidly changing lighting conditions, and The system must be highly responsive, never leaving the worker to wait for it.
MICA has to provide a combination of explicit and implicit interaction methods in blue-collar environments. It faces situations in which the spatial relations of objects change dynamically. Hence, the worker’s environment has to be monitored and interpreted in real time. On the one hand, this enables MICA to identify a worker’s need for help and to react on implicit interaction clues like stumbling or search behavior. On the other hand, workers interact explicitly with MICA, for example by pressing the “OK” button to confirm the execution of a proposed action after a warning message. In particular the combination of implicit and explicit interaction on various modalities leads to natural blended interaction (Eisenhauer, Lorenz, Zimmermann, Duong, & James, 2005). MICA guides the worker through the warehouse, keeps track of articles picked (see Figure 7 b) and pro-actively offers help. The following subsections give short descriptions of the different components of the original MICA system. At the same time, this section serves as a baseline for explaining the modifications of the MICA pilot in the next section. Both sections are therefore structured similarly, describing the necessary ingredients for Interaction-by-Doing like the MICA trolley, navigation, article identification, and the software design. This is followed by summaries of the realized concepts and the interaction experience. As a case study, the MICA prototype provided valuable lessons learned that were used to improve its successor, the second MICA (pilot).
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TROLLEY The multi-modal interaction in MICA relies on a wide range of different sensors for retrieving implicit interaction information, an input device for providing explicit interaction possibilities and devices to give feedback to the worker; among these is pen-touch display, RFID readers and antennas, a WLAN data connection, and a highperformance CPU for coordinating all interaction devices in the worker’s direct vicinity. Besides being heavy and bulky by themselves, the devices also need a power supply large enough to keep the system running during a complete workday. A device that workers use throughout the entire picking process is the trolley on which order boxes are placed. The trolley therefore became the heart of MICA hosting all the devices required, as one essential requirement is not to strain the worker in his work with heavy equipment.
ARTICLE IDENTIFICATION MICA receives picking orders from a server and lets workers select their next order. Workers – while always being connected to MICAvia the picking trolley – are presented a picking list, which is automatically synchronized with the articles already picked. For this, the MICA trolley is equipped with RFID technology which continuously monitors the items that are already picked. Articles and boxes (into which the articles are picked) are tagged with passive RFID tags. The floor of the MICA trolley is made up of a 4x4 array of RFID readers that read articles placed above them (see Figure 3). When an article or a box is placed on the trolley, MICA can determine if the article is correct and if it is placed in the right box. Hence, with MICA the worker is not constrained to work on one order at a time, but he may choose several orders and work on them simultaneously, while MICA makes sure that no article is wrong, forgotten or picked into a wrong shipping box.
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Figure 3. RFID antenna array for identifying articles and their location on the MICA trolley
Our RFID readers operate at High-frequency (approx. 14MHz, HFID) electromagnetic wave band, which has a limited reading range, but reveals good characteristics when used with conductive materials or liquids. This is important because the prototype is intended for office items (e.g., hole puncher) which occasionally contain metal or liquids. Diverting from the original plan, the MICA prototype only has a 1x2 array of RFID readers at the bottom. The reason is that the shape and diameter of an antenna affects the reach of the reader’s field above the antenna. So their large size enables an elongated vertical read area up to 30cm above the trolley loading area, while limiting the maximum number of simultaneous orders that can be processed at a time to two. In practice, it turns out that reading articles on a second layer above ground layer is unreliable. Articles randomly disappear or are attributed to the wrong box if an article is placed near the boundary of two adjacent RFID areas.
NAVIGATION MICA realizes an indoor navigation system to guide the worker to the next article on the picking list. Such navigation system essentially consists
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of two parts: A hardware part for determining the physical position of the worker, and a software part calculating and presenting a route. Drafts for tracking mechanisms in MICA combined Ekahau - a low precision WLAN tracking - with fine grained ultra-wide band (UWB) tracking (Eisenhauer, Lorenz, Zimmermann, Duong, & James, 2005). However, the actual realization of the MICA prototype completely relied on WLAN tracking leaving aside other tracking technologies because of the high cost associated with equipping large areas with UWB tracking systems. Given a list of articles the worker has to pick for his orders and storage locations of individual articles, the navigation system determines an optimal route for the worker through the warehouse. For this computation, the route calculation determines the distances between each pair of articles along valid paths in the warehouse with the A* algorithm (Hart et al., 1968). In the next step locations are ordered so that the round trip that visits all locations has an optimal length. This sorting – known as the Traveling Salesman Problem (TSP) (Menger, 1932) – is solved with a brute-force algorithm that finds the optimal solution. This is the most expensive computation step with a complexity of O(n!).
SOFTWARE MICA uses a bus concept for input and output data. The buses are based on a Jabber/XMPP (see Saint-Andre, 2004) instant messaging infrastructure. Collected data – for example, raw sensor data from pointing gestures – are refined into messages with MICA data – e.g., pointing direction and angle – and posted to a chat room, and thus forwarded to subscribed receivers in this room. Here, user modeling and dialog management servers pick up that data. Also connected to the bus are server components that provide databases, host navigation processing, manage users and trigger pro-active help. Having higher memory
and processor requirements, these components are placed on a stationary machine providing enough resources for the software. Responses from server components are then posted on the output bus for rendering on user interfaces (Schneider, Lorenz, Zimmermann, & Eisenhauer, 2006). A known problem with Jabber is that the amount of network traffic grows exponentially with the number of participants in a room. The common bus is therefore split into several rooms so that the number of participants and messages in each room is less than that in one common room for all. The XMPP protocol was chosen because of its openness and interoperability. Protocol implementations exist for different programming languages and platforms; even resource restricted mobile devices. For this resource thriftiness, Lorenz and Zimmermann (2006) embedded ARFF (http://www.cs.waikato.ac.nz/~ml/weka/ arff.html) messages (containing the data sent by MICA subsystems) into the XMPP messages. ARFF messages have their own header containing sender and receiver information, and data specific to the command. All components of the MICA server are implemented in a stand-alone Java application. On the client side, the GUI is implemented in C#. Originally the client included several intelligent functions, but due to high processor load and resulting low responsiveness of the GUI several functionalities were moved to the server. A light-weight client receiving detailed instructions remained.
PRO-ACTIVE HELP Kaufmann et al. (2007) interviewed and accompanied several workers and managers during their work in two non-automated warehouses. The aim was to get to know the authentic processes in a warehouse in order to identify situations where help was needed. Besides helping workers to avoid picking errors by observing picked articles, and
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helping them to find articles quicker by guiding them to the storage location, other stressing or time consuming activities were identified. Resulting from these, eight implicit interaction principles were developed that indicate if a worker is in need for help. These interaction principles are used as input to a finite state machine, which then triggers a means of pro-active help. For example, a common situation was that an article was damaged or missing. When this happened the worker had to fetch the warehouse manager to show to him the situation. During this time, the picking process is effectively on hold for up to 30 minutes (as described in Section 2). For such situations, the MICA prototype includes a wireless headset and video camera so that the worker can remotely consult the warehouse manager without having to walk to her office (see Figure 4). One of the indicators is that a worker is looking about or moving his head horizontally in a noticeable way (i.e., scanning for a specific item). The video stream continuously generated by the helmet-mounted video conference camera was re-purposed to detect horizontal movements between individual video frames. Other indicators used as input for the proactive help system included a worker standing still in the warehouse, the picking of a wrong item, or the worker walking too far away from his trolley in the wrong direction.
Figure 4. Warehouse worker with headset and a small video camera mounted on his hardhat
MULTI-MODAL INTERACTION Besides allowing graphical interaction with the worker, the client outputs speech like “Put two hole punchers into box A”. The voice output is composed from sampled partial sentences, hence providing high quality output at the cost of flexibility and a higher cost for hiring professional speakers to speak the partial sentences, quantities and article names. By offering several output modalities, the chance of misunderstanding due to inappropriate environmental conditions like loud noise is reduced. The MICA software architecture is a mix of centralized and distributed components. Input from different kinds of sensors is collected by MICA clients, fused with other sensor data on the same client, and filtered through a recognition mechanism. The pre-processed data is then published to a data bus on the local network that is used by MICA components (like sensors, servers, etc.) for their communication. Besides touchscreen interaction, Interactionby-Doing is offered as input modality. Each of the modalities is chosen for the correct situation. In the normal case of picking, the worker is situated beside the trolley, so that it is difficult to type on the touchscreen. Thus, Interaction-by-Doing is used. In cases where the worker has to go to the screen anyway, e.g., when video chatting with the overseer, touchscreen input is expected.
LESSONS LEARNED FROM THE FIRST PROTOTYPE The biggest problems we encountered were of physical nature. The batteries for power supply of the mobile components (e.g., RFID readers) have to be well proportioned. Long before the batteries are depleted, the readers’ reliability begins to degrade. This adds to an already existing problem with the article identification. The original assumption that every reader reads
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only the area above itself and not the area above another reader cannot be confirmed. The readers’ electromagnetic fields overlap or even twist around each other when objects are brought into the field. Though some modern antennas’ lobes have almost the desired shape in free space, it is impossible to prevent fields from getting distorted when there are obstacles. Similarly, the radiobased localization needed frequent recalibration in an ever-changing environment. On the software side, unreliabilities in the WLAN connection caused problems with the XMPP-based communication bus infrastructure on. A disruption of connection meant that either messages in chat rooms were lost or that messages were delivered twice. This could mean that first a lot of outdated messages were delivered before current messages were received. This led to some confusion for the test persons. Finally, there were some usability problems because the mobile PC used a pen input. Many people would have preferred to use their fingers and have larger buttons or active areas. However, much of the functionality in the prototype’s interface was not needed.
SECOND PROTOTYPE After the first prototype of MICA proved its feasibility, a follow-up pilot project started in 2008. The goal was to evaluate the road capability of MICA as well as its usability and market potential. A pilot allows testing a design and making adjustments in time. It also shows if anything is missing and provides quantitative proof that the system has potential to succeed on the larger (full) scale. For MICA, the new requirement of being suitable for productive use brought new challenges so that many aspects of the first prototype were re-engineered. Also, the scenario where MICA would be used (warehouse) was now fixed from the beginning.
With Antriebs- und Regeltechnik GmbH (ART), a medium-sized enterprise for testing MICA was found. Founded in 1955, 700 employees in Germany, Romania and Poland develop machinery supplies for the manufacturing industry. MICA ran at the headquarters’ central warehouse. ART faces the typical problems of non-automated warehouses, and at the same time is continuously looking for solutions that support their just-in-sequence and just-in-time services. ART actively supported and contributed to the pilot and assembled the new hand pallet truck at its workshop. Compared to the warehouses of the first MICA prototype, the requirements at ART are a bit different. They produce many of their articles specifically for their customers in small quantities (sometimes only one single unit). So for them, even one error in tens of thousands of picking items is too much. Their warehouse is smaller with fewer workers, and a much friendlier atmosphere. Environmental conditions like lighting and noise levels are rather constant. Importantly, ART’s products constitute a challenge for MICA’s original article identification and positioning: most items mainly consist of metal parts, are stocked in metal shelves and are handled in metal baskets. This is a conceivably bad situation for RFID and WLAN tracking. The typical order includes several baskets that are interchangeable but have to be prepared in a fixed order. These differences and the immanent productive use of MICA necessitated design changes that are discussed in the following sections.
THE MICA HAND PALLET TRUCK The working process at ART requires that two boxes stand side by side on a pallet, and can be stacked up to the fourth level at eye height. A finger touch enabled Tablet PC is mounted at common eye level. It is tiltable and turnable so that people can adjust it to their personal needs.
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Two batteries supply the Tablet PC and the RFID readers for article identification and positioning (see following sections). A standard power supply cable for charging ensures the easy recharge of batteries. Full charging takes four hours so that it fits well between two working shifts. A fully charged battery supplies energy for ten hours of MICA-enhanced work so that it lasts an entire shift without having to recharge. The MICA hand pallet truck is resistant against impact and scratches, electronic parts are protected. It is as easy to use as a normal hand pallet truck and fulfills safety at work guidelines. At the same time, hardware costs do not endanger profitability of the whole system.
NAVIGATION The positioning engine of the MICA pilot requires a higher accuracy. It needs to identify each single stockyard, situated no more than 30cm apart from each other. Ekahau cannot assure this accuracy, especially in a metal flooded and constantly changing environment. Hence, we changed to RFID-based tracking: RFID tags, working on another frequency range as the article tags, are placed on the floor of the storehouse. A RFID reader mounted underneath the trolley scans these tags and gets the corresponding location from a database. Floor RFID tags are usually placed in holes in the floor. This is not possible at ART because of a special anti-static and expensive ground. Using special adhesive labels which are resistant against physical force, we avoided drilling holes. As corridors are wider than the width of the hand pallet truck, we placed three tags in a row orthogonal to the corridor to guarantee reading a tag on any track the truck could move through the corridor. Each of these tags is associated with the same X/Y coordinates. The worker’s walking direction is derived from his current and previous positions. The
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new MICA system rotates the map so that viewing direction is always up as opposed to a fixed orientation with north always being up. Article locations are stored as their “true” location, which is not directly on the paths defined by corridors. Instead the articles are projected to the nearest path; the angle between projection vector and moving direction determines if an article is in the left or right hand shelf (see Figure 5). Additionally, now 3D map data may be annotated with individual path costs, therewith allowing to reduce traffic in selected corridors. The brute-force path length optimization with NP-complete TSP from the first MICA performs unsatisfactorily when applied to a picking list with 20 or more different locations. But an approximation algorithm (the “nearest neighbor” algorithm) usually provides good results with an average length of 1,25 times the shortest possible route. In the worst case, the route is at most O(log d) longer than the optimal route (Rosenkrantz, Stearns, & Lewis, 1977). Its computational complexity at any given time is O(n) for sweeping through all the remaining article locations to find the article with the shortest distance to the current location. With a normal PC this means that planning for thousands of locations is possible without a noticeable delay.
Figure 5. Picking article from right hand shelf
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ARTICLE IDENTIFICATION As the RFID readers of the first prototype were integrated in the trolley’s bottom they occasionally failed to read articles on the second level. In the pilot setting this detection ratio is even lower due to the fact that articles are metallic. This requested a change in RFID technology, from HF to Ultra High Frequency (UHF). UHF is prevalent in logistical applications: besides worldwide standardization in ISO 18000-6C (EPC global) (ISO 18000-6C), it features long reading ranges, bulk reading of several transponders at favorable prices, and compact chip design. Additionally, we need to be 100% sure that no article passes the scanner without being recognized. Picked articles appearing and disappearing randomly are obviously not acceptable. Also cross checking after picking is no option as it would entail no enhancement compared to the situation without MICA. Therefore, the RFID readers are mounted on a frame that is put on top of the boxes. These readers do not scan the contents of boxes, but register articles that are moved in and out of a box. The reading area is carefully calibrated to exactly cover the whole box opening. It thus assures that every passing article is read but nothing else from nearby shelves. This preserves a natural way of working and preserves valuable energy on the mobile device. In order to identify the direction of movement of a transponder through the box opening we analyze the RSSI value (Receive Signal Strength Indication (IEEE, 802.11)) of the tag. The obtained value qualifies the received field strength of wireless communication applications and is transmitted by the reader for every reading event of a transponder. Mathematical calculations yield the information if movement is upwards or downwards when two readers are placed on top of each other. For two boxes stand side by side on the pallet, two readers (for RSSI movement direction detection) cover each box opening. A frame carrying
one pair of readers slides up and down the truck’s mounting to rest on the rear stack of boxes. The second pair is attached to the front of the frame with its read area covering the front box opening (see Figure 6). The frame construction is quite heavy, but workers need to move it up to the fourth level of boxes (height of the head). Therefore, a bowden cable enables effortless moving. Maintaining a continuous electromagnetic RFID field consumes much energy. This is too much for a battery powered device, particularly if there are five such readers (four for article identification and one for positioning). A way to reduce energy consumption is to turn off the field while no article is potentially in range. Built-in ultrasonic (US) sensors that consume negligible amounts of electricity are coupled with the readers and automatically trigger a reading process. The US sensors detect moving objects within a range of up to 70cm. Any object passing the sensor immediately turns on the reader that creates the electromagnetic read field within milliseconds. Every transponder within reading range is then read. Configuration and placement of the rear readers’ triggers is carefully adjusted because US waves emitted by them would reflect from the back side of the front readers and trigger a read because the echo would mistakenly be interpreted as coming from an article. After a predefined period the reader switches back to standby. This method ensures that a reader only reads while an article is placed into a box or taken out of it. Thus the power consumption is reduced to a minimum, resulting in a higher operating time of the whole system. Besides saving energy the trigger has two additional advantages: 1. The already low probability of reading articles in the shelf is further reduced, because readers sleep most of the time, and 2. It is possible to identify if an article is not detected by RFID, in case of a broken RFID tag. In that case, the MICA system prompts
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Figure 6. Lifting truck with boxes and RFID mounting of the second MICA pilot
the worker to re-pick the article and initiates a multi-step error correction process.
PRO-ACTIVE HELP Several indicators that were used for the pro-active help of the first MICA are no longer available. For example, the video conferencing is no longer necessary due to the warehouse size, and therefore the head-mounted camera is not available. Similarly, persons are no longer tracked and it is therefore impossible to detect if they wander away from their trolley. As a consequence of this, we concentrated our efforts on the reliability of the remaining areas of pro-active help, navigation support, article identification through article pictures and picking error correction.
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MULTI-MODAL INTERACTION The constant environment in terms of lighting and noise within the warehouse makes a combination of auditive and visual output on the table PC most reasonable. Speech composition from partial sentences is not feasible anymore because there is an unlimited and dynamically changing space of possible wordings. The MICA pilot rather generates audio output with a text-tospeech engine allowing synthesizing any sentence from its written form. As ART has a complicated naming scheme for articles where each name is composed of 15 numbers and letters it makes no sense to spell this name. By referring to an article’s stockyard instead, there is no danger the text-tospeech engine generates incomprehensible article names. The visual interface has been re-factored to present less information at once.
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Figure 7. (a) Original design in English; (b) SAP design in German for ART
Menus and other complex explicit interaction constructs in the GUI have been removed because most workers have little computer experience. Instead, buttons and other active areas have been enlarged. The main interaction method, Interaction-by-Doing, remains: movement and picking still make up for most of the interaction between worker and MICA
SOFTWARE COMPONENTS Building a system that is used in a productive environment requires higher diligence than building an experimental prototype serving only as a proof of concept. The first prototype was implemented with an architecture for a wide and diffuse application domain reflecting personal research interests.
It was to be used under laboratory conditions. Implementation sprints with ad-hoc processes took place before trade fairs. Necessary cleaning-up and refactoring with reuse in mind would occur in the time in between, where deadlines were less troubled. This, however, did not happen. MICA was not suitable for field-testing. In preparation of the study, MICA’s software sources experienced a general overhaul and large portions of MICA’s code had to be rewritten from scratch by an all new team because scientists of the first prototype had changed to new projects. Differently from its predecessor, the new MICA system is much more focused, and no longer a platform for studying multi-modal interaction and user modeling under different conditions. Instead it is fully aimed at the warehouse scenario. Usability and understandability to the common warehouse worker are the primary objectives. Also a higher degree of reliability is necessary to not disrupt daily work of the productive environment. However, one design goal is still to keep the MICA software open for using different hardware devices and software components with the system. MICA’s backbone - instant messaging based communication - is replaced by the Java Message Service (JMS), which provides enterprise-class reliability in message oriented architectures. JMS guarantees message delivery for the publishsubscribe model, thus replacing the chat room mechanism, where messages could get lost if a client temporarily disconnects from the chat room. Also messages are sent with a time to live, which prevents a flood of messages that could occur if a component reconnected to the message bus. To save bandwidth low-priority messages (like position updates) are discarded earlier in case of a transport bottleneck. As JMS is capable of transporting entire Java objects, the ARFF message encoding was mostly removed, leaving it only as an interface to the.NET GUI. The original monolithic server part is broken up into distributable components that communicate with each other through JMS messages, thus fa-
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cilitating the relocation of individual components between different physical machines. The bus architecture is modified according to the observer design pattern: Every component (e. g., a worker location sensor) publishes its messages, while other components (e. g., navigation and route computation) subscribe to the update of components that they are interested in.
THE EFFECTS OF MICA ON ART The biggest change for ART resulted in the elimination of an explicit cross-check in their picking process: prior to the introduction of MICA, workers went through the repository with a shoppingcart-like trolley. They collected articles, brought them to the shipping area, cross checked the articles, and put them into a new box on a pallet. Afterwards, they repeated all steps until the order was completed. The manual cross checking process has now been replaced by MICA’s tag identification during the picking process. A box-by-box cross-check to keep an overview is no longer needed. The old MICA trolley is replaced by a hand pallet truck equipped with MICA technology (see Figure 6). Thus, picking onto a pallet on the hand pallet truck accomplished in one step. This safes time compared to the former multi-step process. One of MICA’s software modules connects it to the SAP Warehouse Management server of ART. This real-time data link keeps stock lists up to date. When picking starts, the items of the order are marked as “reserved”, and are immediately removed from stock when picking finishes. Formerly, there was no “reserved” state and updates would take hours. It was possible that the last item of a kind was picked in a previous order, so that the next one could not complete although started. Stock outage is a frequent problem and requires that picking starts early with enough reserve time before delivery, so that the missing piece can be-
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come available again. Hence, MICA reduces the time reserved for picking and packing.
USABILITY EVALUATION We put a considerable amount of effort into the design of the MICA GUI. It underwent several changes in the last years (see Figure 7a and Figure 7b): internal design reviews, customization to the SAP design guide, translation from English to German, and an adaptation to ART processes. Finally, a usability study was conducted with ART warehouse workers. A usability evaluation measures the extent to which users in their specific context can achieve their goals effectively, efficient and satisfactorily (ISO 9241, 1998b). Effectiveness is put on level with usability. A product, system or software supports effective processing of a task, if it provides all functions needed by a user to completely achieve his goals. Beyond that it can be rated as efficient if its functions are operated accurately and effortless. Satisfaction with the product, system or software necessarily (but not sufficiently) results from the perceived easiness and intuitiveness to operate the system. This unfolds in a model of stages, which stimulates the presentation of results. Effectiveness constitutes a measure of the usability potential. Results of a user test represent the efficiency, and satisfaction is measured with a questionnaire depending on the sample size of the usability study. Tests like the Software Usability Measurement Inventory (SUMI) (Kirakowski & Corbett, 1993) are recommended for sample sizes above twelve users. With lower sample sizes, like in our case, a shorter questionnaire provides a rough impression of the overall satisfaction. This, of course, is not statistically representative, but nevertheless delivers useful information for the usability assessment and suggestions for improvements. We first conducted a participatory expert evaluation of the interface with three experts – which
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meant that all experts were accompanied by two testers – one taking notes and the other in dialog with the expert taking care that no action on the interface is left uncommented and all relevant aspects of the system have been covered. That means that the tests were conducted in close collaboration with experts with the “thinking aloud”-method (e.g., Nielsen, Clemmensen, & Yssing, 2002) and subsequent discussions. In this test we identified 51 violations of requirements for the design of dialogs (according to ISO 9241-10 (ISO 9241, 1998a)). Most problems were related to violations of conformity with user expectations, error tolerance, or self-descriptiveness. Additionally, we identified and eliminated screens, which had lost functions, like the registration screen. The original plan arranged for testing eight workers. But due to time restrictions this evaluation had to be conducted prior to the full completion of the system. In particular tests with RFID-reader hardware and its interplay with the software were only partially completed. The evaluation of the MICA pilot was therefore conducted with a limited set of three more experienced workers. The main reason for this limitation was that the system still was not completely robust, and that there was a risk that it had to be rebooted. The participants were tested with real picking orders. Each usability test consisted of a short introduction of the worker into the nature of the test and to the method of “thinking aloud”. The tests were always conducted with three investigators: one that constantly stimulated the worker to comment each of his actions and two that took notes and pictures. All critical incidents were then collected and analyzed according to ISO 9241-10 and their specific violation of the dialog requirements. At the end of the test the workers were asked to complete a questionnaire measuring their satisfaction with the system. As expected this early testing revealed a potential for optimization. A series of critical incidents could be assigned to 69 violations of dialog requirements that limit the efficiency with respect to task completion (see Figure 8a).
In particular a high number (20) of malfunctions occurred that limit the effectiveness of the MICA System. However, the tests also revealed many positive aspects of MICA where the participants distinctively emphasized an unqualified success in conformance with dialog principles, as well as eight malfunctions that were directly eliminated during the test (see Figure 8b). The results of questionnaire and interview indicate a good satisfaction with MICA in spite of its malfunctions. Participants were confident that the system simplified their picking process, saved time and prevented errors. Specifically, they highlighted that search and identification of items in the picking process with the system was much easier, less error prone and much simpler than picking without MICA. The violations of dialog principles and identified malfunctions resulted in a revised version of MICA in the actual field-tests.
EVALUATION OF EFFICIENCY In this section we present results of the MICA evaluation based on (Gillmann, 2008). An economic evaluation of investments must always be based on solid investment appraisals. This in turn requires well evaluated data, describing the logistical process. Key economical measures of logistic systems are time, quality and cost. To evaluate these data, the MICA pilot is implemented and tested in the ART warehouse. To measure potential quality improvement and time reduction, as well as potential cost reduction, the paper based manual picking process is benchmarked against a MICA supported picking process. In particular, process times and failure rates are monitored. To evaluate the impact of MICA as a support system for (particularly unskilled) workers, both the manual picking process and the MICA supported picking process are tested with groups of skilled and unskilled workers. Skilled workers included all of the workers that worked in the respective ART warehouse (less than ten). A
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Figure 8. (a) Usability violations; (b) Usability conformance
similar number of unskilled workers were brought into the warehouse either from other departments of the company or by us. The workers in the evaluation worked on real orders that were finally shipped to customers. During the entire evaluation phase we accompanied workers in the warehouse, drawing maps of the paths they took and taking the picking times. In the MICA experimental groups, the warehouse’s paper-based quality control procedures were carried out in parallel by an experienced worker in order to detect problems that MICA might not have detected. In all experimental groups, the orders
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were finally (after picking was completed) crosschecked by an experienced worker to ensure the quality of the delivery. The results of this were also recorded to check for quality improvements through MICA. The duration of the evaluation phase was four months. The full time was sliced into multiple smaller time slots, each one to host one of the four variations (with MICA vs. without MICA, experienced vs. unexperienced). One major customer of the warehouse in our study produces large industrial machines (several meters in size), who receives electrical compo-
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nents and cables in various sizes from ART. In our study we included all orders for one series of machines from this customer. Hence, this study is highly representative for such orders. Due to the high number of orders from this customer, it can in turn also be considered as representative for all of the warehouse’s orders. To accurately determine the efficiency of MICA, we additionally need to take into account the cost of processes implied by MICA (e.g., tagging of articles before they are stored), the monetary cost of MICA hardware like RFID, and potential maintenance costs due to hardware wearout. We use common investment appraisal methods (Tucker, 1963) to calculate economic sense and an investment risk for this specific case. The overall picking process divides into four sub-processes: preparation, picking, inspection, and confirmation & hand over. Picking and inspection times depend on item quantities. Preparation and confirmation & hand over are independent of item quantities. Using MICA, the item dependent process time is reduced by 36%, when used by skilled workers, and by 75% when used by unskilled workers. A significant processing time reduction of 46%, for skilled workers and 61% for unskilled workers is demonstrated for the item
independent process time (see Figure 9. Picking times are hidden due to data confidentiality). The field trial focuses on two different error rates: error rate per order item (Ei) and error rate per picking order (Eo). Ei shows how many order items are picked mistakenly. Eo shows how many picking orders are processed mistakenly and in turn would result in a customer complaint. Without using MICA, the error rate per position is 0.48% / 4% (skilled / unskilled workers). More than this, a subsequent final cross-check of articles picked cannot detect all picking errors. Thus the error rate per order turns out to be 14.3% / 25% (skilled / unskilled workers). In contrast, with using MICA, all of the human errors are detected, thus the error rate per item and per order drops to 0%, for skilled and unskilled workers. The investment costs divide into one-time expenses and operating costs. One-time expenses are, for example, expenses for hardware, software, and infrastructure. Furthermore, assuming a good “confidence” in inventory data, according to correct and real time confirmations, dispatching can be organized more efficiently, thus “safety stock” can be reduced, yielding additional cost savings. Based on experimental data, investment in MICA reaches a ROI of 38% at a yearly picking
Figure 9. Average picking process times
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quantity of approximately 80,000 items. A typical amortization time of 18 months is reached at a yearly picking quantity of approximately 280,000 items. MICA demonstrates a substantial reduction of processing times, as well as a zero picking failure rate, both with a group of skilled and unskilled workers. Additionally, unskilled workers using MICA reached a picking performance almost as good as skilled workers. This shows very high potential of MICA for broad spread industrial use. In summary, the evaluation shows that MICA successfully supports complex picking processes. Potential customers are companies with small to medium sized goods, each of medium to high value, with inhomogeneous order structures and with high overall picking quantities.
ANALYSIS OF SALES POTENTIAL In order to find out the potential of MICA for the market, we finally present an analysis of sales potential based on (Brauner, 2009). The sales potential is defined as the portion of the market potential that a particular firm can reasonably expect to achieve (Lucas, 1975). With the analysis we address the question, how big the market is in the relevant industries. As MICA is a new system, no reviews of existing similar systems can be taken into account. Instead, a questionnaire was distributed to 300 companies, 25 completed questionnaires were sent back. The amount of companies for which MICA can be useful is too large to contact them all. Because of that, a mix of random and quota selection was conducted (Schnell & Kreuter, 2003). As only particular employees of a company can answer the questions, we tried to contact experts via already existing contacts. The questionnaire introduces the MICA systems and afterwards lets the probands reflect about their current picking system. Finally, the probands are asked if they consider buying a MICA-like system to determine the sales potential. About
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17% consider buying a MICA-like system, so we assume the sales potential to be 17%. According to the Bureau of Labor Statistics (2009) there are about 6,000 pickers in the US machinery industry. Hence, the sales potential for the US machinery industry is 17% of 6,000 = 1,020 MICA trolleys. We gathered the same information for the rest of the world and interpolated data where no data was available according to general economic performance data. In summary, we computed a sales potential of several ten thousand MICA-like trolleys for the whole world. Again concrete number are subject to data confidentiality but can be obtained from SAP on request.
RELATED WORK MICA combines in a single application contextawareness and RFID technology. On the one hand, its context-awareness is quite similar to that of systems like Oppermann and Specht (2000), Eckel (2001) or Long et al. (1996). These systems determine the physical context of the user from his location and orientation in order to provide him with useful information about his surrounding, i.e. exhibits in a museum or sights in tourism, respectively. In contrast, MICA is multi-modal, deals with a changing environment, and uses a set of different sensors to obtain context information. It does not only provide plain situational information but assists the worker with his current task. With respect to this, it is more like the context-aware assistants of Dey et al. (1999), Yan and Selker (2000) or Rhodes (1997). MICA, however, also serves a logistical assurance objective by guaranteeing that picking errors do not occur. MICA also has some aspects in common with smart shopping applications like that from Asthana et al. (1994) because it helps the user to locate items and guides him to their storage location. On the other hand, RFID is attracting more and more attention in business environments
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as it provides an interface between the physical world and an enterprise’s information infrastructure (Want, 20004). A major role in the business environment plays logistics, where the tracking of goods and their delivery status are traditional applications (Weinstein, 2005). Companies use huge RFID gates on the entrance and exit areas of their warehouses to automatically register incoming and outgoing goods while these are still loaded on trucks (Lefebvre, Lefebvre, Bendavid, Wamba, & Boeck, 2006). Historically, RFID technology and tags were too expensive to track individual items. As prices for tags have recently dropped significantly, even item level tracking of low-price goods becomes possible. Bendavid et al. (2006) present a study where a RFID-based single-item hand-over between customer and supplier is analyzed under laboratory conditions. Yet their system does not provide support or detect errors during the picking process. With this respect, RFID-enabled shopping carts are what comes closest to MICA’s article tracking (e.g., Kourouthanassis, 2003). For RFID-based locating Luimula et al. (2010) use a similar approach but as MICA is operated by humans, obstacle tagging is not necessary. Unlike other system like the IBM MAGIC system, which uses gaze tracking for the prediction of cursor movement (Zhai, 1999), in MICA a combination of speech and pen input with user movement in a physical environment was favored. MICA, as opposed to many other multi-modal applications, has prominent physical parts that have original practical reasons: the trolley is already there so that the worker does not need to carry the items himself. Only article and box identification are added but they do not change the natural way of working. Likewise, the worker would be moving in physical space also without MICA. This observation is the basis for Interaction-by-Doing.
CONCLUSION We presented a support system for warehouse workers: its requirements, the Interaction-byDoing design principle, its evolution through prototype and pilot, and evaluations of usability, effectiveness and sales potential. The MICA prototype is successful as a proof of concept. The reworked MICA pilot proves successful in field-tests, where it measurably supports warehouse workers in the picking process. Thanks to multi-modal interaction MICA is applicable to the changing environments of a warehouse. Calm computing principles and pro-active help make it usable for unskilled workers as well as for experienced workers without having to interrupt the familiar way of working. Intuitive handling as well as support for every worker’s experience level is assured by the Interaction-by-Doing concept. Pro-active help prevents errors before they occur. During its evaluation, several parts of MICA were adapted and improved. The positioning system is enhanced from WLAN-based to RFIDbased technology, thus increasing its accuracy when identifying a single stockyard. The new RFID-enabled hand pallet truck frame proves to scan 100% of the picked articles without interfering with the usual way of working. At the same time, no articles from the repository are accidentally read. The frame fulfills the picking process requirements of the ART warehouse and could be adapted to the needs of other warehouses. The usability evaluation reveals that search and identification of articles is much improved with MICA. The results already indicate a good satisfaction with MICA in spite of still existing malfunctions. Participants are confident that the system would simplify their picking process, save time and prevent errors. It can be expected that the new introduced interaction concepts and an improved MICA system that overcomes the detected malfunctions and violations of dialog principles will fully satisfy users’ needs.
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MICA’s potential to reduce the number of errors and to speed-up picking processes in nonautomated warehouses is shown in the economic evaluation. Enterprises with high picking quantities are offered a high potential to reduce costs. During economic peak times MICA helps as well unskilled workers to reduce picking errors even under high time pressure. The analysis of sales potential shows that there is a market for MICAlike systems. The future work consists of transforming the pilot into a productive system. For this, mainly stability must be enhanced and errors have to be found in high-pressure tests. Besides software errors, the reliability of the RFID reading has to be checked. Multi-modality can be advanced to more modalities as in the current status. However, MICA’s future also depends on economic decisions of companies that traditionally have conservative customers.
ACKNOWLEDGMENT Our thanks go to our designer Lars Zahl for the images, and to our former colleagues who helped realizing the MICA pilot: Oliver Kaufmann, Feras Nassaj, Rossen Rashev, Daniel Meckenstock and Kin Voong, as well as the teams of SAP Research, deister electronic and ART. Comments from the anonymous reviewers helped us very much to improve this paper.
REFERENCES Asthana, A., Cravatts, M., & Krzyzanowski, P. (1994). An Indoor Wireless System for Personalized Shopping Assistance. In Proceedings of the IEEE Workshop on Mobile Computing Systems and Applications, Santa Cruz, CA (pp. 69-74).
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Bendavid, Y., Wamba, S. F., & Lefebvre, L. A. (2006). Proof of concept of an RFID-enabled supply chain in a B2B e-commerce environment. In Proceedings of the 8th international Conference on Electronic Commerce: the New E-Commerce: innovations For Conquering Current Barriers, Obstacles and Limitations to Conducting Successful Business on the internet (ICEC ‘06) (Vol. 156, pp. 564-568). New York: ACM. Brauner, S. (2009). Untersuchung des internationalen Marktpotentials eines interaktiven, kontextsensitiven und multimodalen Kommissionierungstools für die SAPAG mit abschliessender Empfehlung für das weitere strategische Vorgehen [Investigation of the international market potential of an interactive, context-sensitive and multi-modal picking tool for SAP AG with final recommendation for further strategic proceeding]. Unpublished Master’s Thesis. Brewster, S. (2002). Overcoming the lack of screen space on mobile computers. Personal and Ubiquitous Computing, 6(3), 188–205. doi:10.1007/ s007790200019 Bureau of Labor Statistics. (2009). Packers and packagers, hand. National Employment Matrix. Dey, A. K., Futakawa, M., Salber, D., & Abowd, G. D. (1999). The Conference Assistant: Combining Context-Awareness with Wearable Computing. In Proceedings of the 3rd International Symposium on Wearable Computers (ISWC), San Francisco (pp. 21-28). Eckel, G. (2001). LISTEN - augmenting everyday environments with interactive soundscapes. In Proceedings of the I3 Spring Days Workshop Moving between the physical and the digital: exploring and developing new forms of mixed reality user experience, Porto, Portugal.
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Eisenhauer, M., Lorenz, A., Zimmermann, A., Duong, T., & James, F. (2005). Interaction by movement - one giant leap for natural interaction in mobile guides. In Proceedings of the International Workshop on Artificial Intelligence in Mobile Systems. Gillmann, L. (2008). Wirtschaftliche Evaluierung eines innovativen multimodal interaktiven Systems zur Unterstützung von Kommissionierprozessen [Economic evaluation of an innovative multi-modal interactive system in support of picking processes]. Unpublished Master’s Thesis. Hart, P. E., Nilsson, N. J., & Raphael, B. (1968). A formal basis for the heuristic determination of minimum cost paths. IEEE Transactions on Systems Science and Cybernetics, 4(2), 100–107. doi:10.1109/TSSC.1968.300136 IEEE802.11. (2007). IEEE Standard for Information technology-Telecommunications and information exchange between systems-Local and metropolitan area networks-Specific requirements: Part 11: Wireless LAN Medium Access Control (MAC) and Physical Layer (PHY) Specifications. ISO 13407. (1999). Human-centred design processes for interactive systems. ISO 9241. (1998a). ISO 9241-10: Ergonomic requirements for the design of dialogs - part 10 guidance on usability. ISO 9241. (1998b). ISO 9241-11: Ergonomic requirements for office work with visual display terminals - part 11 guidance on usability. ISO/IEC 18000-6. (2004). Information technology - Radio frequency identification for item management - Part 6: Parameters for air interface communications at 860 MHz to 960 MHz.
Kaufmann, O., Lorenz, A., Oppermann, R., Schneider, A., Eisenhauer, M., & Zimmermann, A. (2007). Implicit interaction for pro-active assistance in a context-adaptive warehouse application. In Proceedings of the 4th international conference on mobile technology, applications, and systems and the 1st international symposium on Computer human interaction in mobile technology, Singapore. Kirakowski, J., & Corbett, M. (1993). SUMI: the software usability measurement inventory. British Journal of Educational Technology, 24(3), 210– 212. doi:10.1111/j.1467-8535.1993.tb00076.x Kourouthanassis, P., & Roussos, G. (2003). Developing Consumer-Friendly Pervasive Retail Systems. IEEE Pervasive Computing / IEEE Computer Society [and] IEEE Communications Society, 2(2), 32–39. doi:10.1109/MPRV.2003.1203751 Lefebvre, L. A., Lefebvre, E., Bendavid, Y., Wamba, S. F., & Boeck, H. (2006). RFID as an Enabler of B-to-B e-Commerce and Its Impact on Business Processes: A Pilot Study of a Supply Chain in the Retail Industry. In Proceedings of the 39th Annual Hawaii International Conference on System Sciences. Lolling, A. (2003). Analyse der menschlichen Zuverlässigkeit bei Kommissioniertätigkeiten [Analysis of human reliability in picking processes]. Shaker. Lorenz, A., & Zimmermann, A. (2006). User modelling in a distributed multi-modal application. In Proceedings of the Workshop on Ubiquitous User Modeling, Riva del Garda, Italy. Lorenz, A., Zimmermann, A., & Eisenhauer, M. (2005). Enabling natural interaction by approaching objects. In Proceedings of the Workshop on Adaptivity and User Modeling in Interactive Systems. DFKI.
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Lucas, H. C. Jr, Weinberg, C. B., & Clowes, K. W. (1975). Sales response as a function of territorial potential and sales representative workload. JMR, Journal of Marketing Research, 12, 298–305. doi:10.2307/3151228 Luimula, M., Sääskilahti, K., Partala, T., Pieskä, S., & Alaspää, J. (2010). Remote navigation of a mobile robot in an RFID-augmented environment. Personal and Ubiquitous Computing, 14(2), 125–136. doi:10.1007/s00779-009-0238-3 Menger, K. (1932). Botenproblem [Messenger Problem]. Ergebnisse eines Mathematischen Kolloquium, 2, 11-12. Miller, M. (2004). Technology: Cost per error and return on investment. Retrieved from http:// www.vocollect.com/np/documents/CostPerErrorWhitePaper.pdf Nielsen, J., Clemmensen, T., & Yssing, C. (2002). Getting access to what goes on in people’s heads?: reflections on the think-aloud technique. In Proceedings of the second Nordic conference on Human-computer interaction (NordiCHI ‘02) (pp. 101-110). New York: ACM. Oppermann, R., & Specht, M. (2000). A Contextsensitive Nomadic Information System as an Exhibition Guide. In Proceedings of the Second Symposium on Handheld and Ubiquitous Computing (LNCS, pp. 127-142). New York: Springer. Rhodes, B. J. (1997). The Wearable Remembrance Agent: A System for Augmented Memory. Personal Technologies Special Issue on Wearable Computing, 1(1), 218–224. Robertson, S., & Robertson, J. (1999). Mastering the requirements process. Reading, MA: Addison-Wesley. Rosenkrantz, D. J., Stearns, R. E., & Lewis, P. M. (1977). An analysis of several heuristics for the traveling salesman problem. Fundamental Problems in Computing, 45-69.
Saint-Andre, P. (2004). RFC 3920: Extensible messaging and presence protocol (xmpp): Core. Request for Comments, IETF. Retrieved from http://tools.ietf.org/html/rfc3920 Schneider, A., Lorenz, A., Zimmermann, A., & Eisenhauer, M. (2006). Multimodal Interaction in Context-Adaptive Systems. In Proceedings of the Second Workshop on Context Awareness for Proactive Systems (p. 101). Schnell, R., & Kreuter, F. (2003). Separating interviewer and sampling-point effects. In UC Los Angeles: Department of Statistics, UCLA. Retrieved from http://www.escholarship.org/uc/ item/7d48q754 Tompkins, J. A., & Smith, J. D. (1998). Warehouse Management Handbook (2nd ed.). New York: Tompkins Associates. Tucker, S. (1963). The Break-Even System: A Tool for Profit Planning. Upper Saddle River, NJ: Prentice Hall. Want, R. (2004). Enabling ubiquitous sensing with RFID. IEEE Computer, 37(4), 84–86. Weinstein, R. (2005). RFID: ATechnical Overview and Its Application to the Enterprise. IT Professional, 7(3), 27–33. doi:10.1109/MITP.2005.69 Weiser, M., & Brown, J. (1997). The coming age of calm technology. Beyond Calculation. The Next Fifty Years of Computing, 8, 75–85. Yan, H., & Selker, T. (2000). Context-Aware Office Assistant. In Proceedings of the 5th Infernational Conference on Intelligent User Interfaces, New Orleans, LA (pp. 276-279). New York: ACM. Zhai, S., Morimoto, C., & Ihde, S. (1999). Manual and gaze input cascaded (MAGIC) pointing. In Proceedings of the Conference on Human Factors in Computing Systems (CHI’99) (pp. 246-253). New York: ACM.
This work was previously published in International Journal of Handheld Computing Research (IJHCR), Volume 2, Issue 1, edited by Wen-Chen Hu, pp. 1-24, copyright 2011 by IGI Publishing (an imprint of IGI Global). 592
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Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design Dimitris K. Kardaras Athens University of Economics and Business, Greece Bill Karakostas City University, UK
ABSTRACT Strategic Information Systems Planning (SISP) has been a continuing top concern for IS/IT management, since the mid 1980’s. Responding to the increasing interest in SISP, researchers have developed a large number of SISP methodologies and models. However, when organisations embark on planning for their information systems, they face difficulties and usually fail to gain the expected benefits. Strategic alignment and the DOI: 10.4018/978-1-60960-587-2.ch302
identification of the business areas where the IT contribution is strategically important for the organisation are the most difficult problems in SISP. None of the existing SISP methodologies and models offers a complete solution. The approach presented in this chapter, utilises a Fuzzy Cognitive Map in order to align strategic objectives with IS opportunities that exist at the level of business processes. This chapter exemplifies fuzzy cognitive mapping in SISP, and illustrates how the strategic alignment between the business and IT domains can be realised.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
INTRODUCTION TO STRATEGIC INFORMATION SYSTEMS PLANNING Organisations experienced radical changes in their business and technological environment especially, during the 80’s and 90’s. The globalisation of the market and increased competition, in conjunction with a deep economic recession, and changes to the social and economic characteristics of the consumers, exert their pressure on companies. The struggle for further development, or even for survival in such an environment, has become increasingly difficult. However, during the same period an increasing number of research studies (Earl, 1989; O’Connor, 1993; Remenyi, 1991; Ward et. al., 1990) described successful IT initiatives that led companies to new ways of competing, and analysed the factors which led organisations to strategic planning for their IS. Briefly, the driving forces behind SISP are: • •
• • •
• •
Information technology is critical and strategically important to many organisations. The relative high growth in information systems budgets compared to that of other functions in organisations. Information technology is needed by our economic environment. Information technology is rapidly changing. Information technology infrastructure and architecture is critical for information systems integrity. Information technology involves many stakeholders. Top management support and user participation in IT-related decisions are needed.
It is high time that organisations begin to realise the potential of IT as the driving force to lead businesses out of the crisis and to improve organisational competitive performance. As a result, strategic planning for IS/IT has become a key activity which systematically addresses the
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IT issues in organisations, and can identify IT applications which exploit opportunities or counterthreats with substantial importance to business. Relevant literature argues that companies can not be competitive if their information systems strategies are not aligned with the business strategies (Avison et al. 2004). In (Lederer and Sethi, 1988, 1991) a dichotomous definition of Strategic Information Systems Planning (SISP) is provided. On one side of the dichotomy, SISP is a process of identifying computer-based applications that support certain business activities, strategic plans and objectives. On the other side of the dichotomy, SISP is a process of identifying computer-based applications which are characterised by their high potential to lead the organisation to competitive advantage. It is a process which results in innovative IT applications that may alter the competitive scene in an industrial sector, spawn new products, raise entry barriers to new competitors, etc. In both the above adopted views, SISP also covers the definition of the technological infrastructure, i.e. databases, communications, and other systems which are required for the implementation of the identified IT applications. It is argued however (Earl, 1989), that there exists a common confusion between the terminology which refers to information systems, information technology and their planning. Earl (1989) gives three definitions that delineate the concepts, and are adopted in this research work. These definitions are presented below: Information Systems (IS) Strategy is concerned primarily with aligning IS development with business needs and with identifying and exploiting competitive advantage opportunities from IT. IS strategy deals with what to do with the technology. Information Technology (IT) Strategy is concerned primarily with technology policies, such as the specification of analysis and development methods, security levels, technical standards, vendor policies, etc. The IT strategy is the architecture that drives, shapes and controls the IT infrastruc-
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ture. IT strategy designates how technology can be applied in order to implement the IS strategy. The IT infrastructure consists of four elements: computer systems, communication systems, data and databases, and applications. Information Management (IM) Strategy is concerned with the role and structure of IT activities in the organisation. It focuses on the relationships between users and specialists, decentralisation and centralisation, financing and appraising IT applications. IM strategy answers questions as to who does what, where regarding IT. According to a survey conducted by (Earl, 1993), the five dominant objectives of an SISP study are the following: • • • • •
Align IS with business needs. Seek competitive advantage from IT. Gain top management commitment. Forecast IS resource requirements. Establish technology plan and policies.
Five types of planning for information systems are presented below (Remenyi, 1991; Synnott, 1987). Each type of planning reflects how the role and contribution of IT is conceived by the business and IT management. The focus of this classification is on the degree of integration between the business and IT planning process. •
•
•
No Plan. No formal planning takes place for either business or information systems. Small companies often do not develop any plans and normally react to every day events as they occur. Stand-alone Planning. Companies following this type of planning usually develop a business plan without considering the capabilities of IT. If they do develop a plan for their information systems, this takes place in vacuum since there is no interaction with, or input from the business plan. Reactive Planning. Corporate managers develop their business plans and then ask
•
•
from IT management to deploy IT in order to support the business plans. However, there is no communication or collaboration among business and IT managers. Therefore, IT management decides on the priorities and kind of support that IT systems should offer. Linked Planning. In this kind of planning, after the business planning has been completed, business and IT managers prepare together the IT plans in order to reflect the business needs. Integrated Planning. When planning is integrated, there is no distinction between business and IT plans. Instead, there is close collaboration between business and IT managers, who prepare the integrated plan together. As an example, while the business part of the plan is being prepared, IT managers suggest opportunities on how to advance business objectives and plans, achieve competitive advantage with IT systems, or suggest alternatives on how to support businesses. As the information systems part of the corporate plan is being prepared, the business managers suggest priorities and evaluate support alternatives.
Relevant literature argues that companies can not be competitive if their information systems strategies are not aligned with the business strategies (Teo & Ang, 1999; Avison et al. 2004). In fact, strategic alignment has been expressed by many different terms in the literature. The term fit is used in (Porter, 1996), bridge is found in (Coborra, 1997), harmony is suggested in (Luftman et al., 1996), fusion is proposed in (Smaczny, 2001) and linkage is reported in (Henderson & Venkatraman, 1993). In all cases, alignment implies the integration of IS and business strategic planning. Many authors advocate the integrated planning as the most suitable for realising the impact of business to IT and vice versa (Earl, 1989; Ward, et al. 1990; Remenyi, 1991; Synnott, 1987;
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Chen and Nunmaker, 1989; Hayward, 1987; Weil & Broadbent, 1998). However, (Galliers, 1993; Luftman, 1996; Papp, 2001; Tallon & Kraemer, 2003; Trainor, 2003) argue that despite the general agreement about the need of such integration, it is still the case that in many organisations the links between business and IT strategic planning are loose and IS strategic alignment not a top management priority. This chapter uses the terms integration and alignment of IS strategic planning interchangeably. The research objectives of the approach described in this chapter follow: •
•
•
Develop a new model based on the theory of Cognitive Maps to facilitate SISP integrated planning. Integrate Fuzzy Cognitive Maps with business process models so that strategic IS alignment will be realised and strategic priorities will be translated into business process design options. Develop a methodology and associated models that draw on the principles of SISP, and Fuzzy Cognitive Maps.
The chapter continues with the discussion of the necessity of SISP, the problems pertaining to SISP and an introduction to fuzzy cognitive mapping. Then the chapter introduces and illustrates the proposed approach for integrated SISP and discusses the benefits from combining object-oriented and fuzzy cognitive mapping in aligning strategic objectives with process design suggestions.
THE NEED FOR INTEGRATED SISP Although (Jarvenpaa & Ives, 1994), argue that tight IS strategic alignment may reduce strategic flexibility, integrated SISP appears to be the answer to the organisational concerns on how to succeed in an uncertain and turbulent environment
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(Earl, 1989; Remenyi, 1991; Ward, et al. 1990). SISP provides tangible and intangible benefits (O’Connor, 1993; Hackathorn & Karimi, 1988; Kearns & Lederer, 2000; Choe, 2003; Avison, et. al., 2004; Bryd, et. al., 2006) and more specifically: •
•
•
•
• • •
Ensures that information systems are aligned with the corporate business and IT strategic objectives and considers possible opportunities for the company to employ IT to advance its strategic objectives and plans and when possible to gain competitive advantage, Provides for the assignment of the systems development priorities, built on a solid base that depends on the corporate business needs, Fosters the new vision of information systems as investments and ensures the efficient management of the scarce IT resources, Facilitates top management and users participation to IT decisions as it encourages organisational learning i.e. raises the awareness of business users and management of information systems potential through out the organisation, as well as the knowledge of the IT staff about the organisation, Provides a basis for IT performance assessment, Ensures the co-ordinated development of information systems, Provides for the establishment of standards and prevents the piecemeal development of information systems, thus eliminating problems such as data redundancy, inaccuracy and inconsistency and systems incompatibility.
In summary, integrated SISP allows an organisation to realise its opportunities, to influence the future, thus developing a favourable environment, to focus on the business areas where the actual
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problem or opportunity is, and additionally provides top management and users’ commitment and participation while ensuring the efficient management of the IT resources.
MODELS FOR INTEGRATED SISP Researchers in their effort to improve SISP have developed several planning models which capture and formalise important aspects of the SISP process. (Earl, 1989) classified the planning models into three major categories namely: •
•
•
The Awareness frameworks, e.g. the Information Intensity Matrix (Porter & Millar, 1985), which demonstrate how IT can be used to inform executives for the potential impact of IT on their business and are more of a pedagogic nature. However, such models are generally of too high a level and too descriptive to guide the identification of specific IT opportunities (Earl, 1989). The Opportunity frameworks, e.g. the Value Chain Model (Porter & Millar, 1985), are explicitly designed to be analytical tools which can lead to firm-specific strategic advantage or clarify business strategies in order to demonstrate options for using IT strategically. However, there is need for tools used for searching for opportunities in particular application areas and for assessing specific technologies (Earl, 1989). The Positioning frameworks, e.g. the Strategic Grid by McFarlan and McKenney (Earl, 1989), are designed to help executives and planners to assess the strategic importance of the IT for a specific organisation and to show in quite general terms, how to manage the IT function. They indicate the nature of the management but they are not useful in searching for opportunities (Earl, 1989).
In the SISP literature the following models have been extensively presented: The Stage Model by Richard Nolan (Earl, 1989; Ward et al., 1990; (King & Kraemer, 1984), The Strategic Grid proposed by McFarlan and McKenney (Earl, 1989), The Growth Share Matrix introduced by Boston Consultancy Group (Synnott, 1987), The Information Intensity Matrix (Porter & Millar, 1985), The Information Weapon Model proposed by (Synnott, 1987), The Five Competitive Forces Model developed by (Porter, 1980), The Value Chain Model was introduced by (Porter & Millar 1985), the Strategic Option Generator presented by (Wiseman, 1985), The Customer Resource Life-Cycle Model of (Ives & Learmonth, 1984), (Beaumont & Walters, 1991) proposed a framework for developing information systems strategies in the services industry, The Strategic Alignment Model (SAM), has been proposed by (Henderson & Venkatraman, 1993; Luftman et al., 1993). A number of methodologies has also been discussed such as the Information Engineering, the BRG-Model, the B-SCP, (Bleistein, et al. 2006), the Business Systems Planning (BSP), etc. (Synnott, 1987; Earl, 1989).
PROBLEMS WITH ALIGNMENT AND SISP In order to carry out an SISP study, an organisation needs generally to embark on a major intensive study. It must apply one, or more of the several available methodologies or even invent its own, form committees of users and IS consultants and carry out the planning process for several weeks or months. While recognising the potential of SISP many organisations either fail to undertake planning or when they do so, planning fails. The literature provides little assistance on how to realise IS strategic alignment, how to evaluate the impact from alignment or misalignment on the business performance and what management can do to create an environment that fosters the
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culture for alignment (Hackathorn & Karimi, 1988, Lederer & Sethi, 1988; 1991; Mahmood & Soon, 1991; O’Connor, 1993; Henderson & Venkatraman, 1993; Luftman, 1996; Yetton, 1997; Hsaio & Ormerod, 1998; Burn, 1997). The main problems for integrated SISP are presented as follows: • •
• •
•
• •
• •
•
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Methodologies do not follow a specific theoretical model. Despite the large number of models available for SISP, none of them offers a complete answer. Methodologies fail to take into account the organisational goals and strategies. Methodologies fail to provide a statement of the IS organisational objectives and to identify specific new projects. Identification of IS projects with determination of the business area where IS are needed, clarification of information needs, and proposal for development IT system, are the most difficult problems to be tackled. There is difficulty in communicating organisational objectives and strategies to the SISP team, and hence difficulty in ensuring alignment between business and information systems. Methodologies fail to assess the current information systems situation. The output of the methodologies is not flexible enough to consider unanticipated changes in the organisation and its environment. Inadequate computer support for planning methodologies. The time and cost involved in performing the SISP study is often considered excessive. Planning is inaccurately viewed as an oneoff process rather as a continuous exercise. As a result SISP becomes outdated and inappropriate to the changing environment.
•
•
•
•
There is difficulty in securing top management commitment for the plan implementation. SISP methodologies fail to produce an overall organisational data, applications, communications and hardware architecture. SISP output fail to take into account issues related to plan implementation and accomplishing as plan requires further analysis. SISP groups fail to consider the political side of the planning, i.e. the power of the participants and the possible changes to the balance of the power.
INTRODUCTION TO FUZZY COGNITIVE MAPS Cognitive maps were first introduced by (Axelrod, 1976) in social sciences as signed oriented graphs, designed to capture the causal assertions of a person in a given area, in order to use them in the analysis of the effects of alternatives e.g. policies, business decisions etc. In a number of studies, they have been used to represent knowledge by presenting the cause – effect relationships that are comprehended to exist between the elements in a given context. Although the term “CM” is being used in various ways, all cognitive maps can be categorised depending on their world – objective (Hong & Han, 2002). One category is the physical and visible one. Another category includes the mental and invisible one (Zhang et al., 1992). The perception and understanding of a person about a problem may be presented on a cognitive map, comprising sets of elements associated with each other, representing the personal opinion of each individual about one’s interests and concerns (Lenz & Engledow, 1986). In other words, it captures the beliefs of an individual or of a group about their subjective world, regardless of objective reality. A cognitive map is also defined as “a representation of the relations that are perceived to exist between the attributes and the concepts
Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
of a given environment” (Zhang et al., 1989). In another study (Eden et al., 1992), it is defined as “an oriented graph characterised by a hierarchical structure that is, most of the time, in the form of a means/ends graph”. Alternative names such as cognitive map, cause map, and influence map have also used to describe a CM (Kwahk & Kim, 1998a). The three structural elements of a CM are the nodes, representing concepts, the directed arrows, symbolising the causal relation between two concepts, and the causality coefficient, which is either positive or negative. (Kosko, 1986) introduced fuzzy cognitive maps (FCM) and substantially enhanced cognitive maps with fuzzy logic. Kosko used fuzzy values for cognitive map variables, in order to map causal relations. As people use fuzzy data, rules and sets, in a mathematical way, to represent fuzziness in their way of thinking (Bezdek, 1993), fuzzy cognitive maps can map human reasoning and model complex dynamic systems that are characterised by intense non linearity. FCMs are a combination of fuzzy logic and Neural Networks. They combine the heuristic and common sense rules of fuzzy logic with the heuristic learning capabilities of neural networks (Stylios & Groumpos, 1999). In essence, they constitute Artificial Neural Systems (ANS) (Hilton, 1992) that mimic how the human brain relates and deals with various input data and events. (Kosko, 1986) defines the fuzzy cognitive map as “a fuzzy signed oriented map with feedback that models the world as a collection of concepts (or factors) and causal relations between concepts”. In a subsequent study (Kosko, 1990) described a FCM as follows: “A FCM presents a causal picture. It maps events, things and processes with values, policies and objectives… allowing you to predict how complex events will impact on each other”. Typically, a FCM is a non hierarchical graph (Irani et al., 2002), where a change in a concept may result in a change throughout the network. Changes originate from a series of causal increases and decreases. These fluctuations are generally
in the form of a ruled weighted measure, from –1 to +1. A FCM is obtained from a CM by fuzzifying the strength of relations between concepts. In this way, fuzzy cognitive maps reflect most cases in a more logical manner. Therefore, a fuzzy cognitive map consists of nodes representing the factors that relate to the context being studied and of arrows indicating different fuzzy causal relations, whether positive or negative, between such factors (Figure 1). The FCM approach is, therefore, an inferential mechanism representing the existence of fuzzy causal relations between concepts and the monitoring of their effects (Lee & Han, 2000). In a similar way to CMs, if certain nodes are stimulated, the change will be conveyed through positive or negative weighted links throughout the map until equilibrium is reached. A FCM can also be represented by using an nxn table of links E, where n is the number of nodes-concepts contained in the graph. Every value of this table represents the strength and direction of causality between various concepts. As already stated, the value of causality eij is from the interval [-1, +1]. Thus, according to (Schneider et al., 1998): • •
eij > 0 indicates a causal increase or positive causality from node i to j. eij = 0 there is no causality from node i to j.
Figure 1. Part of a FCM
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•
eij < 0 indicates a causal decrease or negative causality from node i to j.
The representation of FCM with the use of a links’ table allows the study of the impact of a given causal effect D1 (Banini & Bearman, 1998), which can be represented with the aid of a vector. This impact is calculated through repeated multiplications: ΕxD1 = D2, ΕxD2 = D3 and so forth, that is, ΕxDi = Di+1, until a dynamic equilibrium is reached, which is the final result of the effect D1. Fuzzy cognitive maps have been used to model complex dynamic systems which are characterised by strong non linearity (Groumpos & Stylios, 2000). They have been used to capture the behaviour and reaction of virtual worlds by representing their needs such as “the search for food” or “the survival threat” (Dickerson & Kosko, 1994). Similar use is made in social systems, characterised by fuzzy causality grades (Taber, 1994). Another application of FCMs is in modeling dynamic systems with chaotic characteristics, such as social and psychological processes (Craiger & Coovert, 1994), as well as in the behaviour of organisations (Craiger et al., 1996). Moreover, they have been used for planning and decision making in the fields of international relations and political developments (Taber, 1991). From a different perspective, FCMs have been used in factory control (Gotoh et al., 1989), in modelling distributive systems’ supervisors (Stylios et al., 1997), in designing EDI (Lee & Han, 2000), in strategic planning (Kardaras & Karakostas, 1999a) and in the evaluation of information systems (Kardaras & Karakostas, 1999b). In addition, they have been used in managing relations in airline services (Kang et al., 2004), in supporting urban planning (Xirogiannis et al., 2004), in the differential diagnosis of specific speech disorders (Georgopoulos et al., 2002), as well as in many other fields.
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THE PROPOSED APPROACH: FUZZY MODELLING FOR INTEGRATED SISP AND BUSINESS PROCESSES DESIGN Overview of the Approach This chapter proposes an approach for integrating strategic planning for IS with business strategic planning and for translating the resulting strategic objectives into business processes improvement suggestions. FCMs represent the strategic priorities, which are expressed in terms of increase or decrease of business performance issues such as cost, customer satisfaction, market share, etc. FCMs also offer the modelling mechanism for linking the strategic objectives with the Object Oriented (OO) model that represent the business processes. The proposed approach advocates the integration of business and SISP planning that allows complex interrelationships between business and IT to be systematically identified and managed. The realisation of the integration in the planning process can be seen as the foremost objective of the methodology. The following diagram depicts how FCMs are linked with the OO business models. Figure 2 shows that strategic objectives (Si) are linked with each other, thus are forming a FCM that represents how the objectives impact on each other. Furthermore, the dotted arrows in Figure 2 represent relationships among strategic objectives and tasks (ti) of the OO business process model. The proposed modelling supports the simulation of planning at strategic level, as well as the simulation of the strategic impact at the process level. The following sections of this chapter illustrate in detail the proposed approach.
Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
Figure 2. FCMs link strategies with business process tasks
Step 1: Modelling Strategic Objectives with the Strategic-FCM (S-FCM) Fuzzy cognitive mapping of strategic objectives starts with the identification of the concepts to be modelled. Such concepts belong to broad business and technological areas of strategic interest, for example, ‘Customers’, ‘Suppliers’, ‘Competition’, ‘IT Products and Services’. The variables of the S-FCM are therefore key concepts pertaining to the identified target areas and specifying the business and technological factors affected by IT affects and also how IT contributes to organisational performance improvement. A factor can be quite broad and therefore relevant to more than one target areas. The concepts of ‘cost’, ‘efficiency’, ‘quality’, ‘customer satisfaction’, ‘speed of service delivery’, etc. are some examples of variables. In fact, the S-FCM variable represent business performance factors as a series of increases or decreases to the values of the variable reflect the strategic choices of a company. Fuzzy cognitive mapping of strategic objectives continues with the identification of the Relationships of the S-FCM variables that show how a variable affects one or more other variables. The relationships are represented as the arrows in the S-FCM. Each relationship is assigned a (+) or a (-) sign that indicates the causal direction of
the impact that a variable exerts to another, and a fuzzy weight that indicates the perceived degree of the strength of the relationship (Kosko, 1986). The S-FCM is a tool for planners to be used in order to formulate the strategy and develop a consensus regarding the strategic choices. After the S-FCM is finalised and agreed by the strategic planners, it shows what is needed to be achieved. Figure 3 below, shows part of a S-FCM. The fuzzy weights shown in the figure in bold represent the strategic objective. Strategic objectives are defined in a subset of the S-FCM set of variables. The formulation of the strategy would not necessarily use all the variables in the model. Therefore, the strategic objectives (Si) shown in Figure 3 are: • • • •
S1: To increase customer satisfaction by (strong) S2: To decrease product price by (medium) S3: To increase individualised attention by (strong) and S4: To increase availability of products by (strong)
The rest of the variables that constitute the S-FCM do not represent a strategic objective. Each strategic objective is then defined by the following attributes:
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Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
Figure 3. Part of the S-FCM and its linking with the process model
• • • •
Its current achievement (ca) its target (tr) its impact on other variables (im) its links with the tasks that are responsible for the realisation of the objective (lk).
Each attribute of an S(i) is a fuzzy set, taking values from the set of linguistic variables {little, medium, strong}, which, after defuzzification, take values from the [0,1] range (Kosko, 1986; Tanaka, 1997). Each strategy (SP) is also a fuzzy set, and is represented by a series of strategic objectives (Si), i.e. as: SP(i)=[S1(ca, tr, im, lk), S2(ca, tr, im, lk), S3(ca, tr, im, lk), …, Sn(ca, tr, im, lk)]. The above model of a strategy (SP), allows the planners to know the current level of achievement of each strategic performance variable, but also which business areas performance is critical and to what extent. The links between the S-FCM and the business model, provide the necessary modelling technique for IS alignment.
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Step 2: Aligning Strategies with Business Processes Drawing on Figure 3, each variable in the S-FCM is linked with one or more tasks in the business process models. Such links represent allow the alignment of strategies with business process design and IS applications development. Business processes are modelled as OO models. The performance of each process and each task of a process is assessed in terms of the S-FCM variables. For example, availability of products is a strategic target (S4) that needs a strong increase. The performance of this strategic objective depends, as shown in Figure 3, on the performance of task (T1). Because of this relationship, it is important not only to focus the attention for improvement on task T1, but also to measure and assess its performance in terms of the availability of products. Similarly, price of products needs a medium drop. The achievement of this objective depends on the performance of tasks (T2) and (T3). The performance metrics for each task constitute part of the tasks’ attributes.
Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
The impact of the performance of each task to other tasks is propagated through the model by using the FCM relationships that link task attributes together. These relationships are shown in Figure 3 as solid arrows connecting tasks in the process model. The attributes that reflect the object’s performance are linked to attributes of the S-FCM. The S-FCM that supports the integrated business and SISP represents the organizational performance at a strategic level and is a FCM itself.
Step 3: Compare Current Business Performance and Strategic Objectives and Identify Areas of Improvement Consider the two vectors (Sca(i)) and (Str(i)) that represent for each (i), the current achievement and the target performance of strategic objectives respectively, where (i) is a strategic objective. The Gap (GP) in performance of a firm is defined as the distance (di) between two elements (vi) of the vectors i.e. as: (GP)=di = |χ1(Sca(i)) - χ2(Str(i))|, where χ1 and χ2 is the degree of membership for the (i) element of the vectors (Sca(i)) and (Str(i)) respectively. For a company to be competitive, it needs to minimise the distance between current achievement and strategic target. By looking at the value of gap in performance, the proposed approach locates the business areas where initiatives for improvement are needed. However, as our approach does not aim to manage differences in performance automatically; there is no need to specify a threshold for “accepted” or not differences. It rather encourages strategic decision makers to develop alternative scenarios based on their assumptions for the company. The differences indicate to strategic planners, the performance areas and subsequently the tasks they should focus on their attention. So, if there are areas that do not perform as expected,
the management can trace the business tasks that are responsible for delivering the required performance and decide the appropriate actions. Any changes or initiatives that they may propose, possibly altering the performance of tasks or changing the process design, can be fed back to the S-FCM and simulated.
STRATEGIC SIMULATION OF IS ALIGNMENT All concepts in S-FCM and tasks in business processes are interrelated. These interrelationships are implemented as a matrix (Strategy-Task Matrix), which has as columns and rows all strategic concepts and tasks performance measures, respectively. The following table shows the structure of this matrix. The numbers in the first row of Table 1 show how each concept affects or is affected by other concepts and task performance. The values are in the interval [-1, 1] and reflect the perception and beliefs of the IS planning team. New strategic initiatives can be modelled as a vector, Strategic Initiatives= [S1(tr), S2(tr), …, Sn(tr)], that is taking into consideration only the targets for each strategic objective. By considering the vector Strategic Initiatives, and its multiplication with the Strategy-Task Matrix, (i.e. strategic initiatives vector constitutes a row of the matrix), the above matrix indicates which tasks in which process(es) should change and in what direction (+ or –), in order to satisfy the strategic requirements. Several simulation runs will provide detailed examination of different strategic scenarios, as well as their evaluation in terms of required process design changes and performance improvements.
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Table 1. Strategy-task matrix that integrates strategy and tasks performance
S1
S1
S2…Sn
Task_1 performance
Task_2 performance…
Task_n performance
0
0.5
0.7
-0.4
0.8
S2, …, Sn Task_1 performance Task_2 performance… Task_n performance
CASE STUDY This section illustrates the applicability of the proposed approach for IS strategic alignment with a case study. For simplicity reasons, the complexity of the case is been kept to a minimum. Thus, only two strategic objectives and only two business tasks will be modelled. Let us consider company (X) which aims at realising the following two strategic objectives: • •
S1, from a medium current level of achievement increase market share to a high and S2 from a low current level of achievement increase customer satisfaction to a very high.
The defuzzification process (Ross 2004), depending on the technique, could assign for example values to the linguistic expression of the strategic objectives as follows: • • • •
Low=0.2 Medium=0.5 High=0.7 Very High=0.9
Then the gap of performance for S1= (0.7-0.5) = 0.2 and for S2= (0.9-0.2) = 0.7. S2 target is assigned a higher priority to S1, since the gap of performance for S2 is bigger than
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the gap of S1. The top priority for S2 indicates that all changes required at the process level and the IS that could be proposed for development in order to support S2, should have a higher priority from the changes and IS that would support S1. Company (X) then need to increase its customer satisfaction by 0.7 and to increase its market share by 0.2. The S-FCM for the above case is shown in Figure 4. Figure 4 shows that the realisation of target S1 depends on the performance of task T1, as measured in terms of task T1’s cost (T1-C) and time for completion (T1-t) as well as it depends on the cost (T2-C) of task T2. Similarly, the objective S2 depends on the cost (T2-C), time (T2-t) and friendliness (T2-F) of task T2 and the cost (T1-C) of task T1. The above figure also shows that target 2 affects target S1. Next consider the Strategy-Task matrix in the following table that represents the above FCM. The Strategic Initiatives (StrI) vector, which is shown below, is identical to a row of S-FCM and represents the strategic objectives that company (X) aims to achieve. Therefore company (X) aims at increasing S1 by 0.2 and S2 by 0.7 respectively. The multiplication of the StrI vector with the S-FCM indicates how strategic alignment can be achieved at the process and the IS level. The result
Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
Figure 4. S-FCM for company (X)
Table 2. The strategy-task matrix for company (X) S1
S2
T1C
T1-t
T2C
T2-t
T2-F
S1
0
0.7
-0.3
0
-0.7
0
0
S2
0
0
-0.5
0
-0.8
-0.5
0.7
T1-C
0
0
0
0.6
0.2
0
0
T1-t
0
0
0
0
0
0.2
0
T2-C
0
0
0
0
0
0.3
0
T2-t
0
0
0
0
0
0
0
T2-F
0
0
0
0
0
-0.2
0
of the multiplication is the Strategic Alignment vector StrA, which is identical to the StrI vector. The results show that in order to achieve target S! and target S2, company (X) needs to reduce very strongly (-0.95) the time of completion of task T1, to strongly reduce the cost of task T2, to slightly reduce the time of task T2 and to increase the friendliness of task T2 by medium. The proposed approach then identifies the areas where changes are needed (e.g. tasks T1 and T2) as well as specifies what kind of changes are required thus indicating the information systems that are needed in order to implement the strategic targets and achieve strategic alignment. Multiplication continue with each resulting StrA vector with the S-FCM until all cells values equal
to (0), implying that there is no further impact to consider in the model. Several scenarios can be studied for alternative strategic objectives by changing the values in the StrI vector (thus changing the priorities for the objectives) or adding more objectives to be considered.
FUTURE TRENDS The proposed approach opens up new opportunities for research in IS strategic alignment. The intangible nature of strategic thinking as well as the different and many times contradicting views Table 3. The strategic initiatives (StrI) vector for company (X) S1 0.2
S2
T1-C
T1-t
T2-C
T2-t
T2-F
0.7
0
0
0
0
0
Table 4. The strategic alignment vector (StrA) vector for company (X) S1 0
S2
T1-C
T1-t
T2-C
T2-t
T2-F
0.14
-0.95
0
-0.7
-0.35
0.49
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Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
of stakeholders can be represented using fuzzy logic models. Further research could focus in incorporating concepts from resource dependencies theory (Clemons & Row, 1991) into fuzzy models. Moreover, the resources dependencies theory is promising in investigating the resources necessary for the development of strategies and the realisation of competitive advantage. Another direction for future research may be towards the investigation and modelling of strategic thinking principles and guidelines that would improve knowledge on strategy formulation, integration and pre-development IS assessment. Finally, the development and use of IS evaluation metrics is an important research task; one that may change the way that IS is modelled and managed. Such a set of metrics could include the definition and measurement of concepts such as ‘compatibility’, ‘reusability’, ‘suitability’, ‘competitiveness’, etc.
CONCLUSION The proposed fuzzy causal strategic design model provides the means to consider the business objectives and to associate them with specific business areas, which can be benefited by IT. In contrast to other strategic design and management approaches, the proposed model is dynamic, exhibits flexibility and responsiveness to business environment changes, customisability to specific organisational context, and allows for the development of planning scenarios. The approach discussed in this chapter suggests that the introduction of fuzzy attributes and fuzzy associations to process models will facilitate the representation of inexact and soft concepts involved in SISP and process design. The proposed framework not only provides flexibility by accommodating non-financial measures, but it also allows the development of the systems and methods for representing, analysing, and communicating aspects of business performance
606
information. Moreover, as it is argued in this chapter, integrated business and strategy FCM models allow the consideration of alternative business process re-design suggestions and their comprehensive evaluation in terms of organisational effectiveness related issues. This chapter discusses the importance of developing frameworks for the integrated SISP that can conceptually support business process design under different IT architectures. It suggests the use of fuzzy logic and its reasoning techniques in strategic planning and processes modelling techniques. Among the benefits of the approach is its potential •
• • •
to facilitate the development of a consensus among the planners and decision makers when developing strategies, to integrate business and IS planning, to translate strategic objectives into business processes design options, to suggest IT architecture options that would implement the suggested by the proposed model IS strategies.
The proposed methodology provides planners with the means to cope with the complex and turbulent external environment. In order to accomplish the required external consistency, it exhibits responsiveness and flexibility so that •
• •
environmental changes are adequately taken into consideration during the planning process, their impact on the organisation and its IS can be estimated and IS plans which reflect the latest development in the environment are produced.
With regard to the model’s internal consistency, the translation of the organisational strategic plans into specific IS plans, takes place through various levels of abstractions of business and IT concepts. The translation is achieved by linking
Fuzzy Modelling for Integrated Strategic Planning for Information Systems and Business Process Design
business and IT factors at the strategic level, with corresponding ones at specific business units and business functional areas. Scenarios can be developed during the planning session in order to: •
•
incorporate stakeholders’ differing viewpoints. This also facilitates the development of an organisational learning culture as business and IT experts, co-operatively develop the scenarios, get an insight on the organisational and technological matters and experience a multi-dimensional approach to planning and cope with the full availability of information and alleviate the drawbacks of the rational model adopted in the planning process.
The proposed approach provides the conceptual framework in order to accommodate the rather intangible and qualitative nature of the SISP process. Fuzzy linguistic terms are suggested to describe concept attributes and associations and add flexibility to the SISP and process models as well as facilitate the communication among planners.
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This work was previously published in Strategic Information Technology and Portfolio Management, edited by Albert Wee Kwan Tan and Petros Theodorou, pp. 59-77, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 3.3
Human Resources in the Balanced Scorecard System Juha Kettunen Turku University of Applied Sciences, Finland
INTRODUCTION Strategic planning is a matter of mapping the route between the perceived present circumstances and the desired future situation. Strategic management adapts higher education institutions (HEI) to their environment including educational policy, local demand for skilled labor, and other factors. The purpose of HEIs is to positively affect the development of society and the local community. The balanced scorecard approach developed by Kaplan and Norton (2001, 2004, 2006) is a framework for the communication and impleDOI: 10.4018/978-1-60960-587-2.ch303
mentation of the strategy. The approach creates a shared understanding of the strategic plan by describing the plan using strategy maps, strategic objectives, measures and target values for the planning period (Niven, 2005). The balanced scorecard approach can be combined with other approaches and management tools. The purpose of this article is to report on a development project where the balanced scorecard approach was applied in the management information system (MIS) of an HEI. The MIS integrates the different approaches of management into human resources (HR) planning. It is important that the balanced scorecard approach is supported by the MIS. This is especially criti-
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Human Resources in the Balanced Scorecard System
cal in large organizations. Many administrative units and organizational levels emphasize the importance of automation enabling management to consistently aggregate the scorecards of lower organizational levels to the overall scorecard. The MIS with a portal is a valuable communication channel, information processor, management tool and the joint memory of the organization. The empirical part of the article describes the MIS of the Turku University of Applied Sciences (TUAS), where the MIS is based on strategic management and the balanced scorecard approach. The system integrates budgeting, action plans, HR planning and quality management. The data warehouse approach is used to capture data from the diverse source systems and to store the data in an integrated database. An MIS portal was developed to support the management process and be open to the personnel of the institution. The portal supports the dialogue and commitment of the personnel to the strategic outlines. The portal is open to management and the personnel of the institution.
The balanced scorecard has been designed as a mechanism to make the strategic plan more understandable to management and personnel. The approach has been widely used in the private and public sectors. The experiences of many studies testify that the balanced scorecard approach is well suited to a higher education setting and allows the alignment of a wide variety of measures with the unique mission and strategy (Kettunen, 2004, 2006; Papenhause & Einstein, 2006; Self, 2003). The balanced scorecard is a useful tool, because it can be used to align the HR and many other management tools with strategic planning (Mouritsen, Thorsgaard Larsen, & Lumby, 2005; Rampersad, 2005). The balanced scorecard of the TUAS includes five perspectives: •
•
BACKGROUND Balanced Scorecard Translates the Strategy into Action The autonomy of HEIs has increased. The autonomy emphasizes stronger management and the increasing accountability of institutions to society and other stakeholders. The management of HEIs is acquiring more integrated and strict but at the same time loose forms (Meyer, 2002). Analyzes of autonomy and self-regulation in higher education do not, however, provide any specific tools for the management of HEI (Maassen & Stensaker, 2003). Strategic management is widely used in the Finnish HEIs (Kettunen & Kantola, 2006) and is also a strong candidate for the framework of the management system also in other countries (Bush & Coleman, 2000; Middlewood & Lumby, 1998).
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•
•
•
Societal impact: The societal impact perspective includes an objective which describes the institution’s outreach and engagement in society and the local community. Customer: The customer perspective includes the objectives of student and employer satisfaction. Customer satisfaction is what essentially all the organizations try to achieve. Finance: The financial perspective describes the objectives of public funding and external income. Internal processes: The internal processes perspective typically describes the sequential internal processes of an organization. Learning: The learning perspective describes the objectives of HR that are drivers for future performance. The achievement of these objectives is required to reach the objectives of the internal processes.
In many other organizations the societal impact and customer perspectives have been combined into one perspective.
Human Resources in the Balanced Scorecard System
The balanced scorecard helps management to communicate the important objectives to the personnel. The objectives are described by measures. Typically, the management of the organization sets the target values of the measures for the planning period. The HR must be aligned with all the strategic objectives. When the scorecards are planned for all the organizational units the personnel is able to understand the strategic plan and their own role in contributing to the plan.
MAIN FOCUS OF THE CHAPTER Balanced Scorecard in Higher Education Figure 1 describes the strategy map of the TUAS. The concept of the strategy map was introduced by Kaplan and Norton (2004). The societal impact perspective of the TUAS includes the objectives of regional development and the customer perspective includes the objectives of customer satisfaction. These objectives can be achieved as a result of the internal processes including research and development, support services and education.
The financial perspective includes funding from central government and external funding for research and development and continuing education. The financial objectives are aligned with the internal processes and structures in the budget of an organization. The learning perspective includes the objectives of capabilities for research and development and teacher capabilities. The linkages of the strategy map describe the relationships between the perspectives and strategic objectives. Table 1 describes the learning perspective of the balanced scorecard of the TUAS. The learning perspective includes two objectives describing the core capabilities of the personnel. The objective of the “capabilities for R&D” is described by the number of licentiate degrees and doctorates which are important for high quality research and education. The objective of “teacher capabilities” includes the measure describing the share of teachers having the required teacher education. The target values have been set for each year of the planning period. Even though there are many other important characteristics of HR, the balanced scorecard cannot include every important aspect, because the attention must be focused on achieving the most important targets.
Figure 1. Strategy map of the TUAS
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Table 1. Leaning perspective of the balanced scorecard at the TUAS Objectives R&D capabilities Education capabilities
Actual figures
Measures
2004
Target values
2005
2006
2007
2008
2009
No. of licentiate’s degrees
43
49
60
58
60
60
No. of doctorates
32
36
50
55
60
65
Share of teachers with teacher education, %
77
78
80
82
85
86
Table 2 describes the HR plan of the TUAS. It describes the actual and planned development of the labor force, vacancies and labor costs, which are aligned with the internal processes in the budgeting process. The HR plan has also been prepared for each administrative unit of the institution. The HR plan also includes information on the share of absence hours, measures to maintain working ability and the resources and days of in-house training. The HR plan also includes the timetable and plans for how permanent jobs will be created for temporary workers. Detailed plans including personnel development and qualitative indicators are made in the different administrative units. The HR plan includes diagnostic measures, which are vital for success, but are not drivers of strategic success. Diagnostic measures are necessary in the same way as the body temperature and blood pressure of individuals, but they are not the right ones to manage the transformations needed.
Development of the Management Information System The balanced scorecard approach was introduced at the TUAS in 2002. The maintenance of the balanced scorecards in the different administrative units turned out to be troublesome. The consistent aggregation of the balanced scorecards to the upper organizational levels and data collection needed automation. In large organizations automation of data processing is necessary. The planning of the MIS started in 2004 with the modeling of the entire management process. About 700 concepts were defined at the different organizational levels and a lot of process documents were written. It was obvious that the planned system would provide clear benefits as required generally for development projects of this kind (Galliers, Swatman, & Swatman, 1995). It is important that there is a rigorous planning methodology such as the balanced scorecard to communicate and implement the strategic plans
Table 2. HR plan of the TUAS Measures Labor force: • Labor force at work • Labor force, person-years • Permanent employees • Temporary employees • Substitute employees Vacancies: • Number of vacancies • Open vacancies Labor costs: • Labor cost / total cost, %
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Actual figures
Target values
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
173 173 128 27 18
175 198 119 38 18
175 206 126 30 19
178 185 122 54 9
172 172 136 27 9
172 173 139 24 9
172 173 141 23 9
172 173 141 23 9
172 173 141 23 9
172 173 141 23 9
171 173 141 21 9
171 173 141 21 9
139 3
143 3
145 3
126 4
127 1
130 1
134 1
134 0
134 0
134 0
134 0
134 0
59,3
59,7
61,7
64,7
52,4
52,4
52,4
52,4
52,4
52,4
52,4
52,4
Human Resources in the Balanced Scorecard System
as a basis of the management process, because an outstanding strategy is not a random collection of unit strategies but a carefully constructed system of interdependent plans (Collis & Montgomery, 1998). It is also important that the management process is developed and described in detail before the planning of the information system (Kettunen & Kantola, 2005). The management process includes a sequence of management activities, which includes the objectives, operations, resources and results. The strategic planning produces the objectives, which are placed in the different perspectives of the balanced scorecard. The operations of the internal processes are planned to achieve the desired objectives. The financial resources are allocated in the budgeting process for the operations of the internal processes. The achievement of results is monitored and ensured so that the desired objectives can be achieved within an agreed time and budget. The data warehouse approach proved to be useful to capture data from existing data sources and direct them to an integrated database (Inmon, 1996, Guan, Nunez & Welsh, 2002). The essential data that supports the management process are no longer acquired arduously from separate data sources or personal files. Before the introduction of the data warehouse, data collection was scattered, unreliable and to a large extent manual. A lot of overlapping data were collected on an ad hoc basis without the documentation of the data collection processes. A new MIS portal was developed to support the management process and for the use of different people in the organization. The portal takes advantage of data warehousing that makes efficient use of the data obtained from the various data systems. The members of the institution have diverse user rights and roles in the interactive tool, which allows different organizational units to draft their strategic plans, action plans, budgets, and HR plans. The action plan also integrates strategic and quality management. The portal is
also a communication tool that is used to make the strategic plan understandable to the personnel of the institution.
The MIS Integrates Different Approaches of Management The MIS is an electronic platform, which includes strategic plans, action plans, budgeting tools, and HR plans. The MIS also includes information on feedback from students and employers. The TUAS regularly collects course feedback from students and employers represented in the 26 advisory boards of the institution. The MIS also includes information on the internal evaluations of the institutions and the suggestions of external evaluation by the Finnish Higher Education Evaluation Council. The open MIS enables the administrators and the members of the personnel to see how the institution is implementing its strategy and continuously improving its operations. Budgeting is the primary management process in most organizations. The budget has traditionally helped managers with short-term tactical planning and operational details. Managers typically review the operating performance against the budget and take corrective action if necessary during the budget year. The budget should allocate resources to the strategic initiatives to achieve long-term strategic objectives. Operational management is not, however, divorced from strategic management, because the budget is aligned with the strategic objectives of the balanced scorecard. The action plan must identify the strategic initiatives, the units and individuals responsible for the implementation and timetable. The individuals responsible must drill the unit action plan down into more detailed plans and include the actions in their personal workload plans. Typically the workload plans are finalized with the line manager in Finnish educational institutions. The action plans of the operational units and the individual workload plans must be aligned with the internal processes perspective of the balanced scorecard.
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Human Resources in the Balanced Scorecard System
The HR plan should direct an increasing amount of investments in human capital, because the HR is critical to organizational success in a knowledge economy. If resources are not directed towards the drivers in the learning perspective of the balanced scorecard, the other objectives will remain distant goals to which the organization is not committed. The advantage of the balanced scorecard approach is that the personnel can see how investments in human capital can help the organization to achieve its strategic objectives.
FUTURE TRENDS The monitoring of the action plans and the budget is part of the periodic review process of management. The administrative units of the TUAS report on the achievements of the measures and targets three times a year. The TUAS has six educational departments, a continuing education centre and ten shared support units. All the administrative units have their own balanced scorecards, which directly contribute to the overall balanced scorecard of the institution. The achievement of the target values can be monitored using the MIS. The objectives include 37 measures with target values for the planning period. The measures and targets are updated annually and agreed on in the internal target discussions. Obvious future trends are that the number of data sources will increase in the data warehouse and more data will be collected from outside the organization. The information environments of the knowledge society will be open and dynamic. Networking with other organizations requires dynamic information environments which provide two-way access to shared information. Weak and strong signals are derived from the changes of the environment. The organization must match the resources of the organization to the changing environment in the strategic planning.
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CONCLUSION This article shows that a MIS with a portal can be used to integrate the different approaches and tools of management. An advantage of the electronic platform is that it supports the management process at all organizational levels and provides a framework for consistent future planning. HR planning can be aligned with strategic management, budgeting, action plans and quality management. It also turned out that the balanced scorecard approach is a useful tool when the different approaches of management are integrated into an information system. Management in a knowledge intensive organization requires software and controlled IT architecture. The data warehouse approach collects data from various data systems such as student administration, personnel management and financial management systems. The data warehouse provides a centralized database that integrates data from the diverse data sources. It integrates large amounts of data needed in the management process and statistical purposes. The integrated approaches of management and the open MIS create strategic awareness among the members of the organization and align the strategic objectives of the different administrative units. The integration and alignment of plans help management to create a shared understanding among the personnel about the efforts and steps needed for change. The MIS provides a system for the exchange of knowledge within the organization. It also stimulates dialogue encouraging innovations and reciprocal open discussion about strategic objectives.
REFERENCES Bush, T., & Coleman, M. (2000). Leadership and strategic management in education. London: Paul Chapman Publishing.
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Collis, D., & Montgomery, C. (1998, May/June). Creating corporate advantage. Harvard Business Review, 70–83. Galliers, R. D., Swatman, P. M. C., & Swatman, P. A. (1995). Strategic information systems planning: Deriving comparative advantage from EDI. Journal of Information Technology, 10(3), 149–157. doi:10.1057/jit.1995.19 Guan, J., Nunez, W., & Welsh, J. F. (2002). Institutional strategy and information support: The role of data warehousing in higher education. Campus-Wide Information Systems, 9(5), 168–174. doi:10.1108/10650740210452274 Inmon, W. H. (1996). Building the data warehouse. New York: John Wiley & Sons. Kaplan, R., & Norton, D. (2001). The strategyfocused organization. Boston: Harvard Business School Press. Kaplan, R., & Norton, D. (2004). Strategy maps. Boston: Harvard Business School Press. Kaplan, R., & Norton, D. (2006). Alignment: using the balanced scorecard to create corporate synergies. Boston: Harvard Business School Press. Kettunen, J. (2004). Bridge building to the future of Finnish polytechnics. Journal of Higher Education Outreach and Engagement, 9(2), 43–57. Kettunen, J. (2005). Implementation of strategies in continuing education. International Journal of Educational Management, 19(3), 207–217. doi:10.1108/09513540510590995 Kettunen, J., & Kantola, I. (2005). Management information system based on the balanced scorecard. Campus-Wide Information Systems, 22(5), 263–274. doi:10.1108/10650740510632181
Kettunen, J., & Kantola, M. (2006). Strategies for virtual learning and e-entrepreneurship. In F. Zhao (Ed.), Entrepreneurship and innovations in e-business: An integrative perspective (pp. 107123) Hershey, PA: Idea Group Publishing. Maassen, P., & Stensaker, B. (2003). Interpretations of self-regulation: The changing state-higher education relationship in Europe. In R. Begg (Ed.), The dialogue between higher education research and practice (pp. 86-95). Dordrecht: Kluwer Academic Publishers. Meyer, H. D. (2002). The new managerialism on education management: Corporatization or organizational learning? Journal of Educational Administration, 40(6), 534–551. doi:10.1108/09578230210446027 Meyer, M. W. (2002). Rethinking performance measurement:╯Beyond the balanced scorecard. Cambridge, UK:╯Cambridge University Press. Middlewood, D., & Lumby, J. (1998). Strategic management in schools and colleges. London: Paul Chapman Publishing. Mouritsen, J., Thorsgaard Larsen, H., & Bukh, P. N. (2005). Dealing with the knowledge economy: Intellectual capital versus balanced scorecard. Journal of Intellectual Capital, 6(1), 8–27. doi:10.1108/14691930510574636 Niven, P. R. (2005). Balanced Scorecard diagnostics: Maintaining maximum performance. Hoboken, NJ:╯Wiley. Papenhause, C., & Einstein, W. (2006). Implementing the balanced scorecard at a college of business. Measuring Business Excellence, 10(3), 15–22. doi:10.1108/13683040610685757 Rampersad, H. K. (2005). Total performance scorecard: The way to personal integrity and organizational effectiveness. Measuring Business Excellence, 9(3), 21–35. doi:10.1108/13683040510616943
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Self, J. (2003). From values to metrics: Implementation of the balanced scorecard at a university library. Performance Measurement and Metrics, 4(2), 57–63. doi:10.1108/14678040310486891
KEY TERMS AND DEFINITIONS Balanced Scorecard: A framework for the communication and implementation of the strategy. The balanced scorecard approach translates the strategy of an organization into tangible objectives and measures and balances them typically into four different perspectives: customers, financial outcomes, internal processes, and learning. Data Warehousing: The process of capturing data contained in the various operational systems of an organization. The data from external sources can optionally be added to the data warehouse and utilized for analysis and decision-making purposes. Diagnostic Measure: Signals about organizational health and represent the important dimensions of performance in the same way as body temperature and blood pressure of individuals. They are not strategic measures used to manage the transformations to achieve strategic objectives.
Management Information System: A proper management information system presupposes modeling the entire management process and tailoring all the necessary components of the information technology support system to meet the needs of the organization. The management information system should include a description and measures as to how the strategic objectives will be achieved. Management Portal: The management portal is a management tool to be used by managers and other members of the organization. Other stakeholders can have reports produced in the portal. Strategic Management: Strategic management is a matter of bridge building between the perceived present situation and the desired future situation. Strategy implies the movement of an organization from its present position, described by the mission, to a desirable but uncertain future position, described by the vision. Strategy Map: The concept of the strategy map is used to describe the strategy. The strategy map is a visual representation of the cause-and-effect relationships among the objectives of an organization’s strategy and a great insight for executives and stakeholders in understanding the strategy.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 464-470, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 3.4
The Role of HRIS in Crisis Response Planning Amy E. Hurley-Hanson Chapman University, USA
INTRODUCTION “On Sept. 11, 2001, terrorists attacked the World Trade Center, killing 2,749 people. The attack resulted in severe economic impact, especially to airlines, and a stock market loss of $1.2 trillion. On December 26, 2004, a tsunami from a 9.1 earthquake overran the shores of many countries along the vast rim of the Indian Ocean. Over 283,000 people died. On August 29, 2005, Katrina, a category-5 hurricane, knocked out electric and communication infrastructure over 90,000 square miles of Louisiana and Mississippi and displaced 1.5 million people.” (Denning, 2006,
p. 15). This past decade has been catastrophic, and there are still three more years to go. Many American businesses have not responded to the call for better human resource crisis planning, while a few corporations have risen to the challenge. It is necessary and extremely important for organizations to understand the importance of implementing crucial changes in the organizational structure of businesses, primarily in the human resource sector. The human resource sector is the area most responsible for the safety of personnel and therefore best equipped to foster the communication requirements any crisis will necessarily exact.
DOI: 10.4018/978-1-60960-587-2.ch304
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Role of HRIS in Crisis Response Planning
BACKGROUND Since 9/11, the importance of human resource information systems (HRIS) has increased substantially. It has become important in all industries despite their differing business models, clienteles, or work forces. A key example of an affected industry is the complex and widely diverse health care industry. “Since 9/11, public health has seen a progressive culture change toward a 24/7 emergency response organizational model. This transition entails new expectations for pubic health workers, including (1) a readiness and willingness to report to duty in emergencies and (2) an ability to effectively communicate risk to an anxious public about terrorism or naturally occurring disasters” (Barnett et al., 2005, p. 35). What the surge in emphasis on human resource preparation indicates is that it is no longer financially viable or politically responsible to ignore the necessity of contingency planning. This knowledge has grown out of the climate of change based on the lessons learned from the terrorist acts of 9/11. “More importantly, the feedback and lessons learned from the September 11 disaster recovery process had a significant impact on optimizing the current processes, culture, and organizational model.” (De Tura, Reilly, Narasimhan, & Zhenhua, 2004, p. 160). It has become clearer that both customers and employees alike expect an emergency preparation model from the financial community to prevent disruptions of commerce so that business as usual can resume as soon as possible after a disaster. “Since the events of September 11, 2001 in New York, there is now world-wide awareness of the necessity of having trained and coordinated teams available to respond to such unexpected catastrophes” (Smith, Lees, & Clymo, 2003, p. 517). It is not difficult to understand this mentality, especially since this country has now witnessed examples of effective and ineffective corporate leadership in crisis. Even people previously inexperienced with emergency contingencies are now cogni-
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zant of what are the most basic steps a company must take to ensure its work place survival and competency. “These steps include preventative planning and training, responding competently during the event itself, and providing social support and post-event services” (Schouten, Callahan, & Bryant, 2004, p. 232). Prior to 9/11, the function of human resources was considerably different; previously it was reserved more for handling personnel issues in the company such as managing health benefits, attending to payroll, etc. That has changed. “Over the past two decades, the role of human resource management (HRM) in organizations has shifted from measuring individual productivity among the employees toward strategic management of the human resources, focusing on competence development, human learning management, knowledge management, and learning organizations” (Hustad & Munkvold, 2005, p. 82). An important reason for this change is the way in which information technology (IT) has shaped this organizational component of a company. It is not adequate for a competitive business to not be equipped with the latest in informational technology when dealing with a vast amount of data and personnel. “Computerized information systems have developed from a mere transaction processing function through a data accumulation period to a decision support role” (Beckers & Bsat, 2002, p. 41).
HRIS PREPAREDNESS BEFORE AND AFTER A CRISIS It is no longer viable for the top management of a functioning company to not utilize the capabilities of information technology. If one organization is not prepared to communicate with all levels of employees and make decisions quickly, a competitor will. Managers must be cognizant of incoming intelligence, be able to analyze trends they see coming, and predict crisis before they can occur,
The Role of HRIS in Crisis Response Planning
whether they be within an organization or outside of it. “An important part of management’s responsibility is related to giving and receiving critical feedback…. It comes with the territory if you are in IT management” (Hacker, 2003, p. 77). Part of this level of preparedness means sensing when key employees may be unhappy or dissatisfied with their current positions. This is an extremely valuable asset in organizations where your company’s productivity depends on possessing workers with specialized skills such as computer technology. “The survival of an organization may depend on its ability to deal with the issues of turnover and retention among its IT managers. In today’s business environment where IT is increasingly relied upon to create and sustain a competitive advantage, the loss of experienced and capable IT managers, can be profound” (Longenecker & Scazzero, 2003, p. 59). The level of company preparedness directly relates to its handling of crises. “Crisis management is broadly defined as an organization’s preestablished activities and guidelines for preparing and responding to significant catastrophic events or incidents (i.e., fires, earthquakes, severe storms, workplace violence, kidnappings, bomb threats, acts of terrorism, etc”) (Lockwood, 2005, p. 1). An organization needs to explore their preparedness for crises and explore if they are utilizing their HRIS to improve their disaster plans. After 9-11, many articles were written regarding how organizations needed to develop their HRIS systems to enable them to continue operations after a terrorist attack. In “A Look Back at a Disaster Plan: What Went Wrong—and Right,” Lawson (2005), an official from Tulane University, explains how he extrapolated from contingency planning he received from living through the 9/11 crisis to deal with Hurricane Katrina in New Orleans. “You also need a business-continuity plan for your institution. You’ve got to think about how you are going to function if a disaster happens. How long can you go without printing transcripts, how long without sending paychecks out, how long
without paying bills? How long can you tolerate not sending out accounts-receivable statements? You need to make those choices, so you’ll know how much money you’ll have to spend on disaster recovery.” (p. 20). It is also important to note that citizens of this country gravitated towards an expectation that national crisis preparation should be performed by the federal government after the 9/11 attacks. Their expectations were not met when Federal agencies failed to properly plan for the Katrina disaster. “People had not always looked to the federal government for help during disasters, but during the twentieth century the level of assistance expected from the federal government before and after a disaster ratcheted upwards….” (Roberts, 2006, p. 25). The level of security and safety that people felt towards their institutions, first challenged by the events of 9/11, was called into question by the planning incompetence exhibited by the Federal Emergency Relief Agency (FEMA). “We still have difficulty grasping the notion that we are not safe from disaster in our own country. We couldn’t imagine a foreign terrorist attack on our soil. It happened. We couldn’t imagine an entire city disappearing under water, its population evacuated — but too late. It happened. We must begin to imagine future disasters, perhaps multiple catastrophes, for they, too, may well occur” (Nussbaum, 2005, p. 36). What is of vital importance, then for business, is for every organization to be self-prepared through their own HRIS systems and other IS systems. That preparation extends to all areas of corporate functioning, but particularly to personnel considerations, as it is ultimately the people who run a company. In trying times, companies must be able to contact their employees and resume business after all types of crises, not just terrorist attacks or natural disasters such as Hurricane Katrina. Again, Lawson (2005) recounts his experiences at Tulane, particularly his HR failures: “And people were too dispersed for post-disaster activity, which was exacerbated by the communications failure.
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We couldn’t get hold of people to find out where they were. I had my director of administrative computing evacuating to one city; my director of networking, who was supposed to go with me, ended up in a different city because of traffic. We had people spread out all over.” (p. 20). Lawson’s human resource difficulties were not unique. Unfortunately, much of the knowledge corporations gained from dealing with the aftermath of the terrorist attacks was either forgotten or misused during the crisis following Hurricane Katrina. There are still many problems of organizational preparation in this country. During Hurricane Katrina we saw that many organizations’ HRIS systems or their IT systems were not prepared for this disaster. A study released in December 2005 by the nonprofit, Trust for America’s Health (TFAH), noted, “[Hurricane Katrina] provided a sharp indictment of America’s emergencyresponse capabilities as the gaps between plans and reality became strikingly evident. Parts of the public health system did not work, and while many did work as intended, those functions were often too limited and divorced from other response activities to match the real needs in a timely way,” (Young, 2006, p. 197). The report went on to give specific examples of ways in which some of the most basic infrastructural services are still woefully unprepared, months after Katrina and years after 9/11. “But, according to the report, hospitals in 15 states, including California, Florida, New York, Pennsylvania, Texas, and the District of Columbia, have not sufficiently planned to care for a surge of extra patients by using non-health care facilities, such as community centers, sports arenas, or hotels.” (p. 197). This poor planning that was exhibited by the Federal government in response to Katrina, highlights the need for strong leadership at all levels of an organization during both terrorist attacks and natural catastrophes. Also, the problems that subsequently occurred throughout FEMA and the federal response in wake of Hurricane Katrina were largely due to personnel failing to competently
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communicate with one another. “The various agencies had major difficulties in coordinating and FEMA did not deliver what people thought it had promised. At all levels there was a lot of finger pointing and wrangling over who would do what and who would pay for what” (Denning, 2006, p.17). We must learn from these examples of poor human resource allocation and preparation that organizations need to have a crisis response plan which enables them to initially know where all their employees are (since now so many employees do not just work at the corporate headquarters) and to be able to contact them and their families. Many of the problems and difficulties suffered by the people of Louisiana as a result of Hurricane Katrina were due to poor organizational communications. “At each level of government, leaders failed to hash out their differences beforehand. As a result, officials ran into communications roadblocks that should have been uncovered before the disaster struck.” (Roberts, 2006, p. 26). Another problem that contributed to the organizational breakdown after Katrina was the result of a decentralized command center that failed to hold civil employees accountable to the fulfillment of their obligations as administers of public services. “The report noted that in the days after Hurricane Katrina, more than 30% of the New Orleans Police Department did not report for duty, an indication that “planning must not only account for absences, but also seek to address worker concerns.” (Young, 2006, p. 197). It is evident, based on these incidents, that there is a great need for HRIS systems, which can help the organization, personnel, customers and family members respond quickly in a crisis. Using some of the successes and failures of both 9/11, and Hurricane Katrina as guides to what worked and what didn’t, HRIS can help organizations to begin to take the correct precautions to ensure that when a tragedy or a disaster does strike, an organization is as prepared as possible. In a comment on the state of technology and its implications today, Andrew Lippman, director of the MIT Media Lab,
The Role of HRIS in Crisis Response Planning
relates an unfortunate consequence of living in the wireless age. “The response to the 1906 San Francisco earthquake was more efficient than the emergency efforts that followed Katrina in New Orleans. At a time when communications technologies were limited, a single entity—the U.S. Army—quickly took control of emergency operations,” (Hamblen, 2006, p. 20). There are some good examples of companies employing their HRIS to implement crisis decisions. American Airlines is an excellent example. Directly after the attacks on 9/11 it took immediate steps to assist its personnel. “After American Airlines Flight 11 crashed into the North Tower of the World Trade Center, American Airlines’ most important public was the families of their passengers and crew. A crisis management plan called for the utilization of the Customer Assistance Relief Effort (CARE) program. CARE sent more than 350 specially trained volunteers from American to the departure and destination cities of the hijacked plane. They set up command centers to assist families of victims and helped them deal with such things as flight arrangements, hotel accommodations, and provided food if necessary. CARE volunteers, who speak a cumulative total of 50 languages, also escorted family members attending accident-related events, including memorials and funerals” (Feam-Banks, 2002, p. 30). The corporation of Coast Electric also learned valuable lessons from the tragedy of 9/11 and decided to implement an ad-hoc system of additional, part time employees to deal with the problems created by Hurricane Katrina. “During the storm, Coast Electric saw its 230 full-time employee population swell to 3,000 with contract crews” (Babcock, 2006, p. 37). The professional services organization firm, Ernst and Young, created a catastrophe communications network to account for its employees affected by disaster. “The [so-called] ‘Roll Call’ database allows emergency personnel to view which employees have checked in and compare them against the list of workers assigned or “hoteling” at the office facing the
emergency” (HR Focus, 2005). This roll call can be issued at anytime via an acting manager and it helps track where personnel are during a crisis. Important steps have been taken through management of HRIS of several companies to minimize the potential damage of a crisis of an entirely different nature—that of financial proportions. After the unparalleled disaster of the collapse of the gigantic Enron Corporation, which destroyed the income and assets of thousands of its employees in 2002, many forward-thinking industries have taken preventive measures to ensure its workers are protected through its HRIS. “While Congress and the Bush administration wrestle with how to alter the nature of defined contribution pension plans, savvy HR professionals are reacting to Enron by shoring up the administration of company 401(k) and employee stock ownership plans. They are also tending to employee relations issues that may have been caused by the negative publicity surrounding Enron” (IOMA’S REPORT, 2002, p.3). Finally, in what may be considered an extremely altruistic move or a very pragmatic one, some companies have taken the approach that during a time of crisis for their company, they will refer their own customers to their competitors if they are unable to meet their customers’ needs at the time; this is known as applying a continuity plan. “When Takata Corp.’s airbag plant in Mexico blew up in late March, it set off a supply-chain reaction that illustrates the sophisticated problem-solving capability of the auto industry” (Nussel, 2006, p.14). Instead of telling its customers to wait until the plant could be reopened, the HR department of Takata referred them to rival, Autoliv, while they were attempting to fix the problem at their airbag plant and get back on track.
FUTURE TRENDS Even in this era of cellular phones, the Internet, and fax machines, there is something reassuring about the idea of a central authority that is able
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The Role of HRIS in Crisis Response Planning
to give and receive orders with competence that is worthy of emulation. It is the notion that someone, somewhere is in control and knows what to do. Our organizations could have authority on an even bigger and more efficient scale with the right kinds of human resource and information systems preparation. “Good crisis preparedness requires a culture shift,” says Kitty Porterfield, director of communications for Virginia’s Fairfax County Public Schools. “It requires leadership from the top, a critical mass of trained staff members, careful planning, and excellent communication” (Padgett, 2006, p.27). “Hastily developed networks,” is another way HRIS can help organizations in crises. It is very beneficial for firms and has the undeniable payoff of sound organizational planning ahead of time. “Hastily formed networks is an area where advanced networking technology and human organization issues meet…. The first priority after the precipitating event is for the responders to communicate. They want to pool their knowledge and interpretations of the situation, understand what resources are available, assess options, plan responses, decide, commit, act, and coordinate. Without communication, none of these things happens” (Denning, 2006, p.16).
CONCLUSION Ultimately, however, we cannot predict when a crisis is going to occur. This unpredictability is part of the reason that crises are so devastating. The best thing any organization can do to prepare for a crisis is to prepare its defense and that means planning and communicating, beginning with the HR department via information systems down to all levels of a company. It helps to practice by using safety drills. “Test your communications plan and have a backup. Make sure you’re as prepared as possible for your post-disaster activity. That means you need to know where your people are. You need to know how they can get back, and
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you need to have a place for them to get back to” (Lawson, 2005, p. 21). It is also important to make sure your organization is not overly dependent upon technology that could fail in an emergency. “Don’t rely upon cellular and pushto-talk networks. Have an old-fashioned radio system for backup communications on campus. Educate your key personnel on text messaging. We couldn’t make a voice phone call, but we could use text messaging on our phones, because that used so much less bandwidth. Again, put your key personnel in one location, out of harm’s way” (Lawson, 2006, p. 21). Organizations are very important to our lives. Our jobs help us determine who we are and they give us identity. When a catastrophe happens, we want to know that we are safe where we work and that can only occur with the right planning and early preparations put into place. “In addition to providing income, insurance, and other benefits, work imparts a sense of purpose, interrelatedness, and belonging. The workplace serves as a major organizing factor in the lives of most adults and as a source of social support; it is an essential part of the local community” (Schouten et al., 2004, p. 229).
REFERENCES Babcock, P. (2006). Lessons from Katrina: Make your plans now. HRMagazine, 51(8), 27–37. Beckers, A. M., & Bsat, M. Z. (2002). A DSS classification model for research in human resource information systems. Information Systems Management, 19(3), 41–50. doi:10.1201/1078/4 3201.19.3.20020601/37169.6 De Tura, N., Reilly, S. M., Narasimhan, S., & Zhenhua, J. Y. (2004). Disaster recovery preparedness through continuous process optimization. Bell Labs Technical Journal, 9(2), 147–162. doi:10.1002/bltj.20031
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Denning, P. J. (2006). The profession of IT. Communications of the ACM, 49(4), 15–20. doi:10.1145/1121949.1121966 Feam-Banks, K. (2002, September 30). A snapshot of how organizations responded to tragedy. Tactics. Hacker, C. A. (2003). Maintaining positive relationships when giving and receiving critical feedback. Information Systems Management, 20(4), 77–79. doi:10.1201/1078/43647.20.4.20 030901/77296.11 Hamblen, M. (2006, March 6). Disaster communications still lacking, panel says. Computerworld, 20. HR’s role in dealing with disaster. (2005). HR Focus, 82(11), 6-7. Hustad, E., & Munkvold, B. E. (2005). IT supported competence management: A case study at Ericsson, 22(2), 78-88. IOMA’S Report on Managing HR Information Systems. (2002). How your HRIS can help ease employees’ post-Enron concerns. 3-6. Kathleen, F. B. (2002, September). A snapshot of how organizations responded to tragedy. Tactics. Lawson, J. (2005). A look back at a disaster plan: what went wrong—and right. The Chronicle of Higher Education, 52(16), 20–22. Lockwood, N. R. (2005). Crisis management in today’s business environment: HR’s strategic role. HRMagazine, 50(12), 1–10. Longenecker, C. O., & Scazzero, J. A. (2003). The turnover and retention of IT managers in rapidly changing organizations. Information Systems Management, 19(4), 58–63. Nussbaum, B. (2005). The next big one. Business Week, 3851, 34–38. Nussel, P. (2006). What to do when the plant blows up. Automotive News, 80(6217), 14.
Padgett, R. (2006, May). Keeping cool in a crisis. Communicator. Education Digest, 27–28. Roberts, P. S. (2006, June/July). FEMA after Katrina. Policy Review, 15–33. Schouten, R., Callahan, M. V., & Bryant, S. (2004, July/August). Community response to disaster: The role of the workplace. Harvard Review of Psychiatry, 229–237. doi:10.1080/10673220490509624 Smith, M., Lees, D., & Clymo, K. (2003). The readiness is all. Planning and training for post-disaster support work. Social Work Education, 22(5), 517–528. doi:10.1080/0261547032000126452 Young, D. (2006, February 1). Nation still unprepared for health crisis. American Journal of Health-System Pharmacy, 63, 197. doi:10.2146/ news050047
KEY TERMS AND DEFINITIONS Ad-Hoc System: Strategy employed by an effective HRIS to improvise in time of crisis whether that means employing temporary employees to deal with a disaster or installing additional bases from which to continue to conduct business. Catastrophe Communications Network: A roll call system in which once an “incident” is reported, all assigned employees must check in to ensure personnel safety and accountability. Competence Management: The planning, implementation, and evaluation of initiatives to ensure sufficient competencies of the employees and the company to reach the objectives of the organization. Continuity Plan: The go-to plan you have set up in place when your alternatives have been minimized; one example is attending your customers via your competitors’ resources when you are unable to assist them in the same capacity you otherwise could when not in a crisis situation.
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Crisis Management: An organization’s preestablished activities and guidelines for preparing and responding to significant catastrophic events or incidents (i.e., fires, earthquakes, severe storms, workplace violence, kidnappings, bomb threats, acts of terrorism, etc.) Crisis Response Plan: From the point of view of a functioning HRIS, that strategy which enables a company to initially know where all their employees are (since now so many employees do not just work at the corporate headquarters) and that which allows them to able to contact them and their families. Decision Making: The processes of thought and action involving an irrevocable allocation of resources that culminates in choice behavior. Emergency Response Organizational Model: A new expectation of (health) workers
that includes (1) a readiness and willingness to report to duty in emergencies and (2) an ability to effectively communicate risk to an anxious public about terrorism or naturally occurring disasters. Hastily Formed Networks: A thrown-together community or organization designed to gather crucial information and deliver it to the most appropriate people in a crisis situation. Knowledge Management Systems: A broad range of information systems supporting the creation, transfer, and application of individual and organizational knowledge. Roll Call: An interactive database whereby acting managers can keep track of (key) employees in time of crisis by having them check in once an alert has been issued (usually via e-mail).
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 764-769, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Concepts, Technology, and Applications in E-Mentoring Ricardo Colomo-Palacios Universidad de Carlos III, Spain Juan Miguel Gómez-Berbís Universidad de Carlos III, Spain Angel Garcia-Crespo Universidad de Carlos III, Spain Cristina Casado-Lumbreras Universidad Complutense, Spain
INTRODUCTION The so-called “Internet revolution” has dramatically changed the way people communicate and work nowadays. Attending to The Word Factbook developed by the U.S. Central Intelligence Agency (CIA), there are 1,018,057,389 Internet users in the world by 2005 (CIA, 2006). Fostering of the Internet revolution from a business perspective is out of question and the ever-growing number of Web functionalities has implied a significant and dramatic change in all business management DOI: 10.4018/978-1-60960-587-2.ch305
areas. Within these areas, this revolution has not gone unnoticed, particularly for human resources management. Mentoring, which has been used as a tool for human capital development leverage in organizations has also been deeply impacted by the emergence and generalized use of Internet technologies giving birth to the so-called “ementoring.” The origins of the term must be looked for in Ancient Greece. In the Homer masterwork “Odyssey,” Ulysses, king of Ithaca, recommends mentor Alcímida his house, properties, and his son, Telemachus, education on leaving for the Troy War (traditionally dated from 1193 BC-1183 BC).
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Concepts, Technology, and Applications in E-Mentoring
Apart from the word ethimology, several modern disciplines literature (such as management, social psychology, sociology, or knowledge management) have provided with mentoring studies from the late seventies of the XX century, particularly, from the mid-nineties. As a consequence of the growing interest of the topic and its broad application in business ecosystems, thousands of definitions have popped up, trying to cover the semantics of the concept. Due to the aforementioned popularity of the concept, Friday and Green (2004) accomplish a re-conceptualization of the term stemming from a deep and detailed study about existing literature definitions. Subsequently, a definition for the mentoring concept is provided, aiming at being universal, following the authors goal: Mentoring is a guidance process that takes place between a mentor and a protégé (also known as mentee). Authors define similarly the mentor term as “wise and trusted counselor or teacher.” Hence, mentoring is an improvement process in a number of aspects related to the professional career, but it is also the improvement of the individual integrating two sides: a senior advisor and a junior protégé. The established relationship is a win-win situation, having mutual benefits for both sides. On the one hand, the protégé, following the empirical studies about the topic, benefits from improvements in his professional career mainly related to promotions (Dreher & Ash, 1990; Scandura, 1992), a higher income (Dreher & Ash, 1990; Whitely, Dougherty, & Dreher, 1991), more satisfactions in the work environment, and socialization in the workplace (Chao, Walz, & Gardner, 1992). On the other hand, mentors benefit from faster promotions, reputation, and personal satisfaction (Scandura, Tejeda, Werther, & Lankau, 1996). Finally, organizations also benefit, given a highest motivation of the employees, lower working mobility rates, and the improvement of leadership and development skills (Levesque, O’Neill, Nelson, & Dumas, 2005), relying on more adaptable employees, willing to share knowledge and ready to face a decision
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making process with more trust and confidence (Ragins & Scandura, 1999).
BACKGROUND Due to technology capability of setting up new communication means and paradigm among people, the envisagement of electronic communication as a means for mentoring relationships was immediate. E-mentoring refers to the process of using electronic means as the primary channel of communication between mentors and protégés (Hamilton & Scandura, 2003). The key distinction between electronic mentoring and traditional mentoring (t-mentoring) is reflected in the face-time between mentors and protégés. The communication means used by both sides is absolutely different in the two mentoring types. While traditional mentoring uses face-to-face relationships, e-mentoring, which also harness face to face relationships, particularly at the beginning of the relationship, is mostly based on e-mail, chat, instant messaging, and several other Internet applications. As it was previously outlined, e-mentoring is a kind of mentoring, based total or partially on electronic communication. Due to the great amount of electronic communication instruments, a remarkable number of different names for the concept e-mentoring have been provided. According to Perren (2003), e-mentoring can be seen to encompass a range of terms: computer-mediated mentoring, tele-mentoring, e-mail mentoring, Internet mentoring, online mentoring, and virtual mentoring. In this section, we will describe the most relevant e-mentoring features through a review of advantages and disadvantages of e-mentoring faced to t-mentoring, the phases in the mentoring cycle, and the description of e-Mentoring mentoring styles, to end up with the main and most widely used e-mentoring implementations.
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Advantages and Disadvantages of E-Mentoring Face to T-Mentoring Although Evans and Volery (2001) suggested from their survey of experts that e-mentoring is “secondbest” and should only be seen as a supplement to face-to-face mentoring, there are many other studies in which e-mentoring is pointed out as a valid vehicle to overcome some of the t-mentoring barriers. E-mentoring provides flexibility and easy access which is highly beneficial to those who may face barriers to being mentored, because of their gender, ethnicity, disability, or geographical location (Bierema & Hill, 2005). Hamilton and Scandura (2003) also analyze the advantages of e-mentoring in comparison with t-mentoring. These advantages are classified in mainly three groups: • • •
Organizational structure Individual and interpersonal factors Flexible/alternative work arrangements
Firstly, regarding the organizational structure, e-mentoring takes out geographical barriers carried by face-to-face interactions, smoothes status differences within the organization, and increases the pool of available mentors. Secondly, in what concerns individual and interpersonal factors, the absence of face-to-face interactions decreases and minimizes gender or ethnical issues impact by increasing the effectiveness of mentors with a lack of social skills. Finally and to sum up, in what concerns flexible or alternative work arrangements, the ability and actual capability of performing asynchronous communications implies clearing out temporal barriers or caveats. In addition, communication is not geographically bounded. Some studies provide further arguments to the statements from Hamilton and Scandura (2003). Hence, following this trend, Warren and HeadlamWells (2002) observed that t-mentoring, typically operating in large organizations tends to cast the
mentee as a passive recipient of structured formal provision. On the other hand, the use of the Web as a communication means between the mentor and the mentee improves access and creates a larger pool of potential mentors and mentees (Packard, 2003). In addition, as with other e-learning programmes, a major advantage of an e-mentoring system is its cost effectiveness (Headlam-Wells, Gosland, & Craig, 2005). There are high start-up costs, but once established, the operational costs are relatively low. Costs related to travel or time away from the job and costs of updating learning resources can be reduced. At last, a record of the ‘‘discussion’’ usually exists for later reflection and learning (Hunt, 2005). To summarize, it is possible to state, as it is discussed by Clutterbuck and Cox (2005), that e-mentoring will be able to overcome many of the problems involved in t-mentoring. Nevertheless, not all e-mentoring features are win-win for the mentor-mentee relationship. Eby, McManus, Simon, and Russell (2000) conducted empirical work in this area that further examined the dark side of mentoring and developed a useful taxonomy of negative experiences from the mentee perspective using qualitative data. These authors make important distinctions between what is considered negative and how that might be different from the mentee and mentor perspective. A latter study conducted by Ensher, Heun, and Blanchard (2003) uses Eby et al.’s (2000) findings to identify five major challenges in e-mentoring: (1) likelihood of miscommunication, (2) slower development of relationship online than in face to face, (3) requires competency in written communication and technical skills, (4) computer malfunctions, and (5) issues of privacy and confidentiality.
Phases in the Mentoring Cycle Salmon (2004) suggests a five-stage model to provide a valuable guide for e-mentoring programme designers. Central to this model is the role of the e-moderator, who acts as a mentoring resource to
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Table 1. Matching criteria proposed by Headlam-Wells et al. (2006) for automatic pair matching Criterion
Explanation
Age
Mentee matched with older mentor
Number of years work experience
Mentee matched with mentor with more work experience
Level of qualification
Mentee matched with mentor with higher qualification level
Marital status
Mentee matched with mentor with same marital status
Children
Mentee matched with mentor in a similar situation to themselves (having/had children)
Dependant care
Mentee matched with mentor in a similar situation
Life/career history
Identify similarities in life/career experiences, fro example, having experienced barriers to progression
Personal skills
Mentee matched with mentor who could help them develop the personal skills they need to improve
Professional skills
Mentee matched with mentor who could help them develop the professional skills they need to improve
Vocational sector
Mentee matched with mentor who worked/had worked in a similar occupational area
Personal values
Mentee matched with mentor who shared similar core values
both mentors and mentees. Purcell (2004) suggests that “even mentors need mentors at times,” or at least someone with whom they can talk about mentoring issues. Salmon’s first stage is “access and motivation” where both mentor and mentee access the system, and are welcomed, encouraged, and motivated by their e-moderator. In the second stage, “online socialization,” participants establish their online identities and build bridges with their partner, the e-moderator, and the wider group. “Information exchange” is the stage in which participants explore the site and are encouraged to carry out learning tasks using online learning materials. At stage four, “knowledge construction” discussions on career development take place between the pair and among the group. This fourth stage can be considered as the core of the learning process. At stage five, “development,” participants focus in greater depth on achieving their personal goals and reflect on the learning process. Notwithstanding, as it was previously stressed, the general approach of the model for e-learning activities avoids relying on one of the fundamental aspects of e-mentoring relationships: pair matching criteria. This concept is based on the assignment of a mentor to a mentee depending of a number of parameters defined with the purpose
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of harnessing the mentorship. Such parameters might include values, gender coincidences, related professional experience, and so on. Despite it being a key issue of concern for mentoring, crucial in words of Hunt (2005), there is little research concerning the matching of pairs (Headlam-Wells et al., 2005). Cohen and Light (2000) argue that matching solely on the basis of mentees needs and mentors’ skills may not be enough to ensure successful matches, and suggest that personality factors may also be significant. Indeed, successful mentoring relationships are often reported as those where mentees felt they shared their mentors’ personal values (Headlam-Wells et al., 2005). With the exception of a small number of mentoring programmes which use a formal matching system, most tend to use a ‘hand-sift’ method, whereby mentees are matched with a mentor who suits their needs (Headlam-Wells, Gosland & Craig, 2006). However, if a number of people of remarkable size is faced, that kind of features can unfortunately not be applied. Therefore, HeadlamWells et al. (2006) suggest a set of eleven criteria that allow the automation of the process, together with application criteria:
Concepts, Technology, and Applications in E-Mentoring
E-Mentoring Styles
FUTURE TRENDS
According to Ensher et al. (2003) there are three e-mentoring styles. The first type is computer mediated communication (CMC)-only in which mentoring is done only by electronic means. The second type is CMC-primary, in which the majority of mentoring interactions are conducted online but may also be supplemented by telephone calls and face-to-face interactions. Usually the first contact is made face to face. The third type is CMC-supplemental in which the majority of mentoring is done in person, yet the relationship is supplemented via e-mails, instant messaging, chat-rooms, Web sites, and so forth. This can be the case of a mentor and mentee who work for the same organization, yet because of different schedules or difficulty in scheduling meetings, may use e-mail in place of face-to-face meetings and to communicate information.
The ever-growing social adoption of IT is fostering an unstoppable “virtualization” process of most of our daily experiences. Virtual world overlaps the physical world and fits its constraints. Thus, most e-mentoring relationships have attained significant progress in the CMC-supplemental in a remarkable percentage. In addition, the boom of the so-called Web 2.0 brings into the arena an interesting innovation and research field where ementoring is a perfect guinea pig. This new social Web is a further evolution of the Web, whereby a number of social software tools are hoarding communication, sharing, and cooperation among Web users. This new upcoming communication paradigm is depicting a challenging scenario featured by infinite learning relationships and informal mentoring. These will be based on the concept of “collective intelligence” implemented by a number of crowd-oriented sites such as Digg® (www.digg.com) or the ever-increasing blogs being born each and every day. The blogosphere, an abstraction to name this new phenomenon, allows bi-directional interaction by means of comments and have subsequently subverted the consumerproducer equation on the Web. Nonetheless, e-mentoring, despite its obvious advantages, presents some caveats such as those related to communication (Ensher et al., 2003). Presently, most of the mentor-mentee interactions happen in a textual form, using e-mail, instant messaging (IM), or discussion forums. An increasing number of functionalities, networks bandwidth capabilities, and server storage outperform previous technologies and present a great chance for the application of visual technologies reducing the disadvantages of writing communication, namely miscommunication or slowness, by allowing communication storage for its further review. One of the technological applications that can be envisaged as highly recommendable for e-mentoring processes is the so-called “virtual worlds.” These are computer-generated graphi-
E-Mentoring Implementations There are a number of Web sites that allow the creation of relationships among mentors and mentees. As a mere example, we can point at: Electronic Emissary® (http://emissary.wm.edu/), Professional Mentoring® (http://www.promentoring.com/), Mighty Mentors® (http:// www.mightymentors.com/), Academos® (http:// www.academos.qc.ca/), Advanced Mentoring® (http://www.advancementoring.com), iMentor® (http://www.imentor.org), and the one which has undergone probably most impact and acceptance: MentorNet® (http://www.mentornet.net/). MentorNet® offers one-on-one e-mentoring programs for students of engineering and related sciences (freshmen through postdocs) with professionals in industry, government, and higher education for 8 month-long, structured mentoring relationships conducted via e-mail. According to the company, since its birth in 1998, MentorNet® has matched over 25,000 individuals and created a community of more than 15,000 members.
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cal representations of environments (imagined or reality-driven). The most well-known and widely visited is Second Life®. It is inhabited by 13,874,040 people (June 2008) from around the globe that perform 19,060,161 economic transactions per month (April 2008). Second Life® offers its users to show evolving behaviors related to the changes undergone in its environment via their avatar-shape representation. Currently, virtual worlds are used in a variety of domains, particularly those related with simulation, entertainment, or even politics (U.S. politician Mark Warned showed up in Second Life® on August 31, 2006 to discuss several points of his campaign). Thanks to the digital features of virtual reality, this kind of environments benefit from the possibility of integrating human perception in the system and emulate behaviors in the avatars, even adding non-verbal communication. This circumstance can drop down some of the CMC barriers and leverage the potential of e-mentoring sessions.
CONCLUSION The e-mentoring domain offers an open field both for research and for business environments application in the human resources area. Nowadays, if compared with the t-mentoring research field, studies related to the concept and its applications are quite rare or scarce. On the other hand, e-mentoring spreading capabilities seem only limited by the possibilities offered by the technology to the users. Inherent features of e-mentoring may break down a number of barriers for the application of t-mentoring, broadening its impact significantly. The downside of e-mentoring application is focused on technological limitations and technology access. The evolution of technology and the emergence of new Web-based communication paradigms will foster their enrichment and harnessing of mentoring communities, avoiding these to become a simple set of peers, creating synergies for the bi-directional
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learning of mentor and mentees. Furthermore, outside the technological scope, negative aspects of online relationships can be greatly reduced with training and education (Wallace, 1999). In what concerns to barriers for technology adoption, on the one hand, platforms ease of use and, on the other hand, ever-growing acceptance of technology by world wide population might attain critical changes in the situation, fostering virtual and physical world integration. To sum up, despite the knowledge gap in ementoring research, the growing acceptance of CMC in significant everyday life aspects opens a challenging application field which academia and organizations must harness.
REFERENCES Bierema, L., & Hill, J. (2005). Virtual mentoring and HRD. Advances in Developing Human Resources, 7(4), 556–568. doi:10.1177/1523422305279688 Chao, G. T., Walz, P. M., & Gardner, P. D. (1992). Formal and informal mentorships: A comparison on mentoring functions and contrast with nonmentored counterparts. Personnel Psychology, 45, 619–636. CIA, Central Intelligence Agency. (2006). The World FactBook. Rank order Internet users. Retrieved September 19, 2006, from https://www.cia.gov/cia/publications/factbook/ rankorder/2153rank.html Clutterbuck, D., & Cox, T. (2005, November). Mentoring by wire. Training Journal, 35-39. Cohen, K. J., & Light, J. C. (2000). Use of electronic communication to develop mentor-protégé relationships between adolescent and adult AAC users: Pilot study. Augmentative and Alternative Communication, 16, 227–238. doi:10.1080/0743 4610012331279084
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Dreher, G. F., & Ash, R. A. (1990). A comparative study of mentoring among men and women in managerial, professional, and technological positions. The Journal of Applied Psychology, 75, 539–546. doi:10.1037/0021-9010.75.5.539 Eby, L. T., McManus, S. E., Simon, S. A., & Russell, J. E. (2000). The Protégés perspective regarding negative mentoring experiences: the development of a taxonomy. Journal of Vocational Behavior, 57, 1–21. doi:10.1006/jvbe.1999.1726 Ensher, E. A., Heun, C., & Blanchard, A. (2003). Online mentoring and computer-mediated communication: New directions in research. Journal of Vocational Behavior, 63(2), 264–288. doi:10.1016/S0001-8791(03)00044-7 Evans, D., & Volery, T. (2001). Online business development services for entrepreneurs: An exploratory study. Entrepreneurship and Regional Development, 13(4), 333–350. doi:10.1080/08985620110052274 Friday, E., Friday, S. S., & Green, A. L. (2004). A reconceptualization of mentoring and sponsoring. Management Decision, 42(5), 628–644. doi:10.1108/00251740410538488 Hamilton, B. A., & Scandura, T. A. (2003). E-mentoring: Implications for organizational learning and development in a wired world. Organizational Dynamics, 31, 388–402. doi:10.1016/ S0090-2616(02)00128-6 Headlam-Wells, J., Gosland, J., & Craig, L. (2005). There’s magic in the Web: E-mentoring for women’s career development. Career Development International, 10(6/7), 444–459. doi:10.1108/13620430510620548 Headlam-Wells, J., Gosland, J., & Craig, L. (2006). Beyond the organization: The design and management of e-mentoring systems. International Journal of Information Management, 26, 372–385. doi:10.1016/j.ijinfomgt.2006.04.001
Hunt, K. (2005). E-mentoring: Solving the issue of mentoring across distances. Development and learning in organization, 19(5), 7-10. Levesque, L. L., O’Neill, R. M., Nelson, T., & Dumas, C. (2005). Sex differences in the perceived importance of mentoring functions. Career Development International, 10(6), 429–443. doi:10.1108/13620430510620539 Packard, B. W. (2003). Web-based mentoring: Challenges traditional models to increase women’s access. Mentoring & Tutoring, 11(1), 53–65. doi:10.1080/1361126032000054808 Perren, L. (2003). The role of e-mentoring in entrepreneurial education & support: A meta-review of academic literature. Education & Training, 45(8/9), 517–525. doi:10.1108/00400910310508900 Purcell, K. (2004). Making e-mentoring more effective. American Journal of Health-System Pharmacists, 61, 284–286. Ragins, B., & Scandura, T. (1999). Burden or blessing? Expected costs and benefits of being a mentor. Journal of Organizational Behavior, 20(4), 493–510. doi:10.1002/ (SICI)1099-1379(199907)20:4<493::AIDJOB894>3.0.CO;2-T Salmon, G. (2004). E-moderating: The key to teaching and learning online (2nd ed.). London: RoutledgeFalmer. Scandura, T., Tejeda, M., Werther, W., & Lankau, M. (1996). Perspectives on mentoring. Leadership and Organization Development Journal, 17(3), 50–58. doi:10.1108/01437739610117019 Scandura, T. A. (1992). Mentorship and career mobility: An empirical investigation. Journal of Organizational Behavior, 13, 169–174. doi:10.1002/job.4030130206 Wallace, P. (1999). The psychology of the Internet. Cambridge, UK: Cambridge University Press.
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Warren, L., & Headlam-Wells, J. (2002). Mentoring women entrepreneurs: A better approach. Organizations and People, 9(2), 11–17. Whitely, W. T., Dougherty, T. W., & Dreher, G. F. (1991). Relationship of career mentoring and socioeconomic origin to managers’and professionals’ early career progress. Academy of Management Journal, 34, 331–351. doi:10.2307/256445
KEY TERMS AND DEFINITIONS E-Mentoring: The process of using electronic means as the primary channel of communication between mentors and protégés. Mentor: Trusted friend, counselor, or teacher. Usually a more experienced person.
Pair Matching: Process in which a mentor is assigned to a mentee regarding upfront pre-defined parameters with the aim of attaining a higher benefit from the mentoring process. Peer Mentoring: Form of mentoring that takes place in learning environments such schools, usually between an older more experienced student and a new student(s). Protégé/Mentee: More junior individual who is paired with a mentor based on shared interests in order to provide him/her career and psychosocial developmental support. T-Mentoring/Mentoring: Relationship between a more experienced person, mentor, and a less experienced partner referred to as a mentee or protégé.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 166-171, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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E-Recruitment in Emerging Economies Pramila Rao Marymount University, USA
INTRODUCTION Electronic human resource management (eHRM) is the process of using online technology for human resource management activities, such as recruitment, training, performance appraisal and benefits (Rudich, 2000). The goal of this article is to discuss the origins of e-recruitment and address some challenges of e-recruitment in emerging economies like India and Mexico as multinationals seeks to establish strong presence in these countries. DOI: 10.4018/978-1-60960-587-2.ch306
E-recruitment originated in the form of independent job sites called bulletin board systems in the 1980s. Initially only the U.S. universities and military had access to Internet facilities. However, the PC revolution that embraced the world in the early 1990s changed the corporate landscape completely (Rudich, 2000). Today more than three-fourths of the Fortune 500 companies use online recruiting and approximately about 18 million people are posting their resumes on Internet portals such as Monster.com (Feldman & Klaas, 2002). Corporations are aggressively seeking the best talent worldwide. Internet recruiting allows
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organizations to tap a huge talent beyond their own national boundaries (Birchfield, 2002). Erecruitment has several advantages such as its low cost (Galanaki, 2002; Rudich, 2000), quick response time (Hays, 1999), wide range of applicants (Sessa & Taylor, 2000), and worldwide accessibility (Galanaki, 2002; Vinutha, 2005). Specifically to recruitment, it has demonstrated a shorter recruitment cycle and lower cost-per-hire (Jasrotia, 2001; Pollitt, 2005; Sridhar, 2005). For instance, Nike has demonstrated with the use of e-recruitment the average time to fill job positions reduced from 62 to 42 days and the recruitment costs reduced by 54% (Pollitt, 2005). From the employees’ perspective, is that it has made the recruitment process a very proactive one—now passive applicants post their resumes online in anticipation of an interview (Mollison, 2001). Further, online recruitment allows applicants the luxury of accessing jobs online at their own convenience 24 hours 7 days a week. It provides the comfort of scrutinizing jobs without physically going through the stress of an interview. Finally, it allows applicants to get a thorough understanding of the organization and its culture before joining the organization (Vinutha, 2005).
BACKGROUND The United States started the global trend of erecruitment when Taylor launched Monster.com in 1994 (Murray, 2001) with 20 clients and 200 job openings (Anonymous, 2007). Monster.com pioneered e-recruitment in the U.S. and today is the leading Internet recruitment portal globally. Monster.com launched the concept of posting and storing resumes online (Mollison, 2001). The name Monster.com was used to suggest “a big idea or a monster idea” (Mollison, 2001) and the company has definitely lived up to its name. The word monster translates well into other languages, an important point, as the company has global operations in 19 countries. On an average,
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the company has about 6 million visitors a month and about 804 of the Fortune 1000 companies use Monster.com as one of their recruitment portals (Mollison, 2001). The beginning of e-recruitment coincided with a business culture that was becoming increasingly global with the introduction of new trade reforms such as the NAFTA and the breaking down of political barriers such as the Berlin Wall (Friedman, 2005). However, it was not just political and economic transitions that lead to the Internet Revolution that we see today. It was the concept of making the Internet accessible to all and sundry that brought e-recruitment to it forefront. A British scientist Tim Berners Lee introduced the World Wide Web to academic scientists in 1991. This was a harbinger to Internet recruiting. Netscape revolutionized the concept of Web browsing by making the Internet accessible “to the public, from five-year olds to eighty-five year olds” (Friedman, 2005, p. 56). The United States was ahead of the game in e-recruitment because of increased Internet penetration compared to other countries even a decade ago (Murray, 2001). The national average for Internet penetration is 59%, with the Pacific states of Washington and Oregon boasting of a high average of 68% (Anonymous, 2003). Further, the US culture promotes sharing work experiences more openly than many other cultures- hence posting resumes on Web sites was not a difficult choice for applicants (Mollison, 2001). E-recruitment can be either in the form of corporate recruiters or third-party recruiters. Corporate recruiters allow potential job applicants to post their resumes directly on their job sites without using any other intermediaries. Statistics reveal that 80% of the world’s Fortune 500 companies use corporate Web sites for recruiting (Epstein & Singh, 2003). Third-party recruiters, such as Monster.com are synonymous with the job advertisement pages of the newspapers identifying thousands of employment vacancies (Epstein et al., 2003). They usually charge employers a fee
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for posting their advertisements for certain duration of time (Tong & Sivanand, 2005). Usually third party recruiters and corporate recruiters collaborate together to provide best recruitment and career solutions to candidates (Mollsion, 2001; Pollit, 2005). The major e-recruitment portals in the U.S. are Monster.com, CareerBuilder.com, and Yahoo® that are growing phenomenally at an average rate of about 32%. Online recruiting seems to flourish with some chronic problems of Corporate America such as employees who are persistently dissatisfied, having a lack of “knowledge” workers, and supervisory workforce. Statistics suggest that a typical American employee has at least eight different jobs between the ages of 18-32 (Anonymous, 2007). The online revolution pioneered by Monster. com in the U.S. in 1994 (Murray, 2001) set the stage for emerging economies like India and Mexico to experience the flattening of the world (Friedman, 2005).
E-RECRUITMENT IN INDIA India has become a very important economic power ever since it liberalized its economy in 1991. Over the past two years, the Indian economy has been growing at about 8% per annum. Economists suggest that it will be the third largest economy in 2040. Today 125 Fortune 500 companies have their R &D centers in India (Zakaria, 2006). However, this phenomenal growth in multinational investment and economic boom has brought its own recruitment challenges in terms of a workforce that is plagued with attrition and is very brand-conscious. For instance, the attrition rate in the IT industry is usually 25-40% (Mitra, 2006). Applicants are job-hopping constantly for better jobs and challenging work in the IT industry that is growing at a phenomenal rate of 30%. Potential applicants usually have two to three job
offers and spend considerable time deciding which best offer they should accept (Smerd, 2006). Organizations are never certain about the employee’s acceptance of the job offer till the employee reports for the first day of work (Grossman, 2006). HR professionals spend about 80% of their time on recruitment (Grossman, 2006). Indian employees have a very strong addiction to brands and would prefer to work for multinationals such as Google™, Microsoft®, or IBM® rather than a top Indian company. This can be attributed to the masculine cultural dimension of being very statusconscious and openly displaying the privileges such increased status brings (Grossman, 2006). With this current economic prosperity, traditional recruitment has become a nightmare (Smerd, 2006). Traditional recruitment, which includes advertising costs, hiring time, and administrative expenses costs 80% more than Internet recruiting in India (Vinuta, 2005). In March 1997, an Indian company, Naukri. com, began its first Internet portal operation with basic HTML operation. At that time India had only 14,000 Internet connections with most of them being only text-only connections. However, today Naukri.com is India’s largest e-recruitment portal with 3.5 million users and 15,000 corporate clients (Srinivasan, Babu, & Sahad, 2005). The main players of the e-recruitment industry in India today are naukri.com, timesjob, careerindia.com, and jobstreet.com (Sridhar, 2005). Job.street is the only “truste certified e- recruitment” site in India. Such a certification ensures absolute privacy about applicant’s employment details (Suryanarayanan, 2001), which is very important in the Indian organizational culture that values qualities such as loyalty and trust (Chokkar et al., 2007).
Challenges of E-Recruitment in India The predominant challenges of e-recruitment in India are the sheer magnitude and size of recruitment. On an average, large companies recruit about 10,000 entry-level positions annu-
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ally (Sachitanand & Sheth, 2007). The process of screening resumes for authenticity and relevance is quite a challenge even for online recruiters as the population of India staggers over a million (Sridhar, 2005; Vinuta, 2005). For instance, India’s leading software company, Infosys, hires almost an average of about 40 entry-level employees a day (Schlosser, 2006). Second, a strange paradox is that though India is widely known as the IT leader of the world (Friedman, 2005), the high disparity in income levels creates a “digital divide” (Curry & Kenney, 2006) where the rich have the benefits of the technological revolution and poor are left behind. Apart from economic costs, poor telecommunications infrastructure and undependable power shortages are the norm for rural villages in India. India’s population of a staggering one billion has only 3.7% Internet penetration with approximately about thirty-seven million Internet users (Lath, 2006). While the big metropolitan cities of Mumbai, Bangalore, Chennai, Delhi, and Hyderabad are very well-connected, Internet connection in inner cities are not to global standards. The low Internet penetration can be a challenge for U.S. multinationals where a laptop at every desk is so ubiquitous (Lath, 2006). However, to bridge this “digital divide” Internet cafés or cyber cafés have been introduced by the government to provide the benefits of the Internet to each and every citizen. Ivan Pope pioneered the concept of Internet café in 1994. This first cafe was introduced in London to enjoy Web-surfing and having something to munch on the side (http://www.encyclocentral.com/684Internet_Cafes.html). In India, such Internet cafes provide a low-cost access to the Internet to people from different economic backgrounds. It also provides opportunities for young people to become entrepreneurial, such as starting a lowcost Internet business (Lancaster, 2003). Third, the Indian culture places a strong emphasis on personal interaction because of their collectivist ties (Chokkar et al., 2007). Collectivist
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cultures are characterized by a very tight social framework where members distinguish themselves from in-groups and out-groups. Therefore employers in Indian companies tend to select employees known to them through social connections, regardless whether employees are qualified for the job (Awasty & Gupta, 2004).
E-RECRUITMENT IN MEXICO Mexico opened it doors to foreign policy when it changed it trade policy from an import-substitution to an export strategy. With the NAFTA opening the doors to increased trade, Mexico has become the 15th largest exporter economy of the world. In the IT sector, the Mexican government is heavily investing in the Information Technology (IT) industry as it realizes that it lags behind several Asian economies in the IT field. The government has announced an incentive program called Prosoft to achieve $5 billion worth of Mexican software by 2013 and also make Mexico a software leader in the Latin American region (Emmond, 2005; Navarrete & Pick, 2002). Initially the government focused on the business triangle of the Federal District, Monterrey, and Guadalajara, but now it extended to provide online facilities to other business areas, such as Tapachula, Cancun, and Tijuana. Infact, Guadalajara is known as the Mexican Silicon Valley (Urteaga-Trani, 2003). Organizations in Mexico are embracing this new digital culture and its impact on human resource practices. Several organizations are adopting e-training and online services for staffing and compensation practices (Emmond, 2005). The origins of Internet in Mexico began in the late 1980s with the universities of ITESM (Instituto Technologico y de Estudios Superiores of Monterrey) and UNAM (Universidad Nacional Autonoma de Mexico) providing email communication between the two universities. As in the US, the engineering departments in Mexico adopted
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Internet usage earlier than other departments in the colleges (Curry et al., 2006). However, since then the Mexican government has taken aggressive initiatives to provide an Internet economy for its people (Emmond, 2005). It is interesting to note that the major online employment Web sites in Mexico are held by non-Mexican firms. The pioneers of online recruitment in Mexico are bumeran.com and laborum. com, both launched around 1999. Bumeran has its corporate office in Argentina while Laborum has its corporate office in Chile (Anonymous, 2001; Fitzgerald & Liburt, 1999; Peterson, 2000). Scholars suggest barriers in Mexico such as high business costs, complicated ownership laws for new firms, and a lack of capitalist culture prompts non-Mexicans to dominate the e-commerce business (Curry, Contreras, & Kenney, 2001).
Challenges of E-Recruitment in Mexico The predominant challenges are that there is a “digital divide” or “digital inequality,” just like as in India (Curry et al., 2006; Olivas-Luján, Ramírez, & Zapatu-Cantu, 2007). There is a stark distinction between those who can afford access to the Internet and those who cannot. Such digital disparity is widely prevalent because of poor telecommunications infrastructure, very distinct economic classes of the rich and poor, and also high costs associated with Internet usage. To overcome such digital disparity, the government has introduced the concept of Internet cafes in Mexico. Internet usage at these cafes is very affordable and cost an average about 8 pesos an hour (Curry et al., 2006). On an average, about 37% of the households in Mexico have Internet access (Anonymous, 2005), while in the corporate world only 28.6% firms have Internet connection while 71.4% do not have Internet access (OlivasLuján et al., 2007). U.S. multinationals have to be cognizant that in emerging economies Internet
connectivity is still a challenge (Olivas-Luján et al., 2007). The second challenge for e-recruitment in the Mexican culture is employees fear loss of confidentiality in submitting their resumes to the Internet (Mejias, 2000). Loyalty is a very important cultural trait (Davila & Elvira, 2005) and applicants fear their employers (bosses) might see their resumes online (Mejias, 2000). Finally, several online fraud activities, such as credit card transactions, have made Mexican cautious of the credibility of Internet communications (Peterson, 2000). Further, the Mexican culture (Davila et al., 2005; Olivas-Luján et al., 2007) strongly relies on personal relationships and networking due to cultural dimensions of collectivism and uncertainty-avoidance. Mexicans feel intimidated by recruitment practices that do not allow them to get to know the applicants personally. In a case study of four Mexican companies, the HR departments reported a sense of alienation with the applicants with the use of e-recruitment (Olivas-Luján et al., 2007). An observation by Laborum.com, the online recruitment company, was that Mexico had the lowest number of online applicants (80) compared to Argentina which had the highest (150), emphasizing the significance of personal interactions in the Mexican recruitment culture. Further it was also observed that online recruitment is hardly done at the upper-managerial level in Latin American countries, where trust and loyalty dictate hiring practices (Anonymous, 2001). However, in contrast, Rao (2005) identified, in a recent study in US-Mexican joint ventures, Internet recruiting was ranked as the third most important method (35%) in recruiting executive candidates. Multinationals are also known to transcend local human resource practices (Friedman, 2005).The increased presence of multinationals (Urteaga-Trani, 2003) has put a premium of getting quality executive talent worldwide.
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FUTURE TRENDS Internet recruiting will definitely continue to play a very prominent role as the world becomes more digitized. Multinationals are going to rely increasingly on this method of recruitment as it proven to bring high-caliber worldwide talent to your doorstep. Diverse applicants from New Delhi to Nairobi to New York can be leveraged across to provide organizations with best solutions and therefore a sustainable completive advantage (Epstein et al., 2003). Emerging economies will be major business players in tomorrow’s corporate world (Friedman, 2005).
CONCLUSION E-recruitment has proven definite advantages to the recruitment process such as specifically reducing cost and having a shorter time in hiring applicants. Internet recruiting will to play a huge role in the global war for talent seeking cognitive diversity from every corner of this world. The world is becoming flat with the digital revolution of laptops, ipods, and flash drives (Friedman, 2005). While economies like India and Mexico will strive to be at the top of this race with multinationals seeking global opportunities, multinational companies should be cognizant of economic and cultural pitfalls for this method of recruitment in emerging economies like India and Mexico.
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Anonymous. (2007). Career crisis: Monster. com has choices to make as it approaches “Middle Age.” Retrieved October, 15, 2007, from http://knowledge.wharton.upenn.edu/article. cfm?articleid=1817 Awasty, R., & Gupta, R. (2004). An Indo-Japanese MNC operating in India. South Asian Journal of Management, 11(3), 94–113. Chokkar, J., Brodbeck, F., & House, R. (2007). Culture and leadership across the world. The GLOBE book of in-depth studies of 25 societies. Mahwah, NJ: Lawrence Erlbaum Associates. Curry, J., Contreras, O., & Kenney, M. (2001). The Internet and e-commerce development in Mexico. Working Paper 144. The Berkely Roundtable on the International Economy. Curry, J., & Kenney, M. (2006). Digital divide or digital development? The Internet in Mexico. First Monday, 11(3), 1–21. Davila, A., & Elvira, M. (2005). Culture and human resources management. In M. Elvira & A. Davila (Eds.), Managing human resources in Latin America: An agenda for international leaders. London: Routledge Emmond, K. (2005). Investing in IT. Business Mexico, 15(5), 22–28. Epstein, R., & Singh, G. (2003). Internet recruiting effectiveness: Evidence from a biomedical device firm. International Journal of Human Resources Development and Management, 3(3), 216–225. doi:10.1504/IJHRDM.2003.003662 Feldman, D., & Klass, B. (2002). Internet job hunting: A field study of applicant experiences with on-line recruiting. Human Resource Management, 41(2), 175. doi:10.1002/hrm.10030 Fitzgerald, M., & Liburt, E. (1999). Spanishlanguage job site launches. Editor & Publisher, 132(48), 3.
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Friedman, T. (2005). The world is flat. New York: Farrar, Straus, and Giroux. Galanaki, E. (2002). The decision to recruit online. Career Development International, 7(4), 243–250. doi:10.1108/13620430210431325 Grossman, R. (2006). HR’s rising star in India. HRMagazine, 51(9), 46–53. Jasrotia, P. (2001). E-recruitment market registers major growth. Express Computer. Retrieved October, 15, 2007, from http://www.itpeopleindia. com/20011008/cover1.htm Lancaster, J. (2003, October 12). Village Kiosks Bridge India’s Digital Divide. Washington Post, AO1. Lath, S. (2006). The battle of two portals: Yahoo and MSN are getting ready to fight it out in the Indian market, which may still be small but promises a lot. Business Today, 128. Mitra, K. (2006). The new dotcom millionaire. Business Today, 124. Mollison, C. (2001). The Internet world interview. Internet World Magazine. Retrieved October, 15, 2007, from http://www.iw.com/magazine.php?in c=050101/05.01.01interview.html Murray, S. (2001). From tiny job boards into mighty career networks. A brief history of online recruitment. Financial Times, 04. Navarrete, C., & Pick, J. (2002). Information technology expenditure and industry performance: The case of the Mexican Banking Industry. Journal of Global Information Technology Management, 5(2), 7–29. Olivas-Luján, M., Ramírez, J., & Zapata-Cantu, L. (2007). E-HRM in Mexico: Adapting innovativeness for global competitiveness. International Journal of Manpower, 28(5), 418–434. doi:10.1108/01437720710778402
Peterson, A. (2000). Opening a portal: E-Commerce apostle target Latin America. Wall Street Journal (Eastern Edition), A1. Pollitt, D. (2005). E-recruitment gets the Nike tick of approval. Human Resource Management International Digest, 13(2), 33–36. doi:10.1108/09670730510586995 Rao, P. (2005). Executive recruitment practices in US-Mexican joint ventures. Doctoral Dissertation. Proquest International. Schlosser, J. (2006). Infosys. Fortune, 153(5), 41–43. Singh, A. (2005). The e jobs dust-up. Even as they fight each other, online recruitment biggies Naukri and MonsterIndia are going after their print rivals. At stake: A market that could be worth over Rs 1,000 crore by 2008. Business Today, 110. Smerd, J. (2006). Indian firms tap benefits, brand in talent battle. Workforce Management, 85(4), 6–8. Sridhar, B. (2005). E-recruitment, the right way. The Hindu. Retrieved October, 15, 2007, from http://www.hinduonnet.com/ jobs/0503/2005030900350600.htm Srinivasan, P., Babu, V., & Sahad, P. (2005). Durable dotcoms. Business Today, 60. Suryanarayanan, M. (2001). A guide to better positions and better performance. The Hindu. Retrieved October, 15, 2007, from http://www. hinduonnet.com/jobs/0105/05230014.htm Taylor, J. (2003). Decisions. Jeff Taylor founder and chairman, Monster. Management Today, 26. Tong, D., & Sivanand, C. (2005). E-recruitment service providers review. International and Malaysian. Employee Relations, 27(1/2), 103–118. doi:10.1108/01425450510569337
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Vinuta, V. (2005). E-recruitment is here to stay. Express Online Computer. Retrieved October, 15, 2007, from http://www.expresscomputeronline. com/20050418/technologylife01.shtml Zakaria, F. (2006). India Rising. Newsweek, CXLVII(10), 34-43.
KEY TERMS AND DEFINITIONS Bulletin Boards: An electronic message center. Digital Divide: A split between people who have access to the Internet and people who do not have access to the Internet due to economical and technological reasons.
E-HRM: This is a method of implementing HR strategies, policies, and practices in organizations with the direct support of webWeb-technology. E-Recruitment: The complete automation of the recruitment process. Internet Café or Cyber Café: A public place where people can use a computer and internetInternet facility by paying fees for the services. Naukri.com: An employment webWebsite in India that means “job” in the Indian language, Hindi. Recruiting Portals: Internet recruiting organizations that provide links to jobs and corporate webWeb sites. Recruitment: The process of generating a pool of qualified applicants for organizational jobs. Selection: The process of choosing the most qualified individuals from the pool of qualified applicants.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 357-362, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 3.7
E-Logistics:
The Slowly Evolving Platform Undrepinning E-Business Kim Hassall University of Melbourne, Australia
INTRODUCTION By 1998, arguably some four years after the Internet’s general user beginnings, many commentators did not doubt that Internet based home shopping was on its way to revolutionize our lives. At the margin, it certainly allowed us another purchasing channel and for many retailers some 5% to 12% of differing goods is now done through an “e-store” or “e-marketplace”. (Visser & Hassall, 2005). However, by 2001 a range of major e-business summits, perhaps very notable being the 44 nation OECD hosted e-transport and e-logistics summit DOI: 10.4018/978-1-60960-587-2.ch307
in Paris (June, 2001), was beginning to demolish the euphoria of B2C. In its basic state, B2C was a very marginal business. But what of B2B? Yes, it is a bigger sector but how were the business rules and logistics strategies shaping up for network design, e-marketplace use, and logistic fulfilment changing when compared to the rapidly evolving B2C environment? The ICT sector rapidly began to assemble a host of B2B applications for Supply Chain Management and despite the “tech wreck” occurring towards the end of 2001, these highly expensive suites of products found some traction over the next three to four years. So, initially, the development of large logistics software packages such as I2, Baan, Descartes, and so forth, were
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E-Logistics
offerings that the B2B sectors availed themselves of. However, besides the ICT developments in the B2B space, the evolution of new logistics strategies would prove themselves to be good, bad, and various shades in between, when examining the full end to end (E2E) e-business operations. Since 2001, a tide of interest has turned towards the adoption of fit for purpose e-logistic models to support the end to end functionality of e-business. Hassall (2003) describes a detailed survey for the international Postal Authorities as to what new e-logistics and e-business strategies should be developed. These ranged from new householder delivery choices, to global e-marketplaces being developed. Why this survey was important was because the global postal authorities are the largest combined B2C operator and also a growing B2B logistics supplier.
The Tools of E-Logistics The staple of the world’s logistics is activated by orders generated by the use of the phone and the fax machine. This is true for small/medium enterprises (SMEs), small office/home office (SOHOs) and Medium Enterprises (MEs) involved in B2C, b2b (small business to small business) or b2B (small business to large business). In many ways it will be the customer requirements that eventually force the smaller enterprises into adopting the use of further enhanced Web based products so that the information flow and reporting of their product orders or dispatches can feed customer or client information systems. B2B logistic contracts will often have a predefined set of software systems in place for reporting, monitoring, and accounting. Usually these will be more expensive than the suite of systems that the SMEs, SOHOs, and so forth, will have at their disposal. The above list of e-logistic options is a list of capabilities that either the customer may require, or the logistics supplier offers. It would be quite unusual for many major 3PLs (Third Party Logistic Providers) to supply all of these capabilities un-
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less directed to, usually by the decree of a major client. However, a subset of these strategies ought to be examined by the supplier or the e-logistics provider fulfilling the service.
The Evolution in B2C Logistics The evolution of B2C from the Christmas mishaps in 1999 to now has been to achieve a cheap and successful delivery by the delivery agent. This statement is true but another dimension to the home delivery is trying to minimize the problems associated with product returns, and products being taken back to the delivery depot. That is, home delivery is also aware of the problems of “reverse logistics,” which range from 2% returns for household chemicals to 50% returns for magazines. (Bayles, 2001). Reverse logistics is a large cost burden and, in fact, integral to the physical and environmental cost of the B2C operation. (Sarkis, Meade, & Talluri, 2004). Generally, the full planning and operational capability required for reverse logistics has even spawned several specialist providers in this area. (Poirier & Bauer, 2001). However, is a better way to minimize the reverse logistic operations to have the customer pick up the item? This may minimize some aspects of reverse logistics, but it may not be a winner in the area of customer satisfaction. Certainly delivering to a retail agent is a large cost benefit for the delivery agent. One drop of a hundred parcels to a retail agent is a lot cheaper than attempting delivery to one hundred households. But perhaps the delivery dump at the retail partner is not the choicest alternative for the majority of customers. New strategies outlined in Table 1 are, for example, the electronic home parcel box (Number 2) which is just progressing beyond the R&D stage. In Europe this method of delivery is being discussed in regard to new planning regulations and this strategy may be a significant strategy within ten years. One way retailers are experimenting with loading for household delivery is directly out of their normal retail premises, not from a distribution
E-Logistics
centre. This Strategy (Number 8) is employed by such retailers as Tesco. This strategy may negate the need for a separate loading centre but what happens when 100 commercial vehicles arrive to load at the same time slot? Answer: Severe queuing and a valuable loss of time for the delivery agents. However, for a wholesaler with a diverse enough range of products, an entire retail operation could, in theory, be by-passed in a home shopping environment. The wholesaler takes orders, picks the orders from a central warehouse, then undertakes the delivery of these orders directly to households from the warehouse. The benefits to customers could see a substitute to a retail price which would be now made up of a wholesale price, plus a transport cost, and a small margin. This could be cheaper than the retail purchase price. Many major retailers, however, offer both services to span both the customer shopping and home delivery requirements.
Customer Fit in the New B2C Pairwise Strategy Models Some of these new strategies, listed in Table 2, are geared towards a high degree of cost minimi-
zation for the delivery operator. This inherently may not be a bad thing, however, where does the customer rate in the strategy? More importantly, customer response surveys may indicate exactly what proportion of the customers are happy and unhappy with the offered delivery strategies. If the surveyed service response rating exceeds 85% or 90%, then that one strategy may be worth keeping for that delivery agent for that class of home-shopping products. One survey conducted in 1998 (Hassall, 2000) suggested that about 12% of electronic order forms allowed for alternative delivery instructions. Limiting alternative delivery strategies will hardly reflect a high level of customer satisfaction. However, allowing a limited set of delivery options may add significantly to the home shoppers’ level of satisfaction. Figure 1 suggests that the combination of “hypothetical generic pairs” of strategies will give at least an equivalent level of cumulative satisfaction. Seven pairs of strategies are hypothetically displayed. For any particular retailer and delivery agent it is a matter of examining what pairwise options are feasible and customer friendly. It may only be that two single and two pairwise options are feasible. Perhaps even one direct hop strategy
Table 1. The tools for e-logistics €€€€€E-logistics Tool €€€€€e-ordering
€€€€€Description Via Web, e-market, auction, collaborative system, etc.
€€€€€€EDI Requirements
Optional – dependent on contract requirement
€€€€€Activated order/Shipment number
Usually an imperative requirement. Various Generators
€€€€€Activation of Logistics services €€€€€-order/pick/pack €€€€€-despatch €€€€€-transport, etc.
Activation of a specific set or single operation from warehouse, transport operator, delivery agent etc through shipper, broker, customs agent, and/or sub-contractor or own fleet
€€€€€Barcode or RFID scan
Optional – dependent on requirement
€€€€€Track and Trace capability
Optional – dependent on requirement
€€€€€Call Centre CRM ability
Optional – dependent on requirement
€€€€€Automatic Logistic Performance calculator
A rare but powerful tool. Can save many hours per week in evaluating if functionality is available.
€€€€€Client Accounting
Commonly an e-market and portal offering,
€€€€€Quarterly reporting
Specified financials/service performance or customers, etc.
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E-Logistics
Table 2. B2C householder delivery strategies 13 STRATEGIES for Household delivery 1. Attempt 1st delivery, phone follow up for 2nd attempt. 2. Attempt delivery to a home parcel box. 3. Attempt home delivery, failure redirected to retail agent for customer pick up. 4. Continual household attempt at delivery. 5. Customer pick up from retail key-hole or kiosk site. 6. Customer pick up from secure depot storage or common parcel box. 7. Delivery agent to retail agent by direct drop. 8. Delivery agents loads orders direct from retail site not a specialized distribution hub. 9. Delivery to public provider parcel delivery box. 10. Initial delivery to preferred post office of choice. 11. Optional flexible delivery strategies as stated on the customer order form. 12. Phone booking for initial delivery slot. 13. Slotted after hours delivery. (Source: Hassall, 2002, revised.)
and one pairwise strategy is feasible for the particular commodity purchased, but it is certainly part of the operation that the retailer is aware of the customers’ highest preferences for the particular delivery options either offered or not offered. For example, the delivery of backyard furniture may very much limit the feasibility of
selecting from at most a small number of the 13 options listed in Table 2. Why are pairwise delivery strategies important? As stated above pairwise strategies can reflect higher levels of customer satisfaction, but also they can be used to lower the marginal delivery cost of a single strategy. Another benefit for pairwise delivery strategies is that they can add a considerable level of security for particular commodities. For example, a business consultant takes advantage of a discount sale on a new desktop computer model. Instructions are to attempt after hours home delivery on a particular evening. If a computer agent sent the computer to the domestic householder upon nobody at home it will be returned to a safe storage site for customer pickup. For small items, a return to a local 24-hour convenience retail agent, or to a retail agent near a day office may be an alternative. However, boxed computers are not a small item, they are valuable as well, and a small retail agent may not wish to store such a large single cubic consignment. This pairwise strategy, therefore, is performed at smaller cost than attempting second delivery, or telephoning to arrange a second delivery. One recent international survey of B2C delivery strategies across 16 countries suggested that the offering of a diversity of delivery options was
Figure 1. Pairwise home delivery strategies and satisfaction ratings
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the second most important strategic issue facing incumbent B2C operators (Hassall, 2003). Reynolds (2004) describes six e-fulfilment models, however, when compared to Table 2, these are somewhat more macro in their descriptions.
B2B Fulfillment and the Appropriate E-Logistic Solutions B2B is simple in concept but the sub-classifications of B2B are quite large. Many B2B transactions do not generate freight per se and this is why generally e-logistics is far more relevant to e-business generating physical product. At the OECD/ECMT e-transport and elogistics Summit (Paris, 2001), Nemoto, Visser, & Yoshimoto (2001) described B2B as “too big” a concept for the logistical requirements of B2B. Instead classifications such a G=Government, S=Shippers, L=Logistics Operators should be subsets of the B2B space. The only classification to have become recognized in its own rite is the Governmental category G. In fact the e-business of Government has become a specialist study area in its own rite. Figure 2. The proposed expanded B2B and B2C environments
The logistic fulfilment for B2B is most often performed as a well defined set of pre-arranged business rules that are implemented between the customer and the 3PL or fulfilment agent. That is, the software requirements, service performance level, reporting levels, and invoicing are all covered by contractual arrangements. Enterprise Requirements Planning systems have been designed for the B2B space (Reynolds, 2001) but many are exceedingly costly. It will be interesting as to whether smaller “best of breed” technologies will replace these mega ERP systems that were being developed some five years ago. This is especially true as the requirement for many e-logistic applications such as Radio Frequency Identification (RFID), Track and Trace, Barcode reading, vehicle routing optimization and fleet management were often not part of these mega systems. In fact, the build to scale E2E (end–to-end) solutions, or assembly of a suite of smaller “best of breed” solutions for MEs (Medium Enterprises), will be an attractive applications business space over the next five years for logistics operators to buy from. Figure 3 depicts the several of the dozen or more end-to-end logistics and supply chain functions that can be streamlined through either individual or aggregated Web based e-logistic applications and platforms, through which e-business can be supported and fulfilled.
E-Logistics: Is it all about Visibility, Validation, and Verification? The New Question What makes the difference between traditional logistics and e-logistics? This is a crucial question which may be better understood from examining the several definitions of e-logistics. Current definitions refer to logistics support for Web ordering. However, it may be suggested that true “e-logistics” operations are generated from Web based/electronic applications that are activated by the order, guided through the process stages until fulfilment, invoic-
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Figure 3. Potential operational components of e-logistics
ing, payment, and reporting occurs. If one or more electronic logistic tools are invoked across the order to delivery, then there are the three properties of visibility, validation, and verification that can be seen as the electronic “value adds” for the e-logistics chain as opposed to the “phone/fax” orders and delivery used by traditional logistics. In fact the property of Visibility is the most significant difference between e-logistics and traditional logistics, at least according to this author.
What Does the Crystal Ball Hold? Around June 2001, somewhat coincidentally, when the OECD hosted a 44 country summit on “e-transport and e-logistics”, a wave of reality was emerging such that the business models for the fulfilment of e-business had to be rethought. E-stores and e-markets were proving that they were not very “logistics savvy.” The area of Business to Consumer (B2C) was very much a high focal point and is arguably still, in France, the Netherlands, Germany, Italy, and many other European countries. B2C was “doing it tough with very low, or negative, profit margins” even though over a dozen fulfilment strategies had evolved in the B2C space. The bigger Business to Business
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(B2B) brother, although it was seen as being several factors larger in volume and value than B2C operations, when viewed from an e-logistics perspective, it was somewhat harder to enunciate the generalised logistics activities. However, B2B in one perspective looks after itself. If the customer requires specific levels of service, reporting, software collaboration, and so forth, then the logistics supplier has a choice, either develop, or link into the capability, or risk losing the contract. The customer needs also to be aware what, specifically, the logistical services from a third party, or own fulfilment divisions, involve, and at what cost they can be provided. Many B2B relationships may just be coming to grips with a few of the available e-logistic tools and how to both price and leverage off their use. However, many major B2B relationships are still totally supported phone and facsimile machines. It is more than possible that the future evolution of very cheap public domain software for planning, routing, reporting, and for performing even “track and trace” through various mechanisms, will encourage not only the Medium Enterprise (ME) logistics operators, but even quite large 3PLs, the opportunity to offer a much larger suite of e-logistic functionality to their clients at very cheap prices.
E-Logistics
CONCLUSION The absolute difference between e-logistics and traditional logistics is the electronic “visibility” of particular steps in the chain, from order to confirmation of delivery and onward to invoice payment. The electronic logistic audit trail also lends itself to “verification and validation” of orders, pick pack instructions, standards of delivery services, and any alternative delivery instructions. In fact, the full range of services taken up in the e-logistics chain can be a very powerful input activity subset into the Activity Based Costing models (ABC) for that particular chain. This also assists what many logistic companies, B2C or B2B, are not fully cogniscent of, and that is their full attributable activity-based chain costs. A comprehensive knowledge of impact of these operationally based costs can very much make the difference between profit and failure. This difference between traditional and elogistics has not been widely examined in any a more meaningful way than by suggesting that e-logistics “may” be highly Web and applications enabled, unlike traditional logistics. But traditional logistics offerings that might only depend on the phone and facsimile machine may also be supported by very good databases, service response teams, and accounting and business systems. These systems may be very functional and successful. The differences between the streams of e-logistics and traditional logistics, is a fertile ground for future research which should also canvass the opinions of the actual logistic and transport operators.
REFERENCES Bayles, D. L. (2001). E-Commerce Logistics & Fulfillment, Prentice Hall PTR, New Jersey.
Hassall, K. (2001a). Trends and Hindrances in elogistics: An Australian Perspective. Proceeding of the OECD conference on e-Transport, Paris, 2001. Hassall, K. (2001b). The Evolution of B2C. [Publishing Services Australia, Brisbane.]. Supply Chain Review, 10(4), 42–50. Hassall, K. (2003). The E-Logistics Challenge for the Post Office: A Phoenix egg or an Ostrich Egg? Universal Postal Union (United Nations), Postal Technology Branch, Bern. http://www.ethematic.org/download/The%20e-Logistics%20 Challenge%20for%20the%20Post%20Office.pdf Hassall, K. (2005). Smart Supply Chain Conference, Technical Seminars, Sydney. (presentation) http://www.smartsupplychain.com.au/seminars. cfm Nemoto, T., Visser, J., & Yoshimoto, Y. (2001). Impacts of Information and Communication Technology on Urban Logistics Systems. Proceedings of the OECD Summit on e-Transport and e-Logistics, OECD. Paris 2001. Http://www1. oecd.org/cem/online/ecom01/Nemoto.pdf Poirier, C. C., & Bauer, M. J. (2001). E-Supply Chain. Berrett-Koehler Publishers Inc., San Francisco. Reynolds, J. (2001). Logistics and Fulfillment for e-Business. CMP Books, New York. Reynolds, J. (2004). The Complete E-Commerce Book, 2nd Edition, CMP Books, New York. Rowlands, P. (Ed.). (2000). E-logistics: Magazine. Spice Court Publications. Sarkis, J., Meade, L. M., & Talluri, S. (2004). E-logistics and the Natural Environment. Supply Chain Management. [Emerald Group Publishing Limited.]. International Journal (Toronto, Ont.), 9(4), 303–312.
Hassall, K. (2000). The B2C revolution. [Publishing Services Australia, Brisbane.]. Supply Chain Review, 9(4), 41–44. 649
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Visser, J., & Hassall, K. (2005). The Future of City Logistics: Estimating the Demand for Home Delivery in Urban Areas. Proceedings of the 4th City Logistics Conference Langkawi: Kyoto University. www.elogmag.com www.fulfilmentonline.ac.uk
KEY TERMS AND DEFINITIONS 3PL (IIIPL): Third party logistics provider. A diversified provider of logistics services that may include: warehousing, freight forwarding, longhaul and shorthaul transport, storage, inventory management, returns, tracking, performance monitoring, selected documentation, and so forth. Electronic Data Interchange (EDI): Computer to computer interchange between two or more companies so such entities can enter a range of standard forms such as purchase orders, bills of lading, invoices, forward orders, stock replenishment, and so forth. E-Logistics: The following definitions are variations on the theme that e-logistics utilises Web based tools in the support of e-business. Some definitions are fuller than others. The timing in the emergence of these definitions is also relevant. 1. Finnish (translation), E-logistics can be defined as the application of Internet based technologies to traditional logistics processes.2. German: (Translation) E-Logistics, Web based applications and services dealing with the efficient transport, distribution, and storage of products along the supply and demand chain.3. French: (Translation): E-Logistics A collection of the new logistic management practices for the Internet.4. Forbes, “E-logistics” describes three core backend processes required to get an order from the
“buy” button to the bottom line: warehousing, delivery, and transportation, and customer interaction (usually handled through a call center where customers can ask questions, place orders, check on order status, and arrange for returns). In many cases, a different vendor handles each of these three separate functions. Managing them all successfully and simultaneously requires an indepth understanding of each discipline. Integrating them with one another and with a corporation’s existing systems is even tougher. Source: www. forbes.com/specialsections/elogistics.5. “The electronic activation of a set of physical logistic activities with associated electronic information flows that support e-Business.” (Hassall, 2005) (presentation) http://www.smartsupplychain.com. au/seminars.cfm. ICT: Information and Communication Technology. IV PL (4PLTM): Fourth Party Logistics Provider. The operation of end-to-end coordination and management of a logistics chain by direction to 3PL operators and often including the use of large scale IT systems that drive management, reporting, and scheduling activities. IV PL operators need not operate any 3PL activities themselves. Radio Frequency Identification: Active or passive tag or print based “label” that can be preprogrammed with specific data input fields. These fields emit data from active tags or can reflect embedded data for inactive tags when pulsed with specific electronic signals. Reverse Logistics: The process of collecting, moving, storing used, damaged, or outdated products and/or packaging from end users. Tecso Model: Strategy for replenishment of grocery orders for delivery from existing supermarket stores rather than from a specialized, non retain pick/pack urban depots. Used by Tesco stores.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 1354-1360, copyright 2009 by Information Science Reference (an imprint of IGI Global). 650
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Chapter 3.8
E-Business Perspectives through Social Networks Mahesh Raisinghani Texas Women’s University, USA Elon Marques University of Dallas, USA
ABSTRACT This chapter is focused on some of the current research being conducted in the field of social network theory. The importance of studying the social network concepts is attached to a better understanding of individuals and how and why people interact with each other, as well as how technology and the Internet can affect this interaction. The social network theory field has grown significantly in the last years, and the use of the Internet and advanced computing technology has contributed to new research in this growing
area. The first aspect to be covered is the social network theory and some applications for social networks. Also virtual communities, as well as the control over communications tools through social networks will be discussed. Finally, the technology side of social networks will be presented, as mobile social networks, internet social networking systems and e-business correlation, social network software and future trends of social networks. The main objective of this research is to illustrate the correlation between electronic (e-) business (of which e-government is a subset) and social networking.
DOI: 10.4018/978-1-60960-587-2.ch308
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
E-Business Perspectives through Social Networks
INTRODUCTION: SOCIAL NETWORK THEORY A network is a set of objects or nodes mapped according to the relationship between these objects. For social networks, the objects refer to people or groups of people. A social network is a map representing the relationships among individuals, indicating the ways in which they are connected according to their social familiarities. The networks of communication and interpersonal relationships that develop naturally within an organization form channels for the flow of organizational knowledge and can promote organizational learning, innovation and change management (Smith and McKeen, 2007). According to the Organization for Economic Co-operation and Development (OECD, 2008a), broadband plays a critical role in the workings of the economy and society. It connects consumers, businesses, and governments and facilitates social interaction. Hence, broadband policies are now a vital instrument to ensure the competitiveness of OECD countries and to address pressing societal concerns. The following OECD broadband statistics serve as a rationale for examining Internet based social networks and e-government readiness (OECD, 2008b): The United States is the largest broadband market in the OECD with 75 million subscribers. US broadband subscribers consistently represent 30% of all broadband connections in the OECD. The number of broadband subscribers in the OECD reached 251 million by June 2008, an increase of 14% from June 2007. This growth increased broadband penetration rates to 21.3 subscriptions per 100 inhabitants, up from 20% in December 2007. Denmark, the Netherlands, Norway, Switzerland, Iceland, Sweden, Korea and Finland lead the OECD with broadband penetration well above the OECD average, each surpassing the 30 subscribers per 100 inhabitants threshold.
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The strongest per-capita subscriber growth over the year was in Luxembourg and Germany. Each country added more than 5 subscribers per 100 inhabitants during the past year. On average, the OECD area increased 2.7 subscribers per 100 inhabitants over the year.
Table 1 illustrates the developments in egovernment from1996-2008 versus 2008-2020. Social networks operate at many levels, such as youth, families, students, organizations, and are represented by some small groups of people, as well as by entire nations. Their importance varies with problem solving scenarios, achievement of individual success and the way organizations run. Internet social networks is a category of the social network field in which individuals through a variety of internet application tools connect to other individuals, group of friends and business partners. [Wikipedia, 2005a].
BACKGROUND According to the social network theory social relationships are mapped by nodes and ties. Nodes are the individuals who act within the network and ties are the relationship between the individuals. In a network diagram the nodes are displayed as points and ties as lines, linking the nodes. Two nodes in the network are connected if they are directly linked to each other, or interact in some way. For instance, in the network from Figure 1, there is a connection between mikedinner and Bijan and between Mike-dinner and Ronwalf, but no direct connection exists between Ronwalf and Bijan. Analyzing the shape of the network helps to determine the network’s usefulness to its individuals. The network shape illustrated in Figure 1 shows the distinction between the three most popular individual network measures: Degree Centrality,
E-Business Perspectives through Social Networks
Table 1. 1996
2008
2020
Infrastructure
€€€€€• Secure private networks (SWIFT) €€€€€• BitNet €€€€€• Infancy of the www
€€€€€• Convergence €€€€€• Mobile/ubiquitous internet €€€€€• Broadband €€€€€• Digital divide issues remain
€€€€€• Ubiquitous broadband ? €€€€€• Commoditized network ?
Information exchange
€€€€€• EDI €€€€€• ‘unsecured’ packet switching
€€€€€• Web-based secured (https) €€€€€• Open networks €€€€€• Web 2.0 ?
€€€€€• Two-tier internet ? €€€€€(security, pricing)
E-government purposes
€€€€€• Public spending €€€€€• Shared data bases
€€€€€• Public spending €€€€€• Public sector reform €€€€€• Better government €€€€€• Governance €€€€€• Economic development
€€€€€• Public spending €€€€€• Local vs central govt €€€€€• Socio-economic efficiency €€€€€• The death of e-govt ?
E-government drivers
€€€€€• Public sector €€€€€• IT departments €€€€€• Finance/accounting
€€€€€• Public sector (+ PPPs) €€€€€• Reform/change agents €€€€€• Government as a whole €€€€€• Local governments
€€€€€• Mostly PPPs and ‘franchise’ models €€€€€• Internationalized €€€€€• Localized
E-government concerns
€€€€€• Security €€€€€• Sharing of info resources and equipment
€€€€€• Security/privacy €€€€€• Institutions/enterprise architecture €€€€€• Standards/interoperability €€€€€• ROI
€€€€€• Security/privacy €€€€€• Innovation/change mangt €€€€€• Transparency/Governance €€€€€• Democracy/empowerment €€€€€• Democracy/empowerment €€€€€• Inclusion (worldwide) €€€€€• Skills (worldwide)
Adopted from: http://www.oecd.org/dataoecd/42/57/40304889.pdf, e-leaders conference 2008 The Hague -6-7 March 2008, Where is egovernment going in 2020?, Bruno Lanvin, eLab, INSEAD
Betweenness Centrality, and Closeness Centrality as will be discussed next (Orgnet, 2005). Degree Centrality is the measurement of the network activity using the concept of degree, or the number of direct connections a node has to other nodes. In figure 1 the nodes represented by Golbeck and Ronwalf have the most direct connections in the network, making them the most active nodes. They are called the ‘connectors’ or ‘hubs’. A common impression of networks is the more connections, the better. This assumption is not true and what really matters is where the connections lead and how they connect nodes which are otherwise unconnected. Betweenness Centrality has great influence on the flows of the network. According to the network from Figure 1, while Ronwalf has many direct ties, Mike-dinner has few direct connections, even fewer than the average in the network. However, Mike-dinner has one of the best locations
Figure 1. Social network diagram [Adopted from PieSpy, 2005]
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or highest betweenness centrality in the network because he is between two important constituencies. Mike-dinner plays an important role in the network, linking clusters of nodes, and also he is a point of failure because without him, Mhgrove and Bijan would be cut off from information and knowledge from Ronwalf’s cluster. Closeness Centrality measures the best visibility into what is happening in the network. Jordan has fewer connections than Golbeck, however the pattern of his direct and indirect ties allows him to access all the nodes in the network faster than anyone else. Jordan’s high closeness centrality gives him the shortest path to all other nodes and he is in an excellent position to monitor the information flow in the network. Many studies have been done about social networks and are being applied to many different fields (e.g., Acquaah, 2007; Christ et al., 2007; Golbeck and Hendler, 2006; Ioannides and Soetevent, 2007). The volume of researchers has considerably increased in this area and many corporations are realizing the importance of social networks as a powerful marketing tool and a strong way of communication between people and within corporations.
Applications of Social Network Theory The evaluation of the social capital of an individual connected on a social network to other individuals is an application of the Social Network theory. Social capital refers to the position of the node in the network and this member can draw resources contained by other members of the network. According to the French sociologist Pierre Bourdieu in “The Forms of Capital” (1986), there are three forms of capital: economic capital, cultural capital and social capital. He defines social capital as “the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relation-
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ships of mutual acquaintance and recognition.” (Wikipedia, 2005b) Social capital has a considerable influence on a person’s life, and can affect aspects such as job searches, potential for promotions, knowledge in general, channels of consumption and public opinion. The more mappings a person has, the more social resources his contacts can be extended to, and the more influence, knowledge and power the original person will control [Ethier, 2005]. Social network theory also has an important role in the social sciences. Sociometry is one of the methods of socio-psychology developed by the psychiatrist Jacob Levi Moreno and analyzes the interpersonal emotive relationships within groups. His methods can be used to identify informal leaders, social rankings and isolated individuals [Adit Software, 2005].
Virtual Communities on the Internet People wonder whether communities will persist in these stressful modern times, in a society of loneliness where people walk or drive by themselves. News about terrorist attacks and violence are guiding humanity to fear these patterns of isolation. Communities have existed throughout history and cooperation among individuals has always been fundamental for human evolution. In some way, individuals are always seeking communities in order to escape loneliness. Despite this universal behavior, the same people think that they are exceptions and that all the individuals around them are isolated and lonely. [Wellman, 2005] Virtual communities are groups of people or nodes on the network that come together through the internet to exchange ideas, knowledge and information. Basically there are four effective ways of building virtual communities on the internet and they are: web-based communities, email groups, newsgroups and real-time discussions forums. Social networks represented by Web-based communities are the most sophisticated mechanisms for building on-line communities, and are
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often the simplest for end users. Web communities allow some kind of advertisement and visual presentation of material which are typically omitted from email groups, newsgroups and discussion forums. [Dobney.com, 2005]
Control over Communication Tools through Social Networks Google acquired the social networking site Dodgeball.com as a strategy to improve its own social networking efforts. The idea was to gain more control over communication tools, including the mobile world, and to strengthen its ambition of being more of a Web portal than a search engine. Dodgeball (www.dodgeball.com) is a social network which enables the connection of its users to other nodes through their mobile phones, sending text messages that are relayed through a broadcast hub to multiple recipients. Google’s attempt to invest in social networking is not new and started with the Orkut web site (www.orkut.com). Orkut is a web-based social network which was designed by a Google engineer and currently Orkut has more then seven million people connected through thousands of communities. [Regan, 2005]
Mobile Social Networks The mobile phones or wireless PDAs (Personal Digital Assistants) are naturally ideal vehicles to study individuals and organizations. Habitually individuals carry a mobile phone and use it as main tollway for communication. Currently many manufacturers are opening their handset platforms to developers and the devices can be harnessed as networked wearable sensors. The information available from today’s wireless devices includes the cell phone user’s location by the cell tower ID, people’s closeness through repeated Bluetooth scans, regular communication calls and SMS, as well as application usage and phone status like idle, charging, and so on.
Considering the phones as networked, their functionality is no longer solely related to logging devices for social surveys, but phones can also be used as a means of social network involvement, supplying introductions between two proximate people who don’t know each other. Massachusetts Institute of Technology is working on researches of a new infrastructure of devices which are not only aware of each other, but also have a sense of social curiosity. The concept is based on the assumption that the devices may be used to figure out what is being said by people, and even to discover the type of relationship between two individuals. According to Nathan Eagle from the Reality Mining project, underway at MIT’s Media Lab, “The mobile device of tomorrow will see what the user sees, hear what the user hears, and learn patterns in the user’s behavior. This will enable the device to make inferences regarding whom the user knows, whom the user likes, and even what the user may do next.” [Nathan, 2005] Within this context, the research being done by MIT emphasizes the social network aspects of the mobile devices. People through wireless devices will be able to be part of social networks more efficiently, creating new relationships with anyone carrying a mobile device. According to Search Engine Lowdown and search consultant Andy Beal, there are potential social network benefits of using mobile devices: “Can you imagine being able to tell your friends that you are at a local bar, provide them with a map -- or even a satellite view of the premises -- take a photo of your group and then add it to your mobile blog? All from your cell phone.” [Regan, 2005]
YASNs: Internet Social Networking Systems and E-Business Correlation The term “circle of friends” in online social networks started appearing in 2002, and became popular in 2003. An online circle of friends is a
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virtual community in which an initial set of founders send out messages inviting other members of their own personal networks to join the network represented by a website. New members repeat the process, increasing the total number of nodes and links in the network. Websites then offer features such as automatic address book updates, photo galleries, viewable profiles, the ability to form new communities and many forms of online social connections. Using the circle of friends technique, some internet social networking systems, also known as YASNS (Yet Another Social Networking Service), have been launched lately. Some examples are Friendster, Tribe.net, MySpace and LinkedIn. Currently there are over 200 social networking websites, and Friendster is one of the most successful examples of the circle of friends technique [Wikipedia, 2005a]. These tools are used for information gathering, meeting people, and/or finding services. The development of these sites has primarily been funded by private investment. As the popularity of these websites grew substantially, companies started to look closer and enter into the internet social networking arena, as in the case of Google launching Orkut and acquiring the Dodgeball mobile social network company. If Ebay goes in the same direction, social networks could be a possibility for expanding the horizon of e-commerce in the online auction web-sites. The benefits of social networks to marketing have been proven by many researchers. The patterns of relationships of social networks are fundamental to consumer behavior and can be used effectively for marketing strategies. As a major challenge, market strategists are looking for increases in the effectiveness of marketing strategies based on social networks. In order to reach the goal of effectiveness increase in the marketing strategies, scientists and researchers are collecting social network related data for further analyzing, and the study of social networks is beginning to be broadly used in marketing.
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One example of using social networks for the purpose of marketing is when the distribution of products and services is done through a network of independent business people who take care of the distribution themselves or cause others to do it. It is important to notice that marketing strategists not only look to members of the network with the most social capital, but also to nodes which have access to others with a vast amount of social capital. Internet social networks have expanded the channels of integrated marketing communications, advertisement and public relations, as well as the marketing distribution strategy. Within social networks, the communication and relationship between the nodes has attracted the attention of marketing strategists as a niche to be explored. Many people in the network have relationships tied by common interests and behaviors. For example, when a group of members join a community at Orkut social network they have common ideas and thoughts. Within the community, a node with high capital social and betweenness centrality can influence other members to purchase goods or services from specific brands, using specific channels according to his/her marketing strategy. The power of influence is important in social networks and can lead to individuals or groups succeeding in some e-commerce activities.
Internet Social Network Software The “cc:” in the emails can be considered a start point for social software, when individuals send a message to a group of people within a network relationship. People are willing to use social software to advance personal interests and primarily to interact socially. Internet social software must include at least three basic features: support for conversational interaction between individuals or groups, support for social feedback and support for social networks. The conversational interaction between individuals is usually represented by instant
E-Business Perspectives through Social Networks
messaging, discussion chats and collaborative teamwork spaces. When a member of a group in the network starts a discussion with a group, other members must be able to react and participate in the discussion. Support for feedback allows individuals or groups to rate the contributions of other members, in order to build digital reputations for the nodes of the network. Nodes with high digital reputations as well as high social capital have a great power of influence on other nodes. As example, sellers from eBay depend on feedback to maintain a good reputation and increase sales. Social software needs to support the circle of friends. For example, the proposed standard Friend Of A Friend (FOAF), is represented by an XMLbased approach to define the member interests, phone numbers, e-mails and degree and type of relationship this member has with other members from the network. The social software should be able to represent the map with all the ties between the nodes in the network. For example, Golbeck and Hendler (2006) present TrustMail, a prototype email client that uses variations on algorithms for inferring trust relationships between individuals that are not directly connected in the network to score email messages in the user’s inbox based on the user’s participation and ratings in a trust network.
beginning, then a slow death. According to the on-line communication and community specialist Lee Bryant, one of the reasons for the problem with knowledge management was the hijacking by software vendors. Bryant’s position regarding Social Network is that “Social Software tries to remove obstacles in the path of interaction to let people communicate and collaborate more effectively. In other words, to let people do what they do naturally, but in a better way” (Kaplan, 2005). Although Web-based tools offer various opportunities for advertising, distribution, marketing, and even direct payment, the companies are still trying to find the perfect magic recipe for reaching profits and some doubts still remain about the longterm value of social networking from a revenue perspective [Regan, 2005]. As all technologies and concepts evolve, social networking will fit new technologies which will be introduced to the society, and the internet will allow and contribute to the expansion of social networks in ways that were previously not possible.
CONCLUSION AND RECOMMENDATIONS
FUTURE TRENDS OF SOCIAL NETWORK AND E-BUSINESS
Today, forward-thinking executives are using information technology to streamline and synchronize operating and management processes. Looking forward, some potential elements of the next-generation service agenda are as follows (Marson, 2007):
One of the future trends of YASNs is the emergence of hybrid web-based social networks and instant messaging technologies. The idea is to allow users to share blogs (weblogs), files and instant messages, creating a social network dynamically in real time, depending on where the users are currently located. Some arguments state the fear of social software following the same way of knowledge management software: much excitement at the
1. Listening to and Engaging Citizens and Clients: Government service strategies are based on regular research and consultation with citizens and clients, and on citizens’ priorities for improvement 2. Next-generation Service Policy: embodies a results-based approach to: external service; internal service; integrated, one-stop service; cost-effective channel management, and strikes a balance between excellence
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3.
4.
5.
6.
7.
8.
9.
10.
in service outcomes for clients and costeffectiveness for citizens Improving Access for Citizens and Business: “No wrong door” across the public sector, underpinned by an e-data base (311, 211 etc) and N11-integration Integrated Service Delivery and Integrated Channel Management: expanded one stop shopping, both “department stores” and “boutiques”. Focus on improving telephone service and on integrating T-service with E-service; Web 2.0 applications are applied to internal management, external service, and citizen engagement Personalization and Customization: the Internet is used to personalize and customize service to individual client needs Horizontal Governance and Service Collaboration: collaborative platforms and new governance arrangements are developed within and across governments Internal Service Transformation: focused on cost-effective e-solutions, and on measuring and improving internal client satisfaction The Service Value Chain: public organizations use the SVC concept to link, measure and improve employee engagement, service outcomes and public trust and confidence Results Measurement and Benchmarking: shared ways of measuring service performance emerge internationally and benchmarking occurs across the public sector (e.g the CMT& MAF) Training and Development: Public sector service delivery becomes a profession based on a growing empirical body of service management knowledge.
Overall, the academic community and business practitioners can no longer ignore the consequences of the rapid “flattening” of the world due to IT facilitated globalization. E-Government is a burgeoning phenomenon across the globe with substantial investment being made to sup-
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port improvements to infrastructures as well as services to the citizen. Many of the emerging challenges facing its adoption are not technical or developmental but in fact center around political, managerial, and cultural information and communication technology issues, which are of course accentuated in the public sector. When they are successful, organizational transformation and change initiatives can be exciting and engaging experiences that achieve extraordinary outcomes. Such change efforts can lead to innovation and renewal in many areas. Better utilization of technology, more efficient process flow, and enhanced individual and team productivity are all potential benefits of positive change.
REFERENCES Acquaah, M. (2007). Managerial social capital, strategic orientation, and organizational performance in an emerging economy. [Chichester.]. Strategic Management Journal, 28(12), 1235– 1242. doi:10.1002/smj.632 Adit Software. (2005). Adit software–sociometry. Retrieved on July 9, 2007, from http://www.adit. co.uk/html/sociometry.html Boyd, S. (2003). Are you ready for social software? Darwin Magazine Web site. Retrieved on July 9, 2007, from http://www.darwinmag.com/ read/050103/social.html Christ, R. E., Berges, J. S., & Trevino, S. C. (2007). Social networking sites: To monitor or not to monitor users and their content? [Clifton.]. Intellectual Property & Technology Law Journal, 19(7), 13–17. Dobney.com. (2005). Online virtual communities. Retrieved on July 10, 2007, from http://www.dobney.com/Technology/virtual_communities.htm
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Epstein, D. (2004). Fast approximation of centrality. Journal of Graph Algorithms and Applications, 39-45.
Orgnet. (2005). An introduction to social network analyzes. Retrieved on June 25, 2007, from http:// www.orgnet.com/sna.html
Ethier, J. (2005). Current research in social network theory. Retrieved on July 9, 2007, from http://www.ccs.neu.edu/home/perrolle/archive/ Ethier-SocialNetworks.html
PieSpy. (2005). PieSpy social network by jibble Web page. Retrieved on May 26, 2007, from http:// www.jibble.org/piespy/
Golbeck, J., & Hendler, J. (2006). Inferring binary trust relationships in Web-based social networks. [New York.]. ACM Transactions on Internet Technology, 6(4), 497–504. doi:10.1145/1183463.1183470 Ioannides, Y. M., & Soetevent, A. R. (2007). Social networking and individual outcomes beyond the mean field case. [Amsterdam.]. Journal of Economic Behavior & Organization, 64(3/4), 369–380. doi:10.1016/j.jebo.2006.06.017 Kaplan, E. (2005). Social software and e-learning. Retrieved on July 10, 2007, from http://www. learningcircuits.org/2003/dec2003/kaplan.htm Marson, B. (2007). The future of e-governmenta citizen-centred perspective. Treasury Board of Canada Secretariat, Canada. Retrieved on October 18, 2008, from http://www.oecd.org/ dataoecd/42/39/40305179.pdf Nathan, E. (2005). Using mobile phones to model complex social systems. Retrieved on June 26, 2007, from http://www.oreillynet.com/pub/a/ network/2005/06/20/MITmedialab.html OECD. (2008a). OECD broadband statistics. Retrieved on November 6, 2008, from http://www.oecd.org/document/54/0,3343, en_2649_34225_39575670_1_1_1_1,00.html OECD. (2008b). Broadband growth and development in OECD countries. Retrieved on November 6, 2008, from http://www.egov.vic.gov.au/index. php?env=-categories:m11-1-1-8-s-0&reset=1
Regan, K. (2005). Google boosts its social network with dodgeball.com buy. Retrieved on June 25, 2007, from http://www.macnewsworld.com/ story/43099.html Smith, H. A., & McKeen, J. D. (2007). Developments in practice XXVI: Social networks: Knowledge management’s “killer app”? [Atlanta.]. Communications of the Association for Information Systems, 19, 35. Wellman, B. (2005). “The network community” an introduction to networks in the global village. Retrieved on May 26, 2007, from http:// www.chass.utoronto.ca/~wellman/publications/ globalvillage/in.htm Wikipedia. (2005a). Social network. Retrieved on May 22, 2007, from http://en.wikipedia. org/wiki/Social_network#Introduction_to_social_networks Wikipedia. (2005b). Social capital. Retrieved on July 9, 2007, from http://en.wikipedia.org/wiki/ Social_capital
KEY TERMS AND DEFINITIONS Betweenness Centrality: This has great influence on the flows of the social network. It is one of the best locations or highest betweenness centrality in the network because it is between two important constituencies and is a point of failure because without it, the others would be cut off from information and knowledge from the cluster.
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Closeness Centrality: This measures the best visibility into what is happening in the social network. Social Network: A map representing the relationships among individuals, indicating the ways in which they are connected according to their social familiarities. The networks of communication and interpersonal relationships that develop naturally within an organization form channels for the flow of organizational knowledge and can promote organizational learning, innovation and change management. Sociometry: One of the methods of sociopsychology developed by the psychiatrist Jacob Levi Moreno that analyzes the interpersonal emotive relationships within groups.
Social Networking Sites: Online communities for expanding users’ business or social contacts by making connections through their mutual business or personal connections. Socio-Technical Design: Design to produce information systems that blend technical efficiency with sensitivity to organizational and human needs. Virtual Organization: An organization that uses networks to link people, assets and ideas to create and distribute products and services without being limited to traditional organizational boundaries or physical locations.
This work was previously published in Handbook of Research on E-Government Readiness for Information and Service Exchange: Utilizing Progressive Information Communication Technologies, edited by Hakikur Rahman, pp. 324-333, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Designing E-Business Applications with Patterns for Computer-Mediated Interaction Stephan Lukosch Delft University of Technology, The Netherlands Till Schümmer FernUniversität in Hagen, Germany
INTRODUCTION Probably the most important aspect of e-Business and e-Commerce is that it mediates the interaction between various stakeholders in a business setting. New organizational forms such as virtual organizations emerged in which independent companies form a strategic alliance for a close collaboration towards a shared goal (e.g., shared product development). New forms of B2C (business-to-customer) interaction argue for the importance of hearing the customer’s voice e.g., by providing means for customization (Piller, DOI: 10.4018/978-1-60960-587-2.ch309
2006) or by collecting the customers’ feedback (Levine, Locke, Searls, & Weinberger, 2000). And in some cases, C2C (customer-to-customer) interaction has become an integrated part of the business (in settings where customers also act as providers of goods or services). Closely related to these trends is the emergence of the Web 2.0 as “a set of economic, social, and technology trends that collectively form the basis for the next generation of the Internet – a more mature, distinctive medium characterized by user participation, openness, and network effects.” (Musser, O’Reilly et al., 2006, p. 4). Again, collaboration and user participation is one of the most important terms in this definition and it is what makes
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Designing E-Business Applications with Patterns for Computer-Mediated Interaction
Web 2.0 different from traditional web sites that have mainly focused on content delivery rather than interaction and collaboration among users of content. Considered from an e-business perspective, there are important analogies, especially the shift from mass delivery to customized goods and services that are co-created by traditional sellers and customers. Interestingly, this analogy is not yet widely reflected in the technology support. If business would move from traditional provider-customer interaction to the so-called c-business, the respective support technologies need to be designed so that the social processes of collaboration become an integral part. First examples of web-based collaborative applications provide hints towards the future of c-business: Google Docs (http:// google.docs.com), Yahoo Groups (http://groups. yahoo.com/), the Amazon bookstore (http:// amazon.com/), or Google Earth (http://earth. google.com/) are all instances with comparable characteristics. They activate the users to create and share information instead of only consuming information created by a single owning company. At Google Earth, users, e.g., tag the map of the earth with points of interest or photography that is shared among all users. The information provider (Google) transfers parts of his business to the customers and acts as an enabler for information creation done by customers. Through the efforts of the user community, the map becomes a reflection of what the inhabitants of the different places on the map consider as relevant. The same is true for the Amazon book store: by allowing users to comment on books and to comment on comments, the bookstore becomes a place for exchanging thoughts rather than just consuming. Considered from a B2C e-commerce perspective, this increases the stickiness of the store (Schümmer, 2001a). Once customers are involved in an interaction with other customers, they have additional incentives for returning to the store. Instead of having a community of circumstances that brings together all users who want to buy books, the site evolves
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to a community of interest for books of a specific topic (Schümmer, 2001a). Yahoo groups support users in creating places for discussion and exchanging ideas and content. The shared manipulation of files is one of the core ideas of Google Docs where users can interact synchronously on a shared document using just their web browser as client infrastructure. Again, such tools open up new opportunities for e-business. They are the enabling technology that allows organizations to create goal-oriented distributed project teams that collaborate intensively in order to reach a shared objective. The remaining part of this article discusses aspects common to these e-business applications and presents an approach to capture the best practices within these applications by means of patterns. Then, we describe how patterns for end-users can look like, outline the structure of a pattern language for computer-mediated interaction and explain how the different patterns of this language form a holistic pattern catalogue for computer-mediated interaction. The pattern language is illustrated by means of an example pattern. Finally, we give a conclusion and discuss questions for future work.
BACKGROUND Several core aspects that make collaborative e-business applications like the ones described above compelling: • •
• •
Users can create and share content. Users can get in contact with other users whom they in most cases have not met before. Users can express their opinion on content and on users. Users become aware of other users’ presence and actions, which transforms the usage experience from a single-user experience to a group experience.
Designing E-Business Applications with Patterns for Computer-Mediated Interaction
Looking more closely at these aspects, all of them have been subject of research and development in the area of computer supported collaborative work (CSCW) and groupware. Peter and Trudy Johnson-Lenz defined groupware systems as “intentional group processes plus software to support them”. (Johnson-Lenz and Johnson-Lenz, 1981) Often this definition is extended by considering not only group processes but also community processes. Users interacting in a community follow a common global goal but may have different sub-goals. They contribute to the community in order to satisfy both personal and shared goals. Tim Berners-Lee commented on the Web 2.0 hype that “Web 2.0 for some people means moving some of the thinking client side so making it more immediate, but the idea of the Web as interaction between people is really what the Web is. That was what it was designed to be as a collaborative space where people can interact.” (Berners-Lee, 2006) Thus, the challenges imposed by the Web 2.0 hype are anything else but new. However, the Web 2.0 hype has the positive effect that the aspects of collaboration and human-human interaction that were often ignored by current applications now move back to the focus of many system developers. And, as we see from the examples mentioned above, collaboration opens new potentials that change the way how we can interact over computer networks and move e-business to c-business applications.
A PATTERN LANGUAGE FOR COMPUTER-MEDIATED INTERACTION The development of such collaborative applications a challenging task. Apart from the actual task of the application, e.g. editing texts or spreadsheets, developers have to consider various aspects ranging from low-level technical issues up to high-level application usage. Among others, network connections between the collaborating
users have to be established to enable communication, parallel input from the collaborating users has to be handled, specific group functions have to be included to provide group awareness, and the data has to be shared and kept consistent to allow users to work on common task at all (Ellis, Gibbs, & Rein, 1991). Nevertheless, the last twenty years of research and development in the area of computer-supported collaborative work have identified various good practices for the design of such applications. A widely accepted approach to capture and communicate good practice knowledge from experts to novices is to use design patterns. Design patterns are considered as a lingua franca for design (Erickson, 2000). The concept of patterns has its roots in architecture where the architect Christopher Alexander collected a large collection of patterns for designing towns and buildings (Alexander et al., 1977). The core of a pattern description is that it describes a solution to a recurring problem in a specific context. A collection of interrelated patterns forms a pattern language. The pattern language for computer-mediated interaction consists of 71 patterns and captures best practices for the collaborative applications (Schümmer & Lukosch, 2007).
An End-User Friendly Pattern Structure When developing collaborative applications not only the interaction of one user with the tool but also the interaction among a number of users has to be taken into account. For a successful application, it is crucial to involve end-users in the development process (Schümmer et al., 2006). Involving end-users in the development process requires that end-users and developers can communicate using a common language. This language has to allow end-users and developers to identify and specify social and technical requirements as well as best practices for a solution. As result, the patterns for computer-mediated interaction
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always address a socio-technical problem. They describe the technology that supports the group process and therefore include a technical and a social aspect. Patterns for computer-mediated interaction are thus socio-technical patterns. Development processes like the Oregon Software Development Process (OSDP) (Schümmer, Lukosch, & Slagter, 2006) rely on such patterns to foster end-user involvement and enable communication as well as interaction among developers and future end-users. The socio-technical perspective on groupware design has to be aware of three key aspects: •
•
•
It is difficult to predict the reciprocal effect of changes to either the social or the technical system. The process used to create the socio-technical system will affect the acceptance of the system. Both social and technical systems change over time.
Patterns are a good means for empowering the user and the groupware developer so that they can react to the changing requirements during the group process. Besides the standard elements of a design pattern, i.e., a context description, a problem statement, a solution statement, and a collection of examples where the solution is in place, the patterns for computer-mediated interaction include several further aspects to address the socio-technical problems. The structure oft the patterns for computer-mediated interaction is shaped to meet both end-user’s and developer’s needs for detail and illustration. The pattern name is followed by the intent, and the context of the pattern. All these sections help the reader to decide, whether or not the following pattern may fit into his current situation. Then follows the core of the pattern composed of the problem and the solution statement separated by a scenario and a symptoms section. The scenario is a concrete description of a situation
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where the pattern could be used, which makes the tension of the problem statement tangible. The symptoms section helps to identify the need for the pattern by describing aspects of the situation more abstract again. After the solution section, the solution is explained in more detail and indications for further improvement after applying the pattern are provided. The participants section explains the main components or actors that interact in the pattern and explains how they relate to each other. The rationale section explains, why the forces are resolved by the pattern. The check section lists a number of questions, one has to answer before applying the pattern in a development context. Unfortunately, the application of a pattern can in some cases raise new unbalanced forces. These counter forces are described in the section labeled danger spots. The solution presented in a pattern represents a proven solution to a recurring problem, so the known uses section provides well-known examples where this pattern is applied. Finally, the related patterns section states what patterns are closely related to this one, and with which other patterns this one should be used. The pattern language for computer-mediated interaction (Schümmer & Lukosch, 2007) identifies 11 categories that group the 71 patterns according to the patterns’ most important forces. In addition, different abstraction levels show which patterns will be used by whom in the development process. Patterns at a high abstraction level have their main focus on the social process (like the Welcome Area pattern) while patterns on a low abstraction level have their main focus on the technical support (such as the Centralized Objects pattern that describes how shared objects can be accessed from a common location). Figure 1 shows the different clusters of our language as shaded boxes. Top level clusters address issues at a community level. The clusters in the middle layer address issues on a group level. Finally, the clusters on the lower levels ad-
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dress technical issues. The white boxes represent complementary pattern languages. We will explain the clusters of our pattern language in this section providing a tour through some prominent patterns of the pattern language (Coplien and Harrison, 2004, Manns and Rising, 2005, Tidwell, 2006, Duyne, Landay, & Hong, 2002, Völter, Kircher, & Zdun, 2004, Völter, Schmid, & Wolff, 2002, Gamma, Helm, Johnson, & Vlissides, 1995, Schumacher, Fernandez-Buglioni, Hybertson, Buschmann, & Sommerlad, 2005). When establishing a community, the community owner, i.e., the user interested in the community’s topic, will have to think about the relation of community with the surrounding environment. Once, the community is established, it becomes important to deal with quality. Protecting users is especially important in larger communities where not all users know one another. All the patterns in these clusters can be implemented on top of most collaboration infrastructures. With minimal support, e.g., when basing the interaction on e-mail, most of the pattern’s implementation will be the design of a social
process. However, the processes can also be implemented as part of the groupware application which will provide a better guidance for the users. The next lower layers describe technical solutions for a better group support. The basic assumption for these patterns is that the members have found peers in a community and now want to better support their tasks in the community. Most importantly, the designer has to think about how to modify shared artifacts together. Users need to be able to access shared information. This rather tool-oriented view on collaboration is complemented with a place-oriented view. The group shapes places for collaboration. Most collaboration support tools offer some means for textual communication. Awareness is an important aspect of computer-mediated interaction. It describes how users can understand the actions of other users in order to situate their own actions in the group context. The synchronous awareness cluster shows ways how this understanding can be achieved if a group of users collaborates at the same time. The cluster of asynchronous awareness complements the patterns from the above cluster with patterns
Figure 1. Layers in the pattern language for computer-mediated interaction
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that help to stay aware of collaboration partners over longer times. All the patterns in these clusters rely on a technical collaboration infrastructure. The infrastructure can again be described on two layers. On a higher level, session management has to be considered and on the lower level, shared objects and concurrent access to these objects needs to be handled. The cluster on session management assumes that collaboration episodes are embedded in a technical representation of users, the computer systems on which they act, and the used artifacts. Sessions are modeled as shared objects. Finally, data consistency support becomes important when users change shared objects at the same time.
AN EXAMPLE PATTERN: SHARED BROWSING This section illustrates the concept of the design pattern for computer-mediated interaction by presenting selected parts of the Shared Browsing pattern (Schümmer and Lukosch, 2007). The Shared Browsing pattern can especially be used in B2C e-commerce contexts where customers should interact in the process of product selection. •
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Context: Users of your application have different degrees of knowledge about the data or the virtual environment that is presented in the application. Now you are thinking about ways to ease their orientation in the environment. Problem: Users have problems finding relevant information in a collaboration space. They often get lost. Symptoms: You should consider applying this pattern when... ◦⊦ Users take a long time to find the information that they are looking for. ◦⊦ The goal is to find the information as a group, but several group members duplicate efforts to reach this goal.
◦⊦
•
•
Users want to talk about shared artifacts, but do not know how to ensure that their peer user sees the same artifact. Solution: Browse through the information space together. Provide a means for communication, and collaborative browsers that show the same information at each client’s site. Dynamics: Users collaborate in a shared information space. When interacting with a specific chunk of information, users position themselves at this chunk. The position of each user can be described as a location.
The collaborative browser communicates and shares the location of each user in the group. How this information is processed depends on the navigation strategy of the collaborative browser. Examples of different navigation strategies in collaborative browsing are: •
•
•
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Master-slave browsing in which one user ‘‘drives’’ and the other users follow. Whenever the master user updates the position, this position is also set for all slave users. Anarchistic browsing that does not have any roles. Whenever one user moves to a new location, all other users follow. Democratic browsing in which the group has to form a collaborative opinion before its members move on to the next artifact. Rationale: In a study of traditional libraries, Twidale, Nichols, & Paice (1997) showed that browsing should be a collaborative action. Although many searches for information is carried out alone in such places, Twidale et al. (1997) show that interaction between users also takes place.
Since collaborative browsers always show the same artifacts, their users will be able to commu-
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nicate about the content shown. This helps them to understand the artifacts better. •
•
•
Check: When applying this pattern, you should answer these questions: ◦⊦ How should you represent the view location? Can you use a URL or a coordinate? ◦⊦ Which browsing strategies will you offer the users? Known Uses: TUKAN (Schümmer, 2001b), CobWeb (Stotts, Prins, Nyland, & Fan, 1998), and GroupScape (Graham, 1997). Related Patterns: Application Sharing, Shared Editing, Remote Field of Vision, Collaborative Session, Floor Control, Vote, Embedded Chat, Replay.
An e-business application scenario for this pattern could be an event-management system where buyers can shop, e.g., for movie tickets. Such a system could be enhanced by the Shared Browsing pattern in order to support a group of friends in the movie selection process. Group members would select relevant movies independently and store references to these movies on a shared wish list. After this phase of independent browsing, they would review the relevant movies together using a master-slave browsing approach.
CONCLUSION AND FUTURE RESEARCH In this article, we presented a pattern language for computer-mediated interaction. We discussed the pattern language in the context of other well-known pattern languages and described an example pattern for the use in e-business settings. The pattern language presents a first step towards a better understanding of computer-mediated interaction in a networked environment and offers best practices for designing applications in
the emerging c-business domain. Case studies (Schümmer & Lukosch, 2007) on prominent groupware applications, like, e.g., BSCW (http:// www.bscw.de) or CoWord (http://cooffice.ntu/ edu.sg/coword), as well as the application of the patterns to design groupware (Lukosch & Schümmer, 2006) show that the most important patterns are captured within the pattern language for computer-mediated interaction. Still, there is a large potential for mining additional patterns in order to complement the pattern language for computer-mediated interaction in the area of workflow management, computer-mediated collaborative learning, gaming and entertainment, media use in collaboration, or mobile and other new computing devices.
REFERENCES Alexander, C., Ishikawa, S., Silverstein, M., Jacobson, M., Fiksdahl-King, I., & Angel, S. (1977). A pattern language. New York: Oxford University Press. Berners-Lee, T. (2006). developerworks interviews. Retrieved June 1, 2009, from http:// www-128.ibm.com/developerworks/podcast/ dwi/cm-int082206.txt Coplien, J. O., & Harrison, N. B. (2004). Organizational Patterns of Agile Software Development. Upper Saddle River, NJ: Prentice Hall. Duyne, D. K. V., Landay, J., & Hong, J. I. (2002). The Design of Sites: Patterns, Principles, and Processes for Crafting a Customer-Centered Web Experience. Reading, MA: Addison-Wesley Longman Publishing Co., Inc. Ellis, C., Gibbs, S., & Rein, G. (1991). Groupware some issues and experiences. Communications of the ACM, 34(1), 38–58. doi:10.1145/99977.99987
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Erickson, T. (2000). Lingua francas for design: sacred places and pattern languages. In Proceedings of the conference on Designing interactive systems, (pp. 357–368). New York: ACM Press.
Schumacher, M., Fernandez-Buglioni, E., Hybertson, D., Buschmann, F., & Sommerlad, P. (2005). Security Patterns. Chichester, UK: John Wiley & Sons, Ltd.
Gamma, E., Helm, R., Johnson, R., & Vlissides, J. (1995). Design Patterns. Reading, MA: AddisonWesley.
Schümmer, T. (2001a). GAMA-Mall – shopping in communities. In L. Fiege, G. Mühl, & U. Wilhelm, (Eds.), Proceedings of the Second International Workshop on Electronic Commerce (WELCOM’01), (pp. 51-62). Heidelberg, Germany: Springer.
Graham, T. C. N. (1997). Groupscape: Integrating synchronous groupware and the world wide web. In S. Howard, J. Hammond, & G. Lindgaard, (Eds.), Human-Computer Interaction, INTERACT ‘97, IFIP TC13 Interantional Conference on Human-Computer Interaction, Vol. 96 of IFIP Conference Proceedings, (pp. 547–554), Sydney, Australia. Boca Raton, FL: Chapman & Hall. Johnson-Lenz, P., & Johnson-Lenz, T. (1981). Consider the groupware: Design and group process impacts on communication in the electronic medium. In S. Hiltz & E. Kerr, (Eds.), Studies of Computer-Mediated Communications Systems: A Synthesis of the Findings, (Vol. 16). Newark, NJ: Computerized Conferencing and Communications Center, New Jersey Institute of Technology. Levine, R., Locke, C., Searls, D., & Weinberger, D. (2000). The cluetrain manifesto. Cambridge, MA: Perseus Publishing. Lukosch, S. & Schümmer, T. (2006). Groupware development support with technology patterns. International Journal of Human Computer Studies, Special Issue on ‘Theoretical and Empirical Advances in Groupware Research’, 64(7), 599–610. Manns, M. L., & Rising, L. (2005). Fearless Change: Patterns for Introducing New Ideas. Reading, MA: Addison-Wesley. Musser, J., O’Reilly, T., & the O’Reilly Radar Team (2006). Web 2.0 Principles and Best Practices. Sebastopol, CA: O’Reilly Radar. Piller, F. (2006). Mass Customization. Wiesbaden, Germany: Gabler Verlag.
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Schümmer, T. (2001b). Lost and found in software space. In Proceedings of the 34th Hawaii International Conference on System Sciences (HICSS-34), Collaboration Systems and Technology, Maui, HI. Washington, DC: IEEE-Press. Schümmer, T., & Lukosch, S. (2007). Patterns for Computer-Mediated Interaction. Chichester, UK: John Wiley & Sons, Ltd. Schümmer, T., Lukosch, S., & Slagter, R. (2006). Using patterns to empower end-users – The Oregon software development process for groupware. International Journal of Cooperative Information Systems, Special Issue on ‘11th International Workshop on Groupware (CRIWG’05)’, 15(2), 259–288. Stotts, D., Prins, J., Nyland, L., & Fan, T. (1998). Cobweb: Tailorable, analyzable rules for collaborative web use. Technical report, Dept. of Computer Science, University of North Carolina, Chapel Hill. Tidwell, J. (2006). Designing Interfaces. Sebastopol, CA: O’Reilly. Twidale, M. M., Nichols, D. M., & Paice, C. D. (1997). Browsing is a collaborative process. Information Processing & Management, 33(6), 761–783. doi:10.1016/S0306-4573(97)00040-X Völter, M., Kircher, M., & Zdun, U. (2004). Remoting Patterns – Foundations of Enterprise, Internet, and Realtime Distributed Object Middleware. Chichester, UK: John Wiley & Sons, Ltd.
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Völter, M., Schmid, A., & Wolff, E. (2002). Server Component Patterns: Component Infrastructures Illustrated with EJB. Chichester, UK: John Wiley & Sons, Ltd.
KEY TERMS AND DEFINITIONS Design Pattern: Description of a solution to a recurring problem in a specific context. Electronic Collaboration: Process of collaborating by means of electronic tool support. Groupware Systems: Intentional group or community process plus computer support.
Patterns for Computer-Mediated Interaction: Design patterns that address the design of groupware systems. Pattern Language: Collection of interrelated patterns for a problem domain. Socio-Technical System: A system that recognizes the interaction between people and technology. Socio-Technical Pattern: A design patterns that combines a technical and a social solution. User-Centered Design: Design process which gives attention to the needs of the end-user.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 1002-1010, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Business Artifacts for E-Business Interoperability Youakim Badr INSA-Lyon, France Nanjangud C. Narendra IBM Research India, India Zakaria Maamar Zayed University, UAE
ABSTRACT Traditional solutions to address interoperability issues are mainly process-centric so that consistent interactions among collaborating enterprises are ensured. These solutions examine interoperability from a technological perspective with focus on exchanging information messages between distributed and heterogeneous applications. However, interoperability from a business perspective has been overlooked in the past due to the complexity of reconciling diverse business strategies, organizational constraints, and IT infrastructures. DOI: 10.4018/978-1-60960-587-2.ch310
Business interoperability denotes the ability of diverse enterprises to collaborate together to coproduce added-value products and services. In this chapter, a new line of thinking is promoted whereby interoperability is data-centric instead of process-centric. Business interoperability is dealt with by adopting business artifacts that are able to cross organizational boundaries, and by introducing a stack of three layers - strategy, service, and resource. Artifacts are self-contained business records that include attributes, states, and life cycles that reflect the changes in these states. The artifact concept not only describes a business entity, but also encompasses knowledge about what to process without explaining how to
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do it. The shift from processes to artifacts makes business interoperability “quite simple’’ to deploy and renders collaboration easy to manage and analyze. The chapter also introduces several interaction patterns that regulate the exchange of artifacts between enterprises. The ideas and proposals in this chapter are discussed via a realistic case-study to demonstrate how business people can seamlessly manage their day-to-day activities and intuitively construct interoperable and sustainable collaborations at the business and technological levels.
INTRODUCTION To face today’s challenges such as competition and market volatility; enterprises must adapt their business operations and even, sometimes, modify their organizational structures. Existing information and communication technologies attempt to make this happen by integrating diverse entities including people, applications, processes, and information into the same common working space (Nandi & Kumaran, 2005). In this space, people use applications that trigger processes that themselves make use of the available information to answer their needs. Despite the collaborative tools that render the integration possible, the main challenge remains the ability of these entities to effectively interoperate together to accomplish their business goals. In a broad sense, interoperability refers to “the ability of a system or a product
to work with other systems or products without special effort” (Touzi et al., 2007). Interoperability is a recurring challenge that surfaces each time either physically or morally independent enterprises decide to collaborate (Norta et al., 2006). Differences in terminologies, backgrounds, requirements, priorities—just to cite a few examples—offer a glimpse of the interoperability challenges. Despite the large number of initiatives, standards, and specifications to deal with interoperability (Arsanjani, 2002; ETSI, 2006; Gailly & Poels, 2009; Peristeras & Tarabanis, 2006; Ma, 2009), enterprises have been struggling over the years with almost the same set of issues: lack of common semantics and ways of doing businesses, reduced access to external resources, data inconsistencies, and policy incompatibilities. These initiatives have, to a certain extent, focused on technical issues while neglecting the need of examining interoperability from a business perspective. Extending Cimander and Kubicek’s work (Cimander and Kubicek, 2009), we distinguish five interoperability levels (Table 1): technical, syntactic, semantic, organizational, and business. Regardless of any of these interoperability levels, the main purpose remains business collaboration where different systems not only have to communicate and consolidate their data but also semantically understand business practices to meet customers’ expectations and increase enterprises’ profits. Considering the success factors of some today’s technologies such as the Internet, the eXtensible
Table 1. Interoperability levels Business
Ability of diverse enterprises to collaborate together to coproduce added-value despite their different business strategies, organizational constraints, and IT infrastructures
Organizational
Ability to seamlessly interoperate pre-existing organizational structures and their business processes in response to different types of business collaborations
Semantic
Ability to automatically interpret the data exchanged meaningfully and accurately in order to produce useful results
Syntactic
Ability to integrate and exchange data by using specified data formats
Technical
Ability of systems to technically provide data transfer protocols to communicate with other systems and operate effectively together
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Markup Language (XML), and Web services, in this chapter we demonstrate how these technologies could contribute to overcome the interoperability challenge. In this context, the Internet is a support platform for e-business applications, XML is a platform-independent communication format to exchange data, and Web services are a computing technology that allows business processes across organizational boundaries (Baldoni et al., 2009; Maamar et al., 2006; Mocan et al. 2009). The composition of Web services offers another advantage to set up new business scenarios obtained by combining available Web services. Although Web services stand as an inevitable solution to interoperability at the technical level, examining interoperability at the business level remains almost “untouched”. Interoperability is not restricted to business process integration to ensure consistent data flow and smooth interactions between applications, but strengthens the importance of revisiting the way business processes are understood by all the people in an enterprise with emphasis on those at the business level. The people at the business level – primarily business managers or analysts - prefer to manage the evolution of their business records or data instead of spending time following-up the execution progress of business processes. These people are typically not IT savvy, and would prefer to evaluate the progress of their business processes via inspections of business records and data, rather than the low-level details of the individual business process implementations. Needs and concerns of the people at the business level are quite different from those at the middle (e.g., supervisors) or lower (e.g., programmers) levels. Taking this into account, we adopt the concept of business artifact (Nandi & Kumaran, 2005; Bhattacharya et al., 2005; Bhattacharya et al., 2007; Kumaran et al., 2008) to provide appropriate interoperability mechanisms at the business level. According to (Nigam & Caswell, 2003), artifacts are concrete, identifiable, selfdescribing records of information that can be
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easily identified by business people. In (Cohn & Hull, 2009), the added value of the use of business artifacts to model business operations and processes is reported. Typical artifacts include purchase order, bills, invoices, loan approvals, and car registrations. Simply put, business artifacts are “business-relevant objects that are created, evolved, and (typically) archived as they pass through a business” (Cohn & Hull, 2009). In this chapter we introduce our interoperability stack and adopt business artifacts as exchange means that can first, traverse organizational boundaries and second, flow within organizations (Figure 1). In this stack, three layers are identified: strategy, service, and resource. All these layers have access to a repository of business artifacts for different needs and purposes. In the context of the interoperability stack, the artifact passes through the stack layers in a top-down manner before it is sent over the network and reaches its recipient for further processing. The objective of this passing through is to enrich the artifact with additional elements related to semantics, update/ access rights, or business constraints. Our contributions in this chapter are threefold. 1. The interoperability stack demonstrates the interactions between enterprises using the strategy, service, and resource layers. The strategy layer provides an artifact-based collaboration model to ensure enterprise interoperability and automatically instantiates spontaneous and synchronous group collaboration in a modular and transparent manner. The service layer supports the collaboration that is set by the strategy layer by composing Web services. Finally, the resource layer provides the necessary means upon which the Web services are executed according to the collaboration model defined by the strategy layer. In this chapter, we primarily focus on the strategy layer, with some minor emphasis on the service layer.
Business Artifacts for E-Business Interoperability
Figure 1. Interoperability stack
This is due to the chapter’s focus, which is modeling interactions at the business layer. 2. The interaction patterns that regulate the collaboration schemas between enterprises. 3. The repository of business artifacts and mechanisms of artifact exchange between enterprises. This chapter is organized as follows. We first review the existing state of the art in the area of interoperability and point out its shortcomings. We then illustrate our proposed solution via a simple yet realistic running example in the purchase order domain. Prior to concluding and listing some future research directions, we present the details of our proposed stack and demonstrate its usefulness via the running example.
LITERATURE REVIEW Because of the multiple topics that our research work addresses, we decompose the literature review section into three parts. The first part reviews some solutions for e-business interoperability (Hall & Koukoulas, 2008; Liang et al., 2005; Silva et al., 2003; Janner et al., 2008). The second part reviews some initiatives concerning artifacts (Hull, 2008; Muller et al., 2008; Kumaran et al., 2008; Nandi & Kumaran, 2005; Narendra et al., 2009; Nigam & Caswell, 2003). The last section
discusses the expected added-value of artifacts to e-business interoperability.
E-Business Interoperability In (Liang et al., 2005), Liang et al. discuss the interoperability between different e-business specifications with emphasis on the Connections Markup Language (cnXML) and the Electronic Business using eXtensible Markup Language (ebXML). An architecture that consists of data, semantic, and process layers is proposed. This architecture is in line with our interoperability stack where the separation of concerns per level is necessary. In the architecture of Liang et al., the data layer corresponds to messaging service specifications in terms of the basic format and delivery mechanisms of business messages. The semantic layer corresponds to commonly used business terms and vocabulary. Finally, the process layer corresponds to business process specification in terms of defining the frequently used business processes, which are a set of message sequences in a predefined order. Liang et al. argue that interoperability assurance between different e-business specifications is necessary for e-business technology to become widespread. In (Hall & Koukoulas, 2008), Hall and Koukoulas discuss semantic interoperability for e-business in the particular service domain of Internet Service Providers (ISPs). An accurate understanding of the information that collaborating partners exchange
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is critical. Hall and Koukoulas selected small ISPs because of their capacity to target niche markets, but at the same time for their limited capacity to offer (i) a wide range of services that are nowadays required by increasingly demanding business customers and (ii) a proper geographical coverage that is necessary in a globalized marketplace. Hall and Koukoulas stress the importance of knowledge management and ontology development for enterprise interoperability. This importance is highlighted in the Enterprise Interoperability Research Roadmap (Li et al., 2006). A group of ISPs can work efficiently only if all the partners have the same view, not only of what a service is and what it offers, but also of relationships and constraints between services, service characteristics, and characteristic values. In (Silva et al., 2003), Silva et al. stress the role of ontologies to achieve e-business interoperability. This role is illustrated with the possibility of annotating Web resources with machine-processable meta-data. Thanks to these meta-data, automatic tools can analyze meaning and semantic relations between the Web resources. Silva et al. suggest that an ontology should be built in three distinct layers: model, axiomatic, and lexical. Again, the representation of this layer is in line with our stack interoperability and the separation of concerns principle. The model layer specifies domain and/or application entities, their inter-relations, and properties. The axiomatic layer constrains the interpretation and application of entities through axioms and rules. Finally, the lexical layer characterizes entities and their properties with natural language lexicons, giving them a real word meaning. In (Norta et al., 2006), a repository of patterns for storing already-designed and used interorganizational business processes is proposed. Each process is modeled via a combination of predefined process patterns, where each pattern is a technology-independent model for process representation. Each pattern is itself defined as per a pattern meta-model: management of the pattern
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in the repository follows a lifecycle comprising pattern submission, pattern review, and pattern acceptance or rejection. Developing business process models for a new requirement therefore consists of selecting the appropriate process patterns from the pattern repository and combining them to form the desired process model. Collaboration, which is a visible form of interoperability, is examined in different European projects. In the ECOSPACE project (www.ipecospace.org/), the vision is that “by 2010 every Professional in Europe is empowered for seamless, dynamic and creative collaboration across teams, organisations and communities through a personalised collaborative working environment’’. The design and development of an open-standard, service-oriented architecture along with a usercentric platform are among the objectives of this project. In the InContext project (www.in-context. eu/page.asp?PageRef=1), the aim is to develop “a novel scientific approach to the problem of enabling diverse individual knowledge workers in separate organizations to facilitate effective team work among individual knowledge workers, harnessing the latest developments in new technology’’. A semantic agent-based framework to facilitate business process collaboration is developed in this project. In another project known as COIN for Enterprise COllaboration & INteroperability (www.coin-ip.eu), enterprise interoperability is defined as “the ability of two or more systems or components to exchange information and to use the information that has been exchanged’’. The interoperability services developed in COIN are meant for information, knowledge, and business. Generally speaking, these approaches tend to solve the interoperability problem by addressing the semantics of exchanged business objects and data. They also seek to solve the interoperability problem due to the integration of different and distributed business processes, and their activities. The interoperability in e-business applications remains a challenging problem due to the evolution of partner business processes. In fact, all
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partners continuously improve their businesses and update their business process activities. Thus, changes require an entire revision of the underlying collaborative approach. As for data semantic interoperability, some of the aforementioned related works propose ontology-based solutions but still depend on the interoperability of business processes. The challenge remains how to ensure the interoperability at the business level independently from activity-centric business processes.
Business Artifacts A business artifact is a mechanism used to record chunks of information that can be used by a business person to manage a business. The value of an artifact relies on its representation model that is manageable, analyzable, and flexible from the perspective of a business person. Changes in an artifact are usually reflected on an Artifact LifeCycle (ALC). These changes are the result of executing one or more tasks in business processes. In (Kumaran et al., 2008), Kumaran et al. stress the importance of developing guidelines to identify artifacts from business processes. A business process complies with a business model that prescribes the activities to be performed as part of a business operation, the sequencing of these activities, and the inputs and outputs of these data. According to Kumaran et al., business artifacts have been successfully used in different information-centric process modeling exercises, but several problems remain. One of these problems is how to discover the right artifacts that best describe a business process. The current discovery technique is based on intense consulting sessions that are time consuming and require special consulting skills. To address this problem, Kumaran et al. propose an algorithm along with an approach that transforms activity-centric process models into information-centric models. In (Nigam & Caswell, 2003), Nigam and Caswell present a comprehensive discussion of using business artifacts and their life-cycles in business
modeling. An artifact is a formal structure that is suitable for use by business people to manage, analyze, and control their daily business operations. In another work, Nandi and Kumaran introduce the concept of Adaptive Business Objects (ABO) to integrate people, processes, information, and applications (Nandi & Kumaran, 2005) into the same working space. The ability to quickly and easily change the underlying application behaviors in response to ever-changing business conditions remains a crucial problem in business integration. An ABO constitutes an abstraction of a business entity with explicitly managed states and an associated programming model. It is similar in spirit to the artifact and tends to define a holistic view of integration. In (Muller et al., 2008), Muller et al. present data-driven process structures in which Object Life Cycles (OLC) of different objects are linked through OLC dependencies. Based on objects and relations between them, process structures are specified at the model level and then automatically instantiated as per a given data structure. This approach enables adaptations of data-driven process structures at both design and runtime. In (Narendra et al., 2009), Narendra et al. introduce a unified approach for business process modeling using context-based artifacts and Web services. They note that Service-Oriented Architecture (SOA) is a promising paradigm upon which enterprises could develop looselycoupled, interoperable business processes made up of distributed components for instance Web services. However, Narendra et al. recommend that prior to implementation it is critical to abstract business processes using models that are simultaneously expressive for non-IT specialists. A unified process- and data-centric approach seems to offer the right means for this recommendation. In that work, a business process is derived from a combination of interacting business artifacts. Modifications in an artifact are reflected on its life cycle that is represented as a state transition system. Transitions between successive states
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in an artifact life-cycle are the result of executing tasks in a business process, tasks that in fact correspond to Web service’s operations. Hence a complete business process is now modeled as a set of interacting artifact life-cycles. Artifacts progress through their respective life-cycles upon Web services’ approvals.
Artifacts’ Expected Added-Value to E-Business Interoperability Prior to concluding this section, we compare between process- and artifact-centric approaches and discuss the expected added-value of artifacts to e-business interoperability. For the first point, Table 2 summarizes this comparison (Kumaran et al., 2008). As per the aforementioned initiative where the focus is always technological, artifacts could prove useful means to address some interoperability issues. Artifacts are mainly data-centric instead of process-centric. Data passing from one partner to another is a core activity in any interoperability scenario. Partners always struggle with identifying the data they require from their peers due to lack of common understanding and restricted access to data resources. In our approach, interoperability scenarios can be built upon artifacts (that all organizations agree upon) that can cross organizational boundaries and whose life cycles can be split into parts, each part associated with a partner in compliance with some access rights.
Each artifact is associated with a life cycle that shows all the changes in states that the artifact goes through. Through artifact use, it is possible to make interoperability focus on the needs of the business itself rather than on the needs of integrating business processes. This will allow business people to seamlessly manage their day-to-day activities and intuitively construct sustainable collaborations with partners. Internal changes in organizational structures, activities, and functional services should not impact existing collaborations. Our objectives are to: •
• •
•
Promote a new line of thinking whereby interoperability should be data-centric instead of process-centric. Reduce interoperability reliance on standards and technologies. Establish sustainable business collaboration regardless of current business processes and their future evolution. Increase the ability of business people to easily adapt their businesses in response to strategy changes.
CASE STUDY Business process models are used to represent processes in terms of tasks to execute, messages to exchange, data to update, among other things.
Table 2. Comparison between process- and artifact-centric approaches Requirement
Process-centric approach
Artifact-centric approach
Modeling
Enumerates all process activities via hierarchical process representation of control and data flow – not conducive to in-depth analysis and prediction of process behavior.
Helps to analyze and predict system behavior using the lifecycle models of a few business artifacts in a flat structure.
Flexibility
Once defined, the process-centric approach fixes a particular process flow, which needs to be changed in order to accommodate exceptions or requirement changes
Provides business people with the flexibility to choose/ modify the appropriate sub-sequence of steps in the business process, as long as the lifecycles of the artifacts are adhered to, thereby enhancing flexibility.
Tracking
Due to hierarchical representation, tracking at various levels becomes quite cumbersome
Tracking based on states in the flat artifact-centric structure – can provide a quick “bird’s eye view” without unnecessary details.
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In Figure 2, we identify the accounting, sales, and stock departments that belong to the same enterprise. Additional external departments are also shown in this figure for instance bank, supplier, and shipper. At the technological level, each department or enterprise runs various applications on different platforms. Some of these applications are depicted in Figure 3. In Figure 2, dashed rectangles represent business partners, arrows represent collaboration flow, and circles represent applications. Figure 3 illustrates inter-enterprise collaboration through an online purchase-order scenario. Initially a customer places an order for a variety of products via Customer-App. Based on this order, Customer-App obtains details on the customer’s previous purchase history from the CRMApp (standing for Customer Relationship Management). Then Customer-App forwards these details to Billing-App, which first calculates the customer’s bill based on her history details (e.g., whether eligible for reward points or discounts)
that Credit-App provides, and then sends the bill out to CRM-App. The latter prepares the detailed purchase order based on the bill and sends it out to Inventory-App (standing for Inventory Management) for order fulfillment. For those products that are in stock, Inventory-App sends a shipment request out to Shipper-App, which is now in charge of delivering the products to the customer. For those products that are out-of-stock, InventoryApp sends a supply message out to the requisite Supplier-App, which provides the products to Shipper-App for subsequent shipments to the customer. The above scenario, albeit highly simplified, shows the need of different departments or enterprises collaborate in order to fulfill their customers’ needs. When mapping this scenario onto the elements of our interoperability stack, the following points are raised: •
At the strategy layer, enterprises need to express their willingness to participate
Figure 2. Collaboration at the enterprise level
Figure 3. Collaboration at the application level
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•
•
in joint operations by reviewing some of their internal business processes or making some of their internal business processes accessible to other peers. For example, suppliers let some businesses check their inventories. At the service layer, enterprises need to develop combined operations (or services) that will involve their own applications as well as those of their peers. These operations will spread over organizational boundaries at run-time. For example, Inventory-App needs to coordinate with Supplier-App and Shipper-App to ensure that the products are delivered to the customer. At the resource layer, enterprises need to ensure that data flow between their respective applications regardless of the implementation technologies that each enterprise uses. For example, customerrelated data that flow between CRM-App and Customer-App need to be understandable by their respective applications. Additionally, interface protocols used by these applications should be compatible with one another. For example, if CRMApp requires an acknowledgement for every outgoing message, then Customer-App should have acknowledgement transmission as part of its own interface protocol.
INTEROPERABILITY BASED ON ARTIFACTS Overview In a decentralized environment, collaboration refers to a process that lets two or more enterprises work together to achieve common goals. Although these enterprises agree to engage in this process, they continue functioning in an independent way by taking actions, making decisions, and
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developing new strategies so they can sustain their growth and maximize their benefits. All this happens without violating the collaboration agreements with other enterprises. Enterprise interoperability offers an opportunity to abstract any potential collaboration opportunity and overcome its complexity by helping business managers understand complex situations and address them properly. The collaboration models as shown in Figure 4 describe the most popular and commonly used ways to understand how business people see various interactions taking place with their partners without paying attention to constraints such as technologies, regulations, semantics, and business strategies (Baudin, 2004). Nowadays, various collaboration models deploy process-centric workflows to exchange messages and accomplish joint activities. Each process may involve Web services responsible for executing some of this process’s activities. Despite the costs and efforts of deploying such collaboration models and monitoring the execution progress of all the individual Web services, business analysts and managers would be overwhelmed with too many low-level details, which in turn would require specialized implementations to condense and present these details in a summarized way. Artifacts provide an appropriate, uniform picture of each collaboration model by enabling business analysts and managers to answer different questions related for example to the verification and finalization of customer bills, the current order fulfillment stage, and the fulfillment of particular order types and delivery time. In this context, a simple collaboration can take place between two enterprises where artifacts are sent from one side to another (i.e., unidirectional). Collaboration may also include several enterprises where artifacts can be sent and received by all partners (i.e., bidirectional). In some situations, partners can be involved in several disjoint collaborations and can concurrently exchange various artifacts (i.e., coordination). As a result, we define collaboration in terms of flows of exchanged ar-
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Figure 4. Types of collaboration models
tifacts between senders and receivers. Complex collaboration scenarios can be built upon atomic collaboration flows. Unlike traditional approaches that attempt to ensure interoperability by integrating business processes through Web services, we use here what we refer to as a “generic” Web service whose role is limited to receiving and sending artifacts as in Figure 5. Since artifacts are self-contained, each partner can select an appropriate Web service to update the artifact’s attributes and make this artifact transition from its current state to a new state with respect to this artifact’s lifecycle. In such a way, the partners do not reveal their internal applications or Web services. They only guarantee that they will process the artifacts based on the current attribute values and current states of these artifacts.
Interoperability Stack Description 1. Strategy layer: it enables business interaction using various collaboration models as depicted in Figure 4. This is done via the definition of artifacts by each business partner and artifact exchanges between the partners. The artifact exchanges are defined by their lifecycles. The service layer includes all necessary services or applications required to manipulate these artifacts. 2. Service layer: from a business perspective, a service represents a unit of work constrained by the business rules in a business process. It can be fully automated or performed by people who make the service completion non-deterministic. Technically speaking, a service updates artifact attributes and changes artifact states with respect to the artifact lifecycle. When the service is automated, Web services can be used to
Figure 5. Enterprise interoperability using artifacts and generic Web services
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implement loosely-coupled and platformindependent applications. These applications are especially relevant as collaboration is increasingly distributed across multiple independent enterprises. 3. Resource layer: it is decomposed into logical and physical parts. The logical part concerns the data that a business owns and manages as part of its day-to-day activities. The logical part in the resource layer includes also software resources such as operating systems, database management systems, etc. Finally, the physical part in the resource layer is about the hardware platforms that are deployed and connected through networks such as terminals, servers, routers, etc.
Artifact Definition In a manner consistent with (Nigam & Caswell, 2003), we define an artifact as a container of a set of related data items that define an information entity. Formally, an artifact is recursively defined as A = {di}, where di is either a data variable or itself an artifact. Since an artifact is considered as a chunk of potentially usable business data, its
types are not always conventional and are usually specified in unstructured form (http://ikt.hia.no/ perep/eipind.pdf, accessed April 2009). Unstructured data does not have a data model or one that is easily stored in databases. Data variables in an artifact can be ordered, unordered, simple objects, complex objects, finite, or infinite data through a recursive definition. The data models in artifacts can be represented as nested name-value pairs, Entity-Relationship schemas, or might be based on RDF or some Description Logic. We define the artifact life-cycle of artifact A as ALCA = (S, s0, Sf, L, T), where S is the set of states, s0 is the initial state, Sf is the set of final states, L is a set of transition labels, and T is a set of transitions. A label l in L consists of three components (event E, condition C, and action A) and is written as E[C]/A. A transition is defined from a state to another as t = (si, l, sj) where si and sj are in the same ALC. The order artifact from Figure 3 and its lifecycle details are in Table 3. The transitions between states are associated with Web services such as Estimate, RoutineApproval, ExecApproval, and Schedule. Each Web service is specified by a formal logical expression; if precondition then effect.
Table 3. Representation of artifact “order” Artifact: order Associated Attributes: ProdName: string prodType: string bid: integer profitMargin: [0..100] scheduleDate: date States: Created: boolean Updated: boolean Approved: boolean Fulfilled: boolean Archived: boolean
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Transition rules: Estimate: profitMargin PRE: DEF(ProdName) ^ DEF(prodType) ^ DEF(bid) EFF: Bid ≤ 400 → profitMargin ≤ 25% Bid > 350 → profitMargin > 20% RoutineApproval: approved PRE: DEF(bid) ^ DEF(profitMargin) EFF: Bid ≤ 100 → approved = true prodType = “sw” → approved = true prodType = “hw” ^ profitMargin > 10% → approved = true “else” → approved = false ExecApproval: Approved PRE: approved = false EFF: true → DEF(Approved) Schedule: scheduleDate PRE: DEF(ProdName)
Lifecycle
Business Artifacts for E-Business Interoperability
In general, the specification of services can be expressed in terms of inputs, outputs, pre-conditions, and post-conditions using OWL-S and semantic Web services (Martin et al., 2003; McIlraith et al., 2001; Fritz et al., 2008; Deutsch et al., 2009). Together, these are defined as IOPE rules, standing for Inputs, Outputs, Preconditions and Effects. The precondition and effects may refer to artifacts and artifact attributes. In our context, artifact transitions correspond to OWLS descriptions. The conditional effects typically create new attribute values or change states. They are usually defined using logical formulas describing the artifact states before and after the service execution. In Table 3, we express some transition rules in terms of IOPE expressions that include artifact states and attributes.
Artifacts Exchange Mechanism Enterprise interoperability based on artifacts attempts to help enterprises set up collaboration with partners. The artifact concept not only describes a business entity, but also encompasses the knowledge about what to do without explaining how to do it. The exchanged artifact includes the attribute value pairs, the artifact lifecycle, and the current state with its potential transition. The capacity of including attributes, states, and lifecycle in a single entity called artifact conveys business intent and serves as a basis to propose an abstraction for any type of collaboration scenario. However, two partners can exchange many artifacts and sometimes wish to partially or totally hide their artifact contents. This typically leads to the proposal of a dedicated flow in which a specific artifact can be exchanged back and forth between two partners. In this context, we differentiate between public and private artifacts to protect the privacy of each partner. Public artifacts are exchanged between partners whereas private artifacts are managed internally by each partner. Each enterprise has relevant and complete definitions of artifact attributes and lifecycles that do not wish to reveal
to partners. Public artifacts are considered as reduced views of private artifacts. Consequently, partners should agree in advance on public artifact structures and their lifecycles. In this case, a mapping mechanism is required to specify how both public and private artifacts are mapped. In our earlier work (Hull, et. al., 2009) we had specified how this mapper can be developed by specifying appropriate access control-based restriction rules that limit access of certain states and transitions in a private artifact to external parties, thereby generating the public artifact. To illustrate, in our running example (Figure 2), the accounting department could select some artifacts, e.g., order and bill, to be sent to the bank department. This selection happens at the strategy layer. The values of some attributes are updated, and some states could be changed as well. The strategy layer then passes these artifacts to the service layer where additional actions are taken, e.g., preparing the private portions of these artifacts. Once this is done, the private portions of the artifacts are sent to the resource layer where they are encrypted so as to maintain security. The architecture of artifact-based interoperability is depicted in Figure 6 and includes the following elements. •
•
Generic Web services are used only to establish collaboration between partners. They facilitate the exchange of business artifacts expressed in terms of input and output messages. Business artifacts are self-described business records. They can be modeled using any suitable information modeling approach such as Entity-Relationship diagrams in order to facilitate their understanding by business people. At the technical level, artifacts can be modeled as XML schema to describe exchanged input and output messages. Notice that the messages can take full advantages of WS-* standards to enable security (e.g., WS-Policy, http://
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Figure 6. Illustration of artifact exchange and processing
•
•
•
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www.w3.org/Submission/WS-Policy) and establish an agreement between two parties (e.g., WS-Agreement, http://www.ogf.org/ documents/GFD.107.pdf). All exchanged artifacts are considered public artifacts. Interceptor: Upon reception of a public artifact, the generic Web service invokes the interceptor which analyzes the received artifact. The interceptor enables security authentication and checks for business constraints and requirements. All required information is stored in databases (i.e., business rules, security credentials, etc). Artifact mappers: ensure mapping between public and private artifacts. Each partner has to define rules to specify how the mapping should occur. The private artifact is a generalization of the public artifact and supports the privacy of the partners. IOPE databases: enable separation between services and artifacts by using IOPE rules.
•
•
Inference engine: transitions between artifact states are described in their artifact lifecycles. Each transition can be realized by the execution of one or more business web services. The IOPE rules specify how Web services should change the artifact states. In this context, the inference engine reads IOPE rules, reasons over these rules, and chooses the appropriate Web service. Artifact manager: invokes the selected Web services and updates artifact attributes and states, and sets up the current state.
We assume that the interceptor and the artifact mappers are optional components in the case that the collaboration does not consider private artifacts and there are no constraints to check when receiving an artifact.
Business Artifacts for E-Business Interoperability
ARTIFACT INTERACTION PATTERNS We define artifact interactions between partners as consisting of the following patterns: 1. Interactions between artifact lifecycles where each partner manages its artifacts separately. 2. Partners share a common artifact and potentially different ECA rules. 3. Subcontract interactions such as when one partner’s artifact is partially or completely processed by subcontractors. In the following figures, dashed lines represent the exchange of messages between the artifact life cycles, and plain lines represent the transitions within the life cycles.
Interactions Between Partner Artifacts Where Each Partner Manages Its Artifact Separated In this type of interaction, artifacts from separate business partners communicate by sending messages to each other. When an artifact A receives
a message from artifact B, it is treated by artifact A as an event under the ECA rule formation. Depending on the current state of artifact A, and other conditions, the artifact A makes transitions to the next state as described in its lifecycle. The artifact A may respond by sending a reply message to the artifact B which may treat the message reception as an event to make transitions in its lifecycle – this request-response pattern should be agreed upon in advance by both partners. This interaction pattern is illustrated in Figure 7. Although this figure shows only two interacting partners, this pattern can be extended to multiple interacting partners. In our running example, if artifact A and B are the client’s orders and the bill that the client has to pay, respectively, then artifact A could move from Updated to Approved states upon receipt of a message from artifact B that the customer’s bill has been paid. This is illustrated in Table 4. Such an approach can be used in situations that demand a high level of autonomy among interacting partners. Neither party is aware of each other’s artifacts – agreement is only about
Figure 7. Direct interactions between partner artifacts
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Table 4. ECA rules for order and bill artifacts if Bill receives a “Request of transition message” from Order and Order has the current state Updated and Bill has the current state Unpaid then Bill moves from state Unpaid state to Paid state and sends a “Confirmation of transition message” to Order if Order receives a “Confirmation of transition message” from Bill and Order has the current state Updated and Bill has the current state Paid then Order moves from state Updated state to Approved state
is illustrated in Figure 8. Although this figure only shows two interacting partners, this pattern can be extended to multiple interacting partners. This pattern can be used when the partners have full trust in each other, and can work together to solve a common business goal. In our running example, the Customer artifact could be jointly updated by the Sales and Bank enterprises such as in Figure 2, to ensure that the customer’s purchase and credit history are regularly maintained.
the messages to exchange and the conditions under which the message exchanges take place.
One Common Public Artifact and Private ECA Rules
One Common Public Artifact and Shared ECA Rules
This is a variant of the previous type of interaction, whereby the trust level among the partners is not high enough to share ECA rules. This involves the modeling of a public artifact, which is shared among the business partners along with private artifacts for each partner. The private artifacts are hidden from other partners (Figure 9). The ECA rules that govern public artifact updates based on information from a partner’s private artifacts are not revealed outside the partner’s organization. In Figure 9, the public artifact is Artifact C, which is governed by state changes
In this type of interaction, two partners agree to share a common artifact and contribute towards its lifecycle. The ECA rules that govern the behavior of each partner as part of this common artifact are also shared, that is to say that each partner is aware of the other’s ECA rules. Each partner, therefore, provides the appropriate Web services that help in implementing the appropriate state transitions of the common artifact’s lifecycle. This pattern Figure 8. One common artifact and shared ECA rules
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Figure 9. One common artifact and private ECA rules
in the private artifacts A and B.↜Here too, for example the Sales and Bank organizations could independently update the Customer artifact, while ensuring privacy for their respective ECA rules.
Subcontract Artifact Interactions In this type of interaction, there is only one artifact (artifact A in Figure 10). Some states of this artifact are executed by the partners of the business organization that owns artifact A. In other words, this is a typical interaction between a prime contractor and its subcontractors. Such an interaction can be employed when the prime
contractor trusts its subcontractors, and there is a well-defined working relationship among them.
IMPLEMENTATION In order to demonstrate the feasibility of our approach, we have developed a primary release of a prototype illustrating the benefits of an artifactbased modeling. The prototype aims to be a frontend interface for each partner in a distributed collaboration. It implements the architecture in Figure 6 to manipulate data entities as artifact records and artifact life-cycle interactions through
Figure 10. Subcontract artifacts
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generic Web services. It also deploys and executes the mapping rules between public and private artifacts depending on the collaboration patterns and by using mapping rules triggered with respect to the current states of public and private Web services. The prototype architecture is extensible and modular to allow effortless business integration with legacy systems and provides tools amenable to business people and intuitive for business communications. The prototype’s architecture consists of three independent modules: Artifact Manager, Web Service Manager, and Rule Base Manager. Each module is self-contained and implemented as a set of reusable plug-in in the Eclipse 3.4 3.5.1 runtime platform. As illustrated in Figure 11, the prototype offers user-friendly interfaces based on SWT/JFace components to define several collaboration projects including appropriate artifacts, states, generic Web services, and mapping rules. A graphical editor built on GEF/EMF Frameworks helps business people to graphically construct artifact life-cycles and establish interactions between their states. However, dedicated editors Figure 11. Prototype snapshot
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allow linking public and private artifacts through messages, transitions and triggering conditions. The deployment and execution of web services are ensured by the integration of ActiveBPEL plug-in which takes care of persistence, queues, alarms, and many other execution details. The prototype includes SWT Web Brower features to send or receive public artifacts manually or automatically. In the prototype, we also pay attention to the exchange format and the storage of business artifacts. We thus developed an XML Schema to represent artifact data, states and lifecycles. As depicted in Figure 12, the schema enables the representation of semi-structured data which allows the addition of attribute-value pairs without a prior predefined data structure. Moreover, the artifact data can evolve to satisfy new business requirements or changes. In this context, the generic web services remains intact and the business rules should only be updated by each partner to internally specify how to handle the new data. That is to say, the change in the public artifact is managed individually and independently by each
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partner. As depicted in the Figure 12, the lifecycle, which is a graph of states, is presented by the GraphML (Brandes et al., 2002) to allow various operations such us graph processing, drawing and reporting. The prototype primary release has been successfully tested to exchange public artifacts and applying mapping rules to synchronize public and private artifact lifecycles. The application of the artifact-based collaboration requires the substitution of activity-centric processes with data-centric processes to get full benefits of our proposed approach.
CONCLUSION AND FUTURE RESEARCH DIRECTIONS In this chapter, we examined some key issues related to ensuring a smooth enterprise interoperability. Interoperability raises several issues such as lack of common semantics for inter-business
interaction, data inconsistencies, and policy incompatibilities. Traditional approaches have promoted process-centric solutions, which have not been enough to address these issues at the business level. Additionally, enterprises should be able to quickly adapt their e-business interactions in response to changing market conditions. A low-level process-centric modeling approach makes it difficult for enterprises to achieve this dynamism. Enterprises, therefore, need to view and control their operations at a higher level of abstraction than process implementations. In order to address these shortcomings, we proposed an artifact-centric solution that can manage e-business interactions at a level of abstraction that is meaningful for business managers and analysts. Through our interoperability stack comprising strategic, service and resource layers, we demonstrated how e-business interactions can be modeled and implemented via artifact exchanges among enterprises. We, also, introduced several interaction patterns that is to say several ways in
Figure 12. Artifact representation along with its lifecycle
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which enterprises can interact with each other by exchanging artifacts. Expressing e-business interactions as combinations of these patterns also enables them to become more flexible and reusable. For future work, we seek to implement and test our approach through real-life examples. Since interactions among autonomous organizations typically involve conflicts due to differing agendas, we will also extend our earlier work on B2B conflict resolution at the service layer (Maamar et al., 2008) to incorporate artifact-based interactions.
REFERENCES Arsanjani, A. (2002). Developing and integrating enterprise components and services. Communications of the ACM, 45(10). Baldoni, M., Baroglio, C., Chopra, A. K., Desai, N., Patti, V., & Singh, M. P. (2009). Choice, interoperability, and conformance in interaction protocols and service choreographies. In Proceedings of the 8th International Joint Conference on Autonomous Agents and Multiagent Systems (AAMAS’2009), Budapest, Hungary. Baudin, V., Drira, K., Villemur, T., & Tazi, S. (2004). A model-driven approach for synchronous dynamic collaborative e-learning. In Ghaoui, C. (Ed.), E-education applications: Human factors and innovative approaches (pp. 44–65). Information Science Publishing. Bhattacharya, K., Gerede, C. E., Hull, R., Liu, R., & Su, J. (2007). Towards formal analysis of artifact-centric business process models. In Proceedings of International Conference on Business Process Management (BPM’2007), (pp. 288-304). Bhattacharya, K., Guttman, R., Lyman, K., Heath, F. F. III, Kumaran, S., & Nandi, P. (2005). A model-driven approach to industrializing discovery processes in pharmaceutical research. IBM Systems Journal, 44(1), 145–162.
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Brandes, U., Eiglsperger, M., Herman, I., Himsolt, M., & Marshall, M. S. (2002). GraphML progress report: Structural layer proposal. Proceedings of the 9th International Symposium Graph Drawing (GD ‘01). LNCS 2265, (pp. 501-512). SpringerVerlag. Cimander, R., & Kubicek, H. (2009). Organizational interoperability and organizing for interoperability in e-government. In Second European Summit on Interoperability in the iGovernment, (pp. 109–122). Cohn, D., & Hull, R. (2009). Business artifacts: A data-centric approach to modeling business operations and processes. Bulletin of the IEEE Computer Society Technical Committee on Data Engineering, 32(3). Deutsch, A., Hull, R., Patrizi, F., & Vianu, V. (2009). Automatic verification of data-centric business processes. In Proceedings of the 12th International Conference on Database Theory (ICDT), St. Petersburg, Russia, (pp. 252-267). ETSI. (2006). Achieving technical interoperability–the ETSI approach. ETSI White Paper No. 3. Retrieved on December 24, 2009, from http:// etsi.org/WebSite/document/whitepapers/IOP%20 whitepaper%20Edition%203%20final.pdf Fritz, C., Hull, R., & Su, J. (2009). Automatic construction of simple artifact-based workflows. In Proceedings of the 12th International Conference on Database Theory (ICDT’2009), St. Petersburg, Russia, (pp. 252-267). Gailly, F., & Poels, G. (2009). Using the REA ontology to create interoperability between e-collaboration modeling standards. In The Proceedings of the 21st International Conference on Advanced Information Systems Engineering (CAiSE’2009), Amsterdam, The Netherlands, (pp. 395-409).
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Hall, J., & Koukoulas, K. (2008). Semantic interoperability for e-business in the ISP service domain. In Proceedings of the International Conference on e-Business (ICE-B’2008), Porto, Portugal. Hull, R. (2008). Artifact-centric business process models: Brief survey of research results and challenges. In Proceedings of OTM Conferences’2008, Monterrey, Mexico. Hull, R., Narendra, N. C., & Nigam, A. (2009) Facilitating workflow interoperation using artifact-centric hubs. In Proceedings of The Seventh International Conference on Service-Oriented Computing (ICSOC/ServiceWave’2009), Stockholm, Sweeden. Janner, T., Lampathaki, F., Hoyer, V., Mouzakitis, S., Charalabidis, Y., & Schroth, C. (2008). A core component-based modeling approach for achieving e-business semantics interoperability. Journal of Theoretical and Applied Electronic Commerce Research, 3(3). Kumaran, S., Liu, R., & Wu, F. Y. (2008). On the duality of information-centric and activity-centric models of business processes. In The Proceedings of the 20th International Conference on Advanced Information Systems Engineering (CAiSE’2008), Montpellier, France. Li, M.-S., Cabral, R., Doumeingts, G., & Popplewell, K. (2006). Enterprise interoperability research roadmap, final version (Version 4.0). European Commission. Liang, P., He, K., & Liu, J. (2005). The interoperability between different e-business specifications. In The Proceedings of the International Conference on Information Technology: Coding and Computing (ITCC’2005), Las Vegas, Nevada, USA.
Maamar, Z., Benslimane, D., Kouadri Mostéfaoui, G., Sattanathan, S., & Ghedira, C. (2006). Developing interoperable business processes using Web services and policies. In The Proceedings of the 2nd International Conference on Interoperability for Enterprise Software and Applications (I-ESA’2006), Bordeaux, France. Maamar, Z., Thiran, P., Narendra, N. C., & Sattanathan, S. (2008). A Web services-based framework for modeling B2B applications. In The Proceedings of the 22nd International Conference on Advanced Information Networking and Applications (AINA’2008), Okinawa, Japan. Martin D. (2003). OWL-S semantic markup for Web services. W3C Member Submission, November 2003. McIlraith, S. A., Son, T. C., & Zeng, H. (2001). Semantic Web services. IEEE Intelligent Systems, 16(2), 46–53. Mocan, A., Facca, F. M., Loutas, N., Peristeras, V., Goudos, S. K., & Tarabanis, K. A. (2009). Solving semantic interoperability conflicts in cross-border e-government service. International Journal on Semantic Web and Information Systems, 5(1), 1–47. Muller, D., Reichert, M., & Herbst, J. (2008). A new paradigm for the enactment and dynamic adaptation of data-driven process structures. In Proceedings of the 20th International Conference on Advanced Information Systems Engineering (CAiSE’2008), (pp. 48-63). Montpellier, France. Nandi, P., & Kumaran, S. (2005). Adaptive business objects-a new component model for business integration. In Proceedings of the International Conference on Enterprise Information Systems (ICEIS’2005), Miami, Florida.
Ma, Y.S. (2009). Towards semantic interoperability of collaborative engineering in oil production industry. Concurrent Engineering: R &A, 17(2).
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Narendra, N. C., Badr, Y., Thiran, P., & Maamar, Z. (2009). Towards a unified approach for business process modeling using context-based artifacts and Web services. In Proceedings of the IEEE International Conference on Services Computing (SCC’2009), (pp. 332-339). Bangalore, India. Nigam, A., & Caswell, N. S. (2003). Business artifacts: An approach to operational specification. IBM Systems Journal, 42(3), 428–445. Norta, A., Hendrix, M., & Grefen, P. (2006). A pattern repository for establishing inter-organizational business processes. Beta Working Papers, Vol. 175. Eindhoven University of Technology. Peristeras, V., & Tarabanis, K. (2006). The connection, communication, consolidation, collaboration interoperability. International Journal of Interoperability in Business Information Systems, 1(1), 61–72. Silva, N., Rocha, J., & Cardoso, J. (2003). E-business interoperability through ontology semantic mapping. In Proceedings of the Processes and Foundations for Virtual Organizations, IFIP TC5/ WG5.5 Fourth Working Conference on Virtual Enterprises (PRO-VE’2003), Lugano, Switzerland. Touzi, J., Lorre, J.P., Benaben, F. & Pingaud, H. (2007). Interoperability through model-based generation: The case of the Collaborative Information System (CIS). Enterprise Interoperability, 407-416.
KEY TERMS AND DEFINITIONS Artifact: It is a self-describing collection of closely related data that represents a business record, which describes details of goods and services provided or used by the business. Composite Web Service: Composition targets users’ requests that cannot be satisfied by any single, available Web service, whereas a composite Web service obtained by combining available Web services may be used. Interoperability: It is the ability of systems to collaborate despite distribution and heterogeneous obstacles. Ontology: It is the conceptualization of the knowledge of a certain domain. Pattern: It identifies a set of recurring events/ objects that arise/appear constantly. Process: It is a set of activities that are connected together according to a certain execution chronology. Web Service: It is “a software application identified by a URI, whose interfaces and binding are capable of being defined, described, and discovered by XML artifacts, and supports direct interactions with other software applications using XML-based messages via Internet-based applications’’ (W3C).
This work was previously published in Electronic Business Interoperability: Concepts, Opportunities and Challenges, edited by Ejub Kajan, pp. 15-36, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Adaptive Web Presence and Evolution through Web Log Analysis Xueping Li University of Tennessee, USA
INTRODUCTION The Internet has become a popular medium to disseminate information and a new platform to conduct electronic business (e-business) and electronic commerce (e-commerce). With the rapid growth of the WWW and the intensified competition among the businesses, effective web presence is critical to attract potential customers and retain current customer thus the success of the business. This poses a significant challenge DOI: 10.4018/978-1-60960-587-2.ch311
because the web is inherently dynamic and web data is more sophisticated, diverse, and dynamic than traditional well-structured data. Web mining is one method to gain insights into how to evolve the web presence and to ultimately produce a predictive model such that the evolution of a given web site can be categorized under its particular context for strategic planning. In particular, web logs contain potentially useful information and the analysis of web log data have opened new avenues to assist the web administrators and designers to establish adaptive web presence and evolution to fit user requirements.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Adaptive Web Presence and Evolution through Web Log Analysis
BACKGROUND
MAIN FOCUS
People have realized that web access logs are a valuable resource for discovering various characteristics of customer behaviors. Various data mining or machine learning techniques are applied to model and understand the web user activities (Borges and Levene, 1999; Cooley et al., 1999; Kosala et al., 2000; Srivastava et al., 2000; Nasraoui and Krishnapuram, 2002). The authors in (Kohavi, 2001; Mobasher et al., 2000) discuss the pros and cons of mining the e-commerce log data. Lee and Shiu (Lee and Shiu, 2004) propose an adaptive website system to automatically change the website architecture according to user browsing activities and to improve website usability from the viewpoint of efficiency. Recommendation systems are used by an ever-increasing number of e-commerce sites to help consumers find products to purchase (Schafer et al, 2001). Specifically, recommendation systems analyze the users’ and communities’ opinions and transaction history in order to help individuals identify products that are most likely to be relevant to their preferences (e.g. Amazon. com, eBay.com). Besides web mining technology, some researches investigate on Markov chain to model the web user access behavior (Xing et al., 2002; Dhyani et al., 2003; Wu et al., 2005). Web log analysis is used to extract terms to build web page index, which is further combined with text-based and anchor-based indices to improve the performance of the web site search (Ding and Zhou, 2007). A genetic algorithm is introduced in a model-driven decision-support system for web site optimization (Asllani and Lari, 2007). A web forensic framework as an alternative structure for clickstream data analysis is introduced for customer segmentation development and loyal customer identification; and some trends in web data analysis are discussed (Sen et al., 2006).
Broadly speaking, web log analysis falls into the range of web usage mining, one of the three categories of web mining (Kosala and Blockeel, 2000; Srivastava et al., 2002). There are several steps involved in web log analysis: web log acquisition, cleansing and preprocessing, and pattern discovery and analysis.
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Web Log Data Acquisition Web logs contain potentially useful information for the study of the effectiveness of web presence. Most websites enable logs to be created to collect the server and client activities such as access log, agent log, error log, and referrer log. Access logs contain the bulk of data including the date and time, users’ IP addresses, requested URL, and so on. Agent logs provide the information of the users’ browser type, browser version, and operating system. Error logs provide problematic and erroneous links on the server such as “file not found”, “forbidden to access”, et al. Referrer logs provide information about web pages that contain the links to documents on the server. Because of the stateless characteristic of the Hyper Text Transfer Protocol (HTTP), the underlying protocol used by the WWW, each request in the web log seems independent of each other. The identification of user sessions, in which all pages that a user requests during a single visit, becomes very difficulty (Cooley et al., 1999). Pitkow (1995, 1997, 1998) pointed out that local caching and proxy servers are two main obstacles to get reliable web usage data. Most browsers will cache the recently pages to improve the response time. When a user clicks the “back” button in a browser, the cached document is displayed instead of retrieving the page from the web server. This process can not be recorded by the web log. The existence of proxy servers makes it even harder
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to identify the user session. In the web server log, requests from a proxy server will have the same identifier although the requests may come from several different users. Because of the cache ability of proxy servers, one requested page in web server logs may actually be viewed by several users. Besides the above two obstacles, the dynamic content pages such as Active Server Pages (ASP) and Java Server Pages (JSP) will also create problems for web logging. For example, although the same Uniform Resource Locator (URL) appears in a web server log, the content that is requested by users might be totally different. To overcome the above obstacles of inaccuracy web log resulting from caching, proxy server and dynamic web pages, specialized logging techniques are needed. One way is to configure the web server to customize the web logging. Another is to integrate the web logging function into the design of the web pages. For example, it is beneficial to an e-commerce web site to log the customer shopping cart information which can be implemented using ASP or JSP. This specialized log can record the details that the users add items to or remove items from their shopping carts thus to gain insights into the user behavior patterns with regard to shopping carts. Besides web server logging, package sniffers and cookies can be used to further collection web log data. Packet sniffers can collect more detailed information than web server log by looking into the data packets transferred on the wire or air (wireless connections). However, it suffers from several drawbacks. First, packet sniffers can not read the information of encrypted data. Second, it is expensive because each server needs a separate packet sniffer. It would be difficult to manage all the sniffers if the servers are located in different geographic locations. Finally, because the packets need to be processed by the sniffers first, the usage of packet sniffers may reduce the performance of the web servers. For these reasons, packet sniffing is not widely used as web log analysis and other data collecting techniques.
A cookie is a small piece of information generated by the web server and stored at the client side. The client first sends a request to a web server. After the web server processes the request, the web server will send back a response containing the requested page. The cookie information is sent with the response at the same time. The cookie typically contains the session id, expiration date, user name and password and so on. This information will be stored at the client machine. The cookie information will be sent to the web server every time the client sends a request. By assigning each visitor a unique session id, it becomes easy to identify the sessions. However, some users prefer to disable the usage of cookies on their computers which limits the wide application of cookies.
Web Log Data Cleansing and Preprocessing Web log data cleansing and preprocessing is critical to the success of the web log analysis. Even though most of the web logs are collected electronically, serious data quality issues may arise from a variety of sources such as system configuration, software bugs, implementation, data collection process, and so on. For example, one common mistake is that the web logs collected from different sites use different time zone. One may use Greenwich Mean Time (GMT) while the other uses Eastern Standard Time (EST). It is necessary to cleanse the data before analysis. There are some significant challenges related to web log data cleansing. One of them is to differentiate the web traffic data generated by web bots from that generated by “real” web visitors. Web bots, including web robots and spiders/ crawlers, are automated programs that browse websites. Examples of web bots include Google Crawler (Brin and Page, 1998), Ubicrawler (Boldi et al. 2004), and Keynote (www.keynote.com). The traffic from the web bots may tamper the visiting statistics, especially in the e-commerce domain. Madsen (Madsen, 2002) proposes a page
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tagging method of clickstream collection through the execution of JavaScript at the client’s browsers. Other challenges include the identification of sessions and unique customers. Importing the web log into traditional database is another way to preprocess the web log and to allow further structural queries. For example, web access log data can be exported to a database. Each line in the access log represents a single request for a document on the web server. The typical form of an access log of a request is as follows:hostname - - [dd/Mon/yyyy:hh24:mm:ss tz] request status bytes An example is:uplherc.upl.com - - [01/ Aug/1995:00:00:07 -0400] “GET / HTTP/1.0” 304 0which is from the classical data collected from the web server at the NASA’s Kennedy Space Center. Each entry of the access log consists of several fields. The meaning of each field is as following: •
•
•
•
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Host name: A hostname when possible; otherwise, the IP address if the host name could not be looked up. Timestamp: In the format “ dd/Mon/ yyyy:hh24:mm:ss tz “, where dd is the day of the month, Mon is the abbreviation name of the month, yyyy is the year, hh24:mm:ss is the time of day using a 24-hour clock, and tz stands for time zone as shown in the example “[01/Aug/1995:00:00:07 -0400]”. For consistency, hereinafter we use “day/month/year” date format. Request: Requests are given in quotes, for example “GET / HTTP/1.0”. Inside the quotes, “GET” is the HTTP service name, “/” is the request object, and “HTTP/1.0” is the HTTP protocol version. HTTP reply code: The status code replied by the web server. For example, a reply code “200” means the request is successfully processed. The detailed description about HTTP reply codes refers to RFC (http://www.ietf.org/rfc).
•
Reply Bytes: This field shows the number of bytes replied.
In the above example, the request came from the host “uplherc.upl.com” at 01/Aug/1995:00:00:07. The requested document was the root homepage “/”. The status code was “304” which meant that the client copy of document was up to date and thus “0” bytes were responded to the client. Then, each entry in the access log can be mapped into a field of a table in a database for query and pattern discovery.
Pattern Discovery and Analysis A variety of methods and algorithms have been developed in the fields of statistics, pattern recognition, machine learning and data mining (Fayyad et al., 1994; Duda et al., 2000). This section describes the techniques that can be applied in the web log analysis domain. 1. Statistical Analysis: It is the most common and simple yet effective method to explore the web log data and extract knowledge of user access patterns which can be used to improve the design of the web site. Different descriptive statistical analyses, such as mean, standard deviation, median, frequency, and so on, can be performed on variables including number of requests from hosts, size of the documents, server reply code, requested size from a domain, and so forth. There are a few interesting discoveries about web log data through statistical analysis. Recently, the power law distribution has been shown to apply to the web traffic data in which the probability P(x) that a performance measure x decays as a power law, following P(x) ~ x–α. A few power law distributions have been discovered: the number of visits to a site (Adamic et al., 1999), the number of page within a site (Huberman et al., 1999), and
Adaptive Web Presence and Evolution through Web Log Analysis
the number of links to a page (Albert et al., 1999; Barabási et al., 1999). Given the highly uneven distribution of the documents request, the e-commerce websites should adjust the caching policy to improve the visitor’s experience. C. Cunha (1997) point out that small images account for the majority of the traffic. It would be beneficial if the website can cache these small size documents in memory. For e-commerce websites, the highly populated items should be arranged to allow fast access because these items will compose over 50% of the total requests. These insights are helpful for the better design and adaptive evolution of the web sites. 2. Clustering and Classification: Techniques to group a set of items with similar characteristics and/or to map them into predefined classes. In the web log analysis domain, there are two major clusters of interest to discover: web usage clustering and web pages clustering. Clustering of web usage can establish the groups of users that exhibit similar browsing behaviors and infer user demographic information. Such knowledge is especially useful for marketing campaign in e-commerce applications and personalized web presence. On the other hand, clustering analysis of the web pages can discover the web pages with related content. This is useful for the development of Internet search engine. Classification can be accomplished through well developed data mining algorithms including Bayesian classifier, k-nearest neighbor classifier, support vector machines, and so on (Duda et al., 2000). 3. Associative Rules: Associative rules mining is to find interesting associations or correlations among large data sets. In the web log mining domain, one is interested in discovering the implications or correlations of user access patterns. For example, users who access page A also visit page B; customers who purchase product C also
purchase product D. A typical associative rule application is market basket analysis. This knowledge is useful for effective web presence and evolution by laying out user friendly hyper links for easier access. It can help for e-commerce web site to promote products as well. 4. Sequential Patterns: The sequential patterns mining attempts to find inter-transaction patterns such that the presence of one event is followed by another (Mannila et al., 1995, Srikant and Agrawal, 1996). In the context of web log analysis, the discovery of sequential patterns helps to predict user visit patterns and to target certain groups based on these patterns.
FUTURE TRENDS With the explosive growth of the Internet and ever increasing popularity of e-commerce, privacy is becoming a sensitive topic that attracts many research efforts. How to make sure the identity of an individual is not compromised while effective web log analysis can be conducted is a big challenge. An initiative called Platform for Privacy Preference (P3P) is ongoing at the World Wide Web Consortium (W3C). How to analyze the web log online and make timely decision to update and evolve the web sites is another promising topic.
CONCLUSION An effective web presence is crucial to enhance the image of a company, increase the brand and product awareness, provide customer services, and gather information. The better understanding of the web’s topology and user access patterns, along with modeling and designing efforts, can help to develop search engines and strategies to evolve the web sites. Web logs contain potentially useful information for the study of the effective-
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ness of web presence. The components of web log analysis are described in this chapter. The approaches and challenges of acquisition and preprocessing of web logs are presented. Pattern discovery techniques including statistical analysis, clustering and classification, associative rules and sequential pattern are discussed in the context of web log analysis towards adaptive web presence and evolution.
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Madsen, M.R. (2002). Integrating Web-based Clickstream Data into the Data Warehouse. DM Review Magazine, August, 2002. Mannila, H., Toivonen, H., & Verkamo, A. I. (1995). Discovering frequent episodes in sequences. In Proc. of the First Int’l Conference on Knowledge Discovery and Data Mining, pp. 210-215, Montreal, Quebec.
Srivastava, J., Cooley, R., Deshpande, M., & Tan, P.-N. (2000). Web usage mining: discovery and applications of usage patterns from web data. SIGKDD Explorations, 1(2), 12–23. doi:10.1145/846183.846188 Srivastava, J., Desikan, P., & Kumar, V. (2002). Web Mining: Accomplishments and Future Directions. Proc. US Nat’l Science Foundation Workshop on Next-Generation Data Mining (NGDM).
Nasraoui, O., & Krishnapuram, R. (2002). One step evolutionary mining of context sensitive associations and web navigation patterns. SIAM Conference on Data Mining, Arlington, VA, pp: 531–547.
Wu, F., Chiu, I., & Lin, J. (2005). Prediction of the Intention of Purchase of the user Surfing on the Web Using Hidden Markov Model. Proceedings of ICSSSM, 1, 387–390.
Pitkow, J. E. (1995). Characterizing browsing strategies in the World Wide Web. Computer Networks and ISDN Systems, 27(6), 1065–1073. doi:10.1016/0169-7552(95)00043-7
Xing, D., & Shen, J. (2002). A New Markov Model For Web Access Prediction. Computing in Science & Engineering, 4(6), 34–39. doi:10.1109/ MCISE.2002.1046594
Pitkow, J. E. (1997). In search of reliable usage data on the WWW. Computer Networks and ISDN Systems, 29(8), 1343–1355. doi:10.1016/S01697552(97)00021-4 Pitkow, J.E. (1998). Summary of WWW characterizations. Computer Networks and ISDN Systems, 30(1-7): 551-558. Schafer, J. B., Konstan, A. K., & Riedl, J. (2001). E-Commerce Recommendation Applications. Data Mining and Knowledge Discovery, 5(1-2), 115–153. doi:10.1023/A:1009804230409 Sen, A., Dacin, P. A., & Pattichis, C. (2006). Current trends in web data analysis. Communications of the ACM, 49(11), 85–91. doi:10.1145/1167838.1167842 Srikant, R., & Agrawal, R. (1996). Mining sequential patterns: Generalizations and performance improvements. In Proc. of the Fifth Int’l Conference on Extending Database Technology, Avignon, France.
KEY TERMS AND DEFINITIONS Web Access Log: Access logs contain the bulk of data including the date and time, users’ IP addresses, requested URL, and so on. The format of the web log varies depending on the configuration of the web server. Web Agent Log: Agent logs provide the information of the users’ browser type, browser version, and operating system. Web Error Log: Error logs provide problematic and erroneous links on the server such as “file not found”, “forbidden to access”, et al. and can be used to diagnose the errors that the web serve encounters in processing the requests. Web Log Acquisition: The process of obtaining the web log information. The web logs can be recorded through the configuration of the web server. Web Log Analysis: The process of parsing the log files from a web server to derive information about the user access patterns and how the server processes the requests. It helps to assist the web
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administrators to establish effective web presence, assess marketing promotional campaigns, and attract customers. Web Log Pattern Discovery: The process of application of data mining techniques to discover the interesting patterns from the web log data. Web Log Preprocessing and Cleansing: The process of detecting and removing inaccurate web log records that arise from a variety of sources such as system configuration, software bugs, implementation, data collection process, and so on.
Web Presence: A collection of web files focusing on a particular subject that is presented on a web server on the World Wide Web. Web Referrer Log: Referrer logs provide information about web pages that contain the links to documents on the server. Web Usage Mining: The subfield of web mining that aims at analyzing and discovering interesting patterns of web server log data.
This work was previously published in Encyclopedia of Data Warehousing and Mining, Second Edition, edited by John Wang, pp. 12-17, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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On-Line Credit Card Payment Processing and Fraud Prevention for E-Business James G. Williams University of Pittsburgh, USA Wichian Premchaiswadi Siam University, Thailand
ABSTRACT As the volume of purchases for products and services on the Internet has increased and the chosen method of payment is a credit or debit card, e-commerce merchants must be capable of accepting such payment methods. Unfortunately, cyber-criminals have found ways to steal personal information found on credit cards and debit cards and fraudulently use this information to purchase products and services which costs merchants lost revenue and fees for chargebacks. DOI: 10.4018/978-1-60960-587-2.ch312
This article discusses the process by which credit card payments are processed beginning with the e-commerce merchant’s web site to a credit card processor or service gateway to the credit card company’s network to the issuing bank’s network with an accept or decline response being returned to the merchant’s shopping cart system via the same networks. The article addresses the issue of credit card fraud in terms of how the cybercriminals function and the potential solutions used to deter these attempts by the cybercriminals. A list of preventive measures that should be used by e-commerce merchants is provided.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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INTRODUCTION Consumers in the United States spend nearly 1 trillion dollars each year using a credit card over the internet (Woolsey and Schulz, 2009). Accepting credit cards is essential for any e-commerce Web site. Processing credit cards over the Internet is one of the fastest growing segments of business transactions today. This type of transaction or “card-not-present” transaction requires a special type of merchant account. In the early days of credit card usage, to accept credit cards, a merchant needed a merchant account through a bank. But today there are a number of services, generally referred to as credit card processors or merchant account services, which will permit a merchant to accept credit card payments online without their own merchant account. There are actually three different methods for processing credit card payments using a merchant account service. These are: 1. Real-Time Processing: Real-time processing allows e-commerce merchants to link their e-commerce shopping cart with a gateway merchant service which will automatically process credit card payments. 2. Virtual Terminal (Online Interface): An e-commerce merchant can also process credit card transactions, manually, 24 hours a day by logging in online and submitting a secure form through a merchant account interface. A merchant can use this to process credit card payments while taking the customer’s information over the phone if the merchant is able to access the Internet at high speed while talking to the customer. 3. Automated Recurring Billing (ARB): Some e-commerce merchant services need to charge customers on a monthly or account threshold basis. Some merchant account services allow the merchant to set the time interval or account threshold level and some services allow a merchant to upload multiple
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subscriptions using a batch file like Microsoft Excel. PayPal is generally accepted as the most widely used online merchant account service with more than 150 million users across the world. VeriSign operates a competing service called Payflow that is typically used by merchants with a high volume of transactions each month. Although the number of merchant account service providers continues to increase, some of the more popular one are listed below (TopTenReviews, 2009): Flagship Merchant Services Gomerchant Merchant Accounts Merchant Accounts Express MerchantWarehouse Electronic Transfer Inc. E-Commerce Exchange NorthAmericanBancard Total Merchant Services Charge Merchant Credit Card Free AuthNet Merchant Credit Card Companies that sell merchandise and services over the Internet are referred to as e-tailers or ecommerce merchants. These credit card processing services make it easy for e-tailers to start accepting credit cards for purchases of their products and services.
BACKGROUND Who Are the Participants in OnLine Credit Card Purchases? Consumers and Merchants The consumer is an individual or organization that has the intent of making a purchase. They have money or credit and they desire goods
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and services. The merchant is the one with the goods and services and is looking to sell them to consumers. Consumers are motivated to select a particular merchant by things such as price, service, selection or preference. But the merchant’s primary motivation is to make money by selling the goods or services for more money than they paid for them. This money between what they bought it for and what they sold it for is called their margin. There are several different methods to exchange money for products and services such as bartering, cash, checks, debit cards, installment payments or credit cards. When credit cards are used, the consumer and the merchant both have banks that they are working with that process the credit card payment transactions.
Issuing Bank Consumers get their credit cards from a bank or credit union, called the “issuing bank.” Sometimes an issuing bank is simply called an “issuer.” An issuing bank may not just be associated with major credit card brands such as American Express, MasterCard and Visa, but also with credit cards called “private label credit cards.” These are the ones that department stores or shops offer, such as Sears and Target credit cards. Issuing banks are lending institutions that support these credit cards by granting and managing extended credit. Some examples of these are Bank of America, Citibank, MBNA, Household Financial, GE and Wells Fargo. The purpose of the issuing bank is to grant credit directly to a consumer. They, typically, have a consumer fill out an application, check the applicant’s credit history and maintain their account. The issuing bank is the one that decides what a consumer’s credit limit is, based on credit history and current debt load. There are thousands of issuing banks in the United States. In Canada and the United Kingdom as well as most other countries in the world there are far fewer banks, so the number of issuing banks is much smaller. Issuing banks make money on the interest
the consumer pays on outstanding balances from previous purchases, and they get a portion of every purchase a consumer makes with the credit card from a merchant.
Acquiring Bank The acquiring bank represents the e-commerce merchant. The acquiring bank processes all of the merchant’s credit card payments with the associations (American Express, MasterCard, Visa, etc.), and provide the merchant with reconciliation data and other financial tools. The acquiring bank also makes money on every transaction a merchant processes. There are many acquiring banks in the United States and abroad, and merchants are free to move from one acquirer to another. Merchants typically select their acquiring bank based on the amount of money, called basis points, they charge per transaction.
Payment Processors and Gateway Services In theory, e-commerce merchants can connect directly to their acquiring bank, but there are a number of reasons why they may not want, or be able, to do so. There are technical and business requirements for conducting the payment process for credit cards and most merchants don’t want to deal with these requirements. As an alternative, they use a third party to process credit card payments for them and their acquiring bank. These third parties are called credit card payment processors and gateway services. Credit card payment processors offer the physical infrastructure for the merchant to communicate with the acquiring banks and the credit card associations. They connect all the credit card payment participants together. This permits even very small banks to offer merchant services that they could not provide otherwise. Credit card payment processors make their money by charging a flat transaction fee or by charging basis points to the e-commerce
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merchant. Some credit card payment processors also provide acquiring bank services directly to the merchant. Gateway services provide merchants physical infrastructure as well. They generally offer technology and integration services among all the participants. The gateway service providers charge the merchant a transaction fee or basis points for their services. These fees are in addition to the credit card payment processor fees the merchant is already paying. If a merchant decides to use a gateway service provider they have to set up accounts with an acquirer. The acquirer can be an acquiring bank or a credit card payment processor that offers acquiring bank services.
Credit Card Associations The credit card associations such as Visa, MasterCard International, American Express, Discover, etc. are responsible for establishing the procedures and policies for how credit card transactions, services and disputes are handled. They are bound by national banking laws and provide the money that covers some of the fraud that occurs within their membership. Each of the credit card associations operate somewhat differently and even within the same association they may operate differently in different parts of the world. For example, Visa has regions that operate somewhat autonomously. There is Visa U.S.A., Visa Europe, Visa Asia, etc. Each of these regions has slightly different rules, tools and services. Visa does not actually issue credit cards to consumers; they use issuing banks to issue credit cards that are branded as “Visa.” MasterCard International is somewhat different from Visa in that there is one association for the entire world with all regions using the same basic structure, policies, and management procedures. MasterCard International also uses issuing banks to issue credit cards to consumers that are branded as “MasterCard.” American Express differs by acting as the issuer for all American Express branded credit cards.
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American Express is one global organization with regional coverage. American Express also differs from Visa and MasterCard in permitting merchants to set up direct connections for performing the acquiring functions. Each of these credit card associations has their own network of systems, policies for use and payment processing. Each of these associations also develops fraud-prevention tools and attempt to get merchants to utilize them.
HOW THE ON-LINE CREDIT CARD PAYMENT PROCESS WORKS When a merchant makes a sale over the internet; the card number, the amount of the sale, and the merchant identification (ID) are transmitted from the merchant’s establishment or the internet Web site over the credit card processor’s computer network. The credit card processor can either be a bank or a merchant account service company called a credit card processor that does nothing but provide credit card processing services as discussed above (Quick Start GA Dept. of Technical and Adult Education, 1996). From the credit card processor’s network the transaction is transmitted to the credit card company’s computer network. If the customer is using MasterCard, for example, the transaction will go to MasterCard’s computer network. Then, the electronic transaction is sent to the bank that issued the credit card to the customer. The bank’s computer system checks the account and verifies that the customer has adequate credit to cover the purchase. The bank’s computer system then sends the merchant an authorization over these same networks. Although the sale is complete, the transaction is not complete since no actual money has been exchanged. At the end of the business day the merchant account service (credit card processor) sends that day’s charges to the credit card network, e.g. MasterCard, for processing. The transactions are transmitted via the merchant’s credit
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card processor service to the credit card network, e.g. MasterCard. Individual transactions are then extracted and sent back to the individual cardholders’ banks. The issuing banks then debit the cardholders’ accounts and make appropriate payments to the merchant’s credit card processor through the Federal Reserve Bank’s Automated Clearing House. The credit card processor then credits the merchant’s bank account for the transaction amount, minus its fees for the transaction. Those fees are also used for paying transaction fees to the issuing bank and the credit card network. Despite the use of computers, it can take two business days before the merchant’s account is credited (Bank of America, 2009).
Opening a Merchant Account In order to accept credit cards, a merchant can open a merchant account with a bank. However, many banks have gotten out of the credit card processing business, and those that remain are often reluctant to service small businesses, particularly ones with limited operating histories. Many small businesses must therefore go through a specialized credit card processor or an independent sales organization, commonly referred to as an “ISO.” Whether a merchant uses a bans, ISO or a credit card processor, they need a merchant account before they can accept credit card payments. An ISO or an Independent Sales Organization is an entity that acts more or less as a middle man, helping formulate a Bank or Bank/Credit Card Processor alliance. Within such an arrangement, an ISO has an agreement to sell the services of the Bank or Bank/ Credit Card Processor alliance, and is allowed to mark up the Fees and sign up merchants. ISOs are also known as Member Service Providers (MSP). ISOs solicit new merchant relationships for a specific bank. Most merchants buy their processing services from an ISO and the ISOs buy their processing services from a backend credit card processor. However, depending on
the situation there can be significant differences between the responsibilities of the ISO and the backend processor. Each ISO is classified depending on how much of the responsibility they take for covering risk: Tier I - ISO: Also known as a Super ISO, Wholesale ISO, Full Liability ISO, and a Full Service ISO, a Tier I - ISO always does their own underwriting and risk-assessment and assumes full chargeback liability for their merchants and provide full technical support. Tier II - ISO: These are shared liability ISOs. Usually, they do not do their own underwriting, or require underwriting approval from the ISO or credit card processor with which they are contracted. They provide technical support capabilities and they also have the support from the ISO or credit card processor with which they are contracted. They are referred to as a shared-risk ISO because they usually are responsible for a portion of the chargeback risk of their merchants. Tier III - ISO: These are usually comprised of a few salespeople with no technical support to provide to their merchants, Tier III - ISOs also do take any responsibility for any chargeback risk. Since they do not assume any chargeback risk, they are subject to the underwriting guidelines of the ISO or credit card processor with which they have contracted Although businesses can contact credit card processors directly for a merchant account, banks unable or unwilling to process credit card transactions often refer customers to an ISO to help them find a credit card processor and get the necessary equipment and training to begin accepting credit cards
Typical Information Required for a Merchant Account Getting the required information together before applying for a merchant account can save time during the application process. Although different merchant account providers have different
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requirements typically what follows are required in order to obtain a merchant account: 1. Business checking account (some providers will create one for the merchant) 2. A copy of a voided check (if merchants use their own business checking account for funds to be deposited in) 3. A copy of the company’s Articles of incorporation, business license or reseller license. (A ‘Certificate of Assumed Name’ from the county’s Register of Deeds office may be all that is required and are relatively inexpensive, e.g. under $10.00) The purpose of this is to prove the applicant is a legitimate business. 4. Pictures of business office and location (this may save the merchant money in credit card processing costs) 5. Have a web site and URL (for real-time processing) 6. Photocopy of the merchant’s return policy 7. Provide business references 8. Photocopy of recent tax returns (depends on monthly sales volume expected through the merchant account) 9. Site inspection (pictures of your inventory). Only a few providers require this. 10. A photocopy of the applicant’s drivers license (Secondary verification of ID)
TECHNOLOGY REQUIREMENTS FOR PROCESSING CREDIT CARDS ON WEB SITES The following are considered to be the technology requirements and best practices for e-commerce Web Sites that accept credit card payments (Authorize.com, 2009). Create a Secure Payment Web Site. This is needed to protect credit card data and other sensitive information from hackers during the credit card transaction process. Identity theft and credit
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card fraud are occurring more frequently on the Internet, and merchants must ensure that their customers are protected from internet criminals. Many consumers will not buy from a site that does not provide secure transactions. Merchants can help secure their site by having a secure socket layer certificate, or SSL. SSL encrypts information being entered on the merchant site as it is sent across the Internet. Merchants can purchase their own SSL certificate, or the merchant’s Web host may allow a merchant to use their SSL certificate as a part of its service. Utilize a compatible shopping cart application. This is required to make sure the merchant’s shopping cart application can communicate with the merchant’s credit card payment-processing gateway. There are several different types of credit card payment gateways, and each has a set of standards that must be followed. Many of the free shopping cart application software packages do not support all of the available credit card payment gateways. A merchant should check with their merchant account provider or their shopping cart documentation to make sure that all the components will work together. Shopping cart applications fall into two basic categories namely: Local shopping carts that merchants can install on their own Web servers, and third-party shopping carts that run on a provider’s site. If a merchant decides to install his own shopping cart software, he will have a variety of software packages from which to choose. Three of the more popular ones are Miva Merchant, OSCommerce, and Agoracart. Miva Merchant is a shopping cart that many Web hosting companies include with their hosting packages. If a merchant’s host doesn’t offer it, the merchant will be required to pay a licensing fee before the package can be installed. Miva offers a variety of different options for small businesses, and the application is considered highly user-friendly. OSCommerce is a free, open source shopping cart program that contains many features and a reputable development community. It is con-
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sidered relatively easy to install and customize. Because OSCommerce is open source, support and improvements are readily available. Agoracart is a simple, free, and basic functionality shopping cart application. If a merchant doesn’t require a lot of features, this is a useful package to be utilized on a merchant’s shopping cart site. If a merchant would rather not install shopping cart software on his own web site, there are a number of third-party options available. When a merchant utilizes third-party shopping cart software, the merchant must place a link on his web site to the third party’s web site where the application exists. This link takes customers to the merchant’s offsite shopping cart software. Microsoft’s BCentral is one of the more popular third-party shopping cart software. Yahoo! offers a similar third-party shopping cart software package. Storefront.net and 1shoppingcart.com both offer services that include shopping carts as well as advanced tools like email list management, affiliate program integration, etc. Provide E-mail Message Encryptions. If a merchant plans on accepting orders and sending or receiving credit card information via email, the merchant will need to encrypt the information that is transmitted. PGP, which stands for “Pretty Good Privacy,” is the most common form of email encryption. PGP encrypts an email when it is sent and decrypts the email when it has reached the intended recipient. If e-commerce merchants plan to use PGP, they will also need to make sure that their email clients support it. Merchants must keep the PGP security key in a location where it cannot be accessed by others. Utilize a Firewall. If a merchant stores customer credit card numbers or other personal information on his server, it is necessary to have a site-wide firewall to protect this information. Many merchants expose their customers to hackers by neglecting to implement a proper firewall. Use Anti-Virus Software and Update It Frequently. Anti-virus software will prevent most
of the hacker’s attempts to invade the merchant’s Web site and steal personal information such as credit card numbers. This software should be updated on a regular basis. Regularly Download and Install Security Updates: Software performance and security can be optimized by installing all service and security updates when they become available. After merchants have implemented these basic technology requirements, they are ready to offer their customers an easy way to purchase their merchandise or services. Merchants can also give their customers comfort in knowing that they are providing a safe and secure environment for making credit card payments and providing other personal information.
HOW CREDIT CARDS PAYMENTS ARE ACCEPTED AND PROCESSED ONLINE If most of a merchant’s business is conducted on the Internet, Real-Time processing is the appropriate solution. When a customer who is using a merchant’s Web site is finished shopping and is ready to pay, typically the customer simply clicks on a “Check Out” button which is a link to a secure page where customers type in their credit card information. After a few seconds, a message will then appear showing whether the credit card has been accept or declined. Two days later the money will be transferred into the merchant’s business checking account. Real-Time credit card processor or merchant account service providers will have an online database containing all of the credit card transactions for a merchant which makes month-end accounting and balancing simple. Real-Time processing is the best solution for those who plan on having a high volume of daily transactions. Real-Time processing helps to automate the payment acceptance process, unlike in retail establishments where entering credit card information must be done manually. Most
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Real-Time solutions are coupled with a “Virtual Terminal” that allows a merchant to process Mail Order/Telephone Order (MOTO) orders manually via a web browser from any location that has access to the Internet. The process a credit card transaction goes through is fairly complicated; however it generally only takes a few seconds. The steps below illustrate how credit card transactions are typically processed using a Real-Time credit card processing service (Smith, 2009; Murdock, 2006). 1. Using the merchant’s shopping cart Web interface, customers select “check out” with the items they placed into their shopping cart or selected from an order form on a merchant’s Website. 2. Customer then selects “credit card” as their method of payment. 3. The customer’s Web browser then connects to the Merchant’s website host’s secure server, and brings up the secure payment form. 4. Customer enter their credit card information on the secure payment form, and authorize the transaction by clicking a “Complete Order” or “Continue” type of button. 5. The credit card transaction information is transmitted to the Website host’s secure server using SSL encryption. 6. The merchant’s secure server connects to the merchant’s processing bank either via a secure payment gateway (a third party which provides the connection to the processing bank), or directly (some credit card processors have their own proprietary secure payment gateway and therefore do not require a third party to provide this service). 7. The credit card processor service sends the transaction to the credit card association network, such as Visa or MasterCard, directly, and the validity of the card and availability of funds is confirmed.
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8. If the credit card transaction is approved, an authorization code is returned to the credit card processor service, or to the Secure Payment Gateway from the credit card association network. 9. The authorization is encrypted by the Payment Gateway or credit card processor and transmitted in encrypted form to the secure Web server of the merchant, which permits fulfillment of the order. 10. The merchant’s secure Web server then sends the customer’s Web browser a confirmation receipt. 11. The amount due for the credit card transaction is moved from the card holder’s bank to the merchant’s credit card processing bank. The merchant’s credit card processing bank transfers the money to the merchant’s local bank within 2 to 3 business days. Figure 1, illustrates the technological components of a typical credit card processing system.
MINIMIZING INTERNET CREDIT CARD FRAUD Although there are no verifiable global figures on losses from credit card fraud, an FBI report issued in 2005 indicated that credit cards represented the majority of the total $315 billion U.S. financial fraud loss for that year. A recent European study found that more than 22 million adults were victims of credit card fraud in 2006. Figures from the Banque de France, the country’s central bank, showed a credit card fraud loss of $319 million, for 2005 (Conlin, (2007). For US buyers, credit card fraud does not pose a significant problem, as their loss is limited to $50. But, for merchants who shoulder the burden of the losses that is not the situation. Between November 1999 and February 2000, travel site Expedia.com lost 12% to 18% of sales through fraudulent card purchases. Visa and MasterCard claim a fraud rate of 0.08% to
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Figure 1. Typical credit card processing system
0.09%, and have stated that there is little difference between Internet sales fraud and other type of credit card sales fraud, but they have invoked serious penalties for excessive chargebacks for on-line credit card fraud. When a consumer reports an instance of fraud, the disputed amount is removed from the merchant’s account and credited back to the customer. This “chargeback” typically comes with a standard fee of $15 per instance. The Internet Fraud Prevention Advisory Council has established online transaction fraud rates at 2% to 40%, depending upon the product category. At highest risk are downloadable software and entertainment, and high ticket items such as airline tickets, computers, and diamonds. Payment gateways in the US have developed sophisticated fraud checking techniques, but it has not halted credit card fraud. To protect themselves, merchants can capture the IP address of purchasers, carefully examine purchases made from free e-mail addresses, those with different shipping and billing addresses, bounced e-mail order confirmations, no-existent telephone numbers, and large middle-of-the-night transactions. Merchants must also be cautious about shipping to Eastern European and other countries with a history of fraudulent transactions and telephone the buyer before shipping high ticket items (Faughnan, 2007).
Sophisticated Security Required to Prevent Credit Card Fraud Online merchants have been forced to develop sophisticated security protections that far exceed the normal security approval process by the credit card companies (Wilson, 2008). In 2005, an estimated 13.5 percent of U.S. adults (30.2 million consumers) were victims of one or more cases of identity fraud in the previous year. There were an estimated 48.7 million incidents of fraud during this one year period (Woolsey & Schulz, (2009). Currently, credit card companies only verify whether a credit card number is correct and then match the number against the customer’s billing address but cyber-criminals can make sure the address is correct and that the addresses match. Cybercrime, in all forms, shows no signs of decreasing in the near future. For example, MSNBC reported that Visa quietly informed select merchants that 485,000 credit card numbers were stolen from a major e-tailer in January 1999 and in 2008 the Bank of America notified thousand of card holders that their MasterCard information had been compromised. E-tailers (Web Merchants) find themselves in a difficult position regarding credit card fraud (MasterCard Worldwide, 2009; Montague, 2004).
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Credit Card Fraud Solution Approaches While there does not appear to be any simple solutions, experts believe that potential cybercriminals will soon begin to reconsider committing credit card fraud. This type of criminal activity has, for a long time, been considered too small to bother with, but using credit cards fraudulently is quickly becoming “identity theft”; which has been defined as a serious federal felony. Cybercriminals do leave digital fingerprints and can get caught. There are a number of approaches used by criminals to commit credit card fraud and there are a number of procedures implemented to deter their attempts at credit card fraud. These are discussed below.
Security Codes An important Internet security feature that now appears on the back of most Visa/MasterCard and Discover cards, and on the front of American Express cards is a security code. This code is generally a three or four-digit number which provides a cryptographic check of the information embossed on the card. The security code helps validate that the customer placing an online order actually has the credit card in his/her possession, and that the credit/debit card account is legitimate. The security code is only printed on the card and it is not contained in the magnetic stripe information nor does it appear on sales receipts or billing statements. The goal is to make certain that the customer must have the card in his/her possession in order to use this code. Since Card Security Codes are not scanned into standard credit card readers, in theory, these numbers are only visible to the customer. When customers give their Card Security Code to merchants, they assist merchants in verifying that the orders being placed are being placed by the credit card holder. Visa, MasterCard, Discover and American Express now require Internet commerce sites to obtain the
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security code for all cards that have a code printed on them. In order for a credit card transaction to be accepted and processed, this code is required as part of the transaction data. Unfortunately, the cyber-thieves are also using advanced techniques to ascertain critical information about stolen card numbers. They have developed software that can determine which bank issued a card, harvest the three-digit card verification number and determine the available credit-card limit. They can check a card number’s validity and personal information such as address and telephone number about the owner as well.
Credit Card “Skimming” Criminal gangs recruit individuals who work within restaurants, hotels and retail outlets. The recruits are given battery powered electronic devices known as “skimmers” that read and capture all of the credit or debit cards details in the few seconds that it takes to swipe the card through the credit card reader machine. When customers pay their bill, their card is first swiped through the legitimate credit card machine, but then it is also swiped through the “skimmer” reader. The recruits then pass the “skimmer” machines onto counterfeiters, who pay the recruits for their part in the crime. Once the “skimmer” machines have been given to the counterfeiters, they download the information onto a computer and produce a fake clone of the credit card. The “cloned” card is embossed with the details of the victim’s credit card and passed on to gang members who may sell it for between $400 and $700, depending on the perceived credit limit. The buyer then uses the “cloned” credit card to illegally purchase products and services. Skimming is costing credit card users worldwide millions of dollars in phony charges, as stolen clones are sold and used in the United States and elsewhere around the world. Often skimming is done at gas stations or restaurants, since those are the places that hire people who work for minimum wage and are businesses that
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don’t bother with background checks, especially since many employees are part-time workers (Fraud Guides, 2009).
Skimming Prevention The following are measures merchants can use to avoid credit card fraud by skimmers: 1. Subscribe to stolen credit card checking systems 2. Verify the address 3. Verify the telephone number 4. Call the credit card issuing bank 5. Examine the email address - hotmail and yahoo mail can be easily faked 6. Call the cardholder 7. Be cautious of bulk orders 8. Shipping and billing address should match 9. Single-use credit card numbers 10. Smart Cards
Single Use Credit Card Numbers Some credit card companies have a new security and privacy offering which utilizes the concept of disposable credit card numbers. With this system, customers can get unique credit card numbers linked to their credit card account each time they make a purchase online. This allows the customer to avoid transmitting their “real” credit card numbers. The single-use numbers don’t work for recurring charges but they also don’t work for cyber-thieves who try to make multiple purchases. The utilization of single-use credit card numbers can help reduce the risk posed by hackers who steal and reuse numbers
Smart Card Technology for On-Line Purchasing Newer “smart cards” are embedded with a computer chip containing a digital certificate. A digital certificate consists of basic information about the
cardholder’s digital identity. It contains elementary personal information such as the cardholder’s name, e-mail address and digital signature. The digital signature is nothing more than a series of numbers called a public key which forms the basis of encryption algorithms. Unlike a written signature, a digital signature has two purposes. It authenticates who the cardholder is legally and it also allows the cardholder’s messages to be encrypted. Because the smart card chips are programmable, “smart chip technology” is flexible, and designed for multiple applications. These cards are inserted into a, typically free, smart card reader plugged into the user’s computer. The card, together with a PIN number, allows consumers to buy on the Internet using their digital certificate. The card allows access to an online wallet, which contains information such as shipping and ordering information. This information is automatically transmitted to the merchant’s online order forms. The current problem with digital certificates is a lack of standardization. Almost anyone can establish themselves as a digital certificate issuing authority (CA). Currently, the major players include retail-oriented certificate authorities such as Entrust, VeriSign, Thawte and Cybertrust although there are many others. Consumers are becoming increasingly aware of the role played by digital certificates. Many consumers will only buy from a merchant who displays a digital certificate issued by one of these certificate authorities. Secure communications generally requires five key elements to work correctly, namely: Confidentiality, authorization, authentication, integrity and non-repudiation. Confidentiality and authorization are supplied by encryption systems. The others, namely: authentication, integrity and non-repudiation depend on a digital signature.
Address Verification System (AVS) E-commerce merchants can utilize an Address Verification System (AVS) for consumers from
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the United States. An AVS takes the consumer’s ZIP code and the numbers in the street address, and compares them with the numbers in the credit card billing address. If they agree, the transaction is authorized; if they do not agree, the transaction is flagged as suspicious or in some cases not allowed, depending upon the merchant’s preference. Using AVS lowers the merchant’s discount rate, and can protect against stolen credit cards where the thief has the credit card number, but not a correct address.
Telephone Number Authentication A Telephone authentication service can provide a decrease in the number of fraudulent transactions that pass through an on-line ecommerce web site. Most cyber-criminals are not willing to provide their real telephone number to complete a transaction and many, if asked for a telephone number will simply exit the transaction. There are a number of services that will provide real time telephone number authentication. These services can determine whether a telephone number is real, no longer in service, stolen or a legitimate working number at the address given by the user.
Telephone Verification Telephone Verification works by automatically calling an online end-user’s telephone number at the same time the end-user is making a transaction on a website. The user while on the website answers the phone and is provided a one-time personal identification number (PIN) presented via the web interface; an otherwise anonymous online end-user will be able to confirm that the person who received the phone call and the person who is interacting on the website are the same person. If the consumer, or end user, cannot verify through the phone, they should asked to try again with another phone number. If they cannot pass on the second attempt; assume the consumer or end user is high risk and do not allow the transaction.
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Customer Transaction and IP History Databases Checks Another approach for detecting online fraud is to compare a transaction with previous transactions made for a given credit card number and make sure it fits the pattern of use. There are companies that provide real time checks of credit cards with databases of millions and, in some cases billions, of records to detect anomalies (Wilson, 2008). This type of service will score a credit card transaction based on all the intelligence it has gathered both about the transaction and former purchases. In addition, online fraud detection solutions based on a combination of IP reputation analysis and a mutual collaboration network has proved successful. IP reputation uses geolocation and proxy detection by providing relevant information about the IP’s historic behavior, both legitimate and suspicious (MaxMind Inc., 2008).
Intelligent Credit Card Fraud Detection An intelligent credit card detection system monitors card transactions as they occur by gathering data from the current and previous transactions and uses this data to compute a transaction score for the current transaction. The algorithms used to compute such a score are called classifiers. Typically, high scores for transactions are more likely to be fraudulent than low scores thus transaction scores are compared to a threshold and the score is classified as normal or fraudulent. Credit card fraud detection is a complicated problem involving many input variables such as time, transaction amount, merchant, merchant category code, country, etc) acquired from multiple transactions in a sequence. A classifier computes a fraud score based on a number of these variables. Two basic approaches have been used in developing classifiers, namely, neural networks and Bayesian decision methods. A neural network is a nonlinear function which takes multiple input
On-Line Credit Card Payment Processing and Fraud Prevention for E-Business
variables and computes a score from them. A neural network consists of a series of interconnected neurons similar to the structure of the brain. The interconnections have weights assigned to them and the input neurons (input nodes) to a network represent each continuous variable and every value that a categorical variable can take. Since the weights in a neural network need to be optimized, a learning or training process iteratively passes through a database of card transactions containing both fraudulent and legitimate transactions and systematically adjusts the weights so that the resulting scores discriminates between fraudulent and legitimate transactions. The Bayesian approach to card fraud detection is based on probability theory. Research has identified a number of characteristics derived from credit card transactions which tend to be predictive of fraud. A Bayesian approach computes the probability distributions for each of these credit card transaction characteristics using a process called evidence integration to compute a fraud probability from the individual characteristic probabilities. Therefore, in a Bayesian approach the classifier consists of credit card transactions characteristics, their probability distributions and an evidence integrator (Alaric Inc., 2008).
REGULATORY AND LEGISLATIVE ISSUES Management of information risk is now tied to regulatory mandates. Since 1999, laws enacted at the federal and state levels have forced companies to be extremely careful in protecting the confidentiality and reliability of medical, financial and other sensitive information stored on their computer systems. Failure to comply with these mandates can lead to civil and criminal penalties, lawsuits and related litigation costs and, of course, damage to reputations. Although the earlier laws focused on financial and healthcare companies, two of the most recent
laws, namely, the 2002 Sarbanes-Oxley Act and the California Data Protection Law (SB 1386), broadened the scope of companies that are required to comply. The Gramm-Leach-Bliley Act (GLB), also known as the Gramm-Leach-Bliley Financial Services Modernization Act, is an Act of the United States Congress that stipulates that every financial institution must protect the security and confidentiality of its customers’ personal information. The Federal Trade Commission in conjunction with several other federal and state agencies along with the Federal Bureau of Investigation (FBI) is the federal agency responsible for enforcement of these laws and mandates (United States Department of Justice, 2009).
FEDERAL TRADE COMMISSION (FTC) The FTC deals with issues that are related to the economic life of every American citizen and business. It is the only federal agency with both consumer protection and competition jurisdiction across all sectors of the economy including e-commerce. The FTC is charged with law enforcement and protecting consumers’ as well as business’ interests by sharing its expertise with federal and state legislatures and U.S. and international government agencies; developing policy and research tools through hearings, workshops, and conferences; and creating practical educational programs for consumers and businesses in a global marketplace with constantly changing technologies. The FTC has also been directed to administer a wide variety of other consumer protection laws, including the Telemarketing Sales Rule, the Pay-Per-Call Rule and the Equal Credit Opportunity Act. In 1975, Congress gave the FTC the authority to adopt industry-wide trade regulation rules. The FTC’s work is performed by the Bureaus of Consumer Protection, Competition and Economics. That work is aided by the Office of General Counsel and seven regional offices.
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Credit card fraud is within the FTC’s domain of responsibility and this responsibility is shared with the Federal Bureau of Investigation (FBI) (Federal Trade Commission, 2009).
MANAGING INFORMATION RISK Managing information risk must be integrated with a merchant’s overall risk management strategy. The technology infrastructure; including servers, network monitors, and firewalls, needs to be assessed and managed in terms of its relation to people, operations, supply chains and other business drivers. Some of the steps involved with information technology (IT) risk management include paying attention to human factors, putting proper security policies in place, identifying critical assets and fostering better communication and an enterprise-wide perspective among IT managers and risk managers. Bringing together IT, risk management, internal audit, legal and human resources to address information management risk issues produce a consensus to the identification of threats, the areas of operation (ranked in order of most critical and sensitive) that could be affected by a threat, potential financial or reputational loss, and the most cost-effective way to reduce the risk (Stoneburner; Goguen; Feringa; Alexis, 2009).
An Information Risk Assessment A risk assessment should be performed by any merchant accepting credit card payments and this assessment should examine the following risk factors (Cooney, 2007; Frank, 2004): System Characteristics: Assess and identify the resources and information that constitute the systems used for financial purposes and identify the business systems jointly with management personnel, IT personnel and users. Threat Identification: Conduct interviews and utilize work-group sessions with key management team members, technology administrators and
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system users to uncover potential threat agents that may impact the confidentiality, integrity and availability of information stored in databases and files. Vulnerability Identification: Conduct a technical assessment to detect vulnerabilities and to assess how effective the controls are for preventing unauthorized access, Control Analysis: Assess countermeasures regarding items such as firewalls, encryption, web server access policies, password policies, backup and recovery procedures, change-management procedures, currency of software, hardware maintenance and the physical environment. Insurance Gap Analysis: Assess current insurance policies in terms of coverage for financial loss arising out of unauthorized access or use of confidential information, damage to third-party software or data as well as damage to the business network or databases and files. The risk assessment can not only help identify the critical areas of risk to be addressed, but can also be used to recommend best practices to remedy the risk. Creating a more secure environment can help produce and maintain consumer confidence and deter financial loss, which could, in turn, give a merchant a competitive edge (United States General Accounting Office- Accounting and Information Management Division, 1988).
CREDIT CARD FRAUD PREVENTIVE STEPS FOR ONLINE BUSINESS OWNERS When a merchant physically accepts a credit card, and the charge is authorized, and the merchant has conformed to credit card regulation, the merchant will get paid, even if a stolen card is used. But, the liability for fraud shifts from the card issuer to the merchant for ‘Card Not Present’ sales (Internet sales, mail order, and telephone/fax order). After a credit card processor or registration service approves a credit card transaction, the merchant
On-Line Credit Card Payment Processing and Fraud Prevention for E-Business
should perform additional checks, as fraudulent orders are sometimes approved. The following methods and techniques can be utilized to protect an e-commerce merchant against credit card fraud (Wilson, 2000; Jepson, 2009; Authorize.com, 2009; Federal Trade Commission, 2009). Typically, a combination of methods is the best approach. •
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Follow the procedures recommended by your credit card processor and the credit card companies. Authorization approval - make sure you get it from the issuing bank. Address Verification System (AVS) AVS is only available for the U.S. and partially available in four European countries to verify the address matches. Card Verification Methods (CVM) Security Codes: VISA = CVV2, MasterCard = CVC2, and American Express = CID use a security code of 3 or 4 extra digits. Payer Authentification Programs Authentification programs (Verified by Visa and MasterCard’s SecureCode) use personal passwords to ensure the identity of the online card user. Real-Time Authorization - Credit card information is sent to the processor for immediate approval. Bin Check - The first 6 digits of the credit card are called the Bank Identification Number (BIN). Calling The Card-Issuing Bank - Call the card-issuing bank, to verify the charge. Different Bill And Ship To Addresses – Use a search engine such as Google to search for the street address number, street name, and zip code. Negative Historical File - Keep a database or other electronic record of prior fraud attempts, problem customers, charge back records, and customers receiving refunds.
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Shared Negative Historical File – Combine negative historical databases/ files from several e-commerce merchants. Positive Database File – Maintain a file that contains a list of good customers Credit Service Database – Use a credit database service, such as Equifax (www. equfax.com), Experian (www.experian. com), and Trans Union (www.tuc.com) for high-dollar value items. Customizable Merchant Rules - A merchant should establish rules to stop or flag specific orders for review. Fraud Scoring Systems – Assign weights, points or probabilities to different components of a transaction (IP Address, freeemail account, time of day, AVS results, amount of sale, type of products ordered, shipment method, different shipping/billing addresses, certain zip codes, etc) to generate a fraud score to indicate the likelihood of fraud. Pattern Detection - Check if multiple orders are placed shipping to the same address, but different credit cards were used. Check orders for an unusually high quantity of a single item. Alternate Thank You Page - If an order is being shipped to a non-English speaking country, display an alternate thank you page. Require the customer to fax either a photo of the credit card or a scanned copy of his/her credit card bill. Preventative Data Checking Measures Check the data fields entered by the buyer to determine if the buyer actually exists based on data entered on the order. Check to see if the ZIP Code the customer listed actually exists. Make sure the customer’s e-mail address is formatted properly. Check for incomplete names or an address like 100 Elm Street. Free Email Accounts - There is a much higher incidence of fraud from free email
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services. Many fraudsters use free email addresses to remain anonymous. Reverse IP Address Checks – Make sure the user’s IP address matches the email address and physical billing address of the customer. The IP address identifies the location of the server where the order was placed. Numerical IP addresses can be checked through programs such as WsPing32. Anonymous And Open Proxy IP Addresses - IP addresses can be falsified thus hiding the falsified IP addresses true location of the criminal. Organized credit card fraud rings often use anonymous proxies. Checking Telephone Numbers - The web sites at http://www.freeality.com/finde. htm, http://www.theultimates.com/, http:// www.anywho.com, http://nt.jcsm.com/ ziproundacx.asp, and http://nt.jcsm.com/ ziproundacx.asp provide tools to match a telephone area code to a postal zip code, reverse telephone directories, search for email addresses, maps, directions, etc. A merchant can call directory assistance to determine if the phone number on the order matches the customer’s phone number based on their name and address. Fax Orders - When a credit card order is received by fax, require the customer to also fax copies of both sides of their credit card and a copy of their state-issued ID, or driver’s license International Orders - Some countries have a bad reputation as a source of fraud transactions. Banks or credit card processors can provide a list of high-risk countries. High risk countries include developing nations like Indonesia, Malaysia, Benin, Nigeria, Pakistan, Israel, Egypt, and Eastern European countries. Placing an international phone call to the issuing bank may be worth the cost for large orders
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and/or ask the customer to contact the merchant by phone or email for shipping costs. A cyber-criminal may consider this too much contact, and decide to go elsewhere. Calling The Customer - Calling customers is not only an excellent way to detect fraud, but it can also be a valuable part of your customer service Web Site Information – Make sure the order form includes fields to enter the CVV2 verification code imprinted on the credit card, the name of the card-issuing bank, and the bank’s toll-free telephone number, the customer’s telephone number and email address. Processing Orders – Do not ship any order until the charge can be verified by additional checks. Use Temporary Activation Codes - If the merchant wants to process orders immediately, issue thirty-day temporary validation keys for downloaded software Anti-Fraud Groups – Become educated about fraud prevention by attending seminars offered by credit card companies and card processors. Organizations such as www.antifraud.com and www.wiscocomputing.com offer help. These groups also offer tips, databases of stolen credit cards, and web lookup tools. File a Complaint with the FTC and the FBI – If you detect fraud or have been a victim of fraud, file a complaint with the FTC at https://www.ftccomplaintassistant.gov/ and the FBI’s Internet Crime Complaint Center or IC3, a partnership of the FBI and the National White Collar Crime Center at http://www.fbi.gov/majcases/fraud/internetschemes.htm (Internet Crime Complaint Center (IC3), 2009).
On-Line Credit Card Payment Processing and Fraud Prevention for E-Business
CONCLUSION Based on past performance and predictions for the future, it seems safe to say that purchasing goods and services over the internet will continue to increase. This is because it is more efficient for the merchants and they can reach a much larger audience than using the face-to-face, instore methods of the past. But like most uses of technology, there are individuals who find ways to use the technology for criminal purposes. This has been the case when utilizing credit or debit cards for purchasing goods and services over the internet. Thus, a sort of battleground has evolved between the e-commerce merchants along with their customers and the cyber-criminals. As new technological security methods are implemented by merchants to protect themselves and their customers, the cyber-criminals attempt to find ways through or around these technological barriers. If past events are any indication of the future, this battle is not over and merchants and their customers must continue to find secure methods to combat the criminals attempting to fraudulently steal financial and other personal information for their own financial gain.
REFERENCES Alaric, Inc. (2008). Card fraud detection - Comparison of Detection Technologies. Retrieved December 28, 2008 from http://www.alaric.com/ public/products/fractals?gclid=CI20ofLAnZgCF QpxHgodKmPDmg Authorize.com. (2009). Security Best Practices (2009). Retrieved January 21, 2009 from http://www.authorize.net/upload/images/Files/ White%20Papers/Security_0604.pdf
Bank of America. (2009). Card Processing Basics (2009). Retrieved January 21, 2009 from http://www.bankofamerica.com/small_ business/merchant_card_processing/index. cfm?template=card_processing_basics Conlin, J. (2007, May 11). Credit card fraud keeps growing on the Net. Retrieved December 28, 2008 from http://www.iht.com/articles/2007/05/11/ news/mcredit.php Cooney, M. (2007, November 11). Credit card transaction security fortified by new risk assessment system. Retrieved from http://www.networkworld.com/community/node/21731 Dept, G. A. of Technical and Adult Education (Ed.). (1996). Credit Card Processing Overview. GA Dept of Tech & Adult Education, Quick Start. Faughnan, J. G. (2007, November 23). International Net-Based Credit Card/Check Card Fraud with Small Charges. Retrieved from http://www. faughnan.com/ccfraud.html Federal Trade Commission. (2009a). Avoiding Credit and Charge Card Fraud. Retrieved April 24, 2009, from http://www.ftc.gov/bcp/edu/pubs/ consumer/credit/cre07.shtm Federal Trade Commission. (2009b). About the Federal Trade Commission (2009). Retrieved January 22, 2009 from http://www.ftc.gov/ftc/ about.shtm Frank, J. (2004). Fraud risk assessments: audits focused on identifying fraud-related exposures can serve as the cornerstone of an effective antifraud program. Retrieved from http://findarticles. com/p/articles/mi_m4153/is_2_61/ai_n6152654/ Fraud Guides. (2009). Credit Card Skimming. Retrieved from http://www.fraudguides.com/ business-credit-card-skimming.asp Internet Crime Complaint Center (IC3). (2009). Retrieved January 21, 2009 from http://www.ic3. gov/default.aspx
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Jepson, T. (2009). Merchant Credit Card Fraud: 31 Ways to Minimize Credit Card Fraud. Retrieved from January 17, 2009 from http://www.wiscocomputing.com/articles/ccfraud.htm MasterCard Worldwide. (2009). Site Data Reflections The top five Web intrusions. Retrieved January 21, 2009, from http://www.northamericanbancard.com/google/smart_templates/default/ web/MC_SECURITY.pdf MaxMind, Inc. (2008). IP Address Reputation and a Mutual Collaboration Network. Retrieved December 28, 2008, from http://www.maxmind. com/minFraudWhitePaper.pdf Montague, D. A. (2004). Fraud Prevention Techniques for Credit Card Fraud. Victoria, Canada: Trafford Publishing. Murdock, K. (2006). Credit Card Processing: How It All Works. Retrieved January 21, 2009, from http://www.practicalecommerce.com/ articles/168-Credit-Card-Processing-How-ItAll-Works Smith, R. (2009). How Credit Card Processing Works. Review. Retrieved January 21, 2009 from http://www.smithfam.com/news/nov99d.html Stoneburner, G., Goguen, A., & Feringa, A. (2009). Risk Management Guide for Information Technology Systems Recommendations of the National Institute of Standards and Technology. Retrieved January 22, 2009, from http://csrc.nist. gov/publications/nistpubs/800-30/sp800-30.pdf TopTenReviews. (2009). Credit Card Processing Services Review. Retrieved January 21, 2009 from http://credit-card-processing-review.toptenreviews.com/ United States Department of Justice. (2009). Internet and Telemarketing Fraud. Retrieved April 28, 2009, from http://www.usdoj.gov/criminal/ fraud/internet/
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United States General Accounting Office- Accounting and Information Management Division. (1988). Information Security Risk Assessment, Practices of Leading Organizations. GAO, May, 1988. Wilson, R. F. (2000, March 15a). Sophisticated Fraud Protection Systems. Web Commerce Today, 32. Retrieved January 12, 2008 from http://www. wilsonweb.com/wct3/fraud-systems.cfm Wilson, R. F. (2000, March 15b). Inexpensive Techniques to Protect Merchants against Credit Card Fraud. Web Commerce Today, 32. Retrieved from January 15, 2009 from http://www.wilsonweb.com/wct3/fraud-lowcost.cfm Woolsey, B., & Schulz, M. (2009). Credit Card Industry Facts, Debt Statistics 2006-2009. Retrieved January 12, 2009 from http://www.creditcards. com/credit-card-news/credit-card-industry-factspersonal-debt-statistics-1276.php
KEY TERMS AND DEFINITIONS Acquiring Bank: The bank that represents the e-commerce merchant and processes all of the merchant’s credit card payments with the credit card associations Credit Card Processor: A third party utilized to process credit card payments for merchants and their acquiring bank Credit Card: A card issued by banks, savings and loans, retail stores, and other businesses that can be used to borrow money or buy products and services on credit. Cyber-Criminal: An individual who commits a crime using a computer and the internet to steal a person’s identity such as credit card information. E-Commerce: The buying and selling of goods and services on the Internet. Fraud: An act of deception for the purpose of unlawful financial gain using stolen credit card information.
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Issuing Bank: The bank that issues consumers their credit cards. Merchant Account: A legally binding contract wherein an acquiring bank extends a line of credit to a merchant who desires to accept payment using credit cards. Service Gateway: This is another name for a credit card processor.
Skimming: This is a type of fraud wherein the numbers on a credit card are recorded and transferred to a duplicate card. SSL: SSL is an abbreviation for Secure Sockets Layer, a protocol developed for transmitting documents over the Internet using a cryptographic system that uses two keys to encrypt data; namely a public key known to everyone and a private or secret key known only to the recipient of the document.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 455-473, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 3.13
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response: A Knowledge Management Analysis Teresa Durbin San Diego Gas and Electric, USA Murray E. Jennex San Diego State University, USA Eric Frost San Diego State University, USA Robert Judge San Diego State University, USA
ABSTRACT After the 2007 Southern California wildfire events, event-assessment of the efficacy of spreadsheets and paper forms raised the question of whether alternative tools could have achieved greater efficiencies in the logistical support of command centers, the sites from which the local utility’s electric restoration personnel were deployed. In
this paper, the authors examine what approach would have enabled personnel working on the logistics of the command center effort to have easier-to-use, faster-to-access, command center data stored in, and provided via, a catastrophe resilient platform other than the traditional company computer network. Additionally, the capability to store basic command center requirements from previous emergency responses, thereby saving time during the next emergency, was examined.
DOI: 10.4018/978-1-60960-587-2.ch313
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
INTRODUCTION Gas and electric services in the County of San Diego are provided by San Diego Gas & Electric Company (SDG&E), an investor-owned public utility. Many useful issues can be analyzed from the wildfires that damaged SDG&E’s electric system in 2003 and 2007 and certain activities that supported efficient service restoration can be examined and used for comparative analysis for a terrorist attack scenario, earthquakes, wildfires, or any other event that might impact service delivery. This paper analyzes the logistics support provided during the wild fires to determine what could be improved. This is an important topic as there is little research literature addressing crisis response logistics. Whybark et al. (2010) discuss disaster relief supply chains but only propose a research agenda. We agree there needs to be research in this area and start with this case study. Logistics/supply chains ensure that responders are able to sustain disaster relief. Their importance is illustrated by the response to the 2009 Haiti earthquake where ships and supplies stood empty or unused off the coast because of an inability to deliver supplies and evacuate injured. Keeping responders in the field is critical for long term disaster relief. Providing relief is critical for affected persons and societies to recover. This paper hopes to start this important research area by exploring alternatives to the spreadsheet approach used in the 2007 wild fires. Finally, the research question for this paper was what alternatives could be used in lieu of paper forms and spreadsheets to achieve more accurate, timely logistics data and solutions?
METHODOLOGY This paper is a case study using action research to assess whether future activities by the command center support teams can be influenced to convert from paper forms and spreadsheets to
something more real-time, as a new solution for crisis response. The working definition of action research (Zuber-Skerrit & Fletcher, 2007, p. 413) incorporated situations where people reflect and improve (or develop) their own work and their own situations by tightly interlinking their reflection and action; and also making their experience public not only to other participants but also to other persons interested in and concerned about the work and the situation, i.e. their public theories and practices of the work and the situation, and in which the situation is increasingly: data-gathering by participants themselves (or with the help of others) in relation to their own questions; participation (in problem-posing and in answering questions) in decision-making, self-reflection, self-evaluation and self-management by autonomous and responsible persons and groups. This study is action research as the lead author is a team lead of the SDG&E supply chain systems team tasked with assessing logistics performance. Reflection for this study was done using knowledge management, KM as the reflective lens. Jennex (2005) summarized KM definitions to conclude that KM is about capturing knowledge created in an organization and making it available to those who need it to make decisions and improve organizational performance. Jennex (2007) discussed the role of KM in crisis response and included the role of post event evaluation of lessons learned as a way of capturing knowledge generated during an event and ensuring that knowledge is shared and incorporated into crisis response activities. This implies that KM is a good reflective lens for crisis response research. The ability to apply KM to the 2007 command center logistical effort and how it can benefit future emergency responders corresponds to KM in support of crisis response as expanded upon by Jennex and Raman (2009). The underlying KM principle upon which this study is constructed are that experience gained from one emergency can be
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applied as knowledge when shared with others to improve performance during a subsequent emergency. Additionally, improved performance will help an organization meet its goals or mandated objectives acceptably. Comparing how the basic computer tools used in the 2007 command center set-ups performed against how an alternative process would perform should demonstrate the need to move towards tools that are multi-user, require no consolidation of data, and which can be used with little to no training in the fast-paced environment of an emergency. Improving an existing business process draws justification from the theory of action research as discussed in the Technology Acceptance Model (TAM) of perceived usefulness (Venkatesh et al., 2003). TAM addresses the realm of computer technology and validation of the usefulness of employees’ outputs. Davis (1989) verifies the usefulness of the employees’ outputs based on their belief of how they performed in that activity. Additionally, Bandura (1982) reiterated the general concept with his self-efficacy model of people’s response and reaction being based on their perception of their competency in face of new technologies resulting from the computer and internet evolution. Bandura (1982, p. 122) stated, “A capability is only as good as its execution.” Based on this, converting the paper forms and spreadsheets used for the command center logistical effort in 2007 to an alternative tool might be indicated. The action research of this paper is using lessons learned to convert the information tracked in the spreadsheets to a more technological format for easier and faster access in emergency response. This serves as the impetus for improving the existing emergency response process via a technology tool (Bandura, 1982; Davis, 1989; Venkatesh et al., 2003). The data used in this paper is from the 2007 Firestorm responses of San Diego Gas & Electric’s command center support. Their spreadsheets,
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emails, phone calls, including the personal observations of the lead author, who participated in the effort, provided the data for this study. The action research format is appropriate for this paper because the research process involved manipulating outputs containing the command center logistical details and their role in the activities in the organization’s response to emergency situations. The data that were analyzed related solely to the support of the command center camps and what it took to sustain their mission as bases from which to deploy the electric restoration personnel during the power outages. The details surrounding the ordering, receiving, inventorying, handling, staging, and deployment of construction materials, such as poles and wires, were not the purview of BSLs’ work in support of the command centers. Material handling was the responsibility of the Logistics and Warehousing groups. The spreadsheet listed 25 categories of information that included the following column headings: Region, Need for Site: Yes/Pending, Site Name, Command Center/Staging Area, Site Coordinator & Phone #, Thomas Brothers page, Address, Start Date, Estimated End Date, Total # of People, Food Counts, #B, #L, #D, water buffalo Y/N or 5 gal H2o, # of Porta Potties, Trash bin type: trash/cable/metal/treated wood/recyclables, # of hand-wash stands, Portable Office Trailer, Copier, Lights, Generator(s), Parking Space Reqmnts (Requirements), Material Laydown Space Reqmnts (Requirements), Security, # of Vehicles, Phone /Data/Radio/Printer, BMP Materials, Notes/Comments. The data that were examined were three versions of the spreadsheet, Firestorm 2007 - Command Centers and Staging Areas, during the time frame of October 24, 2007 through November 10, 2007, to demonstrate the progression of the command centers’ expansion and contraction over time. The spreadsheet also displayed the types of items being tracked at a consolidated level.
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
WILD FIRE LOGISTICS During the week of October 21, 2007, wind-driven wildfires raged across San Diego County burning more than 360,000 acres and destroying at least 1,700 homes. As soon as the fires had moved through an area, SDG&E crews were on-site to assess damage to the utility’s assets. As a result, 750 SDG&E employees, along with 203 neighborstate mutual-aid personnel and, at peak periods, 78 contract electric crews and 129 digging crews, were deployed to perform the service restoration efforts. Service was restored for approximately 83,000 customers affected by the fire and SDG&E eventually replaced more than 2,170 utility poles, 338 transformers, and at least 35 miles of overhead electrical wire (Geier, 2009). Four years earlier, after San Diego County’s 2003 wildfires, SDG&E had refined a model for supporting the logistical components of establishing and supporting command centers. This model was ready for implementation during the October 21, 2007. SDG&E’s electric restoration response to the 2007 fires was supported by teams of employees from the Fleet, Facilities, Environmental, Supply Management, Logistics & Warehousing, Fleet Services, Facilities, Real Estate/Land, Environmental, and Safety departments (Dulgeroff, 2009). These teams were tasked with supporting the logistical needs for electric construction crews allowing the construction foremen and supervisors to be available to perform their core competency of repairing or rebuilding the electric system. Working in teams of approximately three people per shift, the support team employees were consumed for 10-15 hours a day for the first 10 days of the emergency. They had to respond to central points near the fire-damaged areas where they set-up command center camps to serve three meals a day. The command center sites included restrooms, shaded rest areas, water, ice, and snacks to all the crews who were working 16-hour shifts (Dulgeroff, 2009). In addition, the command center sites needed mobile offices with internet
connectivity (often via satellite due to the remote locations and/or damage to on-site power and telecommunications connections). Also required were helicopter landing areas for hard-to-access, power pole replacements, water trucks for dust mitigation in the rural settings, mobile radio repeaters, and dedicated space for all the materials to be staged for the crews’ use. Preventative environmental checklists had to be followed at the rural sites. Straw wattle to prevent run-off, steel shaker plates to keep the vehicles from tracking loose dirt out onto the streets, and traffic control where the extra traffic related to the command center made an impact to normal traffic flow at the entrance were all required. Sites that were designated just as material lay-down locations, still needed restrooms and trash containers (Dulgeroff, 2009). The region’s basic communications infrastructure was not impacted by the fires, therefore alternate communications systems were not needed in the 2007 firestorm. It is timely to note however that emerging technologies leveraging communications devices already being used are being tested for response to emergencies impacting infrastructure. This new type of infrastructure-less wireless network, such as Georgia Tech’s LifeNet model (Wilson, 2005), which is formed out of consumer electronic devices such as laptops or smart phones could have great utility in disaster scenarios impacting the traditional means of communications. Using consumer devices such as smart phones and laptops to remove dependence on a company’s local network infrastructure and data center could also be addressed by cloud computing. In SDG&E’s 2007 response, the team members used cell phones and laptops with air cards to track all the support activities and items for command centers, on spreadsheets that were emailed back and forth to the manager leading the command center efforts. This enabled them to track the logistics of all command center sites in a consolidated manner. Each day the team
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members participated in two conference calls with their counterparts, during which they were given updates from other SDG&E departments supporting the logistical efforts.
OBSERVED ISSUES The SDG&E team members who were serving as business solutions liaisons (BSLs) between the construction supervisors leading the restoration and rebuilding efforts of the crews, and the departments that procure and oversee delivery of the material and services used to set-up the command centers, reported occasions when their requests for items needed for the command centers were not conveyed exactly, or delivery was late. Other times requests were duplicated, or second and third calls were received from the providers to confirm if materials or meals were still needed, when the items had already been received. The BSLs’ daily submittal of the tracking spreadsheet to the manager’s administrative support required a significant consolidation chore and lacked real-time status. For example, an impact of the spreadsheet’s lack of timeliness was that if the BSLs needed to track something more timely than information from the afternoon before, they would have to participate in both conference calls each day, despite other tasks they might have been performing. Additionally, the BSLs needed to take their own notes as to what each command center team was reporting during the calls. Then, the spreadsheet combined with their handwritten notes provided them with more detailed information, but resulted in an abundance of paper. Further, the daily consolidation of spreadsheets from 17 different command centers contributed to the chance of errors being made. The possibility of achieving efficiencies through a more real-time method, rather than paper forms, repeated consolidation of emailed spreadsheets, and email requests first arose during the type of miscommunication reported above. This sug-
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gested an opportunity for investigation of a more real-time approach to handling the logistics related to the emergency response. The rush to procure water, meals, tents, lights, portable bathrooms, and mobile offices is all performed in competition with other responding agencies in the region, public and private-sector. Any lag in response time could present the loss of the opportunity to obtain what is essential. Because of that competition for scarce resources, the first five days of a response are the most timesensitive. Consequently, the potential for errors in the spreadsheets could have represented a loss of needed resources. Research discusses the range of spreadsheet errors from calculation errors, to one that is more germane to this study, errors in data quality. Caulkins et al. (2005) cite these errors in data quality as one of three typical reasons that contribute to undetected errors in an alarming “91 percent of spreadsheets” (p. 22). These authors contend that a simple task such as a “bad sort can destroy the integrity of a row, or a mismatch of units” (p. 23). This is supported by Panko’s research in which he estimated 94 percent of spreadsheets contain errors (Panko, 2007). Therefore, it is clear that any solution must need no manual manipulation of the data such as is needed when using spreadsheets for database functions. An alternate solution must also have virtually no training-time requirements, since the employees assigned to the task in subsequent emergencies will likely have no experience with the solution, nor would they have the luxury of time to learn it. The possibility of SDG&E changing its approach to command center logistics tracking as Commonwealth Edison and Duke Energy were able to do, merits further study. After the 2007 fires, event-assessment and debrief of the command center support personnel included the subject being raised of the efficacy of spreadsheets and paper forms and the question of whether an alternate approach could have achieved greater efficiencies, especially in
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
the areas where duplications and problems were encountered was posed. This study addresses the following research questions: •
•
•
What alternative approach would have enabled the teams working on the command center effort of emergency response to have easier-to-use, faster-to-access data? What solution would include the capability to store basic command center requirements from previous emergency responses to save time in addressing the first or most crucial items needed during the next emergency? What resiliency could be built into command center logistics tracking in case the company’s network was rendered inaccessible at the same time as command centers were needed for service restoration activities?
Therefore, if SDG&E’s electric or gas system was damaged by terrorist activity or another natural disaster with equal or greater severity than the firestorms of 2003 and 2007, tracking the command center logistics could become exponentially more difficult proportionate to the severity of the disaster. An alternative solution designed for easy access by users in multiple areas could enhance the support of the logistical efforts to bring the region’s critical infrastructure back to normalcy in the most effective manner possible. This study is designed to investigate the possibility of an alternate, multi-user approach, in order to improve accessibility or timeliness of information in a further refinement of disaster response tools. Results could aid decision-makers in their planning for subsequent emergencies. The present body of knowledge will be expanded by the study of converting from spreadsheets and paper forms currently used for some emergency management activities to more effective tools of response.
POST WILD FIRE ANALYSIS After the Southern California fires of 2003, the Sempra Energy utilities’ vice president of Business Solutions, and Directors leading the support-type departments of Supply Management/Logistics, Fleet Services, Facilities, Real Estate/Land, Environmental, and Safety, formulated a program to further enhance their support to field operations areas in their response to emergencies. That new program was enacted for the first time during the 2007 Southern California fires. Under a dotted line reporting relationship to a manager responsible for all command center and staging area sites, “Business Solutions Liaisons” (BSLs) fulfilled a strategy that was designed to provide them as central points of contact. They were to interface between the operating centers’ field operations and SDG&E’s high-level central coordination and communications Emergency Operations Center (EOC), during emergencies that necessitated the set-up of staging areas and/or crew deployment areas. The BSLs were selected from a qualified pool of employees from the support departments, and based on their availability to respond to remote locations for ten-hour shifts. The BSLs were to be a visible presence in the field to facilitate proper two-way communications between field operations groups, the support departments, and the EOC, where requests would be received and dispatched to the proper responding support departments. The BSLs were intended to be the “one-stop-shop” for all requests instead of field supervisors having to make requests of many areas for their needs (Dulgeroff, 2009). The BSLs are not examined in this paper as a population. Their data output, however, is the sample examined. The BSL program would be activated under certain conditions including: • •
The utility experiences a major event The EOC is activated
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• •
One or more off-property staging areas are needed It is requested by EOC staff
The BSLs had to be ready to mobilize at the beginning of an event through response and recovery. They were to engage with operating groups and coordinate with existing emergency response systems. In addition, the BSLs were to be familiar with field operations activities, be prepared for inclement weather, and be field-ready. Teams of two BSLs were assigned to each location to cover two shifts per day. Sites were determined by identifying areas where the utility’s system had sustained significant damage, for economies of adjacency in location decisions. If there was suitable land, and the area met strategic placement guidelines, a command center was located there (Dulgeroff, 2009). In the first three days of the emergency, the Facilities department was activating its baseline set of plans, to achieve the earliest response to the expected need for some type of field command centers or staging areas. Therefore, they already had contingency plans in place for rapid procurement of several large tents to house the resting and dining functions for the emergency response, generators, lighting, drinking water, catering, and portable sanitation services. As soon as they reported to their assigned command center locations with their laptops and air cards, cell phones, and personal protective equipment, BSLs checked-in with the construction supervisors to receive any logistical requests and support them in their core mission of directing system repair for service restoration of the utility system. As the emergency unfolded, appropriate numbers of utility personnel, mutual assistance crews, and contract construction company crews were deployed to repair damaged segments of the system (Dulgeroff, 2009) The BSLs were apprised by the construction supervisors, of the crew size increases or decreases, as work progressed across the damaged areas, and as mutual assis-
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tance crews arrived. The command center needs were adjusted depending on that crew movement (Dulgeroff, 2009). In order of priority, meals, water, ice, and sanitation facilities were the most important of the many things needed at the command centers. Shelter (tents), electricity, portable offices, internet connectivity, and garbage containers and garbage collection were next in order of priority. Following in priority were a fuel tanker to refuel the crew trucks and a pad for a helicopter to land, including a water truck to mitigate dust from the helicopter and the vehicle traffic. As soon as the BSLs reported to their assignments, they were to review the template documents in their binders, time permitting. There were often requests and/or people waiting for the BSLs as soon as they got to their locations, and the BSLs provided rapid response and follow-up on all requests. The One-Stop-Shop was an exceptionally successful response model because the construction supervisors’ needs were continuous and the BSLs execution of the ordering and tracking was a better use of company resources. It quickly became apparent that the paper request forms in the binder were unworkable, for two main reasons. The forms were meant to be handwritten, then faxed to the EOC representative for that request category, however, there were no fax machines available, at least in the first several days of the emergency. Further, the forms required name, date, and time information. The natural inclination of the BSLs was to call the EOC representative and initiate the request via cell phone call, then complete an email note with the same information as a written confirmation, and for ease of follow-up. The email notes automatically recorded name, date, and time information, and the BSL added the other shift’s BSL in the carbon copy line. Early in the process, the paper request forms served as helpful visual cues for the details that needed to be included in the phone and email requests, but beyond that were hardly used.
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
Similarly, the paper BSL Service Request Log was viewed as inconvenient given the Sent Items feature which saves sent-email in a folder in the sender’s Outlook program. Not all of the BSLs used this paper Log knowing their Outlook Sent Items function captured and archived them automatically and more permanently in case the information was needed at a later time. Given that the other shift’s BSL had been copied on any emails that alternate shift BSL did not need to review the paper Service Request Log to ensure smooth transition of information.
FINDINGS AND DATA ANALYSIS What alternative approach would have enabled the teams working on the command center effort for emergency response to have easier-to-use, faster-to-access data? What solution would include the capability to store basic command center requirements from previous emergency responses to save time in addressing the first or most crucial items needed during the next emergency? What resiliency could be built into command center logistics tracking in case the company’s network was rendered inaccessible at the same time as command centers were needed for service restoration activities? The 2007 Southern California fires damaged a large amount of San Diego County’s territory including, in some areas, SDG&E’s means of delivery of electric service, its poles, wires, cable, and transformers (Dulgeroff, 2009). SDG&E coordinated a full-scale effort to restore service for its customers as soon as possible. “To provide forward support closer to the actual field locations where the bulk of the repair and restoration work was occurring, SDG&E established ‘command centers’ and ‘staging areas’ in strategic locations” (Geier, 2009, p. 14). Establishing and maintaining the command centers and staging areas to support the crews in their restoration efforts, and ultimately closing them down, involved approximately 56
employees from supporting departments, for approximately three weeks in a significant logistical exercise (Dulgeroff, 2009). The process began with: (1) baseline requirements needed for a command center or staging area, (2) personnel assigned to the location to be the points of contact, called BSLs, and (3) the BSLs’ laptop computers with air cards for internet connectivity, the BSLs’ cell phones, a master spreadsheet to track all the details of all the command centers and consolidate them into one view, and paper forms on which BSLs could make requests for items needed at the sites. The spreadsheets did not look at the causes of the emergency, but helped manage the responses. The lead author, a team lead of the SDG&E supply chain systems team, served in the BSL capacity. The people who received the requests and information from the BSLs and fulfilled them were support department representatives manning their specific EOC positions. Each EOC position was staffed around the clock at the beginning of the emergency, and as appropriate later in the response, was reduced to 16 hours per day of coverage. The BSLs received all the requests associated with taking the command centers from their baseline configuration to fully-functioning field operations support, by working as the interface between the construction supervisors, the EOC representatives, and on occasion, directly with the vendors. The defined method for initiating a request for materials or services was in the library of paper forms. In practice however, instead of using the paper forms to initiate requests, there were two preferred methods by which BSLs sent requests to the EOC representatives. The first method was via cell phone call. The second method was via company email which was available via air card internet connectivity and VPN computer network access. These emails were often written followup to the initiating phone call. Also, since they were accessing the network via VPN, all internal
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drives and intranet pages and systems normally available to BSLs were accessible. The EOC representatives were on-site at SDG&E’s company headquarters location, and had the full company network available to them and received BSL email communications in that manner. The main tool used to handle the command center logistics effort was a spreadsheet. The spreadsheets used for this study are three samples of the daily iterations of the 2007 Firestorm command center and staging area consolidated information. All of the categories represented essential items needed to support response to the emergency. Many of the BSLs’ actual practices did not include filling-in the paper forms, which meant the paper forms provided in the binder went unused. The service request log in the binder was also not used by the BSLs as they preferred the daily-updated spreadsheets that conveyed the entire command center landscape. The spreadsheet in its consolidated form was the most significant tracking output of that effort. The main benefit of the spreadsheet was the ability to track, albeit a day later, the logistical details of the command center, which included upward reporting to and by the manager. This information was kept current by the BSLs completing and emailing the spreadsheets back to the manager after the afternoon conference call, for his administrative support’s updating. The inherent inefficiency of its manual consolidation prompted the research questions. A consideration of efficiencies to be gained and opportunities to track more categories of information, if needed, might reveal a new structure for the process, using an alternative approach to the paper forms and the spreadsheet. Consequently, the analysis of efficiency of the spreadsheets compared to real-time access to data, might include a new technology or a combination of several. An examination of the details of forms on smart phones, dashboards, blogs and wikis, and cloud computing would be timely, as SDG&E continuously strives for improvement of its crisis response.
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DISCUSSION Based on the data resulting from SDG&E’s 2007 Firestorm command center support response analysis, two hours a day of conference call attendance, paper form requirements, and editing of the spreadsheet by each BSL team, indicates opportunities to improve efficiency exist. Several possibilities for alternative approaches to command center logistics tracking are growing in use and popularity. To address the first research question on what alternative approach to emergency response logistics tracking would be easier-to-use and provide faster access to data, rendering forms on smart phones in replacement of paper forms, blogs for BSLs to convey new situations or information they encounter, via a posting on a webpage, making it readily searchable for the next crisis, wikis, which can capture blog information of a more formal or permanent nature to document processes or procedures, and dashboards as a means to display the real-time, consolidated, command center information, links, and metrics are suggested. The use of a database as the backend data repository supporting what is displayed in dashboards related to the second question, and the concept of cloud computing related to the third research question will be discussed later. This combination of alternatives incorporates the concept of building resiliency into a company’s activities supporting critical infrastructure response work, as well as reducing duplicative or outdated methods. It also can be viewed through the lens of the expanded crisis response system model (Jennex, 2004). The expanded system encompasses more than the basic components of database, data analysis, normative models, and interface. Enhancing the model includes the addition of trained users (where users are personnel using the system to respond to or communicate about the emergency and consist of first responders, long term responders, the emergency response team, and experts), dynamic, integrated, and collabora-
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
tive (yet possibly physically distributed) methods to communicate between users and data sources, protocols to facilitate communication, and processes and procedures used to guide the response to and improve decision making during the crisis. This expanded crisis response system model is applicable to the discussion of combining alternatives in order to better respond to the logistics tracking activities of SDG&E’s emergency response. Specifically, the dashboards fulfill the model’s condition for a dynamic method of communication, based on the real-time nature of the information received and displayed. The potentially constantly updated information supports the optimum display to users of what is residing in the underlying data sources and, further, to non-users such as executive teams, and decision-makers. The dashboards also fulfill the model’s component of integrated and collaborative protocols by their attribute of displaying multiple types of information from multiple sources or contributors that would not normally be displayed together in a single view, or viewable by so many different parties. Additionally, the nature of the field operations and the EOC functions being physically separated conforms to the model’s almost-certain distributed teams, sites, and means of communications. The sometimes duplicative activities associated with the BSLs’ use of paper forms and follow-up phone calls, and the time-consuming consolidation of that information in a spreadsheet with limited visual display characteristics, implied one or all of these alternatives may have efficacy in improving BSL-related data output in subsequent emergency efforts, as supported by the Jennex expanded crisis response system model. The result of analyzing enhanced concepts to the command center tracking needs, suggests further study of forms on smart phones, and dashboards connected to a robust back-end database already populated with baseline data as a starting template to save time, residing on remote servers in a private cloud. A site linked to the dashboard on which any participant in the command center effort could
blog about any special experience for sharing with the other team members would be timely as well as easy to access. Problems or issues discussed in the blogs and successfully addressed, could be elaborated upon or documented in a more formal and thoroughly developed way and posted as a wiki, as a more permanent and searchable archive. The need for resiliency in case of unforeseen inaccessibility, suggests the use of private cloud computing, which would result in a virtual, secure, remote location for SDG&E-related command center activities to be developed, housed, and delivered. That need for secure software and data is important because of the proprietary nature of the information. Therefore, a practical solution to help the utility in case of a catastrophic loss of its computer network might include private cloud computing. Possibilities of technological alternatives other than these may be suited for transforming the spreadsheets and the paper forms, and displaying command center logistics however, the intricacies of the related technology need to be addressed as further suggestions. The viability of these technologies in support of alternative systems for crisis response is derived from Jennex and Raman (2009). The forms on smart phones, blogs and wikis, cloud computing, and the dashboards similar to those developed by SDSU’s Visualization Center for flu tracking in San Diego County when implemented together, can all be considered components in the fusion of KM systems (Jennex & Raman, 2009). Filling out paper forms and completing the spreadsheets was actually just the manual assembling of a list of data in columns and rows. It was not a meaningful transfer of ideas, needs, and information. When ideas, needs, and information are assembled without further requirement for consolidation or user adaption, and then easily rendered visually, it results in expedient crisis response through impactful visual cues and a more efficient transfer of knowledge. The implication is the tacit knowledge from BSLs’ previous experiences can not be appropri-
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ately conveyed in a single file when the information is simply housed in a spreadsheet’s columns and rows format. However, the multi-dimensional, graphical layering, and photographic images displayed in a dashboard format heralds the emergence of knowledge transfer that would benefit the evolution of SDG&E’s emergency response model. Blogs to capture BSLs special experiences or issues, and wikis to more permanently archive the blog posts that lend themselves to formal processes and procedures, provide a searchable, easy to access forum for command center participants’ specific information, and should be included as links in the dashboard. Handling the knowledge in support of crisis response in this manner substantiates the Jennex and Raman (2009) assertion that, decision makers, when under stress, need systems that do more than just provide data, they need systems that can quickly find and display knowledge relevant to the situation in a format that facilitates the decision maker in making decisions.
IMPLICATIONS AND RECOMMENDATIONS The research related to the spreadsheets revealed that they performed in an adequate manner based on the fact that the command center logistics tracking was generally accurate and the consensus among the interfacing groups was that the command center model performed very well. However, the lag time in displaying updated information on the distribution of the crews across the command center landscape during a day, and how that impacted meal counts which, potentially dramatically affected the crews’ perception of well being, can be surmised due to the manual consolidation effort necessary to keep spreadsheet data current. The literature validates the significance of the crews’ perceived well being as having substantial importance. Relative to the discussion of the crews’ well being, a tangent factor of the BSLs’ efforts in the
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command center support was their stated feelings of satisfaction related to their accomplishments, as discussed in a BSL debrief meeting in November 2007. The perceived usefulness of their efforts and their feelings of self-efficacy gave an indication of how likely BSLs would be to embrace alternative approaches to the work if it meant further improvement in their response to a crisis. While this relates to implementing knowledge management systems in support of crisis response (Jennex & Raman, 2009) it must be acknowledged that the responsibility for efficient and timely restoration of essential services is still a mandate from the federal government as codified in HSPD7. Despite SDG&E’s culture of dedicated restoration activities, the BSLs’ satisfaction in support of the company mission, or the opportunity to leverage computer technology and knowledge management systems to enhance the logistical support, the restoration activities would still be required by the federal government even in the absence of those company requirements and employee satisfaction drivers. It also should be recognized that there could be a scenario when the normal network systems for achieving compliance with HSPD 7’s requirements would be completely interrupted. In the event of a loss of SDG&E’s computer network infrastructure, an alternative to the company network would be needed to handle the on-going restoration tracking efforts. One alternative to the traditional and local company network would be via cloud computing. In the event SDG&E’s computer network was rendered unusable, whatever applications were needed for the command center response could be housed on virtual servers in the cloud, and accessed via the internet, likely through wireless connectivity such as the BSLs’ air cards. The implication is SDG&E could continuously access its disaster response support tools if they were housed and delivered outside the company network. The security aspect would be addressed by using the cloud computing model known as
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
the private cloud, in which processing, storage, networking, and the application, are via an intranet, allowing for user authentication, and encryption of the company’s proprietary data. Computing via the cloud also allows for applications to be used on a pay-as-you-go pricing schedule (Vanmechelen et al., 2006). This would allow the cost of an important emergency response tool, after its initial development costs, to be borne only at the time the company is experiencing an emergency. Responding to emergencies often carries great costs, some of which can be recovered in rates if SDG&E’s governing regulatory agency grants such a request. Matching the costs of a paywhen-used type of emergency response support tool to the infrequent occasions of emergencies impacting SDG&E’s critical infrastructure, supports a position of careful stewardship of costs the company will eventually request to recover. Further, using cloud-based tools to house an emergency response logistics tracking application securely outside SDG&E’s territory and having it be accessible via any internet-based connection along with VPN, provides a resilience to catastrophic wildfire- or earthquake-caused network destruction that would interfere with tracking of, although not halt, SDG&E’s restoration activities in the field. Analysis of the manual, and not-well-used paper forms for BSLs to send requests to the EOC, demonstrated the need for an alternate request method. As was demonstrated by actual practice, phone calls and follow-up emails were preferred to the paper forms. However, the email was duplicative to the phone call, which suggests a less-than-optimal use of the BSLs’ time. The rendering of a paper form for display and user input on a smart phone has potential utility as the technology to replace the paper forms for command center logistics requests. Data initiated by the request is needed to execute the activity and provides the EOC recipient with record of the exact details needed for accurate fulfillment, almost always better than a phone call
request, but usually not faster. Yet the BSLs all had cell phones and continuously made requests initiated by phone calls then followed-up with emails for solid confirmation. An alternative is using a smart phone with a form accessed from the phone’s embedded memory. The efficiency of using the hand-held portability and instant communications of a cell phone, while having the accuracy and full detail inherent in a form, can both be achieved with this technology. The electronic forms housed in the smart phones’ memory could also be available in a library of request forms linked on the dashboard, as a secondary and back-up location to the smart phones. The practices of the BSLs in the field imply this alternative merits further investigation and possible piloting during future SDG&E emergency drills. Another implication for future research addresses the need to experiment with the dashboard as a more informative alternative for the current spreadsheet data and to house links to other BSLneeded information. A test model would include a dashboard being provided to the BSLs, their decision-makers, and related support departments for further determination of the efficacy of the technology. The user requirements of both dashboard and cloud computing would be structured by the technical staff at SDG&E to determine whether cloud computing and dashboards are viable alternatives to replace the current emailed spreadsheet. The spreadsheet as the most significant tracking output of the BSLs’ 2007 efforts is important when considering how such a single, relatively simple file was the source for tracking a great deal of valuable SDG&E-owned or rented assets, providing the manager with the ability to report to the EOC and the Executive team, the extent of the command center support of field operations and his decision-making related to consolidations of sites, or needed geographical changes, particularly while the fires were still burning. Considering those substantive uses of the spreadsheet, the lag time in the data’s accuracy
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due to the need for consolidation, indicates the audiences could be better served as more realtime technologies become achievable for this specific purpose. Furthermore, the recognition of the potential need of other categories and/or sources of information implies the spreadsheet format was already at the limit of its utility. The need for a tool with the ability to display data in a visual, real-time format, with links to additional helpful or related sources of information such as BSL-related blogs and wikis, seems a likely area for future study, since dashboards provides internet-browser display of many categories of data from potentially many sources. Dashboards also provide for understanding of performance indicators of importance to a specific audience, by summarizing them and often displaying them by graphical icon. The summarized data displayed in a dashboard can be the starting point to drill down to their detail. Conveying the data in a summarized, graphical way represents a significant, behind-the-scenes effort of collection, consolidation, and presentation of the data that starts to transfer tacit knowledge when the consolidation allows for decision-making based on the whole picture that is drawn by the dashboard. Dashboards support two important points made by Turoff, supplying the best possible up-to-date information is critical to those whose action may risk lives and resources and that an emergency response information system must be an integrated electronic library of external data and information sources (Turoff, 2002). The data in SDG&E’s command center tracking spreadsheet has the potential to become enhanced decision-making information and therefore knowledge that can be applied by its users through the use of baseline data from past command center experiences to respond to a present emergency. Using a dashboard displaying data taken from the spreadsheet categories in a more actionable manner could enhance decision-making or at the least, readability and timeliness. The summarization and display of all of these types of information
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sources in a single dashboard enables viewers to drill down to access other websites, company intranet pages, participant blogs, related wikis, detailed data from maps and databases, and have it all accessible real-time. It would be a significant enhancement to the ways this information was available to SDG&E’s emergency response support teams in previous emergencies. This practice of selectively applying knowledge from previous experiences during turbulent moments of decision making, to current and future decision making activities with the express purpose of improving the organization’s effectiveness, would be possible via a KM system (Jennex & Raman, 2009) such as a dashboard along with its underlying means of delivery.
CONCLUSION This paper proposes using knowledge to drive an alternative to SDG&E’s paper request forms for command center needs, and suggests the use of request forms rendered on smart phones assigned to the BSLs for the duration of the effort. In addition, the development of dashboards, including links to command center participant blogs and wikis, is suggested as an effective alternative to spreadsheets to track the command center logistics, and provide easy to access information by means of links. Finally, the use of cloud computing as the development platform and host of an SDG&E dashboard application is recommended as a timely evolution to a KM system approach to achieve logistical tracking efficiencies.
REFERENCES Bandura, A. (1982). Self-efficacy mechanism in human agency. The American Psychologist, 37(2), 122–147. doi:10.1037/0003-066X.37.2.122
Achieving Electric Restoration Logistical Efficiencies During Critical Infrastructure Crisis Response
Caulkins, J. P., Morrison, E. L., & Weidemann, T. (2005). Spreadsheet errors: Are they undermining decision making in your organization? Public Management, 34(1), 22–27.
Jennex, M. E., & Raman, M. (2009). Knowledge Management is Support of Crisis Response. International Journal of Information Systems for Crisis Response and Management, 1(3), 69–82.
Davis, F. (1989). Perceived usefulness, perceived ease of use, and user acceptance of information technology. Management Information Systems Quarterly, 13(3), 319–340. doi:10.2307/249008
Panko, R. P. (2007). Two experiments in reducing overconfidence in spreadsheet development. Journal of Organizational and End User Computing, 19(1), 1–23.
Dulgeroff, A. (2009). Application of San Diego Gas & Electric Company (U 902 M) for authorization to recover costs related to the 2007 Southern California wildfires recorded in the Catastrophic Event Memorandum Account (CEMA). Retrieved from http://www.sdge.com/regulatory/ documents/a-09-03-011/testimony-dulgeroff.pdf
Turoff, M. (2002). Past and future emergency response information systems. Communications of the ACM, 45(4), 29–32. doi:10.1145/505248.505265
Geier, D. L.(2009). Investigation on the Commission’s own motion into the operations and practices of Cox Communications and San Diego Gas & Electric Company regarding the utility facilities linked to the Guejito Fire of October 2007. Jennex, M. E. (2004). Emergency Response Systems: The Utility Y2K Experience. Journal of Information Technology Theory and Application, 6(3), 85–102. Jennex, M. E. (2005). What is knowledge management? International Journal of Knowledge Management, 1(4), i–iv. Jennex, M. E. (2007, August 25). Knowledge Management in Support of Crisis Response. Paper presented at the ISCRAM China Workshop.
Vanmechelen, K., Stuer, G., & Broeckhove, J. (2006). Pricing substitutable grid resources using commodity market models. Retrieved from http://www.coms.ua.ac.be/publications/files/ KVM_GECON_2006.pdf Venkatesh, V., Morris, M., Davis, G., & Davis, F. (2003). User acceptance of information technology: Toward a unified view. Management Information Systems Quarterly, 27(3), 425–478. Whybark, D. C., Melnyk, S. A., Day, J., & Davis, E. (2010). Disaster Relief Supply Chain Management: New Realities, Management Challenges, Emerging Opportunities. Decision Line, 4-7. Wilson, S. (2010). Next generation disaster communications technology now a reality with LifeNet. Retrieved September 25, 2010, from http://www. scs.gatech.edu/news/next-generation-disastercommunications-technology-now-reality-lifenet Zuber-Skerrit, O., & Fletcher, M. (2007). The quality of an action research thesis in the social sciences. Quality Assurance in Education, 15(4), 413.
This work was previously published in International Journal of Information Systems for Crisis Response and Management (IJISCRAM), Volume 2, Issue 3, edited by Murray E. Jennex, and Bartel Van de Walle, pp. 36-50, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Assessing the Impact of Mobile Technologies on Work-Life Balance Sharon Cox Birmingham City University, UK
INTRODUCTION Mobile technologies such as laptops and mobile phones enable work to be conducted remotely, away from the normal working environment. Removing the geographical boundaries between work life and home life poses new challenges within the context of maintaining a healthy worklife balance. This article proposes a multidimensional model for assessing the impact of mobile technologies on work-life balance considering DOI: 10.4018/978-1-60960-587-2.ch314
social, organizational, legal, technological, and ethical issues to inform the development of human resource strategies.
BACKGROUND ‘Work’ and ‘life’ are traditionally viewed as separate spheres which need to balance such that one does not adversely affect the other (MacInnes, 2005). Stress occurs when the spheres are out of balance (Rotondo, Carlson, & Kincaid, 2003). Improving work-life balance can help:
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• •
Organizations to work effectively and efficiently; and Individuals manage their time and reduce pressures that encroach on their life outside the workplace.
The notion of balance implies the need to establish clear boundaries between work and home lives. This is expressed as “being able to come to work and not worry about my life outside of work and going home without having to worry about work.” Work-family interference (WFI) occurs when work issues adversely impact family life and family-work interference (FWI) occurs when the pressures from non-work issues adversely impact the work sphere (Greenhaus & Beutell, 1985). The employers for work-life balance (EfWLB) define work-life balance as being about giving people control of when, where, and how they work such that they can be fulfilled and enjoy an optimum quality of life, whilst being respected in the workplace (McIntosh, 2003). It should not be assumed that work-life balance policies are only of interest to employees with children; having time for taking part in learning, the community, and social activities are important factors for a healthy lifestyle (MacInnes, 2005). Traditionally, studies focus on the tension of needing to be in two places at the same time: the workplace and the home. This has led to a central theme in work-life balance being that of control; control is often expressed in terms of ‘flexibility,’ the ability to make choices and having the freedom to prioritize in accordance with personal values and maintain an equilibrium between multiple roles. Mobile technologies, such as wireless Internet access, laptop computers, mobile telephones, PDAs (personal data assistants), and other handheld devices, increasingly enable ease of access to data, applications, and people that was previously restricted to the workplace. This provides the opportunity for employees to work away from a regular workplace and changes the significance of the location factor in the work-life dyad. How-
ever, easing the ability to ‘bring work home’ also introduces tension by enabling work to (further) encroach on family life. Work-life is now recognized as being bidirectional and multidimensional (Rotondo et al., 2003). This is supported by Warren (2004) who suggests that discussion should be repositioned as work-life integration. It includes time-based conflict where time in one role affects participation in the other; strain-based conflict where the demands of one role affect participation in the other and behavior-based conflict where behavior appropriate in one role is used in the other role (Greenhaus & Beutell, 1985). The following sections discuss the impact of mobile technologies on work-life balance.
ASSESSING THE IMPACT OF TECHNOLOGY ON WORK-LIFE BALANCE The impact of technology can be seen both as positive and negative (Berg, Mörtberg, & Jansson, 2005). Technology facilitates working arrangements such as teleworking (Tietze, 2005) and mobile working (Prasopoulou, Pouloudi, & Panteli, 2006) which can benefit both employers and employees. These benefits are summarized in Table 1. Technology can make communication easier but it can also be an intrusion. Addressing location issues resolves some problems in work-life balance, for example, being able to work at home to be with a poorly child, but blurs the boundary between work and home (Prasopoulou et al., 2006) making it harder to balance work and home life. Flexible working can become abused when the normal expectation is that someone can be contacted anywhere anytime about work related issues. The work-life battle moves from location-based issues to demands for attention; reflected in the need to be available to respond to work issues at home.
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Table 1. Benefits and issues of mobile and teleworking
Issues
Benefits
Employees Flexible scheduling to work around family situations. Reduced commuting time and travel expenses. Greater geographic flexibility. Remote working is practical and cost-effective. Enables people with illness, disability, or lack of access to transportation to join the workforce.
Reduced overheads. Improved staff retention as employees can live remotely. Improved productivity as employees are more productive at home and work longer hours. Reduced impact of traffic delays and bad weather. Increased market of potential employees to recruit. Benefits local economies by helping people to stay/return to remote rural areas.
Costs incurred (e.g., heating, lighting, electricity). Discipline needed as the structure of ‘going to work’ is removed. Create a workspace and develop strategies for working effectively at home. How to separate work from home life and control the number of hours worked. Avoiding becoming isolated and disconnected from the company’s culture.
More difficult for managers to understand the skills of people reporting to them which affects performance reviews. Lack of organizational learning if performance is focused on deliverables rather than the processes used. Some managers feel that they have little control over staff working at a distance and that employees will abuse this privilege. Ensuring that remote workers do not become disconnected from the company’s culture and ensure effective communication. Changing processes to ensure that remote workers are appropriately supported.
Organizational Culture and Individual Empowerment The work-home culture is a key element of the workplace that impacts work-home interference (Beauregard, 2006). Mobile technologies impact the temporal boundaries between work and social activities (Prasopoulou et al., 2006) as information sharing and communication activities can be performed irrespective of time and location. Mobile phones are at the interface of the private and public spheres of life (Prasopoulou et al., 2006). They provide a fixed point of reference for connectivity and communication enabling a person to remain accessible (Srivastava, 2005). However, the ease with which a person can be contacted via a mobile phone can be a double-edged sword (Townsend & Batchelor, 2005). Prasopoulou et al. (2006) report examples of organizations where standard working hours are in place and it is not acceptable to call colleagues on their home landline (as this is perceived as intrusion into personal life), yet it has become acceptable to contact colleagues at home on their mobile phone after hours. Institutionalization of ‘anytime anywhere’ availability is exasperated as
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mobile phone numbers tend to be more widely distributed to colleagues who would not have access to home phone numbers (Prasopoulou et al., 2006). Some employees are unwilling to turn off their mobile phones at home as the organizational culture favors the prioritization of work over family and employees perceive that failing to respond to work requests ‘after hours’ would result in negative career repercussions (Beauregard, 2006). Other employees are aware of the risks of increasing stress caused by mobile telephones and switch them off at the end of the day (Berg et al., 2005). The growing acceptability of this work-family interference establishes new organizational norms and raises social issues. Context-sensitive computing technology incorporates features to help moderate the ‘anytime anywhere availability’ situation. Devices can be programmed according to organizational policies and individual preferences. For example, a mobile phone can be set not to ring if the electronic schedule indicates that a person is in a meeting (Colbert & Livingstone, 2006) or has finished work for the day. Hill, Miller, Weiner, and Colihan (1998) emphasize that training should not only include instruction on how to use the mobile technology
Assessing the Impact of Mobile Technologies on Work-Life Balance
but also include the social and psychological changes that are required in teleworking and mobile working. This requires the repositioning of organizational culture and personal empowerment.
Social Issues of Community and Occupational Identity Working away from the workplace requires employees to develop self-efficacy and recognize their responsibility to adhere to organizational codes of conduct and procedures. Beauregard (2006) proposes that personal, as well as organizational factors may influence the work-home interface. For example, personality may influence the amount of work taken home and the strategies for dealing with the interference. The work sphere contributes to how an individual forms their occupational identity (Tietze, 2005) and social contact requires a community setting with established norms. Working in one or more locations at a distance from colleagues challenges occupational identity and the manner in which communities evolve. When the work and life spheres are geographically separated, roles and behaviors are easier to define and separate, reducing behavior-based conflict.
Ethical Issues Teleworking blurs the boundaries between the work and home-life spheres and the cultural boundaries around them need to be redrawn (Tietze, 2005). This may involve designating spaces in the home for work tasks and developing rituals to disengage and separate work from home life (Hill et al., 1998). Strain-based work-family interference is of particular concern in professions such as healthcare, involving surface acting and emotional labor. Schulz, Cowan, Pape Cowan, and Brennan (2004) define emotional labor as the emotional suppression needed in order to accomplish tasks or protect relationship boundaries and the emotional regulation, such as surface acting (exhibiting emotions
that are not felt), required for social interaction. The commute between work and home facilitates the transition between the two spheres of life, providing the time, space, and routine to re-adjust. Montgomery, Panagopolou, and Benos (2005) use the metaphor of scuba-diving decompression to reflect the transition from work to home. People working in emotional environments need to “decompress” before returning into their home life. This may take the form of structured or informal debriefing procedures. Where ‘work’ is conducted in the ‘home’ environment, this decompression is more difficult to facilitate and can increase workfamily interference. Montgomery et al. (2005) suggest that emotional management training and opportunities for emotional decompression for health-care professionals should be explored. The strain of the work undertaken is increased by the isolation and separation from colleagues who can provide an informal support network. Debriefing and support mechanisms therefore need to be established to assist mobile and teleworkers in managing the strains of emotional labor.
Technology and Organizational Processes Technology enables remote working but the productivity gains from such practices can be limited by not having the right technology and business processes. The design of the technology also needs to be considered. Lee (2006) identifies the following device issues that can affect the ease with which tasks can be conducted remotely: design of menu structures, accessibility factors, battery duration, screen size, and weight. Remote working can reduce costs, increase staff motivation, and improve operational flexibility (Tietze, 2005), but requires the redesign of business processes and working practices (Clear & Dickson, 2005). This is particularly relevant to support processes requiring physical signatures or physical attendance at regular meetings (Pearlson & Saunders, 2004). Attention also needs to be given to the manner in
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which other central services, such as IT support, are delivered (Hill et al., 1998). Mobile technology poses security risks to the organization, including the physical security of the device and the person using it, the security of data held and transmitted and the risk of data corruption and virus infection when the device is returned to the workplace. Organizations need to revise their technical security policies to include for example, the standard use of data encryption and the disabling of infrared ports. Guidelines are needed to advise staff on how to transport and use the devices safely, for example, not to send data via infrared in public places. Pearlson and Saunders (2004) point to a ‘flexibility paradox;’ organizations need procedures in place to ensure that the organization continues to work effectively therefore flexible working requires structured approaches to business processes.
Legal Issues Legislation requires that organizations investigate the provision of flexible working policies. The impact of such policies on other areas of legislation such as software licensing (Lee, 2006), data protection, and health and safety policies needs to be considered. Guidelines exist surrounding, for example, the acceptable length of time spent using a computer without taking a break and the organization of workstations to reduce the risk of back problems and conditions such as repetitive strain injury. These guidelines need to be extended to include for example, the safe and appropriate use of laptop computers and the organization of workstations in the home.
MEASURING THE IMPACT OF MOBILE TECHNOLOGY Technology changes the way work is conducted including the skills required, communication patterns, collaboration patterns (how people work
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together and the degree to which they need to), the way people are managed, and the manner in which their performance is assessed (Pearlson & Saunders, 2004). Figure 1 presents a model of the factors to be considered within work-life balance. Hyman, Baldry, Scholarios, and Bunzel (2003) define a number of measures of work-family interference; tangible measures include the frequency of: work at weekends, paid and unpaid overtime, and the extent to which work is taken home; intangible measures include the degrees to which employees perceive that work has adversely affected health, they think about work in ‘family time,’ they feel exhausted after work, they are kept awake at night by problems at work, work prevents them spending time with family/friends and the frequency of feeling stressed. Previous measures of family-work interference and workfamily interference are extended in Table 2 which proposes parameters for measuring the issues identified in Figure 1. This provides a tool for assessing the impact of mobile technology on work-life balance in an organization which can be used to inform the development of human resource strategies.
Figure 1. Model of impact of mobile technologies on work-life balance
Assessing the Impact of Mobile Technologies on Work-Life Balance
Table 2. Parameters for assessing the impact of mobile technologies on work-life balance Factors Affecting Work-Life Balance
Parameters for Measuring the Impact of Technology on Work-Life Balance
Areas to Inform the Development of Human Resource Strategy
Social
Frequency of interruptions during social time. Duration of interruptions. Significance/importance of the interruption. Additional work generated by the interruption.
Agreement on normal hours of availability. Prepare ‘etiquette’ guidelines for contacting staff out of hours and for managing the expectations of availability. Develop training programme to raise awareness of impact on work-life balance.
Organizational
Percentage of time spent working off site. Number of trips to main company site. Number of calls out of hours. Number of calls to mobile phone. Opportunities for flexible working. Clarity and equality of policies about opportunities for, and availability of, flexible working and procedures for flexible working. Cultural acceptance of flexible working. Availability of processes for working outside the office. Ease with which equipment can be removed. Accessibility of systems outside the workplace. Processes to manage remote staff. Processes for evaluating performance. Processes for career development. Availability of support services for remote workers.
Develop policies for facilitating and supporting flexible working. Prepare policies to support the management, performance evaluation, and career development of remote staff. Establish broad training programme encompassing social and technical issues. Emphasize greater importance of communication and participation opportunities.
Legal
Total number of hours worked. Number of hours worked outside ‘normal’ office hours. Number of hours worked at evenings/weekends. Number of holiday days taken. Time spent ‘working’ whilst on holiday (e.g., checking e-mail). Time spent using technology between breaks. Length of breaks. Policies on staff conduct. Fair procedures for monitoring staff so that evidence can be attained on those that abuse the system. Procedures for holiday and sickness. Security of data. Number of software licenses for off-site working.
Clear guidelines and monitoring procedures for staff performance. Software licensing. Data protection.
Technological
Availability of required technology (and system access). Percentage of time spent on data access and transmission. Accessibility of technology. Availability of technical support. Ease of use of systems. Security of data and equipment. Availability of safe working conditions (e.g., appropriate furniture).
Health and safety of mobile working. Ethical use of technology. Data security. Technical support. Training in safe use of technology. Risk assessment procedures.
Ethical
Opportunities and support for emotional labor decompression. Opportunities for mobile and flexible working. Perceptions that 24x7 availability of staff is expected. Degree of involvement in decision making and organizational culture. Openness of availability of flexible working opportunities.
Develop policies for facilitating flexible working. Establish clear policies for communication and participation opportunities. Guidelines on expectations of staff conduct. Support mechanisms for mobile staff. Incorporate mobile working policy in vacancy adverts. Advertise vacancies widely.
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FUTURE TRENDS
CONCLUSION
Mobile technology has improved the communication processes within the work sphere, facilitating flexible working patterns enabling organizations to meet the demands of the 24x7 digital economy whilst empowering staff with the flexibility to control their work-life integration. The previous discussion highlights how expected availability adversely affects the home sphere by increasing work-family interference. Emerging technological trends will continue to blur the work-life boundary, paradoxically perhaps, improving aspects of the home sphere at the expense of the work sphere. It is claimed that ubiquitous technologies, such as processors and Internet connections embedded in domestic appliances will improve the home sphere. For example, a refrigerator connected to the Internet can reorder produce consumed. However, this may adversely affect the work sphere by increasing the demands placed upon staff to be available 24x7 and increasing the demand for electronic communication whilst reducing social interaction. As technology drives electronic business and mobile working, organizations need to take responsibility for managing the social aspects of work practices. Drucker’s (1988) prediction of organizations of orchestrated knowledge-workers can be reduced to organizations of disparate remote automatons unless actions are taken to protect and enhance the lives of teleworkers. Drew and Murtagh (2005) propose that trends in the over, and often inappropriate, use of technology need to be countered by guidelines to reduce the intrusion of technology by, for example, restricting contact to staff outside office hours. However, such guidelines need to consider the communication needs of mobile workers who choose to work outside office hours.
Mobile technologies increasingly enable ease of access to data, applications, and people that was previously restricted to the workplace and empower individuals with greater freedom to choose when, where, and how to balance the demands of their work and home lives. Although employees can work at home, they should not be expected to do so. Human resource strategy needs to address the impact of mobile technology on employees and adopt appropriate guidelines to maximize the benefits offered by the technology whilst protecting the employee from inappropriate demands being made on them; protecting the customer from lack of service availability and protecting the organization from risks such as misappropriation of resources and data protection issues. This article presented a model and parameters with which to assess the impact of mobile technology on work-life balance and assist the development of human resource strategies to address the opportunities and challenges offered by mobile technology.
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REFERENCES Beauregard, T. A. (2006). Predicting interference between work and home. Journal of Managerial Psychology, 21(3), 244–264. doi:10.1108/02683940610659588 Berg, E., Mörtberg, C., & Jansson, M. (2005). Emphasizing technology: socio-technical implications. Information Technology & People, 18(4), 343–358. doi:10.1108/09593840510633310 Clear, F., & Dickson, K. (2005). Teleworking practice in small and medium-sized firms: Management style and worker autonomy. New Technology, Work and Employment, 20(3), 218–233. doi:10.1111/j.1468-005X.2005.00155.x
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Colbert, M., & Livingstone, D. (2006). Important context changes for talking and text messaging during homeward commutes. Behaviour & Information Technology, 25(5), 433–441. doi:10.1080/01449290500330240
Montgomery, A. J., Panagopolou, E., & Benos, A. (2005). Emotional labor at work and at home among Greek health-care professionals. Journal of Health Organization and Management, 19(4/5), 395–408. doi:10.1108/14777260510615413
Drew, E., & Murtagh, E. M. (2005). Work/life balance: Senior management champions or laggards? Women in Management Review, 20(4), 262–278. doi:10.1108/09649420510599089
Pearlson, K. E., & Saunders, C. S. (2004). Managing and using information systems: A strategic approach. Chichester: Wiley.
Drucker, P. F. (1988). The coming of the new organization. In Havard Business School. Havard Business Review on Knowledge Management (pp. 1-19), Harvard Business School Press.
Prasopoulou, E., Pouloudi, A., & Panteli, N. (2006). Enacting new temporal boundaries: The role of mobile phones. European Journal of Information Systems, 15(3), 277–284. doi:10.1057/ palgrave.ejis.3000617
Greenhaus, J. H., & Beutell, N. J. (1985). Sources of conflict between work and family roles. Academy of Management Review, 10(1), 76–88. doi:10.2307/258214
Rotondo, D. M., Carlson, D. S., & Kincaid, J. F. (2003). Coping with multiple dimensions of work-family conflict. Personnel Review, 32(3), 275–296. doi:10.1108/00483480310467606
Hill, E., Miller, B., Weiner, S., & Colihan, J. (1998). Influences of the virtual office on aspects of work and work/life balance. Personnel Psychology, 51(3), 667–684. doi:10.1111/j.1744-6570.1998. tb00256.x
Schulz, M. S., Cowan, P. A., Pape Cowan, C., & Brennan, R. T. (2004). Coming home upset: Gender, marital satisfaction and the daily spillover of workday experience into couple interactions. Journal of Family Psychology, 18(1), 250–263. doi:10.1037/0893-3200.18.1.250
Hyman, J., Baldry, C., Scholarios, D., & Bunzel, D. (2003). Work-life imbalance in call centers and software development. British Journal of Industrial Relations, 41(2), 215–239. doi:10.1111/14678543.00270 Lee, T.-T. (2006). Adopting a personal digital assistant system: Application of Lewin’s change theory. Journal of Advanced Nursing, 55(4), 487–496. doi:10.1111/j.1365-2648.2006.03935.x MacInnes, J. (2005). Work-life balance and the demand for reduction in working hours: Evidence from the British social attitudes survey 2002. British Journal of Industrial Relations, 43(2), 273–295. McIntosh, S. (2003). Work-life balance: How life coaching can help. Business Information Review, 20(4), 181–189. doi:10.1177/0266382103204003
Srivastava, L. (2005). Mobile phones and the evolution of social behavior. Behaviour & Information Technology, 24(2), 111–129. doi:10.108 0/01449290512331321910 Tietze, S. (2005). Discourse as strategic coping resource: Managing the interface between “home” and “work.”. Journal of Organizational Change Management, 18(1), 48–62. doi:10.1108/09534810510579841 Townsend, K., & Batchelor, L. (2005). Managing mobile phones: a work/non-work collision in small business. New Technology, Work and Employment, 20(3), 259–267. doi:10.1111/j.1468005X.2005.00158.x
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Warren, T. (2004). Working part-time: Achieving a successful ‘work-life’ balance. The British Journal of Sociology, 55(1), 99–122. doi:10.1111/j.14684446.2004.00008.x
KEY TERMS AND DEFINITIONS Emotional Labor: The suppression or regulation of emotions needed in order to accomplish tasks or protect relationship boundaries. Family-Work Interference: The inability to carry out work activities due to the pressures and responsibilities arising from home or family life. Flexible Working: Policies to allow work activities to be carried out in different ways, including practices such as part-time working, flexi-time, annualized hours, compressed hours, staggered hours, job sharing, home working, teleworking, and mobile working. Mobile Technology: Electronic devices and the underlying infrastructure (e.g., wireless Internet access) that enable communication and remote access to data and information. It includes devices such as mobile telephones, laptop computers, and hand-held equipment (such as personal data assistants).
Mobile Working: Work arrangements that allow employees to freely conduct work at any location away from the main employer’s workplace, with full access to the information, people, and systems they need in order to complete their work (e.g., community nurse). Occupational Identity: The organizational context and the role(s) an individual adopts in the work environment contribute to an individual’s perception of who they are, what they do, and where they come from. Surface Acting: Pretending to feel emotions that are not felt in order to conform to social expectations. Teleworking: Work arrangements that allow employees to work at one location, away from the main employer’s workplace (literally ‘at a distance’ from the workplace, e.g., homeworking). Work-Life Balance: The empowerment and responsibility of a person to control activities in work and family/social spheres according to their own values and priorities such that one aspect does not adversely affect their contribution in the other sphere. Work-Family Interference: The inability to carry out family/social activities freely due to the pressures and responsibilities arising from work situations.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 63-69, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Migration of Legacy Information Systems Teta Stamati National and Kapodistrian University of Athens, Greece Panagiotis Kanellis National and Kapodistrian University of Athens, Greece Konstantina Stamati National and Kapodistrian University of Athens, Greece Drakoulis Martakos National and Kapodistrian University of Athens, Greece
INTRODUCTION In recent years, the accelerated competition in the global marketplace rendered the corporate environment more volatile than ever. The businesses are heavily relying on technological advancements to deliver a vast array of initiatives across a variety of industries. The firms’ main partner in this increasingly complex and unpredictable journey is considered to be their information systems. Although the relevant industry offers an unprecedented rate of technological innovations, nevertheless there are cases where the information DOI: 10.4018/978-1-60960-587-2.ch315
systems carry significant baggage from the past (Kelly, Gibson, Holland, & Light, 1999). There are aged systems that often form the central hub of the information flow within the organisation and are responsible for consolidating information about the business (Bisbal, Lawless, Wu, & Grimson, 1999; Sommerville, 2001) and thus they are called mission-critical legacy information systems. The term “Legacy”, according to the Oxford Dictionary, refers to any long-lasting effect of an event or process. The Legacy System describes an old system that remains in operation within an organisation. These systems often represent a massive, long-term business investment. Ulrich (1994) defined them as “stand-alone applications
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built during a prior era’s technology, but they are perhaps more widely understood as software systems whose plans and documentation are either poor or non-existent” (Connall & Burns, 1993). Bennett (1995) referred to the legacy systems as, “large software systems that we do not know how to cope with but that are vital to the organisation”, while Brodie and Stonebraker (1995) as “any information system that significantly resists modification and evolution to meet new and constantly changing business requirements”. Finally, O’Callaghan (1999), drawing on the characteristics of legacy systems, described them as “a large system delivering significant business value today from a substantial pre-investment in hardware and software that may be many years old. Characteristically, it will have a long maintenance tail. It is, therefore, by definition a successful system and is likely to be one that is, in its own terms, well engineered. It is a business critical system which has an architecture which makes it insufficiently flexible to meet the challenges of anticipated future change requirements.” Legacy systems as a subject area is often overlooked in favour of areas such as new technology developments and strategic planning of information technology. In this context, the following sections present an overview of the legacy information systems problems in terms of their scale and definition. The legacy system issues include the required man-effort and costs of maintaining and evolving existing systems and the current methods of migrating complex legacy systems to new technology. It is shown that legacy systems present a critical area of study in both software engineering and business information systems. Taking into account that the role of technology is not merely supportive but affects the way enterprises conduct their business, it is shown that it is outdated to consider the migration process as the simple replacement of aged or problematic hardware and software. Thus, the migration should be approached as a planned change process that first and foremost requires an understanding and
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a methodology that covers the range of issues and organisational entities involved.
BACKGROUND Legacy Information Systems O’Callaghan (1999) refers to the adoption of an informational culture within the organisations in which “point solutions” were developed due to the widespread use of computer technology over several decades. There are cases where different divisions of the same organisation have developed individual applications in order to meet their perceived needs in an application-by-application basis (O’Callaghan, 1999). In a similar way, there are applications in the same company that are running on different operating systems. Subsequently, such “point solutions”, according to O’Callaghan (1999), became subject to localised optimisation, and uncontrolled maintenance, exacerbating the position further (Zou & Kontogiannis, 2002). These applications are unambiguously hard to maintain, improve, and expand because there is a general lack in their understanding. In addition, integration with newer systems may also be difficult because new business software may use completely different technologies (Wu, Lawless, Bisbal, Grimson, Wade, O’Sullivan, & Richardson, 1997). Due to the aforementioned reasons, there is a significant number of software engineers and practicing managers that consider the legacy systems to be potentially problematic (Bisbal et al., 1999). On the other hand, according to Brodie and Stonebraker (1995), legacy systems do not always fit this stereotype. They propose that if a system was recently developed but cannot be readily modified to adapt to the constantly changing business requirements, then such a system can be regarded as a legacy system. Similarly, Randall (1999) stresses that “Legacy” is not just a problem encountered by organisations with aging main-
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frames and dated software, it is an issue from the moment a computer system becomes an integral part of any organisation’s work (Randall, 1999). The common rule is that if the legacy systems cannot support the business requirements, the business will not be able to remain competitive for long (Brodie & Stonebraker, 1995). Both a significant budget and person-hours will be monopolised by legacy systems maintenance. De Palma and Woodring (1993) referred to over 40% of the IT costs within an organisation being spent on maintaining its legacy systems, while Brodie and Stonebraker (1995) considered that the process of keeping these systems running takes 80-90% of the IT budget. Slee and Slovin (1997) gave an estimation in the area of 80% just for the routine maintenance activities.
Migration of Legacy Information Systems The common sense solution to the legacy problem is migration. The definition of a successful information system migration according to Brodie and Stonebraker (1995) is as follows: “it begins with a mission-critical legacy system of a significant size in full operation and it ends with a fully operational, mission critical target application (or applications components) that replaces the essential aspects of the original legacy system.” This involves replacing the problematic hardware and software, including the interfaces, applications, and databases that compose an information system infrastructure. Brodie and Stonebraker (1995) claim that legacy information system migration involves starting with a legacy information system and ending with a comparable target information system. This target system is significantly different from the original, but it contains substantial functionality and data from the legacy system. The target system must be built using technological advancements in place of the legacy technology. For practical reasons, the target system may contain legacy components for
which there is no adequate justification for their migration. According to Bisbal et al. (1999) the essence of legacy system migration is to allow the organisations to move their legacy systems to new environments, retaining the functionality of existing information systems without having to completely redevelop them. In recent years, a significant number of organisations have initiated large-scale migration projects in order to improve their operations performance and to be compatible with the latest technological advancements. Particularly, the introduction of the Web browser technology, the so-called first-wave of the Internet (Dreyfus, 1998), forced the organisations to undertake migration projects in order to exploit the benefits of the shared information resources (Zou & Kontogiannis, 2002). Afterwards, the convergence of the Web and the distributed-object technologies extended the information Web-based applications to the services-based worldwide applications which was referred to as the Internet’s secondwave (Dreyfus, 1998), and where the provided services and the content were distributed over the Internet (Zou & Kontogiannis, 2002). Moreover, the object-oriented technologies provided some valuable tools for the realisation of the servicesbased Web due to their inherent properties of encapsulation, polymorphism, and specialisation. In addition to the object orientation as a design paradigm, n-tier object computing was gradually being adopted by organisations as the preferred architecture for distributed applications because it allowed for the clear separation of business logic, representation logic, and back-end services (Zou & Kontogiannis, 2002). Considering the case where the stakeholders of a large organisation (for instance, in the banking sector) have decided to maintain organisation’s competitive edge and achieve conformation to the requirements posed by the need for flexibility and the minimization of time to market, the migration of company’s legacy systems towards a new operating Web-based environment will be a
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considerably effective system evolution strategy. The strategic objectives will focus on leveraging the existing legacy software assets while minimising the risks involved in implementing from scratch its large scale mission-critical legacy applications (Umar, 1997). Thus, following the new era of distributed component-based applications, the organisation will face pressures to evolve its existing system (for instance, a large mainframe) in response to its customer expectations. The transformation from the mainframe computer to a multi-tier architecture will force the migration engineers to separate the integration logic and the legacy services to be stored in the middle-tier and the back-end tier, respectively. This architecture will enable lightweight and thin clients to interact with servers in a fully customisable way. The component-based development will be based on the concepts of modularity, structured design, and object-orientation. The migration engineers and the practicing managers will emphasise on the design of the information systems in terms of well-defined modules that will be accessible to other modules through well-defined interfaces. (see Figure 1)
Current Migration Approaches Each migration project could address the areas of reverse engineering, business reengineering, data transformation application development, human computer interaction, and testing (Ulrich, 2002).
A generic process of legacy systems migration may include distinct phases (Bisbal et al., 1999) such as the Justification of the Migration process; the Understanding of the Legacy System; the Development of the Target System; the Testing and the Cut-Over (actual Migration). Within each task, general software and system engineering techniques can be applied. Regarding the crucial phase of the actual migration process, various software engineers propose different methodological approaches. Brodie and Stonebraker (1995) describe two strategies for migration: Cold Turkey and Chicken Little. The main drawback of the Cold Turkey strategy is the probable failure because the system will be written essentially from scratch. In that case, the risk level is high due to the fact that the development and evolution of the new system usually last for many years, in which the factors that affect the system may change. Chicken Little is a better strategy, according to Brodie and Stonebraker (1995), as it separates the migration process into step, and faces each one with a different aspect. Gateways play a significant role in the Chicken Little process. The Butterfly methodology is being developed as part of the MILESTONE project (Wu et al., 1997). During the migration, the methodology eliminates the need for system users to simultaneously access both the legacy and target systems and, therefore, to keep consistency between these two heterogeneous information systems. The But-
Figure 1. Major activities in legacy system migration (Bisbal et al., 1999)
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Figure 2. Chicken Little 11-step1 strategy (Brodie & Stonebraker, 1995)
terfly methodology is based on the assumption that the data of the legacy system is logically the most important part of the system and that, from the viewpoint of the target system development, it is not the ever-changing legacy data that is crucial, but rather its semantics or schema(s). Thus, the Butterfly methodology separates the target system development and data migration phases, thereby eliminating the need for gateways. (see Figure 2)
BUSINESS “LEGACY” AND MIGRATION AS A BUSINESS CHANGE PROCESS According to Laudon and Laudon (1998), today’s business environment has been altered by the three powerful worldwide changes, namely, the emergence of globalisation; the transformation of industrial societies and economies into knowledge and information-based economies; and the transformation of the business enterprise whereby organisations are moving away from a hierarchical, centralised structure to become decentralised. The presence of business legacy within organisations can be identified by examining how they operate in their environment (Kelly et al., 1999). Kelly et al. (1999) refer to the typical components of “business legacy” as the way firms perceive their business, their organisational structure, and the way that they perceive the market within which they operate. Moreover, the business objectives and the organisational strategy can be part of this “business legacy” as well as the way
work is organised such as workflows and business processes (Kelly et al., 1999). In this context, the “business legacy” is embedded in the legacy information systems, and it is the inter-relatedness of business and information systems legacy that makes either business or systems change a very complex process. In this context, Stamati, Kanellis, Stamati, and Martakos (2004) consider the fact that although the legacy migration is being viewed as the replacement of aged or problematic hardware and software, including applications, interfaces, and databases that compose an information system infrastructure, it does not take into account the role of technology today which is not merely supportive but pervades every aspect of the way enterprises conduct their business. Their position is that migration must be implemented as a planned change process that first and foremost requires an understanding of the range of issues and organisational entities involved (Stamati et al., 2004). In this case, the main underlined hypothesis is that migration is a process which entails business change, and it is more than just the movement or reorganisation of database systems, application programs, and program interfaces. The consideration of these physical systems is only the informational view of migration. However, from a business perspective, migration must also account for the broader impact to business change which occurs from the organisational and operational viewpoints.
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The motivation for any migration process is the transition from an initial organisation situation A, which is unsatisfactory in some aspect, to a desired situation B where the problem is treated. Possible causes to such change include perceived opportunities, threats, or strategic decisions, including for example the opportunities offered by new technologies, the treatment of inefficient business processes, the increased customer demands, the globalisation of markets, or the decision to move to a different operating platform (Kavakli & Loucopoulos, 2004). (see Figure 3)
FUTURE TRENDS Recent methodologies consider business requirements as “the process of transforming the need for organisational change into a requirements specification which can then serve as a framework for making the necessary change into the organisational domain” (Pohl, 1996). Considering the aforementioned hypothesis for a migration process, it should be stressed that the actual business structures and practices should be considered as a domain of potential change and new design. Thus, business requirements should be considered as a central part of any migration Figure 3. The Butterfly methodology (Wu et al., 1997)
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activity within a business environment (Kavakli & Loucopoulos, 2004). Migration requires cooperation and understanding between the business management and technology management. Once business management has determined its goals, technology management must seek ways to modify the technology to support these goals. Migration, therefore, should not be an undirected process but a purposive activity driven by organisational change goals. Its effectiveness should depend on being able to make good decisions about what migration goals to pursue, on selecting the appropriate strategies for achieving the desired goals, and on guiding the application of the chosen strategies.
CONCLUSION The concept of migration has shifted in order to include both organisational change as well as change in computer systems that enable such enterprise change. Such a movement has led to the emergence of new definitions that put emphasis on a broader process of migration, and include the cognitive, social, and technical context of migration. These definitions are based on the premise that the replacement of a software system
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in the organisation inevitably brings change in the way work is organised. In a similar manner, any organisational change should be reflected in the software system requirements. Therefore, migration is concerned both with the design and implementation of a new software system and the management of change in the business systems that might be supported by it.
REFERENCES Bateman, A., & Murphy, J. (1994). Migrating of legacy systems. Working Paper CA-2894, School of Computer Applications, Dublin City University. Bennett, K. H. (1995). Legacy systems: Coping with success. IEEE Software, 12(1), 19–23. doi:10.1109/52.363157 Bisbal, J., Lawless, D., Wu, B., & Grimson, J. (1999). Legacy information system migration: A brief review of problems, solutions and research issues. IEEE Software, 16, 103–111. doi:10.1109/52.795108 Brodie, M. L., & Stonebraker, M. (1995). Migrating legacy systems. Morgan Kaufmann Publishers. Connall, D., & Burns, D. (1993). Reverse engineering: Getting a grip on legacy systems. Data Management Review. De Palma, D. A., & Woodring, S. D. (1993). Breaking legacy gridlock. Software Strategies, 4(9), 1–16. Dreyfus, D. (1998). The second wave: Netscape on usability in the services-based internet. IEEE Internet Computing, 2(2). doi:10.1109/4236.670681 Ganti, N., & Brayman, W. (1995). Transition of legacy systems to a distributed architecture. John Wiley & Sons.
Holland, C. P., & Light, B. (1999). Focus issue on legacy information systems and business process change: Introduction. Communications of AIS, 2(9), 98–120. Kavakli, E., & Loucopoulos, P. (2004). Goal modeling in requirements engineering: Analysis and critique of current methods. In J. Krogstie, T. Halpin, & K. Siau (Eds.), Information modelling methods and methodologies (pp. 102-124). Hershey, PA: Idea Group Publishing. Kelly, S., Gibson, N., Holland, C. P., & Light, B. (1999). A business perspective of legacy information systems. Communications of the Association for Information Systems, 2(7). Laudon, K. C., & Laudon, J. P. (1998). Management information systems, new approaches to organisation and technology (5th ed.). New York: Prentice Hall. Light, B., Holland, C., & Gibson, N. (1998). The influence of legacy information systems on business process change strategies. Proceedings of the 4th American Conference on Information Systems Association for Information Systems, 2(1), 527-529. O’ Challaghan, A. J. (1999). Migrating large-scale legacy systems to component-based and object technology: The Evolution of a pattern language. Communications of the Association for Information Systems, 2(3), 104–121. Pohl, K. (1996). Process-centered requirements engineering. Research Studies Press Ltd. Randall, D. (1999). Banking on the old technology: Understanding the organisational context of the “legacy” issues. Communications of the Association for Information Systems, 2(8), 208–221. Slee, C., & Slovin, M. (1997). Legacy asset management. Information Systems Management, 14(1), 12–21. doi:10.1080/10580539708907024
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Sommerville, I. (2001). Software engineering (6th ed.). Pearson Education. Stamati, T., Kanellis, P., Stamati, K., & Martakos, D. (2004) Legacy migration as planned organizational change. Sixth International Conference on Enterprise Information Systems (ICEIS), 3, 501-508. Ulrich, W. (1994). From legacy systems to strategic architectures. Software Engineering Strategies, 2(1), 18–30. Ulrich, W. M. (2002). Legacy systems: Transformation strategies. Prentice Hall PTR. Umar, A. (1997). Application (re)engineering: Building Web-based applications and dealing with legacies. Englewood Cliffs, NJ: Prentice Hall. Wu, B., Lawless, D., Bisbal, J., Grimson, J., Wade, V., O’Sullivan, D., & Richardson, R. (1997). Legacy system migration. Proceedings of the 17th International Database Conference (pp. 129-138). Zou, Y., & Kontogiannis, K. (2002). Migration to object oriented platforms: A state transformation approach. 19th IEEE International Conference on Software Maintenance (ICSM) (pp. 530-539).
KEY TERMS AND DEFINITIONS Component Architecture: A notion in object oriented programming where components of a program are completely generic. Instead of having a specialised set of methods and fields they have generic methods through which the component can advertise the functionality it supports to the system into which it is loaded. Distributed Programming: The kind of programming that supports objects distributed across a network.
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Gateway: A software module that is placed between other software modules. One of its roles for instance, is to simulate the old information system, while it is migrated, so it is still visible to the old user interfaces and application modules. Another role may be the transformation of the target information system in order for it to be visible to the old user interfaces, and the old legacy information system to be visible to the new user interfaces. Mainframe: A machine designed for batch rather than interactive use, though possibly with an interactive time-sharing operating system retrofitted onto it. N-Tier (or Multi-Tier) Architecture: This means splitting a system into more than just a client layer and a database layer. The server in this case refers to a custom written thing. The server then takes care of the business logic, and gets and returns the raw data to one or more database servers. Object-Oriented Programming: The use of a class of programming languages and techniques based on the concept of an object which is a data structure encapsulated with a set of routines, called methods, which operate on the data. Operations on the data can only be performed via the methods, which are common to all objects that are instances of a particular class. Reengineering: The examination and modification of a system to reconstitute it in a new form and the subsequent implementation of the new form. Web Services Definition Language: An XML format for describing network services as a set of endpoints operating on messages containing either document oriented or procedure-oriented information. The operations and messages are described abstractly and then bound to a concrete network protocol and message format to define an endpoint. Related concrete endpoints are combined into abstract endpoints (services).
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ENDNOTE 1
S1: analyse the legacy information system, S2: decompose the legacy information system structure, S3: design the target interfaces, S4: design the target applications, S5: design
the target database, S6: install the target environment, S7: create and install the necessary gateways, S8: migrate the legacy database, S9: migrate the legacy applications, S10: migrate the legacy interfaces, S11: cut over to the target information system.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 2551-2556, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Policy Technologies for Security Management in Coalition Networks Seraphin B. Calo IBM Research, USA
Emil Lupu Imperial College, UK
Clare-Marie Karat IBM Research, USA
Jiefei Ma Imperial College, UK
John Karat IBM Research, USA
Alessandra Russo Imperial College, UK
Jorge Lobo IBM Research, USA
Morris Sloman Imperial College, UK
Robert Craven Imperial College, UK
Arosha Bandara The Open University, UK
ABSTRACT The goal of policy-based security management is to enable military personnel to specify security requirements in terms of simple, intuitive goals. These goals are translated into the concrete system settings in a way that the system behaves in a consistent and desirable way. This technology minimizes the technical expertise required by military personnel and automates security management while allowing a high level control by DOI: 10.4018/978-1-60960-587-2.ch316
the human in the loop. This chapter describes a framework for managing security policies, and an overview of two prototypes that simplify different aspects of policy management in the context of coalition operations.
INTRODUCTION Secure, reliable and adaptable communications is needed to support dynamic mission-based coalitions of partners from different military and
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Policy Technologies for Security Management in Coalition Networks
non-military organizations. If sensitive information is communicated to the wrong person/device, it could cost the lives of the personnel involved in the mission. Likewise, if necessary information is not communicated and shared with the right people, it could also lead to loss of lives. Policy-based security management should enable military personnel to specify security requirements in terms of simple, intuitive goals that are translated into the concrete system settings in such a way that the system behaves in a consistent and desirable way. The objective is to minimize the technical expertise required by military personnel, and to automate policy management as far as possible. This is dependent on being able to specify and analyze policies to ensure that they prescribe correct and desirable behavior. For example, inconsistencies should not arise because the available communication devices cannot support the specified policies. We assume that military personnel specify goals using a structured natural language aimed at non-technical people. Goals are automatically translated into a formal, logic-based abstract language for refinement and analysis. Our past experience has indicated that logic languages, while good for reasoning, are not amenable to efficient implementation, particularly on small hand-held devices. Thus abstract policies must be translated into concrete implementable policies described in languages such as Ponder2 (Twidle et al, 2008), XACML (OASIS XACML TC, 2005), or CIM-SPL (Agrawal et al, 2007). We start with the presentation of a policy-based security management framework for complex, dynamic, ad hoc systems. This provides the platform supporting mechanisms for adapting system behaviors to meet high-level user-specified security policies through the enforcement of low-level controls in coalition networks. To accomplish this, end-to-end policy mechanisms are described that capture the security requirements of the system, transform them into constraints on the system resources and executable policies, which are then disseminated to and executed upon the appropriate
distributed entities within the coalition network. Yet without analysis much of the benefit of using policy-based techniques and declarative policy languages may be lost. Arguably, the lack of effective analysis tools accounts in part for the lack of wider adoption of policy-based techniques. In order to perform analysis, policies must be expressed unambiguously in a manner that captures their semantic meaning. We describe an approach based upon a logical construct for the specification and analysis of security policies. This construct is developed over a very expressive policy language that may be used to represent policies and systems at many different levels of abstraction and stages during the refinement process. In order to bring together and demonstrate the various policy technologies for security management, two concept prototypes are discussed. These served to integrate some capabilities and provided an end-to-end view of the policy lifecycle for coalition systems. They were based on user scenarios. The purpose of a user scenario is to provide sufficient context about a problem-space being investigated so that researchers can identify the scientific, technical, and feasibility questions they must address in the research. A user scenario can be a valuable research and design tool for scientists to employ to understand the trade-offs about different options in the context of the targeted end user. Details of these prototype demonstrations are presented, as are a number of research questions that arose during their development.
FRAMEWORK FOR SECURITY POLICIES Our framework for policy analysis and refinement captures policies at various levels of abstraction (or layers), which identify the key stages in the process of refining policies from goals to implementations. The layered architecture is useful in identifying the architectural elements, software components, and system models that are needed
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to support the refinement and analysis processes, and to facilitate the management of policies. In this section we describe and illustrate the framework, identifying the levels comprising it and the services that we expect to be able to perform at each level.
DESCRIPTION OF THE LAYERS We can identify four key stages, or layers, in the process of refining policies: Specification, Abstract, Concrete, and Executable. Policies are defined with respect to a system model, which is a formal representation (or description) of the system within which the policies are enforced. Given that policies exist at multiple levels of abstraction, it is natural that each layer of policy specification should exist in the context of system models at that layer. These models are elaborated at the appropriate level of abstraction, so that they become more detailed at the lower layers (Figure 1). Policy Specification Layer. This is the most abstract level of policy specification; it is at this layer that we would expect the military user to have the most interaction. Typically, the military Figure 1. Description of layers
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user would define the mission security goals, in some intuitive format at this layer. We would not expect policies specified at this layer to make any reference to security mechanisms, or any other concrete system features. However, it should still be possible to assign formal semantics to the specified policies. The system model at this layer should only refer to high-level operations and services which are meaningful to a nontechnical military user. Policies defined at this level can be referred to simply as security goals, or end-user goals. These policies must be interpreted in context. Ontologies are being developed for capturing the semantics of the battle space. These can be used in establishing semantics for transforming the policies at the specification layer into the abstract policies described below. The sets of information relating the various aspects of the military environment, including policies, constitute a semantic backplane. This consists of the set of concepts and relationships that are used by the military in carrying out coalition missions. Abstract Policies. To implement a policy we need candidates for the system entities and actions that will be used to enforce the policy. The
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abstract policy models are possible refinements of the end-user goals but enriched with suitable information about candidates for implementation. Descriptions of these candidates will, of course, reside in the system models. Note that there may be multiple abstract policies with respect to corresponding system models in support of a single security goal. Concrete Policies. Inherent in the notion of refinement is the resolution of choices. The abstract policies capture the range of choices that may be available in implementing an end-user goal. These are refined to concrete policies when the candidates from the abstract layer have been restricted to singletons. The system model at this layer refers directly to objects and services which are to be found in the target system. The system model at this layer may also include classes of user, types of risk, and so forth. Executable Policies. This layer contains the policies which will actually be deployed. It may further refine the policies from the concrete layer by setting low level system parameters, expressing policies in a format so that they can be used conveniently by mechanisms in the system. As an example of the refinement process, we consider policies for Intelligence, Surveillance, and Reconnaissance (ISR) assets being used in a coalition operation. One high level goal defined at the specification layer can lead to a number of policies at the lower layers. •
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Policy Goal: ◦⊦ High quality sensor information is reserved for US use only Abstract Policies: ◦⊦ For coalition members, video sensor output will be degraded to reduce image resolution. ◦⊦ For coalition members, location sensor output will be degraded so that coordinates only identify a proximity region.
•
Concrete Policies: ◦⊦ If a UK control asset requests an image from a US camera then it will be set to a resolution of.8 times its native resolution ◦⊦ If a UK control asset requests the location of a US asset then the GPS data will be transformed into data identifying a region of 10 square meters
The executable policies would be in whatever form is required by the mechanisms in the system that would enforce them. They would identify specific assets with specific characteristics.
DESCRIPTION OF THE FUNCTIONALITY AT EACH LAYER The layers are intended as a means of identifying key milestones in the refinement process; but, in addition, they also underpin effective solutions to the broader challenges of policy management. For instance, policy analysis is a crucial part of policy management, and, as a rule, it highly desirable to analyze policies at as high a level of abstraction as possible, because abstract policies are simpler and therefore more tractable. Furthermore, should a given type of analysis detect a violation, then it is easier to remedy that violation at a more abstract level, than at a more concrete level. For example, the conflict detection problem is more tractable for abstract policies, and should two policies be found to conflict, the remedy for the conflict is easier to identify and implement when the policies are more abstract. There are various policy management services which are expected to be supported by the layers; and, in general, implementing these services will require interaction between the layers. The services, and their interactions, are as follows:
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Policy Specification Layer 1. Policy authoring 2. Translating/mapping policies into formal semantics. 3. Basic analysis: tools such as model-checkers or logic programs can be adapted to analyze security goals in the goal specification language for detection of conflict and other policy properties. In addition it may be possible, using the semantics developed, to analyze sets of end-user goals for coverage – in other words does this set of end-user goals capture the complete range of security variables that need to be controlled. 4. Conflict resolution: if conflicts can be identified, it may also be possible to perform conflict resolution.
Abstract Policies 1. The information added at this layer should enable substantial conflict (and inconsistency) detection services to be provided. There are interesting problems arising from attempting to check a policy that is being refined, and so is rather abstract, against one that is executable and so rather concrete. 2. Conflict resolution is the complementary service to conflict detection, but it may be necessary to coordinate conflict resolution with the layer above. In other words, for some conflicts it may make more sense for the resolution to be provided by the specification layer. 3. It may be necessary to perform coverage analysis at this layer as well. In general it is desirable to perform as much coverage analysis at the specification layer as possible; however, the layers below this layer may yield negative results about validity, which may obligate modification of policies at this layer (or above), and that in turn may require coverage checking at this layer.
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4. Incorporating user preferences or accommodating risk-based decisions from the user would happen at this level. While the ultimate objective is that polices are managed automatically (and specifically their refinement is automatic), in reality full automation is probably not possible. The compromise to is to provide users with an interface to the refinement (and management) services; this will allow users to insert their preferences (either preemptively or on-demand), and it will also be the means for enabling users to make risk-based policy decisions. 5. Mappings to and from the formal semantics are likely to be necessary here.
Concrete Policies 1. While we would hope that most conflict detection is done above this layer, so that the concrete policies derived here are known to be conflict free, it may be necessary for some types of conflict and inconsistency detection to be done here. 2. Validity checking is done most naturally at this layer, since we expect the system model at this layer to refer directly to objects in the system. 3. Compliance checking is done either at this layer, or the layer below. 4. Refinement checking. We would hope that the policies generated would, by construction, be a correct refinement of the security goals. However, in practice there may be changes to policies, or violations of policies, at runtime (it is most likely that manual override must be permitted). In this case it makes sense to be able to check that modified policies, or indeed, system behavior, still constitutes a refinement of the original security goal. 5. Mapping to and from the formal semantics is a basic service, required here as well, especially to support refinement checking.
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Executable Policies 1. 2. 3. 4.
Validity checking. Compliance checking. Refinement checking. Mapping to and from the semantics; we would expect that at this layer the results of the refinement algorithms, which operate on the formal semantics, are translated into executable policies; however, it may also be necessary to be able to map from the policies back to the formal semantics in order to perform the indicated analyses.
As indicated in the above, various forms of analysis must be performed at each of the refinement layers. The ability to carry out the required analyses is thus a basic consideration in the management of policies within the system. An in depth discussion of analysis mechanisms and the underlying policy representations that are required to support them is undertaken in the next section.
ABSTRACT POLICIES AND POLICY ANALYSIS The selection of an abstract policy language will determine the quality and scope possible during analysis. The goal is to be able to have an expressive abstract language that captures the intuitive understanding of security descriptions expected by the end user and at the same time a language that is amenable to efficient implementations. Hence, we need to balance expressiveness with efficiency of policy evaluation. We also need a powerful analysis component. In this section we describe a formal framework for representing and analyzing authorization and obligation policies. Policies are represented in an expressive logical language, which can capture complex dependencies amongst policy rules. These policy rules are then joined to a specification of the behavior of the system which the policies regulate, and many
different types of analysis and verification may then be performed on the joint system. We have designed an abstract language which we hope to be expressive enough that policies written in many different formalisms (such as Ponder2 (Twidle et al, 2008), XACML (OASIS XACML TC, 2005), or Cassandra (Becker & Sewell, 2004)) can be translated into it, where they can then be analyzed for the presence of modality conflicts, coverage gaps, and other properties. A crucial component of our framework is the representation of dynamic system behavior. Policies have constraints on their applicability that often depend on the local system state. Therefore, a model of the system is required as a component of an analysis framework, both in order to determine whether policies conflict, and to be able to analyze a given set of policies for properties that the system would satisfy when they are enforced. An analysis framework should also represent policies and the systems they regulate in a separable way, so that the behavior of a policy on different systems, and the implementation of different policies in the same system, can easily be studied. The properties for which we can perform analyses include both foundational, policy focused principles, and also application specific features, dependent on the particular system to which the policy applies and its structure. Specifically (though not exhaustively) these include: •
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Modality conflicts, such as the joint authorization and denial to perform some action, or the presence of an obligation to act without the permissions necessary for its fulfillment. Separation of duty clashes, including static separation of duty, dynamic, and many other classes (see (Simon & Zurko, 1997) for terminology and instances). Coverage gaps, where no policy exists to dictate what the correct response to a request should be.
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•
•
Policy comparison, including the question of whether two policies are equivalent or one is contained in the other. Behavioral simulation, where specific sequences of requests and events in the policy regulated system are entered, to see the policy decisions that would arise during in the actual system.
LANGUAGE Our operational model broadly follows the architecture and principles of operation of XACML (OASIS XACML TC, 2005), PolicyMaker, and KeyNote (Blaze et al, 1999). There is a policy component, consisting of policy decision and enforcement points (PDP/PEP), and the system to which policies refer and which they modify. The PDP has access to a policy repository. Authorization decisions are made in response to requests for a subject to perform an action on a target, using the policies, and these decisions are then enforced by the PEP. The PDP also monitors whether obligations of subjects to perform actions have been met or not. We distinguish between regulatory predicates, used to describe the state of the PDP/PEP, and non-regulatory predicates that express the state of the policy-governed system. Regulatory predicates are subdivided into input regulatory, state regulatory, and output regulatory; similarly, for nonregulatory predicates. In general, a system moves between states depending on the occurrences of actions and events. Non-regulatory state predicates represent properties of states, and non-regulatory event predicates describe the occurrence of events. (The need for event predicates arises because, in general, not all occurrences which modify the state of a system are controllable by the policy mechanism.) We use many-sorted first-order predicate logic as our base language, and clearly distinguish the policy representation language from the domain
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description language. This allows us to detach policy representations from system representations, and compare the implementation of a policy in different systems. The policy representation language, Lπ, includes at least the sorts Subject, Target, Action, the sets of subjects, targets and actions, respectively, and the sort Time, given as R+, the set of non-negative Real numbers, with constants including numerical constant symbols (0, 1,...) and variables such as T, with super- and subscripts as needed. Standard arithmetical functions (+, −, /, ∗) and relations (=, =, <, etc.) are presumed. Variables which range over Subject, Target, Action are usually, respectively Sub, Tar, Act, again possibly with subscripts or superscripts. We insist on the possibility of representing the revocation of obligations, so that for all Sub, Tar, Act = revoke(· · ·) and Ts, Te, revoke(Sub, Tar, Act, Ts, Te) ∈ Action. The predicates of Lπ are as defined in Table 1. For a formal definition of the language the reader is referred to (Craven et al 2009). The predicates permitted, and denied are selfexplanatory. A particular instance req(sub, tar, act, t) means that a request for sub to perform act on tar is made at time t. Two instances obl(sub, tar, act, ts, te, t) and fulfilled(sub, tar, act, ts, te, t) (resp. violated(sub, tar, act, ts, te, t)), denote that at time t, sub is placed under an obligation to perform act on tar between ts and te, and that the obligation with these parameters has been fulfilled (resp. violated). Finally, an instance cease_obl(sub, tar, act, tinit, ts, te, t) is true at time t, if an obligation initially contracted by sub at tinit to perform act on tar between ts and te is no longer binding. The language Lπ also includes an auxiliary predicate reqInBetween, whose instance reqInBetween(sub, tar, act, t0, t) represents that there is a request for sub to perform act on tar, at some time between t0 and t. The domain description language, LD = LDEC ∪ LDstat, is used to represent both changing and unchanging properties of the system being regulated by the policy, the changes occurring both as
Policy Technologies for Security Management in Coalition Networks
Table 1. Policy analysis language Lπ: the predicates Input regulatory req(Sub, Tar, Act, T)
State regulatory
Output regulatory
permitted(Sub, Tar, Act, T)
do(Sub, Tar, Act, T)
denied(Sub, Tar, Act, T) obl(Sub, Tar, Act, Ts, Te, T)
deny(Sub, Tar, Act,T)
fulfilled(Sub, Tar, Act, Ts, Te, T) violated(Sub, Tar, Act, Ts, Te, T) cease obl(Sub, Tar, Act, Tinit, Ts, Te, T)
The predicates of LDEC which model changing actions of the system and stem from the EC, are given in Table 2; the predicates of LDstat, representing unchanging properties of systems, are user-defined. For a formal definition of LD the reader is referred to (Craven et al, 2009). The policy analysis language L = Lπ ∪ LD, is the union of the policy representation and domain description languages, with the sort Occurrence given by the terms Sub:Tar:Act for every Sub ∈ Subject, Tar ∈ Target, and Act ∈ Action.
AUTHORIZATIONS a consequence of actions authorized and enforced by the PDP and PEP, and also as a result of events which are not under policy control. We use the Event Calculus (EC) (Kowalski & Sergot, 1986) to model this dynamicity in our domains. The language includes sorts Fluent (for representing dynamic features of states), Event (for system events not regulated by policies), Occurrence (for representing system events which are regulated by policies) and Time (as before).
Table 2. Domain description language LD: the predicates Event Calculus predicates initially(F)
State property F holds at time 0.
holdsAt(F, T)
State property F holds at time T
happens(E, T)
Event E occurs at time T.
broken(F, T1, T2)
State property F ceased to hold at some time between T1 and T2.
initiates(E, F, T)
At time T, the occurrence of an event E would cause F to begin to hold.
initiates(Occ, F, T)
At time T, the occurrence of an action Occ regulated by PDP would cause F to begin to hold.
terminates(E, F, T)
At any T, an event E would cause F cease. terminates(Occ, F, T) At any T, action Occ regulated by PDP would cause F to cease holding.
We first define time constraints, and then the structure of authorization rules. Definition 1. A time constraint C is an expression of the form τ1 ρ τ2, where each τi is a constant or variable of type Time, or an arithmetic linear expression built using +, −, /, ∗, Time constants and variables, and where ρ is one of =. ≠, ≤, <, ≥, > Definition 2. An authorization rule is a formula: [permitted/denied](Sub, Tar, Act, T) ← L1,..., Lm, C1,..., Cn. 1. Li are atoms or atoms preceded by the negation-by-failure not, taken from the policy language, the domain language or hodslAt, happens, broken; the Ci are time constraints; 2. any variable appearing in a time constraint must also appear somewhere other than in a time constraint; 3. Sub, Tar, Act, T are terms of type Subject, Target, Action and Time respectively; 4. for the time argument Ti of each Li not in LDstat, we must have C1 ∧ · · · ∧ Cn |= Ti ≤ T; if C1 ∧ · · · ∧ Cn|= Ti = T then the Li must not be a regulatory output predicate; if it is from the EC language it should be holdsAt or broken.
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Where such a rule has permitted in the head, it is a positive authorization rule; otherwise, it is known as a negative authorization rule. (Additional constraints of local stratification will be imposed later.) Condition 1, on the predicates which may appear in the body of our authorization policy rules, excludes the initiates and terminates predicates which are used to express the laws of system evolution. Condition 4, on the time arguments of our predicates, is imposed to ensure that authorization does not depend on ‘future’ properties. Example 1. “Alice may delete classified data files from her device if she sends a notification to the supplier of the data 10 minutes in advance, and the supplier does not respond to the notification asking Alice to retain the file.” We represent this as follows: permitted(alice, device, delete(F), T) ← holdsAt(fileDesc(S, F, class), Tn), do(alice, S, notify(delete(F)), Tn), T = Tn + 10, not reqInBetween(S, F, retain(F), Tn, T). The predicate reqInBetween is related to the operator Since of temporal logics (Goldblatt, 1992); the utility of having such a predicate has been demonstrated to us repeatedly in many formalizations of policy rules. To capture its semantics, the following rule is always included in our framework: reqInBetween(Sub, Tar, Act, T’, T) ← req(Sub, Tar, Act, Tr), T’ ≤ Tr ≤ T. An instance reqInBetween(Sub, Tar, Act, 0, T) means that a request (with the relevant parameters) was made at some time before T ; this is related to the modal temporal operator expressing that a property held at some previous time. When gathering together authorization rules to form an authorization policy, it is normal to include a number of other, more general rules. Some of these are used to specify the behavior of
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the PEP in response to the PDP—such as whether a request to perform an action is accepted (and the action performed) by default if there is no explicit permission in the policy rules; or whether explicit permission is required; what the behavior is in the presence or absence of a policy rule stating that the request is to be denied, and so on. We see it as a virtue of our framework for policy analysis that many different rules which embody the action of the PEP can be represented, and that no one approach is fixed as part of the formalism. This flexibility is crucial if we need to cover the behavior of many policy systems in heterogeneous environments. Consider the three example availability rules in Table 3. The basic availability rule is more stringent: according to it, an action is enforced by the PEP only when it has been positively permitted by the PDP—similar to (Loscocco & Smalley, 2001). The positive availability rule is less strict: it enforces the performance of an action as long as that action has not been expressly denied by the policy rules. The negative availability rule describes one possible response to the denial of a request for action; we imagine that the main function of the regulatory output predicate deny will be for auditing purposes, for instance to record when an action which was denied had to be overridden and permitted in an emergency. Definition 3. A policy regulation rule has one of the predicates do or deny in the head and a body as in Definition 2.
Table 3. Default availability rules do(Sub, Tar, Act, T) ← req(Sub, Tar, Act, T), permitted(Sub, Tar, Act, T).
Basic availability
do(Sub, Tar, Act, T) ← req(Sub, Tar, Act, T), not denied(Sub, Tar, Act, T).
Positive availability
deny(Sub, Tar, Act, T) ← req(Sub, Tar, Act, T), denied(Sub, Tar, Act, T).
Negative availability
Policy Technologies for Security Management in Coalition Networks
Many more policy regulation rules are possible than those given as examples in Table 3; all are optional inclusions in an authorization policy. Definition 4. An authorization policy is a set Π of authorization rules, together with the req-inbetween rule, and a set of policy regulation rules, such that Π is locally stratified. Notice that it is possible to add general authorization rules to a policy, enabling a representation of very fine-grained defaults controlling responses to requests. For example, if a user belongs to the root system group, one may want to permit all the actions of that user by default, unless they are explicitly denied:
where the conditions 1–4 as for Definition 2 hold, with the addition that Ts and Te should be variables of type Time. (That ts < te is not syntactically required, but sensible, obligation policy rules will always include constraints which make this true.) Two domain-independent rules accompany the obligation rules, defining the fulfillment and the violation of an obligation:
permitted(Sub, Tar, Act, T) ← group(Sub, root), not denied(Sub, Tar, Act, T).
fulfilled(Sub, Tar, Act, Ts, Te, T) ← obl(Sub, Tar, Act, Ts, Te, Tinit), do(Sub, Tar, Act, T’), not cease_obl(Sub, Tar, Act, Tinit, Ts, Te, T’), Tinit ≤ Ts ≤ T’ < Te, T’ < T. violated(Sub, Tar, Act, Ts, Te, T) ← obl(Sub, Tar, Act, Ts, Te, Tinit), not cease_obl(Sub, Tar, Act, Tinit, Ts, Te, Te), Tinit ≤ Ts < Te ≤ T.
A set of rules is locally stratified if in the set of all ground instances of the rules (i.e., where all variables are replaced by all their possible values) there is no head of a rule that depends directly or indirectly on the negation of itself. Testing for local stratification is computationally hard but large classes of rules can be identified easily based on the time index (Nomikos et al, 2005).
An obligation is fulfilled when the action a subject has been obliged to perform is executed (notice that the do in the body of the rule here means that the execution of such an action must first be authorized by the system). An obligation is violated when no such action occurs. The rules for fulfilled and violated use cease obl as a subsidiary predicate, defined by the following rules:
OBLIGATIONS The obligations we represent are on a subject to perform an action on a target, a class which includes a large number of practical obligation policies (Irwin et al, 2006). As in most deontic logics, obligations may be fulfilled or not, allowing us to represent the behavior of systems of which humans are a part. Our approach to modeling obligations is similar to (Irwin et al, 2006). Definition 5. An obligation policy rule is a formula obl(Sub, Tar, Act, Ts, Te, T) ← L1,..., Lm, C1,..., Cn.
cease_obl(Sub, Tar, Act, Tinit, Ts, Te, T) ← do(Sub, Tar, Act, T’), Ts ≤ T’ < T ≤ Te. cease_obl(Sub, Tar, Act, Tinit, Ts, Te, T) ← do(Sub0, Sub, revoke(Sub, Tar, Act, Ts, Te), T’), Tinit ≤ T’ < T ≤ Te. cease_obl is a state regulatory predicate used to mark the fact that something has occurred which would cause an obligation to cease. This can happen if the obligation is fulfilled or revoked; there are therefore two clauses defining cease obl. The cease_obl rule for revocation makes use of the revoke members of the sort Action, introduced in Section 3; revocation occurs when the PDP has authorized the request for a revocation action. The subject requesting a revocation might be the one bound by the obligation, a central administrator
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in the system, or an entirely different agent. The parameters of the revoke argument identify the obligation to be revoked. Example 2. “A connecting node must reindentify itself within five minutes of establishing a connection to the server; otherwise the server must drop the connection within one second.” There are two obligations in this example, one for the node making the connection and the second for the system dropping the node making the connection if the node does not fulfill its obligation. A formalization of the obligations looks as follows: obl(U, serv, sub2ID(U, serv), T +0.1, T +300, T +0.1) ← holdsAt(node(U), T), do(U, serv, connect(U, serv), T). obl(serv, serv, disconnect(U, serv), Te, Te +1, Te) ← violated(U, serv, sub2ID(U, serv), Ts, Te, Te). The EC predicate holdsAt is used to represent dynamic properties of the system: in this case, which nodes are registered. The obligation begins just after the server connects to the node—in the rule, we have assumed there is a delay of 0.1 seconds, but in practice this interval can be made as small as possible without being equal to zero, reflecting the limitations of the system clock. Definition 6. An obligation policy Π is a set of obligation rules, with the ‘fulfillment’, ‘violation’ and ‘cease_obl’ rules, such that Π is locally stratified. Definition 7. A security policy Π = Πa ∪ Πo is any union of an authorization policy Πa and an obligation policy Πo.
event, and terminates which properties become false. These predicates are defined with rules similar to policies: initiates(X, F, T) ← L1,..., Lm, C1,..., Cn. terminates(X, F, T) ← L1,..., Lm, C1,..., Cn. with the limitation that the Ls in these rules are holdsAt or static predicates. These rules, combined with the axioms in Table 4 show how initiates and terminates affect the holdsAt predicate. Consider the following set of axioms partially describing the RBAC model. We can represent user-to-role assignments with fluent hasRole(Subject, Role), and the permission-torole assignments with the fluent hasPerm(Role, Resource, Action). Adding and removing users to and from roles can be modeled in EC with the axioms: initiates(S:R:assignUser(U), hasUser(R,U), T). terminates(S:R:unassignUser(U), hasUser(R,U), T). Similarly we need axioms for adding or removing permissions from or to roles: initiates(S:R:assignPerm(Res,A), hasPerm(R,Res,A), T). terminates(S:R:unassignPerm(Res,A), hasPerm(R,Res,A), T).
Table 4. Event calculus core axioms holdsAt(F, T) ← initially(F), not broken(F, 0, T). (1)
SYSTEM DESCRIPTIONS
holdsAt(F, T) ← initiates(Sub:Tar:Act, F, Ts), Ts < T, do(Sub, Tar, Act, Ts), not broken(F, Ts, T). (2)
We use the Event Calculus (EC) to model the systems regulated by the policies. In the EC, effects of events are defined by two predicates, initiates and terminates. Initiates describes which state properties become true by the occurrence of an
holdsAt(F, T) ← initiates(Event, F, Ts), Ts < T, happens(Event, Ts), not broken(F, Ts, T). (3)
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broken(F, Ts, T) ← terminates(Sub:Tar:Act, F, T 0), do(Sub, Tar, Act, T 0), Ts < T 0 < T. (4) broken(F, Ts, T) ← terminates(Event, F, T 0), happens(Event, T ), Ts < T 0 < T. (5)
0
Policy Technologies for Security Management in Coalition Networks
The access control can be express by the following policy: permitted(Sub, Resource, Act, T) ← holdsAt(hasRole(Sub,Role), T), holdsAt(hasPerm(Role, Resource, Act), T). Simple static separation of duty of two roles, inspector and support staff can be modeled with rules: denied(Admin, inspector,assignUser(U), T) ← holdsAt(hasRole(U,support_staff), T). denied(Admin,support_staff,assignUser(U), T) ← holdsAt(hasRole(U,inspector), T).
ANALYSIS The task of analyzing a domain-constrained policy P = Π ∪D to see, for instance, whether there are no modality conflicts (e.g. permits and denials over the same resource, or obligations over resources for which a subject has no authorizations), can be converted into the task of seeing whether (stable) models of the domain- constrained policy verify a number of properties. For instance, we may wish to prove: ∀T (¬(permitted(sub, tar, act, T) ∧ denied(sub, tar, act, T))) for ground terms sub, tar, act. If this property is provable, then all well and good. If not, then we wish to have diagnostic information about the circumstances in which it fails to be true. Checking whether the system verifies this property converts into the task of checking whether there are inputs ∆D and ∆π (as described in Section 4.5) such that the property is not true, i.e., whether model(P ∪ ∆D ∪ ∆π) |= ∃T (permitted(sub, tar, act, T) ∧ denied(sub, tar, act, T))
This is equivalent to showing that the previous formula is false, and can be solved using Abductive Logic Programming (with constraints—ACLP), which computes the sets ∆D and ∆π. The output to the algorithm will be these sets together with a number of constraints (expressed as equalities and inequalities) on the possible values of the timearguments appearing in the answers. We currently use an abductive constraint logic programming proof procedure based on that found in (Kakas et al, 2000) to implement our system. (For the details of the algorithm, see (Craven et al, 2009).) Following the same schema, we can define formulas to check for other properties. For example, violations of dynamic SoD can be checked with: model(P ∪ ∆D ∪ ∆π) |= ∃T (permitted(sub, roles, activate(role a), T) ∧ permitted(sub, roles, activate(role b), T)
Also, coverage analysis can be performed using: model(P ∪ ∆D ∪ ∆π) |= ∃Sub, Tar, Act, T (req(Sub, Tar, Act, T) ∧ ¬permitted(Sub, Tar, Act, T) ∧ ¬denied(Sub, Tar, Act, T))
This query will find instances of requests for which there is no associated permission or denial according to the authorization rules of the policy. Other properties can be handled in similar ways. The above treatment of policy representation and analysis has been somewhat detailed because we need mathematical precision in order to be able to analyze and refine policies while maintaining their semantic meanings. The manners in which analysis will be incorporated in the overall flow of a policy management system was investigated in two prototypes that will be described in the next section.
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THE END-USER VIEW OF POLICY MANAGEMENT As a means of demonstrating technologies for adapting system behaviors to meet high-level user-specified security and networking goals in a coalition environment, two scenario-driven, conceptual prototypes are described which were developed to investigate different areas of the policy management space. Such scenario-based prototypes are seen as critical artifacts in fundamental human-computer interaction (HCI) research (Carroll, 1995). The goal of the policy research is an easy to use, end-to-end policy management environment that enables security requirements of the system to be authored as a set of policies. The authoring capability would be supported by methods for analysis and visualization of the policies to help identify and resolve potential issues, transformation of these policies into constraints on the system resources, and execution of appropriate actions that enforce these policies when deployed over wireless networking systems. There are many research challenges that must be addressed to realize such a vision, and the implementation of specific instances of a policy management system allows us to explore the range of such issues. The scenario-based, proof-of-concept prototypes described served as a means of exploring both the kinds of capabilities necessary and the value different capabilities contribute towards achievement of the research goal. Scenario-based HCI research is conducted to identify the key users, tasks, and contexts of use, and the associated key functionality required in a system or tool for users to achieve defined task goals (Carroll, 1995; Karat, 1991). To design a usable system, it must first be understood who the target users of the system are and their user roles, as well as key characteristics of these users that pertain to the tasks to be completed in the context of use (Jacko and Sears, 2008). User characteristics might include education, skills, and experience;
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language and culture; and physical abilities (ability to see and hear, use arms and hands or voice to interact with the tool). The context of use is a critical component to being able to design a usable system. Understanding whether a technological capability must be rugged and extremely simple and reliable for users to work with silently in extreme temperatures outdoors both in sunlight and in complete darkness, as opposed to a typical office situation, identifies key requirements for the design of a usable system. Focus on the context of use improves the probability of success in designing usable technology for the demands of the situation. These three factors together – the target users, their core tasks, and the context in which the tasks will be completed – provide the requirements that must be addressed in the creation of usable new technology.
INITIAL SECURITY POLICY PROOFOF-CONCEPT PROTOTYPE This scenario (Brodie et al., 2008) framed both user and system requirements, and was an extension of a high-level hostage rescue scenario used across the ITA project to guide the fundamental research efforts (Roberts, Locke, and Verma, 2007). Target user/resource attributes, critical policy-related tasks, and some contextual information about fictitious security level variables were employed to highlight some of the concepts in the prototype. Four different user roles were identified as necessary for the scenario: • • • •
Mission administrator U.S. policy administrator U.K. policy administrator Security administrator
The scenario highlights the following core user tasks employing proposed policy management capability:
Policy Technologies for Security Management in Coalition Networks
•
• • • •
Authoring and updating of policies for U.S. personnel and equipment, U.K. personnel and equipment, and the rescue mission Viewing the policy set Analysis of the policies and resolution of the issues identified Transformation of policies as appropriate Deployment of the policies
A set of fictitious security levels and three fictitious encryption algorithms for coalition equipment were created and used in the policies in the prototype. The following section provides a condensed view of the scenario and discusses how the prototype explored the user and system requirements.
BACKGROUND ON THE SCENARIO In the scenario, coalition groups from different countries prepare to rescue humanitarian aid workers who have been kidnapped in a fictitious country. Media reports have been received that indicate 4 aid workers have been kidnapped by insurgents in the capital city of Malekabad in Holistan. Early reports state that the four hostages were taken from the offices of the International Commission of the Red Cross (ICRC) and from Medicines Sans Frontieres. During the kidnapping, one Holistani national was killed and two wounded. It is believed that the four hostages are comprised of three men and one woman and their nationalities are Holistani, Italian, French and American. Unconfirmed reports have said that a statement has been received from an insurgent group with demands for the release of the hostages. It is not known if there is a timescale linked with those demands. The Joint Coalition/Holistani Commanders, with the support of the coalition intelligence community, direct that a hostage release operation be mounted immediately.
The Commanders intent for the mission is “To mount a hostage release operation in order to rescue the hostages, with minimum loss of life.” The coalition forces assign the task of preparing the security policy aspects of the rescue mission to a mission administrator who works for the mission commander. This mission administrator will coordinate with the U.S. policy administrator, the U.K. policy administrator, and a security administrator as necessary to complete the security tasks related to the rescue mission. This team will work with the three existing security levels of the coalition equipment. Currently, the top secret security level is handled with 256 bit encryption, the secret security level works with 128 bit encryption, and the public–no confidentiality level of security has no encryption. All laptops support all levels of encryption. There are three classes of PDA’s: Class 1 supports all levels of encryption, Class 2 supports levels 2 and 3, and Class 3 has only password authentication. Also, three high-level abstractions (Alpha, Bravo, Charlie) are employed for the three encryption algorithms (Blowfish, RC4, and DES3) respectively to be used in the mission. A meta-policy based transformation prior to policy deployment aligns them as follows: Alpha is Blowfish, Bravo is RC4, and Charlie is DES3.
DESIGN OF THE SECURITY POLICY PROTOTYPE The overall view of the capability illustrated by the security policy prototype is as follows. The mission policies are written in natural language using the SPARCLE Policy Workbench technology (Karat, Karat, Brodie, and Feng, 2005; Karat, Karat, Brodie, and Feng, 2006). The policies that are relevant to the mission are transformed into machine readable code by SPARCLE and then analyzed using policy analytics for possible issues of conflict, dominance, and coverage (Agrawal, Giles, Lee, Lobo, 2005).
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Once issues have been resolved, the policies are transformed to add lower level details and are deployed on the rescue mission equipment. Figure 2 provides an overview of the prototype architecture. The different aspects of the prototype are discussed in more detail below. The prototype was conceived as a web-based portal. The portal provided users access to a server-centric functionality described in the remaining sections via customizable, coordinated, robust window-like dialogs. Policy authoring, analysis, viewing, transformation and deployment were all available as windowed panes within the portal that were presented to users as a set of logical steps to complete tasks. Any web-capable client could be used for the portal. In the scenario, the assumption is that both the U.S. and the U.K. have their own policies, and a set of policies must be developed for the coalition mission. The US mission administrator needs to log in and then use the policy authoring tool to view the existing US and UK policy sets prior to updating the rescue mission policy set. He coordinates with the U.S. and U.K. policy administrators in updating the rescue mission policy set. He does this using the SPARCLE
Figure 2. Components of the security policy proofof-concept prototype
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Policy Workbench which provided the authoring capabilities within the portal. SPARCLE enables users to author policies in natural language. Figure 3 below provides a screen shot of policy authoring in natural language using a guide. The main text window on the screen is basically a word processing application. Each policy statement is created as a sentence following the guide above the text entry area. Each carriage return identifies a new policy statement. Once the author has completed policy authoring, he clicks on a button and the tool then parses the policy statements using natural language parsing technologies, and the reconstructed policy statements are provided in another window for the author to review. A second window, besides allowing the author to review and update policies already created through guided natural language authoring, also provides a second method for authoring policies called structured format. This method is illustrated by a screen shot in Figure 4 below. Each of the elements in the policy format has a structured list. The author can select one or more items in each list, and the tool composes the policy sentence based on these selections. An author can compose a group of policy statements in either method, and the tool keeps the policies created using the two methods in synch at all times. The author can then review the policies to check that they have been parsed correctly. The policies can be modified, and the sets of policies can be visualized in various ways. Additional policies may be authored in natural language or they may be authored directly in the structured format by selecting appropriate elements from each of the designated semantic categories. The policies can then be viewed in a twodimensional table which provides flexibility in setting the axes to two of the policy elements in the policy statements (see Figure 5). For example, one axis might be users and another the resources involved in the policies. One or more policy sets
Policy Technologies for Security Management in Coalition Networks
Figure 3. Policy authoring in natural language using a guide
Figure 4. Policy authoring using the structured list method
can be viewed together, and this capability enables users to discuss the overall scope and content of the polices. After authoring and review of the three policy sets was completed, they were transformed into a an XML based machine-readable policy language (we used ACPL, Agrawal et., 2005). For further information on the SPARCLE Policy
Workbench, please see Karat et al., 2005 and Karat et al., 2006. Continuing with the flow of the scenario now, the mission administrator views the policy sets that the U.S. policy administrator and the U.K. policy administrator have created, and authors the mission policy set. Examples of the three sets of policies are listed below:
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Figure 5. Viewing the policy set as a whole
•
•
•
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U.S. Policy Set: 1. U.S. personnel can access U.S. equipment. 2. U.S. personnel must set security level top secret for mission communication. U.K. Policy Set: 1. U.K. personnel can access U.K. equipment. 2. U.K. personnel must set security level secret for mission communication. Rescue Mission Policy Set: 1. Mission administrators can access U.S. equipment. 2. Mission administrators can access U.K. equipment. 3. Mission administrators must run encryption algorithm Alpha on mission equipment if it has a minimum 100 milliamphour battery capacity, if it has a minimum 10 milliamp draining rate, and if it has a maximum 35 milliamp draining rate. 4. Mission administrators must run encryption algorithm Bravo on mission equipment if it has a minimum 350 milliamphour battery capacity and if it has a minimum 30 milliamp draining rate.
5. Mission administrators must run encryption algorithm Charlie on mission equipment if it has a minimum 100 milliamphour battery capacity, if it has a maximum 350 milliamphour battery capacity, and if it has a minimum 40 milliamp draining rate. 6. Mission administrators must run encryption algorithm Bravo on mission equipment if it has a minimum 400 milliamphour battery capacity, if it has a minimum 75 milliamp draining rate, if it has a maximum 95 milliamp draining rate. 7. U.S. personnel and U.K. personnel must set security level top secret for mission communication. 8. U.S. personnel and U.K. personnel can communicate mission data if they are in sector xray. After authoring and viewing the policies, the mission administrator would now like to analyze the policies and resolve any issues identified in them, prior to deploying the policy sets. He selects all three policy sets to be analyzed, and they are combined into one group for this purpose. The
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combined policy set can then be analyzed by various tools. The prototype included examples of Conflict Detection, Dominance Analysis, Coverage Analysis, and rule-based Transformation. The conflict analysis routine looks at all of the policies in the set and determines which are simultaneously applicable and incompatible. Figure 6, 7, and 8 show examples of the visualizations that the portal provided to users to illustrate policies in conflict, policies being dominated by other policies, and coverage issues in the policy space. Explanatory text identified the particular policies involved so that the mission administrator can coordinate with the US and UK policy administrators to reach agreement, update the policies to resolve the policy issues, and rerun the analyses to confirm that no conflicts remained in the policy set. Dominance Analysis checks to see if any of the policies are redundant. A policy rule is dominated by another set of policy rules if adding the new rule to the set will not change the behavior of the system in any way. Figure 7 shows an example of the prototype’s illustration of dominance issues in a policy set. Coverage Analysis provides information on whether all ranges of the variables in the policies selected are represented. The current version of the portal prototype incorporates a feedback channel from the analysis component to the authoring
component that suggests new policies to the user to replace sets of policies with incomplete coverage (see Figure 8). After the analyses are completed and issues resolved, the mission administrator then uses the portal to transform the policies so they are ready for deployment onto mission equipment. The portal provides a rule-based transformation routine. The rules are called meta-policies, and in the scenario the security administrator has previously defined these for the policy space (Beigi, Calo and Verma, 2004). These meta-policies allow higher level abstractions to be mapped to the particular security mechanisms that will implement them as described in the scenario background regarding confidentiality levels of the coalition equipment and the encryption algorithms employed in the policies. For example, the high level abstraction “Alpha” is transformed using the meta-policies to the “Blowfish” encryption mechanism. As stated previously, fictitious security levels and encryption algorithms were created for the prototype for illustrative purposes. The mission administrator can view the result of the transformation in the portal. Finally, the portal is used to deploy the set of policies onto the coalition equipment for the mission. The portal prototype worked with Ponder2 technology to demonstrate deployment (Twidle et
Figure 6. Example of end user visual display on conflict analysis
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Figure 7. Example of end user visual display on dominance analysis
Figure 8. Example of end user visual display on coverage analysis
al., 2008). This was the last task to be illustrated in the initial proof of concept prototype.
LESSONS LEARNED The user scenario was developed to identify user requirements regarding the capability and the interaction methods needed for the proof-of-concept prototype. During the course of the design and creation of the prototype, lessons were learned in two main areas. The first concerned the display
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of information to the users regarding the results of the different types of policy analysis. The second concerned the user experience of the flow of the policy management process from authoring through transformation, analysis and deployment. In the prototype elements from a number of research efforts were brought together. These included a policy authoring component along with several different policy analysis components. We had envisioned that the policy management capability formed by integrating the components would be flexible for the users to work with if
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we created a central control point for it within a web application. This design decision seemed to be substantiated. Different user groups may want to work with a tool such as this on different types of equipment based on the demands of a particular situation. The authoring capability was provided by the SPARCLE prototype which had been completed over several years with target customer feedback, thus, it also was well suited to the task. In the SPARCLE prototype there is a limited consideration of policy analysis which operates only at the structured language level. Policies are compared to identify potential conflicts (where there are two policies about the same matter, and one policy is more restrictive than another) and redundancies (one policy is the same as another or is a redundant child of a more comprehensive parent policy) between pairs of policies. The SPARCLE prototype presents the pairs of policies with conflicts and redundancies to the user to review with the elements in question highlighted. The user could click on the policy to go to the authoring page to adjust the policies, and then rerun the analyses to confirm that issues were resolved. Since the analysis is carried out directly on the natural language representation of the policy, it is easy to present the results directly in this format. In this security policy proof-of-concept, we wanted to go beyond the SPARCLE analysis and employ the more sophisticated analyses for conflict, dominance, and coverage that were computed by running algorithms against pairs of policies that had been transformed from natural language into an abstract policy model. The challenge then became how to provide the information back to the user about potential policy issues and how to resolve them. We conducted several iterations of design regarding this research issue, and determined that it would be very valuable to the user to see a visual representation of the analysis space and be able to read a textual description of the pairs of policies with potential issues. We added figures similar to those in Figures 6, 7 and
8 above to the analysis feedback in the prototype, and represented problems by referring to terms from the natural language representation rather than the abstract model representation of the policy. For conflict and dominance, the analyses are somewhat simpler than for coverage, and our analysis suggested that a target user could reasonably determine how to evaluate the pairs of policies and resolve the issues as needed. For the coverage analysis, the analysis algorithm is more complicated, and in the case of a potential coverage issue, there are multiple methods to resolve it. For this problem area, an innovative method of presenting the user with feedback about how to resolve identified issues was created, by presenting a number of alternative solutions. In the design of the proof-of-concept prototype, one of the core guidelines was that the user is always in control. Therefore, even when a solution to a potential problem is provided, the user may select to address a coverage issue in another manner or not at all, if that is the right decision in the particular context. The second major area of lessons learned concerned the user experience of the flow of the policy management process within the web application. As a user worked through the steps in the flow of the policy management process, and perhaps iterated on a couple of them while pursuing the goal of creating and deploying a policy set with the desired content and with no known policy issues, a number of design issues were identified regarding the difficulty of completing steps. This difficulty might arise due to complexity in working between different transformations of the policies or different functions in the process. We identified steps that required simplification for the user to complete, for example, how to seamlessly switch between functions within the prototype (e.g., from analysis back to authoring). We also identified steps such as the use of meta-policies in coverage and in the deployment transformation, that needed to be automated for the user due to the
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time or dependency on another user’s knowledge (e.g., in the creation of meta-policies). As this was a proof-of-concept rather than a fully functional prototype, we created interaction methods to simplify the user interactions required between the different components in the system and we finessed the issue of the meta-policies at this point, by providing static meta-policies that fit the user scenario. We learned that in the future, if there was interest in this becoming a functional tool, that the issue of how meta-policy authoring could seamlessly integrate with policy authoring would need to be addressed. We thought that providing a dynamic process for the creation of default meta-policies, with the option of user tailoring, might be the best solution in the future. We also discussed and iterated on the design of the deployment function. In this early proofof-concept prototype, the goal was to illustrate the idea of transforming the policies into a format with the necessary detail and then demonstrate that they could be deployed onto mission equipment. At this point, only basic functionality was provided for querying the deployed policies to indicate that they had been received by a policy engine (based on PONDER2). In the future, the deployment functionality would be enhanced with additional capabilities to view and work with deployed policies through a policy management tool for this purpose.
SENSOR FABRIC PROOF-OFCONCEPT PROTOTYPE The second conceptual prototype was based upon an extension of the Intelligence, Surveillance, and Reconnaissance (ISR) scenario (Roberts et al., 2007). To this basic scenario we added specific policy considerations and user interface features in an exploration of new research concepts. The user roles identified for this scenario included:
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U.S. and U.K. headquarters policy administrators Local U.S. and U.K. coalition members in camps and on patrol
The user tasks illustrated through the scenariobased prototype included: •
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U.S. and UK. headquarters and local authoring and updating of policies for U.S. personnel and equipment, U.K. personnel and equipment, and sensors involved in local coalition missions to patrol the Camp perimeter and secure the Camp site. Viewing the policy set Analysis of the policies and resolution of the issues identified Deployment of the policies on the mission equipment and sensors. These policies include automated changes in operational policies as context of mission changes. Accessing data from the sensors, interpreting it, and taking follow-on action.
BACKGROUND ON THE SCENARIO The scenario involves an ad hoc team consisting of US and UK forces that form to conduct joint ISR operations. These operations include activities at several forward coalition camps (one coalition, one US, and one UK), and coalition patrols in rugged areas between the camps (see Figure 9). The commander’s intent is “The Coalition Team is to conduct border ISR to identify infiltrations and complete surveillance to protect the camps from hostile actions. The Team will respond to infiltrations and threats as needed.” In preparation for a wide range of coalition missions, coalition headquarters staff in the U.S, and U.K. have developed sensor policies to control their own country’s sensors. The U.S. headquarters policy administrator will coordinate with the U.K. policy administrator to enable the neces-
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Figure 9. ISR network scenario example
sary security policies related to headquarters access to, and local control of, all sensors in the field of operations. There are two types of sensors that the coalition mission team has access to: acoustic sensors and video cameras. Each sensor has different characteristics. These two types of sensors can support the Commander’s Intent and the coalition forces in the field by identifying the origin of attacks on camps and patrols. In our scenario, the U.S. and U.K. each own acoustic sensors and video sensors in the region. The scenario presents the policies that must be specified, analyzed, deployed and enforced in order to meet the needs of the coalition mission in patrolling the camp perimeters and securing the camp sites. This demonstration goes beyond the previous one in being able to deploy the policies to a policy-enabled middleware infrastructure that provides unified access to, and management of, sensor networks. A scenario-based prototype illustrated the following concepts in the security policy management and the sensor fabric areas:
•
•
•
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Enabling headquarters staff to author and analyze security policies on information access; Transforming and deploying policies across the sensor fabric onto sensor systems used by coalition command and control, camps and patrol teams in the theatre of operations; Using policies to trigger certain sensors to change orientation based on dynamic events; and, Allowing a coalition commander to override access to sensor data in an emergency situation.
DESIGN OF THE SECURITY POLICY: SENSOR FABRIC PROTOTYPE The components involved in the security policy – sensor fabric prototype are illustrated in Figure 10. Although changes were made to several components of the tool, the main addition was the deployment and execution of policies in the sensor fabric (as opposed to a simulated PONDER2 agent). The
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Sensor Fabric is a middleware infrastructure for wireless and wired sensor networks providing a common environment for ISR applications. As seen in the Theatre of Operations figure for the demo, the Sensor Fabric spans the network with nodes representing a Joint Command and Control (CoCon) camp, three forward camps (US, UK and Coalition), a Patrol Team, and Devices and Sensors. The Sensor Fabric enforces policies at defined Policy Enforcement Points (PEPs). PEPs rely on a PONDER2 engine to evaluate policies. Policies for different aspects of sensor network operation were demonstrated. They covered three basic categories of constraints, namely: •
•
Sensor Control - Policies that define who, with what authentication, and under what conditions can control, configure, move, and re-task sensors; Sensor Information Access Control Policies that define who (person, data fusion element, etc), with what authentication, under what conditions, and in what
•
form (i.e., raw, processed, fused) can access sensor information; and, Information Flow Protection - Policies that define how information flows are to be protected (confidentiality, integrity, etc);
In this scenario-based prototype, similar initial steps and tasks are completed to author and update policy sets, and analysis is then done. The policies are deployed on the sensor network, and when events change, local users are able to work within the policy set to change possible actions as needed. The users involved during the planning of a coalition mission need to take into account the differences in the policies of the different coalition members and determine any conflicts among them. The conflicts in policies need to be resolved and a set of policies conformant to the requirements of all coalition members needs to be developed. Subsequently, during the planning of an ISR operation, users need to determine which coalition member is capable of performing each type
Figure 10. Components of the security policy – sensor fabric prototype
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of required operation under the existing set of policies, identify any conflicts of operational needs with mission policies, and determine the right configuration of ISR assets to support the needs of the missions. Finally, as the operation is underway, the different ISR assets need to be configured to support the desired policies. When the operational situation changes (e.g., a sensor failure), policies need to be changed to adapt to the new mission environment.
LESSONS LEARNED Much of the HCI effort related to the second proof-of-concept prototype concerned the investigation of options and tradeoffs in adapting the authoring task to the policy content specific to the sensor domain as well as investigating options and tradeoffs in making the complexity of the transformations occurring between the levels of policy transparent to the target user. Regarding the first issue, a variety of formats for policy authoring were explored to cover the range of sensor policies that might be required in different contexts. The format needed to meet the target users composition model for written language, be comprehensible to other users who would need to understand policies written in the format, and be sufficiently expressive to include the necessary information and policy structure required for the series of transformations of the policies through to executable code. The policy authoring formats considered ranged from natural language to constrained templates and controlled vocabulary structured entry. A focus of our research was investigating the various tradeoffs between natural language authoring approaches and structured approaches (e.g., parsing accuracy for NL versus ease of authoring and understanding). As with the first concept prototype, in the second one we were again challenged to determine innovative methods to provide a usable, functional display for the user
to employ in working through the policy management process from authoring to enforcement of policies in the deployed environment. Through iterations of design that identified the requirements to enable centralized and local control of the sensor capability, we were able to create usable content for the policy process flow and the target users with different roles and attributes. We identified many possibilities for the different user views and displays of information, gained insight, and are actively investigating these ideas in current research.
CONCLUSION In this chapter we have presented a view of policy management that extends from authoring through enforcement. We defined a layered architecture that is useful in identifying the architectural elements, software components, and system models that are needed to support automated policy refinement and analysis, and to facilitate the management of policies. We presented a formal framework for the analysis of properties of an interesting class of authorization and obligation policies. The purpose of this framework is to enable us to prove properties of our policies and the way they interact with the systems which they regulate. We see it as a significant benefit of our approach that it can detect under which system states and system histories modality conflicts arise, providing useful diagnostic information to the system designer. With the output of the analysis, the system designer may decide to modify the policies or the system behavior (by modifying the implementation of the operations in the system so that the conflict will not arise). Alternatively the system designer may decide that the given sequence of inputs is unlikely (but not covered in the system description) or not a substantial problem and leave the policies unmodified. Our formalization separates the representation of the laws of system evolu-
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tion, and constraints on the system state, from the authorizations and obligations which define policy decisions. This gives us the ability to switch systems descriptions easily and study the behavior of policies on different systems. The use of temporal constraints and an explicit representation of time has enabled us to express complex dependencies of policy decisions on changing system states, as well as on other policies. There are several extensions that will be useful to have in the language. One is the possibility of having obligations that, instead of incorporating explicit temporal arguments marking the beginning and end of the period during which an action ought to be performed, this period is dependent on the occurrence of events. The two approaches should be able to be mixed in our policies. This will simplify the encoding of languages such as XACML in which obligations are explicitly associated with the access authorization event (an obligation is triggered when a subject is authorized to do an operation). A second extension is the inclusion of aggregation so that policies that depend on counting such as voting protocols can be implemented. Apart from obligations, the language only has a single predicate involving two time points: reqInBetween. Other predicates that require more than one time variable are predicates to represent time operators like some time in the past, always in the past and the since operator. These are typical operators of linear time temporal logic. This is a third extension that can be accomplished with rules similar to the rule defining reqInBetween. Of course, all these extensions should be made while ensuring that analysis is still feasible. We will also look in more detail at technical questions related to the underlying abductive constraint logic-programming technology that is used, and consider whether alternative approaches to abduction may yield increases in efficiency. Two proof-of-concept prototypes were completed to illustrate the technological capabilities that might be created to support users in policy authoring, analysis, transformation, and deploy-
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ment. The prototypes were grounded in realistic scenarios involving dynamic coalitions charged with carrying out missions in the field. The scenarios helped to identify necessary policy capabilities for users of the tools, and these capabilities were designed based on knowledge of the system model as illustrated in the policy framework and on an analysis of the user skills and abilities, core policy tasks, and context of use. The human-computer interaction research on the concept prototypes focused primarily on how to enable simple and rugged policy authoring in very different content domains, how to provide meaningful feedback on policy analysis results to enable users to take appropriate action as needed, and how to design the overall flow of the iterative policy lifecycle process. The proof-of-concept prototypes demonstrate innovative design ideas for valuable policy management technology that is efficient and effective. Critical research challenges lay ahead. The scope of the policy research must expand to include topics such as policy refinement from high-level mission statements into executable policy, the incorporation of wide-ranging policy analyses into the policy lifecycle flow, and interorganizational management capabilities such as policy negotiation for policies in conflict among coalition partners. Research in these topics will increase the value of the policy domain knowledge, and will likely motivate changes in policy lifecycle models, as the iterative research from policy model to specific concept demonstrations and back again provides the opportunity for scientific and technical breakthroughs in the mechanisms and methods for policy lifecycle management.
REFERENCES Agrawal, D., Calo, S. B., Lee, K.-W., & Lobo, J. (2007). Issues in Designing a Policy Language for Distributed Management of IT Infrastructures. In Integrated Network Management, (pp. 30-39).
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Agrawal, D., Giles, J., Lee, K., & Lobo, J. (2005). Policy Ratification (pp. 223–232). POLICY. Becker, M. Y., & Sewell, P. (2004). Cassandra: Flexible trust management, applied to electronic health records. In CSFW, (pp. 139–154). Washington, DC: IEEE Computer Society. Beigi, M., Calo, S., & Verma, D. (2004, June). Policy Transformation Techniques in Policy-based Systems Management. In Policy Workshop 2004, Yorktown, New York. Bias, R., & Mayhew, D. (Eds.). (2005). CostJustifying Usability: An Update for the Internet Age (2nd ed.). San Francisco: Morgan Kaufman. Blaze, M., Feigenbaum, J., Ioannidis, J., & Keromytis, A. D. (1999). The role of trust management in distributed systems security. In Secure Internet Programming, (pp. 185–210). Brodie, C., George, D., Karat, C.-M., Karat, J., Lobo, J., Beigi, M., et al. (2008).The Coalition Policy Management Portal for Policy Authoring, Verification, and Deployment. In IEEE Workshop on Policies for Distributed Systems and Networks, POLICY 2008, (pp. 247 – 249). Carroll, J. (Ed.). (1995). Scenario-Based Design: Envisioning Work and Technology in System Development. New York: Wiley and Sons. Casey, S. (1998). Set Phasers on Stun: True Tales of Design, Technology, and Human Error. Santa Barbara, CA: Aegean Publishing Co. Craven, R., Lupu, E., Ma, J., Russo, A., Sloman, M., & Bandara, A. (2009). An expressive policy analysis framework with enhanced system dynamicity (pp. 239–250). ASIACCS. Goldblatt, R. (1992). Logics of time and computation (2nd ed.). Stanford, CA: Center for the Study of Language and Information.
Irwin, K., Yu, T., & Winsborough, W. H. (2006). On the modeling and analysis of obligations. In Proc. of the 13th ACM Conf. on Computer and communications security, (pp. 134–143). Jacko, J., & Sears, A. (Eds.). (2008). The HumanComputer Interaction Handbook: Fundamentals, Evolving Technologies and Emerging Applications (2nd ed.). New York: Erlbaum Associates. Kakas, A. C., Michael, A., & Mourlas, C. (2000). ACLP: Abductive constraint logic programming. The Journal of Logic Programming, 44(1-3), 129–177. doi:10.1016/S0743-1066(99)00075-8 Karat, C., Karat, J., Brodie, C., & Feng, J. (2006). Evaluating Interfaces for Privacy Policy Rule Authoring. In the Proceedings of the Conference on Human Factors in Computing Systems, (pp. 83-92). New York: ACM Press. Karat, J. (Ed.). (1991). Taking Software Design Serously: Practical Techniques for Human-Computer Interaction Design. New York: Academic Press. Karat, J., Karat, C., Brodie, C., & Feng, J. (2005). Privacy in information technology: Designing to enable privacy policy management in organizations. International Journal of Human-Computer Studies, 63(1-2), 153–174. doi:10.1016/j. ijhcs.2005.04.011 Kowalski, R. A., & Sergot, M. J. (1986). A logic-based calculus of events. New Generation Computing, 4, 67–95. doi:10.1007/BF03037383 Loscocco, P., & Smalley, S. (2001). Integrating flexible support for security policies into the linux operating system. In Proceedings of the FREENIX Track: 2001 USENIX Annual Technical Conference, Berkeley, CA, (pp. 29–42).
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Lupu, E., Dulay, N., Sloman, M., Sventek, J., Heeps, S., & Strowes, S. (2008). AMUSE: autonomic management of ubiquitous e-Health systems. Concurrency and Computation, 20(3), 277–295. doi:10.1002/cpe.1194 Nomikos, C., Rondogiannis, P., & Manolis Gergatsoulis, M. (2005). Temporal stratification tests for linear and branching-time deductive databases. Theoretical Computer Science, 342(2-3), 382–415. doi:10.1016/j.tcs.2005.05.014
OASIS XACML TC. (2005). extensible access control markup language (XACML) v2.0. Simon, R., & Zurko, M. E. (1997). Separation of duty in role-based environments. In CSFW, (pp. 183–194). Washington, DC: IEEE Computer Society. Twidle, K., Lupu, E., Dulay, N., & Sloman, M. (2008 June). Ponder2 - A Policy Environment for Autonomous Pervasive Systems. In Policy, (pp. 245 – 246).
This work was previously published in Network Science for Military Coalition Operations: Information Exchange and Interaction, edited by Dinesh Verma, pp. 146-173, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Teleworker’s Security Risks Minimized with Informal Online Information Technology Communities of Practice Loreen Marie Powell Bloomsburg University of Pennsylvania, USA
INTRODUCTION The advancements of technology have altered the way many small businesses operate in the United States of America (USA) (Butcher-Powell, 2006). Small businesses have been forced to embrace technology or lose valuable employees and business. As such, many small businesses have merged to wireless networks and adopted various forms of DOI: 10.4018/978-1-60960-587-2.ch317
telework. Today, it is estimated that more than 60% of the workforce are teleworkers (Butcher-Powell, 2006; DecisionOne, 2002). While moving to a remote workforce is good for small businesses, it also places a substantial amount of security risks upon the small business. Butcher-Powell (2006) documented some of the security risks associated with corporations employing a remote workforce, indicating that teleworker’s lack of information systems and security training can compromise the corporation’s network.
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Teleworker’s Security Risks Minimized with Informal Online Information Technology
The study investigates one particular method for aiding teleworker’s: informal information technology communities of practice in cyberspace. One hundred and forty four teleworker’s were surveyed on what sort of IT-related activities they devote time to, how much problem-solving they attempt via technology discussion groups with respect to those activities, and their perceived community and organizational benefits to participating in such discussion groups. The study found significant differences in perceived value of technology discussion groups among teleworkers.
BACKGROUND Telework Telework is often defined as an agreed upon working arrangement whereby the employee is permitted to officially perform their job tasks in another location other than the typical place of business (United States Department of Defense, n.d.). Most telecommunication elements include laptop computers, the Internet, and various wireless routers, a firewall, and a virtual private network (VPN). Each teleworker is typically provided with a laptop that contains locally installed corporate software. Each laptop typically uses a client and Microsoft’s Point-to-Point Transfer Protocol (PPTP) to enable remote access to the small business’s network. The client is configured to allow TCP/IP connections on the small business’s network as needed (Butcher-Powell, 2006). The client contains a designated Internet protocol (IP) address, and a valid log-on user name and password needed to establish a relationship with the small business’s network. The relationship between the client and the small business’s network is established by utilizing client software to connect to the small business’s firewall via tunneling. Once the client is authenticated, the teleworker gains access into the network.
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Problems with Telework While telework offers substantial benefits, including reduced overhead costs and expanded labor pools without geographic restrictions (Carlson, 2000; Hirsh, 2004; Mehlman, 2002; Motskula, 2001), it also offers substantial security risks to small businesses. One of the largest security risks associated with telework is the teleworkers lack of IT skills and training (Hirsch, 2002; Mehlman, 2002). Teleworkers lack of IT skills and knowledge are costing small businesses thousands of dollars and their business. Research has shown that teleworkers do not have an understanding of authentication, data tampering, encryption, firewalls, and scavenging. Therefore, many corporations have conducted IT training courses for teleworkers. However, the research has also shown that IT training for teleworkers is not enough. First, many small business cannot afford training. Second, teleworkers have been resistant to IT training (Butcher-Powell, 2006). Third, the training is not specific enough. As such, small businesses are seeking for an additional solution. One possible solution is to create informal online communities of practices (CoPs) for teleworkers (McDermott, 2000; Wenger, McDermott, & Snyder, 2002).
Communities of Practice CoPs were first used by Wenger in 1991 and popularized more widely in two major works (Wenger et al., 2000, 2002). CoPs are the idea of sharing information for the purpose of learning from one another within a small group (Mitchell, 2002). Traditionally CoPs were created spontaneously in a workplace. However, today, there has been increasing interest in the creation of teleworking CoPs (Cameron & Powell, 2006; Snyder, 2000; Wenger et al., 2002).
Teleworker’s Security Risks Minimized with Informal Online Information Technology
RESEARCH The goal of this research was to investigate how informal online IT CoPs could reduce network security risks associated with telework. A 32-question survey was developed and administered via the Internet. The survey collected background information (gender, professional responsibilities, education, career status, etc.), technology information (time spent on specific technology tasks, resources and practices at the organization, and problem-solving methods), and technology discussion group information (personal and organizational methods for discussing technology issues, membership in technology groups, perceived benefits of participation in technology groups, etc.).
ANALYSIS A total of 144 teleworkers completed the survey. There were 113 female respondents and 31 male respondents. The age range of teleworkers was somewhat evenly distributed among 18–60 yearolds. Eight participants completing the survey were 61 or older. Nearly all participants (122) indicated that they had attended college. Only one had received an associate’s degree, eight held a bachelor’s degree, and four had gone on to a master’s or PhD. Teleworkers were asked to complete a fivepoint Likert-scale response (strongly agree to strongly disagree) to participation in technology discussion groups influencing IT organizational benefits (IT knowledge sharing, IT collaboration, IT consensus generating, and IT community reputation). A multiple analysis of variance (MANOVA) was used to analyze the responses via age, gender, education, and technology-specific education. There were significant differences found between the overall main effect of organizational benefits and age (p=.02), gender (p=.04), education (p=.01), and technology-specific edu-
cation (p=.00). These results indicated that the teleworkers perceived that informal online IT CoPs as a valid resource to help secure their information technology. Interviews with the teleworkers further indicated that they would be more likely to log on, read security posted, search IT problems, and attend online chats sessions rather attend a traditional IT training session. These results are not surprising since several other research studies have documented that CoPs are being used in teleworking.
CONCLUSION Many small businesses information networks features sensitive and confidential data relevant to internal and external transactions. Research has shown that telework connections put data at risk due to the potential of intrusion and eavesdropping from the teleworker’s laptop (Dhillion & Backhouse, 2000). Every teleworker’s laptop is susceptible to a variety of computer threats. Teleworkers need to be educated to help protect their laptop and network. One possible solution other then training is forming and having your teleworkers participate in informal online IT CoPs. This study investigated teleworker’s perceptions regarding CoPs. Significant differences were found among IT organizational benefits and teleworkers. Since IT organizational benefits were found to be significant, this study assumed that if teleworkers are likely to use IT CoPs, then the education learned in the CoPs will help to further eliminate security risks associated with teleworking. However, further research needs to be conducted over an extended period of time is necessary to determine whether the informal online CoPs will in fact directly reduce the number of security risks.
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REFERENCES Butcher-Powell, L. (2005). Telework information security. In M. Pagani (Eds.),╯Encyclopedia of multimedia technology and networking (Vol. 2, pp. 951–956). Idea Group Reference. Butcher-Powell, L. (2006). Telework security. In G. D. Garson (Ed.), Public information technology and e-governance: Managing the virtual state (pp. 219–223). Sudbury, MA: Jones Bartlett Publishers. Cameron, B., & Butcher- Powell, L. (2006). Gender differences among IT professionals in dealing with change and skill set maintenance. Interdisciplinary Journal of Information, Knowledge, and Management, 1, 151–157. Retrieved May 16, 2008, from http://www.ijikm.org/Volume1/ IJIKMv1p151-157Cameron.pdf
Mehlman, B. P. (2002). Telework and the future of American competitiveness. Retrieved May 16, 2008, from http://www.technology.gov/Speeches/ BPM_020923_Telework.htm Mitchell, J. (2002). The potential for communities of practice (p. 102). Australia: John Mitchell and Associates. Motskula, P. (2001). Securing telework as an ISP service. Retrieved May 16, 2008, from http://www. telework2001.fi/motskula.rft Niles, J. (2001). Telework and terrorism. Retrieved May 16, 2008, from http://www.jala.com/ world_trade_center.php
Carlson, P. A. (2000). Information technology and the emergence of a worker-centered organization. ACM Journal of Computer Documentation, 24(4), 204–212. doi:10.1145/353927.353930
Powell, L. (2002). Telework security: What users don’t understand. Proceeding from the Telebalt Conference 2002, Vilnius, Lithuania. United States Department of Defense. (n.d.). Telework policy. Retrieved May 16, 2008, from http://www.telework.gov/policies/dodpolicy. asp#definations
DecisionOne. (2002). Creating an effective Telework plan: What works, what doesn’t, and why. Retrieved May 16, 2008, from http://decisionone. com
Wenger, E., McDermott, R., & Snyder, W. (2002). Cultivating communities of practice: A guide to managing knowledge. Boston: Harvard Business School Press.
Dhillion, G., & Blackhouse, J. (2000, July). Information system security management in the new millennium. Communications of the ACM, 43(7), 125–128. doi:10.1145/341852.341877
KEY TERMS AND DEFINITIONS
Hirsch, J. (2002). Telecommuting: Security policies and procedures for the “work from home” workforce. Retrieved May 16, 2008, from http:// www.teleworker.org/articles/telework_security. htm McDermott, R. (2000). Knowing in community: Ten critical success factors in building communities of practice. Retrieved May 16, 2008, from http://www.co-i-l.com/coil/iknowledge
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Authentication: The procedure of determining whether someone or something is who or what they declare to be. In small business networks authentication is commonly done through the use of passwords and digital certificates (ButcherPowell, 2005). Communities of Practice (CoP): CoPs refers to the idea of sharing information and knowledge within a small group, as well as to the value of informal learning for a group and an organization (Mitchell, 2002).
Teleworker’s Security Risks Minimized with Informal Online Information Technology
Data Tampering: The threats of data being altered in authorized ways, either accidentally or intentionally. Encryption: A combination of key length, key exchange mechanism, rate of key exchange, and key generation. Popular encryptions are Kerberos, Data Encryption Standard (DES), and Rivest, Shamir, and Adelmaen (RSA) Data security (Powell, 2002). Firewall: A collection of systems that enforce an access control policy amount networks. Typically the firewall is located between the internal network and the outside network to block unauthorized traffic (Butcher-Powell, 2005). Scavenging: Attacking the physical access to a laptop or computer.
Telework: An approved remote working arrangement between the employee and the company. Typically, the employee is working from home (United States Department of Defense, 2002). Teleworker: An employee who officially performs his or her assigned job tasks in a specified work area in his or her home on a regular basis (Niles, 2001). Trap Doors: Pieces of code inserted into a program. They are typically used for the purpose of bypassing standard access control mechanisms. Viruses: Malicious programs that usually are transmitted by means of various types including executable files. Viruses can shut down a PC, delete files, and change files.
This work was previously published in Encyclopedia of Multimedia Technology and Networking, Second Edition, edited by Margherita Pagani, pp. 1387-1390, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Ontologically Enhanced RosettaNet B2B Integration Paavo Kotinurmi Helsinki University of Technology, Finland Armin Haller National University of Ireland - Galway, Ireland Eyal Oren Vrije Universiteit Amsterdam, The Netherlands
ABSTRACT RosettaNet is an industry-driven e-business process standard that defines common intercompany public processes and their associated business documents. RosettaNet is based on the Service-oriented architecture (SOA) paradigm and all business documents are expressed in DTD or XML Schema. Our “ontologically-enhanced RosettaNet” effort translates RosettaNet business documents into a Web ontology language, allowing business reasoning based on RosettaNet message exchanges. This chapter describes our extension to RosettaNet and shows how it can be used in busiDOI: 10.4018/978-1-60960-587-2.ch318
ness integrations for better interoperability. The usage of a Web ontology language in RosettaNet collaborations can help accommodate partner heterogeneity in the setup phase and can ease the back-end integration, enabling for example more competition in the purchasing processes. It provides also a building block to adopt a semantic SOA with richer discovery, selection and composition capabilities.
CURRENT SITUATION Information and communication technologies are increasingly important in the daily operations of organisations. In the current networked business
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environment most information systems need to interoperate with other internal and external information systems. Such interoperation is not easily achievable and therefore causes significant costs. For example, Brunnermeier & Martin (2002) studied interoperability in the U.S. automotive supply chain and estimated the cost of poor interoperability in product data exchange alone to be around one billion dollar per annum. Standards such as RosettaNet or ebXML facilitate Business-to-Business (B2B) integration (Shim et al., 2000). These standards support electronic commerce over existing Internet standards and lead to cost and extensibility benefits. The aim of B2B standards is to facilitate integration with less implementation effort for each e-business partner organisation. Many B2B standards employ XML technologies and the Internet to standardise document exchange and ease the implementation effort of collaborations (Nurmilaakso & Kotinurmi, 2004; Shim et al., 2000). However, there are many competing B2B standards that are not mutually interoperable. So the choice for a particular B2B standard also forms a potential integration bottleneck. Emerging Semantic Web technologies enable a business integration that is more adaptive to changes that might occur over the lifetime of B2B integrations (Fensel, 2003; Trastour, Preist, & Coleman, 2003). This chapter will describe existing B2B standards and focus on an extension of RosettaNet that uses Semantic Web technologies. The usage of this extension for B2B integration and the added flexibility that is gained with it will be demonstrated in a practical integration scenario.
EXISTING STANDARDS FOR B2B INTEGRATION Many relevant standards have been introduced to alleviate B2B integration issues such as data heterogeneity and process heterogeneity. We describe XML and RosettaNet, and explain the
remaining issues in practical B2B integrations even when using these standards.
XML AND ROSETTANET XML (Extensible Markup Language) is a language for describing and exchanging data. Before the introduction of XML, business partners needed to accommodate various file formats, such as flat files or different EDI (Electronic Data Interchange) versions, and setup a parsing/management infrastructures for each format used by a partner. The introduction of XML lowered the integration barriers between organisations, as partners could reuse their XML infrastructure for all exchanged documents between all partners. The main two schema languages associated to the XML standard are DTD (Document Type Definition language) and XSD (XML Schema Definition language). These schema languages enable business partners to validate whether incoming and outgoing documents conform to a required structure. The use of XML as such does not resolve interoperability issues in B2B integrations, since the exchange of XML documents does not mean that the documents are understood similarly. Therefore, standards are needed that guide how XML is used in B2B integrations. RosettaNet1 is one such XML-based B2B standard; already in 2004, RosettaNet had over 3000 documented implementations (Damodaran, 2004). Other common B2B standards include OAGIS2, ebXML3 and UBL4. RosettaNet is an industry-driven consortium that aims to create, implement, and promote open B2B integration standards. The member organisations represent the information technology, electronic components, semiconductor manufacturing, telecommunications, and logistics industries. The most important components in RosettaNet are Partner Interface Processes (PIPs), dictionaries and the RosettaNet Implementation Framework (RNIF). All three are described in the following paragraphs.
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RosettaNet Partner Interface Processes (PIPs) RosettaNet Partner Interface Processes (PIPs) define cross-organisational processes (choreographies), which define the message exchange patterns occurring in different business collaborations. Each PIP contains a specification document, a set of document schemas and message guidelines to help to interpret these schemas. RosettaNet processes are not directly executable, but are manually mapped by trading partners onto their internal systems (Aalst & Kumar, 2003). RosettaNet PIPs are organised into eight clusters, denoted by numbers, which are further subdivided into segments, denoted by letters. For example, cluster 3 deals with “Order Management”; it is divided into four segments including for example PIP 3A “Quote and Order Entry”. The specification document in a PIP defines the message exchange sequence using Unified Modeling Language (UML) activity diagrams, sequence diagrams and textual descriptions; the specification document also describes, in English, the roles of the partners and the conditions to initiate a collaboration. The document schema and the accompanying message guidelines define the valid PIP business document structure and content. The message guidelines introduce additional constraints and explanations, such as the meaning of a modification date and the representation and interpretation of date values. Similarly, the meanings of business codes that can appear in a document are specified. Historically, PIPs have been expressed using DTD-based schemas. New PIPs, developed after 2004, use XML Schemas for documents and the ebXML Business Process Specification Schema (Clark et al., 2001) for the process descriptions. Since XML Schema is more expressive than DTD, some of the constraints in the message which have been described before only textually can now be represented formally. However, still in early 2008, many PIPs are specified in DTD-based schemas
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and thus contain many constraints in accompanying descriptions in plain English only. Common terms used in all PIPs are defined in the global RosettaNet dictionaries. In addition to dictionaries, global RosettaNet identifiers are used, such as Data Universal Numbering System (DUNS) codes to identify companies and the Global Trade Identification Number (GTIN) to identify product types.
RosettaNet Implementation Framework (RNIF) The RosettaNet Implementation Framework (RNIF) specifies secure messaging over the Internet. It defines the RosettaNet business message that contains the business document specified by the schemas and the necessary headers and security features needed to process the messages. RNIF also defines how attachments are encoded in the RosettaNet business messages and uses e.g. MIME and S/MIME for packing and encryption. RNIF defines exception-handling mechanisms and ensures that the delivery is non-repudiated, so neither the sender nor the receiver can later deny having sent or received the RosettaNet business message. Many vendors, such as BEA and Microsoft, support RNIF in their products. The currently widely used RNIF version 2.0 does not use Web Service standards such as SOAP or WSDL. However, the RosettaNet Multiple Messaging Services specification, published in 2006, defines how RosettaNet PIPs can be sent using ebXML Messaging Services, Web Services or AS/2 specification.
Problems in RosettaNet Integrations The standardised business processes described by RosettaNet simplify cross-organisational collaboration and B2B integration. The degree of standardisation offered still requires considerable manual effort during the setup of B2B collaborations (Trastour, Bartolini, & Preist, 2003). This
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manual effort is necessary given the modelling freedom left by weakly defined document schemas. As a consequence interoperability challenges are only partly addressed by the introduction of standardised PIPs and B2B integrations still suffer from long set up times and high costs (Damodaran, 2005; Preist et al., 2005). To detail the challenges in a practical B2B integration situation, we present a quoting and purchasing scenario based on RosettaNet PIPs “3A1 Request for Quote (RFQ)” and “3A4 Request Purchase Order (PO)”. Figure 1 shows the overall choreography including the message exchange of a Buyer (requester) and a Seller (provider) using BPMN5 notation. The white coloured activity boxes denote parts of the internal computational steps, dotted boxes are placeholders for possibly many computation steps performed internally, whereas the dark coloured boxes represent the public behaviour according to PIP 3A1 and PIP 3A4 respectively. The process message boxes here include RosettaNet-specific RNIF behaviour related to validating and acknowledging incoming messages.
The scenario presented in Figure 1 contains interaction with only one Seller. When the Buyer wants to introduce competition by receiving multiple quotes from different sellers, the following interoperability challenges arise: •
•
Business process alignment: The Buyer’s internal processes have to be adjusted to the introduction of a new Seller. Although all processes should conform to the same common PIP, manual alignment is still necessary, since the PIPs business process definitions are informal and lack process details. Expressive power: The schema languages (DTD and XML Schema) lack expressive power to capture all necessary constraints and do not make all document semantics explicit. This lack of expressive power in the current RosettaNet specification has been acknowledged by RosettaNet experts (Damodaran, 2004, 2005).For example, the RosettaNet business dictionary defines a finite set of enumerated values for cer-
Figure 1. RosettaNet B2B Collaboration in a quoting and purchasing process
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tain elements in a PIP message but does not describe the relationship between these values. This leads to heterogeneity in the messages as for example EU sellers typically use Euro values for quotation and the metric system for units of measurement, whereas U.S.-based companies quote in Dollars and inch-pound units. Repetition: Current schema languages have limited support for information reuse through reference, rules, and external imports. As a consequence, messages contain a high amount of repetition since all implicit information must be stated explicitly. These repetitions make the schemas long and complex to interpret. Ambiguous message definitions: PIP message definitions are ambiguous: partners can use the same PIP messages in different ways. Logically similar information can be represented in many different places, for example on the level of “total order” or on “order-line item” level, and many elements within a schema definition for a PIP are optional and not implemented by every company. As a consequence, in our example the Buyer might need to (manually) interpret additional information sent by a newly introduced Seller. For example, a new Seller might typically offer substitutable products in its responses which the Buyer can not handle without changes to the RosettaNet solution. Context-dependent constraints: PIP processes expressed in XSD schemas are highly nested and the same elements may appear in several documents exchanged during an interaction. In fact, the nesting is an advantage over DTD-based PIPs which are self-contained and duplicate the same schema information in every PIP. However, as identified by Trastour, Preist, & Coleman (2003), constraints on a class in RosettaNet depend on its deployment
context, including the PIP document being used, the trading partner and its role (buyer or seller) and the business process in which the messages are exchanged. In current B2B integrations, developers have to manually aggregate contextual constraints into refined XML schemas or into informal documents. Such manual integration is inefficient and leads to interoperability problems when partners apply different constraints. When the number of partners increases, these limitations become increasingly important, especially for companies that are not in a position to dictate their partners the usage terms of PIPs. Since resolving heterogeneities on a case-by-case basis is expensive, in practice the choice of integration partners is limited and restricted at design-time. As a consequence, B2B integrations typically do not support competitive arrangements in which multiple trading partners compete, at runtime, for best offers. To overcome these challenges, we introduce semantic technologies to B2B integrations. As such the information exchanged in the RosettaNet messages can be encoded in a formal Web ontology language, including definitional facts that make the dependencies between elements defined in the RosettaNet business dictionary explicit. A semantic Service-oriented architecture to communicate and mediate between the RosettaNet-enabled business partners and the internal back-end systems is applied as a proof-of-concept implementation for our ontologically-enhanced RosettaNet approach.
THE ONTOLOGICALLY-ENHANCED ROSETTANET SOLUTION The objective of ontologising RosettaNet is to ease the integration to sellers and thus introduce more competition. The solution should be flexible to adding new partners and new collaborative
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processes and support coping with inevitable variations that come when working with multiple partners. A quick integration process, reuse of existing solutions and powerful discovery, selection, composition, validation and mediation capabilities are important objectives for the proposed solution. Companies have invested considerable amounts of money and resources to implement current B2B integrations based on existing B2B standards, and they have the supporting infrastructure largely in place. In our scenario, only the buyer adopts semantic technologies internally, enabling to manage integration with multiple sellers using current B2B standards. The Ontologically-enhanced RosettaNet solution shows how existing RosettaNet challenges can be solved using semantic technologies.
SEMANTIC TECHNOLOGIES FOR B2B INTEGRATION Semantic Web technologies and Semantic Web Services have been proposed to achieve more dynamic partnerships (Bussler et al., 2002) and constitute one of the most promising research directions to improve the integration of applications within and across organisations. Several standardisation efforts, such as OWLS (Martin et al., 2004), WSMO (Roman et al., 2005) and SWSF (Battle et al., 2005), define frameworks and formal language stacks for Semantic Web Services. Semantic Web Services employ ontologies for semantic annotation of B2B integration interfaces. Such semantic annotation enables (semi-)automated mediation of heterogeneous message content and more flexible service discovery, composition and selection (McIlraith et al., 2001). Our solution demonstrates how a Serviceoriented architecture (SOA) capable of handling semantic technologies can tackle some of the interoperability challenges with RosettaNet-based
B2B integrations related to purchasing processes involving multiple partners. We demonstrate our ontologically-enhanced RosettaNet solution using WSMO. The choice has been made on the fact that we require a more expressive language than RDF(s), but also a framework treating services as first-class citizen in its metamodel. However, although we have opted to use WSMO and its stack of WSML languages, the ontology could also be defined in OWL and OWL-S.
The WSMO Semantic Web Services Framework The Web Service Modelling Ontology (WSMO) (Bruijn et al., 2005) is a Semantic Web Services framework consisting of a conceptual model and a language for describing the relevant aspects of services. The goal of such markup is to enable the automation of tasks (such as discovery, selection, composition, mediation, execution and monitoring) involved in both intra- and interenterprise integration. The WSMO framework is implemented in a SOA (Haselwanter et al., 2006; Vitvar et al., 2007) that can support RosettaNet integration scenarios (Haller et al., 2007). The markup of services according to the WSMO conceptual model is expressed in the Web Service Modeling Language (WSML) family of ontology languages. WSML offers a human readable syntax, as well as XML and RDF syntaxes for exchanging data between services. WSML distinguishes conceptual and logical expression syntaxes. The conceptual syntax is used to model the fundamental WSMO concepts (Web Services, ontologies, goals and mediators); the logical expression syntax is used for describing additional constraints and axioms. WSML consists of a number of variants based on different logical formalisms and correspond with different levels of logical expressiveness, which are both syntactically and semantically layered. These variants are WSML-Core, WSML-
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DL, WSML-Flight, WSML-Rule and WSMLFull. WSML-Core is the least expressive variant but with the best computational characteristics. WSML-Core is expressively equivalent to Description Logic Programs (Grosof et al., 2003), an intersection of Description Logic and Horn Logic. The WSML-DL, WSML-Flight and WSML-Rule variants extend WSML-Core to provide increasing expressiveness in the direction of Description Logics and Logic Programming. WSML-Full is the union of these two directions, making it the most expressive WSML variant.
facts that cannot be expressed in the schema languages currently used in the RosettaNet PIPs. The ontology is modelled according to RosettaNet PIP specifications, in our example PIPs 3A1 and 3A4, containing concepts such as PartnerDescription or PhysicalAddress, and their attributes. Figure 2 shows a snippet of the RosettaNet ontology, describing how the PartnerDescription is expressed in the Web Service Modeling Language. The concept definition includes three property definitions and its respective type information and cardinality constraints.
RosettaNet Ontology
Definitional Facts
Ontologies, used for semantic annotation of the B2B integration interfaces, are formal descriptions of the concepts and relationships that can exist in some domain (Gruber, 1993; Uschold & Gruninger, 1996). The RosettaNet specification framework is such a world-view, namely that of the RosettaNet consortium, encompassing an exhaustive definition of the concepts, attributes and relations in the e-business domain. However, the conceptualisation in form of DTDs and XML Schemas is not rigorously formal and leaves knowledge implicit in natural language. In this section, we show how to translate the PIPs into a formal Web ontology language. By translating the RosettaNet specifications to a richer and formal Web ontology language the constraints on the semantics of the business documents can be captured explicitly. This section presents a generic RosettaNet ontology. As mentioned earlier, the ontology includes
In this section we focus on the modelling of implicit knowledge in the RosettaNet specification, which can be made explicit in the ontology. For example, the RosettaNet business dictionary defines an enumerated list of 367 possible values for units of measurements, with the logical relationships between the values unspecified. They are directly modelled and constrained in RosettaNet as tokenised strings. All the inherent relations between the individual tokens are left unspecified. We made such logical relations explicit and included these axiomatisations in the ontology. First, we identified for each tokenised string in the XML Schema its unit type class membership in the Suggested Upper Merged Ontology (SUMO) (Niles & Pease, 2001). SUMO is a richly axiomatised formal ontology created by the merger of multiple existing upper-level ontologies. SUMO is divided into eleven sections whose interdependencies are carefully documented.
Figure 2. Product ontology extract in WSML6
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Figure 3. UnitOfMeasureTypes in the RosettaNet ontology
We are mostly interested in classes from the base ontology, numeric and measurement layer. Other parts of the ontology include among others, temporal, process and class theories. All unit types in the 367 token values can be related to the PhysicalQuantity class in SUMO, which itself subclasses ConstantQuantity, FunctionQuantity and UnitOfMeasure. By using SUMO we derive foundational relations, such as the equivalence of 1 litre to 1 cubic decimetre and the relation that 4.54609 litres are equal to 1 UnitedKingdomGallon, all facts defined in the axiom schemata of SUMO. Figure 3 shows the concept definitions in the ontology and its related classes in SUMO. PoundMass and Kilogram in SUMO are second level subclasses of ProductQuantity. Next, we identified common types in the tokens and modelled them as concepts in the ontology. Examples of similar tokens are a 10 Kilogram Drum, a 100 Pound Drum and a 15 Kilogram Drum. Figure 4 shows the first two tokens in its Figure 4. UnitOfMeasureTypes extract of XML Schema
XML Schema definition and Figure 5 shows its representation in our ontology. We identified the concept Drum as being member of a FluidContainer in SUMO and it inherits similarly to all other converted unit types the hasTokenValue, hasUnitSize and hasUnitType attributes from its parent concept (Quantity). This style of modelling allows us to further include semantic relations between instances of the same unit type concept. To define the numerical dependencies between different UnitOfMeasureContentType we add equivalence relations similar to the one shown in Figure 6. It states that a Quantity instance with a certain amount ?z of “100 Pound Drum” unit types equals 4.5359237 times 10 Kilogram Drums. Since we have derived a subsumption hierarchy, this axiom applies to all sub-classes of Quantities, such as ProductQuantity, the fourth most used type in the RosettaNet schema. Figure 5. UnitOfMeasureTypes extract in the RosettaNet ontology
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Figure 6. Equivalence relation between 100 Pound Drum and 10 Kilogram Drum
Since RosettaNet does not and can not model all domain knowledge, such as the actual product and partner identification, measurement types or currency types, other specifications (ontologies) have to ensure the uniform understanding of the elements within a message. RosettaNet publishes guidelines which standards to use, but does not reference or integrate ontologies to homogenise their usage. ProductIdentification and PartnerIdentification, two element types highly used throughout the RosettaNet specifications (see Haller et al. (2008) for detailed statistics on the occurrence of schema types within RosettaNet) reference for example one of the following identifier types: uat:identifiertype, ulc:AlternativeIdentifier, udt:GTIN, udt:DUNS, udt:DUNSPlus4 and udt:GLN. The role of these identifiers is to describe products (GTIN), companies (DUNS) and locations (GLN or DUNSPlus4 for company location) uniquely. When, for example, ordering a hammer, it is easier to refer to an identifier, such as the 14-digit GTIN “55566677788899”, than specifying “Tool, hammer, hand tool, Fiskars,...” in every message. Alternative identifiers can also be used, typically for buyer identification. Using differing identification schemas creates a mapping challenge where ontologies can help to state similarity between different identifiers for a product. Since an n-to-n mapping between identifiers is unfeasible even in an ontology, we propose to map to an existing product classification such as the eCl@ss classification (code \AAA374002” for hammer). By specifying this semantic detail and referring to the existing eClassOwl-ontology7
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(Hepp, 2005b), it is possible to provide information on similar products, such as hammers produced by other manufacturers. Further benefits materialise when respective UN/SPSC classifications are mapped to eCl@ss categories. This enables companies that map their identifier codes to a category to provide substitutable products and increase their chance of realising sales.
Domain-Specific Rules Each collaboration requires the setup of additional domain-specific rules to capture any data heterogeneity that is not resolved by the definitional facts in the domain ontology. These domain specific rules define how attribute values in the different ontology instances are related. One such example is given in Figure 7. It defines a constraint how a unit price relates to the financialAmount and productQuantity properties and how from a given instance a per-unit price can be calculated. The constraint can be used by the requester to implement a price comparison between competing offers received from different partners. The dependencies between the different packaging sizes and its corresponding values are made explicit in the ontology. This simple illustrative example shows how two partners can agree on the interpretation of the financialAmount in a PIP 3A1 message instance, since the amount can refer to different quantities of the product. The RosettaNet specification includes many more elements where the relation between values is not as straightforward as in the unit price example such as the payment terms, shipment terms or tax
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Figure 7. Unit price constraint
types to just mention some of the under-specified elements in a RosettaNet PIP 3A1.
Language Expressivity Advantages in Ontologised RosettaNet This section presents our transformation methodology to translate traditional XML Schema and DTD-based RosettaNet messages to our ontological schema; this methodology can be used to non-obtrusively introduce the solution to existing B2B collaborations. The DTD versions of PIP 3A1 and PIP 3A4 support two different kinds of product identifiers; the Global Trade Identification Number (GTIN), recommended by RosettaNet, and companyspecific identifiers. The extract in Figure 8 shows the definition of product identifiers in the PIP 3A1 (and 3A4). The PIP3A1 DTD is very long so only the relevant lines (291-304) are shown.
RosettaNet message guidelines for PIP 3A1 add a natural language constraint for ProductIdentification that the DTD’s expressive power does not capture: Constraint: One instance of either GlobalProductIdentifier or PartnerProductIdentification is mandatory. Without this constraint, a valid ProductIdentification could be without any identifiers as both identifications are optional. PIP 3A1 is not yet available as XML Schema, where such constraint can be expressed. Figure 9 shows such an XML Schema version of PIP 3A4. The namespaces and annotations are dropped for brevity as XML Schemas take more space than DTDs. The XML Schemas name PIP elements differently to DTDs. The XML Schema also allows arbitrary authorities to specify the identification schemes, which introduces another mapping challenge. In the Web Service Modeling Language such constraints can be easily expressed as shown in
Figure 8. PIP 3A1 DTD extract
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Figure 9. PIP 3A4 XML Schema extract
this section. The product identifier information in our ontology is presented in Figure 10. The GTIN is handled as any other identification authority/qualifier (qualificationAgency) and the RosettaNet DTD and XML Schema product identification information can be presented in this ontology including the natural language constraints. The qualification agency can be for example the buyer’s, seller’s or original equipment manufacturer’s identifier or any other identification scheme provider. The constraint in Listing 9 ensures that the value of qualificationAgency is among those supported by the Buyer. The benefit
of applying a more expressive Web ontology language such as WSML is that it allows the description of logical relationships between the elements. This information can subsequently be applied for better validation of the message contents. Furthermore, with ontologies it is straightforward to specify that a given product belongs to certain classification class and this information can be utilised to offer suitable substitutable products. Hepp et al., 2005 present a product classification schema in a Web Ontology language which can be used for this purpose.
Figure 10. Product identification in the RosettaNet ontology
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A SEMANTIC ROSETTANET INTEGRATION ARCHITECTURE In this section we outline how RosettaNet collaborations are currently implemented in Serviceoriented architectures and what additional functionality is required when introducing Semantic Web Services.
Service-Oriented Architecture (SOA) Service-oriented architecture is an approach to the development of loosely-coupled, protocolindependent and distributed software applications as collections of well-defined autonomous services in a standardised way, enhancing re-usability and interoperability. The SOA paradigm intends to model the business as a collection of services that are available across the enterprise that can be invoked through standard protocols. SOAs are often realised through Web Services technologies (Papazoglou & Heuvel, 2007). The idea of SOA is to use documents as loosely-coupled interfaces and thereby hiding implementation details (Glushko & McGrath, 2005). Therefore, the RosettaNet PIPs form natural services based on standard protocols. For instance, in the PIP 3A4 Purchase Order (PO) process, the seller provides a service that receives a PIP 3A4 PO request messages. After internally checking the PO, the seller sends the PIP 3A4 PO confirmation as the response to the request. The PO message information is extracted and saved to the back-end systems that need to expose some sort of service interfaces to support those interactions. In this collaboration, the standard RosettaNet messages are the common standard protocol. The current RosettaNet-based integrations often utilise SOA associated products. These products, offered by many of the major software companies (e.g. Microsoft BizTalk, TIBCO BusinessWorks, Oracle BPEL Process Manager etc.), support Web Service technologies and B2B standards such as RosettaNet (Medjahed et al.,
2003). They have functionality related to design the private and public processes of a collaboration participant and to define the mapping between different schemas. They also contain adapters to popular packaged application to facilitate interoperability with those applications.
Semantic ServiceOriented Architecture The notion of a semantic service-oriented architecture (sSOA) (Haller et al., 2005) has been introduced to capture the additional requirements on the execution of Semantic Web Services. In order to avail of the benefits of ontologised RosettaNet messages we propose a light-weight adoption of the WSMX architecture (Haselwanter et al., 2006). We introduce the following services to a traditional SOA architecture; a knowledge base replacing the service repository in a traditional SOA, ontology adapters ensuring the lifting and lowering of traditional XML Schema based messages to an ontological level and a reasoner service for query answering over the knowledge base, see Figure 11.
Knowledge Base Similar to traditional SOAs the knowledge base is a mechanism that handles the persistence of distributed data. However, in an sSOA the data is stored in ontology language documents. In the RosettaNet collaboration these documents include the ontology schemas as well as runtime instances generated by the adapter after the receiving of PIP messages. The knowledge base is used by the reasoner service to perform information retrieval and query-answering functionality.
Reasoner Service The reasoner is required to perform query answering operations on the knowledge base, including the collaboration instance data during execution.
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Figure 11. Overview of the integration architecture
Reasoning is an important functionality throughout the execution process and it is used by the adapters to perform data mediation. It can further be used by a decision support system after and during the execution for the selection of a provider based on the domain specific rules included in the ontology. The type of reasoner required is dependent on the variant of WSML to be used for the semantic descriptions. The reasoner service offers an abstraction layer (WSML2Reasoner8) on top of several reasoners. Depending on the variant used, the queries are passed to the appropriate underlying reasoning engine. Since the current RosettaNet ontology falls into the WSML-Rule variant, we use IRIS9 and Flora-2 (Yang et al., 2003) for reasoning services.
Adapter Framework The integration of the Buyer’s back-end applications and the B2B standards of each Seller require specific mapping functionality. The role of the adapters is to translate the non-WSML data formats to WSML. The adapters act as the actual service provider for the semantic B2B gateway. The service interface of the adapter is used by the
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sSOA to invoke the provider functionality instead of directly invoking the RosettaNet service endpoint of the partner. Thus, essentially the adapter functionality is registered as a service with the system. Further, the sSOA only operates on the choreography of the adapter (c.f. left part of Figure 15), which maps between the choreography of the partner’s (c.f. right part of Figure 15) e-business environment and the choreography registered with sSOA. The choreography definition is part of the WSMO description of a service and specifies the input and output operations as well as transition rules and constraints on the states in the communication. RosettaNet adapters The basic functionality of the RosettaNet adapter involves the functionality related to enveloping, encrypting and decrypting and validation of RosettaNet messages. Here, the existing B2B gateway functionality can be used if the organisation already has a product for RNIF communication. Tikkala et al. (2005) present a system with such a functionality, which can handle the RNIF 2.0 related tasks. When working with sSOA, the mapping rules need to be defined for the runtime phase to lift RosettaNet XML instance messages to the WSML
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Figure 12. Lifting/Lowering to/from Domain Ontology
ontology and lower it back to the XML level respectively (c.f. Figure 12). In our scenario described in section 2.2 mapping rules for PIPs 3A1 and 3A4 are required. We lift the messages to the domain ontology and essentially implement the mediation in the adapter using XSLT style sheets. Figure 13 contains a snippet of such an example mapping from a DTDbased PIP to WSML. Figure 14 shows the same mappings, but for the XML Schema version PIP. We assume that Seller 1 uses the XML Schema version of RosettaNet PIP 3A4. The mapping lifts the GTIN number to the uniform identification scheme in the ontology. In the lowering of messages, by knowing that a GTIN identifier and
company-specific identifiers point to the same product, the mapping can provide an identifier needed by the given partner. As the product information definitions in all DTD and XML Schema based PIPs are similar, these mapping templates can be reused with all the PIPs. With small modification it is easy to create templates for other B2B standards as well. Figure 15 shows the RosettaNet adapter execution flow in a PIP process of RFQ request and response messages as described in the motivating example. The execution flow is logically identical with PIP 3A4:
Figure 13. DTD-based XSLT mapping
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Figure 14. XML-Schema-based XSLT mapping
•
• •
The sSOA first sends the WSML message to the RosettaNet adapter as a WSML RFQ message. The adapter receives the RFQ and translates it to a RosettaNet RFQ XML message. The adapter creates an RNIF 2.0 envelope for this message and signs the message using certificates and sends it to the end-
Figure 15. RosettaNet Adapter
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point of a Seller (certificate as well as endpoint information are implemented in the adapter). As a result, a confirmation that the message has been received is sent back to sSOA. This information is used to start the 24h countdown during which the Seller has time to answer with a quote response.
Ontologically Enhanced RosettaNet B2B Integration
•
•
•
The sSOA subsequently expects an acknowledgment message by the Seller in form of an RNIF 2.0 signal message. The acknowledgement needs to arrive in 2 hours or the original RFQ is sent again as indicated in the PIP. After receiving the acknowledgment, the adapter is waiting for the Quote response from the Seller. The adapter receives the Quote response and translates it using an XSLT script to WSML and sends it to the sSOA to check that the response does not violate the axioms of the ontology. This response is processed in the sSOA and sent to the backend applications. The sSOA also forwards an acknowledgment signal indicating that their Quote response was received at the adapter, which sends the acknowledgment signal back to the Seller.
back-end system. Figure 17 shows the run-time behaviour of the solution: •
•
Back-End Adapters. Likewise to the RosettaNet adapter, specific adapters to integrate various back-end systems are required. The messages used within the back-end system (e.g. XML or flat-file) have to be mapped to/from the domain ontology. The back-end system adapters are required to perform the lifting/lowering of the internally used messages between the back-end systems and the sSOA.
Description of the Complete Message Flow with Heterogeneous Sellers This section introduces example runtime behaviour when interacting with two sellers. We describe the execution process and interactions in the sSOA according to the scenario: (1) initiation of a request for specific parts by the back-end systems, (2) requesting quotes from potential sellers for price and availability, (3) selecting the best quote, (4) initiating the Purchase Order process with the selected supplier and returning the details to the
•
Getting the service need: The buyer’s back-end system issues a request in its proprietary format to the back-end adapter. The request is to get 200 parts delivered to the plant within 8 days. The adapter translates the request into a request in WSML, the format required by the sSOA for matching potential services. Requesting quotes: All services in the sSOA repository that match the request are found. In our case the services of Sellers 1 and 2 are discovered as potential suppliers for the requested part. The PIP 3A1 “Request for Quote” choreography (RFQ) is initiated with both Sellers to identify whether they can indeed deliver the required product within the given schedule and to discover their quoted price. The two sellers offer quotes that differ in packaging sizes, currencies and part identifiers. These heterogeneities in the request and response messages are automatically mediated by the RosettaNet adapter which translates all exchanged messages as described previously in Figure 4. For reference, extracts10 of the sellers’ PIP 3A1 “Quote response messages” in XML and in WSML are shown in Figure 16. Selection: Once both sellers provided their quotes and the messages are received and lifted to WSML, rules defined at designtime and rules defined in the RosettaNet ontology ensure that facts are inserted during reasoning to obtain homogenous ontology instances. These facts are used for comparison to select the best supplier for the requested service. In our scenario, the selection is performed according to the cheapest price per unit. Since currency rates are volatile, the transformations cannot be expressed in logical axioms; instead,
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Figure 16. Extract of Seller 1’s PIP 3A1 response in XML (left) and WSML (right)
an external Web service is invoked at runtime. To find the cheapest price, a conversion of the different currencies and packaging sizes used in the quotes is performed inside the sSOA through an appropriate currency transformation service and packaging unit transformation service. In this case, Seller 1 offers the cheaper quote and is therefore selected.
•
After receiving the PO response from Seller 1, the sSOA performs again the necessary data media-
Figure 17. Runtime behaviour of the proposed solution
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Purchasing: The ”purchase order” process (PO) is initiated by the sSOA with the selected Seller 1. The process is similar to the “Request for Quote” process except that the message exchange follows PIP3A4 instead of PIP3A1.
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tion for product identifiers and currencies; after mediation the translated PO response is returned to the initial back-end system (using a format and structure native to the back-end’s interface).
ALTERNATIVES Anicic et al. (2006) present how two XML Schemabased automotive standards, AIAG and STAR, are translated from XML to an OWL-based ontology using XSLT. The authors use a two-phase design and runtime approach. Their approach focuses on the conceptual lifting of XML Schemas to OWL. Brambilla et al. (2006) present a prototype solution based on ontologies designed in the Web Service Modeling Language to tackle the factitious requirements defined in the Semantic Web Service challenge11. The system uses a software engineering approach and utilises a commercial visual modelling tool. Dogac et al. (2006) present Artemis, a system to semantically enrich Web Services in the healthcare domain. The work discusses how healthcare data defined in domain standards, such as HL7 and CEN, can be formally represented and how these formal representations are used in the execution of Semantic Web Services. The presented architecture clearly distinguishes between the functional Web Service interfaces and the application data. Foxvog & Bussler (2006) describe how EDI X12 can be presented in the WSML, OWL and CycL ontology languages. The work focuses on issues encountered when building a generalpurpose B2B ontology. Khalaf (2007) describes an implementation applying the Business Process Specification Language (BPEL) to RosettaNet PIPs. The objective is to allow the partners to exchange details about their business processes. The evaluation is done by presenting the solution to the RosettaNet board and the BPEL Technical Committee in OASIS. In the test setup, the author deployed multiple servers running different instances representing
different companies. The implementation used Web Services instead of RNIF to demonstrate easier agreement of choreography details. PIPs 3A2 and 3A4 were used in the demonstration. Preist et al. (2005) present a prototype solution covering all phases of a B2B integration life-cycle, starting from discovering potential partners to performing integrations including mediations. The work also addresses issues in translating messages to RDF. The demonstrator uses XML, RDF and OWL-DL. Back-end integration or security aspects are not addressed in this work. Trastour, Bartolini, & Preist (2003) and Trastour, Preist, & Coleman (2003) augment RosettaNet PIPs with partner-specific DAML+OIL constraints and use agent technologies to automatically propose modifications if the partners use messages differently. RosettaNet is used in many of the solutions described above, but none of them applies a RosettaNet ontology in combination with external business ontologies to automatically homogenise the message content from different providers and select services based on the most competitive offer. All solutions including the one described in this chapter are still use case based and lack evaluations in production settings.
COST AND BENEFITS The current long and expensive setup of B2B integrations has lead to business models with simple public processes in which long term rigid partnerships are established between organisations. In RosettaNet collaborations there is often no competition in the request for quotes, as usually the default partner is selected directly for purchasing using long-term contracts (Kotinurmi et al., 2006). This is partly due to the overhead to manage multiple partner specific quoting and purchasing integrations. The presented solution shows how heterogeneities, caused by the introduction of new partners
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to the supply chain, are reduced and how more competitive arrangements can be organised. The quoting and purchasing scenario highlights some of the problems currently observed in RosettaNet collaborations. For example, accepting suppliers from different countries causes heterogeneities, as the partners are likely to use different currencies, different measurement units or different packaging units. The current DTD-based PIPs even enforce organisations to implement additional validation means. However, even with the introduction of XSD based PIPs, one can represent the same information within two message instances based on the same schema in different ways. For example, some PIPs allow time durations to be specified either using “starting time and duration” or “starting time and ending time”. Such freedom in the specification requires both partners to agree on the particular representation and its implementation. Any changes to the way information is represented according to the schema causes additional costs in the setup. The benefits of resolving such heterogeneities for the buyer result from decreased costs of purchasing as the best value deals can be selected on the basis of the best quotes. The sellers benefit from being able to integrate to multiply buyers without making potentially costly changes to their current interfaces. Only declarative rules defining how to interpret incompatible message instances have to be added. Contrary to traditional B2B collaborations where functions are developed on a point-to-point basis, the explicitly modelled relations between concepts in the RosettaNet ontology help to resolve data heterogeneities globally and are thus reusable in every partner integration. The relations between the elements in the RosettaNet specification are not specified by the current schemas as they are not expressive enough to present such relations. Being able to handle the heterogeneities caused by the freedom in the specifications is particularly important for companies that cannot dictate the use of B2B standards to their partners.
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Additional partners are introduced more easily to the supply chain and the possibility to have more competitive partnerships benefits the buyers. The solutions provided have potential use in a significant portion of all RosettaNet PIPs, of which roughly half contain currency and measurement unit information. According to McComb (2004), more than half of the 300 billion dollars annually spent on systems integration is spent on resolving such semantic issues. The costs associated with the presented solution are characterised by two distinctive features; high ontology engineering costs, but low subsequent setup costs. The high costs associated with the ontology engineering can be compared with the development of the RosettaNet framework. Highly skilled knowledge engineers are required to ontologise the full semantics implicit to the current RosettaNet specifications. Following a bottom-up approach the solution presented takes the existing schema definitions and gradually introduces formal semantics for different kind of heterogeneity sources. It is a time-consuming knowledge engineering task to encompass all RosettaNet business documents in the ontology, but it is a one-time effort. We presented an approach to automatically derive a core RosettaNet ontology in Haller et al. (2008). Similar ontologisation efforts are undertaken in multiple domains, such as the CyC ontology12 for general knowledge, the Geonames ontology13 for geospatial information, uniProt14 for protein sequences and the Gene Ontology15 describing gene and gene product attributes in any organism. As discussed by Preist et al. (2005), the use of dynamic integration via semantic descriptions and generic e-business ontologies is expected to become an important industrial technique in the near future; an example of such a generic e-business ontology is the eClassOWL16 ontology, an ontologised taxonomy of product and service categories (Hepp, 2005a,b; Hepp et al., 2005). Similarly to traditional B2B integrations (Bussler, 2003) adapters are required for the
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communication on the application layer as well as the service layer. The behaviour of the RosettaNet adapter concerning RNIF is identical in all RosettaNet PIPs and thus needs to be defined just once. Adapters for different partners at the service layer in an ontologically enhanced RosettaNet solution have the advantage over schema matching approaches that the semantic relations are reusable. Instead of partner-specific point-topoint XSLT transformations, semantic relations are specified only once, but reused in many collaborations. Multiple approaches exist to automatically (Aumueller et al., 2005; Hu et al., 2006; Tang et al., 2006) or semi-automatically (Maedche et al., 2002; Mocan & Cimpian, 2007; Noy & Musen, 2000) derive such semantic relations between two ontologies. However, even if the mappings have to be added manually to the ontology, they are easier to create, since the schema (ontology) makes all data semantics explicit.
Risk Assessment Several publications on semantic integrations (Anicic et al., 2006; Cabral et al., 2006; Preist et al., 2005; Trastour, Preist, & Coleman, 2003; Vitvar et al., 2007) have shown that conceptually, B2B integrations can benefit from semantic technologies. However, all documented implementations are prototypical and all mapping and mediation capabilities are on a use case basis. Recently, more standardised evaluation procedures have been initiated in the context of the Web Service17 and Semantic Web Service18 challenges. These initiatives are a first step towards a unified and realistic evaluation framework. In terms of a migration strategy for existing infrastructure and processes, the solution presented in this chapter does not mandate changes to the infrastructure of the business partners. Rather, the solution builds on top of existing B2B standards: business partners can still utilise their existing infrastructure, while the buyer profits from applying Semantic Web technologies.
In terms of performance and scalability issues, these have not yet been addressed in current evaluations. Especially the lifting and lowering of message instances to their ontological representations in the adapters requires additional computational resources as compared to existing solutions. Since production PIP instances have been reported to be even hundreds of megabytes large (Damodaran, 2004), scalability and performance are obvious concerns in such settings. Further testing is needed to evaluate scalability and performance, as for example done with RosettaNet technologies (Tikkala et al., 2005). However, in the presented architecture, reasoning is only performed at design time, since only one partner uses message ontologies. Thus, no runtime ontology mediation is required and instead all mapping logic is coded into the back-end and RosettaNet adapters. Even current SOA implementations are said to “think SOA and implement high-performance transaction system” to address similar concerns with basic Web Service technologies (Bussler, 2007). The strengths, weaknesses, opportunities and threats of the Ontologically-enhanced RosettaNet solution are analysed in Table 1. •
•
Strengths: The main strengths are the possibility to increase competition in the supply chain by simplifying runtime integration with multiple service providers, the lowered integration costs since many manual integration and alignment tasks (e.g. measurement unit translation and currency alignment) can be automated; and the possibility to automatically validate incoming business messages against ontologised business constraints (which are currently only informally documented at best). Weaknesses: The main weaknesses are the required skills in ontological modelling which might not be available in organisations given the young age of semantic technologies; the computational overhead in lifting and lowering XML messages, and
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Table 1. SWOT analysis of the Ontologicallyenhanced RosettaNet solution Strengths
Weaknesses
€€• increased competition
€€• ontology modeling skills required
€€• lower integration costs
€€• overhead in message lifting/ lowering
€€• automatic validation
€€• high initial ontology development costs
Opportunities
Threats
€€• ontology reuse (CyC, eClassOWL)
€€• highly volatile environment
€€• automation in integration testing
€€• unclear technology uptake
€€• solution reuse
€€• immature tool support
•
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the required investment in the initial development of domain ontologies. On the other hand, like any other standardisation effort, the costs of ontology development can be shared by the entire business domain and development costs can be relatively low due to a high level of potential ontology reuse. Opportunities: The main opportunities are the reuse of existing top-level and ecommerce ontologies such as SUMO, Cyc and eClassOWL and the benefits gained by their reuse. Reuse is central to ontology development and offers significant business opportunities and savings through accumulated network effects. Further, the explicit formal semantics of ontologised RosettaNet messages offer opportunities for automated testing of integration solutions, which currently have to be verified manually. Finally, as in any innovative technology, an opportunity exists for early adopters to master the solution and reuse it across other domains, or even to become solution providers for other organisations in the B2B integration marketplace.
•
Threats: The main threats are the highly volatile environment of organisations which may hamper technology that requires some setup time. The uptake of semantic technologies is still limited and the tool support for semantic technologies is immature.
Overall, the presented approach is best suited for organisations that encounter multiple heterogeneity issues and cannot dictate their partners the B2B integration details. If an organisation is able to dictate the B2B integration details onto their partners, the benefits of semantically enriched messages are limited since such an organisation can achieve homogeneity through its mandate. Similarly, for organisations with only a limited number of partner relationships the introduction of ontologised RosettaNet messages might be an overhead.
FUTURE RESEARCH DIRECTIONS AND ADDITIONAL READING Current approaches to enterprise application integration (Erasala et al., 2003; Linthicum, 1999) and B2B integration (Bussler, 2003) are still based on static binding to services and partners. One of the major trends in enterprise information system development is model-driven design (Brown, 2004). The promise is to create business-driven IT solutions quickly and reduce the gap between business experts and technology experts. SOA and business process management standards are one step towards this goal. Ultimately, the models in an sSOA should span from formal data representations to formal business process models. Different abstraction levels should be supported such that the business analyst can use a modelling environment on a high abstraction level, but still the resulting process model can be used by the implementer as a scaffolding model. However, currently data models are still disconnected from process models
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and business process models on different abstraction levels, such as solution maps and business process execution language (Andrews et al., 2003) based models, are disconnected. Several recent research projects19 and publications (Haller et al., 2006; Hepp & Roman, 2007) are trying to tackle the issue of relating different abstraction levels of business process modelling. Other research topics related to formal process models in sSOA are the automatic composition of services and processes (Milanovic & Malek, 2004). Based on a formal model it is possible to generate a plan (process model) automatically. Most approaches to service composition are related to AI planning (McIlraith & Son, 2002; Wu et al., 2003), deductive theorem proving (Rao et al., 2006) and model checking (Berardi et al., 2005; Bultan et al., 2003). The general assumption is that every Web Service can be specified by its preconditions and effects in the planning context. An important step towards a dynamic integration, both within and across enterprise boundaries, is a scalable and ultimately fully mechanised approach to service discovery. Automatically locating services to achieve a certain business goal can considerably reduce the development costs of B2B integrations. Providers can be dynamically selected based on the service they provide and on the properties associated with the services, such as its cost, the trust relation, security, etc. For instance, in the context of our motivating example the discovery based on the product’s classification category enables a meaningful way to compare substitutable products with the initially requested items. The solution presented in this chapter does not avail of dynamic service selection. However, as a promising research direction multiple efforts are dedicated to solve its challenges (Keller et al., 2005; Ran, 2003; Sycara et al., 2004).
CONCLUSION The scenario discussed in this chapter on quoting and purchasing highlights the problems currently observed in RosettaNet collaborations. RosettaNet represents the current state-of-the-art in B2B integration, and its usage of XML is an improvement compared to more traditional integration solutions. However, setting up integrations using RosettaNet still requires considerable manual effort due to the heterogeneity that arises from the interpretation freedom in the RosettaNet specification. Specifically, RosettaNet integrations still suffer from interoperability challenges in aligning the business processes of the partners, message heterogeneity due to the lack of expressive power in the schemas, and ambiguity in the type definitions, again due to the low expressivity of the schema languages used in RosettaNet. As a consequence of the required manual integration effort, current business models in B2B integration are still simple and integration of new partners is difficult, limiting the possibility of introducing more competition in the supply chain. For example, interacting with suppliers from different countries introduces heterogeneities, since the suppliers are likely to use different currencies, different measurement units or different packaging unit. Due to the current type definitions in RosettaNet, manual effort is needed to overcome these heterogeneities. The ontologically-enhanced RosettaNet solution presented in this chapter helps tackling heterogeneities in RosettaNet interactions. The solution relies upon a formalised RosettaNet ontology to capture otherwise implicit knowledge and rules to resolve data heterogeneities. The ontology captures definitional facts, such as the relation between measurement units or product category memberships. Such information is currently not modelled in RosettaNet. The solutions provided in this chapter have potential use in significant portions of all RosettaNet Partner Interface Processes (PIPs). Furthermore, ontologising RosettaNet
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messages provides support for better discovery, selection and composition of PIPs and PIP parts for other situations. By automatically resolving such heterogeneities, the buyer gains benefits through decreased costs of purchasing as the best value deals can be selected based on the best quotes. The sellers benefit from being able to easier integrate to the buyer without having to make potentially costly changes to their current integration interfaces. The ontologically enhanced RosettaNet solution enables scalable, fast and easy to monitor processes eliminating unnecessary repetitive manual work and enabling people to concentrate on valueadding activities. Furthermore, many testing tasks can be avoided, since formal algorithms can check the quality of the processes such as the existence of data transformation from the buyer’s schemas into the seller’s schemas.
ACKNOWLEDGMENT This material is based upon works supported by the Science Foundation Ireland under Grant No. SFI/04/BR/CS0694 and Grant No. SFI/02/CE1/ I131 and by the Finnish Funding Agency for Technology and Innovation. The authors wish to thank Dr. Tomas Vitvar for his research participation and commenting the chapter.
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Noy, N. F., & Musen, M. A. (2000). PROMPT: Algorithm and Tool for Automated Ontology Merging and Alignment. In Proceedings of the 7th National Conference on Artificial Intelligence, (pp. 450-455). Austin, Texas, USA. Nurmilaakso, J.-M., & Kotinurmi, P. (2004). A Review of XML-based Supply-Chain Integration. Production Planning and Control, 15(6), 608–621. doi:10.1080/09537280412331283937 Papazoglou, M. P., & van den Heuvel, W.-J. (2007). Service-Oriented Architectures: approaches, technologies and research issues. The VLDB Journal, 16(3), 389–415. doi:10.1007/s00778-007-0044-3 Preist, C., Cuadrado, J. E., Battle, S., Williams, S., & Grimm, S. (2005). Automated Business-toBusiness Integration of a Logistics Supply Chain using Semantic Web Services Technology. In Proceedings of 4th International Semantic Web Conference, (pp. 987-1001). Springer. Ran, S. (2003). A model for Web services discovery with QoS. SIGecom Exch., 4(1), 1–10. doi:10.1145/844357.844360
Tang, J., Li, J., Liang, B., Huang, X., Li, Y., & Wang, K. (2006). Using Bayesian decision for ontology mapping. Journal of Web Semantics, 4(4), 243–262. doi:10.1016/j.websem.2006.06.001 Tikkala, J., Kotinurmi, P., & Soininen, T. (2005). Implementing a RosettaNet Business-to- Business Integration Platform Using J2EE and Web Services. In Proceedings of the 7th IEEE International Conference on E-Commerce Technology, (pp. 553-558). IEEE Computer Society. Trastour, D., Bartolini, C., & Preist, C. (2003). Semantic Web support for the business-to-business e-commerce pre-contractual lifecycle. Computer Networks, 42(5), 661–673. doi:10.1016/S13891286(03)00229-9 Trastour, D., Preist, C., & Coleman, D. (2003). Using Semantic Web Technology to Enhance Current Business-to-Business Integration Approaches. In Proceedings of the 7th International Enterprise Distributed Object Computing Conference, (pp. 222-231). IEEE Computer Society.
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Uschold, M., & Gruninger, M. (1996). Ontologies: principles, methods, and applications. The Knowledge Engineering Review, 11(2), 93–155. doi:10.1017/S0269888900007797 van der Aalst, W. M., & Kumar, A. (2003). XML-Based Schema Definition for Support of Interorganizational Workflow. Information Systems Research, 14(1), 23–46. doi:10.1287/ isre.14.1.23.14768 Vitvar, T., Mocan, A., Kerrigan, M., Zaremba, M., Zaremba, M., & Moran, M. (2007). Semanticallyenabled Service-Oriented Architecture: concepts, technology and application. Service Oriented Computing and Applications, 2(2), 129–154. doi:10.1007/s11761-007-0009-9 Wu, D., Parsia, B., Sirin, E., Hendler, J. A., & Nau, D. S. (2003). Automating DAML-Sweb Services Composition Using SHOP2. In Proceedings of the 2nd International Semantic Web Conference, pp. 195-210. Sanibel Island, FL, USA: Springer. Yang, G., Kifer, M., & Zhao, C. (2003). Flora-2: A rule-based knowledge representation and inference infrastructure for the Semantic Web. In Proceedings of the Coopis, doa, and odbase otm confederated international conferences, On the move to meaningful internet systems 2003. Catania, Sicily, Italy.
ENDNOTES 3 4 5 6 1 2
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http://www.RosettaNet.org/ http://www.openapplications.org/ http://www.ebxml.org/ http://www.oasis-open.org/committees/ubl/ http://www.bpmn.org/ For understanding the syntax, see http:// www.WSMO.org/WSML/WSML-syntax See http://ontologies.deri.org/eclass/5.1/#C_ AAA374002 See http://tools.deri.org/WSML2reasoner/ http://iris-reasoner.org/ The full examples are available at http:// www.m3pe.org/ontologies/RosettaNet/ http://sws-challenge.org/ http://www.opencyc.org/ http://www.geonames.org/ontology/ http://dev.isb-sib.ch/projects/uniprot-rdf/ http://www.geneontology.org/ http://www.heppnetz.org/eclassowl/ http://ws-challenge.org/ http://sws-challenge.org/ http://www.ip-super.org/, http://www.m3pe. org/
This work was previously published in Semantic Web for Business: Cases and Applications, edited by Roberto Garcia, pp. 194-221, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Data Mining in Franchising Ye-Sho Chen Louisiana State University, USA Grace Hua Louisiana State University, USA Bob Justis Louisiana State University, USA
INTRODUCTION Franchising has been a popular approach given the high rate of business failures (Justis & Judd, 2002; Thomas & Seid, 2000). Its popularity continues to increase, as we witness an emergence of a new business model, Netchising, which is the combination power of the Internet for global demand-and-supply processes and the international franchising arrangement for local responsiveness (Chen, Justis, & Yang, 2004). For example, Entrepreneur magazine—well known for its Franchise 500 listing—in 2001 included Tech Businesses into its Franchise Zone that contains Internet Businesses, Tech Training, and Miscellaneous Tech Businesses. At the time of this writing, 40 DOI: 10.4018/978-1-60960-587-2.ch319
companies are on its list. Netchising is an effective global e-business growth strategy (Chen, Chen, & Wu, 2006), since it can “offer potentially huge benefits over traditional exporting or foreign direct investment approaches to globalization” and is “a powerful concept with potentially broad applications” (Davenport, 2000, p. 52). In his best seller, Business @ the Speed of Thought, Bill Gates (1999) wrote, “Information technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other” (p. 6). Gates’ point is quite true when one talks about data mining in franchise organizations. Despite its popularity as a global e-business growth strategy, there is no guarantee that the franchising business model will render continuous success in the hypercompetitive environment. This can be
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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evidenced from the constant up-and-down ranking of the Franchise 500. Thus, to see how data mining can be “meaningfully” used in franchise organizations, one needs to know how franchising really works. In the next section, we show that (1) building up a good “family” relationship between the franchisor and the franchisee is the real essence of franchising, and (2) proven working knowledge is the foundation of the “family” relationship. We then discuss in the following three sections the process of how to make data mining “meaningful” in franchising. Finally, future trends of data mining in Netchising are briefly described.
FRANCHISING: THE FRANCHISOR/ FRANCHISEE RELATIONSHIP Franchising is “a business opportunity by which the owner (producer or distributor) of a service or a trademarked product grants exclusive rights to an individual for the local distribution and/or sale of the service or product, and in return receives a payment or royalty and conformance to quality standards. The individual or business granting the business rights is called the franchisor, and the individual or business granted the right to operate in accordance with the chosen method to produce or sell the product or service is called the franchisee” (Justis & Judd, 2002, pp. 1-3). Developing a good “family” relationship between
the franchisor and the franchisee is the key aspect of a successful franchise (Justis & Judd, 2002). Figure 1 describes how such a “family” relationship is built in the franchise community. In Figure 1, the franchisor is expected to be flexible in dealing with business concerns to expedite the growth process. The learning process is incrementally developed through five stages (Justis & Judd, 2002): (1) beginner—learning how to do it; (2) novice—practicing doing it; (3) advanced—doing it; (4) master—teaching others to do it; and (5) professional—becoming the best that you can be. Once attaining the advanced stages of development, most preceding struggles have been overcome. However, further convoluted and challenging enquiries will arise as the franchise continues expansion. This is especially factual once the system reaches the “professional” stage, where various unpredicted and intricate problems could arise. Bud Hadfield (1995), the founder of Kwik Kopy franchise and the International Center of Entrepreneurial Development, aptly stated, “The more the company grows, the more it will be tested” (p. 156). To capture the learning process, a counter-clockwise round arrow surrounding the franchisor is used to depict the increasing intensity of learning as the franchisor continues to grow. To understand how the “family” relationship is developed, one needs to know the five phases of franchisee life cycle (Schreuder, Krige, & Parker, 2000): (1)
Figure 1. Understanding how the franchisor/franchisee “family” relationship works
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Courting—both the franchisee and the franchisor are eager with the relationship; (2) “we”—the relationship starts to deteriorate, but the franchisee still values the relationship; (3) “me”—the franchisee starts to question the reasons for payments related issues with the attitude that the success so far is purely of his/her own work; (4) rebel—the franchisee starts to challenge the restrictions being placed upon; and (5) renewal—the franchisee realizes the “win-win” solution is to continue teaming up with the franchisor to grow the system. Similar to the franchisor, a counterclockwise round arrow surrounding the franchisee is used in Figure 1 to depict the increasing intensity of franchisee life cycle as the franchisee continues learning and growing. As the franchisee progresses through the life cycle, the “family” relationship gradually develops an influencing process (Justis & Vincent, 2001), as depicted in Figure 1 with a bi-directional arrow: (1) working knowledge, proven abilities of expanding the franchise system profitably; (2) positive attitude, constructive ways of presenting and sharing the working knowledge; (3) good motivation, providing incentives for learning or teaching the working knowledge; (4) positive individual behavior, understanding and leveraging the strengths of the participants to learn and enhance the working knowledge; and (5) collaborative group behavior, having the team spirit to find the best way to collect, dissimilate, and manage the hard-earned working knowledge. By going through the processes of learning and influencing, both the franchisor and the franchisee gain the progressive working knowledge in the franchise community. The franchisor, the franchisee, and the franchise community in Figure 1 are surrounded with dashed lines, indicating that there is no limit to the learning process.
MANAGING FRANCHISE ORGANIZATIONAL DATA There are many “touchpoints” within the franchise community where the franchisor and the franchisee can influence each other. Based on the customer service life cycle (CSLC) model, Chen, Chong, and Justis (2002) proposed a framework (Figure 2) to harness the Internet to serve the customers for the franchising industry. The 11 sub-stages in Figure 2 are based on two well-known franchising books by Justis and Judd (2002) and Thomas and Seid (2000). The model in Table 1 may be used as a comprehensive guide for a franchise to develop its Web site, especially at the stages of Requirements and Acquisition. Figure 2 also is a comprehensive framework for a franchise to model the data needed to serve its customers, that is, franchisees and their customers. A well-designed Internet strategy, often enabled by application service providers (Chen, Ford, Justis, & Chong, 2001), shall empower the franchisor and the franchisees to collect, use, renew, store, retrieve, transmit, and share the organizational data needed to do the collaborative work in the various phases of the CSLC model. Specifically, three types of data are needed: •
•
Operational Data: The daily activities at (1) the franchisor headquarters, including six major entity types: employees; business outlets owned by franchisees or companies; prospective franchisees; product development; suppliers (e.g., marketing agents, accountants, insurance providers, attorneys, and real estate agents); and government offices (e.g., taxes and worker compensation); and (2) the franchisee business outlet, including six major entity types: customers, employees, contacts with the headquarters, product inventory, suppliers, and government offices. External Data: The relationship management activities in the franchise community,
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Figure 2. The customer service life cycle model in franchising
•
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including three major entity types: the relationship with customers, the relationship with partners and suppliers, and the performance benchmarks in the industry. Legacy Data: the activities that have been working well or gradually adapted since the franchise system came into existence. Examples include (1) rewarding activities to the top performers among the franchisees; (2) efficient procedural activities for the employees at the headquarters supporting the franchisees; and (3) effective and friendly face-to-face activities for the field representatives to serve the franchisees at their outlets.
MANAGING FRANCHISE ORGANIZATIONAL INFORMATION An architecture, adapted from Inmon (1996), of data mining in franchise organizations with respect to the franchisor/franchisee relationship management depicted in Figure 1 is shown in Figure 3. The architecture consists of four levels: (1) data collection level, holding operational, external, and legacy data collected from the franchise business environment; (2) reconciled data level, holding data warehouse data that are subject-oriented, integrated, time-variant, and non-volatile (Inmon, 1996); (3) derived data level, containing several data marts (e.g., franchisees, customers, competitors, and suppliers) derived from the data warehouse based on various franchisee/customer-centered segmentations; and (4) the analytical reporting level, producing various
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relationship performance reports (e.g., business outlet periodical summary, financial, scorecards, and mysterious shopping) for the decision makers using the decision support systems (DSS) for their decision making. To move from the data collection level to the reconciled data level, data integration is needed. It is a very time consuming process that involves the activities such as cleansing, extracting, filtering, conditioning, scrubbing, and loading. To move from the reconciled data level to the derived data level, data transformation is needed, which involves the activities such as replication, propagation, summary, aggregate, and metadata. To move from the derived data level to the analytical reporting level, data analysis is needed, which involves two major activities: online analytical processing (OLAP) and data mining. A typical OLAP analysis consists of pre-defined multi-dimensional queries. Some examples in franchising include:
•
• •
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Show the gross margin by product category and by franchise outlets from Thanksgiving to Christmas in the last five years. Which franchise outlets are increasing in sales and which are decreasing? Which kinds of customers place the same orders on a regular basis at certain franchise outlets? How many franchisees did we lose during the last quarter of 2001, compared to 2000, 1999, and 1998?
Other OLAP activities include spreadsheet analysis, data visualization, and a variety of statistical data modeling methods. Since the query activities are pre-defined, we call the supporting systems reactive DSS. Data mining, on the other hand, is used to identify hidden relationship patterns of the data residing in the data marts. Typical data mining modeling analysis can be classified into the following three categories:
Figure 3. An architecture of data mining in franchise organizations
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•
•
•
Classification and Prediction: Using techniques such as RFM (recency, frequency, and monetary), regression, decision tree, and neural network; Association Rules: Using techniques such as market basket analysis, correlation analysis, cross-sell analysis, and link analysis; Cluster Analysis: Using techniques such as partition, hierarchy, outlier, and density analysis.
Figure 4, adapted from Delmater and Hancock (2001), shows that data mining techniques can be used to help serve franchisees’ customers at the different stages of the CSLC model. Since the data mining queries and related activities are not pre-defined, we call the supporting systems proactive DSS. A major drawback of proactive data mining is the fact that without vigilant preliminary examination of data characteristics, the mining activities may end in vain (Delmater & Hancock, 2001). In order to achieve
higher success rate of data mining, we suggest (on the right side of Figure 2) that OLAP-based queries need to be conducted first. For example, one may find, through daily OLAP queries, that certain segments of customers buy certain products frequently. This pattern may lead to perform thorough and proactive analysis of the customerproduct relationship. The results may help the company provide legendary service to its clients and generate higher profits.
MANAGING FRANCHISE ORGANIZATIONAL KNOWLEDGE As mentioned in the discussions of Figure 1, the key for building the franchisor/franchisee “family” relationship is in the franchise organizational learning. In addition, there are five vital factors for a successful learning program: knowledge, attitude, motivation, individual behavior, and group behavior. Thus, working knowledge is the
Figure 4. Franchisees’ customers data mining using the CSLC approach
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real foundation of a successful franchise “family” relationship. The working knowledge is structured in many forms of profiles that are embedded in the operational manuals of the franchise business processes. Figure 5 gives some examples of those working knowledge profiles with respect to the CSLC business processes associated with the sub-stages in Figure 2. A working knowledge profile is developed when a certain task of the CSLC process is repeated several times with superior results. Consider the site profile used at the “marketing & promoting the franchise products/services” substage in Figure 5. The site profile is used to assist the new franchisee with locating a high-quality business site. Typically it is the real estate department at the franchisor headquarters that is responsible for the profile development. The site profile is unremittingly being tested and enhanced. Various OLAP/data mining analytical reports, monitoring the performance of the sites, are generated at the Analytical reports level shown in Figure 3. Based on those reports, the real estate experts and their teams are able to fine-tune the attributes and the parameters within the site proFigure 5. The CSLC model of franchise working knowledge
file. Most often, the corresponding data collection procedures in the CSLC sub-stage also need to be revised and perfected so that better report scorecards can be generated. This process of enhancing the working knowledge profile will achieve its high peak when both the franchisor and the franchisees are arriving at the professional and renewal stage of growth. A significant phenomenon of being a professional franchisor and a renewal franchisee are their ability to leverage the assets of the hard-earned working knowledge profiles into dynamic capabilities and high-business-value-creation completive-advantage strategies (Chen, Seidman, & Justis, 2005; Chen, Yuan, & Dai, 2004). The new products or services coming out of the process of leveraging the working knowledge profiles may transform the franchise business into a more, sometimes surprisingly, profitable enterprise. The capability of leveraging the assets of franchise working knowledge into profitable products or services is at the heart of a successful franchise. For instance, consider the site selection working knowledge at McDonald’s. The Franchise Realty Corporation real estate business, a result of site selection asset leveraging, is the real moneymaking engine at McDonald’s. This as can be evidenced from the following speech of Ray Kroc, founder of McDonald’s, to the MBA class at the University of Texas at Austin in 1974: “Ladies and gentlemen, I’m not in the hamburger business. My business is real estate” (Kiyosaki, 2000, p. 85). In the book McDonald’s: Behind the Arches (Love, 1995, p. 152), Ray Kroc commented further, “What converted McDonald’s into a money machine had nothing to do with Ray Kroc or the McDonald brothers or even the popularity of McDonald’s hamburgers, French fries, and milk shakes. Rather, McDonald’s made its money on real estate…” McDonald’s makes money out of real estate by leasing properties from landlords and then subleasing the stores to the franchisees. The professional franchisees, many of which are multiunit operators, can then focus on expending
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the business without worrying about finding good locations for the growth. This moneymaking real estate strategy is what separates McDonald’s from other fast-food chains (David, 2003). Knowledge repository systems, consisting of working knowledge profiles such as the one shown in Figure 6 (Chen, Hammerstein, & Justis, 2002), can be linked into the franchisor headquarters and the franchisee outlets for knowledge sharing and learning. Such a repository has two dimensions. First, there is a working knowledge level for the collaborative team, the franchisee outlet, the franchisor headquarters, and the franchise community. Second, there are user skill levels, including beginner in the courting Phase, novice in the “we”-phase, advanced in the “me”-Phase, master in the rebel phase (since the rebel ones tend to be those who know the system very well and are capable of influencing others to follow them), and Professional in the renewal stage of franchisee life cycle. The foundation of the framework is the working knowledge of the five crucial elements—knowledge, attitude, motivation, individual behavior, and group behavior—used by the collaborative team, to effectively influ-
ence others in building the franchise “family” relationship. The working knowledge profiles at the franchisee outlet, the franchisor headquarters, and the franchise community can be modularized according to user’s level. An intranet-based curriculum of working knowledge modules can then be designed for the users to learn the working knowledge profiles effectively.
FUTURE TRENDS The third industrial revolution, combining Internet technology with globalization, produces various new data mining opportunities for the growth of franchise organizations. For example, knowledge network applications, using data mining techniques such as social network analysis, can be developed to connect professional franchisees in the world. The goal is to enable the franchise system to venture into new global emerging markets, for example, China, through international franchising and develop innovative products/ services through asset leveraging. This could be done because franchise capabilities, structured in
Figure 6. Working knwoledge repository in franchise organizations
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the working knowledge repository shown in Figure 6, enable the professional franchisees to work with the franchisor to continuously improve and leverage the current franchise working knowledge. An example of knowledge networks of professional franchisees can be illustrated in Figure 7. There are six professional franchisees (A-F) in the figure with three clusters (A-C, D-E, and F) of knowledge networks. Each professional franchisee (a dot) has his/her personal knowledge network (arrows pointing out of the dot) tested and built over the years while doing day-to-day problem solving at the franchisee outlet. The knowledge network may include the customers’ likes and dislikes, the kind of employees to hire, the competitors’ and suppliers’ pricing strategies, and the social needs in the local community. Each professional franchisee is surrounded with a circle with dashed lines, meaning there is no limit to the personal knowledge network. In order to solve the problems more effectively, professional franchisees may share with each other their approaches. Thus, clusters (connected dots) of knowledge network are formed for solving various problems more effectively (Chen, Justis, & Wu, 2006).
Figure 7. Knowledge networks of professional franchisees
CONCLUSION Franchising has been popular as a growth strategy for small businesses; it is even more so in today’s global and e-commerce world (Chen, Chen, & Wu, 2005). The essence of franchising lies in managing the “family” relationship between the franchisor and the franchisee. In this article we showed that data mining plays an important role in growing and nurturing such a “family” relationship. Specifically, we discussed: (1) how franchise organizational data can be managed effectively using the methodology of customer service life cycle; (2) how franchise organizational information is deciphered from the customer-centered data using OLAP and data mining analytical techniques; and (3) how the franchise organizational knowledge is leveraged to grow the franchise system. The ability to continue leveraging the organizational knowledge assets based on the good “family” relationship is really what a franchise business is about.
REFERENCES Chen, Y., Chen, G., & Wu, S. (2005). Issues and opportunities in e-business research: A Simonian perspective. International Journal of E-Business Research, 1(1), 37–53. Chen, Y., Chen, G., & Wu, S. (2006). A Simonian approach to e-business research: A study in Netchising. In I. Lee (Ed.), Advanced Topics in E-Business Research: E-Business Innovation and Process Management (Vol. 1), (pp. 133-161). Hershey, PA: Idea Group Publishing. Chen, Y., Chong, P. P., & Justis, R. T. (2002). E-business strategy in franchising: A customerservice-life-cycle approach. In Proceedings of the 16th Annual International Society of Franchising Conference, Orlando, FL.
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Chen, Y., Ford, C., Justis, R. T., & Chong, P. (2001). Application service providers (ASP) in franchising: Opportunities and issues. In Proceedings of the 15th Annual International Society of Franchising Conference, Las Vegas, NV. Chen, Y., Hammerstein, S., & Justis, R. T. (2002). Knowledge, learning, and capabilities in franchise organizations. In Proceedings of the Third European Conference on Organizational Knowledge, Learning, and Capabilities, Athens, Greece. Chen, Y., Justis, R., & Wu, S. (2006). Value networks in franchise organizations: A study in the senior care industry. In Proceedings of the 20th Annual International Society of Franchising Conference, Palm Springs, CA. Chen, Y., Justis, R. T., & Yang, H. L. (2004). Global e-business, international franchising, and theory of Netchising: A research alliance of east and west. In Proceedings of the 18th Annual International Society of Franchising Conference, Las Vegas, NV. Chen, Y., Seidman, W., & Justis, R. (2005). Strategy and docility in franchise organizations. In Proceedings of the 19th Annual International Society of Franchising Conference, London, UK. Chen, Y., & Wu, S. (2006). E-business research in franchising (invited editorial preface). International Journal of E-Business Research, 2(4), i–ix. Chen, Y., Yuan, W., & Dai, W. (2004, December 12-15). Strategy and nearly decomposable systems: A study in franchise organizations. In International Symposium on “IT/IS Issues in Asia-Pacific Region, co-sponsored by ICIS-2004, Washington, DC. Davenport, T. (2000). E-commerce goes global. CIO Magazine, 13(20), 52–54. David, G. (2003, March 30). Can McDonald’s cook again? Fortune Magazine.
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Delmater, R., & Hancock, M. (2001). Data mining explained: A manager’s guide to customer-centric business intelligence. New York: Digital Press. Gates, W. (1999). Business @ the speed of thought. New York: Warner Books. Hadfield, B. (1995). Wealth within reach. Houston, TX: Cypress Publishing. Inmon, W. H. (1996). Building the data warehouse. New York: John Wiley & Sons. Justis, R. T., & Judd, R. J. (2002). Franchising. Houston, TX: DAME Publishing. Justis, R. T., & Vincent, W. S. (2001). Achieving wealth through franchising. Holbrook, MA: Adams Media Corporation. Kiyosaki, R. (2000). Rich dad, poor dad. New York: Time Warner. Love, J. (1995). McDonald’s: Behind the arches. New York: Bantam Books. Schreuder, A. N., Krige, L., & Parker, E. (2000, February 19-20). The franchisee lifecycle concept—A new paradigm in managing the franchisee-franchisor relationship. In Proceedings of the 14th Annual International Society of Franchising Conference, San Diego, CA. Thomas, D., & Seid, M. (2000). Franchising for dummies. New York: IDG Books.
KEY TERMS AND DEFINITIONS Customer Service Life Cycle (CSLC): Serving customers based on a process of four stages: requirements, acquisition, ownership, and retirement. Many companies are using the approach to harness the Internet to serve the customers. Data Mart: A small database with data derived from a data warehouse.
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Data Mining: Analytical techniques used to find out the hidden relationships or patterns residing in the organizational data. Data Warehouse: A database that is subjectoriented, integrated, time-variant, and nonvolatile. Franchisee: The individual or business that receives the business rights and pays the royalties for using the rights. Franchisee Life Cycle: The stages a franchisee goes through in the franchise system: courting, “we,” “me,” rebel, renewal.
Franchising: A business opportunity based on granting the business rights and collecting royalties in return. Franchisor: The individual or business that grants the business rights. Franchisor/Franchisee Learning Process: The stages of learning, including Beginner, Novice, Advanced, Master, and Professional. Franchisor/Franchisee Relationship Management: The vital factor for the success of a franchise, including knowledge, attitude, motivation, individual behavior, and group behavior.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 927-935, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Developing a Corporate Memory as a Competitive Advantage in the ICT Sector Arla Juntunen Helsinki School of Economics, Finland
ABSTRACT
INTRODUCTION
This chapter focuses on the challenges of developing a knowledge management platform to support organizational memory and knowledge transfer. The study is based on a qualitative study in the ICT sector. First, the chapter discusses the development of the KM platform. Second, the benefits, and a competitive advantage of such a platform, are discussed. Finally, the conclusions are made, based on the case study.
Increased value of knowledge, technological complexity, global competition, and the availability of Internet and other emerging, digital technologies are key drivers in this change from information society to knowledge society (Castells, 1996). Managing the data, information, and knowledge within the organization, as well as using it to gain a sustainable competitive advantage, is a challenging task for both public and private sector organizations. Knowledge management essentially consists of tools, practices, and processes
DOI: 10.4018/978-1-60960-587-2.ch320
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Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
to efficiently capture, store, and share data and knowledge of individuals within an organization. The last decade has witnessed a growth of information generated within organizations due to the increase use of technology and Web. During the 1990s, a concept of knowledge management (See, e.g., Davenport, 2001; Möller and Svahn, 2006; Nonaka & Takeuchi, 1995, Nonaka, Toyama, & Konno, 2001; Teece, 2000) emerged, and both the public and private sector researchers accepted it in the information technology and management literature. Sharing, transferring, and storing organizational knowledge has stressed the idea of further developing a data warehouse to support organizational learning and knowledge management within the organization. Exploiting the information and knowledge within data warehouses is one method to attain industry-leading performance (Juntunen, 2008; Matusik & Hill, 1998; Törmänen, 2003) and competitive advantage in markets. Organizations that develop and leverage knowledge resources achieve success more likely than organizations that are more dependent on tangible resources (Autio, Sapienza, & Almeida, 2000; Teece, 2000; Yli-Renko, Autio, & Tontti, 2002). This knowledge is embedded and carried through multiple entities, including organizational culture and identity, policies, routines, documents, systems, and employees. Moreover, the life cycles of technologies, products, and platforms are getting shorter, placing greater pressure on the speed of response and strategic renewal of the organization. The intangible resources drive value, and innovations are crucial for any firm to create a sustainable competitive advantage in markets. This study is based on the knowledge-based view of the firm, and also the resource-based view of the firm theories. Originating from the strategic management literature, the knowledgebased view of the firm perspective builds upon and extends the resource-based view of the firm (RBV) initially sponsored by Penrose (1959) and later expanded by others (Barney, 1991; Conner, 1991; Wernerfelt, 1984). Although the latter theory
recognizes the important role of knowledge in firms that gain a competitive advantage, supporters of the knowledge-based view claim that the resource-based perspective does not go far enough. Particularly, the RBV treats knowledge as a generic resource, rather than having unique characteristics. Consequently, it does not distinguish between different categories of knowledge-based capabilities. Information technologies can play a significant role in the knowledge-based development in the organization in that information systems can be used to synthesize, enhance, and speed up largescale intra- and interorganizational knowledge management efforts (Alavi & Leidner, 2001) and knowledge repositories. Also, the spirit of the knowledge-based view must be understood to understand the value of knowledge to the organization that operates in dynamically changing environment like the ICT sector is. The increasing importance of innovations, rapid product development in the ICT sector has made the understanding of organizational knowledge creation and innovative organizational transformations a critical issue in an organization. Therefore, knowledge management is not a narrow information technology (IT) related function within an organization, but rather an integration of strategic management, learning, R&D, use of different technologies, human capital, and business management. From this perspective, knowledge creation and management in an organization is not mainly a problem of product development, but rather a question of mastering the renewal and information transfer within all hierarchic levels of an organization and between different communities of practice, a continuous organizational development process, and a way to rapidly capitalize innovations. An organization with valuable, rare, inimitable, and nonsubstitutable resources can generate a sustainable competitive advantage over its rivals, thus resulting in better financial performance (See e.g., Barney, 1991; Conner, 1991; Hatch & Dyer, 2004; Wernerfelt, 1984).
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Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
Moreover, the introduction of the Internet and Web-based tools has given rise to many forms of online sociality, including e-mail, instant messaging, blogging, and community-based online services. In addition to descriptive personal profiles, members of such online communities publicly articulate mutual friendship links with other members, creating a browseable network of social relations (Heer & Boyd, 2005). The KM platform concept in the case corporation included tools for different communities, like, for example, for work projects, teams, or for leisure-time-related online societies, and for individuals. The following sections will begin with an overview of the development of knowledge management platform (KM platform) concept, and then proceed to explain the development, benefits, and consequences of the implementation of the KM platform as a basis of organizational memory and competitive advantage in a turbulent competitive environment.
BACKGROUND The study is based on a qualitative study in the ICT sector. The preliminary study of the development of KM platform concept was part of a longitudinal qualitative study (Juntunen, 2005). Research documentation consisted of both information about the telecommunication industry and the case corporation’s development during 1990-2003. Interviews were made in 1999-2005. Interviews included personnel from different levels of the organization as well as from the network partners and main competitor. Data gathered consists of articles, project documents, memorandums concerning strategy, businesses, and competence laboratories in different communities of practice. It also has to be noted that this study focuses on the experiences of a large company with multibusiness organization. The case organization is Elisa. It is a leading Finnish communications and ICT solutions
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company offering a comprehensive range of communications services, including voice and data services, connections to the Internet, customised ICT solutions, and network operator services. Elisa is a forerunner of new mobile and content services (Elisa’s annual report 2006). Its core business areas are fixed network mobile network, including Internet-based services (Juntunen, 2005). Elisa’s organization was integrated from several subsidiaries of different names into one Elisa in 2003. Elisa continued its corporate restructuring in 2006: Tikka Communications Plc and Jyväsviestintä Plc merged with Elisa. Saunalahti Group became a wholly owned subsidiary of Elisa, and Lounet company was also acquired. Elisa’s mission is to offer its customers fast, effective, and secure communication telecommunication services. Its vision is to be the most attractive and effective operator. Elisa operates in Finland and in carefully selected international market areas, and provides international services in association with its partners, Vodafone and Telenor. (Elisa’s annual report 2006). During the years 2003-2007, Elisa has unified its organizational structure, strengthened its market position in chosen core markets, added new services in its service portfolio, and entered to new markets (Elisa, 2007). The case corporation’s approach to organizational learning and to knowledge management was based on the KM platform concept (see Figure 1). The KM platform concept included different areas of information, and knowledge sharing for communities, individuals, and for work and leisure time. The community part of the KM platform concept consisted of tools for business management and learning, like, for example, benchmarking information, best practices, memorandums of different competence laboratories, and projects. It also included internal surveys, news of competitors and products, and access to e-libraries. The individual part of the platform concept consisted of tools for self-learning, education, recruitment, and job rotation.
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
Figure 1. Definition of the concepts resource, asset, and capabilities
The initial development process of the KM Platform concept, during the years 1999-2001, was explored and evaluated, and an attempt was made to understand the factors and events affecting the development. The KM platform concept, developed in 1990-2001, still supports the current strategy of the case corporation and its knowledge management initiatives and needs. It can be claimed that the conceptualized findings have more general relevance, particularly for organizations operating in dynamic, rapidly changing fields characterized by several interlinked technologies. It is also claimed that the relevance of this study reaches beyond the limited historical period. The research design is a logical sequence that connects the empirical data to the initial research questions (Miles & Huberman, 1994; Yin, 1994). The qualitative methods make it possible to develop a thorough understanding of a complex and a multidimensional phenomenon in a specific context. The case design here is a single case study and conducted within one corporation. The reason for choosing a case study approach lies in the in-depth knowledge needed regarding the evolution of different collaborative forms and their managerial processes. Information about these phenomena requires good access to an organization in order to be able to identify
them (Heide & John, 1995; Yin, 1994). While a case study is claimed to increase understanding of the complexity of process and change (see Cassel & Symon, 1994; Pettigrew, 1990; Van de Ven & Poole, 1990). Hartley (1994) emphasized the tailor-made nature of a case study, because it allows observation within the context of a reallife situation. Moreover, in this study, the two diverse fields of research were synthesized and the interaction between the KM technology and inter- and intraorganizational relationships were also examined as part of understanding multibusiness synergies. The ICT sector is a turbulent and rapidly changing environment. It is challenging for any organization to pursue major innovations or systemic product offerings because of the dispersion of knowledge and technological resources. Organizations try to overcome this by seeking knowledge transfer and, more ambitiously, joint ventures to create knowledge and innovations through collaboration (Kogut & Zander, 1997; Teece, 2000). The knowledge can be transferred directly through education and training, or indirectly (See Norman & Ramirez, 1993). The knowledge-based theory of the firm considers the firm as a repository of knowledge-based resources and capabilities (see e.g., Teece, 2000). The inimitable and unique re-
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sources and capabilities represent the continuous competitive advantage for the organization. Thus, in these approaches of knowledge-based view and resource-based view of the firm, the performance differences within and between organizations are a result of different reserves of knowledge, resources, and capabilities, and how organizations can efficiently use and benefit them. Because this chapter will discuss the capabilities, resources, and competences, it is necessary to clarify the meaning of these concepts first. The previous literature on capabilities, assets, and resources is somewhat diversified concerning the terminology and definitions of these concepts, and therefore, in this study, the author identifies the resources of companies as assets and capabilities. Figure 1 presents the definition of the concepts of resource, asset, and capabilities in this study. Resources can be divided into capabilities and assets (see e.g., Grant, 1996). Capabilities can be defined as intangible knowledge resources, and physical and nonphysical resources as tangible and intangible assets (see e.g., Metcalfe & James, 2000). Also, capabilities can be divided to ordinary and dynamic capabilities. Eisenhardt and Martin (2000, p. 1107) defined dynamic capabilities as the firm’s processes to integrate, reconfigure, gain, and release resources to match and even create market change. An organization must be capable of continuously creating new, and thus, temporary, competitive advantages based on different resource combinations than those of the incumbent competitors. In doing so, a company has also enhanced its value creation. (of dynamic capabilities, see, e.g., Amit & Zott, 2001, 2002; D’Aveni, 1994; Eisenhardt & Martin, 2000; Teece, 2003; Teece, Pisano, & Shuen, 1997; Thomas, 1996; Zollo & Winter, 2002) These developments refer to changes that are a result of actions of a focal actor. These changes can be organizational, network structural, network positional, strategical, or operational changes in a business network. Capabilities are described and analyzed, in this study, when considering
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performance and learning within the case organization. Moreover, capabilities are linked to the firm’s strategy (see Gadde & Håkansson, 2001; Håkansson & Snehota, 1995). Managerial capabilities in this study refer to the organizationallevel capabilities significant in either operative or strategic management.
DESCRIPTION OF THE KM PLATFORM The KM platform concept (Figure 2) was developed to support the organization in the identification of KM tools and methods used within the organization. Also, it aimed to assist the different parts of organization to identify its knowledge base, its competences, and capabilities. The KM methods mentioned here were, for example, the plans, technologies, and incentives to support knowledge exchange between different organizational levels and collaborative partners, like universities. It represented a new approach for the company to manage the rapid organizational, technological, and competitive environment changes. It was developed with the help of the Helsinki University professors and their knowledge of knowledge management concept and organizational learning. The KM platform represented the different views of knowledge sharing and exchange within the different levels of the organization. It also represented the different knowledge management perspectives and roles of different actors involved, so as to develop a shared view of KM within the organization and between different communities of practice. Professor Engeström (1998), of the Helsinki University, defined the communities of practices and their organizational learning and development as follows: “Communities of practice may be analyzed as object-oriented, socially distributed and artifact-mediated activity systems. As communities of practice perform cycles of practice-based competency maintenance and innovative knowledge creation, they also change
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
Figure 2. KM-platform in Elisa (© Liisa Varjokallio, Elisa) (published in Juntunen, 2005,p.141)
and transform themselves, creating and realizing collective zones of proximal development.” The case organization understood that the innovativeness of the communities of practice were the key to organizational success, and also, a competitive advantage. Initially, the technological architecture did not support the knowledge management within the case organization and between its strategic partners in R&D and business. However, even if the technology base varied from one business area to another, the existing legacy systems had a lot of information from different business processes, although not all the information was used, or it was not analyzed to guide the business or to predict the business trends. The developers of the KM platform wanted to ensure that the existing legacy systems would be able to capture and encode knowledge for further business applications. The technological architecture was combined from multitechnology solutions that consisted of several products from different parties, built-in systems and components, tailored systems, and platforms from different technology internal or external partners. The modularity of the solu-
tion allowed easy replacement of the KM platform parts. The complexity and modularity of the technology architecture required the formation of a model of control and coordination so that the “plug-in” solutions would work together. There was also a requirement of compliance to the overall technology architecture of the case organization. Using a common middleware assisted in making the platform more suitable for multiple partners. Information technology architecture in the KM platform concept assisted in codifying the knowledge, storing, and delivering it to different organizational parts. KM tools also assisted in locating the knowledge and information within the company, and accelerated the creation and acquisition of knowledge within the case organization. The idea behind the KM platform concept was to leverage and enhance the organizational knowledge and knowledge transfer, within the organization and between the strategic partners of the firm. The shortening life cycles of products and services made it crucial to innovate and transfer knowledge and information more efficiently between the different communities of practice to cope with the growing competition.
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Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
However, the existing businesses had fixed organization structures, processes, and infrastructure that were either a barrier or an asset in the new product development (NPD). They were an obstacle if they were slowing down or hindering new products to be in time in markets, and they were an asset if the existing infrastructure, knowledge, and capabilities could be reused in NPD. Therefore, the case corporation’s top management saw that the need for a common KM platform was essential to coordinate the knowledge and information transfer within the organization. The KM platform was divided in four parts (see Figure 2): community (C), individual (I), work and management (WM), and learning and developing (LD). These consisted of the following: •
•
•
•
(I) consisted of personal-level information such as recruitment possibilities, organizational information, and course-possibilities. (LD) was the corporate e-learning platform in which Efodi was used. There was a net academy that was created in conjunction with universities and allowed employees to take e-courses and e-exams in telecommunications- and technology-related subjects. The net academy was a virtual academy in Internet. (WM) consisted of a managers’ toolkit in which there were essential documents and information, including HRM-issues and budgeting. (C) consisted of libraries, news, business intelligence (BI) information, and industry-level surveys, useful material to develop and ease the knowledge flow within a diversified organization.
Internal knowledge resources included employees, particularly known experts, internal libraries, internal databases, best practice and other manuals, internal yellow pages, internal summaries of lessons learnt from prior projects, GroupWare, and intranets. (Wiig, 1999)
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External knowledge resources included experts, academics, customers, suppliers, external libraries, informal networks and external databases, and expert networks, like, for example, professional associations. The competence laboratories model was part of the KM platform and its community tools. The competence laboratories model was developed at the University of Helsinki. It was a bottomup approach to facilitate the learning process within and between the communities of practices within an organization (cf. Ahonen, Engeström, & Virkkunen, 2000). In the competence laboratories model, roots of recurrent disturbances and problems occurring in daily work were traced and conceptualized as inner contradictions of the activity system. The model was also used to analyze potential for change, and to construct a visionary model for the activity in the future. (Virkkunen & Ahonen, 2000) The competence laboratories were tested in several functional areas between 1990 and 2001 in the case organization. Particularly, this model was undertaken in customer service and help desks areas to tune the interaction between different elements of help desk functionality and associated processes, from sales to delivering the service to customers. The competence laboratory model was helpful in change management and transferring existing knowledge within the team or across the organizational boundaries when organizational changes happened. Nevertheless, it did not seem to have a long-term effect in the organization. It required repetition. The HRM organization within the case company was responsible for the platform development and the KM program within the case organization. The trained KM network personnel held training sessions as well as the competence laboratories within the organization. The management board was interested in KM development and supported it. The human resources director, Liisa Varjokallio, was the KM champion within the organization and she boosted the KM development with enthusiasm.
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
Knowledge creation, exchange, and transfer had a crucial role in the various collaborative forms. Different types of knowledge bases had been created over time in the case corporation: some were based on mobile technologies, some on the Internet, and some from the integration of several technologies. These were incorporated with the KM platform. The case company had several business areas and various business models, services, products, and technologies within the organization. The development of the KM platform assisted in tuning some of the managerial practices and processes. Often, the use of this platform was unintentional, unrecognized, or intermittent. During the development phase in 1999-2001, there were no fixed processes or guidelines in place within the case corporation as to how a business, a team, a community, or an individual should use this platform. Many parts of this platform were used out of personal interest when searching for new information and knowledge. Use of the KM platform was not pushed from the corporate level. This was partly due to a lack of resources to be able to set up a project to launch the platform within the corporation.
BENEFITS OF THE KM PLATFORM: CREATING COMPETITIVE ADVANTAGE Different forms of competence seemed to arise from various activities within an organization. Some specific organizational competences seemed to take place mainly from the capabilities of an organization to create and produce specific kinds of products and services, e.g., R&D function and product maintenance function, and communitiesof-practice related to these functions. Other competences seem to develop mainly from the abilities of some communities of practice to organize and coordinate existing internal and external resources in innovative and effective ways, like,
for example, R&D, marketing, and knowledge management program in human resources management (HRM). Also, other competences seem to depend predominantly on top management’s ability to vision new market possibilities of creating value for customers, like, for example, new business development and new business start-ups, like, for example, the Helsinki Arena Concept and Kotiportti™. Kotiportti™ service and platform concept consists of various subscriber connections and community services (see, e.g., Kaasinen, 2001, p. 51), like, for example, household monitoring and security systems. Helsinki Arena was an infocity multimedia platform developed in 1999-2000 in the case organization. The future home concept followed it in 2000-2003. The future home concept offered technological platforms for various DSL, mobile, and Web-based services for the case organization. It is still the basis of the case organizations’ services. Helsinki Arena and future home concepts1 were marketed internationally in the United Kingdom and in Germany to increase the case organization’s market value and to get more investors interested in the case organization. The business creation and development was seen as a collective process that required interaction and cooperation with internal and external partners, especially because of the managerial challenges in fast-changing technology environment. Therefore, it was necessary for the case corporation to process the managerial experience throughout the organization. The case organization believed that managers should not be bound by past experience, but they should, instead, uncover the implications of possible future business scenarios and encourage innovativeness. In addition, the managers had an important role within the organization in enhancing the organizational knowhow within the employees, and supporting the vision and strategies chosen by the management. The managers understood the value of customer relationships and the feedback from customers in new product development (NPD). The mentoring between the managers was equally important to
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support the common goals and gain the information of best practices and methods used by other managers. The case organization used the so-called manager’s toolkit to assist young/new managers to enhance their knowledge of how to function as a manager effectively, and how to network within the organization. Nevertheless, access to knowledge and information still required the users of the KM platform to have both the capacity and competence for understanding, assimilating, compiling, and using the retrieved knowledge, and to adapt the information and knowledge to their specific daily problems. For example, it seemed to be very difficult to provide any kind of fixed managerial toolkits for handling the business-network management issues. In a way, all strategic business decisions and arising business situations are unique, and they could only be understood in the context of the business network situation, and from the perspective of the business history that has produced the current partners and services. The management toolkit therefore consisted of best practices, known solutions, and documentation rules and procedures. Cognitive aspects of social capital can be seen as human-related aspects and motivation for collaboration (see e.g., Anderson & Jack, 2002; Nahapiet & Ghoshal, 1998). From the case organization’s perspective, this study shows that in the relationships involving research and development activities, as well as in/out-sourcing of components required in software and platform development and implementation, the cognitive aspects of social capital providing value to software vendors include capabilities in both current technologies, as well as in emerging, future technologies. In addition, innovativeness, flexibility, and adaptability seem to be linked to cognitive capabilities of the participants and users of the KM platform. Knowledge exchange was limited in some of the collaborative networks because the participants were unwilling to share crucial information, especially in situations where competitors were acting
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as coopetitors. Adapting the existing knowledge and learning within the context of partnerships happened via mutual experiences. Knowledge and information sharing happened with known and trusted partners. These formed the basis for the future competitive advantage. The historical development and experiences affected the actors’ use of new technologies and solutions, and also, the partners chosen. If past experiences in projects had been good with some actors, those actors were likely to be used again. If the experiences had been less positive, those actors were stringently assessed before being selected to participate in projects. However, they were not completely out of consideration, as there were a limited number of actors with the requisite knowledge of home networking and related technologies. It was essential to keep solid working relationships with everyone. These different experiences of partners and collaboration were also recorded in the KM platform as best practices or lessons learned. The KM platform seemed to support the creation of a new business and business networking within the case corporation satisfactorily. The most successful new service and technology platform ideas were created while the KM platform was being developed. Personnel in the R&D and in the new business development understood that cooperation and using corporate synergy was, in most cases, a benefit for any new starting business. The R&D personnel that took part of the KM development were also successful in product development and innovating. These ideas, processes, and platforms were the most profitable ones in Elisa in 2000-2007. These were, for example, Elisa’s DSL solutions and Kotiportti™, which consists of various subscriber connections and community services, household monitoring, and security systems; Efodi, the learning space; and the technical solutions used in mobile and DSL services offered to consumers and business customers today. The role of business and R&D synergies with KM platform development was, by no means,
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
insignificant, as many of the ideas and Web and mobile technology-based tools support networking and provide new possibilities for deeper collaboration between partners and customers. For example, one of the e-learning platforms developed to support intraorganizational learning was also commercialized in 1999-2000, and sold to several external customers by the end of 2001. Moreover, the management noticed that there were different reasons to use the KM platform in new business development and in collaborative business networking. There appeared to be different types of knowledge and information requirements relating to capability creation and utilization of capabilities in the business development and in R&D. These were categorized as follows: Capability-driven R&D, which required specific capabilities for research and business development; Requirement-driven knowledge and information search for specific business networks, like for example, mobile payment and secure money transfer issues; Breakthrough R&D for creating and entering the market as a pioneer and having first mover advantage on markets; and Incremental technology requirements for existing businesses. In breakthrough R&D, radically new technologies and when implementing them, the learning was learning by doing and gaining experience. However, knowledge created, for example, in breakthrough R&D, was difficult to transfer without repeated and face-to-face contacting. In incremental technology improvement, either an existing business sought out future business opportunities through the KM platform and networking, or R&D was looking for ideas for a technology to be applied in a new way to meet the specific commercial challenges of individual business areas. The key objectives common to the R&D alliances during 1999 to 2000 included the utilization and development of core capabilities in both network and communication technologies (Hölttä, 2000). The case company had realized that the competitive advantage of companies relied
on its managerial and organizational processes, supported by dynamic capabilities. They had also collaborated with universities to access the recent studies of dynamic capabilities (See Juntunen, 2005). These dynamic capabilities reflected organization’s ability to integrate, build, reconfigure, and renew internal and external competences to address changes in its competitive environment (cf. Teece, 2003; Teece et al., 1997). Elisa’s particular goal in the R&D alliances was to fine-tune product concepts generated from earlier R&D projects in 1990-1999. These ideas related to educational platforms in the Internet, self-learning in the Internet, home automation, data security issues, and VOIP-technology. The case organization also tried to establish a best practice method, with which they could manage either several concurrent R&D processes in different business units, or R&D projects concerning multiple products and services within the case company (Hölttä, 2000, Juntunen, 2007). The R&D projects formed socalled collaborative innovation networks (COINs) (cf. Gloor, Laubacher, Dynes, & Zhao, 2003). They consisted of self-motivated individuals from different business areas of the case company, and also, sometimes from multiple organizations, and they were driven by an idea or a vision. By locating and analyzing the work methods and processes of COINs in the organization with the help of the KM platform concept, the case company was able to streamline the R&D processes of different strategic business areas in 1999-2001, and also managed to create competitive advantage in markets. In addition, according to Timo Simula (2003), who was a manager in several new business networks and involved in R&D, those people who were doing business and who were involved in projects and business networks learned, and were capable of finding, using, and adapting the new knowledge, but it also seemed as if the company itself did not learn, or that the learning cycle was unbelievably slow.
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CONCLUSION As Powell (1998, p. 228) stated: In technologically intensive fields, where there are large gains from innovation and steep losses from obsolescence, competition is best regarded as a learning race. Learning new technologies, integrating and implementing them into a business context, underlay the main learning race within the ICT sector during the 1990s. The capabilities and knowledge developed around these new technologies and the businesses based on them were the source for the case organization’s competitive advantage. The KM platform assisted in coordinating and transferring the knowledge, information, experiences, and capabilities within the organization. As a conclusion, the creation of a KM platform to support organizational memory and knowledge transfer within and between organizations is clearly a combination of the evolution of technological factors and organizational needs that are not totally controllable by any one actor within the organization. Rather, it is an accumulation of the intentional strategy of developing collaborative efforts and working methods, as well as alliances, partnerships, and strategic networks with other organizations that has relevant knowledge or capabilities for R&D or business development. First, this study shows that a case organization could clearly promote its business by developing an organizational memory (KM platform) and promoting social networks, as seen in this case study. Without this strong intention or strategy, the case organization would not have been able to develop its position in the emerging new e-service and mobility-related services. Second, the results show that an innovative actor has to be able to develop capabilities. The idea behind the KM platform was that to increase the feedback and value of R&D and other organizational units, the successful innovators must complement in-house development with the know-how and technologies from external sources. At the same time, the shift from in-house
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R&D made it possible to increase the networking, external contacts, and access to R&D networks comprised of universities, coopetitors, competitors, and other organizations from private and public sector. (cf. Chesborough, 2003; Chesbrough & Schwartz, 2007) Knowledge management (KM) encompassed management and communication practices designed to improve the creation and transfer of knowledge in the organizational setting. The developers and users of the KM platform were interested in retooling their organizational structures, processes, technologies, and work cultures to generate more efficient processes, practices, more creative and engaged employees, and a culture of innovating and sharing knowledge. The managers’ role in enhancing the organizational know-how and knowledge sharing culture, and supporting the vision and strategies, was important (cf. Senge, 1990). Also, the employees’ capability for understanding and using the retrieved knowledge, and adapting the information and knowledge to their specific daily problems, was essential (See Nonaka & Takeuchi, 1995). The development of the KM platform was due to the need of knowledge sharing and transfer between and within different organizational units. Elisa’s management clearly understood that knowledge transfer could create or surface synergies between different businesses and business networks, thus, creating competitive advantage in markets. Therefore, either finding or creating the cross-business synergies was central to the performance of multiunit and multibusiness organization with diverse business models, technology platforms, and service portfolios (See also, Goold & Luchs, 1993). The cross-business synergy arose from similarities in work processes, rules, practices, and relatedness of certain functional resources like, for example, products (See Rumelt, 1974), or technological relatedness (See Robins & Wiersema, 1995), similarities in customer base and customer interaction (See Von Hippel & Katz, 2002), R&D knowledge between businesses and
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
business network partners (Batt & Purchase, 2004; Harrison, Hitt, Hoskisson, & Ireland 2001; Juntunen, 2005; See also Hitt & Ireland, 2002, of value of social networks), marketing relatedness (Capron & Hulland, 1999), managerial knowledge and similarities in the business governing (Ilinitch & Zeithaml, 1995; Prahalad & Bettis, 1986), human resource relatedness (Farjoun, 1994), knowledge resource relatedness (See Juntunen, 2005; Tanriverdi & Venkataraman, 2005), or closeness of strategy or small strategic distance between the businesses (See Juntunen, 2005). Increasing collaboration as an interaction strategy and a knowledge-management strategy, instead of intraorganizational rivalry, was the ultimate goal, and it was identifiable both in operations, in general, and in growing e-business and mobile business, particularly. According to Ahonen et al. (2000), the first KM theories took the individual as the unit of analysis and defined knowledge and competence in terms of discrete skills that could be codified and measured. They also argued that the following KM research focused more on networking, communication and collective practices, and that knowledge is embedded in, and becomes constructed in, collective practices. This view of knowledge, embedded in the organizational practices and working groups, was also the view that the case organization wanted to enhance and support. The management strongly believed in capability and knowledge-driven competition and creating competitive advantage by superior skills and knowledge (cf. Heene & Sanchez, 1997; Stalk, Evans, & Shulman, 1992). It seemed that when the case company aimed at leveraging its capabilities and finding synergies in a multibusiness environment, the KM focused more on learning within groups and teams, and management focused on efficiency of the practices and processes. Moreover, the development and implementation of the KM platform seemed to enhance the knowledge and capability generation, business-specific architectural development and planning.
Moreover, to maintain adaptiveness, organizations need to maintain themselves in a continuous state of change in structure, processes, functions, and goals in order to achieve an optimal adaptative state (cf. Hedberg, Dahlgren, Hansson, & Olve, 1997). Operating this way is essential within organizations that operate in turbulent and rapidly changing environments, the ICT sector (cf. Hedberg et al., 1997; Juntunen, 2005). The self-renewal of the organization and the coevolution of knowledge and competence management are essential in a rapidly changing competitive environment (cf. Hong & Ståhle, 2005). Firms often face rapid technology changes with limited ability to react due to the fast pace of technological development, financial commitments, or managerial decision processes. In these situations, firms should have the ability to innovate. By focusing on knowledge management, an organization can find out that it can come upon new innovations and breakthrough technologies that can be a new competitive advantage. Simply having KM processes to produce knowledge and information of a certain product or service could assist enough to sustain an existing competitive advantage. According to Mintzberg, Ahlstrand, and Lampel (1998, pp. 175-231), in professional organizations that operate in highly complex environments, collective learning and knowledge management are essential, as the knowledge required to create strategy is widely dispersed, and further, organizations facing new situations usually have to engage in a process of learning in order to understand emerging change, as exemplified by the introduction of technological breakthroughs like the Internet and mobile technologies. As this chapter discussed about the issue of creating competitive advantage with a KM platform, it managed to touch on several important factors, including the benefits of corporate-level knowledge management program, strategy planning, management roles in this process, and synergies with the R&D and knowledge transfer within the organization. Horizontal and vertical collaboration within
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the organization is important, especially in a new business development and finding and developing business synergies. These findings have important theoretical and methodological implications. First, they support the industrial network approach (see e.g., Håkansson & Waluszewski, 2002) and the resource-based view in emphasizing the key role of combining the heterogeneous resources controlled by various actors in order to be able to create new technological and business solutions. They also support the knowledge-based view of the firm, and that information technologies can play a significant role in the knowledge-based development in the organization in that information systems can be used to synthesize, and boost up large-scale intraand interorganizational knowledge management efforts (Alavi & Leidner, 2001) and knowledge repositories. At the organizational level, the findings emphasize two interrelated perspectives, the role of management in boosting the knowledge management efforts to gain competitive advantage and the managerial capabilities related to it, and the role of organizational learning, in the development of new business. Finally, the study suggests that organizational and interorganizational learning and knowledge management has a crucial role in network management. This is logical as capabilities are, to a great extent, created through learning processes. The results indicated that learning was both exploitative and explorative (March, 1991) in the development of the KM platform. Exploitative learning means here that the organization is constantly monitoring its competitors and the field of technology. Explorative learning means here that the organization was capable of identifying new technologies and business opportunities, and conceptualizing these into practice. By applying knowledge management tools, the case organization was also able to turn its learning into organizational routines and capabilities. A specific capability that should be singled out was the cognitive ability of the case organization to renew itself. This is a good example of a so-called dynamic capability.
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FUTURE RESEARCH DIRECTIONS Opportunities for further research are numerous, ranging from coordination issues with external partners to strategy planning of interorganizational knowledge transfer systems, because new linkages between public and private sector are forming, and innovations extend beyond traditional industry border lines. However, this also creates new challenges for organizations: how to keep the capable employees and business-critical information and knowledge within the organization and out of competitors’ reach. Also, concerns about the effectiveness of providing services and products fast and efficiently have mushroomed in the past decade. In part, this was due to the fast pace of technology development, globalization, and increasing networking between the private and public sector. The collaborative networking that is increasingly emerging in our society requires efficient knowledge sharing and transferring, which can be done by using KM-tools like, for example, data mining. The current evidence emphasizing the role of learning in new knowledge and business creation suggest that it would be useful to apply the theories of organizational and interorganizational learning more explicitly to studies investigating knowledge transfer and exploitation in collaborative networks and network management in turbulent environments. The results achieved in this study provide several articulated contributions towards this direction.
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ENDNOTE 1
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Helsinki Arena, Future Home, Megahouse and Megahome concepts are presented in Chapters III and IV.
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
APPENDIX: INTERVIEWS Table 1. Interviews Name (Interviewee)
Position
Organization
Interview
Time
Ahlstrand, Klaus
Business Development Manager
Datatie
in person
February 11th 2001, October 31st 2001, November 1st 2001
Ahlstrand, Klaus
Business Development Manager
Datatie
e-mails
March 29th 2000, October 31st 2001, November 1st 2001, November 12th 2001, December 5th 2001, January 5th 2002
Arhi, Mika
BI, Analyst
Elisa Corporation
in person
May 2001
Arhi, Mika
BI, Analyst
Elisa Corporation
e-mails
July 7th 2002, August 1st 2002
Buuri, Marko
Product Development
Elisa, HCB
in person, cooperation meeting
September 7th, 2001
Grönroos, Timo
Development Manager
Radiolinja
in person
May 5th, 1999
Hakanen, Seppo
Marketing Manager
Elisa, PCS
in person
March 30th 2000
Hakanen, Seppo
Marketing Manager
Elisa, PCS
cooperation meeting
April 17th 2000
Hedberg, Nina
Voice Services, Manager
Elisa, Traffic and Subscriber connections
in person, cooperation meeting
June 2nd 1999, November 20th 1999
Hedberg, Nina
Manager
Elisa, PCS
in person, cooperation meeting
,March 30th 2000, April 17th 2000
Hietanen, Petri
Development Manager
Elisa, HCB
in person, cooperation meeting
September 2nd 2001, October 3rd 2001
Hölttä, Pertti
Research Center
Elisa, Research Center
in person, cooperation meeting
January 31st 2000, January 21st, 2001, January 25th 2001
Jokinen, Juha
Manager (IM)
Elisa, BS
in person, cooperation meeting
September 5th 2001, September 27th 2001, June 18th 2004, January 12th 2005
Jokinen, Juha
Manager (IM)
Elisa, BS
e-mail updates
October 20th 2001, May 15th 2002, January 12th 2003, March 10th 2004
Jäntere, Kirsi
Development Manager
Elisa, PCS
in person, cooperation meeting
March 3rd 2000, April 5th 2000
Kaasinen, Katariina
Student
Elisa, HCB
in person
November 30th 2001
Kaasinen, Katariina
R&D developer
Nokia, R&D
e-mail
August 4th 2003
Karjalainen, Ismo
Product Manager (Kotiportti™)
Elisa, PCS
in person, cooperation meeting
June 1st 2001
Kautto, Antti
Management Consultant
Comptel
in person
December 18th 2001
Lehmus, Pasi
Director
Elisa
in person, cooperation meeting
January 15th 2002 March 3rd 2003
Malmberg, Juha
Director
Elisa, Traffic and Subscriber connections
in person
May 1999
Malmberg, Juha
Director
Elisa, PCS
in person
March 30th 2000, April 17th 2000, November 20th 2001, December 17th 2001
continues on following page 839
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
Table 1. continued Name (Interviewee)
Position
Organization
Interview
Time
Masala, Sami
Business Development Manager
Elisa, HCB
e-mails
March 30th 2000, April 17th 2000, November 26th 2002, December 12th 2002, January 23rd 2003, February 27th 2003, November 13th 2003, December 16th 2003
Masala, Sami
Business Development Manager
Elisa, HCB
in person
March 29th 2000, April 18th-19th 2000, November 24th 2002, December 12th 2002, January 20th 2003, February 25th 2003, November 10th 2003, December 15th 2003, January 12th 2004, May 21st 2004, August 18th 2004, May 13th 2005, June, 12th 2006
Peltola, Hannu
Product Development
Elisa, Traffic and Subscriber connections
in person, cooperation meeting
May 20th 1999
Pohtola, Raili
Director
Elisa, PCM
in person
May 15th 2002
Rasia, Olli
Multimedia Access, Manager
Elisa, Traffic and Subscriber connections
in person, cooperation meeting
May 5th 1999
Rasia, Olli
Department Manager
Elisa, PCS
in person, cooperation meeting
March 30th 2000, April 17th 2000, April 9th 2001, August 28th 2001
Riipinen, Jarmo
Business Manager
Elisa, BS
phone
November 7th 2001
Simula, Timo
Head of Development, HCB’s Manager
Elisa, HCB
in person, cooperation meeting
March 30th 2000, April 17th 2000, November 7th 2001, December 2nd 2001, December 20th 2001
Simula, Timo
Head of Development, HCB’s Manager
Elisa, HCB
e-mails
November 26th 2002, December 12th 2002, January 30th 2003, March 14th 2003, September 9th 2003, October 13th 2003, November 3rd 2003, December 18th 2003, January 12th 2004, February 13th 2004,
Simula, Timo
GIGA program director
TEKES The National Technology Agency
e-mails, updates in meetings
June 18th 2005, September 30th 2005, May, 15th 2006, June 12th 2006, January 12th 2007, March 3rd 2007
Tirkkonen, Piia
Student
Elisa, HCB
in person
November 22nd 2002
Tirkkonen, Piia
R&D
Nokia
e-mail
July 22nd 2003
Yli-Äyhö, Janne
Manager
Telia-Sonera
e-mail
June 24th 2002
Varjokallio, Liisa
Manager
Elisa, HR
in person
January 25th 2001
Vainionpää, Sami
Multimedia Access, Development Manager
Elisa, PCS
in person, cooperation meeting
January 15th 2001
Viitala, Erkki
Customer Service Manager
Comptel
in person
December 2001
continues on following page 840
Developing a Corporate Memory as a Competitive Advantage in the ICT Sector
Table 1. continued Name (Interviewee)
Position
Organization
Interview
Time
Viitala, Erkki
Customer Service Manager
Comptel
in person
July 7th 2003
Vuolteenaho, Petri
Product Development, Manager
Elisa, PCS
in person, cooperation meeting
March 30th 2000
Vuolteenaho, Petri
Product Development, Manager
Elisa, PCS
in person, cooperation meeting
April 17th 2000
Weckström, J-P.
Manager
Telia-Sonera, BI
e-mail
June 18th 2002
This work was previously published in Knowledge Ecology in Global Business: Managing Intellectual Capital, edited by Miltiadis D. Lytras and Patricia Ordóñez de Pablos, pp. 86-107, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 3.21
City Boosterism through Internet Marketing: An Institutional Perspective María Isabel Huerta-Carvajal Universidad de las Americas-Puebla, Mexico Luis Felipe Luna-Reyes Universidad de las Americas-Puebla, Mexico
ABSTRACT Local governments around the world are becoming aware of the importance of identifying and marketing their local assets to promote economic competitiveness. Information and Communication Technologies (ICT) have proven useful in supporting marketing activities in the private sector, but there is still little exploration on their use in the public sector. However, ICT effectiveness is constrained by institutional arrangements and the
coordination of the marketing efforts with other government processes such as urban planning and strategy development. The purpose of this chapter is to discuss the strategic scaffolding for ICT as a key component of a city’s marketing strategy using as an example the city of Puebla in Mexico. Although city marketing efforts and ICT use are still at its initial stages in the city, lessons from current efforts in Puebla are related to the key role of stakeholder networks, ICT interoperability, Geographic Information Systems, and government program continuity.
DOI: 10.4018/978-1-60960-587-2.ch321
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
City Boosterism through Internet Marketing
INTRODUCTION One of the main objectives of governments around the world is to promote sustainable social and economic development. However, current politico-administrative regimes work on a model in which government provides security, basic infrastructures and services, but economic development relies on private investments that are regulated to different extents. In this way, governments compete to attract investment by providing robust physical infrastructures, promoting the formation of a critical mass of highly qualified human resources, reducing taxes, creating efficient procedures to encourage business and lower investment barriers. Globalization has intensified the competition for investments among countries and regions (Erickson & Roberts, 1997; Doel & Hubbard, 2002), and similarly to other global phenomena, local manifestations are becoming increasingly important (Frederickson, 2004). Moreover, local governments are playing a key role in global sustainability (Keen & Mahanty, 2006). In this way, municipal, city and town governments are becoming aware of the importance of identifying and marketing their local assets. However, local government activities, policies and results are both enabled and constrained by institutions, organizations and contextual factors at the local, state and national levels (Lowndes, 2005). However, Information and Communication Technologies (ICT) not only provide alternative channels to market products and services in the private sector, but also are key enablers of some forms of marketing (Gillenson, Sherrell & Chen, 1999; Mohammed, Fisher, Jaworski & Cahill, 2002; Roberts, 2003). Furthermore, the Internet as a manifestation of ICT is changing traditional marketing paradigms to become a way to aggregate communities that can be engaged in conversations for branding or marketing goods and services (D. M. Scott, 2007; L. Weber, 2007; S. Weber, 2007).
However, there is still little exploration of the ways that ICT can support local and city marketing. The purpose of this chapter is to discuss the strategic scaffolding for ICT as a key component of a city’s marketing strategy. Although the interactive and networked characteristics of modern ICT make them an important medium to connect different stakeholders in the marketing process, the main source of value resides in the strategic use of ICT and not in ICT itself. Moreover, both ICT use and marketing activities are shaped by existing and emerging interorganizational networks (enterprises, service personnel, government officials, city planners, consumers, citizens), government structures and institutions (Fountain, 2001; Gil-Garcia, 2005; Hassan & Gil-Garcia, 2007; Luna-Reyes, Gil-Garcia & Cruz, 2007; Luna-Reyes, Gil-Garcia & EstradaMarroquín, 2008). In this way, the chapter will analyze key factors in city marketing in addition to their interactions with other city management processes, strategic management, and government institutional arrangements. We will use as an example the city of Puebla, Mexico. City marketing efforts and ICT use is still incipient there, mainly because of institutional constraints and limited commitment among key stakeholders. However, we believe that some developments in city planning and marketing could constitute the basis for a marketing strategy that takes advantage of current ICT. The rest of the chapter is organized as follows. The second section describes the concepts of strategy, city marketing, ICT for public management and institutions. The third section presents the case of the Mexican city of Puebla to illustrate the city’s current strategy and marketing efforts, its use of ICT, the institutional, contextual and organizational factors involved in the planning process, and the lessons learned. The fourth section explores some future trends in the use of ICT in city marketing, and the chapter ends with a conclusion.
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BACKGROUND City marketing is, like many other government activities, a problem that requires collaboration between private and non-profit organizations. The department of urban development needs to create and coordinate the city’s infrastructure, to make the city attractive; the department of finance needs to coordinate with legislatures and other government offices to develop the budget; the department of tourism needs to find ways to attract visitors in coordination with hotels, restaurants and the entertainment industry. Citizens are important participants in the creation of a good environment in which to live and to visit. In order to be effective, a coordinated strategy needs to involve all of the key stakeholders (Andersen, Belardo & Dawes, 1994; Eden & Ackermann, 2000; Bryson, 2004a). Moreover, the need to collaborate challenges the traditional hierarchical structures in government, and calls attention to the need for institutional innovation (Gascó, 2004). Thus, in this section of the chapter we introduce some central concepts and ideas associated with the use of ICT in city marketing. In order to do that, the section starts by using institutional theory as a framework for the concepts presented. After these initial comments, we introduce important concepts related to city marketing and ICT use in government. We end the section of the chapter by describing the importance of government strategy, city planning, and its relationship to ICT use and city marketing.
Institutional Theory Institutional theory has described phenomena from the organizational, economic and sociological points of view, and it has been used successfully to explain local government actions (Davies, 2005; Moon & Norris, 2005; Norris & Moon, 2005). Institutions are the rules of the game in a society (North, 1999), and in this sense, they shape the ways in which individuals and organiza-
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tions perform their activities, including strategic development, planning, ICT use or marketing (DiMaggio & Powell, 1983). Institutions are not only reflected in legal structures, but also in norms, cultural and cognitive structures, which influence our day-to-day activities (W. R. Scott, 2001). However, many authors recognize a complex and recursive relation between individual action and institutions (Giddens, 1984; DeSanctis & Poole, 1994; Orlikowski, 1992, 2000). In this way, institutions modify individual action, but individuals and organizations have the potential to generate pressures that change the institutional structure. However, and although institutions suggest permanence, they are subject to change and discontinuity (Hassan & Gil-Garcia, 2007). Jane Fountain proposes the Technology Enactment Framework, which explains ICT enactment and performance as a result of the functionalities of technology (or objective technology), institutional arrangements, and organizational forms (Fountain, 1995, 2001). An ICT enactment consists of people’s perceptions and uses of ICT. Institutional arrangements, as mentioned before, represent the regulatory, normative, and cultural-cognitive structures that constrain government actions. Finally, organizational forms involve roles, routines and relations, particularly interorganizational networks. Gil-Garcia (2005) expanded Fountain’s enactment framework, including environmental and contextual variables. In his research, environment was found to have both a direct impact on organizational forms and institutional arrangements, and an indirect impact on technology and organizational performance. In addition, environmental and contextual factors help to understand the antecedents of institutions and organizational characteristics. As Figure 1 shows, the enactment framework can be extended to government activities beyond ICT use. That is to say, the selection of a marketing strategy, or planning process, can be understood as an enactment of government activity, which will result in different organizational outcomes. Such
City Boosterism through Internet Marketing
Figure 1. An institutional view of strategic processes in government (©2005 Jose Ramon Gil-Garcia. Used with permission.)
government enacted activities are both facilitated and constrained by organizational structures and institutional arrangements. However, government activities can also modify organizational forms and institutions. Contextual factors (environment) have an impact on institutional arrangements, organizational structures and also government activity. In this way, the sophistication of local institutions and organizations is the result of educational, economic and other contextual factors in the city. Moreover, these contextual factors also condition advances (or lack of advances) in government enactments of ICT, strategic planning, and city marketing.
City Marketing According to Kavaratzis (2007) “city marketing is a long-term process that cannot be implemented in parts or only to a certain extent. Second, promotional activities constitute only a fraction of the whole process and should not be considered an alternative for strategic marketing” (p. 696). City marketing strategy implies active participation of key members of the local community, such as leaders of the local public and private sector, citizens and professional planners. The objectives of the strategy are to improve the city image and to set the springboard for urban development, investment and living environments. Hubbard (1996) based on Short et al. (1993) argues that, “place marketing is inevitably accompanied
by the fabrication of a new urban landscape, which can therefore be seen as both an expression and a consequence of attempts to re-image the city, playing a crucial role in the entrepreneurial ´selling´ of cities” (p. 1444). In this way, concentrations of entertainment and leisure facilities, shopping malls, tourist attractions, or business centers constitute urban flagships developments for many cities (Kolb, 2006). City marketers implement broad strategies to appeal to stakeholders. Such strategies include marketing the city’s image, attractions, infrastructure and people, all of which draw visitors, residents, employees, businesses, and promote exports (Kotler, Gertner, Rein & Haider, 2007). In terms of the image of a place, two aspects are involved in its creation (Kotler et al., 2007): the individual perception of the image from a personal or general concept (stereotype), and the role of place marketers to design a strategy that enables customers and stakeholders to discover the attractiveness of the place and to drive their buying decision. For instance, the city of Shanghai developed a strategy to host the 2007 Special Olympic Summer Games. To publicize the facilities that could accommodate people with disabilities, organizers made: infrastructure adaptations to facilitate the athletes’ performance, designed and promoted a new national sports star, launched a competition for the Olympics logo design and training of volunteers to provide assistance to the athletes (Yuankai, 2007).
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However, city image does not always help to host international events, as was the case of Mexico’s “Universal Forum of Cultures Monterrey 2007.” From the point of view of the media and public opinion, Forum organizers could not attract the attention of the public, in spite of the city’s cosmopolitan image. One way to attain a positive and attractive city image is its strategic management, which consists of tracing image changes in several target audiences to understand their dynamics and how to influence such changes (Kotler et al., 2007). Some target markets or audiences are visitors (business and non-business), residents and employees, business and industries (investors), and export markets (expanding city exports). Business and industries is the most competitive market. Given its perceived potential to promote economic development, one industry that is attracting the attention of governments around the world is the “clean industry,” which includes high-tech and software companies. Associating specific images with the name of a city is a key goal of city branding. A brand is a multidimensional construct that deals with what a city does and have and what the consumers (stakeholders) perceive about it and, it becomes an interface between city and consumers (De Chernatony & Dall´Olmo, 1998; Kavaratzis, 2005; Kavaratzis & Ashworth, 2005). Brand management then consists of controlling the interaction between the city and the consumer (Morgan, Pritchard, & Pride, 2004). The communication of a brand takes place based on the effects of what a city does (primary communication) and the intentional communication through marketing practices (secondary communication) (Karavatzis, 2004; Kavaratzis, 2005). In this way, home town or home country can have brand equities that build values, qualifications and emotional linkages in the consumer’s mind (Anholt, 2004). For instance, a successful global brand, by offering high quality products or services can evoke its place of origin (Anholt,
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2000); for example, Japan is associated with high-tech products and France is associated with quality food and wines. Stereotypes can erode or enhance the town, city or country image depending on the effectiveness of brand management (Kotler & Gertner, 2004). In this way, a high tech product from Japan will have advantages over a similar product from China or Taiwan. Some key factors that can affect the work of city branding are popular perceptions, their level of exposition (previous knowledge) and nationality, media, environment and the strength of a brand (representativeness and functionality) (De Chernatony & McWilliam, 1990; Anholt, 2004; Caldwell & Freire, 2004;). Country brand can be helpful, but also has the potential to work against a particular region or city. For example, the Mexico travel brand is strongly associated with beach destinations, which makes it difficult for colonial cities to position themselves in tourists’ and visitors’ minds. Building global city brands and shaping and promoting brand equities entails government support and continuous investment (Anholt, 2004). Finally as Kavaratzis (2007) argues, “city marketing can now be viewed as a fundamental part of urban development” (p. 710) and city branding “as a new episode in the application of city marketing” (p. 704). City marketing entails a series of steps, from a thoughtful analysis of city assets, opportunities and audiences to the evaluation of all activities. We should not forget that a key factor in the attractiveness of any place is its people, who are an integral part of the perceived image of a place (Kotler et al., 2007).
ICT Strategy and City Marketing The interactive characteristics of ICT such as the Internet have proven effective in the marketing process in the private sector, either to conduct research, sell goods and services or build brands (Mohammed et al., 2002; Roberts, 2003). Moreover, developments on databases and
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datawarehouses allow the creation of marketing applications that focus on market segments of one, and facilitate the evaluation and assessment of marketing efforts (Gillenson, Sherrell & Chen, 1999). However, most of the front-end applications were limited by the lack of proper back-office processes. As a result, the term “Internet Marketing” has been replaced by the term “e-Business,” following a more holistic approach that not only emphasizes the front-end, but extends to the review and integration of back-office applications. In this way, referring to the relationships between city marketing and ICT strategies, we want to show the need for coordination of front-end and back-office applications. In a recent review of the literature, Gil-Garcia and Luna-Reyes (2006) identified four categories of ICT use in government: providing services to citizens and other stakeholders (e-Services), promoting public participation (e-Democracy), managing back-office processes (e-Management), and developing public policies to promote the information society (e-Policy). City marketing activities can take advantage of ICT in all of these areas. On the one hand, E-Services are an effective way of accelerating both new business creation and alternative channels to provide services to citizens, private organizations and visitors. On the other hand, the coordination of all the actors and stakeholders involved in increasing the attractiveness of the city can be coordinated using back-office interoperable systems, which relies on e-Management. E-Democracy encourages stakeholder participation in city planning, city security and maintenance, and taking care of e-Policy enhances the possibilities of taking advantage of ICT by government and other members of society. The Internet is, without a doubt, the ICT that has had the greatest impact on marketing practices. Weber (2007) identifies four stages in the technological development of the Internet. During its first years, the predominant Internet technology was Hyper Text Mark-up Language (HTML), which raises the possibility of creating and publishing
static content and messages. Internet marketing was born, and marketers around the world started creating content to their prospective markets, using Web pages as an alternative messaging channel. During this stage, the main way of attracting Web site traffic was to place banner ads in paid directories and catalogs. The second stage involved the use of technologies that allowed for more interactivity between target audiences and businesses and other organizations. Programming languages such as Perl, Java, or JavaScript, as well as database connectivity gave birth to e-Commerce, allowing marketers to use the Internet not only to send and receive messages, but also to sell products and services. Moreover, the use of the Internet for marketing research provided the opportunity to extend reach at a lower cost through online surveys. The third stage consists of what Weber (2007) and others have called the social Web. From our point of view, the social Web stage is composed of two components. The dotcom bubble attracted attention to back-office processes, promoting the integration with suppliers and other partners by using Internet connectivity to deliver e-business. EXtensible Mark-up Language (XML) and other Electronic Data Interchange (EDI) technologies and standards have been key to promoting integration and interoperability. Marketers started using the Internet to create advantages over their competitors, requiring collaboration with other functional areas inside the enterprise and across organizational boundaries with their business partners. More recently, social Internet applications such as blogs, wikis, networking and social tagging sites have given the Internet a whole different character. XML and hybrid programming approaches like AJAX (combining XML and JavaScript) are some of the technologies behind these social applications. Marketers are still figuring out how to exploit these new tools, but apparently, the Internet is no longer being considered as an alternative channel, but as a way to aggregate relevant contents to target audiences
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and communities, which become involved in conversations intended to influence buying decisions. The fourth stage is not yet here, but with the wide adoption of broadband connections to the Internet, it will expand the potential use of multimedia, video, sound and touch for marketing efforts. City marketers can take advantage of all these technologies to support their marketing strategy. Blogs, wikis, podcasts, and other Web 2.0 tools can be embedded in city Web sites and applications to increase their effectiveness, and to engage in social conversations with citizens and other stakeholders, creating virtual spaces to enhance the city experience (Ishida, 2002). However, realization of ICT benefits does not come from ICT itself, but from its strategic use (Andersen, Belardo & Dawes, 1994; Janssen & Cresswell, 2005). In other words, ICT use requires for a long term vision and the integration of the specific (sometimes contradictory) visions of main government areas in addition to inputs from other stakeholders in the civil community. In this way, having a web site to market the city adds little or no value if there are no clear objectives for the site, and if those objectives are not aligned with the city’s development strategy. To support this integrated strategy, local governments need to develop a business architecture which has three components: a governance body, ICT policies and standards, a technical and a semantic architecture (Janssen & Cresswell, 2005; Papazoglou & Ribbers, 2006). The governance body constitutes a steering committee for developing e-Government strategy, and it should invite representatives from all government departments or ministries, and representatives from other key stakeholders. ICT policies and standards guide the selection of new technologies and support the prioritization of ICT projects. Technical and semantic architectures are the basis for the creation of interoperable systems that facilitate collaboration among main actors in the city marketing process.
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City Strategy and Planning Developing an integrated strategy is a key means of capitalizing on the benefits of ICT use in city marketing. Strategic urban development plans are the scaffolding upon which local governments pave the way for economic competitiveness. Such plans establish the guidelines, goals and policies for resource allocation to achieve critical goals. Making strategy in the public sector, however, is not a straightforward process. One useful conceptualization for the public sector is that “strategic management is a way of regenerating an organization, through continuous attention to a vision of what the people who make up an organization wish to do. It is a pro-active process of seeking to change the organization, its stakeholders (in as much as they are different from the organization), and the context, or environment, in within it seeks to attain its aspirations” (Eden & Ackermann, 2000, p. 3). An interesting characteristic of such a conceptualization is that it recognizes strategy making as an emergent process of change. In fact, from Eden and Ackermann’s point of view (2000), strategy making is a continuous process of sensemaking and negotiation among all stakeholders, who consciously explore and reveal emergent and planned strategies to continue (re-)designing the intended strategy (see Figure 2). Key stakeholders in the strategic process are leaders in the public and private sectors, citizens and professional planners. Given that actors and stakeholders may have different or even conflicting views of the mission and critical objectives, strategy making needs to be understood as a process of continuously developing shared understandings about key problems and objectives (Eden & Ackermann, 2000; Bryson, 2004b). Anticipating future scenarios, public managers can manage environmental risks, build coalitions, and monitor and influence stakeholders. The reflection on power relationships and the political environment are important components of strategy making in the
City Boosterism through Internet Marketing
Figure 2. The strategic process (Source: Adapted from Eden and Ackermann, 2000)
public sector because it helps to balance planned with unplanned opportunities. Moreover, working together in these reflections ensures commitment among participants, allowing them to see things differently and to create alternative frameworks for decision making and problem solving. The strategic process becomes more important in an environment in which cities become entrepreneurial actors (Jessop & Sum, 2000). In this chapter, the purposes of designing a strategic plan are to take advantage of modern ICT to promote urban development and economic growth, as well as to shape it in terms of strategic formulation, spatial planning and city marketing. There are four interrelated elements of competitive city strategies: urban design (specific character of a place), infrastructure (transportation networks, energy and water, etc), services (street lighting, garbage collection, etc.), and attractions (natural and cultural attractions, historical sites or monuments, etc). Key technologies for supporting strategic planning for development and city marketing involve Geographic Information Systems (GIS). “GIS is a tool that allows data that can be referenced spatially to be organized and analyzed”
(Doyle, 2001, p. 85). GIS can be used in land and natural resource management (Bateman, Lovett & Brainard, 2005), and urban planning (Erbek, Ulubay, Maktav & Yagiz, 2005). Private organizations are already taking advantage of GIS for marketing purposes to identify target audiences, locate business branches, and engage in customer profiling or sales forecasting (Doyle, 2001). GIS will have also an impact on city marketing (see for example Raymond & Brown, 2007). GIS and collaboration platforms also support public authorities and their stakeholders in the execution of the strategy, and in the continuous evaluation and assessment of progress (Rocheleau, 2006). Government Web pages have been adopted to communicate efforts and results in local development (Kotler et al., 2007). Institutions and organizations have an impact on the strategic process of a city given that, creating and approving strategic plans is constrained by laws and regulations. Normative and cognitive institutions also play a role in the strategic process. For example, “a change in local leadership may often mean the end of a strategic plan because the new leader wants to demonstrate his/her vision for the city future” (Wu & Zhang, 2007, p. 732).
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Actors in the process take for granted (and naturally) that each time local government changes, its strategic planning does too. Main challenges for local governments are to accelerate the political and social approval processes of strategic planning, as well as adopting a global vision and a long-term business strategy (Wu & Zhang, 2007). In sum, city governments need to adopt an entrepreneurial vision in their discourse, action and promotion of the city and its regions to attain economic competitiveness, to promote innovative production methods, and to locate sources of raw materials for industry (Schumpeter, 1934; Hubbard, 1996; Jessop & Sum, 2000).
CURRENT DEVELOPMENT OF CITY MARKETING IN PUEBLA, MEXICO In this section we will describe some current developments in strategic planning, city marketing and the use of ICT in the city of Puebla, Mexico. Although city marketing in Puebla is just beginning, it is an illustration of the initial steps towards an integrated strategy, and the institutional and contextual enablers and limitations in a Mexican city, which can be applied to similar cities in developing countries. General city strategy and planning are conceptually related to city marketing in Puebla although they have not yet been fully connected in practice. One of the staff members made the connection by comparing a city with a person’s home, saying that “you do not design your house for your visitors or friends, you design your house for yourself, and you also use the same house to receive them… some of them will like your house and the way you live, and others maybe not, but at the end, your visitors will be assessing your home and the way you live.” In this way, a city has to be planned and designed for its inhabitants, which in the words of the informant “will create a social collective, a culture, and a way of living.” This way of living and collective culture, with the
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physical infrastructure and amenities of the city is what visitors will experience. Moreover, the same collective will attract (or drive away) investors. Recognizing the importance of context and institutions in the enactment of strategies, marketing and ICT use, the section provides some background information on Puebla, and on some Mexican institutions that are important in local government activity. We continue the section with a description of the efforts in Puebla related to city strategy and planning. Although there is not yet an integrated strategy to market the city, we will examine the efforts in city marketing and related ICT use. We will finish the section by exploring the challenges facing the City.
Institutional Context of the City of Puebla Puebla is the capital of the state of Puebla. Founded in 1531, Puebla was a natural stop for travelers between the seaport of Veracruz and Mexico City. The city is connected by highways with Mexico City, the Gulf of Mexico and the Pacific Coast, and it is the fourth largest city in Mexico. The 1,485,941 inhabitants of the city of Puebla represent about 28% of the total state population.1 The city is home to about half of the state’s hospitality industry (6,641 out of 13,203 available rooms, and 558 out of 984 restaurants),2 and about 40% of the State Gross Product (80.9 billion pesos out of 209.8).3 The main economic activity is commerce, particularly with the Mexico’s south-eastern states and cities. Some of the city’s main attractions are the colonial district (downtown Puebla), cultural attractions, traditional festivals, historical sites and monuments, entertainment, shopping, and living heritage. Puebla City has become an important center of higher education, boasting more than 100 colleges and universities. Although the autonomy of state and municipal governments is established by the Mexican constitution, a single political party controlled federal, state and local governments for more than 60 years, in a
City Boosterism through Internet Marketing
de facto centralization of power. A decentralization process started in 2000, but local governments still need to work more towards a more autonomous administration. The free municipality is the basis for territorial division, and politico-administrative regime in Mexico. The state of Puebla comprises 217 municipalities. At the local level, municipalities have a council chaired by the municipal president, elected by direct voting. This council –called “Cabildo”— has both executive and legislative functions. The “Cabildo” is elected every three years. Although it is possible for municipal presidents to be re-elected, they cannot be re-elected to consecutive terms. At the municipal level in Mexico, the concept of professional public service is nonexistent, and non-elected positions are appointed. In this way, there are potential knowledge losses every three years as part of the succession process. The Cabildo works in coordination with Auxiliary Councils that are elected through a plebiscite in smaller cities and towns. The Cabildo and the Auxiliary Councils are responsible for the provision of city services such as street lighting, water and sewage, garbage collection, public markets, streets, parks and public security. They also grant building and business permits. The main income sources for municipalities such as Puebla are the property tax, fees for services, and a federal contribution. Municipal income plans, however, need to be approved by the state legislature every year, thus municipalities’ capability to invest in local infrastructure depends on state priorities. The Cabildo has the capacity to decide the expense budget. All municipalities in Mexico have the faculty to establish three-year development plans and urban development strategic plans. These plans, however, need to be aligned with national and state level development plans.
Strategic Planning Process As we pointed out in the background section, a marketing strategy can be successful only when it is guided by urban or regional strategic plans
that are oriented to developing a landscape and an infrastructure for the city. Thus in this section we will describe current developments in strategic planning at the state and local levels in Puebla. Strategic planning in Mexican public administration is relatively new. At the state level, a program promoted in the late 1970s pushed for the first time the creation of long-term urban and regional development plans, and at least in the case of the state of Puebla, the plan was not updated until recently. In general, there is a lack of strategic planning culture at the municipal level, and only 20 out of 217 municipalities have developed long-term urban development programs. In 2004, the state government decided to review and update the plan developed 27 years before to respond to current needs and opportunities. The plan promotes structural economic competitiveness, and the establishment of conditions to improve the quality of life of population, distributed in nine regions (sustainable environmental urban systems) and 22 homogeneous sub-regions (sustainable environmental urban subsystems). The plan identifies key population centers as the main sources of regional development in networks of interconnected cities and towns. Puebla City is the most important strategic population center in the state. It offers a broad range of services, and according to state planners, the city has a “great capacity to cover local needs and to exploit its potential in national and international markets.” Being a key site for state economic development offers opportunities for city strategy and marketing at Puebla. In accordance with the state’s revitalization plan, local managers joined a strategic planning process for urban development in Puebla City. The plan to create the Municipal Sustainable Urban Development Program of Puebla entailed the involvement of many strategic groups and actors, in addition to an integrated diagnosis of the city’s infrastructure and resources. A project manager in the planning process commented that “the process involved more than 150 meetings with specialists,
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academics, professional planners, public officers and the public.” The main objective in the plan is “the accomplishment of a sustainable urban development in a long-term scope.” The plan was aligned to the national development plan, the state development plan, and current municipal problems identified for the municipal three-year plan. The program identifies seven “Activity Polygons” in the city, which are urban areas with special needs or assets, key elements to develop both an urban plan and a city marketing strategy. For example, two of these urban areas are proposed for preservation as ecologic areas with special eco-tourism projects. An important polygon in the area is Puebla downtown, which has been declared World Heritage by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Although GIS is not yet fully developed in the city, it constitutes an important ICT to support planning at the state and city levels. Figure 3 shows one of the maps in city diagnosis and planning. One of the participants in the planning process commented that “high resolution satellite photographs allow to combine many layers of information associated to them, and linking this information with logical interpretation from government offices and research centers it is possible to develop plans and applications hard to imagine some years ago.” According to our previous discussion, institutions influence government activities such as planning. We have also mentioned the lack of continuity in government activity. In order to promote a long-term vision and to reduce the impact of government transitions, municipal government proposed a Municipal Institute for Strategic Planning to ensure the continuity of the strategic plan. The Institute includes citizens as well as professionals and academics in urban planning; it allows for spatial administration and planning on an ongoing basis. The Institute will be able to maintain the development of strategic projects on behalf of the city despite changes in
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Figure 3. Key zones for urban development in the city of Puebla
local administration. The Institute is now in the process of authorization and conformation.
City Marketing Efforts in Puebla City marketing and branding in the city of Puebla is still a work in progress. One of the government officials interviewed commented, “Puebla is a complex city that can be ‘packaged’ and marketed to many different target audiences. It is a city with lots of potential, not yet fully exploited.” However, planning efforts at the state and municipal level offer an opportunity to start a coordinated strategy among state and local governments and other key stakeholders from the private sector. In this section we will describe the developments in government offices, and some public-private partnerships. There is no specific effort in terms of city branding, and local authorities use the images that were designed at the state level (see Figure 4). However, state image is influenced by the image of the city of Puebla, which is the state capital. Puebla City is one of the cities in central Mexico
City Boosterism through Internet Marketing
that is famous for its gastronomy, and especially for its “mole.” Branding efforts at the state level are taking advantage of the cuisine and especially of “mole.” As shown in Figure 4, two slogans are used in to attract visitors. The first one, “¿Antojo de Puebla?” literally asks “Craving for Puebla?” The second phrase, “Puebla, mi mero mole,” is taking advantage of the famous dish used in the idiom “mi mero mole,” which is describes “my favorite thing.” Both pictures were taken in the Puebla metropolitan area. Thus, the state image has an important influence on the city of Puebla. As a part of this attempt to promote Puebla, the Talavera (unique pottery) is used as a component of regional identity, and it is recognized internationally as a product with certified origin denotation. The city’s Web site uses Talavera to reinforce the city brand, using a map of the state covered with adornments similar to the ones used in this handcrafts (see Figure 5). The angel on the Web site is another image associated with the Puebla City brand, based on a legend that attributes the layout of the city’s streets to angels. National brand positioning presents a challenge to attracting visitors. Although there are many sub-brands in the national branding strategy, Mexico is better known nationally and internationally for its “Sun and Beach” destinations, and according to one of the interviewees, sometimes
“Sun and Beach” just means Cancun. Puebla belongs to the sub-brand “Colonial Cities,” but the strength of the “Sun and Beach” brand makes it difficult to convince visitors to see Mexico’s colonial cities. Given that UNESCO has declared Puebla City a World Heritage site, and that Mexico is one of the countries with the most World Heritage Sites in the world, the city hopes to create a sub-brand of “World Heritage Cities.” This initiative is fostered by the Director of Tourism. In terms of marketing efforts, and although there is not yet a coordinated strategy, the city of Puebla has been developing its infrastructure and assets for three target audiences: investors, visitors, and business travelers. Private investors and leisure visitors are the main interest of the Ministry for Economic Development and Touristic Promotion, and business travelers attending Figure 4. State branding and image efforts
Figure 5. Web presence of the direction of tourism of Puebla city
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conventions and conferences are the main target for the Bureau of Conventions and Conferences. The Ministry for Economic Development and Touristic Promotion relies on the Economic Promotion Director and the Tourism Director to draw investors and visitors to the city (see Figure 6). The Economic Promotion Director works mainly to attract investors, and the Tourism Director works to attract vacationers. One strategic objective has been to sell Puebla to transnational firms as an alternative to Mexico City. The economic directors have been consulting with state and municipal urban planners to create infrastructures for industrial parks and for zoning for buildings that will become the headquarters of transnational firms. In addition, the city has been expediting the processes of granting business and construction permits. In fact, they promote the city on their Web site as a place where someone can start a business in two days. ICT has increased the efficiency and transparency of obtaining permits. Potential investors can obtain all permits from city kiosks. One of the objectives of the city is to connect the permits system with the GIS in order to ensure that the distribution of investment according to the needs of each of the city’s zones. Puebla city has many institutions of higher education, and is therefore an important source of highly qualified workers. State and local authorities are using this fact to attract investment. Although a strong infrastructure has been created,
the city has not yet capitalized on these efforts, and has not been a significant increase in investment. The Tourism Direction has launched several initiatives to attract visitors since 2005. The initiative was undertaken to identify trends in demand. In this way, Puebla is the first Latin American city with a Touristic Observatory registered with the ATLAS Cultural Tourism Research Group. The observatory measures variables such as level of service, reasons for the visit, attractions, and citizen attitudes, and it has been used for seven seasons. The findings are published on the tourism Web page. The observatory has highlighted the lack of coordination among service providers. For example, hotels lack complete information about the city’s transportation, restaurants or entertainment and the tourism director has started to meet with local hospitality associations. Creating synergies among service providers has been a difficult task. The second important activity is the attempt to appreciate city assets by creating a database of its local attractions, buildings and historic sites. Citizen participation has been recognized as a key input in this process, and determining which attractions need to be included in the inventory has been also a challenging task for citizens and visitors. The inventory is available through the tourism Web page, along with a description, photograph, and map of each attraction. Finally, the target market of business visitors for conventions and conferences has been identified by the Bureau for Conventions and Conferences
Figure 6. Organizational chart for the local ministry for economic and tourism promotion
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(BCC). The Bureau is a liaison among professional, government or industry associations and service providers in Puebla City. BCC started as a local association of hotels, restaurants and transportation companies called Destination Puebla, state and local tourism offices, and the Council for the Historical District. BCC is a marketing and sales office (see Figure 7), and its main authority is a Management Board with government representatives, private service providers and citizen councils. The Bureau establishes the city’s presence in Meeting Planner Showcases and makes direct sales to professional and industry associations. BCC tries to capitalize not only in the city’s cultural and historic assets, but also on its capital investments in a Convention Center in Puebla World Heritage District.
ICT Development and Use As with city marketing efforts in Puebla, the use of ICT to support the marketing process is also in its earlier stages. However, it is possible to identify efforts in the front-end, and back-office efforts that can give support to the front-end applications. In terms of front-end applications, both the municipal government and the Bureau for Conventions and Conferences are using the Internet to provide information to potential visitors or conference organizers (Figure 8 and Figure 9). Both
Web sites are designed to provide information. The municipal Web site (Figure 5 and Figure 8) offers information to potential investors and visitors. Investors can find information about how to open a business in Puebla City, as well as federal, state and municipal programs to promote investment and business creation. Visitors and citizens can find information about places to visit in Puebla. The Bureau for Conventions and Conferences’ Web site provides general information, testimonials and a contact address. BCC Web site includes an electronic form to acquire contact information from conference organizers. In terms of back-office applications, a Geographic Information System (GIS) is being developed for urban planning. However, municipal government officials envision the GIS supporting many other information-intensive applications, such as granting construction permits, analyzing urban growth, infrastructure maintenance, and of course, city marketing. As shown in Figure 8, the Web site takes advantage of Google™ Maps to guide visitors to the city’s attractions. The database of local attractions does not include geo-spatial coordinates for all attractions. Completing this information would generate an interactive map of the city. Such an application would be accessed either from the Internet or from kiosks stationed throughout the city.
Figure 7. Organizational chart of the Bureau for Conventions and Conferences
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Figure 8. Google™ maps in the Puebla city portal
Figure 9. The Bureau for Conventions and Conferences web page
CURRENT CHALLENGES AND LESSONS LEARNED FOR CITY MARKETING IN PUEBLA Although the developments described in the previous section are promising and city managers have accumulated expertise and learning, they must face important challenges developing an integrated city marketing strategy in Puebla. In this section, we include some of those challenges and lessons learned. The first challenge is associated with the succession process in municipal government. A new municipal administration was elected in November 2007, and the new Cabildo took office in February, 2008. The change in elected officials also implies 856
changes in the appointed government officials. Because of the succession process, the activities of the previous municipal government need to be continued by the new officials. Although the proposed Municipal Institute for Strategic Planning could help with program continuity, the Institute itself has not yet been created and its future is at risk. Puebla has no integrated ICT strategy that allows individual dependencies to choose their own technology and standards; this makes information integration a difficult task. Inside each government office, there is a variety of hardware and software, and a diversity of data models. Nor there is a clear policy or formal procedure to manage the transition from one administration to the next. The administration faces the challenge of developing such a strategy along with institutional elements like laws and regulations. Another important challenge pertains to the budget for city marketing. Many efforts are being made to ensure coordination and participation of local universities, but there is no specific budget for city marketing. The managers plan to use the results of these efforts to show value, and to obtain public and private resources for city marketing. The new Cabildo needs to include in its expense plan the funds to develop the strategy. In terms of ICT infrastructure, one of the interviewees commented that even though the GIS could be used by many ministries in local administration, most of the ICT infrastructure is not interoperable. In this way, the next municipal government must also create an ICT strategy that takes into account the development of an interoperable business architecture. In this way, the GIS can be better exploited for the development of front-end and back-office applications to support planning and marketing activities. Moreover, involving investors and service providers to create synergies has been a difficult task. One of the interviewees commented that in spite of the infrastructure investments and the creation of several industrial parks, both the city
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and the state have not been able to attract investors to these new developments. Global competition is apparently increasing the bargaining power of investors, who, in the words of one of the interviewees, “do not want to pay taxes, services or utilities to establish in your place or otherwise they establish in a place where they get the best offer…” Moreover, service providers in the hospitality industry see each other as competitors, and there is little interaction or coordination among them. One of the interviewees commented that “one of the main challenges to improve service to our visitors is to convince private providers that the visitor is an integrated person who needs hotel, food, transport and entertainment.” Ideally, hotels should provide information about dining and entertainment, restaurants should provide information about hotels and entertaining. At the present time, it is hard for visitors to find integrated information that will enable them to enjoy the city. Finally, and given the three-year turnover at the municipal level, an important challenge for the city will be to manage knowledge and to build human capabilities for city marketing. Such knowledge systems will allow the strategic management of city assets. This three-year turnover poses other challenges for continuity of city image. The city portal, for example, changes its design and domain name every three years. The lessons learned through this case emphasize the role of strategic planning, information systems and ICT tools, and the interaction ability of their users to invigorate city marketing strategies and long-term global strategies with entrepreneurial vision. Likewise, the creation and development of social, organizational and business networks should be considered. First, systems compatibility and information management help to promote business and economic transactions and, to construe them in service and products demands and social and commercial networks. All main leaders are aware of that, and
are pursuing this goal. However, they recognize that integration will take several years. Second, the exploitation and use of ICT tools is crucial to develop and to maintain communication networks among stakeholders, allowing them to meet their expectations as place-users and to facilitate their involvement in decision-making. This kind of ICT use is conducive to the development of social, organizational and business networks. Third, people involved in the strategic planning process experienced and valued the richness of involving main stakeholders and encouraging public participation. It demonstrates the importance of working with stakeholders in the creation and design of strategic urban development programs. Fourth, the assets of a city are an integral part of the city’s marketing strategies. In this way, urban landscape and design, infrastructure and attractions and people become part of the perceived image of a place. Indeed, city residents need to see themselves as entrepreneurs and marketers of their city in order to support city marketing strategies. Fifth, creating the infrastructure and developing attractions is not enough. Maintenance of an inventory of such attractions is an important component of planning and marketing. ICT plays a key role in this process. Another lesson results from the creation and implementation of long-term strategies. It means that, leaders in the public and private sector, citizenship and professional planners have to take into account a broad entrepreneurial vision to fight for market opportunities, investment, place-users and economic competitiveness. The Municipal Institute of Strategy and Planning will play an important role in this matter.
FUTURE TRENDS This section of the chapter describes some trends in ICT use to support strategic city planning and marketing. We intend to include the developments
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that are starting to have an impact or that we expect to have an impact on any of these activities. The case of Puebla shows the potential of open GIS infrastructures for city marketing. One of the free applications that allow users to build their own applications is Google™ Maps (http://www. google.com/maps). Google Maps’ API (http:// code.google.com/apis/maps/index.html) allows users to embed maps in their own Web pages with routes and locations. A city can use this application to include routes to historic destinations. The concept of digital cities can also have an impact on city marketing. Digital cities are virtual spaces in which citizens and visitors share knowledge, experiences and interests (Ishida, 2002). A digital city can be as simple as the portals promoted by America Online (AOL), but it also has the potential for interactive three-dimensional applications such as the virtual worlds in Second Life® (http://secondlife.com/). In some cases, ICT can define the image of a city (Dobers & Hallin, 2006). These two examples (maps and digital cities) are instances of a broader phenomenon on the Internet, which allows marketers to engage in conversations with prospective customers. It is possible now to identify government portals in Mexico that use blogs, wikis and virtual communities. These tools are already influencing marketing products and services in the private sector, and offer a platform for collaboration (D. M. Scott, 2007; L. Weber, 2007). Mobile applications are an interesting trend that will shape citizens’ and visitors’ experience of a city. Mobile devices can be linked to GIS to become interactive city guides (Bessa, Coelho, Cruz & Chalmers, 2006). Moreover, devices equipped with Geographical Positioning Systems (GPS) can help citizens and visitors to find historical and tourist sites, in addition to hotels, restaurants and entertainments. Finally, knowledge-intensive applications will be important for city planning and marketing. Private companies already use Customer Rela-
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tionship Management (CRM) applications in their marketing strategies, and they are starting to be used as a part of e-Government strategies (Pan, Tan & Lim, 2006). We believe that these applications can be especially relevant in building networks to promote private investments in the city and for convention and conference attendees. Although the city of Puebla is not yet using many of these tools, they merit consideration by city marketers.
CONCLUSION The promotion of a city is not only about media and supporting tools (Kavaratzis, 2007). Rather, it depends on urban development, spatial planning and economic competitiveness (Jessop & Sum, 2000; Wu & Zhang, 2007), and on the role of the local community in building the city image and imprinting the city brand in the minds of visitors and investors (Anholt, 2004). People enable cities to add city value to the global business, entertainment and leisure arena (Kotler et al., 2007). ICT and the city’s ability to exploit Information Technology with a strategic vision become a springboard for the marketing of a city from both the front end and the back office. There has been some progress towards city marketing in Puebla, but local government is still in the process of creating the scaffolding to develop better applications and ICT tools for city marketing. Although the city of Puebla has directed its promotion strategy through brand management which exploits the representational dimension (emotional links) and the functional dimension (utilitarian aspects), it is crucial to reinforce the emotional link of the brand to personalize the brand by target segment (De Chernatony & McWilliam, 1990; Caldwell & Freire, 2004). Although public and private entities are trying to attract their respective target audiences, a common entrepreneurial vision at a global level and the willingness to cooperate in the common interest is still a work in progress. Current strategic planning efforts at the state and
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local levels offer an interesting opportunity to advance this collective vision. It must therefore be a priority to build and to cultivate networks of stakeholders and governmental authorities (Eden & Ackermann, 2000; Bryson, 2004b). Contextual factors in the city of Puebla, such as its economic development and demand for national and international visibility have the potential to stimulate collaboration. However, globalization has at least two faces for local managers. It is an opportunity to compete for global investors, but it also increases investors’ bargaining power. Mexico’s institutions limit local capabilities and entrepreneurship. Local income is highly dependent on state priorities, and determined by decisions in the state legislature. On the one hand, local development is constrained by state plans and policies. On the other hand, short threeyear government terms without the possibility of consecutive re-election are a serious challenge for strategic continuity. The city of Puebla is trying to meet this challenge through the Municipal Institute for Strategic Planning. Finally, ICT use in Puebla needs to be consolidated through the creation of a business infrastructure that facilitates interoperability and information sharing among local actors, thus offering better services to citizens, visitors and investors.
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ENDNOTES 1
Roberts, M. L. (2003). Internet marketing: Integrating online and offline strategies. New York, NY: McGraw-Hill Irwin.
2
3
Rocheleau, B. (2006). Public management information systems. Hershey, PA: Idea Group Publishing.
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This work was previously published in Information Communication Technologies and City Marketing: Digital Opportunities for Cities Around the World, edited by Mila Gascó-Hernandez and Teresa Torres-Coronas, pp. 130-151, copyright 2009 by Information Science Reference (an imprint of IGI Global). 862
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Chapter 3.22
Learning Organizations or Organizations for Learning? How Small Firms can Learn from Planned and Random Technical Problem Solving: Implications for Technical Education Corrado lo Storto Universitá di Napoli Federico II, Italy
ABSTRACT This chapter reports the findings of an empirical study whose purpose is to identify the attributes of the organization infrastructure that support organizational learning in small manufacturing firms through the creation of procedural knowledge. The study is based on the following assumptions: DOI: 10.4018/978-1-60960-587-2.ch322
a) organizations are cognitive systems that process information and knowledge; b) knowledge is a by-product of technical problem solving; c) innovation occurs as a stream of random or planned problem solving; d) many attributes of the organization infrastructure that foster innovation also foster knowledge generation during technical problem solving. Findings show that three dimensions of the organization infrastructure have an influence on learning: openness, innovativeness,
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and leadership. These attributes identify two typologies of organization infrastructures that differently affect the generation of procedural knowledge and learning. In particular, it was found that the organization infrastructure has a moderating effect on the relationship between some context factors (environment diversity, problem complexity, context ambiguity, and uncertainty) and the amount of procedural knowledge generated during technical problem solving. Implications for technical education are also discussed.
BACKGROUND In the last years, the business environment has dramatically changed. This new environment demands that firms perform their operations with greater speed, flexibility, dynamism, and superior quality. Global competition imposes higher, global standards of customer service, creativity, and innovation that even those firms having no global market goals are forced to meet to protect their market share. Knowledge and the capability of firms to learn developing new knowledge are two main strategic issues that hold the highest potentials for gaining efficiencies, and creating value. The learning organization and organizational learning have emerged as metaphors and models for the adaptation and growth for successful and competitive organizations (Argyris & Schon, 1978; Senge, 1990). Models of organizational learning are developed from models of human learning (Bandura, 1986; Kolb, 1984; Postman, 1976; Schein, 1993). Like the individual learner, organizations draw on experience, interpret and process information transforming it into knowledge, and purposefully use knowledge. Scholars distinguish between personal knowledge that an individual possesses by virtue of education or experience and collective or organizational knowledge, identified as organizational memory or a publicly documented body of knowledge (Nevis, DiBella, & Gould, 1995). As an individual
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learner does, a learning organization accumulates experience, leveraging on feedback about past decisions to incrementally adjust its reactions to similar problems (Pennings, Barkema, & Douma, 1994). However, an organization by itself cannot develop, learn, grow, or take action independently of its members. Organizations have to capture tacit knowledge of individuals and make it explicit and/or shared in the organizational structure to create and manage organizational knowledge (Lynn, 2000). Moreover, in order to learn, it must apply knowledge. Indeed, organizational learning links cognition to action (Crossen, Lane, & White, 1999). Ideally, learning organizations are communities of learners, all working toward common goals. Some activities characterize learning organizations (Garvin, 1993): systematic problem solving, experimentation with new approaches, incentives for risk taking, steady flow of new ideas, learning from their own experiences and past history, learning from the experiences and best practices of others, transferring knowledge quickly and efficiently throughout the organization. Even though knowledge can also be brought in from the outside, either through market intelligence activities or by hiring people with a particular expertise, the outside knowledge has to be absorbed internally by the firm to be utilized in its operations, and the capability to do that depends on the knowledge resources the firm already holds within its boundaries, primarily knowledge embedded as organizational knowledge in the minds and routinized behaviours of its employees (i.e., its human and structural intellectual capital, see Bontis, Dragonetti, Jacobsen, & Roos, 1999). Human knowledge is created through social interaction between the explicit and the tacit knowledge, and in the organizational knowledge environment (consisting of the numerous interacting and interdependent social, cultural, cognitive, political subsystems that shape the creation, accumulation, flow, and use of knowledge within the organization), the organizational infrastructure is an important part
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of the overall organizational knowledge ecology, as it influences how people interact within the organization and with the external environment (i.e., the customers, the technology sources, the norms, and standard framework, etc.). The idea that some attributes of the organizational infrastructure (i.e., culture and attitudes of people relative to certain behaviours, communication environment, climate, etc.) may be supportive to information processing and knowledge management and, in the same time, to innovation, has been largely explored, discussed, and now is well accepted in the literature. However, a few number of scholars focused their attention on the fact that the attributes of organization infrastructure that support innovation processes may also influence organizational processes leading to the creation of new knowledge and learning. As knowledge and learning are an outcome of a socialization process, diffusion, and sharing of tacit knowledge (Nonaka, 1994), the same mechanisms and attributes of the organization infrastructure that play a role in the information processing and innovation management may have not a secondary weight in the creation of new organizational knowledge and learning. The notion of the learning organization has generated tremendous debate and several definitions have been proposed in literature. In spite of the multiple perspectives that exist about the learning organization, there is a pressing need to understand “whether such ideas and practices genuinely create fitter and better organizations for both the people who work in them and the society they seek to serve” [or whether this concept is] “simply yet another ‘vision’ propounded by management and educational idealists or whether it is an ideal capable of reality” (Jones & Hendry, 1992, p. 58). A great amount of the literature on the learning organization, both in the form of theoretical considerations and case studies, is concerned with large firms. However, learning and knowledge management remain critical activities for small
firms too, and as in large firms, they can support competitiveness and success. There is no doubt that there exist differences between large and small firms (Julien, 1993; Welsh & White, 1981), and, consequently, the latter develop and implement innovation and knowledge management models that differ from those typical of larger firms. For instance, studies carried on, relative to innovation management within small firms, emphasized how these have a larger dependence on the environment compared to large firms, and the networking effects have a substantial weight in the innovation activity and information and knowledge collection (Saxenian, 1991), and different interaction and collaboration models, more or less formalized, may even affect innovation success (Imai, Nonaka, & Takeuchi, 1985; Lundval, 1988; Maidique & Zirger, 1988; Rothwell, Freeman, Horsley, Jervis, Robertson, & Townsend, 1974; Saxenian, 1991; Teece, 1986; Van Kooji, 1990; von Hippel, 1987). The dominance of the entrepreneur/manager and the scarce formalization of the organization structure are also elements that give a specific character to knowledge management and learning models adopted in small firms. New knowledge is usually created discontinuously in the life of a small firm, when it has to deal with unusual situations, such as the development of a new product or the entrance into a new market, and, not in a formal way, as it happens in large firms, during the institutionalised R&D activity. Moreover, small firms are frequently founded and managed by people having a technical background, more oriented to solve technical problems rather management problems. Technical problem-solving cycles, both at an individual and a collective level, random or planned, occurring during innovation, are a primary source for the creation of technical knowledge (Corti & lo Storto, 1997; von Hippel & Tyre, 1993), and often it happens that a large amount of organizational knowledge (even the management knowledge) accumulates as a byproduct of technical problem solving. Putting technical problem solving in a central position
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of the process leading to the creation of new knowledge in small firms allows us to construct a contingent model of the learning process in which the attributes of the organization infrastructure that affect how technical problem-solving proceeds have also a weight on the typology and amount of knowledge generated in specific situations. Consequently, small organizations differ as to their capability to generate knowledge and learn when they carry on innovation, and some attributes of their infrastructure may be more effective to support knowledge generation in some contexts rather than in others. The organizational infrastructure is the complex system that links together the social system of human relationships interacting in many ways, the cultural, beliefs, and value system that provide people with the ability to understand and respond to a given situation, the norms and not written rules system that encompasses people’s action, the interdependencies system that sets constraints to how work has to be done, and the management style. It determines the type of leadership, communication, and group dynamics within the organization, substantially addressing how learning occurs. For instance, if the organization has an infrastructure supporting teamwork, stimulating and enabling effective collaboration and social interaction, the capability of the organization to carry out distributed and collective problem solving may be enhanced, and, consequently, its learning capability results improved. Teams are able to deal with more complex problems because they have usually a larger range of skills and expertise than a single individual. Team dynamic generally produces better solution outputs than individual analysis can do. When people work together to achieve their shared understandings, they exchange ideas to clarify issues and reach consensus, put in place the knowledge and insights that team members should have to achieve the team goal, make a collective decision, create such intellectual outputs as situations assessment, courses of action, plans, analyses, recommendations, and action.
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This chapter reports the findings of an empirical study aimed at identifying the attributes of a small firm organization infrastructure that support organizational learning through the creation of routine knowledge during technical problem solving performed in the innovation activity. The study is based on the following assumptions: a) organizations are cognitive systems that process information and knowledge; b) knowledge is a by-product of technical problem solving; c) innovation occurs as a stream of random or planned problem solving; d) many attributes of the organization infrastructure that foster innovation also foster knowledge generation during technical problem solving. Implications are also driven relatively to how address technical education to support learning, both at the high school and the university level. A large part of the roles in small manufacturing firms are indeed covered by people that possess a technical education. A contingent framework is adopted, as there are no universal attributes of an organization infrastructure that make possible, in every context, the effective creation of organizational knowledge during innovation. Rather, it is the fit between the organization infrastructure attributes and context nature that determines the amount and quality of knowledge created. This is the relevant research problem addressed in this chapter. Figure 1 shows the logical flow of the research approach. The chapter has the following structure. First, the main characters of technical problem solving, and the relationship between problem solving and learning and knowledge, are discussed. Next, the organization infrastructure attributes are identified, and the conceptual model and a set of hypotheses are constructed. Finally, the data are analysed, testing hypotheses, and conclusions are driven.
Learning Organizations or Organizations for Learning?
Figure 1. The flow of the research approach
TECHNICAL PROBLEM SOLVING AS A SOURCE OF LEARNING DURING INNOVATION ACTIVITY When organizations undertake innovation, information and knowledge processing becomes a frantic activity during the cycles of technical problem solving. Technical problem solving has a critical importance in generating learning (Fisher, 1980; Johnston & Gibbons, 1975; Maidique & Zirger, 1988; Torrance & Myers, 1970; Utterback, 1971; von Hippel, 1994; von Hippel & Tyre, 1993). Argyris (1982, p. 38) defines learning how: “[...] a process in which people discover a problem, invent a solution to the problem, produce the solution, and evaluate the outcome, leading to the discovery of new problems [...],” while von Hippel and Tyre (1993, p. 5) suggest that “[...] learning by doing is simply a form of problem solving that involves application of a production process (or product, service or technique) in its intended use environment.” The most critical phase of problem solving is “problem formulation.” In fact, Getzels and Csikszentmyhalyi (1976) have shown how problem formulation is more intimately linked to creativity and interaction between individuals than the other phases of problem solving (diagnosis and solution). The solution to a problem can be easier or not depending on the representation and classification of a problem that individu-
als produce during formulation (Hayes, 1978). For instance, a problem can be represented in an abstract or real shape by using mathematical formulae, logical symbols, or by using words or drawings. Problems can be indeed “ill framed” or “well framed.” Newell et al. (Newell, Shaw, & Simon, 1979) maintain that problems that require a creative approach to be solved are, at the beginning, ill framed and generally ambiguous, and a great part of the problem-solving activity reduces to formulate a correct frame of the problem. The novelty, the complexity, and the ambiguity of the problem are all features that influence the individual capability to frame a problem correctly (Mintzberg, Duru, & Theoret, 1976). One of the major tasks of problem-solving activity is to define the boundaries between these variables. Complexity, ambiguity, and uncertainty individuals perceive during problem solving are indeed the outcome of a choice, either explicit or implicit, that the problem solver makes when he/ she frames or reframes the problem according to a convenience analysis of his/her experience, knowledge, and cognitive limitations, and henceforth, are not objectively and exogenously defined. This choice has strong implications on the prosecution of problem solving, as it addresses the following diagnosis and solution, while providing insights relative to the mental model to adopt (Brief & Downey, 1983; Clement, 1989; Larkin & Simon, 1987, 1991; Mintzberg et al., 1976). Individuals
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use existing mental models when they perceive that the environment is fundamentally uncertain or they attempt to bring complexity to a manageable level; they build new mental models when ambiguity increases or complexity cannot be reduced. Firms undertake learning each time they invent, develop, and implement new products, programs, services, or adopt new management practices, new procedures, new organizational settings, new policies, or enter new markets. Most of times, in these occurrences, their entrepreneurial group/ CEO faces situations that he/she is not familiar with. In this case, individuals embark upon a stream of problem-solving activities during which new knowledge emerges in different shapes. This activity is characterized as being inherently full of uncertainty and ambiguity.1 Uncertainty reduction and ambiguity alleviation are usually achieved through a process of trial and error learning, during which people build and rebuild the reference domain of the problem, and sense making, in which they develop new categories for the interpretation of the real world or use old categories to interpret new information. People reduce uncertainty about states and linkages between actions and outcomes by collecting new useful information, and alleviate ambiguity by identifying new meanings and approaching the problem-solving activity from a different perspective, moving from local to diffused problem solving. In local problem solving, initial problem formulation remains unchanged all over problem solving, and causes and solution are identified within the original problem domain. As Figure 2. Local problem-solving
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a consequence, problem is solved by eliminating direct causes that determined the drawback that originated the problem. When individuals involved in problem solving fail to identify causes or solution, they abandon the attempt to find a solution. In diffused problem solving, vice versa, they reformulate the problem, either introducing new variables or eliminating some of the old ones, or, further, assuming new relations between problem variables. That happens when it clearly appears that current problem formulation neither can lead to an acceptable solution, nor to any solution; for instance, when causes that generated problems are not under the organization control. As a consequence, the problem-solving cycle comes to an end when the initial state of the system is redefined and altered, modifying the value of the parameters (e.g., a product is enriched with new features to satisfy latent needs of the customer) and a solution to the new problem is found that can eliminate the original drawback, even though not in a direct manner. The reformulation of the old problem is particularly critical, because it questions the reference pattern of the organization. The problem-solving activity, started within a specific domain, transfers to other domains, generating other problems to be solved, not necessarily of technical type. The locus of problem solving thus migrates from a domain to another (see Figure 2 and Figure 3) (Corti & lo Storto, 1997). Frequently, when problems are too complex, and ambiguity and uncertainty are, as a consequence, very high, the innovation process assumes
Learning Organizations or Organizations for Learning?
Figure 3. Diffused problem-solving
an indeterminate nature, and characters of randomness. The problem-solving activity is extremely sensitive to the different initial conditions and constraints of the organization where it occurs, and a number of factors affect how technical problem solving proceeds (West & Farr, 1989). These factors, indirectly, influence how knowledge is generated during problem solving. Literature has identified three types of factors: a) factors describing the characters and the attitudes of individuals involved in problem solving; b) factors describing the attributes of the organization infrastructure where problem solving occurs, that is to say, the set of attributes that develop a climate more or less favourable to carry out problem solving as they positively influence interaction among individuals, new idea generation, exchange and flows of expertise, and socialization2; c) environment and context factors, such as problem complexity, the diversity of knowledge domains needed to carry on problem solving, and ambiguity and uncertainty perceived by actors. A major outcome of learning is knowledge. Knowledge differs from information. While information is objective, knowledge is associated with a particular cognitive structure of the individuals who develop and use it. Knowledge at the indi-
vidual and organizational level derives from the interpretation of either new or existing information (Daft & Weick, 1984) that is, through developing, consciously or not, a new understanding of surrounding events (Fiol, 1994; Weick, 1995). Knowledge is not independent, but fundamentally situated, being, in part, a product of the activity, context, and culture in which it is generated. The transformation of individual knowledge into organizational knowledge critically depends on the organizational culture. Shared norms, values, interpretive categories, and behaviours are an indicator of organizational knowledge. According to Hedberg (1981, p. 3): “[...] although organizational learning occurs through individuals, it would be a mistake to conclude that organizational learning [...henceforth, knowledge...] is nothing but the cumulative result of their members’ learning. Organizations do not have brains, but they have cognitive systems and memories [...]. Members come and go, and leadership changes, but organizations’memories preserve certain behaviours, mental maps, norms, and values over time.” The creation of organizational knowledge is, therefore, the result of a social interaction between individuals that share and develop individual knowledge (Nonaka, 1994). Organization 869
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infrastructures that allow socialization, interaction among individuals, and communication, positively affect the generation of organizational knowledge. A large amount of the organizational knowledge remains in an informal form, as tacit knowledge that is created and used when formal results leading to formal knowledge are generated. Tacit knowledge is made of facts, ideas, opinions, judgements, assumptions, meanings, questions, decisions, guesses, stories that cannot be stored in some physical support, and most of times, it emerges through people action. It is almost invisible, transitory, and ephemeral (Corti & lo Storto, 2000). Organizational knowledge can also be classified in terms of its being linked to action or not, as routine or procedural knowledge and declarative knowledge. While declarative knowledge only provides the means for interpreting facts, we need procedural knowledge to use it in order to change a situation. Procedural knowledge is indeed the organizational capability to use, proficiently and effectively, knowledge. Therefore, it has a strong behavioural orientation. Organizational procedural knowledge emerges from the behaviours of the individuals within the organization and exists in the form of routines (Nelson & Winter, 1982). Routines acquire a particular importance in shaping the organization knowledge (Nelson & Winter, 1982), as they make declarative knowledge and organization memory operative and useful for the organization. They include (Levitt & March, 1988, p. 320): “[...] the forms, rules, procedures, conventions, strategies, ad technologies around which organizations are constructed and through which they operate. They also include the structure of beliefs, frameworks, paradigms, codes, cultures and knowledge that buttress, elaborate, and contradict the formal routine.”. Organizational routines are a particular way of doing that an organization has developed and learned. As organizations, groups, and individuals gain experience, they tend to adopt habitual modes of behaviour (i.e., routines), devoting, as a consequence, only occasionally, attention and
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effort to modify them. Routines can be viewed as a concatenation of actions stored in the organization memory. Behind these routinized behaviours there lie particular features in terms of mental models. Individuals and organizations follow a set of rules, sedimented in the organizational memory, that enable them to perform their actions with a reduced mental effort. They may or may not be equivalent to its official standard operating procedures, which are more explicitly formulated and have normative standing (Cohen & Bacdayan, 1994). Usually, these routines have a strong tacit dimension that makes them difficult to imitate or change (Johnson-Laird, 1983). But, even though routines are believed to be difficult to change, so that stability is usually used as an attribute to characterize them, most organizational routines can undergo substantial change after learning (Feldman, 2000). Pentland and Rueter (1994) use the metaphor of grammar to explain how routines can change. As a grammar allows people to produce a variety of sentences that make sense to others who know the grammar by combining elements of the language according to rules, in the same way, routines allow people to select elements from a repertoire (the language) to put together sequences of actions that make sense to others in the organization. Recent field work, done by Feldman (2000), has further revealed that “grammar” also changes in the organizations, as members do not only use common rules to combine the elements of a repertoire, but they also develop a new repertoire of interpretative categories and develop new rules, that is to say, new ways to put elements together. Similar findings were found in previous field analysis (Corti & lo Storto, 1997; Corti & lo Storto, 2000). This perspective of routines is perfectly consistent with the idea of two-level organizational learning, proposed in literature (Argyris & Schon, 1978). Therefore, both for its potential of change, and the impact that this change can have on organization performance, routine knowledge merits a particular attention for further investigation.
Learning Organizations or Organizations for Learning?
THE CONCEPTUAL MODEL AND THE RESEARCH HYPOTHESES Literature on problem solving has identified a set of factors that affect the way all the problem-solving activity proceeds. If we analyse innovation in an organizational perspective through the metaphor of organization as a cognitive system, we find a coincidence between factors that foster innovation and factors that affect technical problem solving within a group (Amabile, 1983; Nystrom, 1979). Most of these factors are attributes of the organization infrastructure: good communication inside groups, decentralized decision making, a diffused approach to problem solving, strong leadership, attitude to innovation and change, the tolerance for ambiguity, collaboration, and participative management. Factors that work as stimuli come both from outside the organization and from inside. The first kind of factors are usually denominated “environment” and include some attributes of the market (i.e., the customer typology, the geographical area where the firm sells its products, the products, competition, etc.), of the technology that is incorporated in the product, of the political and social setting. The environment is usually described in terms of its diversity, turbulence, uncertainty, dynamics, and so on. Aiken and Alford (1970) affirm that a high level of environment turbulence, in terms of instability and unpredictability, provides the organization with strong stimulations and suggestions relative to innovation as technical problem to solve. The second kind of factors relates to the nature of the information and knowledge context in which problem solving occurs, and is regarded as being, or not, complex, uncertain, and ambiguous. With reference to factors describing the organization infrastructure characters, research has shown how participation in the decision-making process is associated to a lower resistance to change and to a higher probability to generate innovative ideas (Wall & Lischeron, 1977). When individuals participate in decision making by
exerting influence, they interact, and exchange information; henceforth, they can offer ideas useful to improve all the problem-solving activity. A decentralized structure enables individuals to consider several perspectives, and with great probability, to produce a greater diversity of ideas enhancing individual and group creativity (West & Farr, 1989). The variety of perspectives, relative to a problem, improves the quality of the solution as it enriches the set of possible interpretations of facts and meanings. The decentralisation of decision making fosters autonomy, a greater commitment of individuals, and a diffused flow of information within the problem-solving group, and from the group to the rest of the organization. On the contrary, a strong centralization of decision making works as an inhibitor of innovative behaviours (Burns & Stalker, 1961; Shepard, 1967; Thompson, 1965). Centralization, indeed, limits the use and the effectiveness of communication channels, thus reducing the amount of available information (Hage & Aiken, 1967). Organization procedure formalization and rigid task and activity design are also inhibitors for the generation of new ideas, as rigid rules and procedures can impede individuals from searching new sources of information. Zaltman et al. (Zaltman, Duncan, & Holbeck, 1973) suggest that the combination of organizational formalization and centralization, on the one side, and context complexity, on the other side, have different effects on the generation and implementation of innovative ideas. A high level of context complexity, combined with a low organization formalization and centralization, stimulates and makes the collection and processing of information and knowledge, and the generation of ideas, easier; vice versa a low level of complexity joined to a high level of organization formalization and centralization reduces role conflicts and ambiguity, henceforth, making easier the implementation of new ideas. But, even though a high level of discretion stimulates new ideas at all levels (Amabile, 1983), it remains also true that the effect of the discretion is amplified
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by the presence of a moderated control on the group involved in the problem-solving activity by the leader (Pelz & Andrews, 1976). Empirical research has indeed shown that the leadership style has a critical weight in affecting the performance of innovative behaviours and problem solving. A participative, collaborative, and democratic management style also encourages the generation of new ideas Kanter, 1983; (Nystrom, 1979; Peters & Waterman, 1982). An organization climate that supports independent action, autonomy, and interaction is an important issue in the innovation process (Andrews, 1975; Taylor, 1972). When investigating the influence of specific resources on innovation, scholars focused on the availability either of slack or idiosyncratic and specialized resources (Mohr, 1969; Rogers, 1983). Information and knowledge are critical resources, the lack of which, during technical problem solving, can seriously be an obstacle, and compromise innovation (Bell, 1982; Tushman, 1979). When individuals involved in problem solving perceive a state of uncertainty consequent to the lack of useful information, or a state of ambiguity, as the available information appears meaningless, they undertake an intense activity of information collecting, knowledge sharing, and sense making by building several kinds of networks in the organization. Collaboration at different levels becomes a necessary means to feed these informative networks, while socially shared or distributed problem solving elicits the dynamic development of an individual’s expertise. Social interaction, and joint problem solving as well, foster the emergence of new ideas and innovation. A number of factors affect the resistance to change of the individuals inside the organization: selective perception, conformity to rules and norms, habitual modes of behaviour, scarce tolerance for change, dogmatism, scarce tolerance for ambiguity, and a low attitude for risk (Watson, 1973). With reference to individual factors, research in the field of organization innovation suggests that some traits of the individual personal-
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ity are critical, as they can foster or inhibit innovation. Kirton (1976) affirms that the “adaptationinnovation” dimension of human personality is critical in the analysis of the organization change. Indeed, some individuals adapt (for instance, to do things better), while others tend to innovate (for instance, to do things differently). Differences across two groups of individuals is in the style rather than in the degree of creativity. Beside the use of general problem-solving strategies, it seems clear that the capability to solve a problem efficiently is dependent on the availability of deep, well-organized knowledge, specific of the problem domain. Some factors can, vice versa, affect negatively the problem-solving activity: inertia, conservativism, assumptions, beliefs, old knowledge. Past successful experience can decrease the productivity of problem solving and learning (Adamson & Taylor, 1954; Birch & Rabinowitz, 1951; Glucksberg & Weisberg, 1966), because individuals tend to apply procedures for problem solving that are consolidated, even when other procedures could work better (Cyert & March, 1963; Luchins & Luchins, 1959). The initial assumptions can set boundaries to the search for a fruitful solution (Scheerer, 1963). Entrepreneurial myopia can suggest to select the first identified solution that provides the minimum standard of satisfaction (Luchins & Luchins, 1959). Groups that move from a local approach to problem solving to a diffused approach can get better results, both in terms of problem solution and learning. The foregoing reviews of the literature reinforce the importance of addressing the research question posed at the beginning of the chapter. Figure 4 reports the conceptual model of the study. It is assumed that the following set of contextual factors have a direct effect on the generation of procedural knowledge during technical problem solving: (a) environment diversity, (b) problem complexity, (c) context ambiguity, (d) context uncertainty, while the organization infrastructure has a moderating effect on the relationship between these factors and procedural knowledge.
Learning Organizations or Organizations for Learning?
Figure 4. The conceptual model
Figure 5 shows the list of variables considered in the study, and the respective value of Cronbach index calculated to assess construct reliability. The conceptual model can be restated as a sequence of specific hypotheses incorporating the contingency effects of the organization infrastructure:
Hypothesis 1: An organization infrastructure that presents attributes that foster innovation also supports the generation of procedural knowledge during technical problem solving when environment diversity is high. Hypothesis 2: An organization infrastructure that presents attributes that foster innovation also supports the generation of procedural
Figure 5. Variables of the model and Cronbach index
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knowledge during technical problem solving when problem complexity is high. Hypothesis. 3: An organization infrastructure that presents attributes that foster innovation also supports the generation of procedural knowledge during technical problem solving when context ambiguity is high. Hypothesis 4: An organization infrastructure that presents attributes that foster innovation also supports the generation of procedural knowledge during technical problem solving when context uncertainty is high.
SAMPLE AND METHODOLOGY Data Collection The main study was preceded by an exploratory study to identify categories and constructs. A number of in-depth semistructured interviews were carried out in nine small firms in the food equipment manufacturing industry located in the area close to Naples, southern Italy. Several topics were covered during the interviews: the model adopted in product development, technical problem-solving management, common practices and behaviours adopted during technical problem solving to deal with familiar and unfamiliar problems, knowledge management practices (storage, retrieval, use), and learning strategies. The outcome of this exploratory study was used to develop a structured questionnaire. The constructs of the study were operationalized along multiple dimensions, most of which were measured using multi-item scales. Questions required the respondents to give a subjective judgement. In this case, a 7-points Likert anchor grid was used. For every variable, a set of statements encircling the underlying concept was designed as a measuring tool. Measures were obtained as summation of the scores given to the single items of each scale after standardizing the value distribution for every item. Both the sets of scales for
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measuring the environment and context attributes (diversity, problem complexity, context ambiguity and uncertainty), and organization infrastructure (collaborative climate, participative climate, decentralized decision making, orientation to change, communication quality, customer orientation, entrepreneurial style, procedure formalization, ambiguity tolerance, leadership, task and activity design, problem-solving approach) were derived from the theory and similar scales proposed in the literature. In particular, the scale for measuring the problem-solving approach adopted (local vs. diffused) was derived by the author from previous field analysis (Corti & lo Storto, 1997), while the scale for measuring the entrepreneurial style (adaptive vs. innovative) was developed from the Kirton (1976) theoretical framework. One form of organizational knowledge was considered, in the study, that was simply denominated “routine or procedural knowledge,” denoting the capability to properly execute a set of actions aimed at modifying situations. To resolve the conceptual/ operative difficulty of assessing the emergence of new routines, routinized behaviour was associated to a set of condition-action rules prescribing the actions to be made for every condition. The change in a routine is thus identified by the change in the corresponding set of behavioural rules or components of a rule. A scale for knowledge was, therefore, built following a logical-deductive reasoning and case study research (Corti, lo Storto, & Trombetta, 1996). Perceptual measures were considered to be very appropriate for this kind of study, even for assessing the rate of knowledge generation. In this case, it would be difficult to measure actual generation, especially with the nature and variety of routines used during product development. The link between perceptions of knowledge acquisition and actual learning has been demonstrated in industrial training research (Hicks & Klimoski, 1987). In the next step of data collection, the survey questionnaire was administered, face-to-face, to a sample of 35 small firms in the food-processing-
Learning Organizations or Organizations for Learning?
equipment manufacturing industry. The sample is not a random sample, but it was designed to cover a broad range of types of equipment manufactured in the area close to Naples, Salerno, and Caserta, in the south of Italy. At the time of the survey, it almost covered one third of the population of small firms in the industry located in this area. The study focused on a single industry in order to control for the influence of industry specificity. These firms manufacture products on order for an industry where processes and products are neither based on sophisticated and complex technologies, nor carry on any formalized R&D activity. They are low-technology firms and their markets are local and of niche. Generally, these firms resort to technological innovation (of product or process) to face market pressure coming from their competitors, either due to a change in the technology used in the industry or to market size decrease. Technological innovation allows them to keep a competitive advantage and increase profit. Many times, they have a reactive behaviour to market change. The size of firms is very small, 14 employees on average, but these figures do not take into account the “black economy” phenomenon of the geographical area. Respondents were asked to nominate three problems occurred during the development of a new product, ranked according to the level of perceived complexity. Ninety-one cases of technical problem solving were studied in-depth. Only ill-structured or partially structured problems were considered. Technical problems have a various nature, but all of them are linked to the ill or nonfunctioning of a new machine or equipment. All problems are of mechanical type.
Data Analysis Cluster analysis was performed to uncover homogeneous groups of similar organization infrastructures using the K-means technique (Arabie & Hubert, 1994). These groups were used as moderating variables to test how the fit
between typologies of organization infrastructures and external and internal environment attributes determines a better outcome in terms of new organizational routines after problem solving. Preliminarily, the sample was first examined in order to discover outliers in the data. Because it was found not to have strong candidates for deletion, all the data were considered. Further, factor analysis was used to identify common factors and reduce the number of variables determining clusters (Kim & Mueller, 1978). Variables describing the organization infrastructure were considered as inputs in factor analysis. Adopting a contingency perspective, fit between organization infrastructure and environment was operationalized as an interaction between the two sets of variables (Covin & Slevin, 1988; Schoonhoven, 1981; Venkatraman, 1989). According to this view, the higher the fit, the higher the amount of knowledge generated (henceforth, the width of the substitution of old routines with new ones). To test the existence of fit, moderated regression analysis was implemented, following the procedure suggested by Sharma et al. (Sharma, Durand, & Gur-Arie, 1981).
RESULTS Figure 6 shows the outcome of factor analysis. Three factors emerged with eigenvalues at least 1, and explaining few less than 50% of total variance. In the table, boldface indicates largest loadings on each factor. The names of factors, based on highly loading items, were “Openness,” “Innovativeness,” “Leadership.” Composites were formed for each factor by averaging items with the highest loadings and scaling them so that larger values meant a higher organizational openness or innovativeness or leadership. The first factor indicates the attitude of the small organizations to offer a climate that fosters communication and collaboration among individuals, and to be open and receptive of useful insights coming from
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Figure 6. Factorial analysis output
the customer. The second factor is an indicator of the innovative behaviour of the firm. Extremes of scale are an adaptive/reactive behaviour, an inclination to perform local problem solving, with a scarcity of new products developed or with some minor improvements of existing products and, on the other end, a proactive/innovative behaviour, more inclined to widen problem-solving activity, with a number of new products developed, or with major improvements or complete redesign of the existing products to include new features and performance. The third factor simply reveals the leadership dimension of the entrepreneurial group/ CEO of the firm. Figure 7 shows the results of cluster analysis performed with the composite variables, Openness, Innovativeness, Leadership, as inputs. Two clusters of firms clearly emerged from the analysis, denoting two prevailing attitudes diffused among the firms of the sample. The first cluster which Figure 7. Cluster analysis output
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was called “Type 1 firms,” includes 23 firms having a relatively reduced openness, attitude to perform innovative behaviours, and leadership. The second cluster, “Type 2 firms,” is made of 12 firms having a relatively higher openness and innovativeness with a slightly higher attitude to leadership of the entrepreneurial group/CEO. Figure 8 reports the outcome of the moderated regression analysis. Four regression models were analysed and all times, procedural knowledge was considered as the dependent variable. The variables problem complexity, context ambiguity, context uncertainty, and procedural knowledge, considered critical for the prosecution of the analysis, were treated further on. With this aim, four composite variables were built to measure, for each firm, the relative change of the construct, assuming, as a reference, the change in the perceived familiarity with problem faced. For instance, in the case of context ambiguity measure-
Learning Organizations or Organizations for Learning?
ment, for each firm, the relative change of context ambiguity was calculated as a difference between the perceived levels of ambiguity passing from the problem solving of familiar problems to the problem solving of unfamiliar problems. The same procedure was implemented for the remaining three constructs. In this way, by measuring relative changes, the influence of respondents’ judgement subjectivity was attenuated3. The moderation effect, due to the nature of the organization infrastructure, was introduced in the analysis, including a dummy variable that, in the codification of the statistical software utilized, assumes the values 1 for “Type 1” cluster and –1 for the “Type 2” cluster. To test the contingency effect, for each model, two regression analyses were performed. The first regression assessed the main effects of the independent variables (the dummy variable and the environment/context variable), which were included separately. The second one entered the cross-product term (the product of the dummy variable and the environment/context variable). According to this procedure, a moderation effect exists if the coefficient of the product term significantly differs from 0, and there is a substantial increase in the value of R-squared. Figure 8 shows that only in Model 1, the existence of fit between the environment diversity and the typology of the organization in-
frastructure was not ascertained. In Model 2, a change in perceived problem complexity positively correlates with an increase in the amount of routine knowledge change after problem solving. The “Type 2” infrastructure amplifies this effect. In Model 3 and in Model 4, similar findings were found, as both cross-effects are significant. However, the first order effects of a change in context ambiguity, or uncertainty on the generation of new routine knowledge, are also significantly positive. Hypotheses Hp. 2, Hp. 3, and Hp. 4 have, thus, been confirmed. From these findings clearly emerges that the organization infrastructure works as an amplifier in the process of knowledge generation during technical problem solving.
DISCUSSION AND CONCLUSION The results of this study provide substantial support for the hypothesis of a contingency relationship between environment/context and organization infrastructure also in the perspective of learning and knowledge generation. The outcome of the statistical analysis shows that an increase, both in the level of ambiguity and uncertainty of the context in which individuals move, induced by the perceived nature
Figure 8. Moderated regression analysis
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of available information and knowledge during technical problem solving, will be conducive to a more consistent change in routine knowledge, with a greater probability if the organization infrastructure presents attributes of high openness, innovativeness, and leadership. Findings also show that a similar behaviour is apparent when small firms’entrepreneurial group/CEO faces a high complex problem. However, the research shows that a hierarchy exists in the magnitude of effects between the different attributes of context determined by the perceived nature of problem upon the generation of new routine knowledge through the mediating effect of the organization infrastructure. Uncertainty, and much more ambiguity, independently of the moderation effect of organization infrastructure, have also a stronger effect on knowledge generation than problem complexity. This outcome should not be surprising, as it is consistent with what is reported in literature (Weick,1995). Knowledge creation occurs, indeed, as a paradoxical play between the need to reduce the level of uncertainty, and alleviate the level of ambiguity in the organization, in order to carry on the innovation activity, on one hand, and the need to enhance the level of uncertainty and ambiguity necessary to generate new knowledge, on the other one (Corti & lo Storto, 2000). New knowledge is created when individuals face ambiguous situations. Weick (1995) gave early insights into the importance of ambiguity, rather than uncertainty, in fostering learning. While ambiguity has a direct effect in stimulating the process of knowledge generation, as it requires efforts from the members of the organization to find meaningful interpretations of old or new circumstances, facts, information, and causal relationships, uncertainty influences knowledge generation only in an indirect way, as it induces individuals to search for new information to process. Insofar, uncertainty produces a favourable condition to the development of a state of necessary ambiguity to produce new organization knowledge. These findings are also consistent with
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what was found in previous work investigating in-depth technical problem solving in small firms. Henceforth, there is evidence that the organization infrastructure practices an amplification effect in the process of generation of new knowledge. The attributes of the organization infrastructure, openness, innovativeness, and leadership, work as levers that amplify the positive effect of social behaviours and cognitive efforts of individuals involved in technical problem solving4. Implications that these findings may have on the organization of technical education curricula are relevant. Methods and techniques to deal with technical problem solving, people attitudes, and orientation toward collaboration and teamwork, creative thinking, are all factors that enhance organization capability for learning. Problem solving is an important component of technical education curriculum. Current thinking seems to strongly support the importance of problem solving. Problem solving is indeed the core activity of professional technical and engineering work. As much of what students need to know with a great probability has not yet been created, it does not make sense to try to teach students the most up-to-date technology if they do not leave school with the ability to continue learning by themselves. Developing problem-solving capabilities in technicians and engineers is a crucial factor to support future organizational learning. Technical skills remain still essential, but poor communication and interpersonal skills, inability to work in teams, and lack of creative thinking, can limit business opportunities. Further, experience shows that project outcomes are improved by the ability to reduce stress, resolve conflicts, increase motivation, and develop positive attitudes and team unity. Formal education usually does not support the enhancement and refining of problem-solving skills. Most technical problems are open by nature, and require estimating, evaluating, and making choices. Common textbook problems are, however, mostly closed problems with one definite
Learning Organizations or Organizations for Learning?
answer, and ask the students “to find the answer” rather than “to solve the problem.” Further, closed mathematical problems have the same solution regardless of the person solving them and thus, can be considered to be totally value free. In the opposite end of the spectrum, there are the realworld problems that require plenty of creativity and decision making. Curricula should henceforth be revised in order to include integrated learning environments that encourage learners to use higher-order thinking skills, and in particular, problem-solving skills, considering problem solving as a complex mental activity consisting of a variety of cognitive skills and actions, rather than a mechanical systematic and decontextualized set of skills. Students must be challenged, to analyse critically, problem situations that include technical, economic, social, environmental, and ethical factors. General problem-solving skills are more important than being able to solve specific problems. Creativity plays a central role in problem solving and in particular, in fostering divergent thinking, which is required to come up with proper solutions to problems (Thomas & Litowitz, 1986). The question is whether creativity can be taught, in particular, whether an educational system profoundly steeped in convergent thought encourages or even tolerates divergent thinking. Some techniques can be transferred to students to enhance creativity. These techniques, together with working in a cross-disciplinary setting, can help students to use convergent and divergent thinking. Education for problem solving not only enhances problem-solving skills, but also develops complementary attitudes, such as ambiguity tolerance. As always, limitations in this research should be taken into account. The dimensions used to measure the nature of organization infrastructure are limited in scope, although they represent the dominant constructs common in the innovation, problem solving, and knowledge-managementliterature domains. A major focus should be addressed to the individual attributes, rather than only to the organization ones as a whole. Indeed,
individuals learn and unlearn. Organizations provide an environment that favours individual learning, socialization, sharing and diffusion of information, beliefs, and meanings. Individuals’ experience, knowledge, expectations, motivation, and attitudes are all attributes that could have a weight in the process of generation of organization knowledge. When factor analysis was performed, with surprise, not all the items were loaded in the discovered factors. These items indicate procedure formalization, accurate task and activity design, decentralized decision making, and tolerance for ambiguity. Literature on innovation foresees that low values of the first two attributes, and high values of the last two, are positively correlated to innovation. A linkage between tolerance for ambiguity and change in procedural knowledge might be manifest, but the small size of sample partially hides the existence of other factors that could further shape the organizational infrastructure. The discrepancy between literature and field results, as to the other three correlations, are probably a sign of the difference between large and small firms. On the one side, as in small firms, the entrepreneur group/CEO is dominant, decision making is usually centralized, while, on the other side, formalization and rigid organization design are typically attributes of large bureaucratic firms rather than small organic ones. For these reason, these attributes, as they were defined, become meaningless and not discriminating in the small firm sector. Anyhow, a further investigation of these constructs is necessary. Some issues also merit further analysis. First, although the fit between the nature of the environment and problem-solving context, on the one hand, was explored, and organization infrastructure, on the other, new sets of variables should be considered as having impacts on knowledge creation during technical problem solving. One of this is industry typology. Findings are idiosyncratic, as management practices and organization cultures are very dependent on the typology of industry
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considered. Environment diversity was considered as fundamentally dependent on the number of customers and products developed by the firm. The idea implicit in this definition is that there is only one kind of environmental diversity, as firms included in the sample design and manufacture products only in the food equipment manufacturing industry, but, there are different kinds of environment diversity, for instance, diversity due to structural or technological differences across industries. Working in different industries offers an effective means for knowledge transfer and creativity enhancement. A static perspective of learning in small firms was fundamentally adopted. Organizational learning or, what is the same in the study, organizational knowledge generation, is a multidimensional concept. Learning rate, learning amount, learning flexibility, and learning recurrence are important dimensions that depict the nature of learning within an organization. The learning amount was only considered in this research. This dimension alone, perhaps, is unable to effectively describe learning modes and measure the impact of the organization infrastructure typology on knowledge creation. Two firms can show different learning modes, as the first can develop small amount of knowledge very frequently, while the second can develop large amount of knowledge every now and then. In this context, learning persistence and unlearning capabilities become critical. This study remains exploratory in its nature. The number of firms considered in the sample is small, even though it is very representative of the population of firms in the specific industry studied. Nevertheless, the research has several important implications. First, although there has been a prodigious amount of theorizing about many issues in the area of the learning organization, knowledge management, and learning, empirical research is still very limited, and, what is more important, very little has been explored about these topics and their implications to small firms, primarily those ones in less dynamic industries. Therefore, in an
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academic perspective, this study has the merit to have shed new light as to knowledge management in small manufacturing firms. In the practitioner perspective, findings suggest how to intervene to support the entrepreneurial group/CEO to enhance the knowledge asset of the organization during technical problem solving, as they have identified organization openness, innovativeness, and leadership as the levers of learning and the knowledge creation process.
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ENDNOTES 1
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Venkatraman, N. (1989). The concept of fit in strategy research: Toward verbal and statistical correspondence. Academy of Management Review, 14, 423–444. doi:10.2307/258177 von Hippel, E. (1987). Cooperation between rivals: Informal know-how trading. Research Policy, 16, 291–302. doi:10.1016/0048-7333(87)90015-1 von Hippel, E. (1994). «Sticky information» and the locus of problem solving: Implications for innovation. Management Science, 40, 429–439. doi:10.1287/mnsc.40.4.429 von Hippel, E., & Tyre, M. (1993). How learning by doing is done: Problem identification in novel process equipment. Massachusetts Institute of Technology, SSM Working Paper#BPS 3521-93. Wall, T. D., & Lischeron, J. H. (1977). Worker participation: A critique of the literature and some fresh evidence. Maidenhead (England): McGraw-Hill. Watson, G. (1973). Resistance to change. In G. Zaltman (Ed.), Processes and phenomena of social change (pp. 117 – 131). New York: John Wiley & Sons. Weick, K. E. (1995). Sensemaking in organizations. SAGE Publications. Welsh, J., & White, J. (1981). A small business is not a little big business. Harvard Business Review, (July-August): 18–32. West, M. A., & Farr, J. L. (1989). Innovation at work: Psychological perspectives. Social Behaviour, 4, 15–30. Zaltman, G., Duncan, R., & Holbeck, J. (1973). Innovations and organizations. Chichester: John Wiley & Sons.
A great amount of literature on decision making and problem solving has dealt with uncertainty. However, uncertainty differs from ambiguity, and both of them affect the cognitive work of problem solvers. Uncertainty is the consequence of the perceived lack of information, or factual knowledge, about the present or future states, preferences, goals, and actions (Daft & Lengel, 1986; Galbraith, 1973; Garner, 1962; March, 1988). Individuals are able to reduce or eliminate uncertainty by collecting or developing information (e.g., through experimentation). When they are unable to collect or develop information, they adopt strategies to deal with uncertainty, either by predicting or inferring values for missing information, or using information buffers, or developing a capability allowing the organization to quickly, and flexibly, respond to unexpected events (Galbraith, 1973; March & Simon, 1958; Thompson, 1967). Ambiguity derives both from the inability of individuals to interpret the meaning of facts and actions, as they lack appropriate informational cues or perceive events so unfamiliar that they are unable to give judgements, and from the existence of multiple redundant interpretations of the same thing (Daft & Macintosh, 1981; Daft & Weick, 1984; Machlup & Mansfield, 1983; March & Olsen, 1975; Weick, 1995). Individuals alleviate ambiguity by collecting and sharing rich information, reframing the information pieces they have about a situation, identifying new interpretative categories, and changing their basic assumptions and beliefs. As in most of the activities performed in small firms, the entrepreneurial group/CEO keeps a strict control of what happens in the organization, and acquires a central role all over the problem-solving activity. Factors,
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3
4
such as leadership and entrepreneurial style, also influence problem solving. Implicitly, this procedure introduces a new moderating effect of the variable “problem familiarity.” Research carried on in the area of innovation, and of problem solving, has found a number of individual characters that positively correlate with the outcome of these activities,
and in particular, individual’s expertise, knowledge, personality traits. Even though there is the awareness that these personal factors are essential ingredients in problem solving and learning, in this study, it was decided to concentrate attention primarily at the organizational level rather than at the individual one.
This work was previously published in Knowledge Ecology in Global Business: Managing Intellectual Capital, edited by Miltiadis D. Lytras and Patricia Ordóñez de Pablos, pp. 108-131, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Section IV
Utilization and Application
This section discusses a variety of applications and opportunities available that can be considered by practitioners in developing viable and effective global business programs and processes. This section includes over 25 chapters that review numerous business aspects, such as IT diffusion, e-human resource management, and e-commerce development. Also explored in this section is the use of organizational learning during operational change in business. Contributions included in this section provide excellent coverage of today’s business community and how research into global business is impacting the social fabric of our present-day global village.
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Chapter 4.1
Risk Assessment in Virtual Enterprise Networks:
A Process-Driven Internal Audit Approach Nikolaos A. Panayiotou National Technical University of Athens, Greece Stylianos Oikonomitsios CIA, Consultant, Greece Christina Athanasiadou Ernst & Young, Greece Sotiris P. Gayialis National Technical University of Athens, Greece
ABSTRACT In today’s business environment, supply chains involve a number of autonomous organizations. Agility, effectiveness and efficiency of these supply chains can be achieved by forming virtual enterprise networks. The nature of supply chain processes with inter-organizational activities, involving different enterprises in a virtual enterprise network, increases the need for control in a welldesigned and structured manner. Internal Audit
activities and controls can help virtual organizations to improve and operate in a more efficient manner. This chapter proposes a methodological approach for the design of the Internal Audit function for risk assessment and control identification of inter-organizational supply chain processes, using business process modelling techniques and an internal audit–oriented enterprise modelling tool. A case study in the auditing of the supply chain processes in a virtual enterprise network demonstrates the application of the suggested methodology and tool.
DOI: 10.4018/978-1-60960-587-2.ch401
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Risk Assessment in Virtual Enterprise Networks
INTRODUCTION According to recently formulated definitions of the Institute of Internal Auditors (IIA) (IIA, 2009; Bou-Raad, 2000), Internal Audit is an independent, objective assurance and consulting activity designed to help the organization to improve and operate in a more efficient manner. Although the role of Internal Audit in business process improvement is emphasized in the aforementioned definitions, common business practice shows a partial orientation towards financial and accounting analysis and control (Fadzil et al., 2005), while the application of Internal Audit to deal with efficiency and effectiveness is often overlooked. Internal Audit, in both its assurance and its consulting roles, contributes to the management of risk in a variety of ways. Its core role with regard to enterprise risk management is to provide objective assurance to the board on the effectiveness of risk management. Indeed, research has shown (IIA, 2004) that board directors and internal auditors agree that the two most important ways that internal audit provides value to the organization are in providing objective assurance that the major business risks are being managed appropriately and that the risk management and internal control framework is operating effectively. The ever-increasing complexity of business processes and services demands business supply chains which involve a number of autonomous organizations. Competitive markets require that these supply chains are agile, effective and efficient. This can be achieved by forming dynamic virtual enterprise networks. Difficulties with deploying these networks are immense and organizations may not be prepared to cope with the changing nature of risk arising from such a strategic shift. The nature of supply chain processes with inter-organizational and cross-functional activities, involving different enterprises in a virtual network, increases the need for efficient and effective control in a well-designed and structured manner.
The evolution of internal auditing provides a basis for risk mitigation efforts within the supply chain processes. No longer focused on providing a check over accounting transactions, the internal auditor now applies risk-based auditing methods to management activities that span the enterprise. This enterprise-wide view makes internal auditing primed to analyze risk associated with operating highly interconnected supply chain networks (Hallikas & Varis, 2009). Internal auditors can identify problems that cross organizational boundaries. They can take the responsibility to provide objective assurance in the evaluation and improvement of risk management, identifying and reporting problems that can impact the economic health of the members of a virtual enterprise network (Fike, 2005). In this chapter a specific methodological approach for the mitigation of risks in virtual enterprise networks is proposed. This approach assists the design of an Internal Audit process for risk assessment and control identification, using business process modelling techniques. Moreover, specific templates are suggested for risk assessment and control identification connected with the existing organizational and inter-organizational processes and activities of the supply chain in the enterprise network. An internal audit–oriented enterprise modelling tool is developed to support the risk assessment and the control identification. The proposed methodology tries to assist business process improvement and quality enhancement in the enterprise supply chain and supports the extended role of Internal Audit as a facilitator of change towards the enterprises network’s business objectives. It is intended to provide a structured set of methods and tools in order to maximize efficiency in virtual networks. A case study in the auditing for risk assessment and control identification related to risks of the supply chain processes in a virtual enterprise network demonstrates the application of the suggested methodology and tool. The organization of the chapter is as follows. The next section outlines the theoretical as-
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sumptions of the concepts of Internal Audit and introduces the relation of business process modelling and internal audit controls in the context of inter-organizational processes and activities in the supply chain. Then, the proposed methodology for process driven internal audit in virtual enterprise networks is described. Next, the supportive enterprise modelling tool is presented. The case study section presents the implementation of the methodology and the proposed tool for process driven internal audit in a virtual enterprise network. A concluding section outlines the implications of the research and its practical usefulness.
BACKGROUND In the past, business organizations often operated in “stand-alone mode” or relied on rather static networks of cooperating organizations. Nowadays, competition has become fiercer, fueled by developments like the globalization of business, shortening time-to-market requirements, and increased market transparency. Products and services are on the one hand of quickly increasing complexity, and on the other hand subject to increasingly frequent modifications and replacements (Grefen et al., in press). To comply with these market settings, organizations have to shift their priority to flexibility and ability to change if they want to survive (Pieper et al., 2004). An enterprise can been defined as a dynamic set of interacting elements, including technical processes, organizational processes, technical functions, departments, business centers, and subsystems such as finance, production, marketing, and management. An element of an enterprise serves multiple roles, and interacts with other elements and with the environment. Elements of an enterprise include men, machines, buildings, inflow of materials and orders, outflow of goods and services, monetary values, human relations, and management. Elements and inter-relationships can be dynamic. The arrangement of elements and
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management of resources in order to operate in an efficient manner may be quite complex (Temponi et al., 2009). In addition, changes are forced to enterprises by various events such as global competition, workforce changes, new technology, and continuously changing customers’preferences. Enterprises must harmonize structure and deal with competition in an increasingly complex and vaguely understood business environment. As a result, dynamically established cooperation between organizations is more and more required in order to meet market demands. Consequently, we see the emergence of new business models that are focused on these new business abilities and rely on intensive collaboration between autonomous business entities based on dynamic partnering. This new business form is called a virtual enterprise (Grefen et al, 2009). Operating in frequently changing markets implies that virtual enterprises cannot have a stable character over time. The partners that are involved in the provision of a shared process are changing continuously according to the requirements of the customer and the processes. In that case, a virtual enterprise is being created in a dynamic way addressing the needs and requirements of the customer and the individual partners (Ouzounis & Tschammer, 2001), based on circumstances given. In practice, relationships between collaborating business partners with relation to supply chain in a virtual network are regulated by a set of rules. These rules are sometimes the object of a business agreement between supply chain partners (Gaudreault et al., 2009). A virtual enterprise network is mainly determined by the selection of the partners that collaborate in it and by the inter-organizational process links that are woven between the partners. Taking into consideration that links between elements and parties of a virtual enterprise network are complex, it is important to apply internal controls in these networks for risk management purposes. The relationship between internal control and risk management remained blurry in the
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literature for many years (Spira & Page, 2003). Blackburn (1999) argues that control is a subset of risk management and explains the connection of risk management with the business objectives. In simpler words, business objectives are reached with the realization of business processes and risks can be identified in these business processes. The identified risks are managed and controlled and business process improvement is achieved, so the new role of Internal Audit in connection with business objectives and strategy is explained. In 1947, the Statement of Responsibilities of Internal Audit, defined Internal Auditing as an ‘independent appraisal function established within an organization to examine and evaluate in activities as a service to the organization’ (Trotman, 1983). Initially, the objective of the function was to assist members of the organization in the effective discharge of their responsibilities. The emphasis of the role was aimed at evaluating the correctness of financial transactions (Bou-Raad, 2000). The introduction of Information Technology and Electronic Commerce to business practices led to the redefinition of the Internal Auditor’s role introducing the parameter of the assurance services. Year by year, the Internal Audit profession is not relying solely on audits of financial reports but it is moving towards other value-added services (Bou-Raad, 2000). The swift of the Internal Auditor’s role is expressed in a new definition provided by the Institute of Internal Auditors in Australia, according to which Internal Auditing is an independent, objective, assurance and consulting activity designed to add value and improve an organization’s operations (Parkinson, 1999). As a result of the new definition, control is not the only focus of Internal Audit, but there is also an emphasis on risk management, governance and control processes. Respectively, similar definitions are evidenced by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Report of the USA, the Cadbury Report of the UK, the Criteria of Control Board (COCO) audit reports in Canada and the King Report on
Corporate Governance of South Africa (McNamee & Selim, 1999). The evolution of internal auditing provides a basis for risk management efforts within the business processes. In this context, an Internal Audit process will do more than just provide information (Schleifer & Greenawalt, 1996). It will also interpret, synthesize and analyze information to help management identify trends and business challenges. Furthermore, management will increasingly rely on Internal Audit to provide a conclusion on the effectiveness of the control environment and on the alignment of the control framework within the business. The broader approach to Internal Audit has afforded an opportunity for claiming its expertise in the crucial area of risk management. In other words, it is suggested that Internal Audit is a key component of good corporate governance practice. However this opportunity has not been fully realized and exploited by Internal Auditors, who must have an in-depth understanding of business processes in order to be able to manage risk and define controls trying to assess these risks. Audits are a tool with widespread use throughout industry, for example, in financial, quality, technical, safety, project management, human resource and purchasing situations carried out by experts in the related processes (Bayley, 1983; Evans & Dale, 1989; Hoare, 1987; Kelly, 1988; Sayle, 1988; Torrington, 1987). Some companies with an established Internal Audit process for many years have already tried to include specialists such as engineers and marketers to give a broader operational perspective on auditing and risk management (Blackburn, 1999). The increased importance of business processes and activities for Internal Auditing has already been recognized in many case studies and surveys, most of which are connected with quality systems. For example, a survey carried out in manufacturing companies in New Zealand (Hawkes & Adams, 1995) suggests that Internal Auditors in manufacturing companies change
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their role and responsibilities in response to TQM initiatives. Generally, this change in focus involves a move away from financial auditing and internal control compliance checks to a primary focus on quality systems reviews. Many firms have established Internal Audit processes in conjunction with the introduction of quality management programmes and ISO certification. This suggests that quality review requirements of the ISO 9000 series of standards (BSI, 1987), together with the continuous improvement philosophy of TQM, have provided opportunities, as well as challenges, for Internal Audit. In the context of the ISO 9000 quality management system series of standards, quality auditing is a tool to ensure that procedures meet the requirement of the standard and are properly implemented. A good Internal Audit program should also ensure that senior managers are aware of significant shortcomings in their systems. Audits, therefore, constitute an essential element of the quality improvement tool kit and an effective control mechanism for the organization. In the wider business context, management audits can be used to critically assess any business process and provide evidence on which to base action. The major work in the field of management auditing is that of Sayle (1988), who provides a comprehensive approach to auditing and quality improvement. The formal basis for quality auditing is also outlined in ISO 10011 (BSI, 1991), which supplements the ISO 9000 (BSI, 1987) series of quality management standards. A lot of papers in the literature refer to the use of Enterprise Modelling techniques such as IDEF-0, GRAI, Data Flow Diagrams or ARIS methods, to name only some of them (NIST, 1993; Kelly, 1988; Tatsiopoulos et al., 2001; Panayiotou et al., 2006) in Business Process Reengineering initiatives or in the improvement of quality systems. In the area of supply chain management, the role of Business Process Management has been empowered, as researchers view the supply chain as a whole and promote customer focus, supplier partnerships,
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cooperation and information sharing and process improvement (McAdam & McCormack, 2001). The existing relationships between different partners in the inter-organizational supply chain and the inter-departmental and cross-functional nature of the processes involved (De Toro & McVabe, 1997) highlight the need to control, monitor and improve work methods. Although many scientists refer to the importance of approaches such as reengineering, continuous improvement, benchmarking and enterprise modelling in the management of supply chain (Trkman et al., 2007), only few of them, (Hyland & Beckett, 2002; Carnaghan, 2006) examine the use of such techniques combined with the Internal Audit view. Mapping of risks is suggested as essential to the internal audit department’s supply chain risk mitigation efforts. This mapping consists of understanding and defining supply chain risk and identifying the controls for risk assessment. This approach tries to recognize the causal impacts across the supply chain where an insignificant disruption builds upon itself creating a significant disruption that impacts the organization’s ability to deliver goods and services at anticipated costs. A classic example is demand amplification (bullwhip effect) across supply chain partners where stable demand manifests into erratic order and production behavior (Spekman and Davis, 2004). Enterprise modelling techniques which incorporate risk-based auditing methods can be applied for mapping of risks and controls in supply chain processes with inter-organizational and cross-functional activities.
A PROPOSED METHODOLOGY FOR PROCESS-DRIVEN INTERNAL AUDIT The methodological approach proposed for the planning and execution of the Internal Audit work is focused on the identification of risks and the
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definition of the related controls of the enterprises involved in the network and consists of four stages: •
•
• •
Stage 1: Strategic Analysis focused on the identification of strategic risks for the enterprises, especially those affecting the virtual enterprise network Stage 2: Process analysis of the processes to be audited according to the prioritisation enabled by the strategic risk analysis Stage 3: Process risk assessment and controls identification related to risks Stage 4: Controls assessment and Internal Audit execution.
In this chapter, emphasis is put on stages 2, 3 and partially on stage 4, as the intention is to present the integration of the process modelling technique in the Internal Audit process applied in inter-organizational supply chain management for risk assessment purposes. Moreover, the purpose is to introduce the contribution of the process modelling technique to the documentation of processes, the identification of significant process level risks and controls in place to manage these risks and the development of Internal Audit programs that can be used for controlling purposes.
The use of the business process modelling technique for the documentation of supply chain processes and the identification of internal controls enhances the Internal Auditor’s process improvement efforts through: • •
•
Easy identification of controls in place to manage the process-level risks Structured evaluation of internal controls’ design, as it is easy to identify controls missing or not properly designed Easy identification of major controls already in place to manage significant risks, to be included in-scope of the Internal Audit’s evaluation of controls’ operating effectiveness (if these are operating as designed and intended).
The proposed approach is presented in Figure 1, and its stages are further described in the text below.
Stage 1: Strategic Analysis Strategic Analysis provides an initial understanding of the network enterprises’ strategy and the environment, in which they operate, identifies
Figure 1. Internal audit process methodological approach
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and assesses the strategic risks of the network as a whole and the key processes related to those risks. The purpose is to develop the Internal Audit Plan, which defines the scope of the work of Internal Audit within a given period of time (i.e. annually) focusing on the areas/ key processes with significant risk. Through strategic analysis, business risks can be linked to the strategic objectives of the enterprise network and key business processes can be linked to business risks that threaten these objectives. Strategic Analysis is undertaken to: • •
•
•
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Gain a high-level understanding of the business, its markets and external forces. Understand and identify the strategic objectives and strategies in place to achieve these objectives and assess their reasonableness. This is achieved through discussion with management, review of enterprises’information (history, organizational charts, business and strategic plans, vision/ mission statements, Board of Directors’ meeting minutes, etc), review of industry business models and use of strategic analysis tools such as PEST analysis, Porter’s Five Forces Analysis and the Balanced Scorecard. Understand and assess the general risk areas that can threaten the achievement of these objectives. Management involvement is critical in the identification of strategic risks and the establishment of the criteria to be used for the assessment of significance of those risks. The significance and ranking of the risks identified is determined by considering two factors: the potential impact of the risks and the likelihood that the risks will occur. Identify the existing organizational structures and the key processes to support the achievement of these objectives and manage these risks. All responses to risks at the strategic level must be associated with key business processes (strategic, core and supportive management processes and sub-processes).
To identify the key processes, discussion and interviews with management are performed. As a result of this analysis, key strategic risks and related business processes are identified and prioritized in order to develop the appropriate Audit Plan. Strategic risks may be identified in different enterprises of the network; the Plan will include all risks identified and considered significant, as long as they are related to the processes under examination. The Plan includes the key processes and risks to be evaluated and tested, defining the scope of the work of the Internal Audit within a specific period of time.
Stage 2: Process Analysis The second stage of the methodological approach analyses the key business processes identified in stage 1 and included in the Audit Plan. The analysis of the process involves the definition of its objectives and a detailed investigation of the sub-processes and activities from which it is composed, resources used and information flows. For this purpose, interviews are conducted with the process owners and other persons involved, in order to obtain an understanding of each key business process, sub-process and activity. Once understanding of the key processes is gained, the processes documentation follows, using the hierarchical modelling technique of business process models. Each process/ sub-process and activity is presented as a combination of inputs and outputs. Each sub-process is identified by a reference number linked to the “parent” process, and each activity is also identified by a reference number linked to “parent” sub-process. It should be stated that, at this point, the controls for each activity have not yet been recognized. The business process diagrams presenting the activities carried out by the enterprises involved in the network are accompanied by a narrative description, which includes:
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• • • • •
•
The sub-process objective The scope of the sub-process The persons involved in the sub-process (internal and external) The reference number of each activity, linked to the “parent” sub-process The activities to which the sub-process is decomposed and detailed description of each activity The documents and records used/ maintained.
The template used for the narrative description of the sub-processes, is shown in Figure 2.
Stage 3: Process Risk Assessment Process Risk Assessment follows the same steps to that used in the Strategic Risk Assessment, however, this stage goes one step further to look also at controls that are in place to manage those risks. It is very important that the strategic risks identified at the Strategic Risk Assessment stage be considered at the Process Risk Assessment level. Process Risk Assessment is using the activities represented in the business process models of the lowest level for the identification of risks, which threaten the achievement of process objectives
and the mapping of the controls that are in place to manage these risks. Risks are identified at the activity-level through review of data obtained during discussion with process owners and review of business process diagrams. As process owners and staff usually have a better understanding of the network enterprises’ environment, it is normal to involve them in the process of risk identification. Process-level risks are documented and each risk is linked to one or more activities. It should be stated, however, that it may not always be possible to provide a one-to-one link between the risks and the activities since some activities may be exposed to external uncontrollable sources of risk. Once the risks are identified, the significance of risks (high, medium, low) is assessed considering the impact of not achieving the business objectives and their likelihood of occurrence. This assessment will help to identify and document controls that are in place to address these risks adequately. After this step, controls in place to manage those risks are identified and mapped on the business process diagrams. Each control has a reference number in order to be easily linked to a risk and the activity to which it is connected. A detailed description of each control is also documented in the risks and controls repository presented in Figure 3.
Figure 2. Process description template
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Figure 3. Risks & controls repository
The risks and controls repository are used to: •
• •
Present the link between the activities represented in the business process diagrams, their risks and the related controls Ensure that controls are identified for all areas of risk Provide a basis for the identification of control design weaknesses (i.e. absence of controls) and the selection of controls to be tested for their operating effectiveness based on the significance of the risks they manage.
Stage 4: Controls Assessment: Audit Execution The documentation of the controls using the proposed tools assists auditors to assess the effectiveness of the internal controls’ design and operating effectiveness. Business process diagrams include risk and controls as linking objects to the process activities. The risks for which controls do not exist are recognized, defining either that there is a control weakness or that the risk is at an acceptable level and management agreed not to mitigate it (due to high cost of implementing a control or due to the possibility to reduce the available opportunities for gain). The auditor reviews known controls against identified risks to establish the extent of residual risk and identifies
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any other controls, which may cover the same risk and further reduce the residual risk. The next step is to assess the operating effectiveness of the identified and documented controls. Management is involved in the selection of the controls to be evaluated (through detailed testing of controls) based on the significance of risk. The audit work will focus then on these controls during the audit execution. In order to perform the audit, detailed audit steps are defined. For the detailed testing of controls it is important to document all testing activities. The risks and controls repository can be easily extended to act as an Internal Audit program/ checklist as presented in Figure 4, for performing tests of controls and recording the results of testing. The audit program that will be used in the audit includes: • • • •
The reference number of the activity to which the selected controls are linked The selected internal controls to be tested per sub-process and activity The steps that should be followed in order to perform the test of each control The significance of risks managed by the selected controls as assessed in stage 3.
During the audit the following information will be completed:
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Figure 4. Internal audit program template
•
• • •
The description of the results the control is operating and possible finding after the test is performed (operating inefficiencies) The actions proposed to be taken in order to improve the controls A statement on whether the results of the audit should be reported to management The reference number of the working papers obtained during the audit execution that can be used in the future to support and evidence the results of the controls audit.
Once the testing has been performed, the results and the recommendations for the improvement of processes and internal controls are documented into the Internal Audit report and are communicated to management in order to decide further actions.
PowerDesigner enterprise modelling software. Business Process Model (BPM) method was used for the construction of process diagrams. This modelling method is proprietary of the Sybase PowerDesigner software tool and describes the various tasks and processes of a business and how the partners interact with these tasks and processes (Sybase, 2008). The existing method of Business Process Model (BPM) was modified in order to incorporate the internal audit view. More specifically, a new method was developed with the following functionality: •
A SUPPORTIVE ENTERPRISE MODELLING TOOL In order to support the suggested methodological approach for the design of a process-driven Internal Audit function for risk assessment and control identification, a proposed enterprise modelling tool was constructed using the Sybase
•
The business processes are designed using the rules of Business Process Models. According to these, a process can be decomposed in sub-processes in different hierarchical levels, and, in activities in the lowest level of detail. Every process, sub-process and activity has a unique code number. The organizational units performing the activities are also modelled as well as the information flow between the different activities performed by specific organizational roles. The risks are connected to activities and are represented with arrows. Every risk can be classified as low, medium or high in an attribute of the arrow. One risk can lead to one
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or more controls, which are represented as cylinders. At the same time it is possible for more than one risk to lead to the same control. A control has a unique code number, a description, as well as analytical instructions for the checks that have to be performed.
• •
A simple representation of the suggested method is presented in Figure 5. The database functionality of Sybase PowerDesigner combined with the newly introduced internal audit-related objects permit the generation of reports that cover the suggested documents of the methodological approach presented in Figures 2, 3 and 4. More specifically, the process descriptions can be automatically generated (as the description is simply an attribute that can be retrieved by the customised report), as well as the risks and controls repository and the internal audit program. An important feature of the tool is the capability that offers to the auditor to define the audit scope. Typical criteria that can be easily used in order to select a specific area for audit of the supply chain are the following:
•
• • •
Selected process or range of processes. Selected sub-process or range of sub-processes. Selected activity or range of activities. Selected organizational units. Selected classification of risk (low, medium, high). Combination of the above.
The suggested enterprise modelling tool can support Stages 2, 3 and part of Stage 4 of the proposed methodological framework, enabling the easy and structured analysis of the processes to be audited, the definition of risks and controls in relation with the corresponding activities and the generation of the audit plans.
CASE STUDY: PROCESSDRIVEN INTERNAL AUDIT IN THE SUPPLY CHAIN IN A VIRTUAL ENTERPRISE NETWORK The application of the proposed methodological approach for the design of a process-driven Internal
Figure 5. Indicative objects of the proposed internal audit modelling method
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Audit function for risk assessment and control identification of related risks is described in the following paragraphs, where the supply chain process in a virtual enterprise network operating in the electronics sector is analyzed. This process is considered to be very important by management, as it affects the production of one of the most important product families that brings more than fifty percent of enterprise network’s turnover on an annual basis. Some activities are performed by sub-contractors and others are performed internally in the organization. The cooperation of the networked enterprises includes distinguishing operational characteristics that are very important and call for careful internal audit in many of its activities such as the production scheduling, the production process and materials control. The need for coordination between the
enterprises involved in the network as well as their frequent interaction add in the complexity of auditing and increase the administrative cost of controlling. In order to achieve risk assessment in an efficient way, and manage internal audit of the important and complex supply chain process, the suggested methodological approach and enterprise modelling tool were used. As a first step, the business process model was generated as described in Stage 2 of Figure 1. An indicative business model of the process (which was minimised for presentation purposes in this chapter) is depicted in Figure 6. The tool supports the inclusion of activity descriptions within the diagram, a functionality, which permits the automatic process description generation afterwards. A sample of the report
Figure 6. Supply chain process
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Figure 7. Business process model with risks & controls
generated by the tool has been included in Appendix 1. The use of enterprise modelling promoted the better and more structured comprehension of the process and its important aspects. The identification of discrete activities enabled the easier identification of risks related to them. As a result, the business process diagram was expanded in order to incorporate the internal audit view, by including all the recognised risks and controls. Figure 7 depicts part of the expanded business model related to the process model of Figure 6. In the example of Figure 7, subcontracting orders creation activities are presented. These activities are performed by the production planning and purchasing departments of one of the members of the virtual enterprise. Then, the released subcontracting orders are forwarded to one or more subcontractors of the network. The various
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controls of the subcontracting orders creation activities ensure the mitigation of risks which can affect the effectiveness of the production phases to subcontractors, and consequently the effectiveness and efficiency of the whole supply chain. The modelling of risks and controls permitted the creation of a related repository in the database of the tool, in the way it is described in Stage 3 of the approach. Appendix 2 includes the report of risks and controls for each activity of the supply chain process of the case study. Furthermore, for each control, more analytical instructions concerning the checks that have to be performed by the auditor are maintained in a related attribute of each control object. This functionality enables the generation of specific audit programs according to the criteria selected by the auditor. For example, in Appendix 3, it can be seen that an audit program was filtered, including only the
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controls connected with high risks of activities in the supply chain process. In this way, the audit execution included in Stage 4 is supported. The maintenance of the generated models permits the repetitive use of the repository content, increasing the productivity and the effectiveness of the auditor in his/ her audit missions.
FUTURE RESEARCH DIRECTIONS Internal auditors need to be out in the front, leading the business units with regards to the internal control system and focusing on strategic business objectives. It is essential to establish internal audit activity as a vital business operation in a virtual enterprise network rather than an observation activity, waiting for events to happen and deal with the impacts they have (Fadzil et al, 2005). Internal auditor should act as a management consultant, independent professional and business partner in a virtual enterprise network, where smaller firms join forces to undertake a project that cannot be efficiently handled by individual firms. Business process improvement requires periodically changes in planning, organizing, staffing and directing inside the enterprises. Internal auditor’s approach needs to be dynamic and adapt to the continual development of the virtual enterprise network. The supportive process modelling tool is characterized by the process orientation, the central administration of all the information concerning the internal audit of the supply chain process in a single database, as well as the use of a common method for the representation of the related objects. The proposed set of tools and methods can substantially increase the productivity of the auditor. A further important enhancement of the enterpise modelling tool could include the modelling of the audit findings in different process instances. Such an enhancement could permit the statistical exploitation of the findings with the use of a fully integrated internal audit database, offer-
ing, at the same time, an easy-to-use enterprise modelling front-end. Based on the fact that today’s business climate is characterized by high uncertainty, globalization of business, outsourcing, shorter product lifecycles and high customer expectations, effective supply chain management can help enterprises quickly generate greater market value, operate more efficiently on a long-term basis, improve cost structures, enhance the balance sheet, and respond quickly both to turmoil and to opportunity. This paper sets guidelines for enterprise modelling of supply chain processes. Even though the modelling tool, as processes become more complex, may be expensive and time-consuming upon implementation, the benefits of risk reduction and improvements in enterprises operations will outweigh the costs. The modelling tool not only provides solutions to supply chain potential issues but it also provides a structure for the virtual enterprise network to develop and enhance an effective supply chain management strategy.
CONCLUSION The nature of supply chain processes with interorganizational and cross-functional activities, involving different enterprises in a virtual network, increases the need for efficient and effective control. The importance of Internal Audit activities and controls is very high for risk management purposes in virtual enterprise networks. The realisation of internal audit in a purely financial manner cannot guarantee efficient and effective results in control, problem solving and continuous process improvement, three important goals of virtual enterprise networks operation. Business process management with the use of enterprise modelling techniques can enhance the effectiveness of an internal audit system. The appraisal of the effectiveness of the existing controls in the supply chain function can be supported by methods including an internal audit view incor-
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porated in the typical activity, organizational and information views. The proposed methodological framework supports the whole lifecycle of the internal audit process, from the strategic definition of the important business processes to the internal audit control and the feedback to strategy. The stages of business process analysis, process risk assessment, control assessment and auditing are supported by a proposed enterprise modelling tool which is an extended version of business process modelling method including the internal audit view through the connection of risks and controls to activities. The most important benefits realised by the proposed approach and tool can be summarised as follows: •
• •
•
•
•
•
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Better understanding of the processes under review, the organizational units and the partners (such as customers, suppliers, subcontractors etc.) involved and the information exchanged. Analysis of virtual network enterprises’ processes, formulating supply chain function Mapping of the existing risks and controls connected with specific business processes and activities of the supply chain. Improved effectiveness in the management of the internal audit missions through the filtering of activities, risks and controls during the audit preparation phase. Improved efficiency of the internal audit process through the use of the suggested enterprise-modelling tool, which automatically generates the appropriate audit plans based on the selection of the desired scope in the audit mission by the auditor. Easy inclusion of the proposed (and accepted) improvements in the processes or creation of new necessary controls. Facilitation of the report generation process, after the conclusion of the audit mission.
The proposed methodology and its application in the case study prove that enterprise modelling techniques which incorporate risk-based auditing methods can be applied for risk assessment and control in supply chain processes with interorganizational and cross-functional activities. The process orientation, the central administration of all the information concerning the internal audit of the supply chain process in a single database and the use of a common method for the representation of the related objects can substantially enhance risk management efforts in virtual enterprise networks. Enterprises participating in the virtual network benefit from application of the proposed methodology and modelling tool, since supply chain process optimization is achieved.
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ADDITIONAL READING Anderson, U. (2003). Assurance and Consulting Services. In A.D. Bailey Jr., A.A. Gramlin & S. Ramamoorti (Eds.), Research Opportunities in Internal Auditing (pp. 97-124), The Institute of Internal Auditors Research Foundation, Altamonte Springs, Florida. Arend, R. J., & Wisner, J. D. (2005). Small business and supply chain management: is there a fit? Journal of Business Venturing, 20(3), 403–436. doi:10.1016/j.jbusvent.2003.11.003 Black, J. A., & Edwards, S. (2000). Emergence of virtual or network organizations: fad or feature. Journal of Organizational Change Management, 13(6), 567–576. doi:10.1108/09534810010378588 Cai, J., Liu, X., Xiao, Z., & Liu, J. (2009). Improving supply chain performance management: A systematic approach to analyzing iterative KPI accomplishment. Decision Support Systems, 46(2), 512–521. doi:10.1016/j.dss.2008.09.004
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Chandrashekar, A., & Schary, P. B. (1999). Toward the Virtual Supply chain: The Convergence of IT and Organization. The International Journal of Logistics Management, 10(2), 27–40. doi:10.1108/09574099910805978
Lau, H. C. W., Wong, C. W. Y., Ngai, E. W. T., & Hui, I. K. (2003). Quality management framework for a virtual enterprise network: a multi-agent approach. Managing Service Quality, 13(4), 300–309. doi:10.1108/09604520310484716
Chopra, S. (2003). Designing the distribution network in a supply chain. Transportation Research Part E, Logistics and Transportation Review, 39(2), 123–140. doi:10.1016/S13665545(02)00044-3
Lu, L., & Wang, G. (2008). A study on multiagent supply chain framework based on network economy. Computers & Industrial Engineering, 54(2), 288–300. doi:10.1016/j.cie.2007.07.010
Duane, I. R., & Webb, J. W. (2007). A multitheoretic perspective on trust and power in strategic supply chains. Journal of Operations Management, 25(2), 482–497. doi:10.1016/j. jom.2006.05.004
Manthou, V., Vlachopoulou, M., & Folinas, D. (2004). Virtual e-Chain (VeC) model for supply chain collaboration. International Journal of Production Economics, 87(3), 241–250. doi:10.1016/ S0925-5273(03)00218-4
Gong, O., Lai, K. K., & Wang, S. (2008). Supply chain networks: Closed Jackson network models and properties. International Journal of Production Economics, 113(2), 567–574. doi:10.1016/j. ijpe.2007.10.013
Meade, L., & Sarkis, J. (1998). Strategic analysis of logistics and supply chain management systems using the analytical network process. Transportation Research Part E, Logistics and Transportation Review, 34(3), 201–215. doi:10.1016/S13665545(98)00012-X
Handfield, R. B., & Bechtel, C. (2002). The role of trust and relationship structure in improving supply chain responsiveness. Industrial Marketing Management, 31(4), 367–382. doi:10.1016/ S0019-8501(01)00169-9
Nagurney, A. (2009). A system-optimization perspective for supply chain network integration: The horizontal merger case. Transportation Research Part E, Logistics and Transportation Review, 45(1), 1–15. doi:10.1016/j.tre.2008.02.003
Hult, G. T. M., Ketchen, D. J. Jr, & Nichols, E. L. Jr. (2003). Organizational learning as a strategic resource in supply management. Journal of Operations Management, 21(5), 541–556. doi:10.1016/j. jom.2003.02.001
Nagurney, A., Cruz, J., Dong, J., & Zhang, D. (2005). Supply chain networks, electronic commerce, and supply side and demand side risk. European Journal of Operational Research, 164(1), 120–142. doi:10.1016/j.ejor.2003.11.007
Hurtubise, S., Olivier, C., & Gharbi, A. (2004). Planning tools for managing the supply chain. Computers & Industrial Engineering, 46(4), 763–779. doi:10.1016/j.cie.2004.05.018
Nagurney, A., & Matsypura, D. (2005). Global supply chain network dynamics with multicriteria decision-making under risk and uncertainty. Transportation Research Part E, Logistics and Transportation Review, 41(6), 585–612. doi:10.1016/j. tre.2005.07.002
Lau, H. C. W., Chin, K. S., Pun, K. F., & Ning, A. (2000). Decision supporting functionality in a virtual enterprise network. Expert Systems with Applications, 19(4), 261–270. doi:10.1016/S09574174(00)00038-5
Ostrovsky, M. (2008). Stability in Supply Chain Networks. The American Economic Review, 98(3), 897–923. doi:10.1257/aer.98.3.897
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Peck, H., & Juttner, U. (2000). Strategy and Relationships: Defining the Interface in Supply Chain Contexts. The International Journal of Logistics Management, 11(2), 33–44. doi:10.1108/09574090010806146
Strader, T. J., Lin, F.-R., & Shaw, M. J. (1998). Information infrastructure for electronic virtual organization management. Decision Support Systems, 23(1), 75–94. doi:10.1016/S01679236(98)00037-2
Pickett, K. (2003) The internal auditing handbook. West Sussex, UK: John Wiley & Sons Ltd.
Sutton, S. G., & Hampton, C. (2003). Risk assessment in an extended enterprise environment: redefining the audit model. International Journal of Accounting Information Systems, 4(1), 57–73. doi:10.1016/S1467-0895(03)00010-1
Ramamoorti, S., Bailey, A. D. Jr, & Traver, R. O. (1999). Risk assessment in internal auditing: a neural network approach. International Journal of Intelligent Systems in Accounting Finance & Management, 8(3), 159–180. doi:10.1002/ (SICI)1099-1174(199909)8:3<159::AIDISAF169>3.0.CO;2-W Robson, K., Humphrey, C., Khalifa, R., & Jones, J. (2007). Transforming audit technologies: Business risk audit methodologies and the audit field. Accounting, Organizations and Society, 32(4-5), 409–438. doi:10.1016/j.aos.2006.09.002 Sarens, G. (2009). Internal Auditing Research: Where are we going? International Journal of Auditing, 13(1), 1–7. doi:10.1111/j.10991123.2008.00387.x Stefanovic, D., Stefanovic, N., & Radenkovic, B. (2009). Supply network modelling and simulation methodology. Simulation Modelling Practice and Theory, 17(4), 743–766. doi:10.1016/j.simpat.2009.01.001
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Tage, S.-L., & Prabir, B. (2002). Challenges of Integration in Supply Chain Networks: An European Case Study (ACES Working Paper 2002.1). Pittsburgh, PA: University of Pittsburgh. Thompson, K. (2005). Virtual Enterprise Networks allow business scale through virtual collaboration. Virtual Collaboration Networks, 34. Retrieved July 10, 2009, from http://www. bioteams.com/2005/07/11/virtual_enterprise_networks.html Tseng, M.-L., Chiang, J. H., & Lan, L. W. (2009). Selection of optimal supplier in supply chain management strategy with analytic network process and choquet integral. Computers & Industrial Engineering, 57(1), 330–340. doi:10.1016/j. cie.2008.12.001 Zgodavova, K., Kosc, P., & Kekale, T. (2001). Learning before doing: utilising a co-operative role play for quality management in a virtual organization. Journal of Workplace Learning, 13(3), 113–119. doi:10.1108/13665620110388415
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APPENDIX A Table 1. Process description example Code
Activity Name
Organisation Unit
Description
A07.03.01
Material Requirements Planning
Production Planning Dept.
The Production Planner of the companies runs MRP once every fifteen days in order to generate proposed production order, proposed sub-contracting orders and purchase requisitions. The algorithm of MPR takes into account the BOMs, the production routings, the inventory availability, as well as the lead times of the suppliers and sub-contractors.
A07.03.02
Sub-Contracting Orders Creation
Production Planning Dept.
The proposed orders and requisitions generated by the MRP are accepted by the Production Planner, changed or rejected by the production planner who must take into account soft company-related issues. The result of the activity is the creation of sub-contracting orders, which are automatically forwarded to the buyer of the Purchasing Department through the Existing ERP system.
A07.03.03
Sub-Contracting Orders Grouping
Purchasing Dept.
The buyer of the Purchasing Department collects the sub-contracting orders and groups them accordingly based on the common requirements and the demanded dates of delivery.
A07.03.04
Sub-Contracting Orders Release
Purchasing Dept.
The buyer of the Purchasing Department generates the proposed sub-contracting orders, which are released after the approve of the Purchase Manager. The sub-contracting orders are sent by e-mail to the sub-contractor with an automatic process through the ERP system.
APPENDIX B Table 2. Risks & controls repository for the activities of the supply chain process (process a07.03) Activity
Risk
Risk Assessment
Control
A07.03.01 Material Requirements Planning
The algorithm used is not the appropriate one, generating wrong sub-contracting proposed orders
Low Risk
C07.03-01 Check of the material requirements planning algorithm
A07.03.01 Material Requirements Planning
The algorithm used does not use accurate master data, generating wrong sub-contracting proposed orders
Medium Risk
C07.03-02 Check on the accuracy of master data: ■ Material Master ■ Bills of Materials ■ Routings ■ Vendor Master
A07.03.02 Sub-Contracting Orders Creation
No formal sub-contracting orders are generated and sub-contracting is carried out on an ad-hoc basis
Low Risk
C07.03-03 Check of the generated subcontracting orders
A07.03.03 Sub-Contracting Orders Grouping
Grouping is not carried out in order to collect all the sub-contracting orders related to the same sub-contractor
High Risk
C07.03-04 Control of the sub-contracting orders grouping process
A07.03.04 Sub-Contracting Orders Release
The proposed sub-contracting orders delay to be transformed to released orders
Low Risk
C07.03-05 Check on the lead time of the transformation from order creation to order release
A07.03.05 Generation of Picking Lists
The necessary material for transportation to the sub-contractor is not collected
Low Risk
C07.03-06 Check of the transformation routine of the released orders to picking lists
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Table 2. continued Activity
Risk
Risk Assessment
Control
A07.03.06 Material Collection
The materials included in the picking lists are not collected
Medium Risk
C07.03-07 Check the physically collected materials compared with the picking list
A07.03.06 Material Collection
Different materials from these on the packing lists are collected
Medium Risk
C07.03-08 Check the physically collected materials compared with the picking list
A07.03.07 Generation of Delivery Note
The delivery note quantities do not agree with the real quantities
Medium Risk
C07.03-09 Check of the delivery notes accuracy
A07.03.08 Loading & Transportation
The wrong materials have been loaded to the track for delivery to the sub-contractor
Medium Risk
C07.03-10 Check of the loaded quantities compared to the quantities of the delivery notes
A07.03.09 Material Storage
The materials stored in the sub-contractor’s warehouse cannot be monitored in the IT system of the company
Low Risk
C07.03-11 Monitoring of the available inventory in the sub-contractor’s premises through the IT system and physical counting
A07.03.10 Production
The production process is not the agreed one
High Risk
C07.03-12 Production process walkthrough
A07.03.11 Follow-up of the Final Products Delivery Date
The agreed delivery dates are not kept
High Risk
C07.03-13 Check of the operation of the follow-up activity
A07.03.11 Follow-up of the Final Products Delivery Date
The service level agreement of the contract with the sub-contractor are not kept
High Risk
C07.03-14 Check of the existing service level agreements in the contracts with the sub-contractors
A07.03.12 Delivery of Final Products & Material Leftovers
Delivery is not performed according to the conditions agreed with the sub-contractor
Medium Risk
C07.03-15 Check of the delivery conditions compared with the conditions agreed with the sub-contractor
A07.03.13 Goods Receipt
The products quantities do not agree with the quantities expected
Medium Risk
C07.03-16 Check of the quantities delivered compared with the quantities ordered
A07.03.13 Goods Receipt
The returned raw materials do not agree with the quantities expected based on the BOMs
High Risk
C07.03-17 Check of the quantities returned compared with the quantities that should be returned according to BOMs
A07.03.13 Goods Receipt
The products and raw material delivered do not agreed with the quantities of the delivery note
High Risk
C07.03-18 Check of the quantities delivered compared with the quantities of the delivery note
A07.03.14 Systemic Goods Receipt
The sub-contracting orders do not close
High Risk
C07.03-19 Check on the status of the sub-contracting orders in the IT system
A07.03.14 Systemic Goods Receipt
Costing of the final products is not accurate
High Risk
C07.03-20 Check of the final product costing process
A07.03.14 Systemic Goods Receipt
The real material and product movements are not accurately transferred to the Information System
High Risk
C07.03-21 Check of material movement transactions and inventory locations accuracy
A07.03.15 Quality Assurance
Quality assurance is not performed
High Risk
C07.03-22 Check of the quality assurance process
A07.03.15 Quality Assurance
The quality of sub-contracting work is not satisfactory
High Risk
C07.03-23 Check of the quality problems of the final products
A07.03.15 Quality Assurance
Claims are not performed for problematic products
High Risk
C07.03-24 Check of the claims process for problematic situations recognised by quality assurance
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Table 2. continued Activity
Risk
Risk Assessment
Control
A07.03.16 Statistics Generation for Sub-Contractor Performance
Statistics are not generated for sub-contractor performance
Low Risk
C07.03-25 Check on the existence of statistics analysis of former sub-contractors performance
A07.03.16 Statistics Generation for Sub-Contractor Performance
Statistics generated for sub-contractor performance are not accurate
Medium Risk
C07.03-26 Check of the statistics generation process
A07.03.17 Sub-Contractor Evaluation
Sub-contracting evaluation is not performed
High Risk
C07.03-27 Check on the adherence of the company to the evaluation process
A07.03.17 Sub-Contractor Evaluation
The criteria used for sub-contractor evaluation are not set properly
Medium Risk
C07.03-28 Check on the criteria used for the evaluation of the sub-contractor performance
A07.03.17 Sub-Contractor Evaluation
Claims are not monitored in order to be used for sub-contractor evaluation
High Risk
C07.03-29 Check of the claims process and monitoring of the claims value
APPENDIX C Table 3. Audit programme example for the supply chain process (high risks) Control Code
Control Name
Control Description Text
C07.03-04
Control of the sub-contracting orders grouping process
For three different days of the last three months, where sub-contracting orders have been created, the groupings created are checked compared with the existing released orders.
C07.03-12
Production process walk-through
For two active sub-contractors, a thorough walk-through of the production process in their premises is carried out in order to confirm the agreed production process. Available documentation for the sub-contractors’ production process as well as the necessary master data must be used.
C07.03-13
Check of the operation of the follow-up activity
For all the sub-contracting orders of five selected days, the information completed in the IT system by the purchasing department during the follow-up activity is checked.
C07.03-14
Check of the existing service level agreements in the contracts with the sub-contractors
For all the existing contracts with sub-contractors, the existence of specific service level agreements is checked. Then, for ten different cases of follow-up, it is checked whether the follow-up process was performed promptly.
C07.03-17
Check of the quantities returned compared with the quantities that should be returned according to BOMs
For five cases of goods received, the quantities of returned material are confirmed compared to these included in the BOMs. In the case of differences of more than five percent, further investigation in cooperation with the sub-contractor is carried out in order to identify possible changes in the production orders or data entry errors.
C07.03-18
Check of the quantities delivered compared with the quantities of the delivery note
Real-time check in five cases of goods receipt is performed in order to check the accuracy of the information included in the delivery notes and the execution of the appropriate activities by the employees in the case of differences.
C07.03-19
Check on the status of the sub-contracting orders in the IT system
For three selected dates (one being the date of control), the existing open sub-contracting orders are identified. From these, the ones that should have been closed are identified.
C07.03-20
Check of the final product costing process
For five different cases of products, the cost calculation of the previous month is examined. Special care is needed to be taken in order to find out that the cost of sub-contracting is added to the final products.
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Table 3. continued Control Code
Control Name
Control Description Text
C07.03-21
Check of material movement transactions and inventory locations accuracy
In five cases of goods receipts by sub-contractors, the related material movements are checked and the inventory levels are monitored. Moreover, for three selected cases, inventory balances are checked in order to identify possible negative inventories.
C07.03-22
Check of the quality assurance process
Real-time check in five cases of goods receipt is performed in order to check the conformance with the existing ISO process of quality assurance that must be followed in every case of goods receipt.
C07.03-23
Check of the quality problems of the final products
In five real-time checks, the process of quality assurance is checked concerning the quality assurance buffer, the sampling, the marking and the recording of the results.
C07.03-24
Check of the claims process for problematic situations recognised by quality assurance
In two real-time checks with quality problems, the process of generation of claims is checked.
C07.03-27
Check on the adherence of the company to the evaluation process
Study of the evaluation files of three sub-contractors in order to check the adherence of the company to the evaluation process.
C07.03-29
Check of the claims process and monitoring of the claims value
The value of claims of the last six months grouped by sub-contractor is analysed with the check of the related report. In two real-time checks with quality problems, the process of generation of claims is checked.
This work was previously published in Managing Risk in Virtual Enterprise Networks: Implementing Supply Chain Principles, edited by Stavros Ponis, pp. 290-312, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 4.2
eInsurance:
Developing Customer-Friendly Electronic Insurance Services from the Novel Project Perspective Aki Ahonen OP Bank Group Central Cooperative, Finland Jarno Salonen VTT Technical Research Centre of Finland, Finland Raija Järvinen National Consumer Research Centre, Finland Jouni Kivistö-Rahnasto Tampere University of Technology, Finland
ABSTRACT The chapter introduces an innovative organizational logic for developing and designing electronic services especially in the context of financial services, such as insurance. Furthermore, a novel electronic insurance service concept for consumers is introduced in the chapter. The authors argue that development of electronic service solutions for the use of financial sector formerly
rather conducted in an organization may well be executed through a multi-organizational projectbased working logic. In fact the chapter establishes that the multi-organizational project-based logic results in a more creative outcome. Hence, the authors hope that the chapter encourages both academics and especially practitioners within the insurance business sector to take steps towards more collaborative working practices in order to generate more creative electronic service solutions for customers.
DOI: 10.4018/978-1-60960-587-2.ch402
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
eInsurance
BACKGROUND Insurance companies globally have put effort into developing electronic insurance services especially for nonlife and health insurance. Even though the importance of the Internet as a channel for business-to-consumer insurance services has grown, according to research (e.g., Ahonen & Salonen, 2005; Järvinen, Eriksson, Saastamoinen, & Lystimäki, 2001) the Internet is still used mainly for information acquisition purposes. In contrast, the actual service transactions (e.g., buying and reporting a claim) are performed in person or via phone with an insurance officer or independent broker. In order to increase customers’ willingness to use electronic insurance services, a few critical issues need to be taken into consideration. First of all, customers usually need to contact the insurance company only once or a few times a year. Second, in the same way as all current Web-based electronic services, also electronic insurance services are based on self-service principles. This means that physical service contact is not available for the customers and instead they have to rely on their own know-how and skills in order to get their service needs fulfilled. For the above-mentioned reasons, it is more difficult for the customers to start operating in the electronic environment than in the physical service environment. In spring 2002 some Finnish academics involved in research on insurance business expressed their concern regarding the lack of customer orientation in the case of the electronic insurance services available on the Internet. They raised a question: “How do we get electronic insurance services closer to customers?” A discussion about launching a research and development project for the purpose of increasing the customer (i.e., user) friendliness of electronic insurance services was begun. Not more than a few months later the discussion had spread to insurance business practitioners when the above-mentioned question was raised
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also in public seminars and at other events by academics. Both academics and representatives of the business world realized they share a common concern with regard to developing electronic insurance services that better respond to customers’ needs. The cooperation between academics and businessmen started by preparing a research plan, and after a year a public research and development project was launched. The project was entitled “eInsurance 1” and was carried out between August 2003 and December 2004. The project also engendered a follow-up project with the similar but more extensive objective of enhancing the customer friendliness of electronic insurance services (eInsurance 2), which was executed between June 2005 and February 2007. In this chapter, research and development activities of electronic insurance services included in these two projects are introduced and discussed. Although research results gained through the two eInsurance projects provide valuable information for practical business, the main focus of this article is, however, on the part of the project dealing with development. In particular, attention is paid to introducing the developed electronic insurance service concept for consumers called “Safety and Insurance Advisor” since it is the most fundamental practical result of the two eInsurance projects. The developed service concept is totally new in both Finnish insurance markets and internationally. Now one could ask: “Why describe research projects and their results in order to provide a case for developing electronic services in an organization?” We can provide many distinct reasons. First, since the projects had received public funding,1 we considered it our duty to publicly report all results. Second, the two eInsurance projects were not only research projects but also development projects aiming at developing concrete electronic service concepts for the use of the insurance industry. In fact the eInsurance projects were, and still are, pioneering projects in examining and develop-
eInsurance
ing electronic insurance services in Finland as a whole. Third, basic project organization was the same in both projects. Previously, these kinds of development activities have been performed internally within insurance companies. This case provides an example of how the development of electronic insurance services can be performed in cooperation with several distinct organizations. Hence, this case is an interesting example also from the organizational point of view. The chapter is structured as follows: the second section provides essential background on the scope of the eInsurance projects and project organization. The most important result of the two projects, namely the electronic service concept “Safety and Insurance Advisor,” is introduced in the third section. The execution of the projects (functionality of the project organization and the gained results) as well as future challenges regarding project organization are assessed in the fourth section. Concluding remarks are presented in the final section.
SETTING THE STAGE Electronic Insurance Services and Consumers A shift from product-based economy to service economy occurred some 20 years ago (see, e.g., Fitzsimmons & Fitzsimmons, 2006). Later, service orientation was also extended to the electronic environment, such as the Internet. Earlier, the terms most used to describe the operations and/ or transactions executed on the Internet were “ecommerce” or “e-business.” After the millennium and the so-called hype era of the Internet, online service providers generally started to pay more attention to customers. However, as physical service contact is missing in the electronic service environment, customers’ operations are based on self-service logic (e.g., Ahonen, 2007; Meuter, Ostrom, Roundtree, & Bitner, 2000). Therefore,
it is of the utmost importance that there should be real benefit-providing services available for customers in the electronic service environment, and not just bits and pieces of information from here and there forming the content of the electronic services. Concerning the utility and attractiveness of electronic insurance services, a recent survey (Peura-Kapanen, Nenonen, Järvinen, & KivistöRahnasto, 2007; see also Peura-Kapanen & Järvinen, 2006) concerning consumers’ risk perceptions reveals that 77% of Finnish consumers value most of all the opportunity to compare various insurance types on the Internet. However, this kind of service is not commonly available, although at least in Sweden, Estonia, and the Netherlands there is a portal which allows the comparing of insurance prices. The other services consumers prefer on the Internet are examples of accepted and un-accepted claims (73%), price calculators (71%), electronic claim applications (58%), and the opportunity to check and update their personal insurance policies (52%) (Peura-Kapanen et al., 2007). According to the survey by Peura-Kapanen et al. (2007) and the qualitative study by PeuraKapanen and Järvinen (2006), most consumers have visited the Web sites of insurance companies and mostly they have been seeking price details or information on insurance types. Especially consumers complained that prices have been difficult to find or to compare. Because of this, many of them still prefer personal service provided by branch offices. In addition, they value interaction with insurance specialists since insurance policies typically are considered complicated by customers. In fact, many consumers even avoid insurance matters because of their complicated nature (see, e.g., Järvinen & Heino, 2004). As a consequence of this, only 80% of Finnish consumers have home insurance and the number of home insurance owners has decreased during recent years, at least in the Finnish market. As in many other service fields, signs of the development towards electronic services started
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to emerge after the millennium. Insurance companies in many advanced insurance markets, for example, in U.S., UK, Germany, and the Nordic Countries, started to offer possibilities for online purchasing. In addition, reporting a claim online became possible at least in the Nordic countries. Concerning the design of Web sites, development steps were taken to construct a more comprehensible and appealing operating environment for customers. Especially many online insurance service providers, for instance, within the British insurance market, have adopted a more lively and non-insurance-like approach in the development of their electronic insurance service environments. These firms prefer fresh and lively colours instead of dark and matter-of-fact ones, and use illustrative—in some cases even animated—pictures on their Web sites. These types of service providers can be found at least in American, British, and German markets.2 The utilization of visual elements has been welcomed also among Finnish customers (e.g., Ahonen, 2007). Since insurance services often are perceived as complex and confusing, visual elements are seen as a way of facilitating customers’ operations in the electronic service environment. However, until now, Finnish insurance companies have preferred the more conservative and matterof-fact approach in offering electronic insurance services. More precisely, they have put a large amount of unstructured information on the Web sites and neglected the use of visual aids, such as colours and pictures, in making the electronic service content more comprehensible for customers. The starting point in planning the eInsurance projects was that insurance services, and also other financial services, are generally considered complex services. Complex services are defined as “services that consist of many attribute values per attribute, which are often tailor-made, infrequently purchased, more difficult to comprehend, and require in general assistance during the decision-making process” (Vroomen, Donkers, Verhoef, & Franses, 2005, p. 38). Considering
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the fact that electronic services are based on selfservice logic, the complexity of service makes it even more challenging for a customer to use such electronic services. With this in mind, the preliminary guideline for planning the essential scope of the eInsurance projects took into account the fact that since insurance is not easy for customers to comprehend, the electronic service environment should be designed in a way which makes it easy and appealing to use and thus, provides customers with better possibilities to become more familiar with electronic (insurance) services. Insurance is considered one of the most intangible services (e.g., Majaro, 1983). The intangible nature of services usually makes it easier to shift them to the Internet. However, the complexity of the insurance services may hinder the frequent use of electronic services. Instead, customers often require individual and personal service provided by insurance specialists. Following from this, customers use the Internet for gathering information, but after this stage they still prefer to discuss with the specialists before making their final decision (Järvinen & Heino, 2004). These habits create great challenges for insurance services on the Internet. Therefore, insurance companies should start to develop their Internet services by following the logic of their customers and use more concrete elements, such as visualization, in order to make these abstract services as tangible as possible. Whereas Internet services are usually quite standardized, in the case of insurance services customers’ needs are not uniform. Therefore, electronic insurance offerings should at least be mass customized (Järvinen, Lehtinen, & Vuorinen, 2003). One way to approach this issue in the electronic service environment is to offer insurance cover consisting of various elements that customers can choose and pick from according to their personal requirements. However, many customers are afraid of buying insurance on the Internet since they may choose the wrong insurance type or insufficient cover (Peura-Kapanen & Järvinen, 2006). Therefore, electronic insurance
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services have to take account of the customers’ actual life situation and automatically take care of the minimum cover on behalf of customers. We have discussed above the necessity to approach the development of electronic insurance services from a new and more customer-friendly perspective. This idea has been the central principle in both eInsurance projects. In the next two subsections the construction of both projects is discussed from both the organizational and functional point of view.
eInsurance 1: Electronic Insurance Business (2003–2004) Back in 2002, the insurance sector was generally interested in putting more effort into adopting electronic services. Although the hype of the Internet was already over, the new communication channel was still seen to have great potential for offering services. Enthusiasm might be a felicitous expression to describe the attitude of both business and scientific communities towards electronic services back then. Hence, there existed a favourable basis for constructing a temporary organization with the aim of designing and executing a research and development project. For instance, there was no need to inveigle companies to participate and also funding for the project was easily obtainable. The core of “eInsurance” organization was constructed in 2003 and comprised one university, one public research organization, and two insurance companies. By August 2003, after complementing the organization with a few additional participants, the final project consortium consisted of four corporate participants, one university, and one public research organization. Furthermore, the Federation of Finnish Insurance Companies participated in the project management team. From a research point of view, the participating university embraced a business approach while the participating public research organization complemented the business approach by providing technical competence for the use of the research consortium.
Both participating insurance companies can be considered key players in Finnish insurance markets. Approximately 2000 employees work in these companies (in Finland). The two other corporate participants were software companies. One of them can be considered one of the leading software providers in the Finnish financial markets and especially insurance business markets. The company has approximately 100 employees in Finland, but it also has business operations in other Nordic countries and in the Baltic countries. The other software company is a “small business” company which was established in 2001 and specializes in identity and access management in online services. The efficiency of a new organization might be hindered, for instance, by the lack of cohesiveness of the organization as well as of established working practices. However, this was not perceived as a problem in this case since there already were earlier existing personal relationships between the project members. Thus, an existing core for collaboration encouraged also new members of the established organization to work in collaboration with each other. Further, the coherency of the brand new organization was moulded through collaborative meetings and a few “kick off” events already before the launch of the first development project in August 2003. More importantly, however, the motivation to gain new information and to design and develop new electronic insurance service concepts for the use of customers provided a good basis for the cohesiveness and functionality of the organization. From the operational perspective, the project organization was supervised by the project management team (11 members), consisting of executive-level members from each participant organization. In addition, an operative team was established to be responsible for concrete research and development activities conducted through the “eInsurance” project. The operative team, in which the middle management of the companies
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and researchers worked in collaboration, consisted of nine members. The most crucial practical objective of this first eInsurance project was to develop an electronic service concept for consumers following a logic based on visualizing information. As a result, a service concept called “insurance cover evaluator” was introduced in January 2005.
eInsurance 2: Novel Electronic Insurance Services (2005–2007) For the follow-up project, entitled “eInsurance 2: Novel Electronic Insurance Services,” the basic philosophy remained the same, but the approach was extended to cover altogether four research themes: service business and usability, safety and risk management, jurisprudence, and technological environment. The organization was slightly updated to fulfil the requirements of the project in terms of competence and professional knowledge. The research participants in the first eInsurance project (one university and one public research organization) also formed the core of the eInsurance 2 project. In addition, the consortium was complemented with another university and another public research organization. Thus, altogether four research parties participated in the eInsurance 2 project. One of the two participating insurance companies from the first eInsurance project showed clear interest and motivation to work in a collaborative project-based organization and so continued also in the second project. Similarly, the larger of the software companies was willing to participate in the second project. In addition, another software company specialized in developing IT solutions and consulting joined in the consortium of the eInsurance 2 project. Hence, altogether three companies participated in the second eInsurance project. The operational functionality was arranged in the same way as in the first project and comprised the project management team and the operative
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team. In addition, four research teams were created within the operative team in order to facilitate the research activities within the research themes (service business and usability, safety and risk management, jurisprudence, and technological environment). The objective of the eInsurance 2 project was to support customers during the insurance transaction process by developing a comprehensive electronic insurance service environment that is combined with the insurance customership life cycle. As the most important development result, a service concept called “safety advisor” was introduced. Actually, the result of the first project (insurance cover evaluator) and the “safety advisor” were combined into an entity called ”safety and insurance advisor.” The overall concept was introduced in March 2007 and it provides customers with safety information related to their living environment and suggests various insurance cover alternatives. The “safety and insurance advisor” is presented more thoroughly in the next chapter.
Describing the Main Results of the Project It was commonly agreed in the project organization that an electronic insurance service environment would need demonstrative and facilitating features in order to be able to better respond to the needs of customers operating according to self-service logic. Otherwise, electronic insurance services would remain sparsely used since customers perceive them as complex and confusing. Thus, the guiding philosophy of design and development was to create a more illustrative, appealing and easy-to-use service concept for the electronic insurance service environment and thereby to engage consumers more in the electronic insurance service environment. What was said above naturally raises a question: “What does this mean in reality?” The eInsurance project team decided to emphasize visualization in the electronic insurance service
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environment in which information is traditionally presented in the form of text (and lots of it!) explaining insurance cover and terms, and thereby to make the electronic insurance service environment more appealing and comprehensible for customers to use. As a starting point for the development work, we utilized the customer service life cycle model (Ives & Mason, 1990) depicted in Figure 1. Throughout both eInsurance projects, the main attention was paid to the first (requirements) and the second (acquisition) phases of the life cycle. The first eInsurance project focused especially on specifying the possible need for insurance cover for consumers. In turn, the main focus of the eInsurance 2 project was on providing a tool for facilitating the acquisition of possible insurance cover by offering customized and visualized information on safety and insurance for consumers. The developed electronic service concept, called “safety and insurance advisor,” is introduced in Section 3.1.
The eInsurance Service Concept The eInsurance service concept called the “safety and insurance advisor” was developed in two separate phases. The first part of the service, called the “insurance cover evaluator,” was developed in the first eInsurance project during 2003 and 2004, and the second part, called the “safety advisor,”
was the result of the second eInsurance project executed during 2005 and 2007. The overall service concept is an Adobe Shockwave3 application that can be accessed through the project Web site.4 The selected application type enabled the development of a suitable graphical user interface and the use of an external database that provided easy-to-update storage for information used by the safety and insurance advisor. Ahonen, Salonen, Kivistö-Rahnasto, Järvinen, and Silius (2007) have illustrated the structure and different functions of the overall service concept in Figure 2. The figure has been divided into three horizontal sections describing the information given by the customer (input level), the four different functions of which the service concept consists (functional level), and the output provided to the customer in each function (output level). User interaction is carried out by using the mouse in a graphical user interface, in which the customer either selects an object (e.g., choosing a housing type on the screen to describe his living conditions by clicking with a mouse) or uses drag and drop to combine objects with each other (e.g., choosing family members to describe his living situation by dragging appropriate family members to the selected house). In addition, the service also provides information in balloons that appear when the user moves the mouse cursor over certain objects (e.g., family members). In the follow-
Figure 1. Customer service life cycle (Ives & Mason, 1990, p. 59)
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Figure 2. Structure and phases of eInsurance service concept (Ahonen et al., 2007, p. 13)
ing sections we provide a more detailed description of the service concept and its functions.
“Selector” Function The first phase of the service concept is a “selector” function that collects information about the customers’ living environment in order to provide a suggestion regarding suitable insurance products to customers along with tailored safety information. Customers are asked to provide information on the following topics: Accommodation (apartment house, row house, detached house); Family members (male, female, teen, child, pet); Assets (vehicles, valuables, summer cottage, forest, etc.); Activities (travel, hobbies). The user interface and the overall appearance of the service concept are illustrated in Figure 3. The service content has been translated into English in order to provide a better understanding of the service. The other phases of the selector function keep to the same graphical appearance in order to maintain ease of use throughout the service concept.
“Insurance Cover Evaluator” Function The second phase of the service consists of the insurance cover evaluator function that lists the
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selections made earlier by the customer and combines them with insurance types suitable for each selection (e.g., family member, asset). The insurance types have been divided into the following two categories: Primary insurance types: the most common and therefore highly recommended types for the selected living environment (e.g., car, home, and travel insurance); Secondary insurance types: optional, but useful types for the selected living environment (e.g., all-risk car insurance, health, and sports insurance), especially for customers who want full insurance cover against risk.
Figure 3. eInsurance service concept: selecting family members (Adapted from Ahonen & Salonen, 2007)
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By selecting an object from the list containing the customer’s selections, the customer is provided with information about the insurance type related to that certain (selected) object. The combination of customer selections and insurance types clarifies the relationship between them and provides a better understanding of household insurance cover as a whole. The information can also be printed out and used as reference when contacting the insurance company or an independent broker.
“Safety Advisor” Function The third phase of the service consists of the safety advisor function. This function combines the earlier customer selections with examples of accidents and hazards which may occur within the customers’ living environment. The customer can acquire safety information about four different topics within his or her living environment: home, vehicles, travel, and hobbies. The graphical user interface provides several scenarios within each topic, for example, a fire in the kitchen (Figure 4) or losing one’s luggage during a trip abroad. The individual scenarios are described both in written and graphical (some including animation) form and they include the following information:
What might happen? (a scenario of an accident or hazard that might happen); How to avoid the damage? (how to prevent the accident and/or minimize the damage); In the case of damage (how does insurance apply in this situation and what kind of issues must be considered in making an insurance claim); Did you know… (statistical, instructional, and/ or other information related to the scenario). The service concept provides customers with customized information by adjusting itself according to their earlier selections. In other words, a family with children receives a scenario and safety information appropriate to their living circumstances which is different from that of a single person or a couple with no children. This supports the research results gained from the eInsurance projects which emphasized the personality and topicality of the insurance and safety information provided to customers.
Experiences from the Development of the Service Concept Since the transformation from industrial to service society in the late 20th century and the introduction of electronic commerce, the term “innovation” has
Figure 4. eInsurance service concept: A screenshot of the safety advisor (Ahonen et al., 2007, p. 15)
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become more related to service development. In this regard, we reflect the development activities conducted during the eInsurance projects through the lenses of innovation. Among others, Fitzsimmons and Fitzsimmons (1994) and Trott (2005) have discussed two common models of innovation, called “technology push” and “market pull.” The models provide two alternative processes for innovative development. The difference between the two models lies in the initiator of the process, the “technology push” model being initiated by technology-based research and development performed by an organization while the “market pull” model is initiated by a need noticed by the organization within the target and/or other market. Following the insights of Trott (2005), the service development process in the first eInsurance project followed the “technology push” linear model of innovation. The initial service concept innovation was developed on the basis of the questionnaire surveys, interviews, and other background information collected from the industrial business partners and external resources in 2003 and 2004. During the development phase in mid-2004, the project partners participated in the development process by commenting on the draft structure and proposed contents of the service during the project meetings. In addition, the project partners evaluated the first prototypes of the service concept to be developed and provided feedback, especially on the terms used in the service as well as on other content. During the service concept publication phase in December 2004,
the service was evaluated by selected members of the organizations participating in the project. After the publication of the service concept in January 2005, an electronic questionnaire form was generated to collect feedback from the end users of the services, that is, ordinary insurance company customers. In this regard, we have adapted Trott’s model to fit the scope of the eInsurace 1 project. The reformed model is illustrated in Figure 5. It describes the development process of the insurance cover evaluator and also the methods used during the development of the service concept for collecting the required information in different phases of the project. Development of the second part of the service concept (safety advisor) began in early 2006 by gathering requirements and ideas from the various project participants. As stated above, the project organization had changed substantially as the number of research organisations had doubled. The industrial business partners consisted of one insurance company and two software companies, of which one was completely new. Due to the already published service concept and some further development work performed by the insurance company participating in the second project, there was a lot of already existing information to support the new service innovation ideas. Therefore, the process of developing the second part of the service concept changed from the “technology push” to the “market pull” model (Trott, 2005) in the eInsurance 2 project.
Figure 5. The linear model of innovation within the e-iInsurance 1 project (adapted from Trott, 2005, p. 23)
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The (internal) marketing phase began in the spring of 2006 when a team of three key members within the project conducted interviews in all of the participating organizations in order to make a list of their needs and ideas related to the service concept. In addition to the previous interviews, an internal workshop was organized in March 2006 for the project participants. The main objectives of the workshop were to disseminate information about the current project results and to collect information for the development of the forthcoming service concept. The initial innovation behind the service concept was formed in mid-2006 on the basis of the feedback from the existing service and the project (especially business) partners’ needs that were listed during the interviews and the internal workshop. Even though the eInsurance 2 project had begun in 2005, the main results that supported the initial service concept innovation and defined the content further were collected in summer 2006 when a large questionnaire survey was targeted to a focus group of 800 consumers. At the same time, also other research work was performed to support the concept development. The participants provided comments for the draft models of the service concept at specific meetings that were organized monthly from September to the end of 2006. In the beginning of 2007, the overall service concept including both insurance cover evaluator and safety advisor, and called safety and insurance advisor, were published internally and evaluated by the project partners. Before the publication of the service concept in March
2007, the service concept was also evaluated by external (invited) parties. The reformed model by Trott illustrated in Figure 6 describes the service concept development process during the eInsurance 2 project and the supporting methods used during the development activities. All in all, the service innovation process changed between the two eInsurance projects from the technology push-oriented to the market pull-oriented model. This was mainly due to the fact that during the first project, there were no existing case examples of electronic insurance services, and therefore the information from the market was insufficient to provide enough support for developing a new service innovation for the insurance sector. When the second eInsurance project was launched, the market already had a practical example of a functioning, more visual electronic service for consumers. The service had been developed on the basis of the insurance cover evaluator service concept by one of the participating insurance companies. Since electronic services within other market areas were already more developed, the project development team was able to collect insights from both the end users and the industrial business partners. This information was used to support the development of the second part of the service concept.
Assessing the Utility of eInsurance Projects Having described the background and introduced the eInsurance case, we consider it essential to
Figure 6. The linear model of innovation within the e-iInsurance 2 project (adapted from Trott, 2005, p. 23)
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evaluate how the development activities conducted during the two projects contribute to the field of electronic services. Our particular interest naturally focuses on the field of insurance business. In this chapter we continue with the innovation approach by evaluating the utility of the two eInsurance projects. First, the benefits of the developed service concept (safety and insurance advisor) are discussed in the first subsection. In the second subsection, a more extensive view is provided, and the eInsurance projects are discussed as an example of organizational innovation in developing electronic insurance services. Finally, current challenges for the organization are discussed in the final subsection.
Service Innovation Perspective Garcia and Calantone (2002) grouped innovations into five categories. First, radical innovation involves a new technology (or service: authors’ comment) that changes the current market infrastructure. Second, new innovation changes either the technology or the market. Third, discontinuous innovation is radical or really new innovation depending on how much and how fast the innovation changes the technology or the market. Fourth, incremental innovation is based on current technology that offers new features, benefits, or improvements to existing markets. Fifth, imitative innovation challenges the original innovation. The main innovation of the eInsurance project is the safety and insurance advisor. To our knowledge, the developed service concept is new for the insurance market as a whole. It offers a radically new approach for customers to chart not only personal needs for insurance but also personalized information of safety management and on how to avoid risks. The safety and insurance advisor is based on existing technology, but its user interface is more visual and entertaining than the traditional interfaces of electronic insurance services. In addition, the safety and insurance advisor has influenced the insurance market in
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general by opening a new communication channel between customers and insurance companies. On that basis, we suggest that the insurance selector can be considered a real new or even radical innovation. On the other hand, the insurance selector influences the insurance business marginally at the macrolevel, even though it is radically a new concept. From the insurance business point of view, the safety and insurance advisor can be considered an incremental innovation. Furthermore, in our opinion the Customer Service Life Cycle Model by Ives and Mason (see Figure 3) provides a felicitous approach to assessing the utility of the safety and insurance advisor. However, the model had to be refined to fit the scope of electronic insurance services. The adapted model is depicted in Figure 7. The first phase of the life cycle is called requirements (i.e., recognizing the need). The main purpose of the insurance cover evaluator concept was to make it easy for customers to recognize their insurance needs. The main function of the insurance cover evaluator is to collect background information about the customer’s life situation (i.e., housing, family, property, hobbies, traveling, etc.) and provide the customer with an insurance cover solution suitable for his or her life situation. The second phase of the life cycle is called acquisition. The safety advisor makes use of the information provided by the customers on the insurance cover evaluator and provides them with customized information concerning risks and other safety-related issues as well as on how to prevent them in their own environment. In addition, the safety advisor provides customers with information on how insurance types relate to the previously mentioned risks and includes statistical data and/or other useful information on safety measures and products that can be found on the Internet. As Figure 7 indicates, the overall service concept (safety and insurance advisor) covers a great proportion of the customer service life cycle in the electronic insurance service context. Hence, the
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Figure 7. The insurance service life cycle and the new Web services (adapted from Kivistö-Rahnasto, Ahonen, & Salonen, 2006, p. 8)
safety and insurance advisor can be considered as a valuable step in bringing electronic insurance services closer to consumers’ mindset.
Organizational Perspective on Innovations At the beginning of the article we emphasized the unique, or at least diverging, nature of eInsurance organization from the perspective of developing electronic services in the insurance context. In the insurance business area, service development has mainly consisted of utilizing technology, that is, transferring existing traditional services to the electronic environment instead of developing completely new service concepts. On the other hand, consumers do not necessarily expect very much from insurance services since they are used only occasionally. From the point of view of service providers this has lead to a very limited and somewhat restricted orientation towards service innovations, which might result in new ideas with large market potential being rejected automatically since such ideas would require a change in the standard processes and/or culture of the organization. This tendency might, in turn, also diminish customers’
willingness to accept innovations. However, the research organizations often have a perspective which is contrary to that of business life, because their organizational culture supports entrepreneurship and innovativeness, but often they lack the resources needed to complete a project. Hence, research organization projects often have as their objective the developing of a service concept instead of a commercial product or service, since marketing and other business operations aiming at commercializing the developed service concept require such resources that research organizations usually do not have. The research organizations provided competencies within the areas of technology and consumer research which supported especially the idea-generation phase of the project. The corporate partners, on the other hand, provided general information, target groups (e.g., customers) and a marketing perspective on the project which the research organisations lacked. In addition, the corporate partners provided resources by funding a part of the project, whereas the main funding was granted by the national funding agency. Uncertainty about the results is often characteristic of research and development projects aimed at creating innovations. This was the case also in
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the two eInsurance projects. The uncertainty at the beginning of the project caused a certain amount of strain especially for insurance companies. After the participating organizations had learned to rely on the established working practices, tolerance of uncertainty increased. However, many innovative ideas never see the light of day since the working climate might set certain norms of behaviour which hinder the creativeness of individuals and thus also that of the overall organization. The objective of the two eInsurance projects was to provide a new basis for innovative ideas that might otherwise have been rejected within the insurance company’s own research and development (R&D) department. The developed concepts were tested by ordinary users in order to obtain sufficient information on the functionality of the developed service concept(s) before decisions regarding further development and commercialization of the concept(s) were made by the participating corporate partners. The corporate partners expressed their satisfaction with the appropriateness of organizational structure of the two eInsurance projects for developing electronic insurance services. As one of the most fundamental benefits of this structure, the corporate partners emphasized the freedom to focus on creating innovative electronic service solutions. The organization of the eInsurance projects was perceived as very creative by business partners since it allowed even humorous and far-out ideas to be put forward by participants without having to worry about the disapproving reactions or financial pressure from the firm, as they would often have to in the case of internal projects. As the corporate members of the project expressed, the eInsurance projects, although temporary, enabled the corporate partners to break away from their daily routines and concentrate on being innovative. Also, several members of the project management team expressed the opinion that it was incredible how well the participating members, especially within the operative team, blended to form a cohesive and functional entity.
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The project members assumed different roles in the innovation process. As O’Connor and McDermott (2004) have suggested, a radical innovation requires multiple roles, such as those of idea generator, opportunity recognizer, champion, project leader, and project alumni. They underline that the idea generator and opportunity recognizer are usually different persons. They also emphasize the role of project alumni, some of whom are acting in the project team in leadership roles, regardless of any eventual change in their actual functions within the companies where they are employed during the project (see also McDermott, 1999). In a business–university alliance it is important to pay attention to “cultural gaps” regarding for example the publication of results, long-term vs. short-term project benefits, and ownership of Intellectual Property Rights (IPR). In the eInsurance projects, various roles of innovators can be found. Representatives from the university and the public research organization which participated in both projects can be considered as idea generators since they form the ultimate core of the two eInsurance projects. Although they were not officially project leaders, they acted as such in practice by ensuring that everything went as intended. Further, The Finnish Funding Agency for Technology and Innovations (Tekes) as well as the corporate partners and public research organizations can be considered opportunity recognizers. The members of the project management team in both projects can be considered as champions, but also as project alumni. Some members might have participated officially in the first project but not in the second project. Despite this, these members still might have been “unofficially available” for the second project. To conclude, the virtual eInsurance project organization that involved different cultures, information, and individuals supporting each other provided a functional and fruitful environment for the development of electronic insurance services. Many corporate partners even commended the
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working methods followed in the projects and the prevailing encouraging and open atmosphere within the organization. In this respect, we warmly recommend a similar collaborative organizational model for organizations in the process of designing and developing (electronic) service innovations. On the basis of our experience, we argue that in terms of developing new and innovative electronic services, such as safety and insurance advisor, the above-mentioned eInsurance projects can be considered, if not a global, at least a national organizational innovation in the Finnish insurance research and development context, since there is no tradition of joint projects in nonlife insurance R&D functions.
Current Challenges Facing the Organization One of the major challenges facing the case organization relate to the further development of the concept within the corporate partner organizations. In order to commercialize the service concept, the information collected by the project organization during the project has to be successfully transferred to the R&D and marketing departments of the participating companies. This is often performed by assigning department representatives to the project team or otherwise interacting with them during the different phases of the project. Information transfer has been performed by reporting the research results via (academic but also practical) publications during and after the project. In addition, a summarizing report on the research results and other findings from the project is being written. The report describes the most crucial results of both projects and lists corresponding reports and/or articles that provide further information. Despite the positive results of both research projects, the project team discovered that the insurance companies as well as their customers are perhaps not yet ready for novel electronic service concepts. This might be due to the shift towards the electronic environment that the insurance
companies are currently undergoing and also to the fact that consumers have just recently started to use the electronic insurance services available to them more actively. However, as the first eInsurance project proved commercialization of the innovative service concepts within the insurance industry cannot be achieved in a month—not necessarily even in a year. Despite this, the first eInsurance provided a clear message that insurance companies are interested in developing their electronic services, although in their own quiet way. As concrete evidence of this, one of the two participating insurance companies launched an electronic service for their private customers (i.e., consumers) which is based on the logic of the insurance cover evaluator service concept one and a half years after the first eInsurance project had ended.
CONCLUDING REMARKS This article aims at describing research and development activities for bringing electronic insurance services closer to customers’ mindset. These activities comprised two eInsurance projects carried out between 2003 and 2007. As a result, an electronic service concept that supports consumers in their insurance service transactions was developed. So, how does the developed service concept bring electronic insurance services closer to consumers’ mindset compared with existing services? First, the safety and insurance advisor introduces a visual interface. Consequently, the information content is more appealing and comprehensible for customers. Second, the service concept is demonstrative. The relationship between different insurance products and possible risks related to customers’ lives are illustrated by means of the safety and insurance advisor. Third, the service concept is adaptive, providing customized insurance information for customers. The service concept collects information and adjusts it to the
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consumers’ life circumstances, thus providing them with a basic understanding of insurancerelated issues. All in all, the safety and insurance advisor introduced a novel approach to offering electronic insurance services to consumers. The service content is made more appealing and comprehensible to customers and thus they are provided with better prerequisites to use electronic services based on self-service logic. From the organizational point of view, both eInsurance projects were successful. They were well organized and they started and ended on schedule. Even though the budget was strict, the project teams managed to keep approximately within its limits. In addition, both projects provided all the research items agreed in the plan and developed the pilot versions of the tool called safety and insurance advisor for use in the electronic insurance environment. Moreover, one of the participating insurance companies further developed the insurance cover evaluator after the eInsurance 1 project and launched it on their Internet pages in 2006. The push and pull models adapted from Trott (2005) illustrate well the processes involved in eInsurance projects. The customer service life cycle by Ives and Mason (1990) guided the work from its early phase and as a result of the projects we were able to present the insurance service life cycle that was introduced earlier in this article. As shown above, the developed safety and insurance advisor covers a great proportion of the insurance service life cycle, but mainly covers the requirement and acquisition phases. Other phases (e.g., ownership and retirement) were not included in the eInsurance projects. More generally, in the financial sector electronic banking reduced the bonds between customers and their banks since changing the banking service provider after a competitive online bidding on a mortgage is made easy for the customers. With the development of electronic services, this situation will apply also to insurance companies
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in the near future. In any case, the development of electronic insurance services will follow the other players in the financial sector by proceeding slowly rather than rapidly. However, perhaps some day we may see a comprehensive electronic insurance service environment that covers all the different phases of the customer service life cycle. At least we believe so.
REFERENCES Adobe. (2007). Adobe Shockwave Player. Adobe Systems Incorporated. Retrieved June 5, 2008, from http://www.adobe.com/products/shockwaveplayer/ Ahonen, A. (2007). From complex to simple: Designing a customer-friendly electronic insurance service environment. Dissertation, Tampere University. Ahonen, A., & Salonen, J. (2005). eInsurance: Kohti asiakaslähtöisempää sähköistä vakuutuspalvelua [eInsurance: Towards a more customeroriented electronic insurance service]. Tampere, Finland: VTT Industrial Systems. Ahonen, A., Salonen, J., Kivistö-Rahnasto, J., Järvinen, R., & Silius, K. (2007, April 26–28). eInsurance: Novel services in the electronic environment. Paper presented at the Innovation in Services Conference, Berkeley, CA. UC Berkeley Tekes. Ahonen, A., & Windischhofer, R. (2005). The Web performance of different types of online insurance providers: A wake up call to traditional insurance providers. In Zhao, Xiande, Liu, & Baoding (Eds.), Proceedings of the Fifth International Conference on Electronic Business (ICEB2005) (pp. 245–252). Hong Kong: The Chinese University of Hong Kong.
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Fitzsimmons, J., & Fitzsimmons, M. (1994). Service management for competitive advantage. McGraw-Hill.
Majaro, S. (1983). Marketing insurance services: The main challenges. In Foxall, G. (Ed.), Marketing in the service industries (pp. 77–91). London.
Fitzsimmons, J. A., & Fitzsimmons, M. J. (2006). Service management: Operations, strategy, information technology (5th ed.). New York: McGraw-Hill.
McDermott, C. (1999). Managing radical product development in large manufacturing firms: A longitudinal study. Journal of Operations Management, 17, 631–644. doi:10.1016/S02726963(99)00018-2
Garcia, R., & Calantone, R. (2002). A critical look at technological innovation typology and innovativeness terminology: A literature review. Journal of Product Innovation Management, 19, 110–132. doi:10.1016/S0737-6782(01)00132-1 Ives, B., & Mason, R. O. (1990). Can information technology revitalize your customer service? The Academy of Management Executive, 4(4), 52–69. Järvinen, R., Eriksson, P., Saastamoinen, M., & Lystimäki, M. (2001). Vakuutukset verkossa: Vakuutusyhtiöiden tarjonta ja kuluttajien odotukset (Research paper report no. 7) [Insurance on the Web: The offerings of the insurance companies and the expectations of consumers]. Helsinki: National Consumer Research Centre. Järvinen, R., & Heino, H. (2004). Kuluttajien palvelukokemuksia vakuutus: ja pankkisektorilta (Publications 3/2004) [Consumer experience from insurance and banking sectors]. Helsinki, Finland: National Consumer Research Centre (English summary). Järvinen, R., Lehtinen, U., & Vuorinen, I. (2003). Options of strategic decision making in services: Tech, touch and customisation in financial services. European Journal of Marketing, 37(5/6), 774795. doi:10.1108/03090560310465143 Kivistö-Rahnasto, J., Ahonen, A., & Salonen, J. (2006). New service concepts for selecting and evaluating insurance cover within the electronic environment. Paper presented at the 4th International Conference on Occupational Risk Prevention (ORP), Seville, Spain.
Meuter, M. L., Ostrom, A. L., Roundtree, R. I., & Bitner, M. J. (2000). Self-service technologies: Understanding customer satisfaction with technology-based service encounters. Journal of Marketing, 64(3), 5064. doi:10.1509/jmkg.64.3.50.18024 O’Connor, G., & McDermott, C. (2004). The human side of radical innovation. Journal of Engineering and Technology Management, 21, 1130. Peura-Kapanen, L., & Järvinen, R. (2006). Kuluttajien käsityksiä riskeistä, niiden hallinnasta ja sähköisestä vakuuttamisesta (Publications 7/2006) [Consumer perceptions of risk, risk management and electronic insurance]. Helsinki, Finland: National Consumer Research Centre (English summary). Peura-Kapanen, L., Nenonen, S., Järvinen, R., & Kivistö-Rahnasto, J. (2007). Kuluttajien arkipäivän riskit ja turvallisuus. Riskeihin liittyvät käsitykset, turvallisuuden edistäminen ja suhtautuminen sähköiseen asiointiin turvallisuuskontekstissa [Consumers’ everyday risks and safety: Risk-related views, promotion of safety and attitude towards electronic transactions in safety context]. (Publications 8/2007). Helsinki, Finland: National Consumer Research Centre. Salonen, J., & Ahonen, A. (2007). eInsurance project Web site. Retrieved June 5, 2008, from http://www.einsurance.fi Trott, P. (2005). Innovation management and new product development (3rd ed.). Essex, England: Pearson Education Limited.
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Vroomen, B., Donkers, B., Verhoef, P. C., & Franses, P. H. (2005). Selecting profitable customers for complex services on the Internet. Journal of Service Research, 8(1), 37–47. doi:10.1177/1094670505276681 Windischhofer, R., & Ahonen, A. (2004). The effect of physical distribution channels on online distribution channels in the insurance industry: An examination of electronic insurance services on the Internet. In J. Chen (Ed.), Service systems and service management: Proceedings of ICSSSM’04, Vol. II (pp. 753758). Beijing: International Academic Publishers/Beijing World Publishing Corporation.
ADDITIONAL READING De Wulf, K., Schillewaert, N., Muylle, S., & Rangarajan, D. (2006). The role of pleasure in Web site success. Information & Management, 43(4), 434–446. doi:10.1016/j.im.2005.10.005 Fitzsimmons, J. A., & Fitzsimmons, M. J. (Eds.). (2000). New service development: Creating memorable experiences. Sage Publications. Froehle, C. M., & Roth, A. V. (2004). New measurement scales for evaluating perceptions of the technology-mediated customer service experience. Journal of Operations Management, 22(1), 1–21. doi:10.1016/j.jom.2003.12.004 Huang, M. H. (2005). Web performance scale. Information & Management, 42(6), 841–852. doi:10.1016/j.im.2004.06.003
Lusch, R. F., Vargo, S. L., & O’Brien, M. (2007). Competing through service: Insights from servicedominant logic. Journal of Retailing, 83(1), 5–18. doi:10.1016/j.jretai.2006.10.002 Meuter, M. L., Bitner, M. J., Ostrom, A. L., & Brown, S. W. (2005). Choosing among alternative service delivery modes: An investigation of customer trial of self-service technologies. Journal of Marketing, 69(2), 61–83. doi:10.1509/ jmkg.69.2.61.60759 Moon, J. W., & Kim, Y. G. (2001). Extending the TAM for a World-Wide-Web context. Information & Management, 38(4), 217–230. doi:10.1016/ S0378-7206(00)00061-6 Zeithaml, V. A., Bitner, M. J., & Gremler, D. D. (2006). Services marketing: Integrating customer focus across the firm. New York: McGraw-Hill.
ENDNOTES 1
2
3
The project was funded by a public organization called Tekes (Finnish Funding Agency for Technology and Innovation). For a more extensive discussion of the different types of electronic insurance service providers in different insurance markets, see Ahonen and Windischhofer (2005) and Windischhofer and Ahonen (2004). http://www.adobe.com/shockwave/download.
This work was previously published in Cases on Managing E-Services, edited by Ada Scupola, pp. 107-125, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.3
A Qualitative Study of Knowledge Management:
The Multinational Firm Point of View Patrocinio Zaragoza-Sáez University of Alicante, Spain Enrique Claver-Cortés University of Alicante, Spain Diego Quer-Ramón University of Alicante, Spain
ABSTRACT Knowledge is one of the basic production factors owned by enterprises, and knowledge management is one of the main dynamic capabilities on which enterprises can base their competitive advantages. The creation, transfer, and later use of knowledge have become increasingly important, and multinational corporations (MNCs), being scattered in various places, constitute the appropriate environment to implement knowledge management processes meant to maximize their intellectual assets. This chapter has as its aim to answer three DOI: 10.4018/978-1-60960-587-2.ch403
questions: (a) what actions do MNCs undertake in order to set knowledge management processes in motion; (b) what main variables impact on their knowledge creation capability; and (c) what main variables impact on their knowledge transfer capability? A qualitative research work based on a multiple case study has served to achieve that aim, allowing us to carry out an exploratory study of six MNCs which have shown their proactivity in the knowledge management area. The results of the analysis have led to eight propositions which highlight the most relevant variables facilitating the processes for the creation and transfer of knowledge within a MNC.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
A Qualitative Study of Knowledge Management
INTRODUCTION In recent years, the environment surrounding enterprises has characterized by high levels of dynamism and complexity. The accelerated globalization, the widespread business restructuring and the strong competition in practically every economic sector have forced enterprises to become highly flexible and able to react before the new dynamics that may arise. These ingredients have led to the appearance of the knowledge society, which imposes new requirements on organizations. In order to compete effectively, the organizations need to learn new skills to be able to find, manage, share and use both information and knowledge (Abell & Oxbrow, 1999). As a result, competitive advantages increasingly derive from strategic assets, such as knowledge, and from a set of dynamic capabilities which mainly materialize in innovation and learning. Due to all this, knowledge management is now of paramount importance within organizations. Firms have to face another unquestionable fact, namely, the ever-increasing level of globalization which is causing practically all economic sectors to shift from a local market toward a global one. The MNC, which has as one of its main characteristics the possession of scattered resources in various countries, appears as a diversified-knowledge corporation and provides the ideal environment to implement knowledge management processes, as it will be necessary to coordinate the creation and transfer of this resource between its various locations for the purpose of leveraging and achieving the maximum global performance. In accordance with these ideas and taking as a reference the knowledge theory as well as the MNC theory, this study seeks to answer the following three questions: (a) what actions do MNCs undertake to set knowledge management processes in motion? (b) what main variables impact on their knowledge creation capability? and (c) what main variables impact on their knowledge transfer capability? In our opinion, the answers to these
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questions can make a contribution to the literature in two ways: from the empirical point of view, they will provide further empirical evidence of the knowledge-MNC link through a focus on the actions undertaken for the purpose of managing knowledge and on the mechanisms which make possible the generation and transfer of this resource; and from a practical perspective, they will be the basis of an exploratory study which shows that management is facing new patterns. One of the main challenges lies in understanding the role of knowledge as a strategic intangible resource and, once managers have recognized the value of management, they must take a leading role in the promotion of knowledge management building the necessary mechanisms that favor this process; empowering employees to proactively participate in knowledge creation and transfer through the decentralization of the decision-making process (autonomy); promoting corporate socialization with the aim of creating a work context in which closer relationships between employees are possible; and combining internal and external ways of creating and/or acquiring knowledge. We have structured the chapter in five sections. After the introduction, there is a literature review which highlights the strategic nature of knowledge, along with the role of knowledge management in the creation of sustainable competitive advantages. A detailed description of the qualitative research work follows, the findings being reported in the next section. Finally, the closing section summarizes the main conclusions drawn from the study, along with its limitations, and suggests future research lines.
LITERATURE REVIEW Nobody can deny the transformation experienced by present-day society, where business success no longer derives essentially from production factors, but from knowledge, which arises as the basic production and wealth creation factor (Drucker,
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1993; Sveiby, 1997). Due to such aspects as globalization, market deregulation and access to information, firms’ competitive advantages are no longer sustainable, knowledge appearing as a fundamental concept in order to understand the evolution of the economy in general and of economic change in particular. Although according to most of the literature, knowledge management processes have largely had at its basis a technological or information-systems approach (Wilson, 2002; Alvesson & Kärreman, 2002), this study’s focus is on the emergent knowledge-based view of the firm, whereby knowledge has become one of the most important resources from a strategic point of view (Grant, 1996; Spender, 1996, Tyre & von Piel, 1997; Teece, Pisano & Shuen, 1997; Zack, 1999). Scholars refer to knowledge in several ways, the most commonly-used terms being competencies, capabilities, routines or innovation. Knowledge originates from creativity, individual experiences and organizational learning, and we can often find the sources of knowledge not only in the written documents but also in the routines, tasks, processes, practices, rules and values that shape an organization (Bhagat, Kedia, Harveston & Triandis, 2002). Knowledge is therefore a dynamic concept resulting from the interactions between individuals and organizations and is also specific to a context defined by some particular time and place circumstances (Hayek, 1945; Nonaka, Toyama & Konno, 2000). Nelson and Winter (1982) point out that this resource is the fruit of experiences developed by company members over time, and Hoskisson, Hitt,
Wan and Yiu (1999, p. 442) state that “due to its tacit and socially complex character, a company’s knowledge stock is a crucial determining factor in its competitive advantage”. Figure 1 expresses it graphically. Knowledge management has consequently turned into a fundamental task —and simultaneously into one of the most outstanding challenges of our time— its global aim being both to maximize the company’s effectiveness and income levels arising from its knowledge assets and to succeed in constantly renewing them (Wiig, 1997; Shariq, 1997). Knowledge management, along with the initial set of resources and capabilities owned by the firm, emerges as a source of heterogeneity inside the organization and, therefore, as the main cause of its competitive advantages (Hill & Deeds, 1996). Based on the contributions made by various authors, among whom stand out Quintas, Lefrere and Jones (1997), Wiig (1997), Davenport, De Long and Beers (1998), and Guns and Välikangas (1998), knowledge management could be defined as the set of business policies and actions undertaken to aid the creation of knowledge, its transfer to all members of the company, and its subsequent implementation, with the aim of achieving distinctive competencies that provide the company with a long-term competitive advantage. Such corporate policies deal, among other things, with human resources management, corporate culture, organizational design, and technological platforms, all of them crucial aspects shaping the necessary
Figure 1. The knowledge-based competitive advantage causality chain
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infrastructure and the appropriate environment to support knowledge management processes. We have already shown in the introduction that, due to their unique characteristics, MNCs provide the adequate field to carry out knowledge creation, transfer and implementation processes. In this context, Almeida, Song and Grant (2002) highlight the superiority of MNCs in the creation and transfer of international knowledge, both over the market and over alliances. These authors argue that this superiority has to do with the fact that MNCs can achieve knowledge combinations which markets would find it impossible to achieve. This last idea has its origin in the arguments of Kogut and Zander (1993, 1995), according to whom firms are social communities acting as efficient mechanisms for the creation and transfer of knowledge without the need for market failures to occur. Along these lines, we are now going to develop a qualitative research work that will make it possible to develop theory from the results obtained.
METHOD AND DATA Introduction The reason for using a qualitative research lies in the fact that, although there are numerous theoretical works in the field of knowledge management, only few of them empirically specify the set of practices applied by firms when undertaking this process or the mechanisms through which they can create and transfer new knowledge. We decided to use the case study as our research method throughout the development of the empirical work because the characteristics of case studies make it possible to come closer to the study object. Hamel, Dufour and Fortin (1993, p. 34) emphasize the descriptive nature of this approach and consider it an “in-depth study of a specific case”. Yin (1994, p. 13) defines it as an “empirical study that examines a contemporary phenomenon within its real context, especially
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when the limits between the phenomenon and its scope are not clearly defined and multiple sources of evidence are used”. Finally, Eisenhardt (1989) considers that a case study is a research strategy focused on understanding the dynamics produced in specific contexts. This author sees the case study as a fundamental mechanism, not for testing theories but for theory-building. In order to answer the three questions posed at the introduction section, we chose to use the multiple case study as opposed to the single-case one, always seeking to find behavior patterns that allow a generalization of the results (“replication logic”, Yin, 1994, 1998) based on the evidence obtained in various economic, organizational and sectorial contexts. A single case would have a low degree of representativeness, confining the scope of the conclusions to a specific type of organization and industry. In the absence of an initial hypothesis, the inductive method became especially relevant, as it enabled us to create a basis for a future theory. It was an exploratory case study meant to find practical evidence of knowledge management processes undertaken by large prestigious MNCs located in Spain, characterized by their high competitiveness and the level of success reached in knowledge management practices. The study actually reveals how these organizations set up their best practices in the field of knowledge. The qualitative research work went through a number of stages. The first one consisted in the examination of the most relevant concepts and theories linking the areas of knowledge management and MNCs in the literature. The second included the preparation of a standardized interview customized for each firm depending on its industry. During the third stage, we held interviews with managers, visited premises (facilities), and compiled secondary data. In the fourth stage, we sent the elaborated case to the interviewees so that they could okay it or correct certain aspects, if necessary. The fifth stage focused on comparative studies. Finally, after the results observed, we
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“built theory” developing a conceptual framework which makes it possible to state a number of propositions that will be subject to verification in a future quantitative stage.
Population The basis for the selection of the cases was a nonrandom sample. We chose those cases which offered good opportunities for learning, and followed the recommendation that their number should be neither less than four nor more than ten (Eisenhardt, 1989). The process led to the selection of six Spanish enterprises from different industries which had as their two main features: (a) that they showed a pro-active attitude in the field of knowledge; and (b) that they made a great effort to inform their stakeholders about their experiences in this field. Their proactivity becomes clear in the fact that these are companies where knowledge
management has become a part of their daily life in a planned or deliberate way; they characteristically perform actions to create, transfer and apply knowledge insofar as is possible. Additionally, these firms often attend conferences, gatherings and seminars that link knowledge to the business context, and actively collaborate with universities in the development of joint projects, which allows them to shed light on this emergent area of firm strategic management. The reason for choosing Spanish firms was our interest in identifying the link between knowledge and MNCs in Spain, as no empirical works had linked these two topics until now. Table 1 shows the technical specifications card for this research.
Information Collection In order to avoid a potential bias introduced by researchers themselves and/or by informants,
Table 1. Technical specifications card for qualitative research Target enterprises
ELECTROTÉCNICA ARTECHE HERMANOS S.A. (EAHSA) (Manufacture of electric motors, transformers and generators) UNIÓN FENOSA (UF) (Production and distribution of electricity, gas, and professional services (SOLUZIONA)) PricewaterhouseCoopers (PWC) (Management and business assessment. Auditing) SIEMENS ESPAÑA S.A. (Electrical installations. Manufacture of electric motors, transformers and generators) TELEFÓNICA GROUP (Fixed and mobile telephone services, Internet, content production and dissemination and directories.) SANTANDER GROUP (Banking activities in general and activities related to the management of investment and pension funds in particular)
Unit of analysis
(Parent or subsidiary) enterprise
Geographical area
Munguía (Biscay, Basque Country) – ARTECHE Madrid- UNIÓN FENOSA Madrid- PRICEWATERHOUSECOOPERS Tres Cantos (Madrid)- SIEMENS S.A. Madrid-Telefónica Group Madrid-Santander Group
Time period during which fieldwork took place
March – September 2004
Type of interview
Semi-structured or in-depth interview
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we collected the data using the “triangulation technique”, which combines three methodologies: •
•
•
In-depth interview, with the Chief Knowledge Officer (CKO) or the person responsible for matters related to knowledge management at the firm. We used a standard questionnaire with open-ended questions, adapted and customized for each one of the enterprises. We recorded the interviews —which lasted four hours on average— and later transcribed them, always with the interviewees’ consent. We kept in touch with interviewees via telephone or e-mail to clarify any aspects that might arise right up until they completed and approved the final report on each case. Observation, which implies visits to the premises and contacts with the workforce. Although this is a secondary source to obtain data, it not only enables the researcher to discover the truth about the study object but also to achieve a better understanding of the case. Consulting documents extracted from the Internet and publications –both internal (Intranet, formal and informal reports) and external (websites, books, published articles, annual reports and corporate management reports).
Due to the qualitative character of most data, triangulation permits to increase construct validity. As for internal validity, the researcher can ensure it being in permanent contact with the interviewees during the process of analysis, because they can provide more data to fill any new possible information gaps that might arise. In turn, external validity comes as a result of multiple case studies and comparative result analyses. As for the reliability problem, we have made an effort to alleviate it, first preparing a detailed case study protocol that is common to all enterprises, and then taking very much into account the informa-
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tion obtained from the documents and the later transcript of the interviews. Finally, we sent the case study to the interviewees so that they could supervise and okay it or make any comments, if necessary, in the hope that this would make our results more reliable.
QUALITATIVE RESEARCH: RESULTS The multiple case study about six renowned, internationally prestigious, and proactive Spanish firms has highlighted that these organizations regard knowledge as a very valuable strategic resource that they permanently need to create, transfer, store and enlarge in order to survive to the dynamism and turbulence that characterize the present-day competitive environment. The replication logic appeared during the research work, showing in most cases similar behavior patterns in the performance of the enterprises analyzed, even though they belonged to different industries.
Knowledge Management in MNCs Activities focused on creating and sharing knowledge at EAHSA started already in 1995 with the aim of developing a set of values which had proved necessary for the survival of the enterprise. EAHSA undertook actions to create and transfer knowledge, all of them backed up by an infrastructure that enabled their introduction; its organizational structure became increasingly horizontal —practically no hierarchies existed— with a stable structure and another more flexible ad hoc one; and its culture emphasized tolerance with mistakes, encouraged trust and dialogue, and gave an impulse to learning. As for its human resources policy, EAHSA had as its priorities to attract and retain talent —always selecting and recruiting its staff with a knowledge creation and transfer viewpoint in mind, and recognizing training as a well-established cultural value— and to develop a technological platform that enabled
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knowledge-sharing through contributions made both on an individual scale and at a work team level. In the case of UF, when the organization had to face the integration of two different companies after the mergera in 1982, it reflected on the importance of looking after its personnel as a strategic factor. This led the company’s senior management to set up activities meant to generate and share knowledge. Thus, UF stands out as having the necessary degree of socialization for the transfer of tacit knowledge, as well as the capability required to elaborate its own intellectual capital model to face the challenges of identifying, ordering, and measuring strategic intangibles. This is, therefore, an enterprise that likes to change and has initiative, and in which, although hierarchies still exist, the relationship and communication between chiefs and collaborators has been constantly improving. It places a strong emphasis on training, has established a competence-based management, and uses audio-conferences, an Intranet and a knowledge portal to transfer and acquire knowledge. PWC decided that the knowledge management project was very important to help with the mergerb in 1998; from then on, the firm has assigned resources and created positions associated with knowledge management. As a consequence, there is a vision of knowledge and its objectives on an international scale, and the firm has even developed its own knowledge management model. International practice communities reveal the strengths and weaknesses of subsidiaries’ knowledge, thus leading to the transfer and exploitation of best practices. The efforts made in the field of knowledge are remarkable; however, PWC still does not seem to have the most appropriate infrastructure to support them. It is an enterprise where a lot of hierarchy still remains —with a lot of supervision and control— and it is only over the last few years that its corporate culture and human resources policy have started to become more receptive to new ideas, more flexible, and more willing to value emotional competencies. From a technological point of view, PWC uses
technology as much as possible, basically to store and retrieve specific knowledge that other people might need to use later. The subject of knowledge management has a long tradition at Siemens, and the global, knowledge-intensive nature of its sector justifies the considerable attention given to this resource. This became apparent when the firm created a Knowledge Management Team (including a Human Resources Manager, an Information Technology Manager and a Processes Area Manager) and undertook several initiatives meant to emphasize the relevance of practice communities. The enterprise made it clear that knowledge had become a priority, the proposed objectives being: (a) to start to develop a culture which valued the importance of knowledge; (b) to stimulate the provision of ideas along with knowledge transfer; and (c) to get to know the strengths of the enterprise regarding knowledge. Siemens has a technological platform which distinguishes between its storage section and the section for chats and forums, the latter being crucial for tacit knowledge transfer. It equally appears as an enterprise that its employees find very attractive, as shown by its low employee turnover rate. Its organizational structure shows no hierarchies, and teamwork as well as the dialoguebased organizational culture emerge as outstanding features of a company that incorporates a strong innovation and experimentation component too. As a result of the deregulation of Spain’s telecommunications sector in 2000, along with the ever-increasing globalization, Telefónica lost its monopoly over Spanish telecommunications and suddenly found itself before a large number of competitors. Faced with this new situation, Telefónica undertook a deep organizational transformation, betting on change and realizing that the knowledge of their employees was the most valuable resource owned by the company and that it could help the organization to obtain a competitive advantage. This knowledge, derived from the experience in the telecommunications sector, served as a guide for good practices that
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the company implemented in the organization as a whole, thus capitalizing on the existing knowledge. The creation of new knowledge and the transfer of best practices required a relatively hierarchy-free organizational structure and a business culture open to change. Consequently, Telefónica reduced the number of hierarchical levels, thus favoring the formation of multidisciplinary work teams and the development of inter-area transversal projects. At the same time, its once very conservative culture became more participative and collaborative. Employees’ professional development became an essential value, which led the company to increase the number of training hours, to improve the feedback level, and to make a strong bet on coaching and e-learning, all of which seeking to develop competencies at all levels. The same as UF and PWC, Santander Group arose from the merger of two large organizations —two important Spanish banks— in 1999c. The new company realized that the traditional management systems did not suffice to provide an efficient response to an increasingly complex and dynamic environment and, considering that knowledge and intangibles formed the basis of its competitive success, it structured its vision and mission around the need to manage these resources efficiently. Santander Group considers that employees are its most important asset because they allow the company to generate middle-term and long-term value. This is why the organization strives to attract and retain its talented professionals, ensuring their adequate professional development. The company’s organizational structure is now more horizontal, betting on a higher degree of flexibility and communication, all of which has materialized in an increased number of multifunctional work teams. Its culture focuses on corporate social responsibility and identifies as its essential values dynamism, strength, innovation and leadership. Santander Group usually employs as its main technological tools the Internet, an Intranet and videoconferencing. The knowledge forums, the
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knowledge portal and the practice communities form part of the first two.
Knowledge Creation in MNCs Creating knowledge implies both an individual and a shared reflection on the new working processes, on the products and services that a firm delivers, on the understanding of business strategy and, last but not least, on the analysis of the environment. Knowledge creation strategies seek to create new knowledge or to acquire existing one. Exploration and exploitation are not mutually exclusive, as the same organization may need to develop an area of knowledge and simultaneously exploit others; the ideal is to maintain a balance between the two. On an internal level, knowledge creation takes place through R&D activities, learning by doing, or team work, but the difficulties encountered by companies when they try to generate internally all the knowledge required to face market circumstances lead them to create new knowledge or to acquire existing knowledge from external sources. Knowledge creation becomes especially relevant among the enterprises studied, as they all operate in global knowledge-intensive sectors and constantly need to generate new knowledge inputs through which they can remain competitive and face any potential new dynamics. The knowledge creation capability largely depends on the characteristics of the MNC (be it a parent or a subsidiary corporation) and on both the actions undertaken in its internal environment and those carried out through its external network.
Characteristics of the Enterprise As explained above, the six enterprises under analysis are characteristically proactive in the implementation of activities meant to leverage knowledge. All of them show a strong initiative thanks to which they can constantly create knowledge and assume increasingly higher
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responsibilities. EAHSA started to deal with knowledge issues in 1995 seeking to develop a set of values considered important for the survival of the company; UF as well as PWC decided to develop a knowledge management scheme in order to help with their respective mergers. Siemens has always paid a lot of attention to knowledge as a strategic resource which allows continuous innovation. Telefónica’s initiative to implement knowledge management processes stemmed from the need to become an e-company, that is, a learning organization which could not only exploit to the full the existing knowledge but also make the most of new knowledge creation. The initiatives undertaken by Santander Group in relation to intellectual capital and knowledge management are historic. Already before the merger, one of the two banks involved, Banco Central Hispano, started to develop a number of activities which sought to identify the best practices among its most excellent staff, to transfer them to the rest of employees, and to follow up the results. Such activities implied entering an area which would eventually become an essential part of all the firms belonging to Santander Group, always under the coordination and supervision of the Group’s intellectual capital manager. In addition to initiative, it is necessary to highlight leadership and autonomy in the enterprises analyzed. Leadership materializes in top management’s support, which in turn leads to an encouragement of employee initiative (Birkinshaw, Hood & Jonsson, 1998; Birkinshaw, 1996). All the enterprises examined claim to have: internationally respected leaders; a top management with a high level of credibility; and senior managers who closely collaborate with the executives to accomplish the company’s objectives. Anyway, this forms part of the organizational culture and structure that characterize each enterprise. Regarding autonomy, Foss and Pedersen (2002) point out that the problem of organizational design lies, among other things, in choosing the organizational tools related to such aspects as
control, motivation, and context, so that subsidiaries can have access to knowledge and produce it. From the perspective of knowledge management, Nonaka, Toyama and Konno (2000) state that autonomy improves the chances to find valuable information and encourages organization members to produce new knowledge. With the exception of PWC, which still keeps a certain degree of hierarchy because of its actual partnership structure, all the firms have a considerable degree of freedom to adopt decisions about their products and/or processes. All this is possible thanks to their organizational design, which mainly revolves around teamwork, collaboration and empowerment. It is therefore easy to identify the characteristics of the enterprises analyzed (initiative, leadership and autonomy) that have made the creation of knowledge and the assumption of additional responsibilities become basic dynamic capabilities of these organizations. We can consequently state the following propositions: P1: The firm’s initiative positively influences its knowledge creation capability P2: The firm’s leadership positively influences its knowledge creation capability P3: The firm’s autonomy positively influences its knowledge creation capability
Internal Environment and External Network The MNC’s internal environment, formed by the investmentsd made in the different functional areas, is an essential aspect in the knowledge creation process (Foss & Pedersen, 2002; Lane & Lubatkin, 1998; Cohen & Levinthal, 1990; Dyer & Singh, 1998). That knowledge is not only useful to overcome the existing shortages but also for the potential exploitation in other multinational units located elsewhere. Nevertheless, the difficulty to generate all the knowledge required makes firms resort to external sources, e.g. the knowledge coming from the local clusters or that resulting from
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the relationships between the enterprise and the agents in its supply chain (Porter, 1990; SannaRandaccio & Veugelers, 2007). In fact, absorption capacity and social capital appear as determining factors for the exchange of knowledge within and between organizations (Frost & Zhou, 2005). EAHSA has learned to successfully combine the exploitation of its knowledge in geographical areas outside Spain with the creation of new knowledge. The latter is possible through: R&D, to which the company dedicates permanent efforts; the acquisition of plants in Mexico, Argentina and Brazil; the establishment of joint ventures; the external relationships with R&D centers, electrical and business management organizations, quality institutions, universities and other academic institutions; the interaction with customers, who provide specific details about the products they require; and the use of transnational teams and centers of excellence. UF uses knowledge exploitation especially in the energy business. The parent company (located in Spain) is the one where the distinctive competencies and accumulated knowledge in the generation, commercialization and distribution of electric power remain, thus providing the starting point for the development of similar businesses in Latin America. UF leaves its place of origin to acquire competencies that it does not have, undertaking joint ventures in Egypt and Oman and purchasing companies in various countries. The company complements the exploitation of knowledge with its generation, where new knowledge forms the basis for new businesses. Creation also takes place through R&D, connections with other organizations and universities, relationships with suppliers and customers, a suggestions box (the “Innowatio Award” for the best idea), expertise centers (at SOLUZIONA-professional services), and international work teams. PWC is an organization which excels for its knowledge exploitation rather than for exploration, as its work practices are global and there is a tendency to maximize returns from the already
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existing ones. Nevertheless, exploration allows it to take over new market segments. That is why innovation, work teams (both national and international), relationships with universities and business schools, as well as the attendance to seminars and conferences, all prove useful to create knowledge whenever possible. On a lesser scale, centers of excellence, transnational teams, and company acquisitions also help PWC to create or achieve new knowledge. The need to constantly create, share and apply knowledge becomes vital for Siemens. Creation is mainly possible through R&D. Innovation is one of the main pillars for this firm’s level of competitiveness. That is why it constantly works on the development of new products and innovative solutions that will make it possible to expand the current business lines, giving rise to a high number of registered patents. Suggestions boxes equally represent a significant source of knowledge, as they boost the generation of ideas. For the purpose of achieving external knowledge, Siemens resorts to collaboration with customers and suppliers, company acquisitions, setting up of joint ventures (mainly in African and Middle-East countries), centers of excellence, and relationships with external R&D centers. Telefónica creates knowledge by means, meanly, of R&D. Investment in technological innovation is very high and enables the company to launch into the market a considerable number of new products and services seeking to satisfy customer demand in the areas of Internet, broadband, voice market and mobile services. However, Telefónica has also put in practice various projects meant to reward good ideas among its employees, including Idealab!, Patenta, Penthalón (in Argentina), Champions Race (in Brazil), Líder.es and Comex (in Latin America). R&D is so important for Telefónica that it even has its own subsidiary: Telefónica R&D. From the external point of view, Telefónica attends meetings, forums, conferences, international organisms, associations, etc., all of which allows the company to obtain knowledge
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about best practices in other firms. Customers equally represent an important source of knowledge for Telefónica, since their needs and demands always lead this company to constant innovation and to a permanent search for new solutions. Two of the most important tools used by Santander Group to create knowledge are teamwork and the suggestions box system. The former serves to share the ideas of different groups in order to achieve global solutions with a high added value. The suggestions box system in turn makes it possible to take into consideration people’s perceptions and ideas, which can become an important motivating element. Externally, the Group acquires new knowledge thanks to its relationships with business schools, universities, forums, conferences, customers as well as benchmarking. Various mechanisms, either internal or external to the company, seem to contribute to knowledge creation in MNCs, and we can expect creation to have even more support in companies where the entire necessary infrastructure to start up knowledge management already exists. The reasoning above leads to make the following two propositions: P4: The firm’s internal environment positively influences its knowledge creation capability P5: The firm’s external network positively influences its knowledge creation capability
Knowledge Transfer in MNCs In MNCs, with resources scattered geographically, the transfer of knowledge becomes one of the key activities facilitating the creation of knowledge-based value. Relationships between MNCs’ units become important insofar as they are the channels enabling the flow of useful knowledge and information (Hansen 1999). This section focuses on identifying the factors which make possible the transfer within the MNC’s internal structure, that is, between the parent company and its subsidiaries and between the latter. Gupta
and Govindarajan (1991, p. 773) call this transfer an “intracorporate knowledge flow”, and define it as “the transfer of either expertise (e.g., skills and capabilities in product and process design or marketing know-how) or external market data (information on customers, competitors or suppliers) with a high strategic value”. This has to do with the boundary-spanning practices involved in working across multiple intra-organizational boundaries (Balogun, Gleadle, Hailey & Willmott, 2005). Our interest lies in getting to know the variables which facilitate the transfer of the most tacit knowledge and in verifying that, although information and communication technologies are the mechanisms most commonly used at transfer processes, they have limitations to share this type of knowledge, due to its peculiar characteristics. For that reason, the enterprises examined use mechanisms that enable individuals to develop closer relationships. We can thus say that the knowledge transfer capability has a strong dependence on the firm’s autonomy, on its corporate socialization, and on the use of expatriates.
Autonomy The same as in knowledge creation, the study shows that autonomy has a positive effect on the transfer of knowledge across the MNC’s units. Thus, Hedlund (1986), as well as Ghoshal and Bartlett (1990) and Tsai (1997), state that centralization is a constraint upon the initiatives undertaken by subsidiaries and upon communication with the other units. EAHSA does not usually find great barriers to transfer knowledge. The way in which the company organizes its structure, its homogeneous operating style at all its plants and its capability to ensure dialogue and understanding among all its members removes the main obstacles to transfer. Its subsidiaries enjoy a high level of autonomy. There are some patterns common to the different locations and, on the basis of that shared operating
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style, each firm assumes its own management. EAHSA considers that the option of increasing autonomy as opposed to exerting more control is positive and largely helps encourage knowledge creation and transfer. UF is a firm that pursues a common culture and operating style, although its subsidiaries have a certain degree of autonomy when they do business. For UF, it is very important to have a business model, a middle-term business plan, and an annual strategic plan, but once the company has defined this and has set a number of objectives, it gives itself some leeway to achieve them, to act, to innovate, and to improve. On some occasions, knowledge flows in PWC may face limitations due to issues of control over subsidiaries, but a high level of autonomy usually exists in the area of knowledge management. Within this context, the Spanish subsidiary is fully autonomous, as the knowledge management project depends on the top management and there is a department, and some resources, associated with that project, which greatly encourages activities linked to knowledge sharing. In the rest of areas, a number of common policies and patterns with some global services seem to exist, though each subsidiary follows its own management approach. Knowledge transfer within Siemens does not often have to face great complications. Neither best practice encouragement nor capability-sharing between sender and receiver or the knowledge coding level appear to constitute significant barriers to transfer. There is a high level of autonomy in the different units, though we should distinguish two realities: that of the Spanish subsidiary, which may differ a little from what the parent company dictates in Germany; and the vertical areas, that is, the various business divisions which must follow more closely the guidelines established by the parent company for a specific business. The changes occurred in Telefónica modified its internal structure in such a way that, although a certain degree of hierarchy continues to exist due to its peculiar culture and traditional civil-
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service-inspired nature, the creation of working groups along with the closer relationships between firm members has led to a more horizontal, and more flexible, organization. This increasingly flat structure facilitates the active participation of the whole company, an essential aspect being the use of the top-bottom management methodology, combined with the down-top approach, in which the middle management becomes a key element within the communication process. As for Santander Group, because the parent company is in Spain, the transfer from this country to the rest of units tends to be much higher. Nevertheless, all subsidiaries transfer knowledge to a greater or lesser extent, as shown by the fact that some of them have achieved great recognition for their best practices in certain activities and, consequently, share these activities openly. On the whole, there are some common patterns and values which are compatible with the autonomy given by the parent company for the development of activities in the different areas and countries. After analyzing these six companies, it becomes clear that the autonomy awarded to the different units largely encourages knowledge transfer inside the MNC, which leads us to state the following proposition: P6: The firm’s autonomy positively influences its knowledge transfer capability
Corporate Socialization Regardless of the formal organizational structure, informal lateral relationships emphasize a more voluntary, personal and intensive cooperation mode. Thus, teams, networks, and all other forms of interaction between different units, promote the trust required for inter-unit knowledge transfer. We can define “corporate socialization” as “the set of mechanisms developing interpersonal ties within the multinational” (Van Maanen & Schein 1979) and its purpose partly coincides with that of corporate culture. It aims to establish a set of
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values, aims and beliefs common to all the units forming the MNC (Nohria and Ghoshal 1994; Schein 1999). Strong links exist between the different units in EAHSA, as shown by the continuous visits that the staff pays to the various plants of the Group, the frequent telephone calls, and the use of the corporate Intranet and the e-mail, as well as by the permanent coordination that is at place for the implementation of joint projects. In UF, the socialization and spread of a common culture are essential for the transfer of knowledge and its later absorption. The training programs imparted at UF’s Corporate University (Spanish initials, UCUF) which last several months, permit physical proximity between the individuals as well as the transfer of experiences that are impossible to find in textbooks or manuals. In addition to that, the strong links developed between the units through the visits to plants, the frequent telephone calls and the audio-lectures make it easier to assimilate the competencies and know-how transferred. The links between the units in PWC tend to be very strong, especially for those participating in international practice communities, which represent an important meeting point to share experiences and many other aspects. In this case, constant visits between subsidiaries take place, as well as permanent contacts via telephone, the information and communication technologies, the e-mail and to seek advice about certain issues. Siemens copes with the difficulty of coding knowledge bringing individuals closer to one another and paying constant visits to its various units. The company is aware of the need for a high degree of face to face contact if it wants to bring together the experience and capabilities still scattered at the moment. For that reason, the development of links takes place not only through trips but also with meetings, practice communities, and the use of information and communication technologies. Telefónica is now fully aware of the potentialities that socialization offers to share the most
tacit knowledge and, consequently, never misses any chances to bring its employees closer to one another, regardless of the country they come from. The annual conventions organized by the Group often serve to transfer its best practices and values. These conventions bring together various groups and offer people the opportunity to meet and get to know each other, to establish links of friendship, and to encourage dialogue, all of which largely helps knowledge transfer. The same as Telefónica, Santander Group perfectly knows the extent to which conventions can help bring individuals closer to one another. That is why conventions take place throughout the year in which managers meet to analyze the achievements of their units and to design action plans for the future. The most important one is Santander Group Managers’ Convention, which gathers 1,000 managers from all over the world, though the Commercial Banking Convention and the America Division Managers’ Convention are also worth mentioning. These meetings serve to transfer a lot of information; they provide a chance to know what is happening in other countries and additionally improve the levels of trust among group members, thus favoring later contacts between them. It follows from the reasoning above that transfer knowledge in MNCs takes place within a shared social context, which leads us to the formulation of another proposition: P7: The firm’s corporate socialization positively influences its knowledge transfer capability
Expatriates The topic of expatriates has received a lot of attention in the literature on MNCs (Edström & Galbraith, 1977; Boyacigiller, 1990; O’Donnell, 2000). Human resources are a basic component of knowledge management, since individuals are the ones who possess the knowledge required, and it is the period spent at the corporation that
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enables them to create an organizational memory. Therefore, a leading factor in the internationalization of corporations, especially in MNCs, is that concerning the choice between local or expatriate staff for activities abroad. The latter transfers the knowledge obtained at the point of origin to another destination and gains experience from working with a multicultural workforce and dealing with different languages, attitudes and behaviors. This not only contributes to their personal development but also boosts the international activities of the organization as a whole (Bender & Fish 2000). Although EAHSA uses expatriates, this group of employees represents a very small proportion of its total staff. We are, therefore, referring both to parent company employees who go to foreign subsidiaries and to subsidiary employees who move into the parent company in Spain. The expatriation period normally lasts three or four years. Those traveling abroad have as their main task to manage the external plants in order to transfer the group’s operating style and cohesion rules. In turn, those coming to Spain learn about a number of aspects that they later transfer back to their place of origin. Expatriates, though used in the past, are currently less and less common in UF, since the company has replaced them with local staff already trained by the UCUF. Expatriates were needed at first, but in recent years only those employees who are strictly necessary stay to transfer the knowledge required to manage and control the different units. Though not very often, PWC uses expatriates too. The company employed them especially to set in motion the knowledge management project in Europe, sending expatriates from Spain to Brussels and Holland with the task of developing certain stages of the project. Siemens equally uses expatriates as a means of transferring successful competencies. Expatriates at Siemens Spain have as their main task to implement in other countries the same that they do in Spain, as well as to provide the knowledge
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that they own within their area of activity. These are individuals with a high level of competencies, whose importance continues to be recognized when they return to their place of origin. The company always strives to ensure that expatriates and their families can quickly adapt to their new situation. As for Telefónica, it also uses expatriates to take to target countries values, knowledge and management practices from its country of origin. Thus, when Telefónica acquires a firm in a foreign country, several Spanish employees travel to that country and, during a period of time, shape a management scheme, as well as the work team required to make it operate as any other firm within the Group. Unlike what happens in other MNCs, most of the people belonging to Santander Group work in their country of origin, since the group believes that the best way to attend to the local interests is doing it from a local perspective. Thus, expatriates are rather unusual, though over a hundred Spaniards work in banks of the Group located outside Spain, holding various levels of responsibility. These people are in charge of transferring the knowledge and cultural values from Spain to their respective destinations. It follows from the above that, though not to a large extent, the companies examined use expatriates as a way of transferring their most strategic knowledge. Hence our last proposition: P8: The use of expatriates by the firm positively influences its knowledge transfer capability
CONCLUSION The exploratory study carried out in the preceding pages starts to provide the answers to the research questions posed, simultaneously offering a global vision of firms totally integrated into the New Economy and proactive in knowledge matters. The six firms examined have been able to recognize the role played by knowledge in recent years and are
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well aware of the fact that they have to compete for knowledge at present. Innovation, along with the development of new competencies and capabilities and the generation of added value for the customer, has become the main aim to achieve, for which it becomes essential to implement activities focused on knowledge management. The motivation for this research work had to do with a growing interest in getting to know how MNCs treat knowledge inside their organizations. The objective was to answer the following questions: (a) what actions do MNCs undertake to set knowledge management processes in motion? (b) what main variables impact on their knowledge creation capability? and (c) what main variables impact on their knowledge transfer capability? For that purpose, and taking as a reference both the knowledge theory and the MNC theory, we decided to use a qualitative research method based on a multiple case study. We have carried out an in-depth examination of six MNCs characterized by being knowledgeintensive and proactive in the field of knowledge management. After a comparative study of the cases, the results showed that all the firms analyzed own a vision which recognizes the importance of knowledge; their human resources management policies seek to attract, retain and develop talent; their organizational structures have become increasingly horizontal and encourage the formation of multifunctional work teams; and the organizational culture is open to new, enterprising and learning-oriented ideas. It also became visible that knowledge creation largely depends on certain characteristics of the MNC, its internal environment, and its external network. The study showed that knowledge transfer also has to do with such aspects as autonomy, corporate socialization and the use of expatriates. All this materialized in the formulation of eight propositions. As we pointed out in the introduction, this study contributes to the literature in two ways: from the empirical point of view, it increases the empirical evidence within the knowledge-MNC
link through a focus on the actions undertaken for the purpose of managing knowledge and on the mechanisms which make possible the generation and transfer of this resource; and from a practical perspective, it provides the basis for an exploratory study which shows that management is facing new patterns. Managers need to build the necessary mechanisms that favor knowledge management, empowering employees to proactively participate in knowledge creation and transfer through the decentralization of the decision-making process (autonomy), promoting corporate socialization for the purpose of creating a work context where closer relationships between employees are possible, and combining internal and external ways of creating and/or acquiring knowledge. Despite all the above, this study has faced a limitation due mainly to the research methodology used. Although we applied the case study method as opposed to the single case approach with the aim of preventing a potential lack of representativeness, the study does not permit to generalize the findings. Likewise, other types of variables which can differ from one company to another may affect knowledge creation and transfer. Therefore, as future research lines, we suggest an in-depth examination of other firms for the purpose of checking whether or not their variables coincide with those already studied here, as well as the implementation of some quantitative research work that can make it possible to generalize the results to a larger population.
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KEY TERMS AND DEFINITIONS Case Study: According to Yin (1994) it is an empirical study that examines a contemporary phenomenon within its real context, especially when the limits between the phenomenon and its scope are not clearly defined and multiple sources of evidence are used. Corporate Socialization: Set of mechanisms developing interpersonal ties within the multinational (Van Maanen & Schein 1979) and its purpose partly coincides with that of corporate culture. Knowledge: Knowledge originates from creativity, individual experiences and organizational learning, and it can be found not only in the written documents but also in the routines, tasks, processes, practices, rules and values that shape an organization (Bhagat, Kedia, Harveston & Tri-
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andis, 2002). Knowledge is therefore a dynamic concept resulting from the interactions between individuals and organizations and is also specific to a context defined by some particular time and place circumstances (Hayek, 1945; Nonaka, Toyama & Konno, 2000). Knowledge Creation: It implies both an individual and a shared reflection on the new working processes, on the products and services that a firm delivers, on the understanding of business strategy and, last but not least, on the analysis of the environment. It takes place through R&D activities, learning by doing, team work, strategic alliances, and benchmarking. Knowledge Management: Set of business policies and actions undertaken to aid the creation of knowledge, its transfer to all members of the company, and its subsequent implementation, with the aim of achieving distinctive competencies that provide the company with a long-term competitive advantage. Knowledge Transfer: In the case of this chapter, the concept of knowledge transfer is similar to the concept of “intracorporate knowledge flow” given by Gupta and Govindarajan (1991). It is defined as the transfer of either expertise (e.g.,
skills and capabilities in product and process design or marketing know-how) or external market data (information on customers, competitors or suppliers) with a high strategic value. Triangulation Technique: It is the combination of three methodologies during the research in order to avoid a potential bias introduced by researchers themselves and/or by informants. In this study, triangulation technique is carried out using: in-depth interviews, observation and consulting documents.
ENDNOTES a
b
c
d
UF is the result of the merger between Unión Eléctrica Madrileña, S.A. and FENOSA. PWC is the result of the merger between Price Waterhouse and Coopers & Lybrand. Santander Group is the result of the merger between Banco Santander and Banco Central Hispano Americano. The investments undertaken refer to expenses on: R&D, production, marketing and training.
This work was previously published in Handbook of Research on Knowledge-Intensive Organizations, edited by Dariusz Jemielniak and Jerzy Kociatkiewicz, pp. 311-329, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.4
Adoption and Success of E-HRM in European Firms Eleanna Galanaki Athens University of Economics and Business, Greece Leda Panayotopoulou Athens University of Economics and Business, Greece
INTRODUCTION Fairly recently numerous technological applications have emerged, claiming to cover nearly every “traditional” human resources management (HRM) activity; not only complementing it, but often even substituting it (Martin, Alexander, Reddington, & Pate, 2006). In order to meet the demands of today’s knowledge-based economy, companies must maximize the potential and productivity of their employees, a goal towards which HRM information systems in general and e-HRM in particular could help. Some of these applications even claim that they can achieve DOI: 10.4018/978-1-60960-587-2.ch404
synergies that were not possible before, by integrating all the HRM functions under one software suite, and combining results and feedback from all their different applications. In this article, we study the adoption of e-HRM in Europe, looking at three mail elements: the extent of e-HRM deployment, the characteristics of the companies that adopt e-HRM, and the level of satisfaction from the system.
BACKGROUND The term e-HRM was first used in the 1990s and refers to conducting HRM activities using the Internet or the Intranet (Lengnick-Hall & Moritz,
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Adoption and Success of E-HRM in European Firms
2003). As the term was inspired by the popular term of e-commerce, it wrongfully adopted the “e-” prefix, signifying “electronic.” Since e-HRM is very specific to the use of the Net, a more accurate term would be “online HRM.” Although e-HRM is particularly Web-oriented, a total e-HRM system may include enterprise resource planning software (ERP), HRM shared service centers, interactive voice response systems, manager and employee portals, and Web applications Strohmeier (2007) defines e-HRM as the application of information technology for networking and supporting at least two individual or collective actors in their shared performing of HRM activities. He notes that in e-HRM, technology serves both as a medium, connecting spatially segregated actors, and as a tool for task fulfillment, as it supports actors by substituting for them in executing HRM activities. E-HRM is considered to have the potential to lower administrative costs, increase productivity, speed response times, improve decision making, and enhance customer service, thus helping HRM to become more strategic, flexible, cost-efficient, and customer-oriented (Shrivastava & Shaw, 2003). According to its primary focus, three functions of e-HRM have been identified (Lengnick-Hall & Moritz, 2003; Walker, 2001): •
•
•
Publishing of information. It involves oneway communication from the company to the employees or managers. In this form of e-HRM, the company uses the Intranet as the primary information delivery medium Automation of transactions, with integration of workflow. In this form of e-HRM, paperwork is replaced by electronic input. Intranets and Extranets are used, frequently combining several different application programs. Transformation of the HRΜ function. In this form, e-HRM liberates the human resources function from its operational focus and redirects it toward a strategic one.
Under this form, HRM takes up the following tasks: partnering with the line, creating centers of expertise, and service center administration. This form of e-HRM is rare even in countries like the USA, which are very advanced in HRM (Lengnick-Hall & Moritz, 2003; Walker, 2001). Another classification of e-HRM is based on the advancement of the tools it uses, in comparison with traditional HR. This distinction has been expressed in three generations of e-HRM (Evans, Pucik, & Barsoux, 2002), namely: •
•
•
1st Generation of e-HRM: It involves initial attempts to exploit e-HRM. Those are predominantly transactional, using Intranet or electronic means to speed up service delivery or to reduce costs. Examples of this are payroll processing and providing of training information so that people can satisfy their skill development needs on a real time basis. 2nd Generation of e-HRM: It involves qualitative changes and improvements in the way HRM services are offered. For example, when 360o feedback is performed online, new possibilities for multiple appraisals open up. Another example is erecruitment and the potential for Intranetassisted open job markets. Such tools allow one to undertake things that were not feasible previously, such as benchmarking the functional competencies of the firm. 3rd Generation of e-HRM: It means using technology to do things that could not be done before. An example would be the possibility to measure, on a regular basis, the energy that people put into their work.
The above categorizations can be presented using two dimensions: generation of e-HRM, signifying the extent of change/improvement it brings upon HRM in general, and the level of au-
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Table 1. Suggested typology of e-HRM systems Three Generations of e-HRM
Function of e-HRM
1st Generation of e-HRM: speeding up
3rd Generation of e-HRM: things that could not be done before
Publishing of information
e-HRM’s major function is the publishing of information and it speeds up this process compared to traditional HR
e-HRM major function is the publishing of information and it brings upon qualitative changes in the way information is published (content of information communicated)
e-HRM major function is the publishing of information and it allows HRM to do things in the communication of info that were not possible before (public reached)
Automation of transactions
e-HRM’s major function is the automation of transactions, which are sped up, compared to prior traditional HRM (more time effective)
e-HRM’s major function is the automation of transactions, to which it has brought upon qualitative changes (fewer mistakes and better handling of data)
e-HRM’s major function is the automation of transactions. It allows doing things that could not be done before. (e.g., allows the employee to choose from several benefit schemes)
Transformation of HRM
e-HRM allows HRM to take up a more strategic role, through the substantial savings in time it achieves
e-HRM allows HRM to take up a more strategic role, through better quality
e-HRM allows HRM to use tools it did not have before, in order to support its strategic function.
tomation it allows to transactions. Table 1 presents the above categorization of e-HRM. From the literature we can summarize several factors facilitating the adoption of e-HRM. First, comes the organizational culture. The effect of organizational culture on the successful adoption of e-HRM has been discussed in relation to the emphasis that companies put on intense, face-toface services (Legnick-Hall & Moritz, 2003). Another related issue is the effect of culture on the change management that the transition to etools entails, as performance-oriented cultures are more likely to accept change, and consequently to adopt electronic tools (Jackson & Harris, 2003). Employee’s IT skills and their familiarization with the electronic tools benefit e-HRM adoption. This can be affected by past experience, since past usage determines perceived ease of use of an information system (Shrivastava & Shaw, 2003). Moreover, the crucial role of communication to employees as a facilitator in e-HRM implementation is underlined in many studies (Ruta, 2005). This is why the HRM function needs to invest in IT training and communicate the benefits of employees’ participation and involvement in
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2nd Generation of e-HRM: qualitative changes and improvements
e-HRM services (Panayotopoulou, Vakola, & Galanaki, 2007). Collaboration of HRM and IT has also been identified as a crucial success factor in e-HRM adoption and use. This collaboration can ensure successful integration of technology into HRM processes, aiming at responding to the need for quality HRM services (Panayotopoulou et al., 2007). Finally, the industry/sector, in which the company operates, plays an important role in eHRM adoption. For example, companies in hightechnology sectors, such as telecommunications, use more elaborate e-HRM systems. Previous research has shown that image is a reason for earlier adoption of e-HRM in technology-intensive sectors (Galanaki, 2002). Companies in IT want to show early adoption of IT tools from fear of staying behind, as this does not match their image. Also, having already introduced technology for customers (e.g., e-banking) positively affects internal customers’ attitude toward technology. As e-HRM enables HR departments to supply their services to their internal customers with a capability and degree of interaction not previously
Adoption and Success of E-HRM in European Firms
possible (Alleyne, Kakabadse, & Kakabadse, 2007), it is important to consider their views on the system’s success. One of the most widely used measures of the success of information systems in general is considered to be user computing satisfaction. Huang, Yang, Jin, and Chiu (2004) argue that the employees’ needs and preferences are important considerations in designing and managing a business-to-employee system. Moreover, both the internal marketing and IT literature on satisfaction regard customer involvement as an important part of the satisfaction outcome (Alleyne et al., 2007).
E-HRM in European Firms In the e-HRM literature there are only a limited number of international studies (e.g., Harris, van Hoye, & Lievens, 2003; Ruta, 2005). Here, we attempt to give a comparative picture of e-HRM adoption in 16 European countries, using data from the last round of the CRANET survey (2004). The level of e-HRM adoption is determined by a question indicating the stage of Web deployment, from one-way to two-way communication. The extent to which the system meets the needs of the HRM department is also examined. The questionnaire of the survey is the same for all participating countries and it is completed
by HR managers. The sample used in this case comprises of 5,016 companies employing at least 200 employees, from all economic sectors in 16 European countries. The countries included in our sample are Austria, Belgium, Cyprus (Greek part), Denmark, Estonia, Finland, Germany, Greece, Iceland, Netherlands, Norway, Slovakia, Slovenia, Sweden, Switzerland, and UK. The level of e-HRM adoption in those 16 countries is presented in Figure 1. It shows the percentage of organizations using one-way and two-way communication e-HRM. Not surprisingly, in all but four countries (namely Austria, Denmark, Iceland, and Sweden), the percentage of companies adopting e-HRM for one-way communication is higher than that for two-way communication. This indicates the importance of the national setting in successfully adopting e-HRM tools, since countries such as Denmark, Sweden, Iceland, and Austria are characterized by very high Internet penetration in the population (Denmark=69.2%, Sweden=75.6%, Iceland=86.3%, Austria=56.6%), in comparison to the European average (39.8%) (Internet World Statistics, 2007). Data analysis reveals the characteristics of the companies that adopt e-HRM. Bigger companies are more likely to use e-HRM systems not solely for one-way communication and publishing of information, but rather for two-way communica-
Figure 1. CRANET 2004 findings (16 European countries) showing the level of deployment of e-HRM
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tion and submission of data from the end user. This could be, because for larger companies, implementing an e-HRM system with higher capabilities may prove more cost-effective than putting in place a basic information-announcement system, due to the economies of scale effects that allow for quicker redemption on the initial investment on the system. Similarly, larger companies are more likely to use more elaborate e-HRM systems that allow for more complex transactions. Previous studies have shown organizational size as a determinant of whether an organization has an HRIS at all, and for which HRM activities it will adopt HRIS (Ball, 2001; Hendrickson, 2003). Moreover, there is a relationship between the strategic role of HRM and the deployment of e-HRM. For example, companies with more elaborate e-HRM systems are more prone to place the head of the HRM department at the main board of directors. Moreover, the majority of the organizations having a written HRM strategy seem to use e-HRM tools that allow for interaction and submission of information by the end user. This expresses perhaps the yearning of companies with written HRM strategy for more openness and two-way communication with their employees. The same holds for the existence of a written business strategy and corporate values statement. Finally, companies that spend a higher amount on training as a percentage of their overall payroll costs are more likely to introduce e-HRM systems of higher potential. The above findings suggest that companies valuing HRM are more likely to invest in complex e-HRM systems. It also supports the argument that e-HRM can upgrade the role of the HRM department to a more strategic one. As Brockbank and Ulrich (2005) note, to align HR strategies and practices with their key constituents, HR professionals need to understand and adopt technological trends, since technology influences business processes, services, products, and information on three dimensions, that is, speed, efficiency, and connectivity. Apart from substantial reductions in cost and time and
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transition of administrative activities from the HRM department to the employees themselves, e-HRM can bring about an “increased emphasis on HRM as a strategic business partner, whose primary challenge is to recruit, develop and retain talented employees for the organizations” (Ensher, Nielson, & Grant-Vallone, 2002, pp. 238). It is a commonplace that the strategic direction of the HRM function results in increased responsibility of line management for activities previously carried out by the HRM function. Such development highlights the need for HRM professionals to support the line managers in carrying out traditional HRM activities. E-HRM can be proven as a key tool in achieving this goal. In addition to the above, it seems that a company’s personnel structure is also related to the adoption of e-HRM. In our sample, a high proportion of manual staff is negatively related, while a higher proportion of professional/technical staff is positively related to the adoption of e-HRM systems that allow for more complex transactions. Similarly, the educational background of the employees is also related to the adoption of e-HRM systems. The higher the proportion of graduates and post-graduates in the overall company’s workforce, the more complex transactions the e-HRM system allows for the end user. This could be attributed to a higher level of IT skills and familiarization that better educated employees possess. The company’s performance is also related with the use of composite e-HRM systems. Specifically, sample companies with higher service quality performance and rate of innovation are more prone to adopt complex e-HRM systems. This is in line with the view that HRIS and e-HRM are seen as innovative (Hendrickson, 2003). Finally, regarding user satisfaction from eHRM, the findings from the CRANET sample (summarized in Table 2) show that, although the majority of companies still use e-HRM for oneway communication, the subsample of these users are less satisfied from their system (57.1%) than the
Adoption and Success of E-HRM in European Firms
Table 2. CRANET 2004 findings (16 European countries) for the relation between e-HRM deployment and satisfaction with e-HRM Satisfaction with e- HRM Low
High
TOTAL USE
e-HRM for One-Way Communication:
25.2% of total sample 42.9% of users
33.6% of total sample 57.1% of users
58.80%
e-HRM for Two-Way Communication:
10.3% of total sample 25% of users
30.9% of total sample 75% of users
41.20%
e-HRM deployment
ones using e-HRM for two-way communication (75%). It seems that more interaction from the part of the end user corresponds to higher satisfaction of the users, that is, employees and the HRM staff. This is consistent with previous studies, showing customer involvement as an important part of the satisfaction outcome (Alleyne et al., 2007).
FUTURE TRENDS In this article we examined the level of e-HRM adoption, the characteristics of the companies that adopt e-HRM, and the level of user satisfaction from the system, based on a sample of 16 European countries from the CRANET data. The inclusion of the remaining countries in the sample would clearly give a better picture of the level of e-HRM adoption in Europe. Based on our findings, there are issues that require further research. First, it would be useful to shed more light on user satisfaction, by investigating various components of the concept, like convenience, assortment, delivery, information, interface, accuracy, price, and security. Collecting data from multiple internal and external customers of the e-HRM system would also contribute to this direction. Second, it would be interesting to further explore the effects of e-HRM deployment on the role of the HRM department, and vice versa. Since it has been repeatedly sustained that the role of the HRM function can be upgraded by e-HRM adoption, examining e-HRM applica-
tions in terms of their sophistication and value to the internal customers would help the HRM specialists to develop higher quality electronic tools and increase the value added. Third, since our research could not reveal extended adoption of 3rd generation e-HRM systems, it would be particularly valuable to adopt a qualitative approach in order to identify, understand, and clarify the specific alternative ways of using e-HRM to do things that could not be done before in HRM.
CONCLUSION Summarizing our findings, we could say that organizations adopting more elaborate e-HRM systems have similar pivotal characteristics. First, they are larger companies, often multinationals. Second, they have a more strategic direction for their HRM function. This can be inferred from the fact that the head of the function has a place on the main board of directors, they have a verbally articulated business and HRM strategy, as well as corporate values, and they heavily invest in training. Third, they have a high proportion of professional/technical staff and well-educated employees. Fourth, we found that companies with high innovation and service quality, in general, are likely to use more innovative e-HRM modules and electronic tools. Moreover, our findings support that higher user satisfaction is a result of two-way communication e-HRM and therefore, of higher Web
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deployment of e-HRM. HRM departments wishing to increase the value of their e-HRM services for their internal customers should take this into consideration, as they should work towards increasing the elaboration of their e-HRM systems, not only by improving the quality of information and the level of interaction, but also by trying to extend their application to things that could not be done before.
REFERENCES Alleyne, C., Kakabadse, A., & Kakabadse, N. (2007). Using the HR Intranet: An exploratory analysis of its impact on managerial satisfaction with the HR function. Personnel Review, 36(2), 277–294. doi:10.1108/00483480710726154 Ball, K. S. (2001). The use of human resource information systems: A survey. Personnel Review, 30(6), 677–693. doi:10.1108/ EUM0000000005979 Brockbank, W., & Ulrich, D. (2005). Higher knowledge for higher aspirations. Human Resource Management, 44, 489–504. doi:10.1002/ hrm.20086 Ensher, E. A., Nielson, T. R., & Grant-Vallone, E. (2002). Tales from the hiring line: Effects of the Internet and technology on HR processes. Organizational Dynamics, 31(3), 224–244. doi:10.1016/ S0090-2616(02)00111-0 Evans, P., Pucik, V., & Barsoux, J.-P. (2002). The global challenge. New York: McGraw-Hill. Galanaki, E. (2002). The decision to recruit online: A descriptive study. Career Development International, 7(4), 243–251. doi:10.1108/13620430210431325 Harris, M. M., van Hoye, G., & Lievens, F. (2003). Privacy and attitudes towards Internet-based selection systems: A cross-cultural comparison. International Journal of Selection and Assessment, 11(2/3), 230–236. doi:10.1111/1468-2389.00246 954
Hendrickson, A. R. (2003). Human resource information systems: Backbone technology of contemporary human resources. Journal of Labor Research, 24(3), 381–394. doi:10.1007/s12122003-1002-5 Huang, J.-H., Yang, C., Jin, B.-H., & Chiu, H. (2004). Measuring satisfaction with business-toemployee systems. Computers in Human Behavior, 20, 17–35. doi:10.1016/S0747-5632(03)00047-5 Internet World Statistics. (2007). Internet usage in Europe. Retrieved July 19, 2007, from www. internetworldstatistics.com/stats4.htm Jackson, P., & Harris, L. (2003). E-business and organizational change: Reconciliating traditional values with business transformation. Journal of Organizational Change, 16(5), 497–511. doi:10.1108/09534810310494900 Lengnick-Hall, M. L., & Moritz, S. (2003). The impact of e-HR on the HRM function. Journal of Labor Research, 24(3), 365–379. doi:10.1007/ s12122-003-1001-6 Martin, G., Alexander, H., Reddington, M., & Pate, J. M. (2006, August). Using technology to transform the future of HR: An illustrated model of e-HR. Paper presented to the Academy of Management Annual Conference, Atlanta. Panayotopoulou, L., Vakola, M., & Galanaki, E. (2007). E-HR adoption and the role of HRM: Evidence from Greece. Personnel Review, 36(2), 277–294. doi:10.1108/00483480710726145 Ruta, C. D. (2005). The application of change management theory to HR portal implementation in subsidiaries of multinational corporations. Human Resource Management, 44(1), 35–53. doi:10.1002/hrm.20039 Shrivastava, S., & Shaw, J. (2003). Liberating HR through technology. Human Resource Management, 42(3), 201–222. doi:10.1002/hrm.10081
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Strohmeier, S. (2007). Research in e-HRM: Review and implications. Human Resource Management Review, 17, 19–37. doi:10.1016/j. hrmr.2006.11.002 Walker, A. J. (2001). How the Web and other key trends are changing human resources. In J. Alfred & Walker (Eds.), Web-based human resources (pp. xiii-xxviii). New York: McGraw-Hill.
KEY TERMS AND DEFINITIONS CRANET Survey: One of the largest and most representative independent surveys on comparative HRM. The CRANET network, established in 1989, is coordinated by the Centre for European HRM at the Cranfield School of Management, UK. Since its inception, five rounds of the survey have been completed. In recent years the network has expanded to non-European countries, with 34 universities participating in the 2003-04 round. The questionnaire focuses on HRM issues at organizational level, such as, HRM function, management strategy, recruitment and selection, training and development, performance appraisal, compensation and benefits, employee relations, and communication. E-HRM: The application of the Internet and Intranet along with other technologies for networking and supporting at least two individual or collective actors in their shared performing of HRM activities. E-HRM Deployment: The level of communication that the e-HRM system allows for. One-way communication includes information publishing with none or limited participation (e.g., can allow employees to access some personal information). Two-way communication has various
levels, from allowing employees to update simple personal information to allowing them to perform complex transactions and select items which can be calculated by the system, approved/declined, and confirmed to the employee. Finally a system may allow for more complex transactions. Functions of e-HRM: According to the primary focus of e-HRM, three distinct functions have been identified: publishing of information, automation of transactions, and transformation of the HRΜ function. Generations of e-HRM: According to the technological advancement of the tools used, eHRM is classified in three generations: 1st, 2nd and 3rd. The 1st means speeding up and reducing costs of traditional HRM functions, the 2nd involves qualitative changes and improvements, whereas the 3rd allows one to do things that could not be done before. Strategic HRM: Highlights an increased emphasis on HRM as a strategic business partner. It is characterized by a shift in the responsibilities of the HRM department, from everyday administrative tasks to more strategic ones, aiming at aligning corporate and HRM strategy. This development implies an increased involvement of the HRM professionals to strategy formulation and implementation, together with the devolvement of traditional HRM activities to the line managers. It is generally accepted that the more aligned HRM strategies are with the business, the greater the contribution of HRM to organizational performance. User Computing Satisfaction: One of the most widely used measures of the success of information systems. Many elements have been linked to user satisfaction, like convenience, assortment, delivery, information, interface, accuracy, price, and security.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 24-30, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.5
A Case Study of a Data Warehouse in the Finnish Police Arla Juntunen Helsinki School of Economics, Finland & Finland’s Government Ministry of the Interior, Finland
INTRODUCTION The high level objectives of public authorities are to create value at minimal cost, and achieve ongoing support and commitment from its funding authority. Similar to the private sector, today’s government agencies face a rapidly changing operating environment and many challenges. Where public organizations differ is that they need to manage this environment while answering to demands for increased service, reduced costs, fewer resources and at the same time increased efficiency and accountability. Public organization must cope with changing expectations of multiple DOI: 10.4018/978-1-60960-587-2.ch405
contact groups, emerging regulation, changes in politics, decentralization of organization, and centralization of certain functions providing similar services, and growing demand for better accountability. The aim of public management is to create public value. Public sector managers create value through their organization’s performance and demonstrated accomplishments. The public value is difficult to define: it is something that exists within each community. It is created and affected by the citizens, businesses and organizations of that community (cf. also Moore, 1995). This increased interest to questions of value is partly due to the adoption of values and value-related concepts taken from business, like value creation
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A Case Study of a Data Warehouse in the Finnish Police
and added value. It is argued that the public sector adopts business-like techniques to increase efficiency (Khademian, 1995; cf. Turban et al. 2007; Chen et al. 2005). In addition, there is a growing concern to the non-tangible, political, and ethical aspects of the public sector governance and actions (See Berg, 2001) Decision making that turns the resources in to public value is a daily challenge in the government (Khademian, 1999; Flynn, 2007) and not only because of the social or political factors. Most of decision problems are no longer well-structured problems that are easy to be solved by experience. Even problems that used to be fairly simple to define and solve are now much more complex because of the globalization of the economy, and rapid pace of changes in the technology and political and social environment. Therefore, modern decision makers often need to integrate quickly and reliably knowledge from different areas of data sources to use it in their decision making process. Moreover, the tools and applications developed for knowledge representations in key application areas are extremely diversified, therefore knowledge and data modeling and integration is important (See also the decision support systems (DSS) modeling methods and paradigms: Ruan et al., 2001; Carlsson & Fuller, 2002; Fink, 2002; Makowski & Wierzbicki, 2003). The application s of realworld problems and the abundance of different software tools allow to integrate several methods, specifications and analysis and to apply them to new, arising, complex problems. In addition, business like methods and measurements to assist in managing and evaluating performance are hot topics in the government, and therefore, many government bodies are currently developing or have an existing data warehouse and a reporting solution. Recently, there has been a growing interest in measuring performance and productivity as a consequence of the convergence of two issues: (1) increased demand for accountability on the part of governing bodies, the media, and the public in general, and (2) a commitment
of managers and government bodies to focus on results and to work more intentionally towards efficiency and improved performance (Poister, 2003). This chapter discusses the issues and challenges of the adoption, implementation, effects and outcomes of the data warehouse and its use in analyzing the different operations of the police work, and the increased efficiency and productivity in the Finnish police organization due to the implementation and utilization of the data warehouse and reporting solution called PolStat (Police Statistics). Furthermore, the design of a data warehouse and analyzing system is not an easy task. It requires considering all phases from the requirements specification to the final implementation including the ETL process. It should also take into account that the inclusion of different data items depends on both, users’ needs and data availability in source systems. (Malinowski & Zimányi, 2007). The efficiency and productivity of the organization is measured with the key indicators defined and described by the police organization itself. The indicator data is stored in the data warehouse. The different organizational units are allowed to add their own static or dynamic reports into PolStat. The suggestions of how to further develop the content and measures are gathered from all over the organization as well as from external partners, like the customs and the boarder control. The Data Warehouse and business intelligence are seen as a strategic management tool in the Finnish Police; a tool for better and comprehensive assessment of the police performance; a tool for balancing the most important perspectives of the police performance; and finally, a tool to communicate the current status of the police organization versus the development compared to previous years. Effectively, the Data Warehouse is also the means by which the police work as a whole will be made open and accountable to all interested parties. The system developed identifies what is to be achieved (target i.e. commonly agreed
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views of the police work and organization based on relevant measures), how to achieve the target, and by who, and the monthly estimates based on current data versus the previous years since 1997. This chapter offers an overview of the development process of the data warehouse in the Finnish police, its critical success factors and challenges. The writer had an opportunity to make a follow-up study from the beginning of the process, and this contribution is an outline of the project initiated in the Police Department in 2002 and of main findings.
BACKGROUND Storing (1981) stated that the separation of powers includes the assumption that certain kinds of functions are best performed in unique ways by distinctive organizational units: “With each branch distinct from the others, each can perform its function in its appropriate way.” (Storing,1981, 59 - 60). The Finnish Police operates under the direction of the Ministry of the Interior. The Police Department of the Ministry of the Interior acts as the Supreme Police Command of Finland. The Supreme Police Command, which heads all police operations, decides on national strategies and ensures that the basic preconditions for effective operations exist. Within its command are five Provincial Police Commands; three national units, namely the National Bureau of Investigation, the Security Police and the National Traffic Police, the Police IT Management Agency, the Police Technical Center and the Helsinki Police Department and the police training establishments. Inside the police organization, the challenge to improve the management by results–steering and –reporting has been among the main drivers why the development of the data warehouse started. The most important drivers to built a new data warehouse based on Oracle database, Informatica (ETL -extract, transform and load -tool), and Cognos Reporting and Analyzing tools in 2002
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was the need to improve the strategic management and planning of the Finnish Police, and to develop a more suitable and comprehensive management reporting system (Management Information System, MIS) and to be able to collect and combine data from internal and external data sources. The data warehouse content development is based on organizational needs and current governmental strategies and ‘hot topics’. The strategy and vision drives the development. The assessment model (see Figure╯1) supports the strategy and strategic goals and it assists the organization to understand the cyclic process of the data warehouse development. The performance planning consists of defining the organizational strategy including its vision and strategic objectives, defining and developing specific measurable goals. The current data collection and analysis processes are developed after the initial planning phase. The measures developed are used to assess the organizational effectiveness, productivity, accountability and public value. Performance measures can be divided to direct and indirect, hard and soft measures (Bayley 1996, 47-48). Direct and hard performance measures are for example crime rates and criminal victimizations. Direct and soft measures are for example public confidence in police work, and satisfaction with police actions or feeling insecure in public places like streets at night time. Indirect and hard performance measures are for example number of police and police response times, arrests and a number of follow-up contacts with crime victims. Indirect soft measures are for example the awareness of the public reputation of the police, and how well police knows its operational environment in different areas of the country. Also, Bailey states that only direct measures show police effectiveness. Soft indicators are significant complement to hard measurements. They contribute to the public value and quality of work. They also affect the police behavior.
A Case Study of a Data Warehouse in the Finnish Police
Figure 1. Strategy and vision drives the assessment model. The model supports the strategy and strategic goals
MAIN FOCUS The creation of a corporate-wide data warehouse, particularly on a public sector, is a major undertaking. It involves several issues, like for example the public acquisition procedures, project management, development or acquisition of tools for user access, database maintenance, data transfer and quality issues (Radding, 1995). The Finnish Police started its first reporting systems back in 1992 (Törmänen, 2003) with SAS Institute’s reporting tools. The first data warehouse was ready in 1996, and the first data was gathered to a SAS database in 1997. The long initial development period from 1992 to 1996 was due to the lack of skilled resources and unclear goals. However, even in 1992 there was an explicit opinion within the management of the Finnish Police that an executive information system was needed with static monthly and yearly reports (Pike, 1992). Though, it was not realized then that the development of a reporting system would eventually lead to a data warehouse with multidimensional cubes and different data analyzing and mining possibilities. The rapid changes in the operating environment, organization and new technologies led to
the redefinition of the technology architecture and the creation of PolStat data warehouse in 2002-2004. The development process consisted of the conversion of the old SAS-database to an Oracle 7 database, and after that started the new content development process of each of the topic areas (see Figure 2).The end-users and managers were actively involved in the conversion and the development process of the new data warehouse, OLAP-cubes and the static and dynamic reports. The Figure 2 shows the general configuration of the PolStat data warehouse and reporting solution. It enables the organization to consolidate its data from multiple internal and external data sources. The internal data bases include information, for example of the following topics: citizens (customers), licenses (passports, driver’s licenses, gun permits), different types of crimes, traffic information, book keeping and finance information, employee information. The consolidated data is used to monitor, plan, analyze and estimate the different operations of the police work. The data warehouse is built to be scalable and robust: there are currently about 12,000 users. The data warehouse model is based on a star schema. The data base itself is scalable up to terabytes. The data warehouse’s metadata management allows to
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A Case Study of a Data Warehouse in the Finnish Police
Figure 2. POLSTAT- Data warehouse stores data from different operational databases and external data sources. The information is used to monitor, plan, analyze and estimate. The management can use the data gathered to steer the organization towards its goals timely, efficiently and productively. (Figure mod. from BI-consultant Mika Naatula/Platon Finland’s presentation)
search, capture, use and publish metadata objects as dimensions, hierarchies, measures, and performance metrics and report layout objects. The old legacy systems are based on various different technology architectures due to the long development history. The oldest systems are from 1983 and the newest from 2007, therefore, there is not only one technological solution for interfaces but several based on the various technologies used during the last 25 years. The data mining tool used is SPSS. Cognos 7 is used for reporting and analyzing the data in the data warehouse. Currently, there is an ongoing project to upgrade into the Cognos 8 version. The Cognos analysis solution enables the users to search through large, complex data sets using drag-and-drop techniques on their own computer. It allows the drill down through increasing levels of detail, and view by different dimensions such as crime types per region or by the police department. It allows viewing and analyzing data relationships graphically. The end-users can easily drill down, slice and dice, rank, sort, forecast, and nest information to gain greater insight into the
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crime trends, causes to sudden changes compared to previous years, and effects on resource planning (see Figure 3). The OLAP offers multidimensional views to the data and the analysts can analyze the data from different viewpoints. The different users are allowed to view the data and create new reports. There are only a few users with admin-rights. Most users only view the basic reports that are made ready monthly or every three months. The Cognos has also a common XML-based report format. The technical information of the data warehouse solution is as follows: The server operating system is HP-UX; The Web-Server is Microsoft IIS; and the authentication providers used is Cognos Series 7 Namespace, however, that is changing with the new Cognos version 8 installation.
Enablers/Critical Success Factors 1. Top-level commitment: Commitment of the Ministry of the Interior and of the Supreme Command of the Police has been the most
A Case Study of a Data Warehouse in the Finnish Police
Figure 3. The percentage of solved crimes in jnauary-August 2003-2007 (source: Polstat)
critical enabler to guarantee the success of the data warehouse development. This commitment has come not merely in terms of statements, but also in the commitment of development and maintenance resources. 2. Use of technology: The Government uses secure and standardized solutions and platforms in the development of Information Technology architecture and solutions. They try to foresee the future trends in technology and find out the most suitable solutions that would be cost-effective, secure and easy to use for the whole organization. 3. Communication: Communication performance is an essential part of the success of the data warehouse. However, it can also be the most difficult one to accomplish well. The successful communication needs: (i) the clarity of the goals; (ii) the flexibility— not rigidity—in decision process; and (iii) organizational culture that supports open discussion and communication between teams and different levels of organization (See also Pandey and Garnett, 2006)
4. Supportive human resources: The most valuable suppliers in this development have been TietoEnator Plc as a business intelligence consultant partner and Cognos as reporting and analyzing tool provider. However, the most important human resources are the organization’s own resources. The end-users, like managers and analysts, make the data in the warehouse alive with their own knowledge and interpretations of the existing data. 5. “Small is good”: Considering the high cost of data warehousing technology and the inherent risks of failure, the Finnish Police conclude that the success is better when implementation begins with the creation of small data marts (OLAPs) for end-users (analysts) with considerable end-user computing and data analyzing experience.
The challenges of the data warehouse development process have caused time-related delays,
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A Case Study of a Data Warehouse in the Finnish Police
re-prioritizing tasks and activities in the content development and maintenance.
Constraints/Challenges 1. Resource instability: Governmental and organizational changes as well as the current and time-related “hot topics” have an effect on the resource allocations. They can either reduce or increase the resource allocations. Lack of skilled staff to maintain and develop the data warehouse and reporting system has caused some delays in the content development. 2. Data Security: Data security can impact data warehousing projects and especially at the police even when there is no intent to make the data available outside the organization. This includes data transfer from an external data source and to the organization from external sources. Sometimes the data is protected by law and it is strictly defined who can access the data; sometimes data is protected by intra-departmental rules and by different user profiles with different data access. 3. Technology Architecture Issues: Like many public and private organizations, the police organization faces the problem of legacy systems that are several decades old and made with old and different technologies. These databases contain critically important data for daily operational management. Even more challenging are the constant maintenance of these old legacy systems due to changing operational environment, new crimes and laws. Also, old legacy systems are being renewed piece by piece. This creates more challenges in keeping the content of the data warehouse up to date. 4. Changing organizational structures: Changing organizational and reporting structures are challenging when the data sometimes needs to be seen both with the
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structure of the old organization and with the structure of the new organization.
FUTURE TRENDS During the 1990s, a concept of Knowledge Management(See e.g. Davenport, 2001; Möller and Svahn, 2006; Nonaka et al., 2001) emerged, and both the public and private sector researchers accepted it in the information technology and management literature. Sharing, transferring and storing organizational knowledge has stressed the idea of further developing a data warehouse to support organizational learning and knowledge management within the organization (cf. Malinowski & Zimányi, 2007). The requirement specification and gathering can depend on the users, operational data sources or both. Therefore, the future challenges lies on designing and modeling the spatial and temporal data warehouses for various data requirements. Other challenges are to integrate data from diverse source systems in the face of organizational or economic constraints that require those systems to remain autonomous. Important future research challenges therefore include schema integration and evolution, and the query processing in such a heterogeneous environment (See March et al., 2000; March & Hevner, 2007; Phuboon-ob & Auepanwiriyakul, 2007). The Finnish Police’s plans include developing the data warehouse to support organizational learning because sharing new ideas, information and knowledge with the colleagues working in the same field are important in developing organizational resources and to be more effective and productive. Moreover, a substantial portion of the Finnish Police workforce will become eligible to retire within ten years. Workforce planning, organizational learning and knowledge management are integrated together because they are critical in ensuring that the different organizational units have sufficient and skilled staff to account for these retirements. Besides, high staff turnover,
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and lack of knowledge based on experience can hinder organizational effectiveness and productivity. In addition, to survive in the fast-changing environment the police as “an adaptive organization” (Radjou, et al., 2006) would have to be more like a shifting “constellation” (Mintzberg, 1998; Toffler, 1985) that has linkages (Pinfield et al., 1974) with its decentralized and semiautonomous organizational units. These linkages can be for example linked organizational groups like functional teams, cross-functional teams, special task forces or project teams (Edgelow, 2006). The adaptive organization is a networked organization with internal and external networks and flexible decision processes (Larraine, 2002; Möller et al. 2005, 2006).
Berg, A. M. (2001). “The concept of value in public sector reform discourse”, Concept and Transformation. Volume 6,╯Number 1, September 2001: 39-57(19)
CONCLUSION
Davenport, T. H. (2001). From Data to Knowledge. San Jose, California, Oracle Inc.
This increased interest in questions of value creation and the never-ending struggle to develop passable result indicators and performance measures are probably due to the complexity of public service provision, and also because the different values and rationalities of public sector services are indeed incompatible with the private sector (See Berg, 2001). Still, this continuing discussion of public value and accountability of public sector actors, and how to measure and evaluate the performance and effectiveness means also increasing efforts to maintain the content of the data warehouse to support the new and growing demands.
REFERENCES Bayley, D. H. (1996). Measuring Overall Effectiveness. In Hoover (ed.) Quantifying Quality in Policing. Police Executive Research Forum. Washington.
Bovens, M. (2005). Public accountability, in: C. Pollit et al., Oxford Handbook of Public Management, Oxford: Oxford University Press. Carlsson, C., & Fuller, R. (2002). Fuzzy Reasoning in Decision Making and Optimization, Physica Verlag, New York. Chen, M., & Zhang, D. & Zhou. L. (2005). Empowering Collaborative commerce with Web services enabled business process management systems. Decision Support Systems, Volume 43, Issue 2 (March 2007): 530-546. doi:10.1016/j. dss.2005.05.014
Dodgson, M. (1993). Organizational learning: A review of some literatures. Organization Studies, 14(3), 375–394. doi:10.1177/017084069301400303 Edgelow, C. (2006). Helping Organizations Change. Sundance Consulting Inc., February 2006. Fink, E. (2002). Changes of Problem Representation, Springer Verlag, Berlin, New York. Flynn, N. (2007). Public Sector Management. 5th edition. Sage. UK. Inmon, W. (1996). Building the Data Warehouse. John Wiley and Sons. Khademian, A. (1995). Recent Changes in Public Sector Governance. Education Commission of the States, Denver. Co. [www.ecs.org] Khademian, A. (1999). Reinventing a Government Corporation: Professional Priorities and a Clear Bottom Line. Public Administration Review, 55(1), 17–28. doi:10.2307/976824
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Kimball, R. (1996). The Data Warehouse Toolkit. John Wiley and Sons. Larraine, S. (2002). Dynamic Leader Adaptive Organization: Ten Essential Traits for Managers. Wiley. Makowski, M., & Wierzbicki, A. (2003). Modeling knowledge in global information networks, 4th Global Research Village Conference. Importance of ICT for Research an Science: Science Policies for Economies in Transition,KBN (the Polish State Committee for Scientific Research), and OECD (the Organization for Economic Co-operation and Development), Information Processing Centre, Warsaw, pp. 173–186. Malinowski, E., & Zimányi, E. (2007) Designing Conventional, Spatial, and Temporal Data Warehouses: Concepts and Methodological Framework. Thesis. Universite Libre de Bruxelles Faculte des Sciences Appliquees Service Ingenierie Informatique et de la Decision (CoDE). Belgium. March, S. T., & Hevner, A. (2007, April). Integrated decision support systems: A data warehousing perspective. Decision Support Systems, 43(Issue 3), 1031–1043. doi:10.1016/j.dss.2005.05.029 March, S. T., Hevner, A., & Ram, S. (2000, December). Research Commentary: An Agenda for Information Technology Research in Heterogeneous and Distributed Environments. Information Systems Research, 11(4), 327–341. doi:10.1287/ isre.11.4.327.11873 Mintzberg, H., Ahlstrand, B., & Lampe, J. (1998) Strategy Safari. The complete guide through the wilds of strategic management. Prentice Hall Financial Times, London. Möller, K., Rajala, A., & Svahn, S. (2005). Strategic Business Nets—Their Types and Management. Journal of Business Research, 1274–1284. doi:10.1016/j.jbusres.2003.05.002
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Möller, K., & Svahn, S. (2006, July). Role of Knowledge in Value Creation in Business Nets. Journal of Management Studies, 43(5), 985–1007. doi:10.1111/j.1467-6486.2006.00626.x Moore, M. H. (1995). Creating Public Value: Strategic Management in Government. Cambridge, MA: Harvard University Press. Nonaka, I., Toyama, R., & Konno, N. (2001). SECI, Ba and leadership: a unified model of dynamic knowledge creation. In: Nonaka, I & Teece, D. J. (Eds.). Managing industrial knowledge. Creation, transfer and utilization. London, Sage: 13-43. Pandey, S. K., & Garnett, J. L. (2006). Exploring Public Sector Communication Performance: Testing a Model and Drawing Implications. Public Administration Review, (January): 37–51. doi:10.1111/j.1540-6210.2006.00554.x Phuboon-ob, J., & Auepanwiriyakul, R. (2007). Two-Phase Optimization for Selecting Materialized Views in a Data Warehouse. Proceedings of World Academy of Science, Engineering and Technology. Volume 21 January 2007. ISSN 1307-6884. Pike (1992). Pike-projektin loppuraportti. Sisäasiainministeriö.Poliisiosaston julkaisu. Series A5/92. Pinfield, L. T., Watzke, G. E., & Webb, E. J. (1974). “Confederacies and Brokers: Mediators Between Organizations and their Environments,” in H.Leavitt, L. Pinfield & E. Webb (Eds.), Organizations of the Future: Interaction with the External Environment, Praeger, New York, 1974, 83-110. Poister, T. H. (2003). Measuring performance in public and nonprofit organizations. San Francisco, CA: John Wiley & Sons, Inc. Pollitt, C. (2003). The essential public manager, London: Open University Press/McGraw-Hill.
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Pritchard, A. (2003). Understanding government output and productivity. Economic Trends, 596, 27–40. Radding, A. (1995). “Support Decision Makers with a Data Warehouse,” Datamation, Vol. 41, Number 5, March 15, 53-56. Radjou, N., Daley E, Rasmussen M. & Lo, H. (2006). “The Rise of Globally Adaptive Organizations. The World Isn’t Flat Till Global Firms Are Networked, Risk-Agile, And Socially Adept, Forrester, published in the Balancing Risks And Rewards In A Global Tech Economy -series. Romzek, B. S., & Dubnick, M. J. (1998). Accountability, in: J.M. Shafritz (ed.), International encyclopaedia of public policy and administration, volume 1, Boulder: Westview Press. Ruan, D., Kacprzyk, J., & Fedrizzi, M. (Eds.). (2001). Soft Computing for Risk Evaluation and Management, Physica Verlag, New York. Toffler, A. (1985). The Adaptive Corporation, McGraw Hill, New York. Tolentino, A. (2004). New concepts of productivity and its improvement. European Productivity Network Seminar. International Labour Office. Retrieved June, 2007, from http://www.ilo.org/ dyn/empent/docs/F1715412206/New%20Concepts%20of%20Productivity.pdf Törmänen, A. (2002). Tietovarastoinnin kehitys poliisiorganisaatiossa 1992-2002. Sisäasiainministeriö, poliisiosaston julkaisusarja Ministry of the Interior/Police Department Publications, 11/2003. ISBN 951-734-513-5. Turban, E., Leidner, D., McLean, E., & Wetherbe, J. (2007). InformationTechnology forManagement: Transforming Organizations in the Digital Economy. John Wiley & Sons, Inc. New York, NY, USA
KEY TERMS AND DEFINITIONS Accountability: It is a social relationship in which an actor feels an obligation to explain and to justify his or her conduct to some significant other. It presupposes that an organization has a clear policy on who is accountable to whom and for what. It involves the expectation that the accountable group will face consequences of its actions and be willing to accept advice or criticism and to modify its practices in the light of that advice or criticism. Data Warehouse: A data warehouse is a relational database that is designed for query and analysis rather than for transaction processing. It usually contains historical data derived from transaction data, but it can include data from both internal and external sources. It separates analysis workload from transaction workload and enables an organization to consolidate its data from multiple sources. In addition to a relational database, a data warehouse environment includes an extraction, transportation, transformation, and loading (ETL) solution, an online analytical processing (OLAP) engine, client analysis tools, and other applications that manage the process of gathering data and delivering it to business users. Effectiveness and Efficiency: In this chapter, effectiveness in the public sector means that the organization is able to achieve its goals and be competitive. Efficiency means that the resources are not wasted. ETL: ETL-tool is an extract, transform and load -tool. ETL is also a process in data warehousing that involves extracting data from different sources, transforming it to fit organizational needs, and finally loading it into the data warehouse. Knowledge Management (KM): Deals with concept of how organizations, groups, and individuals handle their knowledge in all forms, in order to improve organizational performance. Online Analytical Processing (OLAP): OLAP is a category of software tools providing analysis of data stored in a database. OLAP tools
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enable users to analyze different dimensions of multidimensional data. For example, it provides time series and trend analysis views. [http:// en.wikipedia.org/wiki/OLAP_cube] Organizational Learning (OL): It is the way organizations “build, supplement, and organize knowledge and routines around their activities
and within their cultures and adapt and develop organizational efficiency by improving the use of the broad skills of their workforces” (Dodgson 1993: 377) Productivity: Public sector productivity involves efficiency and outputs, it also involves effectiveness and outcomes.
This work was previously published in Encyclopedia of Data Warehousing and Mining, Second Edition, edited by John Wang, pp. 183-191, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.6
Exploring the Relation between the Use of HRIS and their Implementation in Spanish Firms José Antonio Fernández-Sánchez University of Alicante, Spain Susana de Juana-Espinosa University of Alicante, Spain Jorge Valdés-Conca University of Alicante, Spain
INTRODUCTION An information system (IS) is “a set of people, procedures, and resources that collects, transforms, and disseminates information in an organization. A system that accepts data resources as input and processes them into information products as output” (O’Brien & Marakas, 2005). Likewise, the DOI: 10.4018/978-1-60960-587-2.ch406
definition of human resource information Systems (henceforth HRIS) can be expressed as an IS that deals only with information related directly to the human resource management (HRM) area (Tannenbaum, 1990). Initially, computerized HRIS were only useful for administrative purposes. However, in the course of the last decade, that tendency has changed markedly and a strategic re-orientation of these applications is nowadays considered desir-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Exploring the Relation between the Use of HRIS and their Implementation in Spanish Firms
able and necessary for companies competing in today’s uncertain, complex and ever-developing environment. This phenomenon has turned HRIS into a major strategic means, capable of providing information about the actual capacity of the firm, its potential, and the potential of its competitors. This research paper aims to provide an in-depth analysis of HRIS usage as a tool for assisting in recruitment decisions. This was carried out in accordance with the empirical findings of a quantitative research on selection and recruitment processes in Spanish firms. This paper reports and evaluates the major results of this current study and discusses its theoretical and practical implications with a view to increasing the effectiveness of HRIS usage for its recruitment processes.
BACKGROUND The HRM function involves the whole range of activities occurring from the job opening in a company until the employee leaves his or her post; in other words, the post has to be filled at the time when an employee leaves it (Fernández Sánchez, 2005). Therefore, HRM addresses a wide variety of activities, with the main concern being the identification of the staffing needs required by the firm and whether to use independent contractors or do the hiring in order to recruit and train the best employees. The whole array of these activities is called “recruitment process.” HRM activities should also: • •
• •
Deal with performance issues Manage the organization’s approach to employee benefits and compensation;, employee records and personnel policies Promote the right employees Implement managerial practices compliant with HRM regulations.
When concentrating upon the recruitment process, the first step would be whether it should
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be run as internal or external recruitment. Internal recruitment occurs when a firm fills a vacant position with a member of its own staff, whether by transferring an employee (horizontal movement within the hierarchical structure of the organization) or by promoting him/her (vertical movement). It could also combine both movements, or even be based on personnel development programmes (Armstrong, 1992; Attwood & Dimmock, 1996; D’Aboville & Bernié, 1991). The external recruitment refers to the decision of filling a vacant position with a candidate alien to the firm, using several recruitment techniques (Deguy, 1989; Gómez-Mejía, Balkin, & Cardy, 2007; Peña Baztán, 1990). The optimal use of internal recruitment processes requires possessing an updated and accurate knowledge of the personnel (Leal Millán, Alfaro, Rodríguez, & Román, 1999), where an HRIS can prove particularly useful. A human resource inventory, also known as an Internal IS, is probably the simplest and cheapest IS that can be developed. It consists of a database (a structured collection of records) that keeps the largest possible amount of detailed information about the employees. Basic data to be included in this database are personal details, recruitment dates, prior positions held, promotions, and several other observations about the employees’ performance and potential (Peña Baztán, 1990). Table 1 summarizes and compares the arguments in favor and against each type of recruitment, based on the works of Armstrong (1992), Attwood et al. (1996), Besseyre des Horts (1988), Camerer and Vepsalainen (1988), Claver, Gascó, and Llopis (1996), D’Aboville et al. (1991), Datta and Dodgson (1993), Díez de Castro et al. (2002), Gómez-Mejía et al. (2007), Guthrie (1994), Huber (1991), Leal Millán et al. (1999), Nonaka and Takeuchi (1995), Sánchez García (1993), Stata (1989) and Ulrich, Jick, and Von Glinow (1993). According to Table 1, the internal recruitment is apparently more advantageous than the external method. This is why several academics (e.g.,
Exploring the Relation between the Use of HRIS and their Implementation in Spanish Firms
Table 1. Internal vs. external recruitment Internal recruitment advantages
External recruitment disadvantages
advantages Higher number of candidates
disadvantages
Lower cost
Limited number of candidates
Faster results
Conflict of interests
Higher cost and slower process
Better knowledge of candidates
Lack of authority, due to excess of trust
Shorter socialization period
Lack of innovation and new ideas
Encourages change and innovation
Longer socialization period
Business culture is strengthened
Business culture stagnation
Encourages modifications in culture
Cultural shock
Increases motivation among employees
Discontent among non-selected individuals
No prior knowledge of candidates
May motivate negatively
Increases the build-up of knowledge Factor for attraction and upkeep of staff
Deguy, 1989; Díez de Castro et al., 2002; Peña Baztán, 1990) recommend this option whenever it is feasible and suitable. Only in those cases where this is not valid or sufficient, the company must resort to external recruitment. Nevertheless, it is necessary to keep in mind that this statement should be taken cautiously since, on occasion, internal recruitment sources could easily lead to disappointments and frustration instead of stimulating motivation and self-esteem. Also, in order to ensure that all internal and external applications, if any, are considered equally, the former should be complemented with the most detailed information available (Besseyre des Horts, 1988, 2002). There is no perfect recruitment method and the choice will have to be made on the basis of the particular circumstances of the company and its objectives. Therefore, for practitioners to be able to decide upon their course of action, it would seem best to look at what companies are doing from an empirical point of view. In this way, these companies bring reallife perspective and experience to HR managers by means of their recruitment and information management policies.
SELECTION AND RECRUITMENT IN SPANISH FIRMS: DATA ANALYSIS Research Hypotheses and Methodology In order to corroborate the literature based on the expert knowledge, this paper formulates two hypotheses for testing: Hypothesis 1: “Firms preferring internal recruitment decisions over external recruitment will perform better than those not doing it.” This line of thought has been confirmed by Deguy (1989), Delaney and Huselid (1996), Delery and Doty (1996), Díez de Castro et al. (2002), Fairris (2004), Huselid (1995), Peña Baztán (1990), Pfeffer (1994, 1998), and Wailerdsak and Suehiro (2004). Hypothesis 2: “Firms deploying HRIS in their internal recruitment processes will perform better than those not doing it.”
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Hypothesis 2 has been backed up by the works of Besseyre des Horts (1988, 2002), Cebrián (2001), Gómez-Mejia et al. (2007), Leal Millán et al. (1999), and Lee and Liebenau (2000). These hypotheses were tested by making use of an empirical research in Spanish firms with over 200 employees (see Table 2 for technical details). The questionnaire and the statistical tools used in our study were previously tested in a similar research conducted within the boundaries of the province of Alicante (Spain). A t-test concluded that there were no significant differences between the group of firms that did answer and those who did not. As a consequence, the data here shown can be considered as valid indicators of the behavior of Spanish firms with more than 200 employees. These research findings can therefore be considered as general statements for the recruitment policies of Spanish firms.
Descriptive Findings Before testing hypotheses 1 and 2, a descriptive analysis of the use of HRIS in a firm helped to understand the implications and significance of this research. The first question examined if the surveyed firms would prefer internal recruitment techniques over going external, for which a simple frequency analysis was performed. The results showed that 69% of the firms did so “frequently” or “always.” The fact that only 4.8% of the firms report that they express very little or no preference at all for internal over external recruitment reinforces this impression. The reasons for this affinity towards internal recruitment can be found in its advanTable 2. Technical description of the research Spain
Scope Date
February 2005
Response rate
334 valid answers (11.1%)
Standard error
5.2%1
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tages over external recruitment, as seen in the literature review. With regard to the type of IS implemented by the surveyed firms, over two-thirds (77.5%) emphasize that they use manual HRIS; that is, traditional filing systems, because they are cheaper and easier to handle. In addition to this finding, almost half of the surveyed firms report that they use computerized HRIS, a fact that follows an upward trend according to the results of the previous experimental research. (In early 2004, only 38.6% of the survey respondents supported this statement). Together with the previously mentioned results, this descriptive research found that every stage of the recruitment process is susceptible of being performed by computer-based applications. In particular, applicant tracking systems seem easy and useful enough to be deployed by 62% of these organizations. However, a negative correlation appears between the degree of sophistication of the HRIS applications and their presence in the firms. It would seem as though the firms had a tendency to manage their more complex and sensitive HRM tasks in the traditional way rather than by implementing a computer-based HRIS application. We also expressed interest in determining how the use of HRIS could be linked to certain structural characteristics. A chi-squared test indicated that only two types of organizations are actually affected by the use of HRIS: parent firms over subsidiaries, and larger over smaller firms. These findings lead us to think that the organizational structure complexity may achieve a significant impact on whether relying upon computer-based HRIS for managing a firm’s recruitment policies. Hypothesis 1: The firms that prefer internal recruitment decisions over external recruitment will perform better than those who do not do it. As discussed in the previous section, it has been established that those firms that use primarily
Exploring the Relation between the Use of HRIS and their Implementation in Spanish Firms
Table 3.Degree of satisfaction with the outcomes of the recruitment process None
Use of internal recruitment
Poorly satisfactory
Moderately satisfactory
Very satisfactory
Satisfactory
Addition of the last two
Seldom
0%
0%
3 (30.0%)
6 (60.0%)
1 (10.0%)
7 (70.0%)
Occasionally
0%
0%
12 (15.0%)
58 (72.5%)
10 (12.5%)
68 (85.0%)
Sometimes
0.8%
0%
11 (8.7%)
97 (76.4%)
18 (14.2%)
115 (90.6%)
Often
0%
0%
5 (6.9%)
44 (61.1%)
23 (31.9%)
67 (93.0%)
Always
0%
0%
1 (5.0%)
11 (55.0%)
8 (40.0%)
19 (95.0%)
internal recruitment processes seem more satisfied with their decision. Table 3 illustrates the use of internal recruitment by the firms in relation to the perceived degree of satisfaction with the outcomes of such a decision. It is clearly demonstrated that there is a positive relation between following an internal recruitment strategy and the performance of the firm dimensions. Hypothesis 2: The firms that deploy HRIS in their internal recruitment processes will perform better than those who do not do it. Table 4 illustrates the effect of deploying HRIS on the perceived performance of recruiting good candidates internally. In particular, almost 90% of the firms that use HRIS for this task agree on its being “quite” or “plenty” beneficial. It is also noteworthy that only one company has valued this item as “not beneficial at all.” Additionally, a chi-squared test confirmed the direct relationship between both variables, so that it can be stated that those firms relying on internal recruitment processes based on HRIS applications achieve better outcomes in the performance of the appointed candidate than those who do not.
Finally, in order to find whether this result would be the same regardless of the company using internal or external recruitment methods, another chi-squared test was carried out. The results obtained point out that a connection can be established between the use of HRIS and the perceived outcomes of the process. Therefore, it is confirmed statistically that the HRIS contribute in a positive manner to the outcomes of the recruitment process and, in consequence, to the overall performance of the firm. This evidence agrees, once more, with hypothesis 2.
FUTURE TRENDS After analyzing the results of this research, it remains quite clear that firms are moving from traditional IS to computerized HRIS following a slow but steady trend; and they are doing so for every aspect of HRM. Among other motivations underlying this development, we can include their raw necessity to adapt to the requirements of more complex organizations, together with imitation issues (benchmarking policies), and the uprising of more knowledgeable and qualified HR managers.
Table 4. Concurrence of HRIS usage and internal recruitment. Effects upon recruitment results. Perceived outcomes recruitment/ selection
Internal recruitment and HRIS
Not beneficial at all
A little
Quite
Plenty
Yes
1 (0.3%)
31 (10.3%)
209 (69.4%)
60 (19.9%)
No
0 (0.0%)
7 (21.2%)
25 (75.8%)
1 (3.0%)
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HRIS add competitive value to the firm as a whole and, specifically, to the HRM department. Despite this conviction, shared with many other academics in the field, the authors express reservations as to whether the information systems may provide businesses with a sustainable competitive advantage on their own. Classic strategic information systems benefited from their being first, but they soon became a commodity; some even consider them a compulsory asset in order to remain in the industry. Their pervasive use could even inhibit other firms from developing the strategic changes needed for succeeding in the near future.
CONCLUSION Regarding the recruitment aspects more specifically, the use of HRIS follows the same path. As such, it is remarkable to notice that the presence of traditional IS in the first stages of the recruitment process, namely gathering and filing candidates’ information, is still strong. However, the perceived improvements in the hiring outcomes when using computerized HRIS generate sufficient leverage for managers to introduce steadily these systems in their current agenda. Actually, the presence of these computerized applications is even scarcer for the most complex tasks, such as decision-making processes, because they require, in return, more sophisticated HRIS. This suggests that it is the developing stage of HRIS what leads to this unbalanced situation. In addition, over one-third of the firms deploy some HRIS application for every recruitmentrelated task, which indicates that: HRIS are not meant to be exclusive tools, although they are seldom used in combination with other methods, and these applications suffice as assisting and supporting devices, but they will never be able to substitute human criterion. It was also observed that two groups of organizations stand out in the deployment of HRIS: the
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parent companies, with regard to their subsidiaries, and the largest firms in terms of number of employees. This seems a logical finding because their more complex structures may benefit more from the advantages of HRIS in order to increase the efficiency of their recruiting processes. As for the main hypotheses tested in this research, even though both internal and external recruitment strategies are to be considered, internal recruitment is the favorite method for filling in vacant positions within the firms, which confirms the theoretical assumptions that asserted that the former is less costly and brings more advantages to the firms. At least, our evidence supports that a better performance is expected from the people recruited internally, which in turn will improve the overall business performance. The same can be stated of the synergies caused by the interaction between HRIS and internal recruitment. Business managers agree strongly on the positive effects that the advantages of the latter, and the better quality of information of the former, produce in the outcomes of the recruitment decisions. In any case, HRIS are found to be preferred in combination with other HRM practices, instead of being used alone. This reveals that human judgment is still the main criterion for making decisions in this area, albeit assessed or supported by the information provided by the HRIS.
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Besseyre des Horts, C. H. (2002). La GRH estelle créatrice de valeur? Une application au cas du e-RH. Revue de Gestion des Ressources Humaines, 46, 2–16.
Díez, J., Redondo, C., Barreiro, B., & López, M. A. (2002). Administración de empresas. Dirigir en la sociedad del conocimiento. Madrid: Ed. Pirámide.
Camerer, C., & Vepsalainen, A. (1988). The economic efficiency of corporate culture. Strategic Management Journal, 9(5), 115–126.. doi:10.1002/smj.4250090712
Dodgson, M. (1993). Organizational learning: A review of some literatures. Organization Studies, 14(3), 375–394. doi:10.1177/017084069301400303
Cebrián, E. (2001). La importancia de cualificar los servicios de selección y evaluación. Capital Humano, 148, 78–79.
Fairris, D. (2004). Internal labor markets and worker quits. Industrial Relations, 43(3), 573– 594..doi:10.1111/j.0019-8676.2004.00350.x
Claver, E., Gascó, J. L., & Llopis, J. (1996). Los recursos humanos en la empresa: Un enfoque directivo. Madrid: Ed. Civitas.
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D’Aboville, A., & Bernié, M. M. (1991). Guide pratique du recrutement en PME. Entreprise et candidats: Une rencontre. Paris: Les Éditions d’Organisation. Datta, D. K., & Guthrie, J. P. (1994). Executive succession: Organiztional antecedents of CEO characteristics. Strategic Management Journal, 15(7), 569–577..doi:10.1002/smj.4250150706 Deguy, M. (1989). Politique des ressources humaines dans l’entreprise. Paris: Les Éditions d’Organisation. Delaney, J. T., & Huselid, M. A. (1996). The impact of human resource management practices on perceptions of organizational performance. Academy of Management Journal, 39(4), 949–969.. doi:10.2307/256718 Delery, J. E., & Doty, D. H. (1996). Modes of theorizing in strategic human resource management: Tests of universalistic, contingency, and configurational performance predictions. Academy of Management Journal, 39(4), 802–835.. doi:10.2307/256713
Gómez-Mejía, L. R., Balkin, D. B., & Cardy, R. L. (2007). Managing human resources (5th ed.). Englewood Cliffs, NJ: Prentice Hall. Huber, G. P. (1991). Organizational learning: The contributing processes and the literatures. Organization Science, 2(1), 88–115..doi:10.1287/ orsc.2.1.88 Huselid, M. A. (1995). The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal, 38(3), 635–672..doi:10.2307/256741 Leal Millán, A., Alfaro de Prado, A., Rodríguez, L., & Román, M. (1999). El factor humano en las relaciones laborales. Manual de dirección y gestión. Madrid: Ed. Pirámide. Lee, H., & Liebenau, J. (2000). Temporal effects of informational systems on business processes: Focusing on the dimensions of temporality. Accounting Management and Information Technologies, 10(3), 157–185..doi:10.1016/S09598022(00)00003-5
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Nonaka, I., & Takeuchi, H. (1995). The knowledgecreating company. New York: Oxford University Press. O’Brien, J., & Marakas, G. (2005). Introduction to information systems (12th ed.). Boston: McGraw-Hill. Peña Baztán, M. (1990). Dirección de personal. Organización y técnicas (Europea, H., Ed.). Barcelona. Pfeffer, J. (1994). Competitive advantage through people. California Management Review, 36(2), 9–28. Pfeffer, J. (1998). Seven practices of successful organizations. California Management Review, 40(2), 96–124. Sánchez García, J. C. (1993). Selección de personal. Guía práctica. Salamanca: Amarú Ed. Stata, R. (1989). Organizational learning: The key to management innovation. Sloan Management Review, 30(3), 63–74. Tannenbaum, S. I. (1990). Human resource information systems: User group implications. Journal of Systems Management, 41(1), 27–33. Ulrich, D., Jick, T., & Von Glinow, M. A. (1993). High-impact learning: Building and diffusing learning capability. Organizational Dynamics, 22(2), 52–66..doi:10.1016/0090-2616(93)900534 Wailerdsak, N., & Suehiro, A. (2004). Promotion systems and career development in Thailand: A case study of Siam Cement. Journal of Human Resource Management, 15(1), 196–218.. doi:10.1080/0958519032000157429
KEY TERMS AND DEFINITIONS Applicant Tracking Systems: Software applications that enable the electronic handling
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of corporate recruitment needs. Most include a corporate career site, allowing companies to post jobs on to their own websites, and applicants to log on their curricula vitae (abbreviated to CV). Candidates can apply for either specific or nonspecific job vacancies. Effective solutions store the candidate data into a database to allow efficient searching, filtering, and routing of applications. External Recruitment: Process undertaken by a firm which, faced with the need to fill a vacant position, decides to do so with a candidate alien to the firm, by making use of several recruitment techniques. Human Resource Information Systems (HRIS): Information systems that support HRM activities, deployed to compile, record, store, analyze, and retrieve information linked to an organization’s human resources. They may be computerized or manual; in the first case, they combine hardware-based resources (machines and media), software-based resources (programs and procedures), and network technologies (communications media and network support). Information: Data placed in a meaningful and useful context for an end user (O’Brien et al., 2005). Information System (IS): A system, automated or manual, that comprises people, machines, and/or methods organized to collect, process, transmit, and disseminate data that represent user information. A set of people, procedures and resources that collects, transforms and disseminates information in an organization. A system that accepts data resources as input and processes them into information products as output. Input: “Pertaining to a device, process, or channel involved in the insertion of data into a data processing system. Opposite of output.” (O’Brien et al., 2005) Internal Recruitment: Process undertaken by a firm, which decides to fill a vacant position with a member of its own staff. This may be done by transferring an employee (horizontal movement within the hierarchical structure of the
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organization), by promoting him or her (vertical movement), by combining both movements, or by implementing personnel development programs. Online CV Management: An online, integrated solution using Web-based management tools that allows applicants (job seekers) to submit (upload) and manage their electronic CV on the Internet. Output: “Pertaining to a device, process, or channel involved with the transfer of data or information out of an information processing system. Opposite of input.” (O’Brien et al., 2005)
Traditional (Manual) or Legacy HRIS: Non-automated HRIS based upon traditional information processing systems such as physical files or folders.
ENDNOTE 1
This error has been calculated for N=3000, assuming p=q and a confidence interval of 95%.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 399-405, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.7
The Diffusion of HRITs Across English-Speaking Countries Miguel R. Olivas-Luján Clarion University of Pennsylvania, USA & Tecnológico de Monterrey, México Gary W. Florkowski Katz Graduate School of Business, USA
INTRODUCTION From an historical perspective, human resource (HR) activities rarely captured the respect of line executives who often view this area as “staff chores” rather than high value-added business. This, coupled with the large amount of complex information required to execute personnel tasks, partially explains why HR departments did not tend to be early adopters of information technologies (ITs). The situation has changed radically over the last decade, as personnel departments increasingly seek to offload paper-intensive, complianceDOI: 10.4018/978-1-60960-587-2.ch407
oriented processes to technology-supported flows so that they are better able to support and evolve the company’s strategy to achieve competitive advantage in an era of increased global competition. Little is known, though, about the process by which HR-related software applications and services spread from firm to firm, and ultimately country to country. In response, we draw upon a set of geographically diverse practitioner surveys and early findings of our ongoing research program (Florkowski & Olivas-Luján, 2006) to examine the diffusion of HRITs across nations. We also include suggestions for future research and definitions of terms that aid in understanding this increasingly important phenomenon.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Diffusion of HRITs Across English-Speaking Countries
BACKGROUND There is little doubt that information and communication technologies (ICTs) continue to transform our society at a blistering pace, and particularly our workplace. Even back in 1965, Intel co-founder and former chairman Gordon Moore famously said that he expected the complexity of integrated circuits to double every year (Intel Corp., 2005). Debates have followed arguing whether this socalled “Moore’s Law” is applicable to other IT components, but the fact remains that ICTs are renovating our society and our organizations in ways we never imagined. HR functions certainly have been swept up in this tide. Companies worldwide invested an estimated $5.5 billion (U.S.) on HR-linked technologies in 2005, with annual expenditures projected to grow in North America, Europe, and the Asia-Pacific region by 7, 20, and 22%, respectively, over the next 5 years (Frauenheim, 2006). In many developed economies, HR intranets have become cornerstones of the service-delivery model in larger firms (Mercer HR Consulting, 2002a, 2003a, 2003b; Watson Wyatt Worldwide, 2002). These and other sources (Cedar, 2002, 2004; SHRM, 2005; Towers Perrin, 2003) document that self-service applications for employees (ESS) and managers (MSS) are becoming increasingly widespread, bordering at times on majority practice in bigger organizations. Not surprisingly, HRITs tend to be less prevalent, but very much on the rise, in emerging markets with greater emphasis placed on the deployment of fully integrated HR information systems (e.g., Deloitte, 2005; Zuo & Zheng, 2003). That being said, countries like Mexico, Brazil, and China are not strangers to HR intranets and other Webbased technologies (Mercer HR Consulting, 2002b; Olivas-Luján, Ramírez & Zapata Cantú, 2007; Watson Wyatt Worldwide, 2000, 2004). It is in this environment that the need to use solid theories to better understand how these ICTs are spreading seems warranted.
Martin (2006) notes that the diffusion of innovations (DOI) paradigm is a promising, yet neglected perspective in the study of HRIT usage, a gap redressed here by drawing upon such works by Kwon and Zmud (1987), Gurbaxani (1990), Mahajan, Mullerm, and Wind (2000), Rai, Ravichandran, and Samaddar (1998), Rogers (2003), and Teng, Grover, and Guttler (2002). We define an innovation as any new idea (i.e., product, procedure, etc.) previously unknown to potential adopters. Diffusion, in turn, refers to the process by which innovations spread among organizations that seek to benefit from their implementation. Adoption, the process by which potential implementers of an innovation become actual users, is theorized to be influenced by numerous factors, including characteristics of the adopter, innovation, and environment surrounding the system of potential adopters. Adoption events have been conceptualized as being normally distributed with respect to the speed of an innovation’s acceptance. The placement of adopters along this continuum determines whether they should be classified as innovators, early adopters, early majority, late majority, or laggards (Rogers, 2003). Innovators are the initial pioneers in a social system embracing innovation, defined by Rogers as the first 2.5% of eventual adopters. The ensuing 13.5% to internalize the innovation are labeled early adopters with distinct subgroup characteristics. The early majority encompasses the next 34% to join the innovation bandwagon; ahead of the average adopter by no more than one standard deviation time-wise. Entities that acquire the innovation up to one standard deviation after the average adopter are described as the late majority (approximately 34% of the distribution as well). Rounding out this classification scheme are laggards, constituting the remaining 16% of actual adopters in the system. Although this taxonomy is not symmetrical around the mean, it has been used across a variety of disciplines as the entities within each subgroup are fairly homogeneous in a variety of
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important ways, and different from entities in the other groups. It is also prudent to remember that these entities are actual adopters. For any given innovation, there always will be a number of potential adopters that never actually take it up (i.e., non-adopters). In our study, larger organizations with relatively high levels of HR transactional work were viewed as the population of potential adopters for HRITs. Five characteristics have been identified in DOI theory as most influential for an innovation to have a prompt rate (or speed) of adoption: relative advantage, compatibility, complexity, trialability, and observability. Relative advantage refers to adopters’ belief that the innovation is better than the way things were done beforehand. Until the late 1990s, this characteristic was not sufficiently strong for HRITs to encourage aggressive adoption, given that computers and software for HR purposes were too expensive and limited in scope, being reserved for the largest, best endowed organizations. As DeSanctis (1986) reported less than 25 years ago, information systems for HR management (HRIS) were disconnected from other management information systems; there was a lack of personnel that could adequately manage the HRIS and the information requirements that users outside the personnel department had were being neglected. Nowadays, there is an expectation that using HRITs will liberate HR personnel from tedious, administrative tasks and enable them to become strategic partners for the organization (Olivas-Luján, 2003; Olivas-Luján et al., 2007; SHRM, 2005; Strohmeier, 2007). Over the last decade, there has been a proliferation of relatively inexpensive and ubiquitous software applications for all types of HR activities, and IT vendors have championed hosted and cohosted IT governance approaches (e.g., applications service provider [ASP] models) making HRITs cost-effective solutions for firms of virtually any size. Compatibility deals with how the innovation is perceived as congruent or “fitting” with the existing needs, past experiences, and current priorities
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of the potential adopter, the “corporate culture” in the case of organizations. DeSanctis’ study mentioned above suggests a low but increasing degree of compatibility for the HR department, but HR subfunctions other than compensation and payroll management had little experience with the use of computers. It is not before the 1990s that the greater availability of personal computers and their connectivity via local area networks (LANs) and TCP/IP communication protocols made it possible for nontechnical users to perceive that their needs could be met by computers. Complexity is a more intuitive term; clearly, the more complicated or difficult to understand and use an innovation is perceived to be, the less likely it will be promptly embraced. Automated testing and training, tracking of resumes, organizational demographics, management of talent-related data such as appraisals, career planning, and many other HR-related subareas have become more likely to be automated in a user-friendly way that no longer scares away staff areas that for many years were considered distant from more technologically supported departments like production or sales. Trialability has also increased for HRITs in the past decade. This characteristic is the possibility to experience or witness how the innovation is used before actually accepting it. Before graphical user interfaces (GUIs) (such as Windows or MacIntosh operating systems that accept users’ instructions via icons and pointing devices like mice or touch screens, instead of text-and-symbol-based commands) became prevalent, HR decision makers would only be able to see the benefits of HRITs in an indirect manner, perhaps by interacting with colleagues or attending vendors’ demonstrations. Nowadays, it is rare that an HRIT provider will not have a demonstration Web site or CD available (in addition to multiple other promotional materials) for any potential customer to see how the technology is used and the benefits it may provide. Lastly, observability of the innovation benefits has increased tremendously at least for several HRITs such as ESS or MSS whose HR needs are
The Diffusion of HRITs Across English-Speaking Countries
being met more promptly now via technology than in the old days when most interactions with the HR department required finding a qualified person who could answer the specific questions or start the complex processes underlying many HR transactions. The US-based Society for Human Resource Management recently published the results of a survey that names accuracy of employee information and reductions in cycle time for processing employee transactions as the top benefits of using HRITs (SHRM, 2005, p. 16). These benefits are easily perceived by the HR department’s main constituencies and their existence should increase the rate of HRIT adoption. All in all, these five characteristics of an innovation have radically changed in the past two decades in ways that encourage the diffusion of HRITs and this should result in an increased adoption rate. We now describe the diffusion research that was used to model, understand and forecast the adoption of HRITs in the United States and (incipiently) in several other countries. The DOI literature offers three competing diffusion models (i.e., external-, internal-, and mixed-influence) to explain an innovation’s growing acceptance over time, depicted as Sshaped curves with different parameters (Teng et al., 2002). Table 1 shows the equations we used to mathematically calculate these curve forms. The external influence model presupposes that adoption of the innovations is encouraged by messages from mass media and other sources not a part of the social system of likely adopters (e.g., consultants, vendors, etc.). An exponential equation with parameters m (the total number of adopters within the system) and p (the coefficient of external influence) has been deducted to represent adoption under these circumstances. Internal influence models have been operationalized as Logistic and Gompertz equations (q denoting the coefficient of internal influence, representing the strength of word-of-mouth and other imitation effects). Finally, Bass’ forecasting model (1969) incorporates external and internal influences in
the same equation, allowing comparisons between both types of influences (a mixed influence model). The basic analytic technique involves fitting data into the equations in Table 1 and comparing the extent to which the models recreate the observed distribution; values for R-square, m, p, and q becoming focal points. Nonlinear regression was used to fit more than 492 distinct HRIT purchases, by 158 firms in the US (94), Canada (56), the UK (11), and Ireland (6), over the course of about 34 years (1970 – 2003). Data were collected by means of a Webbased survey that was accessed by HR/personnel executives or their delegates (survey administration details may be found by Olivas-Luján [2003]). Our analyses were also grounded on the management information systems (MIS) literature on innovations. Prescott and Conger (1995) found it useful to use the locus of impact for the innovation as a key to classify MIS innovations; they used three loci of impact: the IS unit, intraorganizational, and interorganizational. In a similar fashion, we decided to classify the technologies under investigation into two groups depending on whether they were designed to be used by HR staff or HR’s internal customers. The former included HR functional applications, integrated
Table 1. Equations to model the number of adoptions using external, internal, and mixed influences Exponential
N(t) = m (1 – exp (–pt))
Logistic
N(t) = 1 / (1/m + c (exp (–qt)))
Gompertz
N(t) = m (exp (– c (exp (–qt))))
Bass
N(t) =m
1 – exp(–t(p + q)) 1 + (q/p) (exp(–t(p + q)))
Notes: N(t) = number of prospective adopters having acquired the technology in question at time t╯(╯0╯<╯N(t)╯<╯N(m)); m = total number of eventual adopters in the social system; c = constant; p = coefficient of external influence (i.e., factors outside the social system such as the use of media); and q = coefficient of internal influence (i.e., impact of prior adoptions in the system, often via “word of mouth” and similar mechanisms)
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HR suites, and HR Extranet applications; the latter used interactive voice response (IVR) systems, HR intranet applications, employee self-service applications, manager self-service applications, and HR portals. Our empirical results suggested that HRIT diffusion is stimulated more strongly by internal influences from the system of potential adopters than by external influences, except for the case of integrated HR suites and HR intranets, which might possibly be diffusing via company-wide efforts to standardize computer systems. Analyzing nationality subsamples (i.e., US vs. non-US respondents) did not show any meaningful differences in diffusion pattern parameters (p, q, and m) or in explanatory power (R-square for the nonlinear regressions). Analyses by primary user group (HR staff vs. internal customers) did not yield significantly different results either, thus supporting the idea that adoption of these innovations is being driven by similar stimuli.
FUTURE TRENDS Intrafirm diffusion patterns and their determinants remain enigmatic. What makes some intended users readily accept and utilize particular HRIT innovations while others in the same organization resist or reject them? At the departmental level of analysis, there is a chance that coordination between IS and HR and governance of technological innovations might make a difference in the internalization of HRITs (Olivas-Luján, 2003). At the individual or employee level of analysis, perhaps using the unified theory of acceptance and use of technology (UTAUT; Venkatesh, Morris, Davis, & Davis, 2003) or adaptations of theory of planned behavior (Ajzen & Fishbein, 2005) for technological innovations will be a useful endeavor. Differentiation between adoption and deployment is also necessary. As Fichman and Kemerer (1999) have shown for software innovations, a gap may exist between the time
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the adoption is made by an organization and the time in which it is actually deployed in a wide, profitable, and effective scale. Qualitative work on e-HRM by Ruël, Bondarouk, and Looise (2004) suggests that, at least for some firms, the promise that software-enabled process automation will lead to a more strategic approach to HRM is less immediate than cost and service cycle time reductions might be. Their study of five large European firms found that competencies hardly improved in the face of decreased administrative burdens. In a similar vein, the effects of e-HRM on staff attitudes, productivity, and other outcomes should be systematically studied. Lastly, a more heterogeneous set of countries needs to be investigated. Our empirical results were confined to a subset of nations in the Anglo cultural cluster. Diffusion dynamics may not be identical elsewhere. Numerous possibilities open as we make progress in ascertaining the effects that culture, industrial relations systems, and similar macro-evel variables have on HRIT acceptance and, ultimately, performance. Multinationals enterprises, in particular, stand to benefit from this development as they endeavor to promote HRITs throughout their international operations.
CONCLUSION The DOI paradigm offers a powerful tool to improve our understanding of the ways that HRITs are spreading within and across countries. Having summarized some of the concepts that advance more scientific inquiries into the diffusion process, we illustrated how the respective impact of external and internal influences can be assayed in the context of a cross-national study. Lastly, we outlined several ways that researchers can better inform management practice regarding the state of, and prospects for, technology-intensive, HR service-delivery around the world.
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Towers Perrin. (2003). HR on the Web: The investment is paying off. HR service delivery survey report. Retrieved September 15, 2006, from http://www.towersperrin.com/tp/getwebcachedoc?webc=HRS/ USA/2003/200310/HR_Web.pdf Venkatesh, V., Morris, M. G., Davis, G. B., & Davis, F. D. (2003). User acceptance of information technology: Toward a unified view. MIS Quarterly, 27(3), 425–478. Watson Wyatt Worldwide. (2000). O efeito net: Internet, Intranet e eHR, pesquisa conduzida no Brasil em 2000. Retrieved September 15, 2006, from http://www.watsonwyatt.com/research/ resrender.asp?id=w-421&page=1 Watson Wyatt Worldwide. (2002). B2E/eHR survey results. Retrieved March 17, 2008, from http://www.watsonwyatt.com/research/resrender. asp?id=2000861&page=1 Watson Wyatt Worldwide. (2004). 2003/2004 greater China eHR survey report. Retrieved September 15, 2006, from http://www.watsonwyatt. com/research/resrender.asp?id=E-204&page=1 Zuo, F., & Zheng, T. (2003). Sunshine behind the fog: On the current status of eHR in mainland China. IHRIM Ontario Chapter Newsletter, 2-3. Retrieved September 15, 2006, from http://www. hrmsbook.com/media/File/china.doc
KEY TERMS AND DEFINITIONS Adoption: Process by which a potential user of an innovation becomes an actual one (i.e., an adopter). It has been theorized to have a variety of influences, including characteristics of the adopter, of the innovation, and of the environment that surrounds the system of potential adopters. Compatibility: An innovation characteristic that deals with how the innovation is perceived as congruent with the existing needs, past history,
The Diffusion of HRITs Across English-Speaking Countries
and current priorities of the potential adopter. The greater it is, the faster the innovation is expected to be adopted. Complexity: An innovation characteristic that is the degree to which the innovation is perceived be complicated or difficult to understand and use. The greater this characteristic is, the slower the innovation is expected to be adopted. Diffusion: It is the process of dissemination or transmission of a certain idea, process, or product among potential adopters or users. Innovation: Something new, original, or fresh that had not been used previously. An idea that may take the form of a product (material objects or devices like a computer or a software package)
or a process (a sequence of steps like a production line or a business model). Observability: This attribute of the innovation is the extent to which the benefits of adoption are identifiable. Relative Advantage: An innovation characteristic that refers to adopters’ belief that the innovation is better than the way things were done before it was embraced. The greater it is, the faster the innovation is expected to be adopted. Trialability: This innovation characteristic is the possibility to experience or witness the adoption of the innovation before actually taking it up. The greater it is, the faster the innovation is expected to be adopted.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 242-247, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.8
The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales Lyndon Murphy University of Wales Newport, UK Joanna Jones University of Wales Newport, UK Huw Swayne University of Glamorgan, UK Brychan Thomas University of Glamorgan, UK
ABSTRACT This chapter depicts the current findings of an ongoing longitudinal study pertaining to e-business and the graphic design industry. The research problem can be described as identifying the extent of engagement by graphic designers with e-business. The location of the study is Industrial South Wales: Cardiff, Newport, Swansea and the South Wales Valleys with the particular focus beDOI: 10.4018/978-1-60960-587-2.ch408
ing Small and Medium Size Enterprises (SMEs). For the purpose of the study, the European Commission definitions relating to SMEs have been utilised (last revised 2005).
INTRODUCTION This chapter depicts the current findings of an ongoing longitudinal study pertaining to e-business and the graphic design industry. The research problem can be described as being: to identify the
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
extent of engagement by graphic designers with e-business. The location of the study is Industrial South Wales: Cardiff, Newport, Swansea and the South Wales Valleys with the particular focus being Small and Medium Size Enterprises (SMEs). For the purpose of the study, the European Commission definitions relating to SMEs have been utilised (last revised 2005), that is: •
•
•
Medium sized enterprises: Employs fewer than 250 persons and whose annual turnover or balance sheet total does not exceed 50 million euro Small enterprises: Employs fewer than 50 persons and whose annual turnover or annual balance sheet total does not exceed 10 million euro Micro enterprises: Employs fewer than 10 persons and whose annual turnover or annual balance sheet total does not exceed 2 million euro.
Additionally, it should be noted that the European Commission definition also requires that the enterprises are classed as autonomous. Since this study commenced in 2001 there has been much academic debate concerning the definitions of, and boundaries between, e-business and e-commerce. For example, in 2000, Turban, Lee, King & Chung considered the term e-commerce and e-business to be broadly equivalent whilst other commentators (Amor 2000; Siegel 1999) believed that e-commerce encompassed a much narrower range of activities than e-business, such as monetary transactions and marketing. It could be argued that not only has this view of e-commerce as a subset of e-business prevailed in text books (e.g. Chaffey 2006; Jelassi & Enders 2008), but also it has proved to be a convenient classification allowing the natural inclusion of subsequent emerging subsets such as m-commerce. Therefore, for the purpose of this chapter, e-commerce is considered to be a constituent element under the umbrella of e-business; with the definition
of e-business being taken from Jelassi & Enders (2008) as ‘the use of electronic means to conduct an organisation’s business internally and/ or externally’. (p 4). This definition can be seen to have evolved from those initially utilised by IBM and UK government agencies; being wide enough to incorporate ICT which is not necessarily internet based. However, it is acknowledged that even in 2008 some authors are still embracing much wider definitions of e-commerce; thus perpetuating the blur between e-business and e-commerce. For example, Hultman & Eriksson (2008) in their study relating to balancing acts in SME e-commerce development, use the broad and early definition of e-commerce devised by Poon & Swatman (1999); ‘the sharing of business information, maintaining business relationships and conducting business transactions by means of internet-based technologies.’ (p. 477). Regardless of definitions, it is an undeniable fact that in the 21st century e-business activities have had a far reaching affect upon commercial organisations, government agencies and consumers. However, there are definite indications that smaller businesses have not embraced or benefited from e-business activities to the same extent as their larger counterparts. In fact, during the course of this study, there was evidence that some small businesses in the UK, having initially embraced e-commerce, were “clicking off”. For instance, micro business connectivity fell from 62% in 2001 to 45% in 2003; and small business connectivity fell from 77% in 2001 to 45% in 2003 (DTI, 2003). Despite subsequent improvements in these numbers, more recent figures published by the European Commission (2006) demonstrate that there is no doubt that SMEs in Europe have a lower propensity to adopt e-business activities than larger enterprises. Table 1 summarises data collected for eBusiness W@tch in 2006. The values for the largest enterprises have been normalised to 100 and compared to the results for micro, small and medium enterprises.
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The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
Table 1. E-business index and sub indexes (eBusiness W@tch 2006) micro
small
medium
large
ICT Network
41
60
84
100
e-integration of internal processes
23
39
56
100
e-procurement and supply chain integration
34
43
56
100
e-marketing and sales
40
54
67
100
e-business index
34
49
66
100
Similarly, a 2007 e-commerce survey of UK business (ONS, 2008), confirmed that smaller businesses were less likely to utilise information communication technologies. For example in 2007, of businesses with more than 250 employees, 95.9% had established a website, 80.8% used the internet to interact with public authorities, 67.6% possessed an intranet and 98.6% had a broadband connection: in direct comparison to small businesses where 66.1% had established a website, 57.2% used the internet to interact with public authorities, 17.7% possessed an intranet and 78.8% had a broadband connection. Hultman and Eriksson (2008) emphasised the benefits of longitudinal research when studying SMEs, explaining that much previous research had focussed upon one-off decisions, rather than exploring dilemmas that only occur over time. In this context, the chapter aims to monitor and evaluate longitudinal developments in graphic design SMEs based in South Wales. Graphic design businesses in South Wales have typically relied upon a staple diet of print-based publicity and packaging material for businesses in a range of sectors. Output varies from producing logos/symbols and associated printed matter such as leaflets, brochures, and annual reports, to magazines, newsletters and paper packaging solutions.
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However, much has been written about the ‘death’ of print and its replacement by web, internet and interactive media. While new technology and the ensuing lower origination and print costs have resulted in the continued proliferation of magazines and newspapers, the increasing presence of online services which duplicate mainstream printed communication is increasingly being felt. Giffen (2005) evaluated the ‘agony and the ecstasy’ of the move to digital design and bemoaned that ‘at one time the technical process of what designers did was mysterious and complex to outsiders – something that was worth paying for.’ (p. 14). This view was shared by Furneaux (2004) who observed that multimedia tools have lead to a situation where anyone can call themselves a designer, but it is the value of the thinking behind the design message that matters; thus leading to an identity crisis for some graphic designers. During the course of this study, it could be argued that few industries have seen such dramatic consequences of ICT, than graphic design. Perhaps, the best evidence of this was the 2006 name change of the American Institute of Graphic Arts (AIGA). The AIGA had used this name since 1914, but had become concerned that the title, particularly the word ‘graphic’ did not best describe the wide range of activities (including multimedia) that its members practiced; thus the name was changed to The Professional Association for Design.
SME E-BUSINESS ADOPTION: DRIVERS AND INHIBITORS Previously in this chapter, it was evidenced that SMEs are less likely to fully embrace e-business, when compared to larger enterprises; although, as will be discussed later in this chapter, graphic design SMEs in South Wales can be seen to counter this trend. Existing research relating to SME e-commerce may help to illuminate this adoption phenomenon.
The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
Chwelos, Benbasat and Dexter (2001), when testing EDI adoption in SMEs, ascertained that there were three main factors that influenced propensity to adopt: perceived benefits, organisational readiness and external pressure. Similarly, Stockdale and Standing (2006), when devising a classification model to support SME adoption initiatives, devised an “issue” framework which was based upon previous literature. This framework included such issues as: industry sectors and relationships; expectations and realisations of benefits; external factors; technology factors; lack of knowledge and resources. It is, perhaps, unsurprising that perceived benefits is an important factor for SMEs, particularly as in most ‘capital resources as well as intangible assets, such as knowledge, expertise and time are scarce.’ (Pool, Parnell, Spillan, Carraher & Lester 2006, p104). Whereas, in the case of graphic design SMEs, external pressure / industry sectors and relationships can be seen as a key impetus to e-business adoption. The degree of ICT adoption of both customers and suppliers has inevitably impacted and perhaps even exerted pressure upon graphic design enterprises when deciding whether to adopt e-business activities. However, it should be noted that previous research (Stockdale and Standing 2003; Mehrtens, Cragg and Mills 2001) indicates that pressure is more likely to come from customers than from suppliers. One facet of the technological barriers for SMEs was initially seen to be relating to connectivity and the digital divide. (Swatman 2000). The Stockdale and Standing research (2006) confirmed that this remains a major issue with respondents being concerned regarding ‘connectivity and the ability to access the internet at all times at a reasonable cost.’ (p 389.) In the UK, dial up connectivity has been available in most areas since the mid 1990s, mainly on the back of pre-existing telephone networks. However, as Galloway and Mochrie (2005) noted, the telephone wire dial up is no longer appropriate for the volume and sophistication of many business based e-business activities. There
is an argument that this connectivity issue may be a contributing factor to the lower take-up of e-business solutions by SMEs already discussed in this chapter. However, it should be noted that other researchers (Caskey & Subirana 2007) believe that lack of ICT usage in rural SMEs is a psychological or perception issue rather than a connectivity one. Furthermore, the UK Office of Communications - OFCOM (2007) reported that in Wales, rural areas lag urban areas in terms of take up of communication services such as Broadband and 3G mobile. Interestingly OFCOM also reported that perceived service ability was also lower in rural areas of Wales, when compared to urban areas. Nevertheless, it is indubitable that both broadband and mobile take-up in Wales based SMEs is considerably lower than other parts of the UK, that is, 47% having broadband access and 46% mobile access. Resulting from the inherent industry forces, it will be seen that most graphic design SMEs have adopted e-business activities. However, that is just the beginning of the journey. Hultman and Eriksson (2008) identified three post adoption dilemmas for SMEs that had adopted e-business initiatives: e-commerce capacity and competence development – outsourcing or finding e-commerce competence in house; e-commerce scope – finding the balance in the use of on and offline communication; and e-commerce development drive- relying on a market driven or an internal, resource driven development. (p. 494) These post adoption dilemmas can be seen to be particularly relevant to graphic design SMEs and will help in the appraisal of why initial adoption of e-business activities may not necessarily mean continued use of the medium (Simmons, Durkin, McGowan & Armstrong 2007).
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The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
Research Methods The survey undertaken was of the graphic design firms in South Wales: Cardiff, Newport, Swansea and the South Wales Valleys. The firms surveyed were sourced from the Chartered Society of Designers database, and Design Wales: The Welsh Design Advisory Service and the Yell.com webbased directory. All graphic design businesses listed in the aforementioned ‘directories’ were included in the survey. The population of firms included in the survey was 142 in 2003 and 199 in 2008. To collect the data, a structured questionnaire was employed. The questionnaire rationale was to ascertain the degree to which traditional print-based graphic design firms are engaging in “new media” work, and what effect that work has and will have on the nature of their business, and the type of employees required for business development. The initial survey during 2003 was undertaken by post, of the returns a 23% were complete and able to be analysed. The second survey undertaken during 2008 was distributed by email, of the returns a 20% were complete and able to be analysed.
Findings Description of Sample The questionnaire introductory section produced several primary sample statistics. Graphic design businesses with between 1-9 employees accounted for 45% (2003), 60% (2008) of respondents, whilst businesses with between 10-49 employees accounted for 55% (2003), and 40% of the responses received in 2008. The larger business size categories recorded a nil response. The response to the questionnaire, revealed quite an even spread of data relating to the length of time the graphic
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Table 2. Length of time business has been established
Less than18 months 18 months – 3 years 3 – 5 years 5 – 10 years 10 – 20 years
How many years has your business been established? (2003)
How many years has your business been established? (2008)
22.2% 22.2% 33.3% 22.2%
25.0% 35.0% 40.0%
design businesses had been established – as may be seen in Table 2. Turnover was also explored in the questionnaire. The volume of turnover for the past year varied from £150,000 to £1.6 million with a mean of £774,000 (2003). A greater variance was experienced in the 2008 survey from £56,000 to £1.7 million (mean £475,200). Both survey samples may be described as having representatives from the two main graphic design organizational size categories. However, both samples may have been more representative, if graphic design firms with less than 18 months experience were among the questionnaire respondents. In terms of turnover data, all respondents in 2003 and most respondents in 2008 are currently experiencing growth in turnover (at date of response). Further, descriptive elements of the questionnaire probe, into the business use of ICT. As may be seen in Table 3, 79% of respondents considered internet usage to be essential and 88% of respondents consider email usage to be essential (2003). Predictably the 2008 survey recorded internet and email usage to be essential. This is indicative of greater stakeholder usage of email. Further, there is evidence to suggest that the contract approval process is made more efficient and effective. This is achieved via the transmission of draft work to and from the graphic designers’ clients.
The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
Table 3. ICT usage Would you consider internet usage to be:
Percentage Response 2003
Percentage Response 2008
78.8 21.2 -
100.0
87.9 12.1
100.0
Essential Useful Unnecessary Would you consider email usage to be: Essential Useful Unnecessary
MEASURING THE ‘KNOCK–ON’ EFFECT There are a number of potential methods of measuring the ‘knock-on’ effect. For instance, the ‘knock-on’ effect upon workload, recruitment, and expenditure on technology will be explored. The location for the undertaking of web/interactive contracts is of interest to both workload and recruitment issues. 21% (2003 survey), 20% (2008 survey) of respondents stated web/interactive contracts were handled entirely in house. See Tables 4. This compares to 78% (2003 survey), 80% (2008 survey) employing a mix of in-house and contracted-out solutions. Of the businesses using a ‘mixture’, 71% stated, recruiting staff in website design was difficult (2003 survey). All of the business respondents expressed the wish to expand their in-house website design capability in the future (2003 survey). However, given the ‘difficulty’ in recruiting such staff this may have proved to be problematic. It appears that although
graphic design firms still wish to undertake website design in-house (2008 survey) they are still experiencing recruitment difficulties. It should be noted there may be other issues prohibiting in-house website design capability (although 20% respondents during 2008 considered recruiting website designers to be easy); namely, financial constraints, prohibitive operational scale and workload proportion of web-based activity. The 2003 survey reveals the skill areas most difficult to recruit in are website design (57%), interactive design (67%) and audiovisual design (76%). A stark contrast may be found with more traditional skills. For example, when asked how difficult it is to recruit staff in print based design only 9% of firms considered recruiting staff with these skills to be difficult. This matter was also scrutinized by size of organization (number of employees). When asked to comment upon the ease with which new staff are recruited. All respondents in the size category 1-9 employees stated they had difficulty recruiting staff with website design skills. This result contrasts with the data for recruitment of ‘print based staff’. Businesses in the 1-9 employees category consider that it is ‘moderately easy’ to recruit staff with print based skills. A slightly different synopsis is an outcome of the larger businesses (1049 employees) response. The larger businesses consider employing print-based staff to be more difficult than smaller organizations. Businesses in the 10-49 employment category consider recruiting website designers slightly easier than their smaller counterparts. Given the ‘difficulty’ rating of recruiting individuals with web/interac-
Table 4. Recruitment How difficult is it to recruit staff – print based design Easy Moderately Easy Mod. Difficult Difficult
2003 57.5% 33.3% 9.2%
2008 57.5% 42.5%
How difficult is it to recruit staff – website design 2003 45.5% 54.5%
2008 20.0% 37.5% 42.5%
How difficult is it to recruit staff – interactive design 2003 33.3% 66.7%
2008 17.5% 82.5%
How difficult is it to recruit staff – audio visual design 2003 24.2% 75.8%
2008 10.0% 77.5% 12.5%
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The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
tive skills, the desire to complete web contracts in-house may not be realised by some firms for some time. The 2008 survey indicates changes in the skill base of graphic designers. Of the skills that were difficult to recruit in 2003 only print-based design remains in this category. Others, such as website design and audio visual design, are recording scores in the easy to recruit category. This is likely to be the case given the evolution of graphic design education and training. UK based graphic design education and training programmes have responded to the e-business challenge and have equipped graphic designers with e-business related knowledge and skills. However, traditional skills such as print-based design are becoming increasingly difficult to recruit. This may be a further reflection of changes in the graphic design education and training programmes. The recruitment trends indicated by business size in the 2003 survey are not indistinguishable in 2008. Business size does not seem to be a factor influencing recruitment of specific sector related skills (see Table 5).
Both 2003 and 2008 survey responses reveal several developments in graphic design workload activity distribution. All of the questionnaires returned both identified and forecasted a reduction in requests for the traditional staple diet of graphic design – corporate identity contracts. The 2003 mean data revealed, five years ago 43.3% (standard deviation 5.8) of a graphic designer’s workload had a corporate identity core. However, when asked to forecast the proportion of corporate identity work to be undertaken in two years time, the mean response was 30% (standard deviation 5.9). This result is in stark contrast to the 2008 survey, where corporate identity five years ago only scored a mean of 7.5% and in the two years from now category a mean of 3.5%. Clearly the 2003 survey forecasted trend of shrinkage in corporate identity work has been confirmed in the 2008 survey. This development is likely to have been initiated by the graphic designers’ clients’ customers. Our research reveals that the derived demand for graphic designers’ work has evolved and is now far more likely to require an e-business input.
Table 5. Longitudinal workload developments 2003
2008
Mean
Standard Deviation
Mean
Standard Deviation
What percentage of your work is/was in Corporate Identity – 5 years ago?
43.3
5.8
7.5
2.3
What percentage of your work is/was in Corporate Identity – 2 years ago?
38.1
6.5
5.0
2.8
What percentage of your work is/was in Corporate Identity – Today?
36.3
7.4
4.8
1.4
What percentage of your work is/was in Corporate Identity – 2 years from now?
30.0
5.9
3.5
1.1
What percentage of your work is/was in Website Design – 5 years ago?
-
-
72.5
9.8
What percentage of your work is/was in Website Design – 2 years ago?
15.0
7.1
77.8
7.6
What percentage of your work is/was in Website Design – Today?
20.6
7.8
85.0
8.1
What percentage of your work is/was in Website Design – 2 years from now?
31.9
3.7
82.5
8.8
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The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
A counter trend manifests itself when investigating the importance of website design to graphic design firms. The 2003 survey reveals that in the five years ago category it would appear website design work was non-existent as a function of graphic design. However, the mean data discloses an expeditious growth in website design activities. The percentage of website design work undertaken two years ago was 15% (standard deviation 7.1). The mean figure forecasted two years from now was 31.9% (standard deviation 3.7). The growth in website design forecast in 2003 arguably understated the actual growth. The 2008 figures reveal a greater proportion of website design activity than forecast in 2003. In 2008 the website design score in the five years ago category of 72.5% is indicative of a dramatic shift in workload. However, the growth in website design activity has continued to the present day. In the two years from now category, there is a predicted decline in website design activity. This potential phenomenon may be explained by several respondents stating that requests for newer technological developments such as Bluetooth, touch screen kiosks and mobile applications are becoming increasingly common. The 2008 survey indicates that in two years time up to 10% of workload could be in the newer technologies. In continuation, the work of Balocco, Mogre and Toletti (2009) highlight the positive outcomes of introducing mobile applications to SMEs. If a greater number of SMEs take advantage of mobile applications then graphic designers’ workload could again be reconfigured. The questionnaire responses mapping activity developments are noted in Table 5 and illustrated in Figure 1. When investigating the ‘knock-on’ effect of e-commerce upon the graphic design industry it is worth considering the follow-up or after sales service element of website contracts. The issue of maintenance and up-date of websites was raised with graphic designers. The response revealed a clear trend, with 55.6% (22% in 2008) of respondents stating that ‘most’ of their clients requested
Figure 1. Longitudinal workload developments
quarterly maintenance and up-date of their website. The monthly figure falls to 33.3% (41% in 2008) requesting maintenance and up-date of their website. However, a nil response was recorded for the ‘most’ category when weekly maintenance and up-date were explored. The 2003 data may have led us to believe that if the future ‘knock-on’ effect were to be considered, the challenge posed by website ‘after-care’ may be dramatic. However, the knock-on effect of after sales service has not been identified as an issue (in 2008), even though the volume of website design work has increased substantially. The 2003 forecast of after sale service challenges may not have materialised because of the comparative ease with which website designers may be recruited.
CONCLUSION One of the leading practitioners in e-commerce education and training Mendleson (2000) holds the opinion that e-commerce cannot be separated from traditional commerce. If this is so, given our research findings graphic designers will continue to work with new media but in a commercial environment with a traditional culture. This proposition is not universally held. Others such as Amor (2000) consider e-commerce as the germination of a sustainable shift in the culture of trade. Romm
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The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
and Sudweeks (1998) share the revolutionary vision of Amor. They note the asteroid like impact e-commerce is having on upon business. The work of Siegel (1999) may be considered of particular interest to graphic designers. He refers to the term e-cancer used to encase a host of website negatives. His position in relation to business use of e-commerce has opportunities for graphic designers to add value. He continues by referring to business treating the web as a trade show. This view may provide graphic designers with an opportunity to supply value-added services of creativity in customer focused website design. The 2008 survey results concur with the views of Stockdale and Standing (2003) and Mehrtens, Cragg and Mills (2001). Namely e-business developments are driven by customers rather than suppliers. Indeed, responses to questions exploring e-business activity drivers identify customers as having the most influence in the extent of e-business adoption amongst graphic design SMEs. The responses also suggest technological advances such as Bluetooth, touch screen kiosks and mobile applications are extending connectivity B-2-B and B-2-C. To more fully exploit such technology customers are co-demanding graphic design output. Therefore to optimize e-business related outcomes it is incumbent on graphic design SMEs to be customer led. Another feature of e-business optimisation to be considered by graphic designers is that of recruiting individuals with e-business related skills sets. Research outcomes suggest that graphic designers are actively engaging with both educators and trainers. This is especially true of graphic designers’ relationships with Higher Education Institutions. Respondents frequently described the active role they play in higher education. Citing examples such as involvement in the assessment of student graphic design projects, attending and evaluating exhibitions of students work and networking with university staff at professional body events.
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Given Amor’s (2000) proposition, businesses are moving from phase to phase in the e-commerce – e-business evolutionary path. The contribution made by graphic designers has evolved. The survey reveals that trenchant behaviour is not a hallmark of the graphic design industry. However, recruitment and training strategies may have to correlate with the evolution of e-business. There is evidence from our research that graphic designers are managing the evolution of e-business moving to a development phase characterised by mobile applications. Arguably, technological developments may be described as a pseudo customer. In other words technological advances appear to co-demand (in conjunction with business customers) a response from the graphic design industry. Technological developments have been identified by graphic designers and their customers as a factor affecting e-business activity. Therefore, not only do graphic designers need to monitor technology usage/need amongst their customer base but also maintain the currency of their own technology usage. Further, to achieve optimisation, graphic design SMEs need to monitor and maintain an appropriate e-business focused skill set amongst its employees. The implication may be, as considered by Furneaux (2004) and Giffen (2005) that graphic designers may increasingly lament the passing of traditional graphic design qualities and skills. The e-commerce challenge facing the graphic design industry in South Wales may be summarized by Weisman (2000) referring to the opportunities and threats posed by e-business evolution. The degree of proactivity found in the graphic design industry will dictate whether or not they will be able to survive the turbulence of e-business evolution. It may be stated that to thrive in the e-business environment graphic design SMEs are required to actively engage with customers, technology and network with both trainers and educators. Given the changes in e-business activity identified between 2003 and 2008 it is clear that to at least maintain business survival/
The ‘Knock-on’ Effect of E-Business upon Graphic Design SMEs in South Wales
growth expectations graphic design SMEs need to closely monitor the market, technology and education providers. The 2008 survey arguably indicates that the graphic design industry (with the support of education and training providers) is riding the e-business cyclone.
LIMITATIONS OF THE STUDY AND FUTURE RESEARCH This research project although a longitudinal study remains a ‘snap shot’ of a dynamic industry. Graphic design SMEs are arguably in the vanguard of e-business change/development. As a consequence an e-business related study of the industry necessitates continuous monitoring. Additionally, in the context of e-business, given the ease with which graphic design SMEs may be established (a laptop computer and an internet connection), the number of graphic design SMEs in the industry changes frequently. Clearly as identified in the research limitations, there is a need for continuous monitoring of ebusiness activity in the graphic design industry. It is proposed that future research will focus upon exploring the on-going impact e-business is having on graphic design SMEs.
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Hultman, J., & Eriksson, L. T. (2008). The balancing acts in SME e-commerce development: A multiple case study. Journal of Electronic Business, 6(5), 476–497. doi:10.1504/IJEB.2008.021183
Poon, S., & Swatman, P. M. C. (1999). An exploratory study of small business internet commerce issues. Information & Management, 35(1), 9–18. doi:10.1016/S0378-7206(98)00079-2
Jelassi, T., & Enders, A. (2008). Strategies for ebusiness- creating value through electronic and mobile commerce (2nd Ed.). London: Prentice Hall.
Raymond, L., & Bergeron, F. (2008). Enabling the business strategy of SMEs through e-business capabilities: A strategic alignment perspective. Industrial Management & Data Systems, 108(5), 577–595. doi:10.1108/02635570810876723
Lin, C., Huang, Y., & Tseng, S. (2007). A study of planning and implementation stages in ecommerce adoption and evaluation: A case of Australian SMEs. Contemporary Management Research, 3(1), 83–100. Mehrtens, J., Cragg, P. B., & Mills, A. (2001). A model of internet adoption by SMEs. Information & Management, 39(3), 165–176. doi:10.1016/ S0378-7206(01)00086-6 Murphy, L., Thomas, B., Swayne, H., Metcalfe, R., & Jones, J. (2007). An exploration of the skill and competence issues of an e-business directed graphic design industry. International Journal of E-business Management, 1(1), 22–36. doi:10.3316/IJEBM0101022 Ofcom. (2007). The communications market 2007 – Nations and regions, Wales. Office for National Statistics. (2008). E-commerce and ICT Activity: 2007 e-commerce survey of business. Pool, P. W., Parnell, J. A., Spillan, J. E., Carraher, S., & Lester, D. L. (2006). Are SMEs meeting the challenge of integrating e-commerce into their businesses? A review of the development, challenges and opportunities. International Journal of Information Technology and Management, 5(2/3), 97–113.
Romm, C. T., & Sudweeks, F. (Eds.). (1998) Doing business electronically. London: Springer. Siegel, D. (1999). Futurize your enterprise: Business strategy in the age of the e-customer. New York: Wiley. Simmons, G. J., Durkin, M. G., McGowan, P., & Armstrong, G. A. (2007). Determinants of internet adoption by SME agri-food companies. Journal of Small Business and Enterprise Development, 14(4), 620–640. doi:10.1108/14626000710832730 Stockdale, R., & Standing, C. (2003). The effect of B2B online reverse auctions on buyer-supplier relationships. In Proceedings of the 14th Australian Conference on Information Systems, Perth, Australia Stockdale, R., & Standing, C. (2006). A classification model to support SME e-commerce adoption initiatives. Journal of Small Business and Enterprise Development, 13(3), 381–394. doi:10.1108/14626000610680262 Swatman, P. (2000). Internet for SMEs: a new skill road? International Trade Forum, 3, 22–24. Turban, E., & Lee, J. King, D., & Chung, H.M. (2000). Electronic commerce - a managerial perspective. Uppder Saddle River, NJ: Prentice Hall. Vienne, V. (2007). Strong words. Print, 61(2), 26–27.
This work was previously published in E-Commerce Adoption and Small Business in the Global Marketplace: Tools for Optimization, edited by Brychan Thomas and Geoff Simmons, pp. 208-219, copyright 2010 by Business Science Reference (an imprint of IGI Global). 994
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Chapter 4.9
“eSME Slovenia:”
Initiative and Action Plan for the Accelerated Introduction of E-Business in SMEs Andreja Pucihar University of Maribor, Slovenia Gregor Lenart University of Maribor, Slovenia
ABSTRACT This chapter introduces e-strategies, initiatives and action planes in the European Union intended for the successful implementation of the Lisbon Strategy, according to which Europe should become the most competitive and dynamic society based on knowledge by 2010. These strategies are the baseline for the national policies, strategies and initiatives in every European Union country. The chapter presents policies, legislation environDOI: 10.4018/978-1-60960-587-2.ch409
ment and initiatives being adopted in Slovenia. Moreover, data about e-business development in Slovenia is also presented. As in other EU countries, it is evident that SMEs are generally lagging behind large organizations as far as the adoption and usage of e-commerce is concerned. The situation was a background for the preparation of the eSMEs Slovenia initiative and action plan to accelerate e-business introduction and adoption in SMEs. The initiative and action plan consist of 12 actions, which are elaborated in this chapter. The initiative was supported by the ministers of
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the Ministry of Higher Education and Technology, the Ministry of Public Administration, the Ministry of Economy, the Ministry of Finance, the Ministry of Economic Growth and Development and other involved institutions. Thus, the initiative presents an important framework for the further uptake of e-business adoption by SMEs. The chapter is concluded by a summary of the chapter’s main contributions.
INTRODUCTION Presently, companies are faced with a rapidly changing business environment with raised customer expectations in expanded markets with increased competition. This increases the pressure on companies to change their existing business practices and procedures to achieve lower total costs of operation in the entire supply chain (Umble et al., 2003; Jafari et al., 2006) and efficiently coordinate business operations in global markets. Successful adoption and implementation of information and communication technologies (ICT) enables companies to actively and efficiently participate in local, regional and global markets. E-commerce, defined as the buying and selling of information, products, and services via computer networks, including servicing customers, collaboration with business partners and conducting of electronic transactions (Turban et al., 2008; Kartiwi and MacGregor, 2007; Kalakota and Whinston, 1997) is radically changing the dynamics of the business environment and the way in which people and organizations are conducting business with one another. For SMEs, e-commerce has the potential to become a source of competitive advantage. E-commerce is a cost effective way of accessing customers globally and competing equally with large businesses (Kartiwi and MacGregor, 2007). Although SMEs are generally considered to be flexible, adaptive and innovative (Rao, et al., 2003) and thus have more ability to respond to
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the new opportunities and innovations than larger enterprises (Lomerson et al., 2004), various studies have reported that SMEs are generally lagging behind large organizations as far as the adoption and usage of e-commerce is concerned (Eleftheriadou, 2008; Kartiwi and MacGregor, 2007; Levy et. al., 2005; Levenburg, 2005; Chitura, 2008; Riquelme, 2002). This is becoming a serious issue since SMEs make up the backbone of the European economy. Across the EU, there are around 23 million SMEs; i.e. 99% of all enterprises (Eleftheriadou, 2008; European Commission, 2008; European Commission, 2002). SMEs account for about 75 million jobs. Moreover, in some key industries, such as textiles, construction and furniture-making, they account for as much as 80% of all jobs. They are, therefore, the generators of dynamic and economic growth (Eleftheriadou, 2008; European Commission, 2008). SMEs are not simply scaled-down large businesses. They have special characteristics that distinguish them from large businesses. Although size is a major distinguishing factor, SMEs also differ from large companies in important ways affecting their ICT adoption (Bouanno et al., 2005, Ramdani and Kawalek, 2009). Many SMEs report practical difficulties in adoption of e-business. SMEs often lack of inadequate levels of technical expertise, a lack of managerial resources, a lack of financial resources for ICT investments and a lack of awareness about possible benefits of ICT usage (Pucihar et al., 2009, Kartiwi and MacGregor, 2007, MacGregor and Vrazalic, 2005, Cragg and King, 1993). Many SMEs also consider a lack of trust and confidence as barriers to their engagement in B2B e-business (European Commission, DG Enterprise and Industry, 2008a). In contrast, the perceived benefits, organisational readiness, and external pressure seem to be major drivers for ICT adoption (Mehrtens et al., 2001). Past experience has indicated that currently obstacles or incentives for a broader use of e-business are especially dependent on the standard commercial
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practices, business environment as well as the state examples and incentives. In this challenging race of competitiveness and excellence, where new technologies and innovation play a central role, SMEs cannot afford to be left behind. For this reason, more and more governments around the world have been seeking opportunities to promote ICT and e-business models as a way of enhancing the competitiveness of their SMEs (Eleftheriadou, 2008). Governments in many countries have established intervention projects and offer financial incentives to encourage SMEs to adopt the internet and subsequently to develop e-commerce systems that will enable them to trade more effectively with business partners (Levy et al 2005, Zhu et al. 2003; Stansfield and Grant, 2003; Chitura, 2008). EU efforts for the implementation of the Lisbon Strategy, according to which Europe should become the most competitive and dynamic society based on knowledge by 2010, are largely also based on building an environment that will stimulate growth and performance of SMEs. In this direction the EU has identified numerous challenges that SMEs encounter and made numerous guidelines and action plans. Several strategic documents have been launched in this direction: Lisbon Strategy 2000, eEurope 2002, eEurope 2005, i2010 and Helsinki Manifest 2006 - “The Helsinki Manifesto - We have to move fast before it is too late”. Each European country strives to achieve the Lisbon strategy goals and tries to provide the supporting environment that will help to achieve these goals. The Government of the Republic of Slovenia has launched the strategic document “si2010” with an action plan for the faster and better development of Information Society in Slovenia. The document provides technological, societal and regulative frameworks for the full development of Information Society. Faster e-business implementation in SME sector is one of the strategic goals of this strategic document (Government of the Republic of Slovenia, 2007).
In Slovenia, a country with no more than two million citizens, 96.2% of enterprises are micro or small enterprises in which 45.0% of employees are employed. In the less than 1% of Slovenian enterprises that are ranked among large enterprises, one third of employees are employed (SURS – Statistični urad Republike Slovenije, 2007). In spite of this, many SMEs still operate mostly on local markets based on traditional paper-based commerce. All of these companies need support, education and training to better understand and adopt e-business advantages. With broader adoption of e-business, SMEs would be able to simplify their business processes, lower operational costs, accelerate productivity and achieve equal position on national, European and global markets. Slovenia has implemented legislation on e-business, e-signatures and the protection of documentary and archive materials and archives, has achieved a 91% rate of electronic payment transactions and established national standards for electronic document exchange (e-Slog). This is the groundwork for the broader uptake of ebusiness in companies that need incentives from the environment and the state. The situation shows several opportunities for accelerated introduction and implementation of e-business for SMEs. For these purposes, appropriate IT solutions, awareness creating, advanced training and consulting is needed. Considering the situation, the “eSMEs Initiative and Action plan” for the broader adoption of e-business to SMEs has been prepared by representatives from IT industry, government institutions and universities in Slovenia. It represents the initiative to all actors in Slovenia that could contribute to the faster introduction, training and adoption of new ICT solutions and e-business in SMEs. The “eSMEs Initiative” proposes an action plan for ICT and e-solutions providers, larger organizations, universities, chambers of commerce and industry, chambers of crafts, technological platforms, supporting SMEs environment (such
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as regional development agencies) and government institutions. The section further presents e-strategies, initiatives and action plans in EU and Slovenian e-strategies, initiatives and implementation related to policy making and umbrella e-strategies, e-business legislation environment and infrastructure and usage. Further on, developing e-strategies for SMEs are presented with adoption of national standards for e-commerce, eSME initiative and activities and status of e-SMEs initiatives.
E-STRATEGIES, INITIATIVES AND ACTIONS PLANS IN EU In March 2000, the Lisbon European Council summit issued a new strategic goal for the Europe for the next decade: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. The target date for achieving these goals was set at 2010. Achieving this goal requires an overall strategy aimed at (European Parliament, 2000): •
•
•
preparing the transition to a knowledgebased economy and society with better policies for the information society and R&D, as well as by stepping up the process of structural reform for competitiveness and innovation and by completing the internal market; modernizing the European social model, investing in people and combating social exclusion; sustaining a healthy economic outlook and favourable growth prospects by applying an appropriate macro-economic policy mix.
Implementing this strategy will be achieved by improving the existing processes, introducing a new open method of coordination at all levels,
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coupled with a stronger guiding and coordinating role for the European Council to ensure more coherent strategic direction and effective monitoring of progress. The Lisbon Council agreed that progress should be evaluated at the spring meetings of the European Council of Heads of State or Government. Since then, every spring the European Council has discussed matters associated with the Lisbon process, evaluated the progress made by the European Union and the Member States and decided on further measures to be taken. European Commission reports form the basis for the analysis and for setting priorities (European Council, 2008). For example, during the Finish presidency of EU in the second half of 2006, the Helsinki Manifesto was launched. The manifesto emphasized that new, concrete measures are needed for turning the Lisbon Strategy into a living reality and making Europe more competitive and innovative in a human-centred way. The following initiatives were launched: opening EU-wide procurement of R&D for innovation within public services, opening EU-wide procurement of R&D for innovation within public services, the European Network of Living Labs as a way to enhance European innovativeness, increasing interoperability and creating EU-wide standards and eServices, setting up a Strategic Task Force over the Presidencies in 2007-2008, the horizontal programme within the 7th Framework programme for EU-wide knowledge-intensive service society development and enabling working environments (Finland EU presidency, 2006). During Slovenia’s EU presidency in first half of 2008, in respect of the four pillars or main strands of the Lisbon Strategy, the emphases were as follows (Slovenia EU presidency, 2008): •
Member States should strive to adopt measures to promote creativity and enterprise with a view to making Europe the most creative environment in the world;
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•
•
•
Europe’s economic and social development should centre upon its cultural heritage and richness; investment in human resources and framing measures to ensure flexicurity are of crucial importance for Europe; environmental policy should be highlighted as a key force driving innovation and economic growth.
The i2010 strategy, launched on 1 June 2005, was the first coherent policy framework for the era of convergent telecommunication and media services. The i2010 strategy brings together all European Union policies, initiatives and actions that aim to boost the development and the use of digital technologies in everyday working and private life. These technologies – also known as information and communication technologies (ICT) – make a positive contribution to economic growth, job creation and the enhancement of the quality of life. i2010 is part of the Lisbon strategy to make Europe a more competitive and dynamic knowledge-driven economy (European Commission, DG Information Society and Media, 2008). i2010 aims to establish a European information space, i.e. a true single market for the digital economy so as to exploit fully the economies of scale offered by Europe’s 500 million strong consumer market; reinforce innovation and investment in ICT research, given that ICTs are a principle driver of the economy; and promote inclusion, public services and quality of life, i.e. extending the European values of inclusion and quality of life to the information society (European Commission, DG Information Society and Media, 2008). Another accelerator of Lisbon strategy adoption was the eEurope 2005 Action Plan that was launched at the Seville European Council in June 2002 and endorsed by the Council of Ministers in the eEurope Resolution of January 2003. It aimed to develop modern public services and a dynamic environment for e-business through
the widespread availability of broadband access at competitive prices and a secure information infrastructure (European Commission, DG Information Society, 2005). In 1998, the European Commission has launched the 5th Framework program to strengthen the European Union’s research, technological development and demonstration; this framework lasted to 2002. From 2002 to 2006, the 6th Framework program was launched and in 2007 the 7th Framework program was launched for the 2007-2013 period. The Seventh Framework Programme (FP7) bundles all research-related EU initiatives together, playing a crucial role in reaching the goals of growth, competitiveness and employment; along with a new Competitiveness and Innovation Framework Programme (CIP), Education and Training programmes, and Structural and Cohesion Funds for regional convergence and competitiveness. It is also a key pillar for the European Research Area (ERA) (Information Society Technologies, 2008; Cordis, 2007). The ICT Work Programme under FP7 is divided into seven ‘Challenges’ of strategic interest to European society, plus research into ‘Future and Emerging Technologies’ and support for horizontal actions, such as international cooperation (Cordis, 2007): • • • • • • •
Challenge 1 - Pervasive and trusted network and service infrastructures Challenge 2 - Cognitive systems, interaction and robotics Challenge 3 - Components, systems and engineering Challenge 4 - Digital libraries and content Challenge 5 - Sustainable and personalized healthcare Challenge 6 - Mobility, environmental sustainability and energy efficiency Challenge 7 - Independent living and inclusion
The current achievements of European policies implementation in the field of e-business adoption
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are annually measured by the e-Business W@ tch initiative, which studies the impact of ICT and e-business on enterprises, industries and the economy in general. It highlights barriers to a wider or faster uptake of ICT and identifies public policy challenges arising from these developments. In this way, it supports the work of the European Commission’s Enterprise and Industry Directorate General to enhance the competitiveness of the ICT sector, and to facilitate the efficient uptake of ICT for European enterprises in general (European Commission, DG Enterprise and Industry, 2008b). The latest research results shows evidence that SMEs are generally lagging behind large organizations as far as the adoption and usage of e-commerce is concerned. In the past few years many successful policy initiatives have been developed at national, regional or local levels to promote the innovative use of ICTs by SMEs. These policies could be further enhanced by networking, learning from each other, sharing good practice and ultimately coordinating actions to achieve broader EU-wide impact. This is why, in 2003, the Commission established the eBSN (European e-Business Support Network for SMEs), a virtual network of decision-makers and public policy experts, a tool to make existing e-Business policies more interconnected (eBSN, 2008). The eBSN builds upon the results of the “Go Digital” initiative (2001-2003), an umbrella policy covering many activities to support SMEs in using ICT for doing business (Information Society 2001). In 2002, the benchmarking study on “national and regional policies in support of ebusiness for SMEs” found many successful policy initiatives in Europe, but pointed out that their efficiency could be further enhanced by learning from each other and sharing best practices and information material. The eBSN was founded to address this goal, by improving co-operation and using synergies within the European e-business policy community. The activities of the eBSN focus on networking
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and the exchange of good policy practice. More specifically, the objectives are (eBSN, 2008): •
• •
•
To bring together decision makers in the fields of e-business, with a view to sharing information and discussing strategic policy orientation; To provide a platform for policy coordination among Member States; To provide a “one-stop shop” for information about regional, national and European initiatives and funding possibilities for SMEs; To organize special meetings of governmental e-business experts as a platform for sharing practical experience and identifying future challenges.
The eBSN is open to all relevant policy initiatives in support of e-business for SMEs in the Member States, the Candidate Countries and the EEA EFTA States which are willing to share experience and information, as well as to e-business experts and representatives of the business community. More recently, eBSN confirmed a new policy trend: the sectoral policy approach for e-business i.e. supporting SMEs to develop their e-business strategy in full cooperation with their business partners, i.e. their suppliers, customers, or knowledge providers. Emphasis is given to the productive use of ICT by an entire group of enterprises that are interacting in daily business transactions, either within the same sector or between interacting sectors. Moreover, eBSN provides opportunities for international collaboration, among the eBSN members. A good example is to be found in the eInvoicing field: promoting “eInvoicing by SMEs,” a very practical e-business initiative running under Finnish regional policy in South Karelia, was successfully transferred to Slovenia, thus demonstrating that the transferability of best practices in e-business is feasible. This in turn
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quickly triggered a new series of cross-border joint policy initiatives, between Slovenia, Italy, Croatia, Hungary and Austria. In parallel, the Finnish regional eInvoicing initiative expanded into cross-border exchanges with Sweden and Denmark. With its activities, the eBSN is an important pillar of the ICT and e-business-related policies of DG Enterprise and Industry, in combination with other policy pillars (for example the Sectoral e-Business Watch Function, the European e-Skills Forum, ICT standardisation and interoperability and policies in support of a favourable legal environment for e-business). Since 2005/06, eBSN has focused on the following thematic priorities (eBSN, 2008): •
•
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Sector-specific approaches: identify which sectors are most promising for e-business support measures, and whether sectoral policy initiatives are more efficient than others; e-Business for micro-enterprises: discuss policies in this field and what should be the way forward; Improving e-business solutions for SMEs: review the specific needs of SMEs and identify good policy practices in helping SMEs to find appropriate solutions; e-Invoicing and e-procurement: identify public policies and public-private partnerships that aim at further promoting the efficient usage of e-procurement and e-invoicing in SMEs.
Much progress has been made in recent years. A few examples suffice to show the breadth of achievements: a new regulatory framework for audiovisual media services is in place; proposals to reform the regulation of electronic communications have been launched; regulation to create a single market for mobile phone use across borders is in operation; initiatives to boost online content in Europe are under discussion; major new R&D
and innovation funding initiatives are up and running (the Seventh Research Framework and the ICT Policy Support Programme under the Competitiveness and Innovation Programme – CIP); ground-breaking public private partnerships (Joint Technology Initiatives) have just been launched; and new eInclusion initiatives are on track (European Commission, DG Information Society and Media, 2008). Meanwhile, Europe is among the world leaders in the development of the digital economy. The European broadband market, with 90 million lines, has more subscribers than any other economic region, and half of European citizens use the internet on a regular basis. Some Member States top the world league in broadband take-up, mobile penetration, data traffic. But gaps between Member States are significant and Europe is underinvesting when compared to other industrialized regions, as well as facing growing competition from China and India. That is why the policy framework provided by i2010 is needed more than ever today (European Commission Information Society and Media, 2008b).
SLOVENIAN E-STRATEGIES, INITIATIVES AND IMPLEMENTATION Policy Making and Umbrella E-Strategies Each European country strives to efficiently adopt the European policies in its national environment. European countries therefore try to speed up the adoption of above mentioned policies by various national strategies. In June 2007, the Slovenian government adopted the si2010 strategy with the main purpose of defining a national framework for promoting the development of the information society in Slovenia by 2010 and thereby setting development guidelines that take into consideration the techno-
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logical, social and legal frameworks (Government of the Republic of Slovenia, 2007). For the 2006-2013 period, further development of the information society is dictated by the Slovenian National Strategy for 2006-2013 (SRS), adopted in 2005, which specifies an “increase in global competitiveness through promoting innovation and entrepreneurship, spreading the use of information & communications technologies, and through efficient modernization and investments in training, education, learning and R&D” as one of the national development goals for this period. At the same time, the topic of the information society implicitly relates to all key priority development tasks and reform actions based thereupon, as defined in the Framework of Economic and Social Reforms for Increasing Welfare in Slovenia. Based on these policies, individual bodies have already prepared plans for the future development of individual sectors, which also include individual fields of the information society. These are (Government of the Republic of Slovenia, 2007): •
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•
•
•
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e-Health 2010 – Strategy of computerizing the Slovenian healthcare system 20052010 (Government of the Republic of Slovenia, Ministry for Health, 2005); Strategy of transition to digital broadcasting (Government of the Republic of Slovenia, Ministry of the Economy, 2006); Strategy of the Republic of Slovenia for introducing fixed wireless systems on the territory of the Republic of Slovenia (Government of the Republic of Slovenia, Ministry of the Economy, 2006); Strategy of developing broadband data networks in the Republic of Slovenia (Government of the Republic of Slovenia, Ministry of the Economy, 2006); Strategy of e-government for the 20062010 period (SEP-2010) (Government of the Republic of Slovenia, Ministry of Public Administration, 2006);
•
National strategy of e-learning 2006-2010 (Government of the Republic of Slovenia, Ministry of Higher Education, Science and Technology).
At the same time on the national level, the points of origin of the National Development Programme for 2007-2013 and the National Strategic Reference Framework for 2007-2013 were being prepared in order to take advantage of funding through structural funds. Here, areas relating to the information society represent priority development tasks in operative programmes for obtaining funding from the European Regional Development Fund and the European Social Fund. This strategy will connect and harmonize the priority tasks and activities on the national level allowing pursuit of the adopted goals of the European and national development strategies (Government of the Republic of Slovenia, 2007). The implications of si2010 towards the wider e-business implementation in Slovenian organizations lay in the following strategic goals (Government of the Republic of Slovenia, 2007): •
•
•
establishing a national infrastructure for broad-scale application of e-business systems (e-invoicing, e-payments, e-contracting) in SMEs; establishing a national interoperability framework to define integration schemes, and establishing principles to ensure interoperability between individual systems. This will create conditions that enable easier development of new application systems and their interoperability. The greatest advantage of the publicized integration schemes and the principles that these schemes were based on is their ease of reapplication. Promoting the reuse of thus established schemes would allow for the simplification of business operations, and the reduction of operating costs and costs of developing
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electronic services. It is imperative that a national portal be set up, whose purpose will be to create, publish and maintain the national interoperability framework. The national interoperability network will determine the minimum set of technical guidelines and specifications for managing information flows between the public sector, economic subjects and other segments of society. It will define all three aspects of interconnectivity of information systems: the organizational, semantic and technical aspects; establishing an environment to develop national open standards for electronic data interchange; establishing a single electronic register that will allow for collecting basic data on e-business.
•
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Electronic Commerce and Electronic Signature Act (adopted in 2000 and has several amendments), Decree on Conditions for Electronic Commerce and Electronic Signatures (adopted in 2000)
To ensure the results in this field, Government of Republic of Slovenia intends to provide the following scope of activities (Government of the Republic of Slovenia, 2007):
Besides the fact that the Electronic Commerce and Electronic Signature Act implements Directive 1999/93/EC, it is also entirely in accordance with the provisions of the United Nations’ Commission or the International Trade Law’s (UNCITRAL) Model Law of electronic commerce. Besides other regulations, the Electronic Commerce and Electronic Signature Act defines that electronic signatures are legally equivalent to a written signature and are admissible as evidences in legal proceedings. The Decree on conditions for electronic commerce and electronic signature defines the requirements and conditions for certificationservice providers. The following act and decree regulate the archiving of electronic documents:
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support for ensuring an efficient environment for encouraging the implementation of e-business in the B2B, B2C and B2G segments; encouraging, educating and exchanging best practices from the area of e-business (introduction to e-business, technology, legislation, advantages and threats, etc.); support for enterprises, especially SMEs, in their implementation of e-business in everyday operations; government incentives and facilities to introduce e-business to companies.
E-Business Legislation
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Protection of Documents and Archives and Archival Institutions Act Decree on Protection of Documents and Archives
Both acts define methodological and organizational definitions of electronic archiving. The Decree further defines software and hardware conditions for e-archiving. The Value Added Tax Act defines which data is obligatory for invoices, also the time framework and special conditions regarding archiving invoices. All these acts and decrees present the framework for the possible full deployment of e-business in Slovenia.
Since the year 2000, e-Business in Slovenia has been regulated with the following legislation:
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Infrastructure and Usage Based on data of the Statistical Office of Republic in Slovenia (Zupan, 2007), in the first quarter of 2008, 97% of enterprises with 10 or more persons employed had internet access. 88% of enterprises used e-Government services. The usage of intranets in enterprises depends on the activity and the size of the enterprise (number of persons employed). Intranet usage was highest in large enterprises (250 and more persons employed) with 74%, followed by medium-sized enterprises (50-249 persons employed) with 40% and small enterprises (10-49 persons employed) with 26%. Fifteen percent of enterprises used third party free or open source operating systems that enable insight into the source code and the possibility of modifying it. The share increased by two percentage points in comparison with the same period of 2007. The usage is the highest in large enterprises with 51% (growth by 14 percentage points), while the share in small enterprises remained with 11% unchanged in comparison with the same period of 2007. In the first quarter of 2008, 97% of enterprises with 10 or more persons employed had internet access, which represents a one percentage point increase after the stagnation in the last three years. Ninety-two percent of enterprises with 10 or more persons employed used the internet for conducting banking and financial services and 41% for training and education of their employees. The share of enterprises that use e-Government services is increasing. In comparison with 2006, the share increased by 5 percentage points to 88% in 2007. The biggest increase of the usage of eGovernment services was perceived in small enterprises; by six percentage points to 86%. In the first quarter of 2008, 71% of enterprises with 10 or more persons employed had a website, four percentage points more than in the same period of 2007. Regarding the size of the enterprise (number of persons employed), the share of enterprises increased the most in small enterprises;
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by six percentage points to 67% in comparison with the same period of 2007. The content and the presentation of the enterprises on the websites are also changing. A total of 42% of enterprises provided visitors access to product catalogues or price lists, 18% of enterprises published open job positions on their websites, 9% of enterprises enabled online ordering on their website and 2% of enterprises also online payment. The content of the website also depends on the size of the enterprise. Of large enterprises, 18% enabled online ordering, as did 9% of medium-sized and small enterprises. The percentage of enterprises that made online payment possible is also the highest in the large enterprises with 5%, in comparison to a 2% share in small and medium-sized enterprises. In 2007, 11% of enterprises received orders via computer networks (via websites and EDIElectronic Data Interchange). The value of orders received via computer networks represented 8% of total turnover of the enterprises (excluding VAT) with 10 or more persons employed. Six percent of enterprises sold their products and/or services via websites, one percentage point less than in 2006. Twenty-six percent of enterprises ordered goods and/or services via websites in 2007, three percentage points more than in 2006. Automated data exchange was used by 40% of enterprises in the first quarter of 2008. The highest percentage of usage was with 72% between large enterprises. Twenty-one percent of enterprises received orders via automated data exchange, and 18% sent orders to their suppliers. For sending e-invoices, 4% of enterprises used automated data exchange (the same as in the same period of 2007); 7% of enterprises received e-invoices (increase by one percentage point in comparison with the same period of 2007). Eighteen percent of enterprises sent payment instructions to financial institutions via automated data exchange and 29% sent/received data to/from public authorities. With their customers, 13% of enterprises shared information electronically on inventory levels, production plans or demand forecasts and 16%
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of enterprises on progress of deliveries. Nineteen percent of enterprises used websites and 8% automated data exchange to electronically share information. Twenty-seven percent of enterprises used electronic sharing of information on supply chain management, while 17% of enterprises electronically shared with their suppliers information on inventory levels, productions plans or demand forecast and 19% of enterprises on the progress of deliveries. The reasons why enterprises do not use the automated data exchange: 20% lack of interest; 18% lack of appropriate software and 14% of enterprises do not use automated data exchange because the return of the investment is to low or the lack of in-house expertise. The problem of lack of in-house expertise (15%) and lack of appropriate software (19%) is the highest in small enterprises. Although some results have shown progress in some areas of e-business adoption, it is obvious that SMEs still lag behind large organizations, being less competitive in operation of their business.
DEVELOPING E-STRATEGIES FOR SMES eSLOG Project; Standardization for E-Commerce A good example of a national initiative for the fostering of e-business implementation in national environment was e-SLOG initiative. In 2001, the Chamber of Commerce and Industry of Slovenia in cooperation with large agriculture, manufacturing, electricity, wholesale, retail, transport and financial companies, and representatives from the public administration launched the e-SLOG project, which was aimed at developing simpler standards for electronic business messages and at promoting e-business among SMEs. The primary purpose of the project was (Zupančič, 2004):
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•
•
The implementation of standardized electronic business documents for business operations between enterprises, financial institutions and public administration, The preparation and implementation of solutions for secure e-business by using esignature technology, The implementation of open technological solutions for small, medium-sized and large enterprises as well as the promotion of e-business in the Slovenian enterprise sector.
The project was led by a Project Council, which directed and controlled the activities of the project, while the work was carried out by four working groups (Working Group for Business Content Standards, Working Group for Technological Solutions, Working Group for Electronic Signatures, Working Group for Payment Standards). The project resulted in e-SLOG standards, a simplification of GS1 EANCOM. The standards have been integrated into pre-written business operating systems/enterprise resource planning solutions that automate all aspects of company management (accounting, finances, tracking materials, issuing orders etc.). As a result, every document that can be used in e-commerce is automatically composed according to e-SLOG standards by those systems. It has been estimated that investments in these applications have been paid off after an average six months. Smaller companies can also use computer-based services offered over a network by applications service providers (European Commission, 2007). Companies mostly use e-SLOG schemes for invoicing, ordering and order confirmation, whereas schemes for control order and dispatch advice are only rarely used. While the standards have mainly positively affected the connections between large companies and their smaller partners, and between cluster companies, many small companies are still unaware of their existence or the benefits of e-commerce in general.
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The project is unique in two aspects. The first is in the special approach of e-SLOG, where large companies were used as pioneers in using the standards, while market pressures than ensured that SMEs were quick to follow. The standards are now used by approximately 3,000 companies of all sizes in Slovenia. In 2007, the project was presented as a national best practice approach for wider e-business implementation in European Commission report “Sectoral e-Business Policies in Support of SMEs. Innovative approaches, good practices and lessons to be learned”.
on initiatives, projects and programmes already carried out in Slovenia. The goals involve improving the competitiveness of the Slovenian economy by:
eSMEs Initiative
The action plan involves two levels –state and business. At the state level, it proposes incentives and measures that could benefit the target groups of the initiatives, whilst at the same time presenting additional proposals which could be introduced at the state level in order to help achieve the set objectives. At the business level the introduction – and possible implementation – of the actions can further be divided between providers and users of solutions. The providers will play an instrumental role in arousing the users’ interest for the introduction of new solutions in their business processes, taking part in the promotion of new solutions, and ensuring the inter-operability of the solutions and the carrying out of accompanying activities. The action plan involves 12 actions that are described in more details further in this section.
Slovenia has legislation on e-business, e-signature and the protection of documentary and archive materials and archives, a 91% rate of electronic payment transactions and established national standards for document exchange (e-SLOG). Together with the si2010 strategy, this is the groundwork for the broader uptake of e-business in companies that need incentives from the environment and the state. In December 2007, representatives of Faculty of Organizational Sciences at the University of Maribor, the company Datalab and the Public Agency for Entrepreneurship and Foreign Investments presented the eSMEs Initiative and Action plan for wider acceleration and implementation of e-business, especially in SMEs. The action plan lays out proposed measures and activities to be carried out by the state in order to boost e-business between companies and the public administration. The document is limited to a comprehensive package of actions, incentives and small steps that are quickly actionable and yield immediate results. This would not require changing the existing legislation, but merely expanding its implementation in practice. The proposed measures follow the objectives of the European Commission and complement or carry
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• • • •
Reducing the operating costs of companies and the public administration; Improving the phasing of European funds; Establishing registries in support of e-business; Raising the awareness of the benefits of ICT and the use thereof, not only in large but in particular in SMEs.
Action No. 1: Programme Promoting the Introduction of Information and Communication Know-How in SMEs The Introduction of Information and Communication Technologies in SMEs Training Companies programme is intended for improving the skills of employees in the support environment (employees of local entrepreneurial centres and specialist consultants), the promotion of use of new solutions in e-business and the promotion of application
“eSME Slovenia”
of these solutions at the level of SMEs and other target groups. Goals or this action are the following: •
•
•
Supply of skilled consultants for the introduction of new technologies in business environments, Activation of the support network of local entrepreneurial centres and participation of faculties and other institutions in the introduction of new e-business solutions in SMEs, Participation of international experts in the promotion of use of e-business. Implementation plan:
•
•
•
• •
Preparation of expert papers and the development of a methodology for the implementation of selected e-business segments in SMEs, Training of employees in support institutions for the promotion of introduction of new e-business and ICT technologies and solutions in SMEs, Training of independent providers of consultancy services (consultants) for the introduction of new e-business and ICT technologies and solutions in SMEs, Transfer of know-how from international experts as part of technical assistance, Design of promotional materials and activities.
Action No. 2: Voucher Consultancy Programme for the Introduction of E-Business in Micro Companies and SMEs The purpose of the voucher consultancy programme is to motivate entrepreneurs to consult experts and attend training programmes in order to obtain additional knowledge and skills to equip themselves for independent resolution of problems
and seizing of business opportunities. As a result, the programme increases the number of dynamic, fast-growing SMEs, preserves old and creates new jobs, and encourages self-employment. The programme also includes consulting on e-business. The goals of this action are the following: •
• • •
Provide appropriate expert support for the introduction of e-business in business systems, Increase the use of ICT solutions, Improve the efficiency of investment in ICT, Give employees appropriate skills.
Implementation plan: The programme pools the resources of various providers to offer different target groups subsidised consultancy and training services. Access to services is guaranteed through local providers who represent access points where potential users of services can enrol in a programme and use its services. The beneficiaries of the programme can get subsidised consultancy and training services from selected consultants registered in a catalogue of entrepreneurship consultants published on the web page www.japti.si.
Action No. 3: Mandatory Sending of Invoices to the Public Administration in Electronic Form Advanced countries have introduced electronic invoices in their public finances and thus significantly simplified and sped up transactions, reduced processing and archiving costs and brought in additional services for public sector suppliers and customers. The current state of readiness in Slovenia is very high at the declarative level but very low at the operational level. 2006 was a year of preparation for the adoption of the euro, which meant all initiatives for the introduction of cutting-edge solutions were postponed. Nevertheless, it is only
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a question of time before the public administration is forced to streamline its operations through electronic services. The initiative includes a proposal for an approach to the introduction of electronic invoices in the public sector which is based on existing best practices of the single state accounting system and envisages the formation of a Processing Centre for Electronic Invoices at the same level as the state accounting system, i.e. at the Ministry of Finance. The public administration adopts the decision (like the US1 before it with the Clinton memorandum of 1993 and Denmark with the decree on the issuance and reception of e-invoices in 20052) that it wishes to receive invoices for delivered goods and services electronically. Sending is carried out on the basis of e-SLOG (business documents electronic schemes) or the BMS standard (GS1 standard). In the event that the supplier is not capable of electronic invoicing, it is charged the cost of manual processing after the expiry of a six-month transitional period. To mitigate technological conditions and requirements for SMEs, their accounting firms or other authorised companies may e-invoice on their behalf. The goals of this action are the following: •
Considerable reduction of the workload in the entry and archiving of received invoices in public administration and the reduction of associated costs3. Creating a critical mass of e-business users.
•
The result: •
•
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The introduction of uniform standards of communication between suppliers and the state, which will also be used for mutual e-invoicing, Due to e-business with the state, companies, suppliers and public sector customers will use e-business for mutual transactions,
•
•
Transactions between companies and with the state will effect a simplification of single standards and solutions, which will gradually be more broadly adopted by SMEs as well as in transactions with physical persons, The introduction of new solutions and greater use of e-business will encourage the development of new services and lead to new providers on the market; for example, providers of e-invoice management who will offer go-between and archiving services as well as gross settlement, direct debit and others.
Implementation Plan E-invoicing will require new ways of checking and confirming the payment of invoices. The existing processing methods for hardcopy invoices will remain intact, but it is expected that the volume of e-invoicing is going to increase, which will make it possible to streamline processing. In any case, both pathways will run simultaneously in the first phase. Unlike paper invoices made out directly to the contracting party, e-invoices for the whole state will be collected at a single entry point. Access to e-invoices will be granted to employees depending on their clearance. The authorising body confirms payment (unless the authority is transferred). Accordingly, the management of received invoices requires the following basic processes: •
•
• •
Tight integration with the MFERAC system which contains data on bodies (items, projects, contracts/orders, depositaries of contracts and items), Record of received e-invoices in which checking and confirmation or rejection of e-invoice are administered, Direct transfer of data on approved e-invoices to the MFERAC, Storage of e-invoices.
“eSME Slovenia”
The number of participants in the process will be high, which requires appropriate customer support processes as well as reports and statistics. The MFERAC application needs to be adapted to support e-invoices in e-SLOG and BMS formats, which is feasible over a three to six month period. In the first phase, only incoming e-invoices would be implemented (which represents the biggest cost saving for the state), whereupon e-invoice issuance and e-order reception and issuance would be phased in. Most of the infrastructure is in place or at least designed. It is possible to use the main building blocks of the e-taxes system; the legislative framework is in place, as is the design concept for the required technological platform. The introduction of the solution was managed by the Ministry of Finance, which manages state accounting and is overwhelmed by huge quantities of hardcopy documents (invoices and annexes). Implementation of the Processing Centre for Electronic Invoices would proceed through several phases and involve the provision of the following services: • • •
•
E-invoicing by large suppliers (package), E-invoicing by random suppliers and interactive invoice creation, Reception of scanned paper invoices and processing thereof by the public administration, Issuance of e-invoices by the public administration (e.g. schools, kindergartens).
Accordingly, new legal frameworks need to be put in place (executive regulations issued by the Finance Ministry), new processes implemented and the organisation of transactions changed. As the workload associated with the processing and control of received invoices is reduced, this will free up human resources in financial departments. This staff can then be assigned to other departments or tasked with performing higher-value-added services.
E-business reduces the need for the physical archiving of hardcopy documents, but it increases the need for optimal and safe management of electronic archives. We propose that a part of the savings over the coming years be channelled into the creation of additional e-services which will improve the user experience of citizens.
Action No. 4: Investment in E-Business Eligible for Development Relief Tax policy is a key instrument of the state for directing the investment activities of companies. This measure is central to, and vital for, the broad uptake of e-business. The Finance Ministry adopted a supplement to the Rules on Exercising the Rights to Relief concerning investments in research and development4 making investment in e-business a tax deductible development relief in 2007 and 2008. The investment is deducted as lump sum depending on the type of electronic exchange. The lump sum is taken in order to simplify accounting and checking. Two types of development investments are deductible: exchange of data with the public administration, inter-company e-invoicing, electronic archiving and electronic inspection. The goal of this action is the following: •
Raising awareness of the importance of corporate investment in e-business and a broad of technology facilitating e-business across all segments of the economy.
Implementation Plan •
Exchange of data with the public administration. If a company submits in 2007 at least 6 VAT return forms electronically and commits to submitting all VAT return forms electronically in the next two years, it is eligible for a EUR 4,200 lump sum tax deduction5. The measure is associated with
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•
•
•
the Tax Procedure Act (ZdavP-2) in which electronic submittal of VAT return forms is already mandatory for large enterprises and becoming mandatory for all taxpayers as of 1.1.2009. The same tax relief is available for companies filing forms on behalf of other companies (e.g. accounting firms). Companies whose forms are filed by proxies (accounting firms) are not eligible. Inter-company e-invoicing. Upon the introduction of electronic data exchange (either e-SLOG, EDIFACT or BMS), a company registers at the Agency for Public and Legal Records and Services (AJPES) as ready for e-business. Once it has exchanged at least 100 documents electronically, it becomes eligible for the EUR 4,200 tax deduction. E-archiving. Upon the introduction of electronic archiving of data and the obtaining of the appropriate permits, a company is eligible for a tax deduction of EUR 2,100. E-inspection. Upon introduction of electronic data exchange for e-inspection in accordance with the format prescribed by the Tax Administration,6 a company is eligible for a tax deduction of EUR 420.
Action No. 5: Co-Financing of E-Business in the National Development Programme 2007-2013 The Government Office of Local Self-Government and Regional Policy (Office) has prepared the second draft of the National Development Programme 2007-2013 (NDP)7 for public debate. The second draft, which has been published online, is still missing several sections, in particular those conditional on the national budgets for 2007 and 2008. The NDP deals with content that will be co-funded from the EU budget in the 2007-2013 financial perspective, so the drafting process involves informal communication with the Eu-
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ropean Commission. The Office is completing the Operational Programmes which – after they have been coordinated with all stakeholders and confirmed by the European Commission – will represent the basis for the phasing of European funds in the 2007-2013 financial perspective. The Ministry of Higher Education, Science and Technology has participated in the design of operational programmes of EU funding priorities as the competent ministry. The NDP envisages EUR 20m for the development of e-content and e-services in the 2007-2013 period. Financial assistance will be given to providers of e-business services for faster development and design of software or services for e-business of third companies. Only companies whose products or services are based on open standards (domestic or international) and which support interoperability are eligible for the funds. Co-funding priority is given to projects involving products and services whose introduction or use makes companies eligible for tax relief specified in Action No. 4. The goals of this action are the following: • •
Advanced, simple and cost-efficient software for e-business. Operational e-business services (e.g. document exchange, e-archives).
Implementation Plan Funding is available for companies developing: • • • • •
Systems or services for submittal of eforms and other data to the state, Systems or services for electronic exchange of business documents, E-archiving systems, Business support systems, Support systems for the above mentioned systems.
The disbursement of Slovenian as well as mixed (Slovenian-European) funds will be carried out
“eSME Slovenia”
through established channels. Since availability depends on negotiations, certain activities and funds need to be planned as soon as the funds are available. Co-funding priority is given to projects that can be quickly implemented and projects with great impact (many potential users).
Action No. 6: Portals Offering Information on Best E-Business Practice The key to the general adoption of best practices of cooperation in e-business lies in the appropriate dissemination of knowledge. This calls for the creation and popularisation of web portals, libraries of knowledge about solutions, services and best practices in e-business. Additionally, dissemination of knowledge may usefully involve providers of business software who can prepare documentation for e-business in their solutions and publish it on their web pages, which are frequently visited by their existing users. Communication between portals would be desirable, while the creation of a joint search engine would be ambitious. The goals of this action are the following: •
•
Portal with information structured depending on skill level, existing use of e-business and the absorption capacity of e-business users. E-business content on portals intended for users of business software (instructions for fast and cost-effective implementation).
Implementation Plan The preparation of project proposals for obtaining funds for e-business portals is needed. Publicprivate partnerships with educational institutions are desired. This portal will present examples of best practices related to Action No. 8 (e-business in supply chains) and No. 9 (best e-company). For that purpose organization of public tender
for co-financing of preparation of best practices portal is needed.
Action No. 7: Opening and Adaptation of State Registries to E-Services Presently companies must enter by hand and correct basic information on companies, which represents a significant administrative burden considering the demand for absolute correctness. At the same time, serious use of e-business requires a registry of e-business-enabled companies. The registry of legal entities operated by AJPES must be opened to public use8 and upgraded with e-business attributes. Alternatively, the existing tax registry which already contains this data could be used. This proposal implements the Decree on Digital Certificate record system (Official Gazette RS, no. 128/2006). The goals of this action are the following: • • •
Up-to-date information on companies and sole traders, Drastic drop in operating errors, Full automation and reliability of delivery of electronic messages.
Implementation Plan The AJPES creates a web service with automatic search and acquisition of company data (name, tax file number, company ID number, address, contact information, status, bank account numbers, etc.). In addition, AJPES makes a registry of e-business data in which a company applying for e-business enters which standards it uses and which documents it can send and receive. The minimum that a company must meet is the reception and issuance of e-invoices. At registration, the company pays AJPES a one-time registration fee of EUR 16. Correction of entered data is electronic and free of charge. The AJPES creates a public web service based on the eBXML (ISO 15000) standard, which
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makes it possible for every computer to establish which data can be sent electronically by using a company’s tax file number. This service has been provided by AJPES for at least 10 years.
•
Action No. 8: Introduction of a Single System for Calculation and Payment of Fees
Implementation Plan The creation of a single registry of all persons liable for taxes/contributions and all insurants (pension, disability, health and unemployment insurance), forms a new system of reporting on levied and paid taxes and contributions, which will be available to all state institutions for the performance of their basic tasks. This concept is based on best practices in other countries as well as recommendations by international financial institutions. The management of the central registry and the collection and keeping of data should be carried out by the Tax Administration, which already operates the tax registry that contains most of the data for the future central registry that is acquired either from other institutions or directly from taxable persons. The initial central registry would be based on the tax registry as well as the registries of other state authorities (Pension and Disability Insurance Institute, Health Insurance Institute, Employment Service and over 20 registers of independent activities). As the operator of the registry, the Tax Administration would give institutes and, in certain cases, companies’ permanent access to the central registry so that they can use the data as per their jurisdiction. The second part consists of an altered method for the collection and processing of data on levied taxes and contributions. Employees would submit to the Tax Administration (before or at payment of personal income) a single calculation of taxes and contributions (as already defined in existing legislation due to take effect on 1.7.2008). Real time delivery of these calculations would eliminate the need for ex post (for the previous year) delivery of control data by employers and render income tax statements obsolete. This would
The existing tax regulations and regulations governing individual forms of social insurance (pension, disability, health, and unemployment insurance) provide for different methods of administering registries of taxpayers and insurants. In practice, the same records are kept in different ways by different authorities, while some records are not kept by any authority. Similarly, existing records on the calculation and payment of taxes and contributions, especially contributions from salaries, are incomplete and turn out to be a limiting factor in the exercise of pension and health insurance rights and in the settlement of tax obligations. On the basis of the recently completed reform of the tax system, some adopted but not yet fully realised provisions of tax regulations (Tax Procedure Act – ZdavP-2) and pension and disability insurance (Pension and Disability Insurance Act – ZPIZ-1), we propose a single system of registration, reporting on levied taxes and contributions and the payment thereof. The goals of this action are the following: The following goals could be achieved with the implementation of this concept: •
•
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Better framework for the observance of tax and other regulations and more efficient collection of taxes and contributions, Reorganisation and modernisation of participant institutions (in particular, the Tax Administration and the Pension and Disability Insurance Institute),
•
Removal of unnecessary burdens of complex reporting and payment for taxable persons, Transparent work of state institutions.
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reduce the costs of administration and improve the transparency of the tax system. The Tax Administration would check whether the data is correct, on time and complete in single calculations immediately upon reception of the data. Considering the quantity of data and forms (approx. one million forms per month), persons liable would be requested to submit the forms electronically. Insurants would carry out all the correspondence uniformly through a single access point, while tax officials would deal mostly with supervisory procedures. The third part of the concept entails a change in the system for payment of taxes and contributions. Instead of the current multitude of accounts and payment orders, the proponent of the single tax and contributions account would settle the obligation with a single payment on one order to the account of the Tax Administration. Only the taxable person’s tax number would be used as the reference for payment. The existing solution in which payment of taxes and contributions is carried out for each tax type and each recipient separately, with the Tax Administration managing over 3,000 tax accounts and persons liable completing payments through a complex multitude of payment orders separately for each account, would be replaced with a system where all taxes and contributions are payable to a single account at the Tax Administration. The Tax Administration would transfer the funds from this single account to the state’s central account on a daily basis, specifying the recipients (national budget, institutes, municipalities, other recipients). The Treasury would disburse the funds to the appropriate recipients on the same day. The Tax Administration provides all users of the central registry with real time data on all levied taxes and contributions through a new information system9. Under appropriate conditions, all data could be used for other purposes (e.g. statistical monitoring and analysis, social and other transfers).
Action No. 9: Introduction of Electronic Certificates Despite the provisions of Article 139 of the Administrative Procedure Act (ZUP), the public administration requests from companies and individuals certain proofs in processes that it carries out itself and which it could obtain itself. One such example is the demand stemming from the Public Procurement Act (ZJN) for the submittal of proof of paid taxes with every bid. The same is true for the exercise of social rights, where individual state bodies demand that citizens submit the decision on the assessment of personal income tax as proof of income. These proofs are a result of computerised records in public administration systems and therefore easily electronically accessible to all appropriate authorities. Goal of this action is the following: The introduction of electronic checking/acquisition of proofs in tax records eliminates the unnecessary burden of cumbersome acquisition of paper proofs for companies and individuals. Implementation plan: Through e-taxes, the Tax Administration provides the option of electronic orders (for companies and citizens) and electronic automated checking (for other state authorities) of data from tax records.
Action No. 10: Initiative “I Don’t Spend, I Invest” An SME initiative in which companies urge their suppliers to send documents electronically and express their intention to migrate to full electronic business in the shortest possible period with the purpose of reducing costs. The initiative is open for all companies and does not require membership. The goal of this action is the following: In the first phase, SMEs receive e-invoices from major suppliers (e.g. telecoms, post, energy), whereupon they involve all other suppliers until a critical mass is achieved and e-business becomes the dominant form.
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Implementation Plan A template letter is prepared, which companies (in particular SMEs) send out to their suppliers. The letter states that they want to become an even better and more stable customer, which however requires modernisation and a reduction of costs of cooperation. The letter defines a transitional period of at least six months in which the supplier must send invoices (and other documents) electronically. If after the expiry of the transitional period the supplier does not regularly send e-invoices, the buyer may reduce the payment due to the supplier by for example EUR 4.20 per invoice. Suppliers are divided to multiple groups depending on the number and complexity of received invoices, and gradually signed up for the programme. A special logo is designed, which is consistently used in promotional activities, letters and other materials in order to raise awareness of the initiative. The initiative is promoted by chambers, business support organisations and the companies themselves.
Action No. 11: Initiative “E-Business in Supply Chains” This incentive is intended for larger and large enterprises which have clout with suppliers. It is designed to cut the costs of supply and introduce appropriate infrastructure for just-in-time delivery in order to improve competitiveness. Whereas Action No. 10 deals with the basic use of e-business, this initiative goes one step further technologically in that it supports the tighter integration of systems. In addition to e-invoices, these supply chains use a wider range of electronic messages on, for example, inventories and orders. The goals of this action are the following: •
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Boost the enterprises,
competitiveness
of
large
• • •
Improve the competitiveness of Slovenian suppliers, Establishing best practices for future crossborder cooperation, Establishing best practices for broader use of advanced integration.
Implementation Plan Companies identify their main suppliers and agree with them to introduce the electronic exchange of at least e-invoices if not other documents. Larger enterprises organise internal seminars to which suppliers are invited. If possible, the IT staff of larger enterprises should help the suppliers. It would be very useful to have a public recognition for companies that provide suppliers with the best assistance in this joint improvement of competitiveness.
Action No. 12: Recognition for Best E-Company in Slovenia Affirmation and awareness of the role of e-business is a vital component.Accordingly, we propose a competition for the best Slovenian e-company carried out by the Public Agency of the Republic of Slovenia for Entrepreneurship and Foreign Investments (JAPTI) with the sponsorship of the Ministry of Higher Education, Science and Technology. It would be ideal if the award was conferred personally by the minister, as this would give the competition appropriate media attention. The competition was started in 2007 and became an annual practice in 2008. The goals of this action are the following: • • •
Media recognition for companies investing in e-business. Promotion of best practice. Implementation of examples of best practice.
Implementation Plan Establishment of an annual award for the best e-company. The winner is the company with the most successful e-business implementation
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(e-invoices, web orders, e-archives, e-supplychains etc.). Every applicant describes the applied solution and makes an economic assessment of it. There are multiple categories determined by a jury. In each category, the jury shortlists three finalists and selects the winners who are given commendations at the final ceremony. Proposed categories: • • •
SMEs, Large enterprises, Best e-solution provider.
Descriptions of the e-business solutions of the finalists are published as examples of best practices by Slovenian enterprises on appropriate websites. The selection procedure is carried out by JAPTI and Chamber of Commerce and Industry of Republic of Slovenia, which organise the competition and the selection in conjunction with organisers of similar events and interested experts, and the award ceremony.
Activities and Status of e-SME The eSMEs Action Plan and Initiative was supported by ministers of the Ministry of Higher Education and Technology, the Ministry of Public Administration, the Ministry of Economy, the Ministry of Finance, the Ministry of Economic Growth and Development and by the presidents of Chamber of Commerce and Industry of Slovenia, Chamber of Commerce of Slovenia, JAPTI (Public Agency for Entrepreneurship and Foreign Investments), the company Datalab and the Slovenian Business Software Developers KODA.SI, and representatives from the Faculty of Organisational Sciences of the University of Maribor. However for further successful implementation of the action plan and initiative, all parties in the business environment must contribute: service providers, users of services, public administration and universities.
Most service providers already offer e-business services and solutions for SMEs. To support the action plan, the providers will have to design solutions for broader uptake of e-business and help train consultants. Successful introduction of e-business solutions in SMEs will give the providers the opportunity to transfer know-how and solutions to foreign markets. Larger enterprises must improve competitiveness. In 2006, their resources were mainly focused on the adoption of the euro, which means that e-business was sidelined. The enterprises feel that and fear lagging behind so most have already announced “increased investment in e-business immediately after the introduction of the euro.”10 SMEs are well integrated in the supply chains of larger enterprises, forming a tightly-knit ecosystem. Given proper incentive by larger enterprises and other measures, their cooperation is very likely. Public administration must focus on companies and sole traders more than ever. It has to create conditions for simpler transactions with companies by: •
•
•
Simplifying procedures, which become faster and cheaper with the increasing use of ICT, as well as more accessible and transparent, Adopting appropriate regulations that facilitate the collection and use of data and information, reducing the burden of unnecessary double reporting, Introducing separate information sources and reusing collected data, disburdening data providers, accelerating procedures for the acquisition and checking of proofs, and avoiding unnecessarily disturbing companies, which allows them to focus on their core competences. Specifically, this means:
•
Formation of a single system for the collection of various (all) types of informa-
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• •
•
•
•
tion from companies and sole traders for all public administration bodies, Introduction of mandatory sending and receiving of e-invoices, Introduction of mandatory reporting to the public administration in electronic format for all entities above a certain threshold, and the establishment of service centres for all below the threshold for the duration of the transitional period, Electronic fact checking is introduced for all proofs kept in databases in the public administration, starting with: ◦⊦ Upgrade of the E-Taxes Portal with option of checking the statement of paid tax obligations in public procurement procedures, which would reduce the number of documents by 100,000 and eliminate an unnecessary burden for bidders, ◦⊦ Upgrade of the E-Taxes Portal with access to decision on assessment of income tax, for the purposes of checking statements about personal income, Introduction of mandatory e-invoicing by large and medium-sized enterprises within six months and for all others within one year, Providing access to the registry of taxable persons for the purposes of e-business.
Universities also have an important role, especially in education, training and ICT knowledge and ICT best practice implementation transfer to SMEs. In cooperation with regional development agencies for SMEs, Chambers of Commerce and Industry and Chambers of Crafts, universities create an important know-how environment for SMEs. For example, the Faculty of Organizational Sciences of the University of Maribor has established the “Slovenia eLivingLab” focusing to the following areas of e-commerce: e-collaboration,
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e-invoicing, e-markets, RFID supply chain, egovernment and eSMEs. The living lab is a new concept for R&D and innovation to boost the Lisbon strategy for jobs and growth in Europe. Living labs can be defined in several ways because of the major differences between operating living labs. However, one thing is common for all: the human-centred involvement and its potential for development of new ICT-based services and products. It is all done by bringing different stakeholders together in a co-creative way (European Network of Living Labs, 2006). “Slovenia eLivingLab” has been a member of European Network of Living Labs since 2006 (European Network of Living Labs, 2006). The idea of living labs was launched during the Finnish presidency in 2006, aimed at bringing new concepts for research & development and innovation to boost the Lisbon strategy for jobs and growth in Europe. The European Commission has supported the idea under the common umbrella European Network of Living Labs, which is now a mature initiative sponsored by the European Community through various programmes and coordinating actions. As living labs are bringing together all parties that need to be involved for innovative humancentred product or service development, including users, ICT providers, government and universities), this is a promising approach to bring eSMEs initiative and action plan into the life.
SUMMARY SMEs are a key part of European industry. There are some 23 million of them in the European Union (EU), providing around 75 million jobs and accounting for 99 percent of all enterprises (Eleftheriadou, 2008). Nonetheless, SMEs are the firms that suffer the most from their limited possibilities to fully exploit the ICT potential. SMEs often lack the managerial understanding, the knowledge, and the
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skills required to fully grasp the potential of ICT as a major enabler of organizational innovation and structural reforms. In today’s challenging race of competitiveness and excellence, where new technologies and innovation play a central role, European SMEs cannot be left behind (Eleftheriadou, 2008). The 2008 e-Business W@tch report presents strong evidence that large companies are significantly more likely to use ICT than SMEs are. Surveys indicate that their uptake of ICT remains too low. Given the other key findings, this also implies that large companies are more likely to introduce ICT-enabled innovations more often than their smaller competitors. It seems that the gap in ICT use between SMEs and large companies (the so-called digital divide) is expected to increase rather than narrow (European Commission, 2008). For this reason, not just European Commission but also more and more governments around the world have been seeking opportunities and means to promote ICT and e-business models as a way of enhancing the competitiveness of SMEs. Supporting the European Commission’s strategic goals and documents (e.g. Lisbon Agenda, i2010, and others), Slovenia has also launched several strategic documents, including si2010, e-Health 2010 – Strategy of computerizing the Slovenian healthcare system 2005-2010 (Ministry of Health), Strategy of transition to digital broadcasting (Ministry of the Economy), Strategy of the Republic of Slovenia for introducing fixed wireless systems on the territory of the Republic of Slovenia (Ministry of the Economy), Strategy of developing broadband data networks in the Republic of Slovenia (Ministry of the Economy), Strategy of e-government for the period 2006-2010 (SEP-2010) (Ministry of Public Administration) and National strategy of e-learning 2006-2010 (Ministry of Higher Education, Science and Technology). Slovenia also has legislation on e-business, e-signature (in 2009 and the protection of documents and archives, it has achieved a 91% rate of
electronic payment transactions and established national standards for document exchange (eSLOG), providing schemes for basic business documents (order, order confirmation, despatch advice and invoice). Together with the support of strategic documents, this is the foundation for the broader uptake of e-business in companies that need incentives from the environment and the state. Based on results of 2008 i2010 Mid-Term Review (European Commission, 2008) Slovenia is well advanced in the information society: many benchmarking indicators are significantly above the EU average, with a leading position for eGovernment services and significant increases in the last three years in ICT investment by firms. The situation of broadband penetration stands at 17.3% (January 2008), which is below the EU27 average of 20%. Growth in uptake is very much at the level of the EU average both among households and enterprises. The same can be said about the growth in the usage of online services. Slovenia has a very good position in the field of online availability of basis public services, as 90% of them are fully available online. Availability of services to citizens is the 2nd highest in Europe and for services to enterprises it is the 5th highest. Online sophistication is now close to 100%. Remarkably Slovene citizens are currently better served than businesses. Slovenia is generally above average in use of e-business applications and is in the top ten countries for e-commerce turnover. Broadband connectivity among enterprises is slightly better than the EU average. Skill levels both in the general population and the workforce are close to the EU average (European Commission, 2008). All this presents a very good environment for even higher ICT uptake. However the situation in the field of SMEs is still below the expectations. Data from Statistical Office of Republic of Slovenia (Zupan, 2008) show that the internet is highly available to all companies. For example, in the first quarter of 2008, 97% of enterprises with 10 or more persons employed had internet access.
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The same situation is for websites. Seventy-one percent of enterprises with 10 or more persons employed had a website, four percentage points more than in the same period of 2007. Regarding the size of the enterprise (number of persons employed), the share of enterprises increased the most in small enterprises; by six percentage points to 67% in comparison with the same period of 2007. The results for automated data exchange are worse. Automated data exchange was used by less than half of companies: 40% of enterprises in the first quarter of 2008. It is evidenced that the highest percentage of usage was with 72% between large enterprises. The reasons companies do not use the automated data exchange are the following: 20% lack of interest; 18% lack of appropriate software and 14% of enterprises do not use automated data exchange because the return of the investment is to low and the lack of in-house expertise. The problem of lack of in-house expertise (15%) and lack of appropriate software (19%) is the highest in small enterprises. This situation requires measures to achieve higher adoption of e-business, especially in the field of SMEs. Some of the actions were presented in the “eSMEs Initiative and Action plan” for wider acceleration and implementation of e-business specifically in SMEs in December 2007. The initiative consists of 12 actions, each introduced with the introduction, goal and implementation plan (for detail description see section 4.2 eSMEs Initiative 2007): •
•
•
•
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Action No. 1: Programme promoting the introduction of information and communication know-how in SMEs Action No. 2: Voucher consultancy programme for the introduction of e-business in micro companies and SMEs Action No. 3: Mandatory sending of invoices to the public administration in electronic form Action No. 4: Investment in e-business eligible for development relief
•
• • • • • • •
Action No. 5: Co-financing of e-business in the National Development Programme 2007-2013 Action No. 6: Portals offering information on best e-business practices Action No. 7: Opening and adaptation of state registries to e-services Action No. 8: Introduction of a single system for calculation and payment of fees Action No. 9: Introduction of electronic certificates Action No. 10: Initiative “I don’t spend, I invest” Action No. 11: Initiative “E-business in Supply Chains” Action No. 12: Recognition for Best E-company in Slovenia
The key point of the initiative is that all the actions can be undertaken based on the full exploitation of possibilities and opportunities within current legal framework and does not require major financial investments. The initiative is build upon existing policies, legislation and ICT environment. It includes e-business best practice transfer from other European countries e.g. the Danish case of e-invoicing decree in 2005 (initiated by government of Denmark). The initiative refers to the actions needed from all involved: SMEs, large companies, government, Chamber of Commerce and Industry, Chamber of Craft and Small Business, national and regional agencies for small business development, large companies, ICT providers, universities and SMEs. Some actions were already undertaken e.g. promotion and introduction of information and communication know-how in SMEs, voucher consultancy programme for the introduction of e-business in micro companies and SMEs and recognition/yearly award for best e-company in Slovenia. Other actions are in progress. Some of them will need governmental incentives; some will appear from market maturity.
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The initiative was supported by the heads of all crucial ministries: the Ministry of Higher Education and Technology, the Ministry of Public Administration, the Ministry of Economy, the Ministry of Finance, the Ministry of Economic Growth and Development and by the presidents of the Chamber of Commerce and Industry of Slovenia, the Chamber of Commerce of Slovenia, JAPTI (Public Agency for Entrepreneurship and Foreign Investments), the Slovenian Business Software Developers KODA.SI, and representatives from universities. This represents the framework for the wider successful adoption of e-business to the all parties involved, and especially to SMEs.
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Stansfield, M., & Grant, K. (2003). An investigation into issues influencing the use of the Internet and electronic commerce among small-mediumsized enterprises. Journal of electronic commerce research, 4(1), 15-33. SURS – Statistični urad RS. (2007). Uporaba informacijsko-komunikacijske tehnologije v podjetjih z 10 in več zaposlenimi osebami. 1 Četrtletje 2007. Retrieved March 18, 2009, from http://www. stat.si/novica_prikazi.aspx?id=1284 Turban, E., Lee, J. K., King, D., & McKay, J. (2008). Electronic Commerce 2008: A Managerial Perspective (International Ed.). Upper Saddle River, NJ: Prentice Hall. Umble, E. J., Haft, R. R., & Umble, M. M. (2003). Enterprise resource planning: implementation procedures and critical success factors. European Journal of Operational Research, 146(2), 241–257. doi:10.1016/S0377-2217(02)00547-7 Zhu, K., Kramer, K., & Xu, S. (2003). Electronic business adoption by European firms. European Journal of Information Systems, 12, 251–268. doi:10.1057/palgrave.ejis.3000475 Zupan, G. (2008). Internet usage in enterprises with 10 or more persons employed, Slovenia 1s quarter 2008. Statistical Office of the Republic of Slovenia. Zupančič, D. (2004). Cross-border eInvoicing in eRegion – Companies & Chambers of Commerce Perspective. Merkur day 2004 & 8th Executive Business, Government, and University Meeting On Cross-border eInvoicing in eRegion, Slovenia.
ENDNOTES 1
Clinton memorandum: http://govinfo. library.unt.edu/npr/library/direct/memos/ eleccom.htm.l.
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eInvoicing Denmark: http://europa.eu.int/ idabc/en/document/4215/194. Phasing out of certain tasks is projected to free up the available resources. These resources can later be reduced (reduction of labour costs and labour-associated costs such as offices) or used for other tasks in public administration, for example EU presidency. Article 6 of the Rules should be amended with the item: “f. costs associated with the introduction of e-business, whereby a company may deduct these costs as stated: f.1 – for introduction of exchange of forms with the public administration up to EUR 4,200 f.2 – for introduction of inter-company e-invoicing up to EUR 4,200 f.3. – for introduction of an e-archiving system up to EUR 2,100 f.4. – for introduction of e-inspection up to EUR 410.” and the Methodology for the filling out of forms for relief for investment in research and development appropriately amended. Actual relief is 25% on 20% of the investment = EUR 210 per company. Meeting of the DURS working group of 15.11.2006 at which standards for the ex-
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change of data for e-inspection were agreed with larger business software providers. The OECD uses the SAF-T format and the instructions Guidance on Tax Compliance for Business and Accounting SW published at http://www.oecd.org/searchResult/0,266 5,en_2649_201185_1_1_1_1_1,00.html. Second draft NDP 2007-2013, http:// www.svlr.gov.si/si/delovna_podrocja/ drzavni_razvojni_program/predstavitev_ drp_2007_2013/. Similarly, Great Britain solved this through the Prime Minister’s Cabinet Office with the E-Government Office, http://www.cabinetoffice.gov.uk/e-government/. This is already requested by adopted regulations, for example the ZdavP-2. From Initiative for e-invoice project in eregion, FOV2005, in which support for the project is expressed by Merkur d.d., SRC d.d., NLB d.d., Abanka Vipa d.d., Banka Koper d.d., Directorate of Public Accounting, Customs Administration and the General Tax Office.
This work was previously published in E-Strategies for Technological Diffusion and Adoption: National ICT Approaches for Socioeconomic Development, edited by Sherif Kamel, pp. 35-62, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.10
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia Kenneth D. Strang APPC International Market Research, USA; University of Central Queensland, Australia Cliff E. L. Chan Mitsubishi Electric, Singapore
ABSTRACT In this article, E-business new product development innovation processes were studied at four enterprises across Europe and Asia. E-entrepreneurship innovation was improved using a quality of idea priority model. The conventional quality function deployment phase 1 matrix was revised to increase the voice of customers and engineer quality of idea decision-making. The DOI: 10.4018/978-1-60960-587-2.ch410
proposed model was simulated with geographically dispersed virtual teams (based on production data). Statistical analyses were applied to test the hypothesis that an improved innovation process could better discriminate between new product return on investment pass or fail probability.
1 INTRODUCTION E-business new product development (NPD) methodologies are evolving across Europe and
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Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
Asia. This may be a response to the global economic crises and to leverage Internet virtual collaboration technology (Clegg & Tan, 2007; Durmusoglu, Calantone, & Sambamurthy, 2006; Griffith, Harmancioglu, & Droge, 2009; Mishra & Shah, 2009). The virtual e-enterprise context brings people together that often have diverse cultures and personalities (Kotabe & Helsen, 2008; McCrae & Terracciano, 2005; Mead, 2005; Ozer, 2006; Park, Lim, & Birnbaum-More, 2009; Quelch & Klein, 2007; Strang, 2009a), thus making it challenging for team members to be effective and objective throughout NPD. Although the term ‘e-entrepreneurship’ has been associated with “the act of establishing new companies specifically in the Net Economy” (Kollmann, 2006, p. 323), existing enterprises must synergistically innovate their NPD processes due to the competitiveness and complexity of the e-business context (Strang, 2008). In e-business, NPD processes can vary across the regional teams due to organizational culture, individual culture, language dialects and/or personality differences (Strang, 2009b). Market needs can be perceived differently, and may be different, across geographic locations. The Internet brings many advantages to e-businesses, yet it requires enterprises of any size to have NPD processes that effectively leverage virtual resources. Notwithstanding the above, NPD processes may not be understood or effectively applied by e-business design teams (Pentina & Strutton, 2007). According to the Product Development Management Association (PDMA) survey, “best practices research still has not been able to supply clues, let alone answers, on how to organize most effectively for NPD” (Barczak, Griffin, & Kahn, 2009, p. 22). “There is strong evidence that NPD productivity is heading in the wrong direction [down]” (Cooper & Edgett, 2008, p. 48). It is disconcerting to find a 41% NPD project failure rate from “best of the best” multinationals (Barczak et al., 2009, p. 6), and shocking to learn 38.5% of these companies did not have a formal
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NPD methodology (Barczak et al., 2009, p. 4). In our experience with multinational European and Asian case studies, we observed a 35% NPD failure rate. It seems more e-business NPD innovation methodology research is needed. Recent studies of NPD success emphasized the importance of effective front-end ideation processes to capture the voice of the customer (Chang & Cho, 2008; Cooper, 2004; Cooper & Edgett, 2008; Gordon, Tarafdar, Cook, Maksimoski, & Rogowitz, 2008; Kahn, 2005; Koen et al., 2002; Miller & Swaddling, 2002; Sawhney, Verona, & Prandelli, 2005). Quality function deployment (QFD) is considered a best-practice in NPD as judged from empirical studies (Bayraktaroglu & Özgen, 2008; Jiang, Shiu, & Tu, 2007; Marsot, 2005). Although mostly-used in product-driven ideologies, “QFD is the most complete, systematic and convincing method for designing products with the quality that fulfils expressed and latent requirements of customers” (Jiang et al., 2007, p. 30). QFD originators and others (Kano, Seraku, Takahashi, & Tsuji, 1984; Miguel, 2008; Sullivan, 1986) concur that QFD is a systematic technique to ensure customer needs impact NPD. However, it has been our experience that NPD team members with diverse cultures/languages may not be able to objectively express the voice of the customer and/or convince engineers of highpriority local market needs. Likewise, engineers and senior management may have different (inaccurate) perceptions of localised market needs. An NPD study found differences in eastern cultures: “Chinese SMEs do not regard financial returns as the primary criterion in the idea-generation stage” (Mu, Peng, & Tan, 2007, p. 125). Furthermore, we have found that even when QFD is employed, products fail. To that end, we developed an improvement to QFD phase 1 that used a quality of ideas mechanism, with higher precision, along with competitive and technical benchmark multipliers for the House of Quality (HOQ) matrix. We then tested the new model with successful and failed NPD
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
Figure 1. QFD phase 1 study in relation to overall NPD processes
projects in multinationals across Europe and Asia. As conceptualised in Figure 1, the focus of this research was on the front-end NPD process (HOQ QFD phase 1). Our hypothesis was: A revised model could better discriminate between good and bad NPD designs (based on production data, α=0.05). To test the hypothesis, historical project data was applied in subject-matter-expert focus groups to simulate the model. Multiple statistical methods were utilised to evaluate the quality of idea effectiveness based on actual product returnon-investment results.
2 LITERATURE REVIEW NPD projects differ in nature across industries yet most follow a process lifecycle depicted on the bottom of Figure 1. NPD ideation often adopts either a product-driven or a customer needs-analysis philosophy, with a focus on designing a service or product that can be assembled or manufactured into a marketable item (Barczak et al., 2009). The NPD process alternatives are shown (in general) at the left of Figure 1. The most basic NPD process format is concept brainstorming (Zaltman, 2003). This is often done with lead users (Anderson, Glassman, McAfee, & Pinelli, 2001) and cross-functional teams (Cross, 2001). The purpose is to capture basic market needs, known as the ‘voice of customer’, and also to specify the product features, known as the ‘voice of engineer’. A powerful but less-used approach involves attribute design templates (Goldenberg, Morowitz, Levav, & Mazursky, 2003). These are product-
driven techniques that leverage addition, multiplication, subtraction, division and attribution principles to create innovative designs (Peterson, 2006), such as adding Internet browsers to mobile phones. The most customer-driven NPD approach is surveying (Kano et al., 1984; Lesaffre & Verbeke, 2005) and/or observing consumers (Ulrich & Eppinger, 2003; Ulwick, 2002). These are considered market needs analysis methods. Finally, there are a few NPD methodologies that attempt to integrate both product and consumer needs. QFD and value analysis (Akao & Mazur, 2003; King, 1989; Taguchi & Wu, 1979) place a strong focus on both voice of customer needs and voice engineer concerns for the front-end NPD processes. QFD is a well-known methodology (and a best-practice) that is the focus of this study and it will therefore be discussed in more detail below. Value analysis is considered a subset of QFD.
2.1 QFD Best Practices Quality is a key principle underpinning NPD, which must be designed in at the start (Crosby, 1985; Taguchi & Wu, 1979). Nevertheless, there are misconceptions about quality in NPD. Theoretically, quality techniques such as Pareto, Six Sigma, or R/C process charts are used for process control during production, not in NPD. Six Sigma refers to a quality control methodology that uses capability indices and normal distribution probabilities to benchmark defects during the manufacturing process (technically six standard deviations from the mean equals 3.4 defects per
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Figure 2. House of quality in QFD phase 1
million). Despite its name, QFD is not synonymous with quality either. “QFD differs from traditional quality methods that focus on zero defects; after all nothing wrong does not mean anything is right.” (Bolt & Mazur, 1999, p. 2). In other words, despite a zero-defect outcome, engineers may not be able to design products to meet market needs within specified cost-time-scope constraints, or customers may not purchase a product/service that they do not want or one that is not competitively better. QFD is four-phased NPD methodology that uses matrices in each phase to correlate and assess factors related to VOC, VOE and the other business functions, in an integrated fashion (each phase taking the outcomes of the previous)—this is superimposed on the top right of Figure 2. QFD was developed in Japan during the 19601970 era, as a structured method for improving manufacturing, by enabling the NPD team to clearly specify customer wants and needs, and then to evaluate each proposed product or service capability systematically in terms of its impact on meeting those needs (Akao & Mazur, 2003). QFD was influenced by quality guru Duran (whom visited Japan in 1954). QFD was initially based
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on Ishikawa charts and later developed into a more complex tool of matrices including the HOQ (Taguchi & Wu, 1979). The first QFD phase ‘customer needs’, uses a House of Quality (HOQ) matrix as shown in Figure 2. On the left of the HOQ, customer needs (VOC) are gathered using market-focused tools like surveys or focus groups and prioritised during ideation. Likewise, the most relevant design features are brainstormed by engineers (VOE) based on production capabilities, as shown on the top of the HOQ. The NPD team (with help of VOE) use a rating system to indicate how well each design feature can support each customer need (such as high, medium and low). The column and row matrix intersections (interrelationships in HOQ) are completed with symbols to represent weak-medium-strong, such that quantitative weights (1-5-9) can be used for value analysis. The engineering team goes further with the Mindset of Designer (MOD) at the top (HOQ roof), to indicate how well each VOE feature compliments or integrates with one another (also using the same weak-medium-strong 1-5-9 ratings). Next the competitive benchmarking (CB) on the
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
right of Figure 2 compares the organisation against the competitor in terms of its ability to meet each VOC need, using a simple rating ordinal scheme where higher is better. Likewise, towards the bottom, technical benchmarking (TB) compares the organisation against competitors with respect to each VOE feature, again using the same ordinal rating system. Optionally, risk factors, production goals and constraints may be added towards the bottom of the HOQ. Then, the interrelationship matrix is totalled (sometimes multiplying by a ‘risk factor’), to establish an overall weighted score for each VOC and VOE combination. In this Figure 2 example, the absolute scores are the VOC added to VOE (e.g., 1+5+1=7), while the relative score is the above multiplied by the risk factor (e.g., 7x5=35). None of the other matrix scores are used in a quantitative sense; instead the MOD, CB, and TB are ‘considered’ when establishing the interrelationship matrix (VOC & VOC in centre of Figure 2). The remaining three QFD phases 2-4: ‘Parts development’, ‘process planning’, and ‘production planning’ (as symbolised at the top right in Figure 1), follow a similar methodology, employing a HOQ matrix (like Figure 2) to quantitatively assess the key factors in order to arrive at a balanced NPD design. The four QFD phases integrate, such that the selected product features from HOQ become input to the second, and so on. The principle is that the VOC needs and VOE constraints are carried through all QFD phases. QFD designs then go to the later business processes such as prototyping, production manufacturing and marketing. Empirical studies show QFD reduces NPD time while increasing quality by having a correct design that meets VOC needs (Bayraktaroglu & Özgen, 2008; Clegg & Tan, 2007; Marsot, 2005; Miguel, 2008). In this way QFD provides NPD value analysis and quality. Nonetheless, QFD is rarely used in NPD, and when applied, only the first phase (a basic HOQ matrix) is typically used (Clegg & Tan, 2007). However, QFD does not
have much support or evidence in the literature for cross-cultural NPD team applications.
2.2 Rationale for Improving QFD Phase 1 The advantage of QFD phase 1 HOQ is that it produces a clear diagram of the NPD team’s perception for a proposed design (Shillito, 1994). Two weak points are that QFD does not quantitatively utilise all HOQ values, and QFD does not produce a single comparative score that can be used for evaluating alternative design proposals. Thus, QFD assumes every phase 1 design will go to phases 2-4 and ‘be funded’ for production. Researchers have suggested improvements to QFD either as more explicit documentation and/ or variations to the matrix (Backman, Borjesson, & Setterberg, 2007; Gordon et al., 2008). For example, decision stage-gates have been proposed to filter out lower quality NPD designs (Cooper & Edgett, 2008; Cooper, Edgett, & Kleinschmidt, 2001). However these are applied at the phase level and not for each VOC idea and VOE feature. González and colleagues (2008) applied a unique variation of the QFD methodology (three phases instead of four) and used a HOQ variation that included VOC priorities to improve NPD design for e-banking services. In their National Bank of Spain case study, they found QFD helped improve new product design by correlating surveyed VOC needs (n=1256) with VOE capabilities that competitors did not yet provide in their services, such as “talking ATMs, safety of account numbers, and auto speak tool-tips” (González et al., 2008, p. 57). Cheng and his team (2007) used the Analytical Hierarchy Process (AHP) in QFD phase 1 HOQ to quantitative rank the VOC needs of an e-business software development company in Taiwan. They concluded QFD permitted the team to objectively identify eight improvements needed for the knowledge management expert system product (Chen et al., 2007, p. 596). AHP (Saaty, 1994) is a decision-making method. AHP
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Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
uses a matrix, with product criterion scored by pair-wise comparisons in the upper right vectors, and transposed reciprocals entered in the bottom diagonals. All cell eigens are totalled. This total is converted to a consistency ratio and evaluated by referencing a separate lookup table (akin to a t-test or z-test critical value in a textbook appendix). It is cumbersome as an NPD process, but mathematically it is comparable to our quality of idea prioritisation. In our case studies, diverse cultures and languages of the NPD team members impacted their willingness to put forth/debate ideas, and prevented many from understanding local market needs. Ideation can be difficult because the values and aims of a collective inquiry are often obstructed by differences in experience and ethnic cultural background (Brown, Huettner, & James-Tanny, 2007, p. 5; Lipnack & Stamps, 2000). Cultural variation governs how people send-received messages and prioritise within NPD ideation (Mu et al., 2007). Collective eastern cultures, particularly Japan—are a high context communication-based country (Butcher, Derksen, Sloore, & Sirigatti, 2003; Hofstede, 2001)—the high context trait of ambiguity and indirectness in communication is frequently preferred to ‘save face’ or as a politeness, to maintain harmony in their group. Deviant behaviour for most Asians is not acceptable. Some eastern cultures are influenced by Confucianism (especially PRC China, Korea, and Japan) where harmony and social integration are promoted (Adekola & Sergi, 2007, p. 167; Kotabe & Helsen, 2008, p. 127). Eastern culture team member silence and indirectness are signs of politeness, calculation (thinking process), foresight and wisdom (Adekola & Sergi, 2007, p. 173), but may be taken as no response during brainstorming. The English language is considered the most common understood language by many European and Asian NPD design teams (at least in these case studies). However, English words have different meanings across cultures (Strang, 2009b). Japanese team members like to say ‘yes’ most of
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the time in every sentence. This does not imply that they ‘agree’, just that the Japanese ‘yes’ is meant to affirm that they understood what has been said, yet they are not agreeing with ‘what’ is being said (Adekola & Sergi, 2007, p. 174). Obviously this creates ambiguity in a situation where a team is setting NPD feature priorities, especially if the conventional QFD phase 1 methodology is used. Groups having collectivist yet different ethnic cultures may find it difficult to form a consensus (Butcher et al., 2003; Kotabe & Helsen, 2008; Mead, 2005). Furthermore, when attempting to prioritise in a virtual context, with diverse cultures involved, from experience it may be impossible to obtain explicit product feature feedback or VOC priorities from regions, unless a pre-defined rating system is used.
2.3 Improved QFD Phase 1 Model Recent studies have proposed improvements to the front-end NPD processes (Bonner, in-press; Carbonell & Rodríguez-Escudero, in-press; Chen, in-press; Hung, Kao, & Juang, in-press; Mahdjoub, Monticolo, Gomes, & Sagot, in-press; Wang & Lin, in-press). We leveraged the best-practice literature to identify the most relevant priorities that could be used to rate VOC needs and VOE features during ideation. First we explain the items and then we discuss the quality of idea rating system for QFD phase 1. In the literature, Cooper and his colleagues have suggested 86 idea screening criteria (Cooper & Edgett, 2007), while most NPD researchers concur four of those factors dominate: Financially feasible, corporate capability, technological capability, and product advantage/uniqueness (McNally, Durmusoglu, Calantone, & Harmancioglu, 2009; Mu et al., 2007). However, these criteria mostly address VOE concerns and do not reflect the accuracy or validity of the localised market needs research. While there is no consensus as to their relative priority, we developed the following quality of idea criteria for VOC market needs, with a brief
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
explanation of each. Also we acknowledge that if a large customer sample is available for particular VOC ideas, then conjoint analysis is recommended instead of this procedure to benchmark the priority. •
•
•
•
• •
• •
• •
Accuracy: Degree of agreement between data providers and data users. This refers to the estimated accuracy of the market intelligence data. Uniqueness: Unique in the real world with no repetition from the past. This means the market data suggests distinct needs. Repetition: Frequency the data source is repeated compared to the past data. This means market repeatedly wants the same product requirement (VOC is strong). Completeness: Likelihood that data attributes are not missing, and are sufficient in breath and depth for the NPD design task in hand. Timeliness: The data is up-to-date and is appropriate for task at hand. Currency: Interval of time between the latest update of data value and the time it is used for an idea; newer VOC data is better and should be ranked higher in NPD. Validity: How rigorously the data was verified/validated for ideation. Representational consistency: Whether the data was actually taken from the market needs representing the actual ethnic background of the target customer(s). Amount of data: Volume or size of data sources; more data can increase reliability. Response time: Period time between when feedback by end user (customer) can be implemented for NPD (needs may be delayed due to regulations or standards).↜(Callingham, 2004; Adapted concepts from Cooper & Edgett, 2008).
In similar fashion, the best-practice literature conclusively points out that certain VOE product criteria are needed in most designs. Various VOE
scoring models have been developed using stagegate criteria such as ‘time to market’, ‘feasibility’, ‘regulatory compliance’ and so on (Cooper & Edgett, 2007, p. 198). We developed the following list of quality of idea VOE criteria based on the best-practice literature and experience. •
•
•
•
•
•
• •
•
Originality: Indication if product feature could be patented, meaning that the underlying feature is organic and is not derived from something else in the market. Uniqueness: Innovative, quality of being one of a kind, radically distinctive and without equal; although the product may already be in market, a unique transformative idea could solve problems so this is not the same as ‘originality’. Technological feasible: Capable of being manufactured with means at hand in terms of available technology; possesses economies-of-scale and/or economies-of-scope. Marketable: Usefulness, capable of being marketed, being in demand by both broad and localised customer population; lower ranking might be niche market. Financially feasible: Considers chain of cost of development; e.g., low operation cost from ideas-to-concept-to-product-to marketing-to-maintenance which promotes investment feasibility; this is analogous to return-on-investment potential. Complies with regulations: Conforming to the market country or region regulations, rules or policies (e.g. ITU, ANSI, IEEE, IEC, ISO International standards). Meeting ethics: Meeting social conditions (i.e. moral values, environmentally safe). Ubiquitous: Flexibility in adapting to heterogeneity of situation such as in cultural context e.g. languages, beliefs, and customs of localized market segments. Time-to-concept: This is not time-to-market because ideation produces a design not a product; the concept is the design for the
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Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
market; this could improve if prototyping can be used, especially through virtual software.↜(Adapted concepts from Cooper & Edgett, 2007; Nambisan & Shawhney, 2008). We tested these VOC and VOE quality of idea criteria with multicultural NPD focus groups from the case study companies, using a simple 1-5 ordinal rating scheme (5=high). We also obtained independent subject matter expert feedback on this model from members at IEEE. From this feedback we developed a refinement to QFD phase 1 VOC and VOE interrelationship matrix, using the metric scores from ideation to improve precision. We also proposed to change the QFD phase 1 by integrating both competitive and technical benchmarking into the HOQ as multipliers, as well as leveraging MOD as a factor. We proposed a way to aggregate all the above, resulting in an overall NPD score. First, each VOC idea is put through this quality of idea process, and only those that ‘pass’ are entered into the VOC matrix of the HOQ. Likewise, each VOE feature is put through this objective rating process and only those that ‘pass’ are entered into the VOE matrix of the HOQ. The pass score was set at 50% here (this can be changed if needed). There were ten VOC priority items and nine VOE priority items. We used a normalisation algorithm to generate rank coefficients and a final rank coefficient score for each VOC idea and VOC feature (examples are shown in the following subsection). This new methodology differs from others (Bayraktaroglu & Özgen, 2008; Chen et al., 2007; Chin, Xu, Yang, & Ping-Kit Lam, 2008; Wang & Chin, 2008) in that here it is applied to each VOC idea and VOE feature. Also, we should note that all of the case studies examined here did not have a documented methodology for prioritising the VOC or VOE items—instead the NPD teams just ‘got together’ and applied the generally-accepted brainstorming technique to accept or reject ideas
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on a consensus basis. In a few cases we found that senior management favoured certain VOE features and fast-tracked those designs to QFD phases 2-4 (and approved funding to develop prototypes). As well, another difference of this approach as compared with the NPD literature is that based on our multicultural NPD team feedback, it is more objective and simpler to implement this methodology as compared with AHP, factor analysis or conjoint analysis (and sample sizes were often small in these case studies). However if significant factor analysis or conjoint analysis estimates are available from consumer surveys, then those methods (along with hypothesis testing) can be used instead as the VOC idea pass/fail criteria—if that is done then a normalised coefficient can tested for a ‘pass’ and then if accepted, entered as the score into the VOC HOQ cell. This quality of idea methodology is identical for VOC and VOE brainstorming, except that the relevant ten items are used for VOC rating, while the appropriate nine items are used for VOE prioritization. The key requirement is that each VOC idea and VOE feature must ‘pass’ before it can be used in the HOQ matrix (next step). This differs from QFD phase 1 in that all ideas are accepted from regional NPD team members (regardless of their ‘perceived’ quality). However, here the idea is accepted only if it ‘passes’ the 50% coefficient score (reflecting ranked best-practice attributes informed by the literature). This proposed methodology is illustrated with a development example from one of the case study companies (the results of two sessions are shown in Table 1 and Table 2). The first VOC idea from a case study is put through the quality of ideas ranking test, in Table 1. The NPD team must arrive to a consensus on the ‘Team score’ column, for each quality attribute. Then each ‘Team score’ is multiplied by the canonical rank coefficient, to produce a final coefficient. For example, the fist item ‘10 Accuracy’ was given a ‘5’ which was multiplied by the ‘Rank coefficient’ of ‘1.0’ to product ‘5’. In similar
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
Table 1. VOC quality of idea prioritising for first market need from case study 4 VOC Priority (high first) 10
Voice of Customer (VOC) quality of idea attribute Accuracy
Low=0, High=5 Max score
Team score 5
Rank coefficient 5
Max score X Rank coefficient
1.0
5.0
Final coefficient 5.0
9
Uniqueness
5
4
0.9
4.5
3.6
8
Repetition
5
3
0.8
4.0
2.4
7
Completeness
5
2
0.7
3.5
1.4
6
Timeliness
5
3
0.6
3.0
1.8
5
Currency
5
0
0.5
2.5
0.0
4
Validity
5
0
0.4
2.0
0.0
3
Represent consistency
5
0
0.3
1.5
0.0
2
Amount of data
5
0
0.2
1.0
0.0
1
Response Time
5
0
0.1
0.5
0.0
Total score
27.5
14.2
Screening: 50% X total score
13.8
PASS
fashion, ‘9 Uniqueness’ was given a ‘Team score’ of ‘4’, multiplied by the ‘Rank coefficient’ of ‘0.9’ equals ‘3.6’ as a final coefficient for that item. When all ‘Rank coefficient’ values are summed, the total is 14.2 for VOC, which is a pass. This value is then used for the VOC score in the HOQ. If it had been less than 13.8, the idea would be
discarded or held for another NPD project ideation session. The VOE quality of idea technique uses the same methodology but different attributes. The example in Table 2 shows one VOE feature put through the quality of ideas ranking test. The first item ‘9 Originality’ was given a ‘5’ which was multiplied by the ‘Rank coefficient’ of ‘1.0’ to
Table 2. VOE quality of idea prioritising for first product feature from case study 4 VOE Priority (high first)
Voice of Engineer (VOE) quality of idea attribute
Low=0, High=5 Max score
Team score
Rank coefficient
Max score X Rank coefficient
Final coefficient
9
Marketable
5
5
1.0
5.0
5.0
8
Financial feasible
5
4
0.9
4.4
3.6
7
Technology feasible
5
3
0.8
3.9
2.3
6
Time-to-concept
5
2
0.7
3.3
1.3
5
Uniqueness
5
2
0.6
2.8
1.1
4
Originality
5
0
0.4
2.2
0.0
3
Regulation conform
5
0
0.3
1.7
0.0
2
Ubiquitous
5
0
0.2
1.1
0.0
1
Meeting ethics
5
0
0.1
0.6
0.0
Total score
25.0
13.3
Screening: 50% X total score
12.5
PASS
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Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
example in Table 2 shows one VOE feature put through the quality of idea prioritizing. The following is a brief enumerated list of steps in this methodology. This uses the HOQ matrix (QFD phase 1) as described in Figure 2 (and that surrounding discussion). The example was applied to a project ‘Professional 23 inch LCD broadcast monitor’ from a case study, using the data from Table 1 (e.g., ‘fast motion handling’ is 14.2 from the VOC quality of ideas), and Table 2 (‘ClrD’ was 13.3 from the VOE quality of ideas).
product ‘5’. Interestingly, the ‘4 Time-to-concept’ attribute was rated at zero, which when multiplied by ‘0.4’ results in zero. This may be a case when the market is not ready for this product innovation. Again, all ‘Rank coefficient’ values summed to 13.3, which was a pass. This value was then used for the VOE score in the HOQ. If it had been less than 12.5 the idea would have been set aside. The VOE quality of idea technique uses the same methodology but different attributes. The
Table 3. Quality of idea QFD phase 1 HOQ example from case study 4 Mindset of Designer (MOD) MOD totals
6
6
23
ClrD
Blk
Impr
0
10
14
9
Dim
150p
Voice of Engineer (VOE) Voice of Customer (VOC)
CrtIL
800r
13.3
14.0
13.8
13.5
13.7
14.2
14.8
Fast motion handling
14.2
27.5
28.2
28.0
27.7
27.9
28.4
29.0
Colour accuracy
14.1
27.4
28.1
27.9
27.6
27.8
28.3
28.9
Pixels not ‘smearing’
13.8
27.1
27.8
27.6
27.3
27.5
28.0
28.6
Minimum lost pixels
13.4
26.7
27.4
27.2
26.9
27.1
27.6
28.2
Small pixels gap
16.6
29.9
30.6
30.4
30.1
30.3
30.8
31.4
1
2
3
1
3
1
3
27.5
56.4
84.0
27.7
83.7
28.4
87.0
[VOC+VOE] x CB (4=high) Competitive Benchmarking (CB) Fast motion handling
CB
Colour accuracy
CB
27.4
56.2
83.7
27.6
83.4
28.3
86.7
Pixels not ‘smearing’
CB
27.1
55.6
82.8
27.3
82.5
28.0
85.8
Minimum lost pixels
CB
26.7
54.8
81.6
26.9
81.3
27.6
84.6
Small pixels gap
CB
29.9
61.2
91.2
30.1
90.9
30.8
94.2
CB total
139
284
423.3
140
422
143.1
438.3
2
2
3
2
2
2
2
[VOC+VOE] x TB (4=high) Technical Benchmarking (TB) Fast motion handling
TB
55.0
56.4
84.0
55.4
55.8
56.8
58.0
Colour accuracy
TB
54.8
56.2
83.7
55.2
55.6
56.6
57.8
Pixels not ‘smearing’
TB
54.2
55.6
82.8
54.6
55.0
56.0
57.2
Minimum lost pixels
TB
53.4
54.8
81.6
53.8
54.2
55.2
56.4
Small pixels gap
TB
59.8
61.2
91.2
60.2
60.6
61.6
62.8
TB total
277
284
423.3
279
281
286.2
292.2
MOD + CB + TB totals
422
574
869.6
419
713
443.3
739.5
Final NPD score
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4180.4
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
scale and economies-of-scope advantages are listed (without regard to VOC). a. VOE prioritisation: Each VOE feature undergoes the rigorous objective priority ranking analysis; the structure ensures only high quality ideas are accepted; this is a different set of priorities than VOC, but the methodology is identical. b. VOE HOQ matrix: All VOE features that ‘pass’ the VOE prioritisation is then entered into the VOE HOQ matrix, using their ‘final coefficient’ value. For example, applying VOC Table 1 and VOE Table 2: 13.3 + 14.2 = 27.5 (in Table 3). c. The above processes (a) and (b) repeat for each specific VOE feature. 3. MOD: Mind of designer (top of Figure 2) was completed by designers, comparing VOE features against each other for economiesof-scale and scope, using the default QFD subjective rating system (1=weak, 5=moderate, 9=strong). The MOD correlations in Table 4 were added, at the intersection of each VOE feature (diagonals). For example, the MOD results in Table 3 and bottom row of Table 4 were calculated as: #1: 1 + 5 = 6; #2: 1 + 5 = 6; #3: 5 + 9 + 9 = 23; #6 = 9 + 5 = 14, etc.
The results from the revised QFD phase 1 HOQ process simulation are in listed Table 3. 1. VOC: Market information, customer surveys, interview minutes, and/or client feedback are summarised. This represents the VOC and is brought into the first virtual brain storming session with the regional and head office NPD team members. a. VOC prioritisation: Each VOC idea undergoes the rigorous objective priority ranking analysis; the structure ensures only high quality ideas are accepted. b. VOC HOQ matrix: All VOC ideas that ‘pass’ the VOC prioritisation is then entered into the VOC HOQ matrix, using the ‘final coefficient’ value. If statistically significant conjoint analysis estimates are available (from customer surveys or focus groups), then hypothesis testing can be used instead of this quality of idea prioritisation mechanism, whereby normalised loglikelihood or chi square coefficient of passed ideas can be entered into the VOC HOQ matrix. c. The above processes (a) and (b) repeat for each specific VOC need. 2. VOE: Product innovations, technical specifications, known production economies-of-
Table 4. Mindset of designer VOE correlations example from case study 4 VOE
Coefficient
Features
Score
MOD correlations for VOE 1
1. Colour depth 10 bit
13.3
-
2. Black level 0.121cd/m2@gamma 2.35
14.0
1
3. Impurities stains shape <0.2mm
13.8
5
4. CRT interlaced emulation
13.5
5. Contrast ratio (typ.) 800:1
13.7
6. Dimming ratio 0.2
14.2
7. Power consumption (typ.) 150 W
14.8
Total MOD correlation for each VOE
2
3
4
5
6
7
5
9
5
-
10
14
9 6
6
23
0
9
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Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
4. VOC+VOE integration: The intersection of VOC and VOE (centre of Figure 2) is completed by adding the VOC and VOE final coefficients. This is a higher-precision improvement to the QFD methodology (that uses a high-medium-low ‘guess’ scale). 5. CB: Competitive benchmarking is completed (right of Figure 2) following the QFD methodology, by benchmarking the VOC capability against each competitor, using an interval ranking system (e.g., best is highest number). To make it clearer, the CB scores for the organisation are copied to the bottom of the HOQ matrix. 6. TB: Technical benchmarking is applied using a similar approach (following the QFD convention), whereby the organisation is benchmarked against competitors to rank each VOE feature using an interval scale (e.g., best is highest number). To make it clearer, TB scores for the organisation are copied to the bottom of the HOQ matrix. 7. NPD design priorities: VOC+VOE is multiplied by CB (for the organisation), MOD is ultiplied by TB (for the organisation), and then these are added to form a final score. In Table 3, the ‘CB total’ line was the result of each CB rating (for the organisation) multiplied by each VOC + VOE intersection. For example, ‘fast motion handling’ VOC + VOE of 27.5 was multiplied by CB 1. The ‘TB total’ line was calculated in the same fashion, multiplying each VOC + VOE intersection by the corresponding TB rating. The ‘MOD + CB + TB totals’ were simple additions of those respective subtotals. Thus CB and TB were used as VOC+VOE multipliers. The ‘Final NPD score’ was the sum of the above line (‘MOD + CB + TB totals’); ‘4180.4’ represents the final NPD ideation design score.
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3 METHODS This was a multiyear evaluative case study (Creswell, 2003; Yin, 2003). The four common elements of a research paradigm are: Philosophy, strategy, design and techniques (Creswell, 2003). The research philosophy was positivist and the strategy was to quantify QFD HOQ process improvement. For the design, we chose four similar companies. We gathered quantitative data from NPD sessions and performance records (Keppel & Wickens, 2004). Hypothesis testing techniques included: Logistic regression, MANOVA, and ordinal regression (Hair, Black, Babin, Anderson, & Tatham, 2006; Strang, 2009c).
3.1 Case Study Organisations and Subjects Twenty six NPD ideation projects were evaluated from four companies in Europe and Asia-Pacific (quasi-randomly selected by organisation executives). All companies were in the display technology manufacturing industry (three also designed mobile phones); each had annual revenues over 10 million euro and at least 500 employees. The projects were front-end NPD phases (needs analysis, ideation, and/or conceptual design). The timeframe was similar for all projects. The 0.9 years mean duration is lower than the 2.0 years finding in the Product Development Management Association best practices survey (Barczak et al., 2009, p. 7) because only ideation was included. The participants were full-time employees from various NPD subject matter expert positions in these four companies. All subjects worked in the English language (most spoke more than one language and were born in different countries as compared to their work site).
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
3.2 Statistical Procedures and Measures The revised QFD phase 1 HOQ model was tested using process simulation. The NPD teams were given electronic access their project files and with permission of the employer they were asked to meet in an online ideation (brainstorming) session using Skype (www.skype.com). The researchers performed the moderator role and acted as scribes (electronically documenting all results). The teams were asked to reach a consensus on a ‘quality of idea’ sheet for each VOC need, and for each VOE feature (using blank quality of idea prioritisation guide sheets based on Table 1 and Table 2, with an ordinal rating scale of 0-5, low-to-high). On average, this prioritisation process required 10-15 minutes per sheet and 1-2 hours per NPD project. Next we used Sun Microsystems Open Office Calc software (www.openoffice.org) to produce all final rank coefficients for each VOC idea and each VOE feature (for all of the 26 projects). For example, referring back to Table 3, one VOE quality of idea sheet would have been completed for ‘ClrD’ (giving a passing NPD score of ’13.3’), and a VOC sheet for ‘Fast motion handling’ (with a passing NPD score of 14.2). In Table 3 (representing one case study project) there were 35 ‘passing’ sheets (of VOC and VOE quality of ideas). We then entered all NDP scores that had achieved a ‘pass’ into the GoldSim software (www.goldsim.com), for each NPD project, to simulate the revised QFD HOQ process model. The software performed all the workflow and calculations. A resulting database was generated and exported as an Open Office Calc spreadsheet whereupon we double-checked that all VOC idea and VOE features were processed properly. We then imported the spreadsheet into LISREL (www.ssi.com) and verified that all NPD scores were in tact. The ROI was calculated by each case study organisation from revenue/investment data, after the product had been in the market six months.
ROI is the best measure of NPD performance (McNally et al., 2009). We acknowledge the ROI measure was a three-phase timeframe after ideation (the latter being the unit of analysis here), but we argue it was the most objective quantitative measure of ideation success available. The case study organisations defined a successful NPD project as having a positive ROI ratio, which they coded as a ‘PASS’ (1), with failing projects coded as ‘FAIL’ (0). In anticipation of NPD community of practice challenge, we used binary logistic regression to prove that ROI was a statistically significant indicator of the NPD success or failure rating (from the case study company). The results supported this hypothesis, with a -0.0 log-likelihood ratio, a goodness of fit result (G=33.542, DF=1, P=0.000), and a high measure of association between the dependent ROI and predicted pass/fail probability (Somers D=1.00, Goodman-Kruskal Gamma=1.00, Kendalls TAUa=0.47, N=153). Thus we felt confident to be able to use the coded ‘pass (1) failure (0)’ field for testing all 26 projects.
4 RESULTS AND DISCUSSION First we calculated descriptive estimates in LISREL to ensure the data met the statistical assumptions (following the recommendations of: Hair et al., 2006). The Anderson-Darling and Kolmogorov-Smirnov normality estimates of ROI and NPD score (the dependent variables) were acceptable (with a p-value of approximately 0.05). As summarised in Table 5, 17 of the NPD projects were considered successful, while the remaining 9 were not. The mean of all NPD scores in all 26 projects was 5055 (SD=1515). A t-test on overall success ROI mean versus overall failed ROI mean (bottom row in Table 5) demonstrated they were significantly different (T=-5.50, DF=9, P=0.0004). Thus, at a high level we could significantly differentiate between ‘passing’ and ‘failing’ projects, using the ROI
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Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
Table 5. Descriptive statistics of NPD projects across case studies Company
Projects successful 1
ROI mean 5
NPD mean
0.096
Projects failed
5504.3
ROI mean 3
-0.210
NPD mean 3275.1
2
4
0.138
6169.8
2
-0.100
2726.0
3
4
0.188
6312.1
2
-0.005
3620.4
4
4
0.173
6085.0
2
-0.120
3560.2
Total
17
0.145³
5987.6³
9
-0.118³
3293.2³
³ t-test significantly different, p<0.001 (two-tailed).
(calculated from company-supplied data) and NPD score (computed from the NPD focus group simulations that were completed in this study). The NPD score means from the process simulation are shown grouped by case study company and overall total in Table 5 (for example in company 4, the coefficient rank NPD score mean was 3560.2 for the two failed projects). A t-test confirmed that the overall successful NPD score mean and overall failed NPD score mean were significantly different (T=-8.51, DF= 17, P=0.0000, N=26). Hence, from this we concluded that overall, the revised QFD HOQ process model effectively simulated successful and failed projects. Next we wished to test the hypothesis that the quality of idea model could differentiate between successful and failed NPD outcomes at the individual project level of analysis. Furthermore we wanted to also include the case study company as a control factor to detect if variations within the NPD teams and/or organisational context were
instead impacting the results. We leveraged the multilevel capability of the data (company code, NPD project number and NPD score) to create a general linear model in LISREL. We hypothesized that company would not be associated with the NPD score while at the same time the downstream product pass-fail status would in fact be strongly associated with NPD score. We used MANOVA to test this, as shown in Table 6. MANOVA estimates the levels of each factor in terms of the combined impact on NPD score (from the quality of idea prioritisation and processed through the revised QFD HOQ methodology). In Table 6, the key measures are the Eta² (which estimates dependant variable effect size using the coefficient of partial determination similar to adjusted r²), Wilk’s Lambda (multivariate association), as well as Meta² (which is the multivariate version of Eta²). Of the four multivariate predictive estimates, Wilk’s Lambda was chosen here to test the hypotheses as Lawley-
Table 6. MANOVA of QFD HOQ and company context on project success/failure NPD score Factor (n=26) QFD HOQ Eigen analysis
PillaiBartlett
Roy’s GCR
Multivariate (Meta²)
0.238³
3.212³
0.763³
3.212³
0.76
0.84
0.893
0.119
0.107
0.119
0.11
Cumulative
Vector
1.0
0.000276
Eta²
42721163
0.744
67.45³
Company
1569623
0.027
Error variance
13107391
0.228
Matrix factor
Eigen
Proportion
Pass/Fail
3.212
1.0
Company
0.1198
1.0
Pass/Fail
1036
LawleyHotelling
SS seq
Manova F
1.0
Wilk’s Lambda
0.000276
³p<0.001
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
Hotelling, Pillai-Bartlett, and Roy’s GCR tend to result in the same decision, while the former is most immune to violations of the multivariate assumptions (Hair et al., 2006), but we should acknowledge it is not necessarily recommended over the other estimates for small sample such as this one (n=26). A lower Wilk’s Lambda ratio indicates higher association. The results (as condensed in Table 6) were supportive of the hypothesis, indicating that company did not impact the team ideation outcome (NPD score) while instead the pass/fail NPD outcome (based on historical data) was strongly linked to the NPD score. First, in the ANOVA results, the ETA² suggests 74.4% of the QFD HOQ ideation NPD score variance was explained by the actual pass/fail product status. This carried through in the MANOVA, where a statistically significant Wilk’s Lambda strength of association (0.238) was used to prove that NPD score explained 76% of the multivariate variance between the ‘pass/ fail’ product outcomes. Additional evidence was listed in the partial correlations Eigen analysis (bottom of Table 6), where the pass/fail Eigen coefficient was 3.212 (a large amount as compared with company at 0.1198). All of the MANOVA estimates for company were insignificant (and thus cannot be interpreted). Nonetheless, the low ANOVA (F=0.84, P=0.488) and ETA² of 2.7% for company shows it does not capture much NPD score variance, and likewise, the MANOVA results were insignificant for any differences in companies (Wilk’s Lambda=0.893, F=0.84, DF=[3,21], P=0.488). A post-hoc test was performed to prove a specific organisation/industry was not the basis for a product ROI ratio (at least based on the cases and their historical data). This was an important step otherwise we would not know for certain if the higher performing NPD teams were simply better in certain companies, as opposed to our hypothesis that the teams were equal and that our methodology was an effective differentiator. To accomplish that, we used ordinal logistic regres-
sion to estimate if NPD ROI was attributed to the case study company. The results supported this hypothesis; the calculated NPD ROI had a very low association with a specific case study company (Somers D=0.19, Goodman-Kruskal Gamma=0.20, N=252), and case study companies had no predictive probability for ROI (Loglikelihood=-35.478, G=0.691, DF = 1, P=0.406).
4.1 Limitations Generalizability to other industries (display technology manufacturing) and/or countries are the main caveats we emphasize (only four organisations in Europe and Asia were investigated). Secondly, the number of NDP projects was small (n=26). Thirdly we used process simulation of focus group ideation outcomes in a virtual (online) setting. The ideation session involved a second round of brainstorming after the team had previously designed the products, therefore there likely could have been some ‘cognitive improvements’ in the quality of idea prioritisations due to the learning curve effect. Fourthly, since the ROI was calculated three phases after the ideation (QFD HOQ phase 1 versus after QFD phase 4), and based on six months worth of market sales activity, these findings may not generalise to other industries that have very different design and/or production durations (or an ROI sampled later in the product life cycle). Finally, a large part of our design ideology was driven by the assumed need to have an objective quality of idea prioritisation framework for NPD teams that have diverse ethnic cultures and/ or languages – albeit we know from experience this was true in these cases, we did not actually prove a statistical effect (as there was no control group available). Certainly that would be a good follow up study and based on multicultural research (Strang, 2009), we also suggest assessing the impact of ethnic culture.
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5 CONCLUSION We documented this study of four e-businesses across Europe and Asia to demonstrate that NPD process innovation was needed for existing large e-enterprises. We argued that e-entrepreneurship is not just for new e-ventures; all e-businesses need to continuously innovate NPD. One of the biggest challenges we found in these enterprises was the cultural and language diversity of the geographically-dispersed virtual teams impacted their innovation process. Furthermore, diverse cultures and language dialects confounded the voice of customer market needs in terms of NPD team understanding and accuracy in the product designs. Additionally, the NPD processes were not formally documented, the approaches varied across the regional teams, and a few management fast-track short-cuts were observed. Overall the economy had been worsening and there seemed to be an overall evolution of NPD methodologies across e-businesses in Europe and Asia, to better leverage multicultural virtual resources through the Internet. This new NPD methodology was modelled after, but significantly differed from, the contemporary QFD phase 1 approach cited in the extant literature. A key improvement introduced here was that the voice of customer (VOC) + voice of engineer (VOE) intersections mathematically carried a greater weight (as compared with the original QFD 1-5-9 scale). For example, in the traditional QFD approach, the range from a bad to a strong VOC idea and VOE feature intersection was a low of zero versus a high of nine. The improved methodology would not accept a poor idea while a complimentary VOC idea and VOE feature could score a high of 52.5 (theoretically). These prioritized metrics were made culturally objective by using industry terms derived from NPD best-practices and they were applied to score designs after all ideas have been brainstormed. The revised model increased the objectivity and numerical precision by utilising the quality of
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idea coefficients for VOC and VOE in the QFD matrix. Alternative techniques for VOC estimation (e.g., conjoint analysis) were advocated and could be substituted for VOC prioritisation. The original QFD method ignores useful mindset of designer (MOD), technical benchmarking (TB) and competitive benchmarking (CB) weights in the quantitative assessment—this model leverages all of these valuable scores in the calculations. In a large market, the CB and TB totals in this revised model will reflect the relative competitive positioning of the organisation (an important factor in NPD design to avoid wasting investments). Also, the traditional QFD procedures do not ‘score’ a final team design for comparing with other product proposals. This revised model leverages all QFD values and produces a single overall NPD design score which can be compared to other competing NPD designs so as to allocate scarce funding for QFD phases 2-4. The quality of idea concept can be adjusted for other ideologies, such as less or more criteria, as well as alternate ideation response scales (other than ordinal 0-5). The matrix algebra we imposed could be adjusted as well, such as changing addition to multiplication, and rescaling the MOD or competitive-technical benchmarking factors. Furthermore, we acknowledged the importance of leveraging market survey/test results from conjoint analysis (or similar results if available), to the extent of suggesting it might replace the VOC quality of idea priority coefficient with an appropriate normalised score. This makes this model scalable to other e-enterprises, industries and cultures. While generally-accepted rigorous statistical techniques were used to show support for the hypothesis that this would work in practice, admittedly only four multinational cases and 26 projects were studied (and there were other limitations noted earlier). Nonetheless an interesting and plausible innovation improvement process was presented and it has worked in practice for these four e-enterprises, which is something we
Simulating E-Business Innovation Process Improvement with Virtual Teams Across Europe and Asia
suggest other researchers consider investigating in additional contexts. Finally, all of the software and literature cited in this study are essentially low-cost or free (in the public domain), and they are therefore readily available to small, medium-sized, or large e-enterprises in any English-language-educated culture or country.
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This work was previously published in International Journal of E-Entrepreneurship and Innovation (IJEEI), Volume 1, Volume 1, edited by Suphan Nasir, pp. 22-41, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 4.11
Organizational Learning During Changes in Estonian Organization Ruth Alas Estonian Business School, Estonia
ABSTRACT This chapter analyzes organizational changes and organizational learning in Estonian companies. During the last decades, Estonia has transformed from being an authoritarian, centralised, totalitarian, socialist state to a democratic country with a free market economy and different attitudes and values. Empirical study in Estonian organizations indicates connections between the institutionalization stage at the societal level and types of changes and organizational learning within organizations. DOI: 10.4018/978-1-60960-587-2.ch411
The author proposes the model connecting changes and learning in organizations during societal transience, which could help managers of international companies to plan and implement changes in subsidiaries locating in countries in transition.
INTRODUCTION The modern organisations operate using three types of capital: physical (plant and equipment), financial (cash and investment), and intellectual, with the latter continuing to grow rapidly in importance (Wall, 2005). One reason for this is a
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Organizational Learning During Changes in Estonian Organization
steady decline in the number of workers encaged in traditional industries and an increase in those working in service industries, such as banking and telecommunication. Therefore, the tangible assets, those that tend to appear on balance sheet, are now less important than employee and customer satisfaction, innovation, and corporate culture. At the same time, increased globalization of business has resulted in increased global competition and much greater requirements placed upon employees today than decades ago (Quinn & Spreitzer, 1997). This pressure may seem especially high for employees from former Soviet countries, including Estonia, because these demands are fundamentally different to those made under the Soviet regime. Transformation from being an authoritarian, centralised, totalitarian, socialist state, to a democratic country with a free market economy is a process in which a complex set of normative and operating principles, embodied in historical structures, systems, and practices becomes replaced by another unknown set (Clark & Soulsby, 1999, p. 18). Several Estonian companies have experienced several waves of changes. For example, Kalev is the biggest and the oldest sweet factory in Estonia. The birth of the Estonian confectionery industry dates back to 1806, when a pastry cook, Lorenz Caviezel, opened a confectionery business in Tallinn. Soviet occupation in 1940 was the time of nationalization. Throughout the Soviet period, Kalev produced sweets at full capacity for Estonia, as well as almost the whole of the former Soviet Union, also supplying the “uncrowned rulers” of the Kremlin. After gaining independence in 1991, the state enterprise of Kalev was founded on the basis of the Kalev confectionery factory. In 1995, the privatisation of the state enterprise became possible and a public limited company was founded. Since 1996, the shares of the public limited company Kalev (AS Kalev) have been listed on the Tallinn Stock Exchange. During Soviet period, the Soviet state was responsible for guaranteeing work for everyone
and so, enterprises were internally overstaffed, and passive and work places were over-secured (Liuhto, 1999, p. 16). Organizational change has been seen as an individual-level phenomenon because it occurs only when the majority of individuals change their behavior or attitudes (Whelan-Berry, Gordon, & Hinings, 2003). The challenge has been to internalise a new type of organisational behaviour in order to operate successfully under unfamiliar conditions. Learning, both collaborative and individual, and the ensuing corporate changes, are seen as a prerequisite for the success and survival of organisations. According to Edwards and Lawrence (2000), the emergent change to processes in transforming countries can only be truly understood by examining the constitutive practices of individuals and groups at the local microlevels of the economic system. Research in countries going through transformation has shown that the transfer of knowledge from market-economy practices often fails because of institutional and cultural tensions and conflict (Clark & Geppert, 2002). The research question is which type of learning is needed in organizations during social transience in society. The object of the research is learning in Estonian organization during implementation of changes. The structure of this chapter is shown in Figure 1. In this chapter, a theoretical framework for studying organizational changes and learning is followed by an analysis of the interviews about changes in Estonian companies. The author then proposes the model connecting changes and learning in organizations during societal transience.
THEORETICAL BACKGROUND The Role of Intellectual Capital in the Organization A true value of a company’s performance lies in its ability to create sustainable value by pursuing a business vision and its resulting strategy. Success
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Figure 1. The structure of the chapter
factors that should be maximized are focused onto four distinct areas (Edvinsson & Malone, 1997). The “financial focus” on the top of the house is the past of the firm. It includes, in addition to the balance sheet, also such new measures as ratios performance, speed, and quality. The walls of the house are the distinct type of intellectual capital “costumer focus,” and ”process focus” as a part of structural capital. The walls indicate the present situation. The other part of structural capital, “renewal and development focus,” forms the foundation of the house and indicates how company prepares itself for the future through employee training and new product development. “Human focus”’ has been considered as central part of intellectual capital, the heart, the intelligence, the soul of the organisation. It is the only active force in organisation, commonly shared fifth area. Human capital is the primary source for organisational innovation, and renewal (Agor, 1997) distinguishes an organisation from others and helps to build competitive advantage. The precondition for renewal and development of organization is the ability to make changes and learn as the organization.
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Implementation of Organisational Changes An effective organisation meets the expectations of multiple stakeholders including shareholders, employees, suppliers, customers, and the society in which it is located. It also demands the loyalty and commitment of these stakeholders to the long-term survival of the organisation and of the social network in which it is embedded (Kochan & Useem, 1992). Both the popular press and academic literature tend to consider organizational change as a stepby-step process leading to success. The basic model, developed by Lewin (1989), consists of three steps: unfreezing, moving, and refreezing. Tichy and Devanna (1986) got also three steps: (1) recognizing need for change, (2) creating vision, and (3) institutionalizing change. Most theorists divide change into two groups according to scope: change taking place within the given system, and change aiming to change the system itself. One of the most popular classifications divides changes as first-order change and second-order change. First-order change helps one to manage current strategy more effectively and efficiently (Bartunek, 1993). It provides a method for managing stability. This type of change proceeds via a sequential step-by-step assessment, guided by a
Organizational Learning During Changes in Estonian Organization
specific objective, making systematic and rational evaluations of an organisation and its environment. A first-order change cannot produce transformation because it lacks the creativity to discover new strategic ideas (Hurst, 1986). Second-order change is more difficult to carry out because information gathering in an organisation will tend to reify the rules, culture, strategy, and core processes that make up its current paradigm (Nutt & Backoff, 1997). Second-order change calls for innovation in order to lead the change. It searches for agreement about what the end result should be, and then considers how the organisation could be changed to meet these new expectations. Transformation calls for a second-order change process (Watzawick, Weakland, & Fisch, 1974). First-order change stresses growth and single loop learning. Second-order change stresses development and double loop learning. In the second-order change process, change agents should gather information without value judgements. This enables new ideas to emerge (Pribram, 1983). Ackerman (1986) describes three types of organisational change: (1) developmental change, (2) transitional change, and (3) transformational change. Developmental change improves what already exists through the improvement of skills, methods, or conditions. Transitional change replaces current ways of doing things with something new over a controlled period of time. Transformational change means the emergence of a new state, unknown until it takes shape, out of the remains of the chaotic death of the old state. Burke and Litwin (1992) have developed a model for making a distinction between two types of deeper change. They argue that transformational change occurs as a response to the external environment and directly affects the organisational mission and strategy, the leadership, and the culture. Transitional change deals with psychological and organisational variables that predict and control the motivational and performance consequences of the work group climate (Burke & Litwin, 1992).
The author argues that in order to describe the changes that have taken place in Estonian companies over the last decades, we need more than two types, therefore, Ackerman’s (1986) classification is applied in analysis. The most difficult part of the whole change process is getting it started (Hendry, 1996). Past experiences and learning have a significant part here (Schein, 1992).
Capacity to Learn, Learning Organization, and Organisational Learning The ability to learn, continually, means remaining open to experience, understanding instances when things do not work out as expected, spotting shifts in the environment, seeking new information, learning from customers and everyone else, challenging assumptions and beliefs, moving outside of comfort zone, and turning into inner creativity and wisdom in order to change behavior in response to external changes and to develop ever-greater capacity to achieve results (Jaffe, Scott, & Tobe, 1994, p. 221). The organization’s capacity to learn is critical resource. There are three key criteria that lead to success (Probst & Büchel, 1997): First responsiveness to the needs of the members of the organization who will be affected by change; second the learning capacity of the organization; and finally, organization’s capacity for action. The concept of learning organization presumes ability to adapt to change. Management must anticipate, or at a minimum, recognize problems and use learning skills to solve them (DiBella & Nevis, 1998). Accelerating change and continuing advances in network information technology have stimulated a growing interest in organization learning and knowledge management, the development of an organization’s intellectual capital (Edvinsson & Malone, 1997). An organization skilled at creating, acquiring, and transferring knowledge, and at modifing its
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behavior to reflect new knowledge and insights, is called learning organization (Garvin, 1993, p. 80). Learning organization facilitates the learning of all its members and continuously transforms itself (Pedler, Bourgoyne, & Boydell, 1991). Organisational learning has been generally defined as a vital process by which organisations adapt to change in their social, political, or economic settings (Rosenstiel & Koch, 2001). Tsang (1997) defines organisational learning, in more detail, as the learning that occurs in an organisation that produces real or potential change after a shift in the relationship between thought, organisational action, and environmental response. Emphasis on the connection between organisational learning and the environment, in both definitions, indicates that certain types of change in an environment may require a particular type of learning. One critical issue in the literature, dealing with the learning organisation, is the relationship between individual and organisational learning. According to Senge (1997), organisations learn only through learning individuals. Individual learning has been viewed by different theorists as a rational, information-based system or as a socially constructed process. Organisational learning emphasizes the social constructed process, which proceeds through sharing interpretations of events and through reflection on these interpretations (Mahler, 1997). Without individual learning, organisational learning does not occur. However, individual learning does not guarantee organisational learning. As knowledge sharing is a human behavior that is influenced by both the environment and other employees in the environment (Small & Sage, 2005/2006), collaborative learning is needed. There are different views about the process of organizational learning. According to Dewey (1933), organizational learning consists of four processes:
1. Discovery. By this process errors or gaps between desired and actual conditions are detected. 2. Invention. It involves diagnosing the causes of the gap and inventing appropriate solutions to reduce it. 3. Production. It includes implementing solutions. 4. Generalization means drawing conclusions about effects of the solutions and applying this new knowledge to other situations. These processes are interrelated. Mumford (1999) developed a learning cycle consisting of four actions: (1) having an experience, (2) reviewing, (3) concluding, and (4) planning. According to Probst and Büchel (1997), the process of organizational learning is characterized by: (1) change in organizational knowledge, (2) increase in the range of possible actions, and (3) change in subjective constructions of reality. Organizations acquire new knowledge differently. DiBella and Nevis (1998) have identified four organizational learning styles. They define organizational learning style as a function of how organizations learn, and is determined by knowledge source and learning scope: • •
•
•
Correction: Learning to adjust or correct what we already doing. Innovation: Learning from their own operations and use that knowledge transformativly, creating new products or process innovation. Adaptation: Making incremental changes or improvements to knowledge acquired externally. Acquisition: Acquiring what has been learned by others and then incorporating that learning into their own operations. It involves some amount of acquisition.
In order to answer the research question, which type of learning is needed in organizations during
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social transience in society, the empirical studies were conducted in Estonian organizations about implementation of organizational changes and organizational learning after joining European Union. The theories of learning from Dewey (1933), Mumford (1999), DiBella and Nevis (1998), and Probst and Büchel (1997) are applied for deeper analysis of elements of process of change.
EMPIRICAL STUDY IN ESTONIAN ORGANIZATIONS In 2001, structured interviews about the implementation of organizational changes and learning during this process were conducted (Alas & Sharifi, 2002). Interviews were conducted with members of top management teams from Estonian companies. These changes took place in the 1990s, during a period of social transience in Estonian society. In 2005, when economic situation had already stabilised, interviews were again conducted with members of top management teams, from 105 Estonian organizations, about changes implemented. The interview questions were similar during both interviews. In order to evaluate the dynamics, the results from both interviews are compared. Examples from the interview transcripts have been used to illustrate the statistics.
Results According to types of changes during the first survey in 2001, 90% of the changes were transformational in terms of scope, involving changes in strategy, mission, leadership style, or culture. For year 2005, only 64% of changes were the deepest. In change process, most of attention was turned to first step: unfreezing. Institutionalization took place around 20% of organizations only. During changes in Estonian organizations, formal and nonformal learning took place. Man-
agers learned that in order to achive employee involvement, “it was necessary to work out a way to sell the new vision to our employees and then look further together about how to take it to the clients.” (interviewee 79) This was nonformal learning. The results were rather positive; there was no resistance to change in 44.6% of transformational changes and 48.4% of transactional changes. In 38.7% of transactional changes and 53.6% of transformational changes, the reaction was negative. There were more neutral employees during transitional changes than during transformational. Usually, reactions were negative in the beginning, but in the process of implementing the changes, if people could already see the positive results and positive changes for themselves, the reaction changed to a positive one. “Emotions were rather different within the company and the confused employees had to go through periods of hesitation, questions and fear. Having seen the positive direction of the changes, the feelings of the employees changed in the direction of satisfaction.“ (interviewee 51) The greatest difficulty was to change habits and the traditional ways of doing things: 41.9% for transactional and 48.2% for transformational changes. Also, the need for the changes was not always understood: around 25% for both types of changes. There were problems with providing training and mentoring, in both cases around 20%. Difficulties, stemming from organizational cultures, arose in 10.7% of transformational changes. This problem was less significant during transactional changes; only 3.2% reported this. Managers tried to analyse the sources of resistance beforehand: “People were afraid of losing their jobs.“ (interviewee 5) “We understood that the success of the implementation process was mainly dependent on the middle managers and on how well they could explain the need for the changes to their employees.“ (interviewee 35) The most common reasons for resistance in 2001, inertia of thinking and fear of the unknown,
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dominated also in 2005. Also, employees often found changes unclear and too quick. The lessons learnt from the changes were similar according to both surveys. Managers realized the need to behave differently, recognized the need for more explanation and for more preparation during transformational changes. This was nonformal learning. Communication was the most popular strategy for overcoming resistance, in 48% of both types of changes. “It is necessary to talk about everything, and if there is nothing to be said, this has to be made clear as well.” (interviewee 17) or “The chairman of the board started organising regular informative meetings that were meant for all the employees. At those meetings he explained the reasons for the change and the goals of the company. These meetings were also aimed at creating a feeling of working “side by side” i.e. the employees worked not only to achieve their personal goals but to achieve the company goals through their contribution.” (interviewee 67) Also, “to make communication more efficient, several formal and informal channels of information were established. Among the formal channels were the Intranet i.e. the in-company home page, in-company newspaper, informative meetings to all the employees, a scheme of meetings, strategic seminars for the leaders of the major functional divisions, the division of managers’ working time between different sub-institutions, regular meetings with trade union representatives.” (interviewee 31) Special training sessions organized for employees could be considered as formal learning. “When changes started appearing within the concern and in the surrounding environment, we started with training the managements of the companies. All the company managers passed a two stage training session at Company University “X in Change”. The training session dealt with the whole process of change by beginning with supplying information to the employees and cli-
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ents and finishing with the probable dangers and tackling them” (interviewee 81) In some companies, steering tactics was used: “The implementation of changes was monitored via weekly meetings and informative briefings. The deadlines were generally met. In case any problems appeared with the deadlines, an immediate plan of action was made to resolve the situation.” (interviewee 11) Managers organised “preparation of interim reports in order to find out the problems, what disturbed people the most and what they were afraid of.” (interviewee 19) Informing employees helped to handle emotions: “Before we informed the people there was a lot of electricity, ignorance and dread in the air. After being informed about the changes, people became scared, but this feeling passed rather quickly.” (interviewee 32) Handling emotions was necessary because, “The organization went through several emotional stages –– confusion and loss of understanding, fear about the future and finally enthusiasm about the challenges opening up with the new solutions.” (interviewee 13) Also, “using an outplacement programme helped to avoid excessive emotions and prepared those people who were to be made redundant for competition in the labour market.” (interviewee 9) Handling power issues helped to remove obstacles in the implementation process: “the “old time” middle management were replaced.” (interviewee 29) To summarize the lessons learnt from implementations of changes nonformally, the following points could be made: • •
More people should be involved in the process of discussion at the beginning stage. The processes should be described and mapped immediately. This would make it possible to approach the changes in a rather more process centred than function centred manner.
Organizational Learning During Changes in Estonian Organization
• •
•
•
The relationship between core and support services should be described. The company should try to preserve a positive internal climate and create a belief in the employees as part of the results. It is essential that people learn and develop through the changes. Superiors should talk more to subordinates, ask for solutions to problems, and give them more freedom in their activities. It is necessary to talk to the employees more at different levels in order to avoid the spreading of news in the form of gossip and the probable resulting confusion.
CONCLUSION AND DISCUSSION The management challenge for the 21st century, according to Drucker (1999), is the integration of what were once several procedures into a single analysis. This chapter is an attempt to combine change research with theories of learning. Empirical study was conducted in Estonian companies, and results indicate that the types of organizational changes and the need for organizational learning are connected to institutional environments. During this societal transience, transformational changes, deepest by scope, take place in most companies. During more stable institutional stages, organizations face a decreasing number of transformational changes. At the same time, transactional changes take place. It was especially hard to get changes started in a stagnated society with overstaffed organizations, lacking any knowledge of a market economy. In this situation, correction from organizational learning styles, defined by DiBella and Nevis (1998), was not enough; innovation, adaptation, and acquisition were needed. In 2005, when the transition to a free-market economy was completed, the main players have learnt from previous experiences with change. True involvement of employees (not only asking
for opinions and forgetting about them) began to take place, even already in the earlier stages of the planning phase. Communication has changed from being speeches and information travelling in one direction to listening and two-sided conversations and discussions. Also, collaborative learning was encouraged more. It could be concluded that Estonian managers have started to turn more attention to human side of change: development of learning abilities of organization has helped to increase knowledge sharing, which is basis for intellectual capital. As during implementation of organizational changes, most of attention was turned to first step; unfreezing and institutionalization took place only in one fifth of organizations, it could be concluded, that reflection, in most of cases, did not happen. Without reflection, which is prerequisite for increase in knowledge, learning process is unfinished and change in subjective constructions of reality does not take place. Therefore, it is crutial to take steps to continue changes until generalization could take place. For this purpose, the author developed a model of the interconnected processes of change and learning for transition countries. The proposed model could help managers of international companies to plan and implement changes in subsidiaries located in countries in transition (Figure 2). The reason why changes are undertaken in the organization is need to make the organization more valuable. Therefore, author applies Porter’s value chain model (Porter, 1985) as a basis in creating model for implementation changes in Estonia organizations. The goal of organizational learning is to increase the range of possible behaviours for implementing the necessary changes. In order to do this, people should first realise that changes have taken place in the external environment of the organisation. These changes trigger the change process, which is accompanied by learning. During the unfreezing phase, people realize that a gap exists between the existing reality in the organiza-
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Figure 2. Author’s model of the interconnected processes of change and learning for transition countries
tion and the situation required by changes in the environment. This constitutes new knowledge for the organization, and it takes time before everyone accepts this difference and a change in the collective understanding takes place. The next stage, moving, is full of experimenting with new behaviours. People experience new ways of doing things and the range of possible behaviours increases. In the institutionalizing stage, reflection takes place: participants review their positions, generalizations are made on the basis of experience, and conclusions are drawn for the future. A change in the subjective constructions of reality takes place. Transformational changes in organizations, taking place during societal transition, require a higher level of learning from the participants. Changes in the organizational knowledge base are essential. In order to achieve this, individual learning should develop and become organizational learning and organizations should then become learning organizations. Only an increase in the learning ability of organizations can increase the intellectual capital of the organization and ensure the successful implementation of change and the future competitiveness of the organization. This is especially true in during economic and social transition in country.
ACKNOWLEDGMENT Research was supported by ETF Grant 7537.
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This work was previously published in Knowledge Ecology in Global Business: Managing Intellectual Capital, edited by Miltiadis D. Lytras and Patricia Ordóñez de Pablos, pp. 15-25, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.12
E-Business Adoption by Jordanian Banks:
An Exploratory Study of the Key Factors and Performance Indicators Ali Alawneh Philadelphia University, Jordan Hasan Al-Refai Philadelphia University, Jordan Khaldoun Batiha Philadelphia University, Jordan
ABSTRACT Grounded in the technology–organization–environment (TOE) framework, we have developed an extended model to examine factors, particularly technological, organizational and environmental factors, which influence e-business adoption in Jordanian banks. For the purposes of our research some constructs were added to (TOE) framework such as IT/Business strategy alignment, adequacy of IT professionals, and availability DOI: 10.4018/978-1-60960-587-2.ch412
of online revenues. Other factors were excluded such as the global scope since our research is at the national level in Jordanian banking sector. The independent variables are the (technology readiness or competence, bank size, financial resources commitment, IT/Business strategy alignment, adequacy of IT professionals, availability of online revenues, competition intensity or pressure, and regulatory support environment) while e-business adoption and usage constitutes the dependent variable. Survey data from (140) employees in seven pioneered banks in the Jor-
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E-Business Adoption by Jordanian Banks
danian banking sector were collected and used to test the theoretical model. Based on simple and multiple linear regressions, our empirical analysis demonstrates several key findings: (1) technology readiness is found to be the key determinant of ebusiness adoption among the banks. (2) Bank size, IT/Business strategy alignment, and availability of online revenues were found to have significant influence on the e-business adoption within banks, while financial resources commitment and adequacy of IT professionals do not contribute significantly to e-business adoption. (3) Both of the competition intensity and regulatory support environment contribute significantly to e-business adoption in banks. By providing insight into these important factors, this paper can help further understanding of their role in the adoption and usage of e-business and examines the impacts of e-business usage on banks’ performance in terms of sales-services-marketing, internal operations and coordination & communication. The theoretical and practical implications of these results are discussed. By extension, this could enable greater e-business usage in banks, which could improve the Jordanian overall economy.
1. INTRODUCTION The banking and other financial services sector is one of the most advanced in the usage and diffusion of technologies. Being essentially information business, they do not produce physical products and have been trading electronically for decades. For these reasons hardly any other sector is better suited for e-business which, in fact, is progressing very quickly. ICT impacts on all aspects of the activity and is undoubtedly one of the main driving forces in the sector. Electronic business (e-business) is a major force in the global economy. Businesses and consumers alike increasingly engage in e-business. Despite the burst of the dot-com bubble, many firms continue to deploy e-business extensively
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in their enterprise value chains. Indeed, firms face a series of obstacles in adopting and carrying out e-business, particularly their ability to transcend significant technical, managerial, and cultural issues (Sato et al., 2001). The adoption and usage of electronic business (e-business) have emerged into an active research area in the information systems (IS) discipline (Straub et al., 2002). Drawing on the literature of (Barua et al., 2001), we define e-business as using the Internet to conduct or support business activities along the value chain. We focus on sales/services/ marketing, internal operations, and coordination & communication because we are studying banking services industry (Alawneh and Hattab, 2008). The financial services industry differs in important ways from industries such as manufacturing or retailing, and its use of IT and e-business technologies reflect those differences (Olazabal, 2002). Financial institutions are linked to customers and each other in an extensive network of interrelationships that is more complex, reciprocal, and less linear than traditional manufacturing and retailing industries (Mulligan and Gordon, 2002). There is a primary market in which customers interact with financial institutions such as retail banks, insurance agencies, real estate agencies and stock brokers. There is also a larger secondary market in which those institutions interact with each other and with others such as mortgage brokers, commercial banks, insurance companies, and investment bankers (Hess and Kemerer, 1994). Financial services, which are both immaterial and relatively standardized, and have hence already been widely affected by information technology innovations (Buzzacchi, and Mariotti, 1995), would therefore be one of the first arenas where that “new information economy” would arise (Dewan, Freimer and Seidmann, 2000). The nature of IT in this industry is complex and heterogeneous. On the front end, IT is used to execute and record customer transactions, whether they are handled in person, by phone, by
E-Business Adoption by Jordanian Banks
electronic funds transfer, or on the Internet. On the back end, funds are transferred among institutions via electronic transfer systems, such as Fedwire, CHIPS, and Swift, which handle hundreds of trillions of dollars in transactions yearly. Financial EDI systems are used to support information flows among institutions. Internal IT systems include a mix of packaged and custom applications that maintain account records and support internal financial and managerial functions. E-business technologies have the potential to add significant value in all of these areas. Most striking is the potential for Web-based applications to improve customer service. Loan applications and insurance forms can be filled out, stock trades initiated, bills paid, and funds transferred online with no human interaction required. Research tools such as mortgage calculators or retirement planning applications can be made available, and account information can be accessed online. On the back end, applications based on common Internet standards can enable data sharing across firms in an industry marked by limited standardization of IT systems. Internally, e-business applications can likewise improve integration of various proprietary systems to move toward “straight-through processing,” improving the links between decision (swap, credit extension, trade) and execution (funds transfer, account updates, settlement finality). There is substantial evidence to suggest that e-business is being embraced by financial institutions in developed and emerging markets to the extent that explosive growth is almost at hand. There are two different strategies for usage of ebusiness in banking sector: First, an existing bank with physical offices can establish a web site and offer Internet banking to its customer as an additional delivery channel. A second alternative is to establish an Internet-only bank or virtual bank, almost without physical offices. Recent years have seen the industry rapidly moving towards a “click and bricks” strategy that emphasizes an online supplement to the conventional banking
services. Banking institutions are using their web sites not only to provide classical operations such as fund transfer or accounts information, but also to provide stock trading, bill payments, credit card request and investment advice. Banks are endeavoring from conducting ebusiness to the provision of retail and small value banking products and services through electronic channels. It would run the gamut from direct deposits, ATMs, credit and debit cards, telephone banking, to electronic bill payment and web-based banking (Basel Committee Report on Banking Supervision, 1998). Electronic banking (e-banking) covers various operations that can be conducted from home, business or on the road instead of at a physical bank location (Turban et al., 2003). These operations include: retrieving account balances and history of accounts, fund transfers, check-book request, opposition to check and credit card payments… some banks also offer other services such as security trading, bill payments, etc. As technology evolves, different kinds of electronic business systems emerge, among these the Automated Teller Machine (ATM), phone banking, Internet banking and Mobile banking (Claessens et al., 2002). The term Internet banking refers to the use of the Internet as a remote delivery channel for banking services. Some banking institutions limit their Internet Banking services to an informational website. Others are using their web sites not only to provide the basic operations such as fund transfer or account details, but also to provide new services such as securities trading, bill payments, check book requests, credit card requests and investment advice. These organizations rushed to provide Internet based services in order to gain competitive advantage: These services permit to banks and other financial institutions to lower their overhead costs on one side and to add extra fees on the online services on the other side, increasing therefore their margins and profit base. Internet also permits
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E-Business Adoption by Jordanian Banks
to tap a larger client base with its positive impact on the banks turnover. Internet E-business technology represents a variety of different services, ranging from common automatic teller machine (ATM) services and direct deposit to automatic bill payment (ABP), electronic transfer of funds (EFT), and computer banking (PC banking) (Kolodinsky et al., 2004). The common motivation for banks to implement e-business is to provide a faster, easier, and more reliable service to clients, to improve the bank’s competitive position and image, and to meet clients’ demands. E-business may also provide other benefits. For instance, creating new markets, and reducing operational costs, administrative costs, and workforce are increasingly important aspects for the banks’ competitiveness, and e-business may improve these aspects as well. Banks are highly focusing on e-business for the last ten years that is expected to continue in order to achieve varieties of outcomes such as: creating consumer-centric culture and organization, securing customer relationships, maximizing customer profitability, and aligning effort and resource behind most valuable customer groups (Alawneh and Hattab, 2009). The value of e-business has become widely recognized, accepted and offered many benefits to banks as well as to customers. Organizations invest in information systems for many reasons, for example cutting costs, producing more without increasing costs, improving the quality of services or products (Lederer et al., 1998). Jordanian banks have invested heavily to leverage the Internet and transform their traditional businesses into e-businesses in the last ten years. Jordanian banks like their international counterparts have increasingly resorted to ebusiness to capitalize on the opportunities of business efficiencies. These banks adopted the B2C e-business model to increase market share, offer better customer service and to reach out to customers at greater geographic distances.
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An enhanced extended model based on assumptions of (TOE) framework has been developed, and explored the role and function of each factor in the framework. It is expected that the extended model will provide a deeper insight into banks ebusiness adoption and usage. Then, we will test that model using survey data from banks in the banking sector in Jordan that had already adopted e-business, i.e., Clicks-and-mortars banks which have supplemented their existing business using the Internet in their operations. We chose the above mentioned industry because it was one of the first movers to adopt the Internet technologies and to innovate with e-business applications. Data analysis will be performed to determine the role and influence of factors on e-business deployment and on bank performance. Our empirical survey was carried out in an interesting and homogenous market, the Jordanian Banking sector. Jordan is one of the regionally leading countries regarding the national IT infrastructure available for online services. Also, the population’s motivation and ability to conduct online transactions are one of the highest regionally.
2. AIMS AND MOTIVATION OF THE RESEARCH In essence, technological innovation diffusion and adoption rests on the three main contexts that surrounded any firm, the technological context, organizational context and environmental context, they are recognized the source of adoption of any technological innovation. Consideration of each of these various contexts and the relationships between them is necessary for a comprehensive understanding of e-business deployment in banks. Why some banks adopted and conducted e-business in doing their financial transactions whereas others didn’t is the problem that motivated this study, and because the lack of empirical examination of e-business adoption in Jordanian banking sector is another motivation of this study. In that
E-Business Adoption by Jordanian Banks
context, the aim of this study is to contribute to a better understanding of the e-business usage and its application to the sector of financial services to commercial banks in Jordan. From both research and applied perspectives there are few studies published on this topic. There is a need to combine and concentrate the efforts of academic researchers in a holistic approach to e-business technology deployment. There is a limited understanding of what are the key factors that affect e-business adoption in banks and there is currently no tested framework that unifies all relevant factors in an easy to understand and practical way. As such, one of the principal goals of this study is to develop an enhanced framework, which can explain e-business technology adoption in banks. Such a framework would benefit research in e-business-e-banking and also help to eliminate confusion as to where a bank should focus its efforts, strategies and investments for optimum organizational performance. There is a lack of substantial empirical studies in e-business adoption and deployment, as the majority of studies reported in the literature still rely heavily on case studies and anecdotes, with few empirical data to measure Internet-based initiatives or gauge the scale of their impact on bank performance, partly because of the difficulty of developing measures and collecting data. A more fundamental issue is the lack of theory to guide the empirical work. So far, the literature has been weak in making the linkage between theory and measures. Hence, there is a need for theoretical development.
3. E-BUSINESS IN JORDANIAN BANKING SECTOR Traditional branch-based retail banking remains the most widespread method for conducting banking transactions in Jordan as well as any other country. However, Internet technology is rapidly changing the way personal financial services are
being designed and delivered. For several years, commercial banks in Jordan have tried to introduce electronic business (e-business) systems to improve their operations and to reduce costs. Despite all their efforts aimed at developing better and easier e-business systems, these systems remained largely unnoticed by the customers, and certainly were seriously underused in spite of their availability. In this Internet age, when the customer is having access to a variety of products and services it is becoming very difficult for banks to survive. In this situation, when customer inquires are not met easily or transactions are complicated, the customer will asks for new levels services, and only chose those institutions who are making a real effort to provide a high level of quality, fast and efficient service through all the bank’s touch points, call centers, ATMs, voice response systems, Internet and branches. The financial sector in Jordan has witnessed media blitzes announcing electronic banking. Banks that have implemented e-business are showing up of being modernized; some of those that have not are drastically trying to catch up. The financial sector in Jordan is composed of the Central Bank of Jordan (CBJ), 37 commercial and/or investment banks, 39 insurance companies, 16 special credit institutions, the Social Security Corporation, a number of provident funds, and foreign exchange bureaus. It is considered as one of the better financial sectors in the region and generates in total close to 8% of the GDP (Gross Domestic Product). One of the weakest points in the financial sector is, with the exception of mortgage lending, the lack of long-term lending and the absence of secured loans (www.abj.org. jo, www.cbj.gov.jo accessed on 12/8/2009). It is worth mentioning that the percentage of Jordanian households who own personal computer 15.9%, Internet access 6%, 1,000,000 regular telephone lines, around a 1.6 million mobile telephony subscribers, 21 licensed Internet service providers, more than 500,000 Internet users and close to 250
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E-Business Adoption by Jordanian Banks
Internet cafes in the year 2004. However, Jordan is in the Guinness Book of World Records as the highest per capita in Internet cafes, and the number of Internet cafes located in the city of Irbid, is ranked number one in the world, with regard to so many Internet cafes located in a small region. It is worth mentioning that the number of Internet users in the world will reach three billion in year 2010 (www.moict.gov.jo, accessed on 1/9/2009). The banking sector is very dynamic and liberal in Jordan. Moreover, some of the commercial banks in Jordan are offering electronic services. Samples of these services are: 1. Internet banking: Arab Bank is the first bank to launch Internet banking service. This service has been started in Jordan in May 2000. 2. Internet Shopping Card (ISC): it provides convenient and easy access to on-line shopping transactions with small limits and it can be used at any website that displays the Visa logo. 3. WAP banking: customers can use WAP mobile phone and access their accounts. 4. SMS banking: customers can use a mobile and access their accounts. 5. Phone bank service: This provides access to customers’ accounts. 6. On-line stock trading: Jordan Kuwait Bank (JKB) offers this service in collaboration with its affiliate United Financial Investment Co. (UFICO). The service allows JKB customers to trade in Amman Bourse through UFICO’s website and settle the value of shares traded through JKB’s Internet banking service (Net banker) directly from their accounts with the bank. 7. Net banker: for performing banking transactions. 8. Mobile Banking: this service allows the customers to perform banking transactions by using a mobile.
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9. Automated Teller Machines (ATM): The banks are providing ATM services through their branches. 10. Cyber branch: Jordan Kuwait Bank (JKB) opened its first Cyber branch on the first of May 2001 in Sweifiyyah area. It is a comprehensive electronic bank providing banking services directly to the clients on a 24 hours basis. 11. Money transfer: money transfer service allows customers to transfer and receive money. 12. Pre-paid mobile cards: customers can buy the mobile prepaid cards electronically. 13. Banking via SMS: it enables the customers to receive information on their transactions through their mobile telephones. 14. E-com card: the E-com card is a pre-paid electronic card, which allows you to buy any product of the World Wide Web, the phone or mail order. This new product at Jordan National Bank (JNB) can help you minimize the risk of using your credit card on the Internet since the card has a fixed limit 25 JD. After you have used your card’s limit you can re-charge it within the card’s validity without the need for re-issuing a new card. 15. The call free hotline: the customer can call the bank free of charge. The bank staff will answer all inquiries. 16. WAP phone services: current account and savings account customers are eligible for using this service to facilitate balance inquiry, obtaining a simplified account statement, demanding a balance statement, demanding a checkbook.
E-Business Adoption by Jordanian Banks
4. THE TECHNOLOGYORGANIZATION- ENVIRONMENT (TOE) FRAMEWORK To gain a comprehensive view on what factors may affect the deployment of e-business, we adopt the TOE framework developed by Tornatzky and Fleischer (1990). The TOE framework identifies three aspects of a firm’s context that influence the process by which it adopts and implements a technological innovation: technological context, organizational context, and environmental context. Technological context describes both the internal and external technologies relevant to the firm. These include existing technologies inside the firm, as well as the pool of available technologies in the market. Organizational context is defined in terms of several descriptive measures: firm size and scope; the centralization, formalization, and complexity of its managerial structure; the quality of its human resources; and the amount of slack resources available internally. Environmental context is the arena in which a firm conducts its business––its industry, competitors, access to resources supplied by others, and dealings with government (Tornatzky and Fleischer, 1990). These three groups of contextual factors influence a firm’s intent to adopt an innovation, and affect the assimilation process and eventually the impacts of the innovation on organizational performance. A theoretical model for e-business use needs to take into account factors that affect the propensity to use e-business, which is rooted in the specific technological, organizational, and environmental circumstances of an organization. Reviewing the literature suggests that the TOE framework (Tornatzky and Fleischer 1990) may provide a useful starting point for looking at e-business use. The TOE framework identifies three aspects of a firm’s context that influence the process by which it adopts, implements, and uses technological innovations: (a) Technological context describes both the existing technologies in use and new technologies relevant to the firm. (b) Organizational
context refers to descriptive measures about the organization such as scope, size, and the amount of slack resources available internally. (c) Environmental context is the arena in which a firm conducts its business—its industry, competitors, and dealings with government (Tornatzky and Fleischer 1990, pp. 152–154). This framework is consistent with the innovation diffusion theory of Rogers (1983, pp. 376–383), in which he emphasized technological characteristics, and both the internal and external characteristics of the organization, as drivers for technology diffusion. Based on our literature review of (Zhu et al. 2003, 2004), we found that the TOE framework has consistent empirical support in various IS domains, such as electronic data interchange (EDI), open systems, and material requirement planning (e.g., Iacovou et al. 1995, Chau and Tam 1997, Thong 1999). As a generic theory of technology diffusion, the TOE framework can be used for studying different types of innovations. According to the typology proposed by Swanson (1994), there are three types of innovations: Type I innovations are technical innovations restricted to the IS functional tasks (such as relational databases, CASE); Type II innovations apply IS to support administrative tasks of the business (such as financial, accounting, and payroll systems); and Type III innovations integrate IS with the core business where the whole business is potentially affected and the innovation may have strategic relevance to the firm. We consider e-business a Type III innovation, in the sense that e-business is often embedded in a firm’s core business processes (e.g., making use of the open standard of the Internet protocol to streamline information sharing among various functional departments); e-business can extend basic business products and services (e.g., leveraging Internet-enabled two way connectivity to offer real-time customer service); and e-business can streamline the integration with suppliers and customers (e.g., using XML-based communication to increase the capability of ex-
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changing data on product demand and inventory availability throughout the supply chain). Prior IS research has sought to study Type I and Type II innovations, but relatively limited attention had been devoted to Type III innovations (Swanson 1994) until the recent studies of EDI and enterprise resource planning (ERP) systems (Iacouvou et al. 1995, Hart and Saunders 1998). E-business is a new Type III innovation and warrants investigation along with these innovations (Straub et al. 2002, Zhu 2004b). In particular, the migration toward the Internet and the transformation of traditional processes require firms and their subunits to orchestrate the coevolutionary changes to their technologies in use, business processes, and value chain structures to successfully assimilate the Internet technologies into their e-business initiatives (Chatterjee et al. 2002). The TOE framework has been examined by a number of empirical studies in various information systems (IS) domains. In particular, electronic data interchange (EDI), an antecedent of Internetbased e-business, has been studied extensively in the past decade. Iacovou et al. (1995) developed a model formulating three aspects of EDI adoption–– technological factors, organizational factors, and environmental factors—as the main drivers for EDI adoption, and examined the model using seven case studies. Their model was further tested by other researchers using larger samples. For example, Kuan and Chau (2001) confirmed the usefulness of the TOE framework for studying adoption of complex IS innovations. Drawing on the empirical evidence combined with literature review and theoretical perspectives discussed above, we believe that the TOE framework is appropriate for studying e-business usage. Based on the TOE framework, the use of e-business in organizations will be influenced by three types of antecedents: technological factors, organizational factors, and environmental factors (Zhu et al., 2004). One might ask why we need to develop a theoretical model for e-business, given that there are already several studies on
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EDI adoption. To answer this question, we need to articulate how e-business differs from EDI (or other previous Type III innovations) and explain the theoretical necessity of extending TOE to e-business. Although specific factors identified within the three contexts may vary across different studies, the TOE framework has consistent empirical support. Drawing upon the empirical evidence combined with the literature review, we believe that the TOE framework is an appropriate theoretical foundation for studying e-business adoption.
5. THE RESEARCH MODEL AND HYPOTHESES The proposed outline for the extended framework that will be developed and tested in this research is seen in Figure 1. It depicts the main statement of the problem. An important aspect of the problem is whether e-business technology is deployed if the bank uses adequately the factors of e-business technology adoption. To examine the points previously discussed and address the issues raised, we have formulated the following eight hypotheses based on the Figure 1. H1: The technology readiness or competence positively affects e-business adoption in the bank. H2: The bank size negatively affects e-business adoption in the bank. H3: The financial resources commitment positively affects e-business adoption in the bank. H4: The alignment of IT/Business strategy positively affects e-business adoption in the bank. H5: The availability of online revenues positively affects e-business adoption in the bank.
E-Business Adoption by Jordanian Banks
Figure 1. An extended framework of e-business diffusion (by researchers)
H6: The adequacy of IT professionals positively affects e-business adoption in the bank. H7: The competition intensity or pressure negatively affects e-business adoption in the bank. H8: The regulatory support environment positively affects e-business adoption in the bank.
6. PREVIOUS WORK A summary of some of the literature related to technological innovation adoption is given below. Zhu and Kraemer (2005) developed theoretically and evaluated empirically an integrative research model incorporating technological, organizational, and environmental factors, for assessing e-business use and value at the firm level, based on which a series of hypotheses are developed. The theoretical model is tested by using structural equation modeling (SEM) on a dataset of 624 firms across 10 countries in the retail industry. For e-business use, their study has examined six factors, within the TOE framework, as drivers of e-business use. For e-business value, their study has demonstrated that the extent of e-business use and e-business capabilities, both front-end func-
tionalities and back-end integration, contribute to value creation of e-business. The study found that technology competence, firm size, financial commitment, competitive pressure, and regulatory support are important antecedents of e-business use. In addition, the study found that, while both front-end and back-end capabilities contribute to e-business value, back-end integration has a much stronger impact [16]. Zhu et al., (2003) Based on (TOE) framework they examined the factors: Technology competence, Organizational factors (firm scope, size) and Environmental context (consumer readiness, trading partner readiness, competitive pressure) for studying E-business adoption by European firms using a survey on a sample size of (3100) firms Kuan and Chau (2001) confirmed the usefulness of the TOE framework for studying adoption of complex IS innovations. Based on (TOE) framework they examined the factors: Technological context (perceived direct benefits), Organizational context (perceived financial cost, technical competence) and Environmental context (perceived industry pressure/government pressure) for studying EDI innovation using a survey on a sample size of (575) firms [18]. Ramamurthy et al. (1999) posited the impact of EDI on firm performance as the consequence of
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technological, organizational, and environmental factors. Based on (TOE) framework they examined the factors: Organizational factor (management support, expected benefits, resource intensity, compatibility, costs) and Interorganizational factor (competitive pressure, customer support) for studying EDI innovation using a survey on a sample size of (181) firms. Their empirical results indicated that the impact of EDI on operational and market-oriented performance was significantly affected by these factors [19]. Thong (1999) Based on (TOE) framework he examined the factors: CEO characteristics (CEO’s innovativeness and IS knowledge), IS characteristics (relative advantage/compatibility, complexity), Organizational characteristics (business size, employees IS knowledge) and Environmental characteristics, for studying and developing an integrated model of information systems adoption in small business using a survey on a sample size of (168) firms [20]. Chau and Tam (1997) Based on (TOE) framework they examined the factors: Characteristics of the innovation (perceived barriers, importance of compliance) Organizational technology (satisfaction with existing systems) and External environment, for studying adoption of open systems using a survey on a sample size of (89) firms. Damanpour (1996) Based on (TOE) framework he examined the factors: Organizational complexity (organization size, horizontal complexity) and Contingency factors (environment uncertainty), for studying Organizational complexity and innovation using meta-analysis methodology on various innovations. Iacovou et al. (1995) developed a model formulating three aspects of Electronic Data Interchange (EDI) adoption––technological factors (perceived benefits), organizational factors (organizational readiness), and environmental factors (Interorganizational context and external pressure)—as the main drivers for EDI adoption, and examined the model using seven case studies. Iacovou et al., using the technology-organization-environment
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(TOE) framework, found that the impact of EDI on performance was directly affected by its level of integration with other IS and processes. Their model was further tested by other researchers using larger samples [23]. Swanson (1994) examined the three contexts of the TOE framework and contended that adoption of complex IT innovations requires a facilitating technology portfolio, certain organizational attributes such as diversity and sufficient slack resources, and a strong emphasis on the strategic environment. We extend this theoretical argument to the e-business environment: e-business is enabled by technology development, requires organizational enablers and may entail necessary business and organization reconfiguration, and may shape (and be shaped by) the strategic environment. Grover (1993) Based on (TOE) framework he examined the factors: Organizational factors (IS-related factors, firm size) Environmental factors (market assessment, competitive need) Interorganizational (IOS) factors (compatibility, complexity) and Support factors (top management support) for studying EDI innovation using a survey on a sample size of (226) firms.
7. RESEARCH FINDINGS: TESTING THE THEORETICAL HYPOTHESES 7.1 Hypothesis H1 Technological Context vs. E-Business Usage Table 1 and Table 2 summarize the results of simple linear regression for hypothesis 1. The table shows the standardized regression coefficient of each predicator, R, R2 and F, for all the predictors in linear regression analysis. The entire model has a significant effect on e-business usage (p<0.01). R2 In the entire model of the technological context explains 13.8% of the variance related to e-business usage. As shown in Table 1, the standardized coefficient (beta) value for the technological context is
E-Business Adoption by Jordanian Banks
Table 1. Results of simple regression analysis of e-business usage vs. technological context Model~ Technology readiness (H1)
Standardised Coefficient .372
t 4.703**
Equation R
.372
R2
.138
F
22.116**
**p<.01 *p<.05 ~ dependent variable: e-business usage
positive and significant (p<. 01), and thus supports hypothesis H1. Table 2 shows the dependent variable as three impacts of e-business usage are: sales-servicesmarketing, internal operations and coordination & communication. The technological context explains 7.4% of the variance of sales-servicesmarketing as an impact of e-business usage, 6.4% of the variance of internal operations as an impact of e-business usage, and 18.7% of the variance of coordination and communication as a impact of e-business usage. Furthermore, the technology readiness contributes more significantly to e-business usage on coordination and communication (0.432) more than to e-business usage on internal operations and sales-services-marketing (0.254, 0.272) respectively.
7.2 Hypotheses H2-H6 Organizational Context vs. E-Business Usage The entire model has a significant effect on ebusiness usage (p<0.01). R2 In the entire model of the organisational context explains 54.6% of the variance related to e-business usage. As shown in Table 3, the standardized coefficient (beta) value for the bank size is positive and significant (p<. 01), and thus does not support hypothesis H2. The standardised coefficient (beta) value for the financial resources commitment is positive but is not significant and thus, the result does not support hypothesis H3. The standardised coefficient (beta) value for the IT/Business strategy alignment is positive and significant (p<. 01), and thus supports hypothesis H4. The standardised coefficient (beta) value for the IT professionals is positive but is not significant and thus, the result does not support hypothesis H5. The standardised coefficient (beta) value for the online revenues is positive and significant (p<. 05), and thus supports hypothesis H6. Further, IT/Business strategy alignment contributes more to e-business usage than the other factors. Table 4 shows the dependent variable as three impacts of e-business usage are: sales-servicesmarketing, internal operations and coordination & communication. All of the organisational context variables explain 44.4% of the variance of sales-services-marketing as an impact of ebusiness usage, 33.6% of the variance of internal operations as an impact of e-business usage, and
Table 2. Results of multiple regression analysis for impacts of e-business usage vs. technological context Independent
e-business Usage Impacts(Dependent)
Technological Context
Sales/services/marketing R2=.074 F=11.038**
Internal operations R2=.064 F=9.514**
Coordination and communication R2=.187 F=31.718**
Technology readiness (H1)
β=.272 t=3.322**
β=.254 t=3.084**
β=.432 t=5.632**
**p<.01, *p<.05
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Table 3. Results of multiple regression analysis of e-business usage vs. organizational context Model~
Standardised Coefficient
t
Bank Size (H2)
0.215
3.643**
Financial Resources Commitment (H3)
0.090
1.236
IT/Business Strategy (H4)
0.573
7.110**
IT Professionals (H5)
0.013
0.178
Online Revenues (H6)
0.132
1.923*
Equation R
0.739
R
0.546
F
32.262**
2
**p<.01 *p<.05 ~ dependent variable: e-business Usage
50.9% of the variance of coordination and communication as an impact of e-business usage. On the other hand, the bank size contributes significantly to e-business usage on sales-services-marketing and coordination & communication (0.271, 0.199) respectively, but the financial resources commitment don’t contribute significantly to e-business usage in any impact, while IT/Business strategy alignment contributes significantly to e-business usage on sales-services-
marketing, internal operations and coordination & communication (0.543, 0.476, 0.475) respectively, but the online revenues contributes significantly to e-business usage on coordination & communication (0.174) respectively. Finally, the IT professionals don’t contribute significantly to e-business usage in any impact.
7.3 Hypotheses H7-H8 Environmental Context vs. E-Business Usage The entire model has a significant effect on ebusiness usage (p<0.01). R2 In the entire model of the environmental context explains 29.7% of the variance related to e-business usage. As shown in Table 5, the standardized coefficient (beta) value for the competition intensity is positive and significant (p<. 01), and thus does not supports hypothesis H7. The standardised coefficient (beta) value for the regulatory support environment is positive and significant (p<. 01), and thus supports hypothesis H8. Table 6 shows the dependent variable as three impacts of e-business usage are: sales-servicesmarketing, internal operations and coordination & communication. All of the environmental context variables explain 32.9% of the variance of
Table 4. Results of multiple regression analysis of impacts of e-business usage vs. organizational context Independent
e-business Usage Impacts(Dependent)
Organizational Context
Sales/services/marketing R2 =.444 F=21.417**
Internal operations R2=.336 F=13.566**
Coordination and communication R2=.509 F=27.778**
Bank size (H2)
β=.271 t=4.159**
β=.084 t=1.185
β=.199 t=3.240**
Financial Resources Commitment (H3)
β=.027 t=.338
β=.124 t=1.401
β=.086 t=1.127
IT/Business Strategy (H4)
β=.543 t=6.087**
β=.476 t=4.880**
β=.475 t=5.665**
IT Professionals (H5)
β=-.014 t=-.175
β=-.144 t=-1.663
β=.105 t=1.469
Online Revenues (H6)
β=.104 t=1.371
β=.136 t=1.644
β=.174 t=2.335*
**p<.01, *p<.05
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Table 5. Results of multiple regression analysis of e-business usage vs. environmental context Model~
Standardised Coefficient
t
Competition Intensity (H7)
0.363
4.801**
Regulatory Support Environment (H8)
0.306
4.041**
Equation R
0.545
R
0.297
F
28.902**
2
**p<.01 *p<.05 ~ dependent variable: e-business usage
sales-services-marketing as an impact of ebusiness usage, 12.4% of the variance of internal operations as an impact of e-business usage, and 23.8% of the variance of coordination and communication as an impact of e-business usage. On the other hand, the competition intensity contributes significantly to e-business usage on sales-services-marketing, internal operations and coordination & communication (0.392, 0.219, 0.330) respectively, but the regulatory support environment contributes significantly to e-banking usage on sales-services-marketing, internal operations and coordination & communication (0.311, 0.214, 0.269) respectively.
8. CONCLUSION The main purpose of this research is to provide a context for better understanding of e-business adoption and how the factors of the technological, organizational, and environmental contexts that surrounding the banks are necessary for diffusion and deployment of e-business usage and its impacts on banks performance. This paper provides empirical evidence on factors that influence e-business deployment among commercial banks in Jordan. It contributes to the few pieces of literature on e-business experiences among banks operating in the Middle East region particularly Jordan. The study contributes several insights into banks e-business usage. First of all, this study sheds light on the e-business adoption in Jordanian banks and examines the impacts of e-business usage on the banks’ performance in terms of sales-services-marketing, internal operations and coordination & communication. Many managers and investors are facing strong pressure to answer the question of what are the most important factors that influence on adoption of any technological innovation they might deploy in their firms, and how their investments on that technological innovation will betterment the performance of firms in terms of sales-servicesmarketing, internal operations and coordination & communication, because it is not clear to them what are the most important and significant factors that determine adoption or non adoption of that
Table 6. Results of multiple regression analysis for impacts of e-business usage vs. environmental context Independent
e-business Usage impacts(Dependent)
Environmental Context
Sales/services/marketing R2=.329 F=33.540**
Internal operations R2=.124 F=9.717**
Coordination and communication R2=.238 F=21.430**
Competition Intensity (H7)
β=.392 t=5.305**
β=.219 t=2.596*
β=.330 t=4.192**
Regulatory Support Environment (H8)
β=.311 t=4.205**
β=.214 t=2.540*
β=.269 t=3.415**
**p<.01, *p<.05
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E-Business Adoption by Jordanian Banks
innovation. This study will help managers of banks to make critical decisions toward deployment of e-business technology in their banks. This study endeavors to find a conceptual model that joins and classifies these factors, unifying them with e-business usage and bank performance. The current research is limited to one industry type, the banking services as belong to the financial services industry. Nonetheless, other domains in the financial services industry (e.g., securities, brokerage, credit institutions, trading, loan, mortgage, credit cards and real estate) can be studied. The current study was conducted only in Jordan, and so future cross-cultural research would be valuable. It is assumed that there will be, to some degree, a difference in the factors affecting the adoption of e-business technology across different cultures.
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Basel Committee Report on Banking Supervision. (1998). Bank of International Settlements. In Molina and Ben-Jadeed 2004. Basel: Risk Management for Electronic Banking and Electronic Money Activities. Buzzacchi, L. M., Colombo, G., & Mariotti, S. (1995). Technological regimes and innovation in services: the case of the Italian banking industry. Research Policy, 24, 151–168. doi:10.1016/00487333(93)00756-J Chatterjee, D., Grewal, R., & Sambamurthy, V. (2002). Shaping up for e-commerce: Institutional enablers of the organizational assimilation of Web technologies. Management Information Systems Quarterly, 26(2), 65–89. doi:10.2307/4132321 Chau, P. Y. K., & Tam, K. Y. (1997). Factors affecting the adoption of open systems: An exploratory study. Management Information Systems Quarterly, 21(1), 1–21. doi:10.2307/249740 Claessens, J., Dem, V., Decock, D., Preneel, B., & Vandewalle, J. (2002). On the security of today’s online electronic banking systems. Computers & Security, 21(3), 257–269. doi:10.1016/S01674048(02)00312-7 Cooper, R. B., & Zmud, R. W. (1990). Information technology implementation research: A technological diffusion approach. Management Science, 36(2), 123–139. doi:10.1287/mnsc.36.2.123 Damanpour, F. (1996). Organizational complexity and innovation: Developing and testing multiple contingency models. Management Science, 42(5), 693–716. doi:10.1287/mnsc.42.5.693 Dewan, R., Freimer, M., & Seidmann, A. (2000). Organizing Distribution Channels for Information Goods on the Internet. Management Science, 46(4), 483–496. doi:10.1287/mnsc.46.4.483.12053
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Fichman, R. G. (2000). The diffusion and assimilation of information technology innovations. R. Zmud, ed. framing the Domains of IT Management: projecting the future through the past. Cincinnati, OH: Pinnaflex publishing. Grover, V. (1993). An empirically derived model for the adoption of customer-based inter organizational systems. Decision Sciences, 24(3), 603–640. doi:10.1111/j.1540-5915.1993.tb01295.x Hart, P. J., & Saunders, C. S. (1998). Emerging electronic partnerships: Antecedents and dimensions of EDI use from the supplier’s perspective. Journal of Management Information Systems, 14(4), 87–111. Hess, C. M., & Kemerer, C. F. (1994). Computerized loan origination systems: An industry case study of electronic markets hypothesis. Management Information Systems Quarterly, 18(3), 251–275. doi:10.2307/249618 Kolodinsky, J. M., & Hilgert, M. A. (2004). the adoption of electronic banking technologies by US consumers. International Journal of Bank Marketing, 22(4), 238–259. doi:10.1108/02652320410542536 Kuan, K. K. Y., & Chau, P. Y. K. (2001). A perception-based model for EDI adoption in small business using a technology-organizationenvironment framework. Information & Management, 38(8), 507–512. doi:10.1016/S03787206(01)00073-8 Lacovou, C. L., Benbasat, I., & Dexter, A. S. (1995). Electronic data interchange and small organizations: Adoption and impact of technology. Management Information Systems Quarterly, 19(4), 465–485. doi:10.2307/249629
Lederer, A. L., Maupin, D. J., Sena, M. P., & Zhuang, Y. (1998). The role of ease of use, usefulness and attitude in the prediction of world wide web usage. In Proceedings of the 1998 Association for computing machinery special interest group on computer personnel research conference, 195-204. Mulligan, P., & Gordon, S. R. (2002). The impact of information technology on customer and supplier relationships in the financial services. International Journal of Service Industry Management, 13(1), 29–46. doi:10.1108/09564230210421146 Olazabal, N. G. (2002). Banking: The IT paradox. The McKinsey Quarterly, 1, 47–51. Ramamurthy, K., Premkumar, G., & Crum, M. R. (1999). Organizational and inter organizational determinants of EDI diffusion and organizational performance: A causal model. Journal of Organizational Computing and Electronic Commerce, 9(4), 253–285. doi:10.1207/S153277440904_2 Rogers, E. M. (1983). Diffusion of Innovations (3rd ed.). New York: Free Press. Sato, S., Hawkins, J., & Berentsen, A. (2001). E-finance: Recent developments and policy implications. In Tracking a Transformation: E-Commerce and the Terms of Competition in Industries. Washington, DC: Brookings Institution Press, pp.64-91. Straub, D., Hoffman, D., Weber, B., & Steinfield, C. (2002). Toward new metrics for Net-enhanced organizations. Information Systems Research, 13(3), 227–238. doi:10.1287/isre.13.3.227.80 Swanson, E. B. (1994). Information systems innovation among organizations. Management Science, 40(9), 1069–1092. doi:10.1287/ mnsc.40.9.1069
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Thong, J. Y. L. (1999). An integrated model of information systems adoption in small business. Journal of Management Information Systems, 15(4), 187–214. Tornatzky, L. G., & Fleischer, M. (1990). The Processes of Technological Innovation. Lexington, MA: Lexington Books. Turban, E., King, D., Warkentin, M., & Chung, H. M. (2003). Electronic Commerce 2003: A managerial perspective. Prentice Hall. In Achour and Bensedrine, 2005. Zhu, K., Kraemer, K., Xu, S., & Dedrick, J. (2004). Information Technology Payoff in E-Business Environments: An International perspective on Value Creation of E-Business in the Financial Services Industry. Journal of Management Information Systems, 21(1), 17–54.
Zhu, K., & Kraemer, K. L. (2002). E-commerce metrics for Net-enhanced organizations: Assessing the value of e-commerce to firm performance in the manufacturing sector. Information Systems Research, 13(3), 275–295. doi:10.1287/ isre.13.3.275.82 Zhu, K., & Kraemer, K. L. (2005). Post-Adoption variations in usage and value of E-Business by organizations: cross-country evidence from the retail industry. Information Systems Research, 16(1), 61–84. doi:10.1287/isre.1050.0045 Zhu, K., Kraemer, K. L., & Xu, S. (2003). E-business adoption by European firms: A cross-country assessment of the facilitators and inhibitors. European Journal of Information Systems, 12(4), 251–268. doi:10.1057/palgrave.ejis.3000475
This work was previously published in Actor-Network Theory and Technology Innovation: Advancements and New Concepts, edited by Arthur Tatnall, pp. 113-128, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.13
The Influence of Internet Security on E-Business Competence in Jordan: An Empirical Analysis Amin Ahmad Shaqrah Alzaytoonah University of Jordan, Jordan
ABSTRACT The purpose of this study is to investigate the relationship between internet security and ebusiness competence in Jordan. The proposed conceptual model examined the antecedents and consequences of e-business competence of its empirical validity, the sample of 152 banking and exchange firms, and tests the posited structural equation model. Results consistently support the DOI: 10.4018/978-1-60960-587-2.ch413
validity of the proposed conceptual model, finding that both organizations realize the importance of e- business for their business and are willing to proceed further with e- business. In this regard, businesses are highly concerned about internet security, their awareness of security hazards, and minimal internet performance, concluding that public awareness of the ICT is very low. In light of the data collected, the study has proposed certain recommendations for the interested authorities to improve e- business in Jordan.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Influence of Internet Security on E-Business Competence in Jordan
INTRODUCTION
Historical Background
Several studies suggested that the internet has become a popular delivery platform for electronic business (Sheshunoff, 2000; Oyegoke, 1999; Birch, 1999; Evans & Wurster, 1997). Electronic business offered an easy access to their accounts 24 hours per day, seven days a week. Regardless of this convenience, adoption rates of electronic business in most developed countries have been very low. Therefore, of interest to ascertain and understand the factors that drive using e-business applications. Jordan, over a long historical period, is a country of commerce and its people are famous for their trading and business activities. When the internet project entered Jordan, the Jordanian business organizations faced challenging competition to have a pronounced presence on the web. The aims behind this growing attendance are commercial and for reducing communication costs. Most of the companies in Jordan started to build their own websites on the web and started using them to communicate with both current and potential customers. Saeed et al. (2005) results illustrated that firms with high electronic commerce competence exhibit superior performance and that customer value generated through Web site functionality partially mediates this relationship. Additionally, firms have now started to realize the danger that comes from using this modern method of business, which is the difficulty of having a secure business. Laudon and Traver (2008) explained that the e-commerce environment holds threats for both consumers and merchants; therefore, unsecure operations can cause a firm to lose successful business. There are misconceptions must be overcome before it can be deemed suitable for electronic commerce. A few of the commonly expressed concerns include reliability, security, scalability, ease of use and payment (Ambrose & Johnson, 1998). Hence, security is one barrier but there is the real underlying factor.
The internet as an information and entertainment technology has affected on education, government, publishing, the retail industry, banking, broadcast services, and health care delivery. Therefore, the scope of internet applications and forces is to deliver the internet resource to business utility. Thus, the core indicators on accept and usage of internet by households and individuals should be used in parallel with flourish e-business activities as a starting point of Jordan that planning to implement the information society. In Jordan, the ICT sector has grown rapidly during the last years and enormous investments recently have made. Jordanian governments, ICT companies are also making efforts to involve more people in the adoption of their products and services. Current Jordanian stakeholders such as the government, internet Service Providers (ISPs), are making a lot of efforts and resources to speed up the adoption of e-commerce applications. In general, most Jordanian business companies are subscribers to the internet service but the uses of the internet for business purposes are limited to one aspect of internet interaction facilities, i.e., communication. Active internet services in the business affairs of Jordanian banks and exchange companies has not reached the necessary level at which the Jordanian business sector can benefit from participating in e-commerce activities. Although the internet can also be a source of significant dangers and risks, most Jordanian business users today feel they will suffer a greater loss by not connecting to the internet than they will face with security issues. The advances in internet technology should go along the same lines as security. The banks in Jordan are covering behind other geographical regions in the areas of technological interaction. Table 1 shows the increased number of subscriber along the eight years. In January 2008, the Government completed the sale of its Jordan Telecom shares. Such that 51% of company shares became own by France
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The Influence of Internet Security on E-Business Competence in Jordan
Table 1.Telecom market Number of Subscribers: (000)
2001
2002
2003
2004
2005
2006
2007
2008
Fixed Phone
660
674
623
638
628
614
559
519
Mobile & Trunking
866
1200
1325
1624
3138
4343
4772
5,314
Internet (Subscribers)
66
62
92
111
197
206
228
229
Internet (Users)
238
279
399
537
720
770
1,163
1,500
Penetration Rate per 100 inhabitants (%)
2001
2002
2003
2004
2005
2006
2007
2008
Fixed Phone
13.1
13.4
11.3
11.9
11.6
11
10
8.9
Mobile & Trunking
16.7
22.9
24.2
30.4
57
78
83.3
91
Internet (Subscribers)
1.32
1.16
1.67
2.07
3.6
3.7
4
4
Internet (Users)
4.8
5.5
7.7
10
13.2
13.7
20
26
Volume of Investments: (Million JD)
2001
2002
2003
2004
2005
2006
2007
2008
Fixed Phone
90.1
38.2
11.5
10
12.3
12.7
12.2
23
Mobile & Trunking
89.2
93.3
91.9
100.3
137
139
92.5
65
Internet
5.5
3.5
1.5
0.7
5.6
2.3
11.1
22
Other Services
0.1
2.6
1.1
0.4
0.4
1.5
0.5
5
Total
184.9
137.6
106.0
111.4
155.3
155.4
116.3
115.0
Number of Employees:
2001
2002
2003
2004
2005
2006
2007
2008
Fixed Phone
4792
4548
3663
3048
2701
2432
2303
2212
Mobile & Trunking
1044
1168
1249
1641
2124
2251
2283
2079
Internet
457
408
294
353
450
415
498
644
Telephone Prepaid Calling Service
25
53
45
52
50
294
135
345
Total
6318
6177
5251
5094
5325
5392
5219
5280
Demography, Economy:
2001
2002
2003
2004
2005
2006
2007
2008
Population (000)
4,978
5,098
5,230
5,350
5,473
5,600
5,723
5,849
Households (000)
823
874
897
946
980
1037
1060
1104
Gross Domestic Product (GDP,Million JD) (Current Price)
6364
6794
7229
8081
9012
10109
11225
15058
Telecom, and the rest of the shares distributed between the Social Security Corporation, the Nor Financial Investment Company (Nor), the armed forces and security agencies, leaving 7% available for exchange in Amman Stock Exchange market. In June 2008, telecommunication regularly commission “TRC” announced its intention to introduce 3G services in Jordan. Mid August 2009: TRC granted a third generation (3G) license to Orange Mobile Company.
Literature Review The use of the internet in business organizations has continuously increased because the facilities that the internet provides push many organizations to replace some of their traditional communications and methods for conducting business methods (Laudon & Traver, 2008). For example, many Jordanian organizations now communicate with their customers using internet facilities such as e-mail services, communities, forum etc…. In addition, the internet and web technology turned into the channel for publishing organizations web-
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The Influence of Internet Security on E-Business Competence in Jordan
sites whereas organizations use it for promotion and offering online services and participating in ecommerce, including all operations concerning the selling of products and services over the internet. Moreover, the internet enables organizations to deliver an online catalogue and messages to a huge number of target consumers. A few steps should consider to use the internet or to establish online business: 1. Business organizations must recognize how it will use the internet 2. They should be able to assess the risks involved 3. Perform a cost/benefit analysis to determine if the benefits prevail over the potential costs 4. Know very well the capabilities of their auditor and systems administrator in controlling online change 5. An appropriate budget allocation for security purposes 6. Management must view its computer system as it would any other company asset. Booker (2000) noted that with appropriate caution, organizations should be able to use the internet full potential. Jordanian organizations should make sure they are involved in the process because their uses of the internet are more sensitive and in the short-term can cause bottom line loss. It is what marketers are most concerned about when it comes to protecting online property rights; the logo of any e-business will be a vulnerable target too and many may be ‘sniffed’, especially those successful online business websites. If they fail to sniff, they will try to cause trouble for the owner and users of these sites. More specifically, the company’s response time following a security related event is an indication of the organizational readiness towards external threats. Furthermore, when multiple sites suffer synchronously from advanced attacks, the response and recover time is a very important differentiator. Cross (2001) stated website host must also operate servers that can support the technology with which a website developed. Website host should have its own firewalls and other security technologies in place to protect hosted websites and customers’ data from hackers and viruses. According to Zolait et al. (2009) “internet secu-
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rity applies to organizations that conduct online business operations over the internet just like a national border.” Ahmed et al. (2006) summarized three factors contributing to the growth of internet commerce. First is the constant decline in the prices of hardware and software’s. Second, is the expansion of different platforms of internet browsers and third factor is the commercialization of the web itself with media-rich content and electronic commerce. Forcht et al. (1995) stated that information sent via computer might route through many different systems before reaching their destination. Each different system introduces unwanted individuals who can access data; therefore, security is vital to protect organizations from unwanted damage, copying, or eavesdropping (Zolait et al., 2009). Consequently, gaining access to information on a website or eavesdropping on data, which is supposed to be restricted, can lead to misrepresentation of the organization and loss of information and open the door of vulnerability to many threats. Therefore, each organization is required to secure the content of its website. The application of security policy must place in easy-to-reach locations, without requiring the user to consume considerable time to track down the links to these statements. Although the procedures and security mechanisms of the systems must be transparent in order not to discomfort the legitimate user, from a trust perspective the presence of the security mechanisms is essential. For example, the existence of a password policy could success with a respective web page educating the user about the password rules (e.g., minimum number of characters, denial of use of names, etc.).
Security Hazard There are two types of security mechanisms for conducting online business. First, applying physical security mechanism to minimize the hazard. The second type are the intangible protective security measures of the system acting as the second line of defense, which are a way to enhance the
The Influence of Internet Security on E-Business Competence in Jordan
capability of companies’ security, enabling them to conduct a successful business over the internet. For example, firewalls with specialized software are placed between the organization LAN or WAN and the internet, preventing unauthorized access to proprietary information stored on the intranet (Jessup & Valacich, 2008). Email is a security hazard and many bad things can happen to an individual’s computer by simply previewing the message in a preview window without even opening it (Zolait et al., 2009). Although there are advances in terms of securing the networks against hackers, there are also advances developing in break-in and hacking tools too. It is very simple sometimes to break into other peoples and company’s e-mails or sites and know everything available about them (Zolait et al., 2009). Hackers can use very simple methods to reach you; some of these methods do not require people experienced in programming. Hackers can use ready-made software produced by experts to enable them to reach organization’s information by breaking into organization e-mail, company account, and web site. This ready-made software is widespread on the market, for example, spy log software and net pass. There is a lot that organizations should do to strengthen the security requirements to face the anticipated threat that cause company resources. They should think in advance, what will happen if someone gains access to any aspect of the company’s resources (Garfinkel, 1997). According to Totty (2001) “companies must stay one-step ahead of the hackers”. Users of the organization online system should train to understand what hackers do and how they do it; because that is the only way, they can protect themselves and know their enemy (Nelson, 2000). Aldridge (1997) recommended setting some preventive conditions to enforce. Furthermore, Savage (2000) pointed that the learning from the security crises solutions of others. In addition, Totty (2001) noted that organizations must use authentication software. Organizations must find certifying tools to measure the level of security
(Verton, 2000), make sure that they have the skills and time to keep the round-the-clock vigils the software requires (Messmer, 2000), and establish an e-mail policy and enforce members to use it (Parker, 1999). Assuring the physical security of a website is similar to assuring the physical security of any other computer at any location (Zolait et al., 2009). Restricting physical access to the machine is a preventative strategy that plays a useful role in securing the sensitive information from internal attackers. Business organizations should be eager to understanding the elements of internet security. Totty (2001), and Jessup and Valacich (2008) classified four strategies necessary to prevent online security breaches in the organization which are 1. Authentication 2. Encryption 3. Integrity 4. Firewalls. Internet security is a combination of partial components that combine to form a strong internet security for doing business online. Lane (1998) concluded that internet security for business as a group effort to securing the whole set of related contributing parties, which are security of privacy, system privacy, user privacy, commerce transaction privacy and authentication of data. Although there are, risks associated with the use of the internet as the enabling technology for doing business, most of them can mitigate with an organized and systematic security investment, including both technology and organization. Since these risks depend on the security awareness and responsibility of the underlying e-business organization, it follows that trust should refer to the organization rather the internet itself.
Protection Measures Protection measures implemented to protect organizations from different security attacks. To guarantee the security requirements of a given organization, it is essential to be able to evaluate the current security demands of an organization as well as the measures taken to achieve such requirements. Security weaknesses cause a negative
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The Influence of Internet Security on E-Business Competence in Jordan
impact on organizations such as financial loss, reputations, and loss of customer confidence (Kumar, 2008). Protection measures used in banking and exchange services to protect information security objectives. These measures will assist an evaluator to measure the security level. For example, the security level is high when an organization implements the most proper, updated measures, policies, and countermeasures to protect its security objectives. Organizations are required to take appropriate protection measures based on their requirements. Protection measures can group into three major groups: physical, personal, and network security measures. Each group employs several means for security protection. Within each group, security measures can classify into measures aimed at securing the confidentiality, integrity, and availability of the data and system. Banks, on the other hand, have high demand for data confidentiality. Hence, the measures required to protect confidentiality are essential for banks. In essence, an organization may have different security requirements for information security objectives. Similarly, an organization may have different security requirements at different times. Some protective options available today are very easy and inexpensive, while others are more complicated and expensive. One inexpensive option is awareness; simply being more aware of the dangers out there and how to avoid them. More expensive and complicated measures include choosing more secure operating systems, imposing access restrictions and enforcing authentication procedures (Zolait et al., 2009). Information systems assets are tangible and intangible. Assets vary from one organization to another. Protecting information systems from breaches and preventing information theft done by defining the information systems assets. Each organization’s information assets evaluated to determine their information security. Dhillon (2006) mentioned that the purpose of defining and characterizing the organization’s assets allows for better determination behind the
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threat. Documentation of the assets will be beneficial to an organization because it will know what to secure, and it will ensure updates of assets in the case of changes (Schou & Shoemaker, 2006). Security breaches appear due to the lack of documenting and characterizing the information system assets within organizations. According to Ciampa (2005), an organization not only protects its information by classifying its assets in order to protect them from any threat caused by crackers and hackers, but it also identifies its vulnerabilities. Automated measurements systems cannot measure the subjective elements. However, the objective elements measured successfully with the proper automated tools. When working from policy toward automated checks, a key intermediate deliverable is the platform specific checklist. Sometimes these documents, often called `security cookbooks’ are already prepared and in use by systems administrators.
Internet Performance Drennan and McColl-Kennedy (2003) summarized that the internet has affected significantly in the services sector such as banks, insurance providers, and government organizations. Ahmed et al. (2006) identified some key challenges to do business over the internet in Arab countries for Saudi’s organizations are the continuing relying on face-to-face contact principles, information overload problems, expensive charges, technical support and expertise, management commitment and understanding the potential role of information technology (IT), and older people were more reluctant to use IT. Drennan and McColl-Kennedy (2003) concluded that organizations eager to offer specialized services and develop an innovative customer-focused strategy employing the new technologies to increase customer loyalty. Web page download delay is a major factor affecting the performance of a site and ultimately a sites success can depend on how quickly a user can navigate its pages (Saiedian & Naeem, 2001).
The Influence of Internet Security on E-Business Competence in Jordan
It is important for banking and exchange services to make every effort to ensure their sites are of a high quality with download times kept to a minimum to prevent surfers moving on elsewhere. This will do two things, compress it in size and ensure its colors are web safe (can be displayed properly). Compressing an image gets rid of redundant data from the image. For example, if a company is selling products online and they have not compressed their images, the extra download time required can distance a user. There needs to be a tradeoff between quality and download time if the company is to succeed.
Trust Mayer et al. (1995) defined trust as “the willingness of a party to be vulnerable to the actions of another party.” Trust based on the expectation performs a particular action important to the trust or, irrespective of the ability to monitor or control that other party. Internet security generally relied on users’ mutual respect and honor, as well as their knowledge of conduct considered appropriate on the network. Trust based on the potential use of the technology to increase online business. Trust increases the probability of a trading partner’s willingness to expand the amount of information sharing through EDI and explore new mutually beneficial arrangements (Hart & Saunders, 1997). Trust, especially among the banking and exchanges services in electronic commerce reinforces the prospect of continuity in a relationship and a commitment to extend an inter-organizational relationship. It implies that the online business is dependable and follows their promises, thus developing high levels of cooperation that will in turn reinforce trust (Cummings & Bromiley, 1996). Both reliability and security are impaired when inconsistencies between words and actions among the trading partners increase. This decreases trust due to the lack of consistent and reliable behavior. Thus, trust only occurs when
the trading partners assured of others willingness and ability to deliver on their obligations. Trust is vital not only in the pre-transaction and transaction phase (that is advertising, providing information about the product, ordering, purchasing, paying, and delivering the product), but also in the post-transaction phase in the form of warranties and refunds. internet security is depend on trust not only in the EC systems that provide efficient services and guarantee delivery of the messages, but also more importantly, that the message in actual fact came from an authorized person thus being authentic, having integrity, confidentiality and unable of being repudiated. Hence, high levels of trust will likely result in high levels of security.
CIA Triad To protecting banking online business, an information security professional must establish and maintain a strict security defense that ensures three requirements: The information keep confidential, integrity of the information is high, and the information is available when needed for authorized users. Bishop (2002) noted that confidentiality related to privacy, which means the sender, and its respective receiver should only share information, but unfortunately, TCP/IP has its own deficiencies. It is not able to guarantee data confidentiality while it flows in the system. This can easily lead us to logins, passwords deviation during a telnet session, for instance, data interception during a home-banking, commercial or even a personal transaction may result in serious hazards, and this kind of interference observed easily in email operations, Web commercial transactions, and many other important data exchange. Such banking systems use long sequences of characters and complex algorithms to encode and decode information exchanged between computers with the appropriate application installed. Integrity related to the verification performed by the internet security system against any kind of data loss, modification, and/or damage, which
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caused by intentional or casual reasons, such as prejudicial actions of hackers or normal electrical interference during data transference. Thus, the internet security system expected to assure that data received exactly the same way. Regardless of the original cause of losing data integrity, this loss will certainly be catastrophic in many ways. According to Ackermann (2001) “Data integrity may be affected without being noticed during storage or transmission, i.e., data may be altered due to inadequate access controls while located in one system, being then sent without any problem detection to the other end of the connection.” Another fact considered is the possibility of intercepted during its transference, putting its integrity and/ or confidentiality in doubt. Such tools detect nonauthorized and/or unexpected data modification on those specific parts of the system. Authenticity verification is directly related to the procedures the security system performs in order to establish how and where the data package was created, thus trying to assure the message or data received was really originated where it says it is coming from and sent by the one mentioned on its label (Brown,1999). The organization and coordination of operations in a net connection ruled by protocols - or a group of them, which may unfortunately add some problems as far as system security, is concerned. The most common group of protocols used in internet transactions is the TCP/IP. Brown (1999) elaborated that some security techniques, such as SSL, which stands for Secure Sockets Layer, include as part of their normal routines, procedures that try to provide some enhanced protection to lower layers of TCP/ IP. Netscape SSL tries to protect all TCP/IP stack and provides a security structure in which application protocols may be executed safely. Actually, SSL gathers two protocols together. One specifically designed for real data transmission registry and other dedicated to handshake tasks, which supervises the duties accomplished, including authenticity and confidentiality.
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Methodology The objective of the study is First, to be familiar with attraction factors that will improve the use of the internet for business, the benefit from this technology and avoidance of its serious problems. Second, is to categorize the main obstacle to the acceptance of e-business that hinder Jordanian business organizations “banking sectors and exchange services” from conducting online business activities, as well as the challenges facing the use of e-business by those organizations surveyed. Third, to investigate the role of security in the adoption of online business -how secure is the internet for the investigated organizations? In other words, how does the business community consider the security of the internet in their work over the internet? How do Jordanian organizations “banking sectors and exchange services” treat the security aspect when they work online? The current study uses the quantitative approach whereby data collection attained by a survey questionnaire. In addition, individual interviews with the IT department officers of five banks’ head offices, ISP ”Jordan telecom, Tedata, Mada”, and the related public sector Telecommunications Regularly Commission”TRC” were are one of the methods used to collect data. The focal population of the present study are “IT units and computer divisions” of the Arab bank, Cairo Amman bank, Housing bank, Islamic bank, Commercial bank, Al-alami for exchange, Jawdat for exchange, Abu-Allaban for exchange, and Jamal for exchange. The questionnaire items are mainly adopted from a review of previous literature. Pilot test was performed and the feedback received was used in finalizing the survey format. The questionnaire format selected covered three parts -care of the basic demographic information, investigate the willingness/usefulness to do business over the internet and probe the expected problem of conducting online business by selected Jordanian organizations. There were 200 questionnaire forms self-administrated and distributed to the purposive sample. The responses
The Influence of Internet Security on E-Business Competence in Jordan
received were 152 usable and completed forms from business organizations. IT professionals and executive managers who were considered the decisions makers in these IT departments of both banks and trading organization were interviewed.
Data Analysis Table 2 displays the percentages of internet usages in five business activities performed by surveyed organization. The companies that use internet facilities totally for their internal business affairs represent only 6.0%, while, 35% of the surveyed organizations agree that the internet assists them to do 10% of their organization’s internal daily business. Fifty-two percent of surveyed agree on the range rate, from 10% to 25%, of their organization’s external daily business affairs assisted by the internet. For marketing activity, 56.8% of the respondents agree that they do benefit 10% from using internet for marketing activities. While 33.2% of the surveyed organizations agree that, there is no use for the internet to support marketing activities. For assistance in online activities, 72.5% of the surveyed organizations agree that they have no use for the internet to do online business activities, while 23.2% of them agree that they have benefited 25% from using the internet to do online business. Online business inclination through the individual interviews with the Jordanian executives and their executives’ researchers gained a very positive feeling concerning how interested they are in doing e-business and how willing they are to accept and use the new concept (Table 2).
Table 2. Percentage internet usage in business activities Usage
0%
10%
25%
50%
75%
100%
Activity
%
%
%
%
%
%
Internal Business
17.9
35
20.5
12.8
7.7
6
External Business
17.6
24.4
25.2
9.2
11.8
11.8
Marketing
56.8
33.2
19.5
10.2
10.2
2.5
Job achievement
35.7
8.7
3.5
6.1
6.1
40
Online Activity
72.5
6
23.2
4.2
9
2.5
There are 50.6% of the surveyed organizations didn’t use the web for business purposes because of the lack of expertise, while 18.5% of the surveyed organizations didn’t use the web for business purposes because it is costly. 55.4% of the surveyed organizations did not use the web for business because infrastructure is not available. 66.5% of the surveyed organizations did not use the web for business because organizations believe it is unsafe technology. 85.0% of them did not use the web for business because government support
Table 3. Obstacles of e-business adoption Factors
Major concern
Expertise
50.6
Cost
18.5
Main Obstacles of E-Business Adoption
Infrastructure
55.4
Security
66.5
The acceptance of online business in Jordanian society needs the cooperation of all related parties to take it to a level where all participants are satisfied with internet performance. Therefore, Table 3 illustrated some obstacles to the acceptance of e-business should be considered to find suitable solutions.
Government support
85.0
Not a trustworthy tool
60.0
Fraudulent
21.0
Lack of cyber law
82.5
Undesired believed (Cyber terrorism)
33.0
Internet illiteracy
35.4
%
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The Influence of Internet Security on E-Business Competence in Jordan
for online business is not available. And 60.0% of the surveyed organizations didn’t use the web for business because they think that the internet is not a trustworthy medium to do online business, while 21.0% of them think that undesired information on the internet minimizes the use of the internet. 82.5% of the organizations think the absence of cyber law (law on the internet) is minimizing the use of the internet further. The undesirable beliefs and thought that the internet can bring are minimizing the use of the internet for business represented by 33.0% of the surveyed organizations. 35.4% of them think that non-literate people are minimizing the use of the internet further. Security is one of the hindering problems that prevent the further adoption of e-business even in the advanced countries and sometimes leads to a stop in any further online activities. The following low ratio for security tools use proves that security is a common reason preventing the adoption of e-business (see Table 4). Results displayed in Table 4 revealed that only 32.5% of the surveyed organizations use a firewall as a security tool, and only 25.3% of them use encryption technology. In addition, 72.0% of surveyed organizations do not use a firewall and 50.8% of them do not use encryption technology to enhance the security of data and systems. In addition, that 37.7% of the surveyed organizations rely on proxy technology to scrutinize incoming and receiving e-mails, while 66.2% of them do Table 4. Security methods activated by organization Security Technology
Technology Activated
Technology Not Activated
%
%
Firewall
32.5
72.0
Encryption
25.3
50.8
Proxy server
37.7
66.2
Filtering
17.0
70.0
1080
not use proxy. The table showed that 70.0% of the surveyed organizations do not use any sort of filtering for securitizing incoming and receiving e-mails, while 17.0% of them are using filtering to enhance the security of data and systems.
Assessing the Measurement Model A confirmatory factor analysis (CFA) using EQS was conducted to test the measurement model. The overall goodness-of-fit of the measurement model was examined using the following eight common model fit measures: X2/DF ratio, GFI, AGFI, NFI, NNFI, CFI, RMSR, and RMSEA. The measurement model in the CFA was revised by removing items, one at a time that had large standardized residuals and/or weak correlations with other items. After removing items, as summarized in Table 1, the measurement model exhibited an overall good model fit, with the data collected from the respondents by meeting the acceptance levels commonly suggested by previous research. The exception was for the GFI level. GFI at 0.861 was slightly below but closer to the recommended level 0.90. Although the GFI level could be improved by dropping additional items, it was decided to stop the dropping procedure by considering the content of the measurement. Recognizing the good model fit for the measurement model, further analysis was conducted to assess the psychometric properties of the scales; that is, for the construct validity of the research instruments. The construct validity has two important dimensions: convergent validity and discriminant validity (Table 5). The convergent validity was assessed by three measures, as shown in Table 6: factor loading, composite construct reliability, and average variance extracted (Fornell & Larcker, 1981). In determining, the appropriate minimum factor loadings required for the inclusion of an item within a construct, factor loadings greater than 0.50 were considered highly significant (Hair et. al. 1998). A stricter recommendation of factor
The Influence of Internet Security on E-Business Competence in Jordan
Table 6. Convergent validity test
Table 5. Fit indices Fit
Recommended
Measurement
Structural
index
value
model
model
X
2
N/A
1401.89
388.17
Df
N/A
657
221
X2/df
<
3.00
2.133
1.756
GFI
>
0.90
0.861
0.929
AGFI
>
0.80
0.835
0.912
NFI
>
0.90
0.971
0.980
NNFI
>
0.90
0.983
0.990
CFI
>
0.90
0.985
0.991
RMSR
<
0.10
0.043
0.046
RMSEA
<
0.08
0.051
0.041
loading greater than 0.70 was also proposed (Fornell & Larcker, 1981). All of the factor loadings of the items in the measurement model were greater than 0.60, with most of them above 0.80. Each item loaded significantly (p<0.01 in all cases) on its underlying construct. The composite construct reliabilities were also within the commonly accepted range greater than 0.70 (Gefen et al., 2000). As a stricter criterion, the guideline with a minimum of 0.80 suggested by Nunnally and Bernstein (1994) was applied to determine the adequacy of the reliability coefficients obtained for each construct. Finally, AVE measures the amount of variance captured by the construct in relation to the amount of variance due to measurement error (Fornell & Larcker, 1981). AVE was all above the recommended level of 0.50 (Hair et al., 1998) which meant that more than fifty percent of the variances observed in the items were explained by their underlying constructs. Therefore, all constructs in the measurement model had adequate convergent validity. The discriminant validity was examined in two ways: comparing the inter-construct variances and average variances extracted and comparing the X2 statistic of the original model against other models with every possible combination of two constructs. The shared variances between
Constructs*
Items
SH
PM
IP
T
CIA
Factor loading
Composite reliability
AVE
SH1
0.798
0.862
0.612
SH2
0.650
SH3
0.786
SH4
0.879
PM1
0.735
0.848
0.583
PM2
0.851
PM3
0.753
PM4
0.707 0.835
0.560
0.868
0.687
0.904
0.701
IP1
0.802
IP2
0.775
IP3
0.758
IP4
0.649
T1
0.727
T2
0.893
T3
0.858
CIA1
0.822
CIA 2
0.864
CIA 3
0.822
CIA 4
0.840
*SH: Security Hazard, PM: Protection Measures, IP: Internet Performance, T: Trust, CIA: Confidentiality; Integrity; Availability
constructs were compared with the average variance extracted of the individual constructs (Fornell & Larcker, 1981). To confirm discriminant validity, the average variance shared between the construct and its indicators should be larger than the variance shared between the construct and other constructs. As shown by comparing the inter-construct variances and average variances extracted in Table 7, all constructs share more variance with their indicators than with other constructs. Discriminant validity of the constructs was further validated by combining the items between various constructs and then re-estimating the modified model (Segars, 1997). That is, comparing the X2 statistic of the original model with its all constructs against other models with every possible combination of two constructs was con-
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The Influence of Internet Security on E-Business Competence in Jordan
ducted. Significant differences in the X2 statistic of the original and alternative models imply high discriminant validity. As reported in Table 7, the X2 statistic of the original model was significantly better than any possible combination of any two constructs, confirming discriminant validity. Therefore, these results revealed no violation of the criteria for the discriminant validity of the constructs in the research model. To confirm the multidimensionality for the constructs of organizational commitment and attitude toward change, a second order CFA for these constructs was conducted. All of coefficients and the factor loadings of the items were greater than 0.60, with most of them above 0.80, and all the paths are significant (p<0.01 in all cases). In addition, the second order factor model exhibited an overall good model fit with the data collected from the respondents, by meeting the commonly recommended levels. These results confirmed the multidimensionality of the above two constructs.
Assessing the Structural Model A structural equation modeling technique called Partial Least Squares (PLS) was chosen for analyzing the research model (Wold, 1985). PLS is a technique that uses a combination of principal components analysis, path analysis, and regression evaluated theory and data simultaneously (Wold, 1985). The path coefficients in a PLS structural model are standardized regression coefficients, while the loadings can be interpreted as factor Table 7. Discriminant validity test using AVE comparison Constructs
SH
PM
IP
T
SH
0.612
PM
0.513
0.583
IP
0.444
0.349
0.560
T
0.162
0.078
0.124
0.687
CIA
0.277
0.156
0.166
0.674
1082
CIA
0.701
loadings. PLS is ideally suited to the early stages of theory development and testing - as is the case here - and has been used by a growing number of researchers from a variety of disciplines (e.g., Birkinshaw et al., 1995; Green et al., 1995; Higgins et al., 1992). The explanatory power of the model is tested by examining the size, sign, and statistical significance of the path coefficients between constructs in the model. The predictive capacity of a PLS model can also be evaluated by examining the variance explained (i.e., R2) in the dependent (or endogenous) constructs. The objective of a PLS analysis is to explain variance in the endogenous constructs, rather than to replicate the observed covariance matrix as is the case with covariance structure techniques (such as LISREL). One consequence of using a varianceminimization objective is the absence of overall fit t statistics for PLS models (Hulland, 1999). The model explained 32% of the variance in the use of online business construct. Overall, the amount of variance explained by the model appeared reasonable. The exogenous variables would likely be only some of many things affecting the endogenous construct, resulting in the relatively modest R2 value as can be seen in Figure 1. All three exogenous variables have direct effect correlate statistically significant to doing online business; security hazard (path coefficient=0.55), protection measures (path coefficient =0.61), internet performance (path coefficient =0.57), trust (path coefficient =0.72), and CIA Triad (path coefficient =0.65).The construction of the model by induction from quantitative data may set a limit to its applicability. A more accurate verification of the model by using our qualitative data from conducted in-depth interviews is included in Figure 1. Another limitation of this model is that its data is derived from one sample, and has not been tested with different organization groups. While non-users and users differ in many parts, the factors in the model may have quite different loadings for different segments.
The Influence of Internet Security on E-Business Competence in Jordan
Figure 1. Testing the research model
CONCLUSION This study concluded that the business sector is a regular user of the internet in Jordan in terms of numbers. The majority of those organizations already use the computerized system. The findings indicate that 96% of both exchange and bank organizations, which were investigated, are using computers to assist in their daily business operations. Researcher in the current study assumes that this new drive method of conducting business over the internet is going to be treated similarly. Several researches conducted in this field signal the raise of security as a new problem to the ebusiness. This concept refers to the nature and the media this business run via it, by which researchers mean the internet. Although some internet users feel that conducting business online is not easily attainable, they have started applying this method as a new means for conducting business. Most of companies and banks are still unfamiliar with encryption technology and most of them do not use firewalls to protect the information assets that they possess. On other word, protective and preventive tools of security are not widely adapted by business organization in the Jordan. Researcher concluded that there are a company affiliated with international business, to facilitate their business affairs this arranges of company is
adopting computerized systems. In addition, there are companies affiliated with national business, these variety of trade companies own their computerized system, which enables them to drive the internal business. Some of them are connected to the net and others do not feel that the internet has any importance for their business. Future work suggested exposed that the relationship between the internet’s security and doing online business over the internet is not at the required level and it is not satisfactory at present for any business organization to start doing online business. It, consequently, cannot serve as a solid platform for the success of doing online business for Jordanian business organizations. The recommendations are: •
•
Increasing awareness by offering opportunities to businesses interested in attending seminars on the internet, e-business, and training session courses. Encourage the presence of Jordan companies to participate in community service projects intended to increase internet awareness and usefulness for improving the business. Reduce the cost of the telephone and internet subscription fees, taxes on the internet and e-business hardware equipment and software. Also, offer national expertise
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The Influence of Internet Security on E-Business Competence in Jordan
•
to those who can undertake to build local capacity in IT security, especially for the business sector and those demanding security on the internet and provide consultancy at a low price. Adopt e banking through offering some online services, adoption of digital signature and e contracting and encourage the creation of e-commerce companies.
The purpose of these recommendations is to make the internet a meaningful way of doing business for exchanges and banks located in Jordan.
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Birkinshaw, J., Morrison, A., & Hulland, J. (1995). Structural and competitive determinants of a global integration strategy. Strategic Management Journal, 16(8), 637–655. doi:10.1002/ smj.4250160805 Bishop, M. (2002). Computer Security: Art and Science. Reading, MA: Addison-Wesley. Booker, E. (2000). Protect online brand from unauthorized use. B to B Chicago, 85(18), 12-39. Brown, F., Divietri, J., Diaz, G., & Fernandez, E. (1999). The Authenticator Pattern. In Proceedings of PLoP. Ciampa, M. (2005). Security+ Guide to network security fundamentals (2nd ed.). Boston: Course Technology. Cross, M. (2001). Set strategy before selecting a web site host. Internet Health Care Magazine, 42-43. Cummings, L., & Bromiley, P. (1996). The Organizational Trust Inventory (OTI): Development and Validation. In Kramer, R. M., & Tyler, T. R. (Eds.), Trust in Organizations: Frontiers of Theory and Research (pp. 220–302). Thousand Oaks, CA: Sage Publications. Dhillon, G. (2006). Principles of information systems security: Texts and Cases (1st ed.). Hoboken, NJ: Wiley. Drennan, J., & McColl-Kennedy, J. (2003). The relationship between internet use and perceived performance in retail and professional service firms. Journal of Services Marketing, 17(3), 295–311. doi:10.1108/08876040310474837 Evans, P., & Wurster, T. (1997). Strategy and the new economics of information. Harvard Business Review, 9(10), 71–82.
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Forcht, K., & Richard, E. (1995). Security issues and concern with the internet. Internet Research: Electronic Networking Applications and Policy of MCB, 5(3), 23–31. doi:10.1108/10662249510104621 Fornell, C., & Larcker, D. (1981). Evaluating Structural Equation Models with Unobservable Variables and Measurement Error. Management Science, 40(4), 440–465. Garfinkel, S., & Spafford, G. (1997). Web security & commerce (1st ed.). New York: O’Reilly & Associates, Inc. Gefen, D., Straub, D., & Boudreau, M. (2000). Structural Equation Modeling and Regression: Guidelines for Research Practice. Communications of the Association for Information Systems, 4(7), 1–70. Green, D., Barclay, D., & Ryans, A. (1995). Entry strategy and long-term performance: conceptualization and empirical examination. Journal of Marketing, 59(4), 1–16. doi:10.2307/1252324 Hair, T., Anderson, R., Tatham, R., & Black, W. (1998). Multivariate Data Analysis (5th ed.). Upper Saddle River, NJ: Prentice Hall. Hart, P., & Saunders, C. (1997). Power and Trust: Critical Factors in the Adoption and Use of Electronic Data Interchange. Organization Science, 8(1), 23–41. doi:10.1287/orsc.8.1.23 Higgins, C., Duxbury, L., & Irving, R. (1992). Work-family conflict in the dual-career family. Organizational Behavior and Human Decision Processes, 51(1), 51–75. doi:10.1016/07495978(92)90004-Q Hulland, J. (1999). Use of partial least squares in strategic management research: a review of four recent studies. Strategic Management Journal, 20(2), 195–204. doi:10.1002/ (SICI)1097-0266(199902)20:2<195::AIDSMJ13>3.0.CO;2-7
Jessup, L., & Valacich, J. (2008). Information Systems Today: Managing in the Digital World. Upper Saddle River, NJ: Pearson. Kumar, R., Park, S., & Subramaniam, C. (2008). Understanding the value of countermeasures portfolios in information systems security. Journal of Management Information Systems, 25(1), 241–279. doi:10.2753/MIS0742-1222250210 Lane, C. (1998). Five essential steps to privacy. PC World, 16(9), 116–117. Laudon, K., & Traver, C. (2008). E-commerce: Business, Technology, and Society (4th ed.). Upper Saddle River, NJ: Pearson Education Inc. Messmer, E. (2000). Security needs spawn services. New World (New Orleans, La.), 17(14), 1–100. Nelson, M. (2000). Hacker school teaches security. Information Week. Nunnally, J., & Bernstein, I. (1994). Psychometric Theory. New York: McGraw-Hill. Oyegoke, A. (1999). Surfing Europe. The Banker, 1(2), 72–73. Parker, C. (1999). E-mail use and abuse. Freelance journalist based in Cornwall, 48(7), 257-260. Saeed, K., Grover, V., & Hwang, Y. (2005). The Relationship of E-Commerce Competence to Customer Value and Firm Performance: An Empirical Investigation. Journal of Management Information Systems, 22(1), 223–256. Saiedian, M., & Naeem, M. (2001). Understanding, and reducing web delays. IEEE Computer Journal, 34(12), 30–37. Savage, M. (2000). Attacks brings new security solutions. Computer Reseller News. Schou, C., & Shoemaker, D. (2006). Information assurance for the enterprise: A roadmap to information security. New York: McGraw-Hill Irwin.
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Segars, A. (1997). Assessing the Unidimensionality of Measurement: a Paradigm and Illustration within the Context of Information Systems Research. Omega, 25(1), 107–121. doi:10.1016/ S0305-0483(96)00051-5 Sheshunoff, A. (2000). Internet banking, un update from the frontlines. ABA Banking Journal, 92(1), 51–55. Totty, P. (2001). Staying One Step Ahead of the Hacker. Credit Union Magazine, 67(6), 39–41. TRC. (2010). Telecommunication Regularly Commission. Retrieved January 5, 2010, from http:// www.TRC.Jo
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This work was previously published in International Journal of Technology Diffusion (IJTD), Volume 1, Issue 4, edited by Ali Hussein Saleh Zolait, pp. 13-28, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 4.14
Internet Adoption from Omani Organizations’ Perspective: Motivations and Reservations Khamis Al-Gharbi Sultan Qaboos University, Sultanate of Oman Ahlam Abdullah AlBulushi Sultanate of Oman
ABSTRACT In this paper, to the authors determine the motivations and reservations for Internet/E-business adoption within the organizations in Oman. For this purpose, questionnaires were used to collect the data from the organizations that have adopted Internet and the organizations that have not adopted Internet applications. The results and analysis of the data show that the main reasons for adopting Internet applications in Oman are to simplify process, improve communication with DOI: 10.4018/978-1-60960-587-2.ch414
staff, keep up with competitors, and reduce the use of paper. The lack of skill and security problems is the main reservation for not adopting the Internet.
INTRODUCTION “The Internet is an extremely important new technology, and it is no surprise that it has received so much attention from entrepreneurs, executives, investors and business observers” (Porter, 2001, p. 1). While the Internet and the World Wide Web (www) as mainstream communication tools have been widely used throughout the world by
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Internet Adoption from Omani Organizations’ Perspective
various organizations (Kula & Tatoglu, 2003, p. 324), some others are as Sadowski noted, “barely interested in adopting Internet” (Kula & Tatoglu, 2003, p. 325). Those organizations have got different reasons and aspects in order to adopt Internet application or not. The purpose of this study is to explore the adoption and non adoption of the Internet and ebusiness applications in Oman through a sample of organizations that have adopted Internet and others that have not. Drawing on the reasons that drives an organization to adopt/not adopt Internet, the benefits and opportunities that they gain through it and what are the challenges that may prevents an organization to adopt Internet application.
LITERATURE REVIEW Internet /E-Business Using the Internet or the “Global Network” (Kula & Tatoglu, 2003, p. 324), is one of the opportunities arising from the increase of the electronic communications through the different applications of information technology Since the growth of the usage of the Internet through the globe passed 1 billon for the first time in 2006 (Chaffey, 2007, p. 4), many of the of the business have adopted their process using Internet through Electronic business and Electronic commerce. E-business is about conducting business electronically over the Internet which could include different activities such as communication, marketing, and collaboration (Navarroa et al., 2007) and E-business as Plessis & Boon emphasized is about creating an electronic Internet-based platform to allow customers, suppliers, and employees to collaborate with one other through the sharing of data, information and knowledge (Navarroa et al., 2007). In addition, as Johnston noted, the knowledge regarding implementing E-business or adopting Internet in general are very important to an or-
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ganization since the e-business is the result of a virtual interaction between an organization and its partners (Navarroa et al., 2007). Although ebusiness provides organizational members with a better understanding of the market they are playing in; as Tolman noted, very little is achieved if they do not link these understandings with the thoughts that an individual has about a particular situation or problem of interest (Navarroa et al., 2007).
Reasons and Benefits of Adopting Internet There has been substantial managerial interest in opportunities to use e-business technologies (Sanders, 2007) for many reasons. First of all, to create competitive advantage (Sanders, 2007) through adopting new technologies (Chen et al., 2006). Cost reduction of the transactions is another reason for adopting Internet since most of the services would be provided with lower cost (Sanders, 2007; Chen et al., 2006). In addition, as Boon & Ganeshan noted, eBusiness technologies are digitally enabled and information technologies are used to accomplish business processes (Chen et al., 2006) by simplifying these process and reducing paper work, which result in time saving as well money. Moreover, they adopt Internet in order to increase and have greater knowledge about IT and participation in IS planning (Chen et al., 2006). One of the Important reason is to improve communication with staffs, customers, suppliers and other partner (Kula & Tatoglu, 2003). Many organizations have gain many benefits through adopting Internet. For Instance, adopting Internet result in increasing sales and grate cost reduction (Lancioni et al., 2003) including Supply, marketing and administrative cost in many organization. In addition, it enhance the organization and business image among other competitors. Moreover, the Internet offers direct links with customers, suppliers and distributors and
Internet Adoption from Omani Organizations’ Perspective
facilitates transactions, processes and information transfer through them. Internet adoption enables companies to develop new products and services for existing and new customers and it offers opportunities for the companies to market their products around the world without physically contacting customers or advertising in other parts of the world as Karakaya observed. (Kula & Tatoglu, 2003) Another potential benefits of e-business technologies include, improved the speed and flexibility, higher customer service levels (Sanders, 2007) and Organizational collaboration and information sharing, in turn, are expected to improve organizational performance (Sanders, 2007).
Reasons and Challenges for Not Adopting Internet As many companies around the world have adopted Internet to gain different advantages, many others still did not adopt internet usage in the organization for many reasons. One of the important reasons toward not adopting Internet is the lack of technical resource in the organization including the financial and technical resource. In addition, it requires a careful assessment of the needs and capabilities of the organization as well as the formulation of cost-effective adoption strategies (Chen et al., 2006). Moreover, the lack of skill and knowledge in the organization is another reason as (10) emphasized that basic skills of workforces are an element of competitiveness for organizations because basic skills encompass personal development, occupational skills, and IT skills. Furthermore, as Chen et al. (2003) suggested that “IT skill set is one of the factors affecting adoption and diffusion of innovations for e-business systems” (Chen et al., 2006). Many of the companies concerned about security and protection issue as will as the difficulty of integrating IT systems.
Background on Oman The Sultanate of Oman is a developing country, which is located on the south east of the Arabian Peninsula. Sultanate of Oman is the second largest country among the Gulf states after Saudi Arabia. It is spread over 309,500 square kilometres and has a 1,700-kilometre coastline. Since the accession of Sultan Qabbos in 1970 to the throne, there has been remarkable progress in different fields such as economy, politics, education, and the civil services. The modernization and restructuring of the administrative systems of the civil service as a result of the continuous progress have been vital in term of the changing circumstances and future requirements. The Sultanate of Oman enjoys a stable political, economic, and social system. Although Oman has achieved remarkable progress, both socially and economically with implementation of five-year Development plan, the country is watching closely the new challenges facing the country as the fluctuation of the oil prices. The country is sparsely populated with 8.6 inhabitants per kms. Oman has 2.7 million people. A very strong feature of the country is its young population; about 50% of the population is below the age of 15 years. According to the Ministry of National Economy – Oman (April, 2008), Oman’s GDP has reached OMR 13,737 million in 2006. Oman’s currency is the Rial (OMR) which is about USA $2.60 per unit.
ICT Sector in Oman According to the United Nation 2008 E-Government Readiness Report, Oman has jumped up to 28 points in this ranking position from 112th position in 2005 to 84th position in 2008. Oman ranks 60th position in the E-participation Index (out of 192 countries) with an index value of 0.2045 (www.ameinfo.com). The number of Internet subscribers and mobile subscribers are rising dramatically over the past few years (Naqvi & Al-Shihi, 2009). According to the ministry of
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national economy- Oman (2008) statistical bulletin, the number of Internet subscribers is over 2.6 millions in 2007. This rise is a reflection of “the pace of progress through initiatives’ to build of ICT infrastructure, over electronic services and build capacity within the country to harness the power of technology” remarked by CEO of ITA.
Research Methodology This research has been aimed at revealing the managerial expectations and attitudes towards adopting and not adopting Internet in the private organization in Oman. To obtain adequate information on these factors, a survey questionnaire was constructed drawing upon the prior literature reviewed and discussions. The questionnaire was designed as two parts. The first part of the questionnaire was designed for the organization that have adopted Internet and E-business application and the second part was designed for the companies that have not adopted Internet. The Questionnaires were sent to 15 organizations in Oman selected randomly. Only 7 questionnaires were returned, where the data shows that
Figure 1. Reasons for adopting Internet in Oman
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the large organizations 2 of the 7(about 28.5%) have more concern in adopting Internet.
Main Finding Figure 1 shows that the main reasons for adopting Internet in the organizations in Oman are to simplify process, improve communication with staff, keep up with competitive and reduce paper. This is due the fact that the Omani organizations have lack of resources and are focusing on gaining advantages through the reducing the cost of application and transaction through less paper work and increasing the efficiency of the organization through enhancing the communication with the staff and external customers. In fact, that the cost and the efficiency is an important reason for Internet adoption. Among the companies that adopted Internet they using an E-Marketing application and Customer relation management activities while none of them use supply chain management, secure on line ordering and e-auction as shown in Figure 2. Figure 3 indicate that the main benefits for the organization which have adopted internet is the administrative cost reduction which a direct result of simplifying the business process and minimizing the scope of paper work. In addition the fact
Internet Adoption from Omani Organizations’ Perspective
Figure 2. Internet /E-Business application
that the organizations want to built and enhances its image among the others. Increasing sales is one of the important benefits of adopting Internet as well as the other benefits. On the other hand, Figure 4 shows that the main reason for not adopting Internet is the set up cost. This is among the small organization with little resources while the other reason is the lack of skills among the staff. For some organization, system Integration and lack of knowledge play a big role for not adopting Internet application in an organization. It is clear from Figure 5 that the main challenge in adopting internet in Oman is the issue of security problems and the lack of skills among the staff.
CONCLUSION This paper found that the main reasons in adopting the Internet in Oman is the term of simplify process, improve communication with staff, keep up with competitive and reduce paper. In addition, the main challenge and reasons for not adopting Internet is the lack of skills of the staff and security problems. This is due to fact that adopting internet relay on the knowledge and skills of the staff to achieve the aimed benefits in adopting Internet. Due to the emergence of the Internet and Information technology in Oman many organization will enter the world of the new technology of the internet in the coming years.
Figure 3. Benefits of adopting Internet in Oman
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Figure 4. Reasons for not adopting Internet in Oman
Figure 5. Challenges in adopting Internet in Oman
REFERENCES Chaffey, D. (2007). E-Business and E-Commerce Management (p. 4). Upper Saddle River, NJ: Prentice Hall. Chen, A., Sena, S., & Shaoa, B. (2006). Strategies for effective Web services adoption for dynamic e-businesses. Decision Support Systems, 42(2), 789–809. doi:10.1016/j.dss.2005.05.011 Kula, V., & Tatoglu, E. (2003). An exploratory study of Internet adoption by SMEs in an emerging market economy. European Business Review, 15, 324–333. doi:10.1108/09555340310493045 Lancioni, R., Schau, H., & Smith, M. (2003). Internet impacts on supply chain management. Industrial Marketing Management, 32(3), 173–175. doi:10.1016/S0019-8501(02)00260-2
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Ministry of National Econmy-Oman. (2008, April). Monthly statistically bulletin, 19(4). Murnane, L. (n.d.). E-Commerce and Internet Taxation. Retrieved September 30, 2007 from http://www.infotoday.com Naqvis. S. J., & AL-Shihi, H. (2009). M-Government Services Initiatives’ in Oman. Issue in Informing Science and Information Technology, 6. Navarroa, J., Jiménezb, D., & Conesac, E. (2007). Implementing e-business through organizational learning: An empirical investigation in SMEs. International Journal of Information Management, 27(3), 173–186. doi:10.1016/j. ijinfomgt.2007.01.001 Oman IT Executive Committee. (2002-2003) Report, Sultanate of Oman.
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Porter, M. (2001, March). Strategy and the Internet (pp. 1-19). Boston, MA: Harvard Business Review. Sanders, N. (2007). An empirical study of the impact of e-business technologies on organizational collaboration and performance. Journal of Operations Management, 25(6), 1332–1347. doi:10.1016/j.jom.2007.01.008
Wang, T., & Tadisina, S. (2007). Simulating Internet-based collaboration: A cost-benefit case study using a multi-agent model. Decision Support Systems, 43(2), 645–662. doi:10.1016/j. dss.2005.05.020
This work was previously published in International Journal of Technology Diffusion (IJTD), Volume 1, Issue 2, edited by Ali Hussein Saleh Zolait, pp. 56-61, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 4.15
Snapshot of Personnel Productivity Assessment in Indian IT Industry Thamaraiselvan Natarajan NITT-National Institute of Technology Tiruchirappalli, India Saraswathy R. Aravinda Rajah NITT-National Institute of Technology Tiruchirappalli, India Sivagnanasundaram Manikavasagam NITT-National Institute of Technology Tiruchirappalli, India
ABSTRACT Measuring the productivity of employees has been one of the concerns of IT organisations globally. It is indispensable to calculate the cost of the project vis-a-vis the time estimate. While calculating the lines of coding (Loc) has generally been the common criteria for programmers, it is not always considered an effective measure of the actual work done. The time spent on activities like attending training programmes, participating in meetings, DOI: 10.4018/978-1-60960-587-2.ch415
co-coordinating with colleagues, or conceptualising, is presumably unaccounted. Questions lurking unanswered relate to the effective criteria and international benchmarks. Amusingly most companies have their own home-grown productivity calculators to track the progress of their projects. Productivity measurement is equally important for an organisation as well as an IT worker. Awareness of productivity paves way-for mutual progressself and the organization. This paper, through illustrative-case examples, provides a holistic perspective of personnel productivity assessment methods used in Indian IT industry.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Snapshot of Personnel Productivity Assessment in Indian IT Industry
INTRODUCTION The computer software industry in India is in the midst of phenomenal growth. The annual growth rate of the industry has been above 50% for the past three years. Many companies have posted a growth rate of over 100%. Revenue growth in IT/ ITES industry spurted from $1 billion in 1997 to an approximate figure of $60 billion during the financial year 2009-10. Rising wage cost and the desire to move up the value chain for software services has prompted many Indian firms to go in for personnel productivity enhancement. Human factor forms the critical input in software. Flow in the IT/ITES business to India also saw an upsurge in the number of employees in the recent years. Reckoning the individual employee’s contribution to the overall profitability of the concern helps to gauge the effectiveness of the company HR policies and other decisions. With a number of IT/ITES companies coming up in India in the recent years, understanding how the company’s key investment fairs in the industry helps in restructuring the company policies to face the competitors effectively. Competing successfully in an environment surrounded by the MNCs who have a great experience in the field requires proper data and strategy. Fixed-fee, time-and-material, or minor variations of the same are the types of contracts used in export projects in the Indian software industry. The deliverables as well as the deadline for the project is decided in a fixed-fee contract. The contract may include penalty clauses for late delivery and for poor quality. The client pays on a man-hour basis and the project team size is decided in consultation with the client in a timeand-materials contract. Focusing simultaneously on decreasing costs while increasing software productivity is the order of the day due to shifts in economic conditions. As the cost of software of big software companies are shooting up tremendously improving software personnel productivity is highly imperative. Measuring the productivity of
employees has been one of the concerns of IT organisations worldwide. From conducting objective and subjective manual research and calculations to conducting complex performance appraisals systems, numerous ways have been devised to identify the importance of each employee. Such ways or methods to measure employee productivity are called Productivity Metrics. The article is structured as follows: This paper begins paper begins with an introduction to Indian IT companies, subsequently an overview of knowledge worker, knowledge worker productivity, difference between manual work and knowledge work is given. The next section presents the literature review. We then introduce and define the concept of productivity assessment methods followed in IT companies, followed by elaboration of case examples of personnel productivity assessment methods followed in Indian IT companies. Implications of the approach are then considered, limitations noted and future research direction outlined and closes with a conclusion.
OVERVIEW People who, as a primary aspect of their work, create knowledge, share it with others, or apply it in decisions and actions. Most of what they do takes place inside the brain. The measure of the efficiency and effectiveness of the output generated by workers who mainly rely on knowledge than on labour in the course of production process is known as knowledge worker productivity. Knowledge work is invisible, holistic, and ever changing. Situational knowledge is used by knowledge workers to get things done in a dynamic environment. Mostly knowledge workers are formally educated. They obtain knowledge through an amalgamation of education, experience, and personal interaction. They then use knowledge gained to holistically achieve organizational goals in a dynamic environments. This work is generally project oriented.
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At the moment there is currently no standard measurement of knowledge work productivity. Based on categorization of research spanning back to the 1940s divulges that knowledge work productivity has mainly been analysed along the dimensions of: quantity, cost, quality, timeliness, autonomy, project success, customer satisfaction, creativity, responsibility level, perception, and absenteeism, in addition to assessments based on efficiency and effectiveness. Knowledge work can eventually be judged on the occurrence or non-occurrence of three things: When something successful that never existed previously, is now up and running; when something successful that existed previously has been improved or expanded; or 3) when something unsuccessful that existed previously has been stopped. Based on the speed with which it is accomplished, and the cost required to finish the job productivity could be adjudged. Peter F Drucker in his book ‘Landmarks of Tomorrow’ has suggested that in order to make knowledge work more productive it has to be organized through teams, with clarity around who is in charge at what time, for what reason, and for how long. It is useful to compare and contrast Frederick Winslow Taylors thinking on manual work with Drucker’s thinking on knowledge work so that one can create a working system to manage knowledge work more productively. The difference between calculation of productivity for service and product companies. Calculation of productivity varies for services and product companies. In a services oriented company, the employees are constantly challenged by newer assignments compared to a product development based organisation (Table 1). Productivity, as project control can be seen as a multidimensional system (Rozenes &Vitner, 2010). Hence it is easier to maintain a high productivity level in the organisation due to high learning opportunity to the employee. In a product development organisation, there is more reliance on intra project task rotation, to keep the employees
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Table 1. Difference between manual and knowledge work Frederick Taylor on Manual Work
Peter Drucker on Knowledge Work
Define the task
Understand the task
Command and control
Give Autonomy
Strict standards
Continuous innovation
Focus on quantity
Focus on quality
Measure performance to strict standard
Continuously learn and teach
Minimize cost of workers for a task
Treat workers as an asset not a cost
in a constant learning curve environment. The key difference between services and product sectors is in terms of tangibility of the measures used to clock productivity. Today, even these differences are vanishing, with very precise measurements being put in place for service delivery in service organisations. In software development the rigour is lower as the target user is known. On the contrary products involve a wider user base and consequently rigorous specification and testing. Consequently, while the measures might be the same, their relative emphasis and rigour changes (Figure 1).
LITERATURE REVIEW Productivity embodies the outputs of goods and services that can be obtained from a given input of employees (Armstrong, 2005). Productivity, was defined by Weihrich and Koontz (1994) as the output- input ratio within a time period with due consideration for quality.They further posited that productivity implies effectiveness and efficiency in individual and organizational performance. According to them, effectiveness is the achievement of objectives while efficiency is the achievement of the ends with the least amount of resources. Literature shows little consensus to what exactly constitutes “knowledge work”
Snapshot of Personnel Productivity Assessment in Indian IT Industry
Figure 1. Productivity model
Table 2. Difference between manual and knowledge work productivity Manual Work Productivity
Knowledge Work Productivity
Work is visible
Work is invisible
Work is specialized
Work is holistic
Work is stable
Work is changing
Emphasizes running things
Emphasizes changing things
More structure with fewer decisions
Less structure with more decisions
Focus on the right answers
Focus on the right questions
(KW). It has proven hard to come to a clear and concise definition of this concept (Kelloway & Barling, 2000; Pyöriä 2005). KW involves the (a) creation, distribution or application of knowledge (intangible resources) as task contents (Davenport, 2002; Harrison, Wheeler, & Whitehead, 2004; Jones & Chung, 2006), (b) by highly skilled and/or trained workers (Drucker, 1995; Pyöriä, Melin, & Blom, 2005) who have autonomy in their work (Mäki, 2008; Pepitone, 2002; Scott, 2005); (c) who use tools (e.g., ICT) and theoretical concepts (Pyöriä et al., 2005); (d) in order to produce complex, intangible and tangible results (Drucker, 1995; Lönnqvist, 2007); (e) to provide a competitive advantage or some other benefit contributing towards the goals of the organization (Harrison et al., 2004). A literature review by Mäki (2008) suggests the following synthesis of KW: it includes active, autonomous and independent acquiring, processing, and developing of knowledge and information; its inputs and outputs are
information, knowledge and knowledge artifacts; it requires collaboration with other employees and the ability to learn. Drucker emphasized that the next level of economic growth needs to be driven by knowledge work productivity. A large amount of work on KW focuses either at the individual level (productivity, well-being issues) or on the organizational level (learning, knowledge management, and resource based view). Several authors however, mention that knowledge work is usually not an individual task, but knowledge workers co-work on such complex tasks they cannot perform alone and work. At this point in time there is no unanimously accepted method that could be used in measuring knowledge work productivity (Ramírez & Nembhard, 2004). As knowledge work differs so radically from labor-intensive work, the attempt to apply measurement and management methods used in traditional industries will not lead to an improvement in productivity of knowledge workers (Drucker, 1999; Pepitone, 2002). There are several methods, such as Balanced Scorecard and Performance Prism (see e.g., Kaplan & Norton, 1996; Neely et al., 2001) are some of the methods used in the area of performance measurement, which explains immaterial or unquantifiable factors, but they do not focus particularly on productivity. A number of studies focusing on the efficiency of software development have been presented in the literature (Mahmood, Pettingell, & Shaskevich, 1996). IT organizations must continuously innovate in terms of product, process, market and business model to remain sustainable and to enhance
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competitive advantage over other organisations and improve profitability (O’Sullivan & Dooley, 2010).This could also be a basis for productivity estimation. Organizations are leaning towards the development of virtual teams. It is an organizational form that provides organizations with exceptional flexibility to gratify the fast changing customer requirements in a more efficient and effective manner (Powell, Piccoli, & Ives, 2004). Function point analysis, operations-based productivity measure and data envelopment analysis among various others have been used in studies to measure knowledge worker productivity (Ramírez & Nembhard, 2004). The above mentioned methods attempt to bring about an objective measure that can be constructed from operational data. They also concentrate on finding proxy measures for productivity. Kemppilä and Lönnqvist (2003) have defined Subjective productivity measurement SPM as “a method for acquiring productivity information by gathering and analysing the assessments of relevant stakeholders regarding direct or indirect productivity of the measurement object”. As Pepitone (2002) states, the social sciences can provide insights to productivity measurement; at least in the attempt to better understand knowledge work. Subjective productivity measurement (SPM) is a method that is based on collecting subjective data from target group and basing the productivity analysis on them. Premraj, Shepperd, Kitchenham, and Forselius (2005) put forward that there is no significant difference in the productivity of new development and maintenance projects. The most significant factors contributing to software productivity are company, business sector, year, and hardware. The factors influencing productivity can be classified into technical and soft factors. All non-technical factors arising from team and its work environment is termed as soft factors. The technical factors comprise of product category, process category and development environment which is made up of tools the developers uses in the project (Wagner & Ruhe,
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2008).The personnel included in software development teams are one of the most decisive aspects for projects and their deficiencies (McConnell, 2003). Bosch-Sijtsema, Ruohomäki and Vartiainen (2008) propose that interpersonal processes (trust, autonomy, identity, conflicts, cohesion); planning processes (goal setting, clarity of roles and goals, shared norms) and action processes (coordination, communication, monitoring) are drivers of knowledge work productivity in distributed teams. They have also suggested elements that affect the outcomes of distributed knowledge workers in terms of productivity and effectiveness. The elements comprise of (1) time spent by knowledge workers on different places, in different work modes and on different tasks; (2) team composition and structure (3) team processes; (4) organizational context; (5) workspaces; and (6) outcomes on individual and team level. The style of management of Team Software Process (TSP) allows the team leader to concentrate on features such as the management of human resources, and management of quality (Ruano-Mayoral et al., 2010). Thereby team leaders are given room to improve efficiency and effectiveness ultimately leading to productivity enhancement. The real value of any productivity assessment system is the value realized out of the performance data collected. It should be used to shape the company for a maximum impact on business results and overall profitability (Marsh, 2002). User reviews give an impetus to certain phases of software quality and to the completion goals of the project. This can also be used to ascertain productivity of the project and personnel (Hsu et al., 2010). Schaufeli and Bakker (2002) define engagement “as a positive, fulfilling, work-related state of mind that is characterized by vigor, dedication, and absorption”). Engaged employees within an organization provide a competitive advantage to organizations, as explained by the resource-based view (RBV) of the firm (Joo & Mclean, 2006), and hence there is a need to continuously engage
Snapshot of Personnel Productivity Assessment in Indian IT Industry
employees. Effective talent management policies and practices demonstrate commitment to human capital, resulting in more engaged employees and lower turnover. As a result, employee engagement considerably influences employee productivity and talent retention. (Lockwood, 2006).Employee engagement, in fact, can make or break the bottom line.
RESEARCH METHODOLOGY The methodology used in this paper is case-based research. The literature review was done on productivity assessment methods and the implications of productivity assessment methods of employees are explained taking into consideration few practical IT company cases.
PERSONNEL PRODUCTIVITY ASSESSMENT METHODS Interestingly most companies have their own home-grown productivity calculators to track the progress of their projects. Productivity can be measured based on different metrics. These can range from work-hours spent on a project to dollars spent per line of code to dollars spent on defects, etc. It becomes imperative to measure productivity before starting a project to calculate the cost/time factor. When we talk about productivity it encompasses the people as well as the systems built around them. Productivity in software is usually measured in Loc/person day of code generated; it is not only a measure of just the people but the entire system of code generation which includes use of automated tools where feasible and applicable. The monetary value of a project compared to the man-months spent on it gives a broader perspective of productivity. This however is not sufficient at the micro level. Project-wise productivity, specifically in the IT industry, needs to be maintained at micro
levels rather than macro levels, and in this regard productivity Human resource function measures and maintain productivity benchmarks for each project, taking into consideration time, training requirements and Key Result Area (KRA) output per employee. Measuring productivity is an integral part of a project manager’s functions as it helps in determining accurate time expenditures when billing clients or projects. For any productivity metric to be implemented, it is important to first identify its contributing elements completely. The elements of productivity metrics are Name of the metric, Metric description, Measurement procedure and Measurement frequency, Thresholds Estimation, Current Thresholds, Target Value and Units. Where metric and metric description identifies what needs to be measured, measurement procedure and frequency talk about how the metric is measured and how often the metric is measured respectively. Thresholds estimation talks of how the thresholds are calculated. Current thresholds talks of the current value range that is considered normal for the metric. Target value is the best possible value of the metric and Units are the units in which the metric will be measured. After identifying the key elements of any metric, challenge of selecting the best possible metric arises. Selecting any metric is often not easy owing to the fact that each metric has its own set of pros and cons. Every metric that is used to track the productivity will always follow a procedure that starts with collecting data, followed by analyzing that data and finally responding to the resultant information. As we progress into the Information age, data collection is no longer a challenge. Standards, automation and technologies contribute immensely towards speeding up the procedure of productivity measurement. To be able to select the right productivity metric it is vital for an organization to completely identify its goals and objectives. This helps determine the key factors that contribute towards achieving those goals and objectives. These key factors are what we call Key Performance Indicators (KPIs). These
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KPIs are then used to correctly assess the present state of success and to prescribe a course of action leading towards achieving the set goals and objectives. Every industry and every organization would have its own set of KPIs to measure productivity. All depends on what you want to track and what goals and objectives is an organization trying to achieve. Partial productivity is a measure of productivity that relates total output to one class of input. Examples of industry-based partial productivity measures include: output per manhour, annual revenue per employee, flight hours per employee per year, productivity, maintenance hours per technician per year, are measures of labor productivity..A second measure of productivity, Factor productivity relates total output to the sum of associated labor and capital inputs. A third, pretty new, approach to the evaluation of productivity called, total productivity, relates total outputs to the sum of all tangible input factors (human). A fourth assessment approach is an extension of total productivity approach. It is called as comprehensive total productivity; both tangibles and company-specific intangible factors are incorporated into the productivity assessment. Productivity within an IT organisation differs from function to function. Which means, what constitutes productivity of a programmer will be very different from the productivity of a project manager. Once we have defined the individual productivity norms, it is easier to focus action areas for improving it. The role of an IT worker is often a determining factor for measuring productivity. Some roles, like that in BPO organisations, are relatively easy to measure (in terms of a certain complexity handled per unit time, turnaround time for specific types of transactions, etc), while development related roles require a more comprehensive handling. A developer’s (real coder’s) productivity could be measured in the following ways: 1.The traditional approach of number of lines coded per unit time. 2. Function points developed per unit time (this allows for a solution’s environment to be taken into account).3. Number
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of defects produced (a negative measure).4. Number of defects detected (for testers), and fixed (for developers).5.Turnaround time for fixing defects of a given severity. It is essential to calculate the cost of the project vis-a-vis the time estimate. While calculating the lines of coding (Loc) has generally been the common criteria for programmers, it is not always considered an effective measure of the actual work done. The time spent on activities like attending training programmes, participating in meetings, co-coordinating with colleagues or conceptualising, is not taken into account. We are trying to adjudge an effective criterion and sum up international benchmarks. Some common examples of metrics that are used to measure software productivity are Order of growth, Source lines of code, Cyclomatic complexity, Function point analysis and Bugs per line of code. Other metrics that are being applied to measure any productivity in general are the Balanced Scorecard, Performance Prism and the Cambridge Performance Measurement Process. These are designed for business-wide implementation. Other approaches such as the TPM Process, 7-step TPM Process, and Total Measurement Development Method (TMDM) are specific for team-based productivity measurement.
Functional Size Measurement This method focuses on measuring on measuring size in terms of functions required and delivered to the user, the functional size of software. The size of software is derived by quantifying the functional user requirements (FUR). This measurement independent of language, tools, techniques or technology used to develop the software. Size will be measured as the functions delivered to the user and will be derived in terms understood by the user. A functional size measurement method consists of two phases: a mapping phase and a measurement phase. In the mapping phase, the functional user requirements are transformed into a model that can be measured in the measurement
Snapshot of Personnel Productivity Assessment in Indian IT Industry
phase. In the measurement phase, the measurement rules of the FSM method are applied to derive a size of the software, the functional size.
Lines of Code It is the most extensively used measure of software size. This can be judged only after project completion. Basically two important decisions as to whether to include commentary in the count and whether to count lines or statements. An understanding of the sources of software (new, modified, and reused) that go into delivery is crucial. The resources needed to deliver these classes of software are different. Modified software takes advantage of the existing design, but still requires coding, peer review, and testing. Reused require testing with the other software. In Equivalent Source Lines of Code” weights are obtained from past data analysis usually it is as follows: New – 100%, Modified – 40 to 60%, Reused – 20 to 40%.
Requirements Churn and Quality at Delivery When determining what value to put in the denominator of the productivity equation, the resources required for rework after delivery should be added to the development cost, while the resources associated with requirements breakage should be subtracted. Obviously, tracking the data necessary to do this is difficult, but such data helps to develop a more precise understanding of productivity.
Revenue Per Employee As organizations recruit their employees from the same labor market, it is assumed that the average wage rate is approximately the same across all organizations. Software companies are located in big cities where the cost of living is approximately the same. The profit function of firm is p= R- W*L, R= f (L, T, D, g). Here, p is the profit, L the labor,
w the average wage rate for the organization per employee and R the revenue earned. R is a function of labor, technology, domain and other factors (g).Profit per employee is directly proportional to the revenue per employee generated. The rate of growth is another measure used to estimate productivity (DR/R). This is because, even at a given level of revenue per employee (productivity), the greater the scale of operation, the greater the revenue and the greater the total profits. Thus, overall firm profits depend upon two factors - the productivity and growth.
Function Point Analysis IFPUG is a non-profit, member-governed organisation. Its mission is to promote and encourage effective management of application software development and maintenance activities through the use of Function Point Analysis (FPA) and other software measurement techniques. The FPA technique quantifies the functions contained within software in terms that are meaningful to the software users. The measure relates directly to the business requirements that the software is intended to address. The Method: The functional size model of FPA defines software as a collection of elementary processes. There are two basic function types: data and transactional. Transactional functions represent the functionality provided to the user to process data. Transactional function types are: external inputs, external outputs and external inquiries. Data functions represent the functionality provided to the user to meet internal or external data requirements, the data can be maintained by the application in question (internal logical file) or can be maintained by another application (external interface file). Each elementary process is given a rating - simple, average or complex -depending on the number of record element types, file type referenced and data element types involved in the process. In order to compute the number of unadjusted function points for a software project, a number of function points
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Snapshot of Personnel Productivity Assessment in Indian IT Industry
Figure 2. IFPUG function points
are assigned to each elementary process depending on the weight that is given - simple, average or complex. The total amount of unadjusted function points is the aggregation of all the unadjusted function points for each elementary process. The influence factor needs to be multiplied with the unadjusted function points to calculate the total number of function points (Figure 2). Other business measures, such as the productivity of the development process and the cost per unit to support the software, can also be readily derived. The use of Function Points (FPs) as proposed by Albrecht and Gaffney is designed to size a system in terms of its delivered functionality, measured in terms of objects such as the numbers of inputs, outputs and files. Weights are assigned to each of these objects depending on the object’s complexity and importance. McCabe’s cyclomatic complexity and Halstead’s complexity measure are some of the complexity measures used. The vigor of the FP measure is that it is independent of programming language and can used at the requirements specification stage to estimate the size and cost of the software.It requires considerable effort in estimating the total function points for large and complex systems as it is prone to human subjectivity. It was initially developed and endorsed as an estimation technique. Since
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it is based on information that is available relatively early in the life cycle, it can be quantified with greater confidence than physical size measures (such as Lines of Code) during project planning. The shortcoming of FPA is that even after the project is complete, the measurements of Functions Points still remain subjective. The skill of the measurement analyst conducting the function point count, the completeness and accuracy of the descriptive materials on which the count is based decides the accuracy of the measurement. (FPA) and other software measurement techniques. The FPA technique quantifies the functions contained within software in terms that are meaningful to the software users. The measure relates directly to the business requirements that the software is intended to address. Other business measures, such as the productivity of the development process and the cost per unit to support the software, can also be readily derived. Constructive Cost Model (COCOMO) - COnstructive COst MOdel) has been designed in 1981 by Barry Boehm to give an estimate of the number of man-months it will take to develop a software product and it is referred as COCOMO 81. The project size is seen from a programmer’s perspective. The
Snapshot of Personnel Productivity Assessment in Indian IT Industry
model uses a basic regression formula, with parameters that are derived from historical project data and current project characteristics. Co-como II uses lines of codes as size measure. A new model called COCOMO II was designed in 1990 and the need for this model came up as software development technology moved from mainframe and overnight batch processing to desktop development code re-usability and the use of off-the-shelf software components. It allows one to estimate the cost, effort, and schedule associated with a prospective software development project. COCOMO consists of a hierarchy of 3 increasingly detailed and accurate forms:1) Basic COCOMO - is a static single valued model that computes software development effort and cost as a function of program size expressed in estimated lines of code.↜2) Intermediate COCOMO - computes software development effort as function of program size and a set of cost drivers that include subjective assessment of product hardware personnel and project attributes.3) Detailed COCOMO - incorporates all characteristics of the intermediate version with an assessment of the cost driver’s impact on each step in SDLC. (Software Development Life Cycle).
capable of the same production schedule. DMU A, B, and others can then be combined to form a composite DMU with composite inputs and composite outputs. Since this composite dump does not necessarily exist, it is typically called a virtual DMU. The heart of the analysis lies in finding the “best” virtual DMU for each real DMU. If the virtual DMU is better than the original DMU by either making more output with the same input or making the same output with less input then the original DMU producer is inefficient. DEA assigns weights to the inputs and outputs of a DMU that give it the best possible efficiency. It thus arrives at a weighting of the relative importance of the input and output variables that reflects the emphasis that appears to have been placed on them for that particular DMU. At the same time, though, DEA then gives all the other DMUs the same weights and compares the resulting efficiencies with that for the DMU of focus. If the focus DMU looks at least as good as any other DMU, it receives a maximum efficiency score. But if some other DMU looks better than the focus DMU, the weights having been calculated to be most favorable to the focus DMU, then it will receive an efficiency score less than maximum. The efficiency score in the presence of multiple input and output factors is defined as: Efficiency =weighted.
Data Envelopment Analysis (DEA)
EVA or the Economic Value Added
It measures the relative efficiencies of organizations with multiple inputs and multiple outputs. The organizations are called the decision-making units, or DMUs. DEA compares each decision making unit with the best decision making unit. A basic supposition behind this method is that if a given DMU A is capable of producing Y (A) units of output with X (A) inputs, then other DMU should also be able to do the same if they were to operate efficiently. Likewise if DMU B is capable of producing Y (B) units of output with X (B) inputs, then other DMU‘s should also be
This tool is the registered trademark of Stern Stewart and Co. EVA is used by companies to provide the variable pay to its employees. With the variable portion dependent on how the individual projects contributes to the overall profitability of the concern, the employees are persuaded to put in the best of their effort to their work. EVA calculates the economic value by making certain adjustments to the traditional system of accounting. But as this method utilises the past data, and with the rapid changes brought into the system by the changes in the technology, frequent evaluation is required
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Snapshot of Personnel Productivity Assessment in Indian IT Industry
to make it effective. A performance tool by itself has many flaws in the system. Now tools like a combination of ABC and EVA, etc are developed to negate the mistakes and to give a better picture of the way the business is being operated. Thus this helps the management, its employees and the shareholders to realise the worth of the business. Subjective Productivity Measurement (SPM) is a measurement approach that collects information about productivity through a questionnaire or an interview targeted to an interest group. Knowledge Worker Productivity Assessment (KWPA) is a method, which can be used to measure productivity of work subjectively. It is based on previous research results concerning the factors that affect productivity in knowledge intensive organisations as well as experiences from subjective measures. It focuses on drivers of productivity and brings about the opinion of
workers themselves. It measures an individual’s productivity or to be used as a basis for compensation. It is essentially a tool through which the management can observe the state of productivity at a certain point of time and it is best used in planning and monitoring organisational infrastructure. It externalises tacit knowledge about an organisation into explicit knowledge and offers management information (Figure 3). KWPA comprises of four phases (see Figure 3): 1) Definition of organisation’s needs and the measuring process. 2) Questionnaire directed to the employees. 3) Interview of certain groups of employees. 4) Analysis of both data. In the first phase the need of the organization is examined and decisions regarding the personnel to be observed, significant factors affecting productivity, magnitude and frequency of measurement have to be determined. Data is collected through two
Figure 3. The phases of knowledge worker productivity assessment
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Snapshot of Personnel Productivity Assessment in Indian IT Industry
instruments: a questionnaire survey and interviews in the second and third phase. In the fourth phase, an analysis can be drawn based on both quantitative and qualitative data gathered in the assessment process. KWPA is a practical measurement tool that can be used to help manage the productivity of knowledge workers. It can be used to detect problems that exist and affect the productivity of knowledge workers. It has proven ability to distinguish between problems that are underlying and problems that are severe.
Employee Engagement The impact of engagement (or disengagement) is apparent through productivity and organisational performance, outcomes for customers of the organisation, employee retention rates, organisational culture, and advocacy of the organisation and its external image. Employee Engagement Surveys are administered to know about the aspects related to a variety of parameters.: Leadership, employee confidence, and the management of acquisitions, customer orientation, and human resource processes.
PERSONNEL PRODUCTIVITY ASSESSMENT IN INDIAN IT COMPANIES Different kinds of tools are available to measure as well as improve the productivity of software development, many of them being developed in-house. Wipro has a process automated system that calculates the productivity on a monthly basis and this is a home grown system. Infrasoft also uses an internally developed cycle planner tool for managing and monitoring employee productivity. This helps companies in keeping up to high quality and time standards for every live project in the organisation. A comprehensive and continuous training program plays an important
role in maintaining the high productivity standards and benchmarks. An often neglected point while analysing the productivity standards is internal employee training. Six Sigma methodologies have been adopted by Wipro as a benchmark to drive productivity measures and to set the goals according to the past performances. The company participates in benchmarking forums like Metagroup and SPIN. For Infrasoft the benchmarks are an ever evolving process and are set on every project and client. Stastical norms are the international norms for measuring productivity. For example, the International Function Point User Group (IFPUG) has a data about productivity norms, which can be taken up and tuned according to an organizations experience. Function Point based measures are used to collect and analyse productivity data at Nihilent. Norms can be used as guidelines only it has to be customized according to the organization as each organization is unique. The technology, skill sets, past experiences, tools available, process maturity, etc decides the type of norms. The measures help in estimation, and the actual data must be analysed and used to refine the basis as one learns from projects. IFPUG is a non-profit, member-governed organisation. Its mission is to promote and encourage effective management of application software development and maintenance activities through the use of Function Point Analysis. Infosys’s approach to generating productivity improvements was an online system for documenting processes, built by the QA team and the internal information systems group. Infosys dubbed the system PRidE: Process Repository @Infosys for Driving Excellence. Within PRidE, any employee anywhere in the world could view all of the company’s standard work processes, which spanned the gamut from core work processes for custom software development to processes within support functions, such as finance and human resources. Infosys created a reward system based on “knowl-
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Snapshot of Personnel Productivity Assessment in Indian IT Industry
edge currency units” (KCUs). When employees wrote a document and contributed it to Knowledge Management system, they received KCUs based on ratings from others who had benefited. KCUs remained a psychic reward and looked good on performance reviews.
IMPLICATIONS Measuring productivity is equally important for an organisation and an IT worker. Awareness of individual productivity helps one to realize how an individual has progressed. Thus it serves as self goal setter and motivator. It serves as a tool to inspire people to put in their best foot forward. It also helps in weeding out excellent employees from not so great ones. Potential performers, non performers can be traced and suitable talent development strategy can be adopted. Retention and replacement decisions are based on an employee’s productivity.
CONCLUSION In this paper, attempt has been made to examine the concepts of personnel productivity assessment in Indian IT companies. Various techniques that can be applied to motivate employees so as to bring about improved job performance are also discussed. It should be noted that the literature has not prescribed any fool proof methods to enhance personnel productivity assessment methods for Indian IT companies. Therefore, the technique(s) employed by each leader or manager would depend on the particular environment and individual leader’s or manager s personal skill. Even though this work is based on literature reviews, the fundamentals derived from literature will be tested empirically in future research.
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REFERENCES Armstrong, D. J., & Cole, P. (2002). Managing distances and differences in geographically distributed work groups. In Hinds, P. J., & Kiesler, S. (Eds.), Distributed Work (pp. 167–186). Cambridge, MA: The MIT Press. Asmild, M., Paradi, J. C., & Kulkarni, A. (2006). Using data envelopment analysis in software development productivity measurement. Software Process Improvement and Practice, 11(6), 561–572. doi:10.1002/spip.298 Bosch-Sijtsema, P. M., Ruohomaki, V., & Vartiainen, M. (2006). Knowledge work productivity in distributed teams. Journal of Knowledge Management, 13(6), 533–546. doi:10.1108/13673270910997178 Davenport, T. H., & Glaser, G. (2002). Just-intime delivery comes to knowledge management. Harvard Business Review, 80(7), 107–111. Drucker, P. F. (1991). The new productivity challenge. Harvard Business Review, 69(6), 69–79. Drucker, P. F. (1999). Knowledge-Worker Productivity: The Biggest Challenge. California Management Review, 41(2), 79–94. Harrison, A., Wheeler, P., & Whitehead, C. (2004). The distributed Workplace. London: Routledge. Hsu, J., Chen, H. G., Jiang, J., & Klein, G. (2010). The Role of User Review on Information System Project Outcomes: A Control Theory Perspective. International Journal of Information Technology Project Management, 1(1), 1–14. Jones, E. C., & Chung, C. A. (2006). A methodology for measuring engineering knowledge worker productivity. Engineering Management Journal, 18(1), 32–38.
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Joo, B. K., & Mclean, G. N. (2006). Best employer studies: a conceptual model from a literature review and a case study. Human Resource Development Review, 5(2), 228–257. doi:10.1177/1534484306287515 Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: translating stratgey into action. Boston: Harvard Business School Press. Kelloway, E. K., & Barling, J. (2000). Knowledge work as organizational behavior. International Journal of Management Reviews, 2(3), 287–304. doi:10.1111/1468-2370.00042 Kemppilä, S., & Lönnqvist, A. (2003). Subjective Productivity Measurement. The Journal of American Academy of Business, 2(2), 531–537. Lockwood, N. R. (2006). Talent management: driver for organizational success. SHRM Research Quarterly, 1-11. Lönnqvist, A. (2007). Knowledge work productivity assessment. Tampere, Finland: Tampere University of Technology. Mahmood, A. M., Pettingell, K. J., & Shaskevich, A. I. (1996). Measuring productivity of software projects: A data envelopment analysis approach. Decision Sciences, 27(1), 57–80. doi:10.1111/j.1540-5915.1996.tb00843.x Mäki, E. (2008). Exploring and exploiting knowledge. Research on knowledge processes in knowledge-intensive organizations. Espoo, Finalnd: Helsinki University of Technology, Department of Industrial Engineering and Management. Marsh, B. (2002). A consolidated approach to productivity assessment. Journal of Information Technology, 18(2), 1–8. McConnell, S. (2003). Professional Software Development. Reading, MA: Addison-Wesley.
Neely, A., Adams, C., & Crowe, P. (2001). The performance prism in practice. Measuring Business Excellence, 5(2), 6–13. doi:10.1108/13683040110385142 O’Sullivan, D., & Dooley, L. (2010). Collaborative Innovation for the Management of Information Technology Resources. International Journal of Human Capital and Information Technology Professionals, 1(1), 16–30. Pepitone, J. S. (2002). A case for humaneering. IIE Solutions, 34(5), 39–44. Powell, A., Piccoli, G., & Ives, B. (2004). Virtual teams: a review of current literature and directions for future research. The Data Base for Advances in Information Systems, 35(1), 6–36. Premraj, R., Shepperd, M., Kitchenham, B., & Forselius, P. (2005). An empirical analysis of software productivity over time. In Proceedings of the 11th IEEE International Symposium Software Metrics (pp. 37-46). Pyöriä, P. (2005). The concept of knowledge work revisited. Journal of Knowledge Management, 9(3), 116–127. doi:10.1108/13673270510602818 Pyöriä, P., Melin, H., & Blom, R. (2005). Knowledge workers in the information society. Evidence from Finland. Tampere, Finland: Tampere university press. Ramírez, Y. W., & Nembhard, D. A. (2004). Measuring knowledge worker productivity: taxonomy. Journal of Intellectual Capital, 5(4), 602–628. doi:10.1108/14691930410567040 Rozenes, S., & Vitner, G. (2010). Multidimensional project control system implementation methodology. International Journal of Project Organisation and Management, 2(1), 40–60. doi:10.1504/IJPOM.2010.031881
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Ruano-Mayoral, M., Colomo-Palacios, R., GarcíaCrespo, A., & Gómez-Berbís, J. M. (2010). Software Project Managers under the Team Software Process. International Journal of Information Technology Project Management, 1(1), 42–53. Schaufeli, W. B., & Bakker, A. B. (2004). Job demands, job resources, and their relationship with burnout and engagement: a multi-sample study. Journal of Organizational Behavior, 25(3), 293–315. doi:10.1002/job.248
Scott, P. B. (2005). Knowledge workers: social, task and semantic network analysis. Corporate Communications: An International Journal, 10(3), 257–277. doi:10.1108/13563280510614519 Wagner, S., & Ruhe, M. (2008). A Structured Review of Productivity Factors in Software Development (Tech. Rep. No. TUMI0832). München, Germany: TU München. Weihrich, H., & Koontz, H. (1994). Management: A Global Perspective. New York: McGraw-Hill.
This work was previously published in International Journal of Information Technology Project Management (IJITPM), Volume 2, Issue 1, edited by John Wang, pp. 48-61, copyright 2011 by IGI Publishing (an imprint of IGI Global).
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Chapter 4.16
The Critical Success Factors and Integrated Model for Implementing E-Business in Taiwan’s SMEs Te Fu Chen Graduate Institute of Central Asia, Chin Yung University, Taiwan
ABSTRACT To date, identifying barriers and critical success factors (CSFs) and integrating business model in implementing e-business for SMEs, have not been systematically investigated. Few existing studies have derived their CSFs and business models from large companies’ perspectives, and have not considered the needs of integration for smaller businesses. This chapter is aimed to bridge this gap. Existing studies on CSFs and e-business models DOI: 10.4018/978-1-60960-587-2.ch416
were reviewed and their limitations were identified. By integrating insights drawn from these studies, as well as adding some new factors, the author proposed a set of 18 CSFs which is believed to be more useful for SMEs. The importance of the proposed CSFs was theoretically discussed and justified. In addition, a case study was conducted to evaluate the extent of success of this proposition. The overall results from the case study assessment were positive, thus reflecting the appropriateness of the proposed CSFs and integrated models. The set of CSFs and integrated models can act as a list
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Critical Success Factors and Integrated Model for Implementing E-Business
of items and an easy to follow model for SMEs to address when adopting e-business. This helps to ensure that the essential issues and factors are covered during implementation. For academics, it provides a common language for them to discuss, and study the factors crucial for the success of e-business in SMEs. This study is probably the first to provide an integrative perspective of CSFs and integrated model for implementing e-business in the SME sector. It gives valuable information, which hopefully will help this business sector to accomplish e-business visions.
INTRODUCTION Indisputably implementing and maintaining e-business for those large organizations is just another routine operation for their IT departments to ensure the business activities are performing efficiently. Nevertheless, small and medium-sized enterprises (SMEs) have far less resources and budgets to invest in IT enabled operations or the e-business vision. According to the figure reported by the IDC Taiwan in 2003, there are 1,060,000 SMEs in Taiwan and just fewer than 40% of them have involved in e-business activities (having financial transactions through the Internet). This signifies that at least 636,000 SMEs have not engaged in e-business operations. However it does not mean that these SMEs have not considered the implementation of e-business operations. Most SMEs have recognised the need to change their current business processes to achieve the capability to engage in Web based e-business activities. However, lacks of resources and budgets have prevented them from pursuing or continuing the e-business activities. The key question this study tries to answer is what is the real factor that affects in implementing e-business operations in SMEs? This chapter starts with surveying the e-business literature and identifying possible hurdles of transforming
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SMEs into e-capable (electronic capable) business operations. It is followed by categorising those factors or hurdles into two recognition phases. In addition to the hurdles, numbers of CSFs for SMEs to conduct e-business operations are identified and discussed. Through the literature study and investigation of various e-business transformation models, the authors have identified the components required for SMEs to transform into e-business operations successfully. A case study was introduced to verify the hurdles as well as the CSFs. This chapter concludes with the proposition of an integrated e-business model to amalgamate all required components and provide e-business implement steps for SMEs.
LITERATURE REVIEW The use of the Internet does not automatically mean placing a barrier between the firm and its customers and/or its suppliers. Revolve around inter-firm relationships. Many firms have invested in these relationships, sometimes over generations, and these relationships are key assets of the firm. The challenge is to leverage off these assets to a new level of competitiveness not to undermine them. O’Keeffe (2001) outlines what the Internet can or cannot do by exposing seven myths. These are presented in Table 1, the myths and realities of e-commerce and discussed below. The Internet is not about dis-intermediation but companies who do not add value or who have not invested in relationship or reputation assets are certainly under threat by the Internet infrastructure. The Internet infrastructure allows firms to manage the boundaries within the firm and between the firm and other players in the network to a new level of effectiveness and efficiency. The e-commerce platform is not simply about adoption with current inefficiencies, but about re-engineering the total system. There are further opportunity savings as buyers and sellers can develop new accounts and invest in developing
The Critical Success Factors and Integrated Model for Implementing E-Business
Table 1. The myths and realities of e-commerce (O’Keeffe, 2001) The myths
The realities
1. The Internet destroys relationships
Manage relationships as intangible assets
2. The Internet disintermediates
Value is more transparent
3. Simply reduce transaction costs
Focus on process costs
4. The Internet is about public information
Private information flows can be enhanced
5. A single hardware purchase
A dynamic relationship with a solutions provider
6. High risk and high investment costs
Amortised costs and low risk trial adoption
7. The Internet levels the playing field
The Internet leverages investments in reputation and relationship assets
new relationships and strengthening current relationships. It is all about relationships as assets. Hence, it is clear that the Internet is not about levelling the playing field, quite oppositely the Internet poses a competitive threat to those companies have lack of strategies or those with poor reputation or relationship assets. The Internet does provide the infrastructure for firms to unleash the power of past investments in their relationship and reputation assets and to develop these assets even further for long-term competitive advantage. The Internet provides a breakthrough technology in managing the boundaries of the firm both within the firm and with other firms in the network (O’Keeffe, 2001). The literature in e-business strategy has addressed a wide spectrum of issues with regard to transforming an organization into e-business operations. (Mirchandani & Motwani, 2001; Davy, 1998; Alexander, 1999). Furthermore, researchers have also discussed e-business adoption in various industries (Korchak & Rodman, 2001), regions (Beveren & Thomson, 2002; Gani, 2002; Walczuch et. al., 2000), and detailed technical steps involved in the transformation process (Eduard, 2001).
When analysing SMEs in e-business adoption, we have identified various factors that prevent them from using the full potential of the World Wide Web. The first contribution of this study is to identify the hurdles that affect the adoption of e-business operation in both pre- and post recognition phases. Furthermore, the second contribution of this study is to propose a set of critical successful factors for SMEs and an integrated model through a case study. The following sections outline the discussion of each factor within the associated phases and illustrate the development of e-business model. According to Clayton (2000) more than 60% of the small companies do not have a plan for their business strategy. Although the remaining companies have such plans, there is no indication that e-business operation strategy has been incorporated. Lack of such incorporation or recognition of e-transition strategy in business plans is considered as the major barrier in the success of e-business establishment. In the case studies conducted by the NOIE (National Office for the Information Economy) and Earnest and Young (2001), they have identified a number of factors that prevent SMEs moving to online operations, which are outlined as follows: • • • • •
Difficulties in finding reliable information that supports the e-business establishment; Difficulties in finding appropriate resources for a successful implementation; Difficulties of getting cost effective rates from ISP’s (Internet Service Providers); Higher costs of payment gateways for online transactions; and Difficulties of finding and arranging suitable logistic solutions for product deliveries.
However, these factors merely represent the impediments in a single domain, which falls under post-recognition of e-transition strategy, and have no hurdles been discussed prior to the recognition.
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Hence, the factors need to be further categorised into two domains, namely “pre-recognition” and “post-recognition”.
FACTORS AFFECTING SUCCESS The e-transition recognition model introduced in Figure 1 brings all the hurdles in the pre-recognition and the post–recognition phases into a big picture. The proposed model is to be applied by SMEs to identify the bottlenecks and develop an appropriate practical plan, which will lead them to the success in e-transformation vision. The following sections explain the components of etransition recognition model including recognition stage itself and pre- and post-recognition phases.
Pre-Recognition Phase Based on our experience in working with SMEs in Taiwan in the e-transformation activities, we have identified the six factors in pre-recognition phase. In most situations these factors tend to strengthen each other making it further difficult
Figure 1. E-transition recognition model
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for a small company to find solutions to the etransformation puzzle. 1. Resistance to change. 2. Nature of the business. 3. Lack of reliable resources to get the correct information. 4. Lack of knowledge and myths associated with it. 5. Suppliers and customers are not geared e-commerce. 6. Difficulty in seeing direct ROI. There has been some effort made to set up a mechanism to calculate the ROI of e-business initiatives (Edurad, 2001), but there is no one single formulae that can be easily applied to suite every SME.
Post-Recognition Phase After successfully passing all the hurdles discussed above, SMEs would have recognized the need of e-transformation in order to be ahead in the competition. At this point they might have preliminary plans to carry out the transformation tasks.
The Critical Success Factors and Integrated Model for Implementing E-Business
We have identified five hurdles that might prevent a SME actually implementing the e-business operations. As in the pre-recognition phase, factors in the post-recognition phase also have impacts on each other, which strengthens its affect and prevent the e-transformation becoming a reality.
Inability to Clearly Define the Requirements It is unclear as to what it means to the business community and even to the most of the Web community. None of the above is considered as truly e-transformed organizations. Only when the internal information systems are fully converged with the external/online information systems the e-transformation is achieved (Khandelwal et. al, 2004).
Lack of Resources These resources are time, funds and personnel.
Change in the Existing Business Process and Introduction of New Processes In case of a site where the customers can place on-line orders it would be important to have new business processes to handle orders and proper logistics to deliver goods. Inability to handle these changes or allocating resources to handle these new processes would result a failure in etransformation.
Technical and Infrastructure Problems
Project Based Nature of Transformation And Maintenance Most SMEs without in-house IT staff would need to outsource the development of e-business operations. Generally these types of activities are carried out in a project-based format where the project ends with the handing over.
FACTORS ACHIEVING SUCCESS Identifying the CSFs (critical success factors) allows a firm to realize the full advantages of achieving e-business solutions. We have highlighted six CSFs based on the literature and our experience as follows. •
•
•
•
SMEs operate in remote areas where the IT and telecommunication infrastructures are not available for getting access to the Internet or services from ISPs. •
The first CSF is to identify a suitable vision for the firm. This vision is important as it provides everyone in the organization with the future direction. The second CSF is that the firm must also have an e-business champion who will help make the vision a reality. This person must be a strong leader who owns the etransformation process at a company, and must also be visual, energetic, and passionate about the transformation. The third CSF is the creation of a healthy company culture. With this energized corporate structure, all employees will be involved in the corporate decision-making process. The fourth CSF is the development of a plan to achieve the e-transformation (Marzulli, 2000). This plan needs to be in document form and include milestones and metrics that describe the e-transformation journey. The e-business champion and senior management should review this plan regularly. The fifth CSF deals with corporate communication (Marzulli, 2000). A rigorous
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•
communication strategy must be implemented within the firm. This allows the organization to receive more feedback from constituents. This is imperative when ebusiness solutions are complex. The sixth CSF for an e-business firm is its ability to create flexible e-business solutions. This will allow the firm to grow in the future as well as personalize to various suppliers and customers.
If an organization can observe all of the above critical success factors, the expected e-business solutions can be achieved. Furthermore, KITE identified nine CSFs relevant to the competitive performance of small businesses entering the e-commerce market. This list took as its starting point a number of CSFs that were suggested to us by one of the reviewers (van Rijsbergen, 1998). The original list was expanded and refined in the light of experience with the Web Corporation in KITE. A further two factors (commitment and partnership) were derived from the interviews with the best practice sample. The final list of 11 factors is shown in Table 2. By eliminating repetitions, a core group of recommended actions for each CSF was derived.
These were grouped by category so that Web Corporation could focus on the recommendations applicable to them.
The New Stage by Stage of CSFs By integrating the abovementioned factors, the authors propose a more comprehensive model of 15 factors and separate into three stages for implementing e-business in SMEs (see Table 3). In order to achieve the success in e-business transition the above CSFs could be segmented into three stages. Once an e-business has determined its strategy and stage of development, it can identify the CSFs that are applicable to it. Below are the e-business models (Michael Rappa, 2002), SMEs could utilize the optimal model due to their manpower, monetary, resources and the need of customers and markets.
E-Business Models 1. 2. 3. 4.
Content sponsorship Direct selling Infomediary Intermediaries
Table 2. Critical success factors (Jeffcoate, Chappell, and Feindt, 2002) CSF
Description
Content
The effective presentation of a product or service offered over the Internet
Convenience
The usability of the Web site for the purpose for which it was designed
Control
The extent to which organizations have defined processes that they can manage
Interaction
The means of relationship building with individual customers
Community
The means of relationship building with groups of like-minded individuals or organizations
Price sensitivity
The sensitivity of a product or service to price competition on the Internet
Brand image
The ability to build up a brand name for the e-commerce business, and its products and services
Commitment
A strong motivation for using the Internet and the will to innovate
Partnership
The extent to which an e-commerce venture uses partnerships (value chain relationships) to leverage Internet presence and expand its business
Process improvement
The extent to which companies can change and automate business processes
Integration
The provision of links between underlying IT systems in support of partnership and process improvement
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Table 3. A set of new stage-by-stage of CSFs Stage
CSFs
Start-up phase
Vision, company culture, a plan to achieve the e-transformation, commitment, content, price sensitivity and convenience
Growth/transition phase
e-business champion (leaderships), Corporate communication, control, interaction, community and brand image
Maturity phase
Ability to create flexible e-business solutions, partnership, process improvement and integration, strategic positioning in KVC, mobilization
1. Content Sponsorship E-Business Model Major portals such as AOL, Yahoo, MSN, Lycos, Excite use this models. 2. Direct Selling E-Business Model
Manufacturers sell directly to customers instead of using intermediaries. (e.g. Cisco systems, Dell Computer). Used in business-to-business marketssaves millions of dollars at times in sales related expenses, such as, personnel, product configuration, and order processing costs.
2. Online Exchange: ◦⊦ C2C www.E*Trade.com ◦⊦ B2C Carpoint, AutoByTel ◦⊦ B2B NECX, Paper Exchange, E-Steel, Altra 3. Online Auction: ◦⊦ C2C e Bay ◦⊦ B2C Ubid ◦⊦ B2B Spottrader (2) Agent Models: •
Agent: Agent models representing seller, Agent models representing buyer (purchasing agent) E-Tailer: Bit vendor, Tangible products
3. Infomediary E-Business Model
•
Refers to an online organization that gathers and distributes information (e.g. Market Research Firms, such as, Media Metrix).
It is necessary through “stage by stage” to build an optimal model in implementing e-business when SMEs develop their e-business model because they are lacked of resources, personnel and monetary. Besides, an optimal business model could help firms to form sustainable competitive advantage because unique business model is hard to be imitated by competitors. Therefore, referring above CSFs and e-business models, the study further reviews a stage model which can describe the logical evolution of e-commerce involving different stages of development, each stage being better in some sense than the previous stage, can be useful in providing a roadmap for improvement to companies. A stage model, we believe, can do this.
4. Intermediary Models: There are two models as following: (1) Brokerage Models: • •
Online Exchange e.g. E-trade Online Auction e.g. eBay
The broker creates a market in which buyers and sellers negotiate and complete transactions. They typically charge a fee. Below are some practical examples: 1. Offline Exchange: NYSE
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The Critical Success Factors and Integrated Model for Implementing E-Business
A Stage Model for E-Commerce Development
4. Enterprises integration (value chain integration and high level collaboration).
To achieve the goal of becoming an “e-SME”, the Local Futures Group (2001, cited in Dixon et al., 2002) suggest that firms must across two digital divides:
The study argued that SMEs could start in any stage of abovementioned, it depends on their resource, personnel, technological support, and so on. The model allows for a company to enter at any stage. It is not necessary that a company begins at the presence stage and then progresses through subsequent stages although the stage model as proposed appears sequential. It depends on the degree of increasing awareness for technology and e-commerce. The point is what factors promote and what factors inhibit or retard e-commerce development and implementation at a particular stage. Subba, Glenn and Carlo (2003) call these facilitators and barriers to e-commerce development and implementation. If the primary impact of the factor is internal and within the control of the SME, they classify it as a facilitator since the enterprise can improve its readiness for a given stage. On the other hand, if the primary impact of the factor is beyond the control of the enterprise they have generally classified them as barriers.
1. The first divide involves acquiring basic ICT skills and technology to operate e-mail and simple brochure Web sites. 2. The second digital divide is the threshold to e-business proper, and requires advanced technology and IT skills (including R&D) and a wide range of specialist business skills and knowledge in areas such as management, strategy and marketing. It implies that all SMEs have the need and opportunity to follow one prescribed course; with the implication that not to finish the course (cross the divides) is some kind of failure. Furthermore, Subba and Glenn (2003) proposed that e-commerce development takes place in four stages (see Figure 2): The four stages are listed below:
E-Supply Chain
1. Presence (no integration). 2. Portals (no $ transaction). 3. Transactions integration (low-level collaboration).
While Shapiro and Varian (1999) explain that the old rules of economics still apply, because man (as an economic actor) has not fundamentally changed his behaviour so far, what should be noted is that
Figure 2. A stage model for e-commerce development (Subba and Glenn, 2003)
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what is called e-business is still largely, in reality, e-commerce and sales and marketing driven only, rather than an integral business model. Amazon, for example had to admit that it charges customers logistics costs which may offset the price advantage to the customer. More importantly, it had to admit that frequently it does not know what the “true” logistics costs are. Perhaps, one might reason, this contributes to the continued losses the company is experiencing. Losses have increased in line with a growth in turnover last year, and it has been stated that the growth of the company lead to an increase in inventory, especially with product diversity increasing. This implies poor management of logistics and supply processes in this e-business. Consider these findings from an Arthur Andersen survey of customers purchasing products on-line in the USA, fourth quarter of 1999 (Figure 3: Top ten problems experienced with on-line purchasing). In the top ten problems experienced by endconsumers, some are in the category of technology, some are marketing related, but the top two factors are logistical factors, related to supply chain performance. Products not delivered on time or out of stock means receiving Christmas presents mid-February. Experts reflect upon this by pointing out that the dot coms had underestimated the complexities of trading in volatile markets. Nor did they have the systems in place to report emerging stock shortfalls, manage ven-
dors and complaints. Clearly, building a customer-facing Web environment is not all that difficult, but managing it with an underlying business model that includes an e-supply chain is something else. Experts (Andersen and others) suggest: Supply chain failures are compounded by a lack of rapid reporting structures to identify emerging stock shortfalls, order processing systems to manage the needed repeats, and vendor quality management programs to ensure minimal complaints and returns. These companies have dressed the shop window with slick Web sites, but there is no technology behind it to fulfil the order. Systems are already inadequate for big volumes, before adding new developments using mobile phones to access the Web. Companies are creating a demand they simply cannot fulfil. Additionally, we are currently in the midst of what might be called the second wave of e-business. The first wave was that of the start up dot coms, some of which have already gone bankrupt others are now more carefully monitored at the stock market, and hardly any have yet fully delivered on their promises. Thus, the second wave may become more important as it centers around existing companies with a heritage in the brickand-mortar world who are now penetrating the e-business environment. Companies with existing and well-established processes and performance are now adding e-business to their portfolio and
Figure 3. Top ten problems experienced with on-line purchasing; source: Remko van Hoek (2001)
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many are investing deeply. Their experience may help enhance performance of e-business concepts, but their heritage may also hinder drastic adjustments to their business model. The second wave indicates how e-business is seen as a general and massive e-business opportunity in many sectors of the economy, and how expected revenues are high (judging upon the size of initial investments). The main argument, however, is that, in order to earn back investments and realize the promise of e-business, the creation of e-supply chains is needed, especially now that more experienced companies are becoming involved and investments in e-business are rising. The e-supply chain is the physical dimension of e-business with the role of achieving base level operational performance in the physical sphere (fulfilment, etc.). Additionally, it provides a backbone to help realize more advanced e-business applications that companies will obviously be unable to achieve if base level performance is not even up to market requirements, as indicated in Figure 4. In order to introduce the relevance of e-business from a supply chain perspective, the next section will explain how e-business applications can support the realization of supply chain objectives. Supply chain approaches to e-business will then be developed. In these approaches the creation of an e-supply chain is considered of central importance. This is aimed at moving beyond the poor Figure 4. Supply chain approaches to e-business; source: Remko van Hoek (2001)
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supply chain organizations underlying current e-business applications. In order to further support the realization of e-business objectives through the e-supply chain, relevant innovative practices are then developed. These are aimed at furthering the contribution of the e-supply chain, making it a backbone of revenue creation that can help earn back the amount of investment and effort currently going into e-business.
E-Supply Chain Approaches The two basic problems with the Amazon supply chain, very much in line with the expert quotes in the introduction, are its partial, as opposed to integral, supply chain scope and its operational, as opposed to strategic, approach to information in the supply chain. Its supply chain is integrated using information from the sales interface and partially to the logistics operations of its service providers, yet not throughout the entire supply chain. As a result, observers point at the lack of reporting structures to identify emerging stock shortfalls, order processing systems and the lack of technology behind the shop window, needed to actually fulfil demand. Moreover, the use of the information is operational in nature it is used to organize shipments, order products, etc. More advanced strategic utilization of the information in the supply chain is not practiced. Figure 3 supply chain approaches to e-business illustrates the two primary dimensions that can be used in assessing the supply chain approach to e-business: the supply chain scope of e-business applications (which can be partial and limited to segments of the supply chain only or integral throughout the entire supply chain); and the approach of information to be used in the supply chain (which can be operational and ad hoc only, or more structured and with a greater impact, up to a strategic business enhancement approach). Whereas current practice, as indicated in the Amazon example, usually falls in the left bottom
The Critical Success Factors and Integrated Model for Implementing E-Business
quadrant, the true e-supply chain needs to be in the upper right quadrant, as will be explained below. First, there are many calls for connectivity and transparency in information flow as a qualifier for information integration (see Bowersox et al. (1992) and CLM, 1995) in which connectivity between supply chain layers and transparency of information as mentioned in the previous section are used as elements of world class logistics capabilities). However, this requires the establishment of a basic information infrastructure in the supply chain. Bar codes as an information source are one example of a possible infrastructure. Bar codes are often used in a warehouse, sometimes stretching as far as final delivery but for the support of operational systems only. An interesting development along these lines would be to apply the system throughout the supply chain. Exel/ Reebok, for example, is beginning to attach bar codes in production and use them all the way through the supply chain until the point of sale (and back for obsolete products). Thus, the information flow in the supply chain should not be used for operational/transactional purposes only, but for strategic advantage as well. Information integration by third-party logistics service providers, called fourth-party logistics (4PL) by Arthur Andersen and practiced by UPS Worldwide Logistics, leverages operational information for the strategic benefits of learning, supply chain engineering and competitive differentiation. The operational information about the transportation and distribution stages of the supply chain is recorded and can be used to monitor transportation links, identify opportunities for lowering costs by shifting volumes between routes or realizing a competitive advantage through differentiating services in response to the market information stored in the databases. The 4PL concept centers around information integration of transportation and distribution only, and thus represents a partially integrated supply chain scope. Also the 4PL will compete with virtual transport markets or auctions
where transport supply is accessible on-line for transport buyers to book capacity (Crowley, 1998). Nike has developed a supply-chain-wide advanced notification system for its products in which retail orders are shared with suppliers; the European distribution center receives an advanced notification of shipments leaving suppliers; and retailers are then pre-advised of the scheduled delivery of goods which are in the pipeline. As a result, connectivity and transparency between individual players in the information flow are taken to an advanced level in which the entire supply chain Web is seamlessly integrated. In a strategic drive to leverage the basic information infrastructure for competitive differentiation, Nike is now developing closed sites for its long-term preferred suppliers in an attempt to leverage transactional data and open databases relevant to order fulfilment. Suppliers will be able to learn about future initiatives and will be free to contribute to, or raise, additional supply chain improvement opportunities. As another example, UPS can make a bigger supply chain contribution by becoming involved in the online ordering of supplies on behalf of its clients, based upon inventory status information in its databases, ultimately leading to a more integral scope of its involvement in the supply chain and potentially leading to the creation of an e-supply chain (upper right quadrant of Figure 5). The supply chain of the Smart car also represents an experiment in this sphere. On-line ordering on the Web, or the engineering of a customized car using multimedia tools in the showroom, is directly and electronically linked to production planning. The production plan is shared with suppliers who receive orders in real-time from the OEM, using the supply-chain-wide information infrastructure. As a result, the entire supply chain is involved in the concept. Additionally, information is not only used for operational ordering purposes but also as a strategic, long-term resource for competitiveness and further innovation in the supply chain. Customer information recorded in the showroom, for example, is also used for data-
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Figure 5. Towards the e-supply chain; source: Remko van Hoek (2001)
mining. Recorded customer preferences, customer characteristics and customer profiles are used as an input to the further development of product options, service elements and future generations of the product. In the supply chain a multitude of companies co-operate in a Web-link environment (which is multi-directional rather than linear and sequential as in the traditional Forrester approach) and the information flow is a critical tool for the OEM to integrate and direct the supply chain. Note here that as a result the OEM is hardly present in the physical sphere anymore as it adds only about 10-15 per cent of operational added value (van Hoek, 1998). The e-supply chain format resulting from these initiatives is different from traditional e-commerce and purchasing approaches in that: A supply chain-wide information infrastructure is used to directly disseminate relevant market information throughout the chain as a whole, avoiding a loss of time and “noises” leading to Forrester effects. The supply chain partners can co-operate more intensely around market opportunities and with broader and more elaborate co-ordination mechanisms, Information is not solely used for ordering and transactional purposes, but as a longterm resource for innovation, enhanced consumer relations and service propositions (such as: “Feel
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free to design your own car and have an impact on our innovation efforts too”). The fact that the e-supply chain approach runs through the various layers and players in the chain (as opposed to an internal virtual enterprise model) not only helps avoid costs resulting from Forrester effects. It also brings companies into a position to re-engineer the supply chain for competitive differentiation and improve focus on key competencies. The OEM in the Smart case, for example, focuses almost exclusively on supply chain co-ordination while leaving most of the operational activities to specialists. Figure 5 towards the e-supply chain displays the full framework for moving towards an e-supply chain as introduced here, including the above mentioned changes in organizing and managing the supply chain, indicated using arrows. Esupply chain solution is a key successful factor of e-commerce, it’s belonging a technology-side approach, and it can integrate electronic business process and information.
E-CRM Customer Relationship Management (CRM) Software provides CRM solutions with real, tangible benefits for all businesses with market leading flexibility, integration and mobility. E-CRM is an enhancement of CRM system. CRM and e-CRM
The Critical Success Factors and Integrated Model for Implementing E-Business
combined, provide the ability for the simultaneous, 2-way exchange of information. Customer information can be held locally for rapid secure access, whilst provision is made for remote access via the Internet. The Internet offers much more than just a convenient means of taking an order. E-CRM allows advanced Customer Relationship Management over the Internet and brings you closer to your customers (Prospectsoft, 2007). If your business is not simply a catalogue operation, you will no doubt feel that it is your added value, better product knowledge and more personal customer care rather than cheaper prices, that allow you to compete with larger operators. If so, you won’t want the Internet to turn your business into a faceless, uncaring and unresponsive organisation that does nothing for your customers other than advertise ever-lower prices. (http:// www.prospectsoft.com/crm/solutions/index.htm) 1. E-CRM allows you to provide true customer care and added value to your customers 24 hours a day, 365 days a year. 2. E-CRM provides a range of functionality that is automatically integrated with customer database and makes information available to your staff for them to act upon - without re-keying the data.
Information Value Chain In e-commerce operations, information is not viewed as a by-product of the strategic activities performed around the physical value chain. It is viewed rather to play a strategic role in itself. For this reason, strategic activities in the virtual value chain are performed in conjunction with information. This is well explained by Rayport and Sviokla (1995), with the concept of a “virtual value chain”. According to Rayport and Sviokla, a virtual value chain consists of “gathering, organizing, selecting, synthesizing, and distributing of information”. Hence, it becomes imperative that
businesses amalgamate virtual chain activities with physical activities to become fully integrated business operations to offer customized products and services, as shown in Figure 6. While virtual value chain enables companies to access information and finalise transactions, physical value chain ensures the order fulfilment and delivery of products and services to the customers (Rayport and Sviokla, 1995). To be brief, the success e-commerce operations will depend upon the ways the physical value chain and the virtual value chain activities are matched and integrated into an information value chain. It is obvious that merely integrating virtual value chain with physical value chain does not guarantee organizations in sustaining the competitive challenges. To take one step further, the optimal approach is for an organization to create its knowledge assets as knowledge turns into the main source of competitive advantage (Miles, 1993; Miles et al., 1994). The following section reviews knowledge value chain and proposes the convergence of information and knowledge value chains.
Knowledge Value Chain Employing Porter’s value chain analysis approach (Porter, 1985), Lee and Yang (2000) proposed a knowledge value chain model (Figure 7). These infrastructure components and activities are the building blocks by which a corporation creates a product or provides service valuable to its customers.
The Integration of KVC and Business Value Chain As the value chain itself implies, each element of activity can create value and then all the value flows to the endpoint of the business value chain and joins together, forming the overall value of
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Figure 6. Integrated framework of virtual chain activities with physical activities (Rayport and Sviokla, 1995)
Figure 7. Knowledge value chain mode (Lee and Yang, 2000)
Figure 8. Relationship between business value chain and KVC; source: Lee and Yang (2000)
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business, which is usually expressed as a margin (see Figure 8). According this model, Lee and Yang (2000) proposed that the added value comes from the competence of element activity itself, which in turn comes from specific sub-KVC of itself, subKVC in inbound logistics (IL) operations (OP), outbound logistics (OL), marketing and sales (MS), and service (SE) activity enables business to gain the competence, and then the added value follows. Finally, all the sub-KVCs are integrated together into the whole KVC. In the process of knowledge integration, the competence of knowledge infrastructure is gradually forming. In the end, corporation competence follows KVC. By analyzing the above, Lee and Yang (2000) note that competence is after all the measurement of each sub-KVC. KM is a process that transforms information into knowledge, it is suggested that competitive advantage grows out of the way corporations organize and perform discrete activities in the knowledge value chain, which should
The Critical Success Factors and Integrated Model for Implementing E-Business
be measured by the core competence of the corporation. The characteristics of the enterprises integration stage include all e-commerce and non ecommerce aspects of the enterprise. At this stage they become melted together to a single system that serves all the needs of the enterprise.
EAI (Enterprises Application Integration) Successful players in the EAI stage will be able to distinguish themselves if they: • • • •
Intimately understand their partners’ current and future/strategic needs. Work proactively with their partners to create solutions that address these needs. Use information sharing; and Have long-term contracts (Lacerra et al., 1999; Krause et al., 1998).
It is argued that significant opportunities for improvement often lie at the interfaces between the various supply chain member organizations (Handfield and Nichols, 1999). Whether an order is initiated by a Web-based customer or a mail order customer does not matter. At this EAI stage the e-commerce departments disappear and all business processes are fully integrated across internal systems and external participants (suppliers, business partners, and customers).
K-Business While e-business gives us new access, exchange, and sales opportunities relative to information, kbusiness turns knowledge assets within a system into products, services, and profits. For e-business moves up to k-business, David Skyrme (2001) proposed ten Ps offer tips on online marketing that emphasize positioning, packaging, portals, pathways, pages, personalization, progression, payments, processes, and performance.
M-Business A few years thereafter, Microsoft amended its statement to “empower people through great software, anytime, any place on any device.” Being digital is out, being mobile is in. On November 21, 2002, when The Economist released its story on “Computing’s new shape,” the cover page featured a Nokia phone, not a Microsoft pocket PC. In The Freedom Economy, Peter G.W. Keen and Ron Mackintosh portray the “mCommerce edge in the Era of the Wireless Internet.” Just as personal computers and the Internet have changed the landscape of ecommerce, the authors argue, mCommerce will continue to extend the way organizations conduct business, while changing the relationships between companies, customers, suppliers, and partners. To them, mobility means freedom, which creates choice and, thereby, value. The key areas for expanding value through mCommerce are customer relationships, logistics, and knowledge mobilization, or intellectual capital. In Beyond Mobile, a trio of Kairos Futures’ consultants (Mats Lindgren, Jörgen Jedbratt, and Erika Svensson) take the mobilization of many businesses and organizations as a given. They focus on the human aspects of mobile technology, exploring the ways that people will work and communicate in the mobile marketplace. Their bold future scenarios extend to the year 2007. According to Ravi Kalakota and Marcia Robinson, the mobile Internet is transforming employee, supply chain, and customer interaction, and providing new innovation, cost-reduction, and revenue opportunities. Their M-Business shows how to reposition and develop business processes and enterprise applications to take full advantage of the mobile business wave that is portrayed as compelling and complex, even if its value is needlessly inflated (“and overtaking your organization even as you read these words)”. The gurus of IT-driven e-commerce business guides explore wireless revolution from a business perspective. They introduce strategies that can be exploited to
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adapt from tethered, PC-centric models to mobile, person-centric techniques and strategies. Claiming to focus on the bottom line, the authors explain how senior and financial managers can plan for and differentiate m-business investments.
RESEARCH PROPOSITIONS The aim of above review was to generate a series of exploratory research propositions relating to the barriers and CSFs for SMEs develop e-business activities while to embrace the technology and technique. The propositions generated follow, and a fuller explanation will be obtained through following case study. P1. The first stage of E-business start-up is to identify barrier to critical successful factors for transforming to e-business. P2. After transform successfully, the second stage is to integrate virtual and physical value chain to form an information value chain for unleashing the power of information and relationship assets. P3. The third stage is to integrate information and knowledge value chain, each element of activity can create value and then all the value flows to the endpoint of the business value chain and joins together, forming the overall value of business, competitive advantage grows out of the way corporations organize and perform discrete activities in the knowledge value chain. P4. The fifth stage is to integrate information and knowledge value chain to k-business to create knowledge assets. P5. The sixth stage is through EAI to integrate all systems to achieve sustainable competitive advantage.
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METHODOLOGY This chapter adopts a case study to assess actual barriers and CSFs to the decision to implement an e-business strategy in the context of this particular SME. The completed questionnaire, company reports/industry-specific newsletters and a depth interview created an established chain of evidence. Based on “grounded theory” the task of the researcher is to appreciate the different constructions and meanings that people place upon their experiences, rather than searching for external causes and fundamental laws to explain their behaviour. As Jones (1987) comments, grounded theory works because: Rather than forcing data within logicodeductively derived assumptions and categories, research should be used to generate grounded theory that “fits” and “works” because it is derived from the concepts and categories used by social actors themselves to interpret and organise their worlds. In SMEs most business decision-making is made by the owner-manager, therefore this person became the subject of an in-depth interview. The depth interview used the unstructured “tell me about it” approach to facilitate an open, flexible, illuminating way to study the complex, dynamic interactive situations such as management ebusiness decision making, providing: The opportunity for the researcher to probe deeply to uncover new clues, open up new dimensions of a problem and to secure vivid accurate accounts that are based on “personal experience” (Burgess, 1982; Easterby-Smith et al., 1995).
THE CASE STUDY The subject of the case study was a global firm operating in the IT industry sector in Taiwan since 1987. During the ensuing period it has steadily established itself as a specialist provider of a comprehensive IC design service, the supply and fitting of new and replacement layout products
The Critical Success Factors and Integrated Model for Implementing E-Business
of computer motherboard, which include various interface cards. From this perspective, the nature of the service is highly tangible, highly customised and is available on a knowledge-based basis by skilled people. It is a simply structured organization with 12 direct employees carrying out all responsibilities for day-to-day operations and resting with the managing director. Although locally focused, the company’s main objective over the next five years was to expand the business operations in the global markets. Their customers include computer motherboard industries, which generate approximately 80 per cent of their business, and their customers almost implement business to business (80 per cent) and business to consumer (20 per cent) operations.
Internal “E” Enablers Fitting into the theme of “awareness” and potential opportunities, from the completed questionnaire the authors were able to deduce that the owner agrees that having electronic mail and a Web site is important for the business. Furthermore the owner perceived that e-commerce would become increasingly important to the company in the future. “Access” to Web-based communications is supported by an ADSL broadband connection to the Internet. The company has taken the initial step to establish its Web “presence” and having their “virtual door” opened in September 1995.
Internet Commerce Usage In relation to “actual” usage the owner/ managing director explains that: I am not concerned about cutting costs and it was not my intention to operate the business purely in the Internet platform, and it was just another way to advertise my service offering.
The owner did not perceive that having a Web site could lower costs for the business, but did in fact view his e-business decision as an added expense in the short term. The primary e-business objective is to promote the organization’s name and intent, and provide potential customers with information on the service/product offering. In relation to e-business operations, the company was unsure of how much business was initiated by e-mail or its Web site. However, with an extremely low-level (basic) Web site it may be suggested that there may be limited e-business success. It is a static one-page information-based Web site (page) that gives the visitor details of company location, introduction of products and services and a brief history (five lines) about the company. There is, however, a contact facility (an online form) to enable contact with the company. At the time of the interview the owner had no plans to improve the sophistication/functionality of the Web site.
The “Real” Barriers The dynamic environment that is synonymous with e-business is a similar environment in which this company operates where complex micro issues prevent further development in e-business. It becomes evident that the e-business processes of this small business are at present isolated from the strategic e-business context where the ability to implement full-blown e-business is for this company impeded by various obstacles. Each day the owner is more preoccupied with “fire-fighting to realize and fulfil customer orders, where there is a heavy reliance on face-to-face contact”. The owner also perceives a lack of the suitability of Internet commerce for business purposes: Our service offering is highly tangible and is not really suited to the e-business environment. This comment would support the e-services literature where the potential for electronic selling of services/products on the Internet is positively
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correlated with intangibility. (Lovelock et al., 1999; De-Kare Silver, 2000). The “real” issues of limited resources were cited as inhibiting ebusiness activities where the owner stated: We do not have the resources (manpower and financial), or technical capabilities to manage the demands that online orders may generate... there is also the issue of distribution. The owner admits that he is not technically adept and the person responsible for all the administrative duties already had a huge workload to handle each day. Consequently, although this SME has taken an initial step towards e-business, the barriers to full-blown implementation relate to: • • • •
Lack of senior management support/ enthusiasm; Lack of skills among the employees; Lack of resources; and A lack of awareness of the benefits of ecommerce for the business.
Furthermore the high level of tangibility of the service/product mix is viewed as one of the major impediments to future utilization of Internet commerce by this particular small business. The “ideal” factors identified by Daniel and Myers (2001) as most important for e-business adoption (senior management support, a staged implementation and a clear understanding of the benefits) are missing from the strategic “e” context of this particular SME. To date there has been no indication of advancement through the stages of e-business growth to maturity. Subsequently, it is suggested that the e-business decision was a natural reaction (as opposed to being proactive) to much of the hype that has surrounded Internet commerce adoption, rather than any pre-conceived ideas about the benefits for the business, where this particular small business has taken a less than risky approach in their e-business decision.
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To reiterate the aforementioned observation made by PricewaterhouseCoopers (1999): Often SMEs equate having a Web site with electronic commerce. They set it up and it sits there as a reminder of their failure. The inherent lack of strategic emphasis in the e-business strategy of this small business makes this comment extremely pertinent. Perhaps justified by the fact that being at the experimental/ informational stage of its development, the ebusiness objectives of this particular firm are being fulfilled, using the medium purely as a promotional tool. Consequently they have become a “virtual” statistic... (whether skewed or not), viewed “as something justified by a univocal, irresistible `progress”’ (Winner, 1995).
E-Business Implementation Steps Before implementing an e-business solution, a firm must first identify its capability of handling an e-business solution. In relation to e-business implementing steps the owner indicated five major concerns on preparing e-business, they are: 1. Does every employee can use email to communicate with colleagues and customers? 1.2 Can the Website achieve advertisement effects to promote the company’s name and intent? 1.3 Can the Website provide electronic transaction information for customers and suppliers and recommend potential customers with information on the service/product offering? 1.4 Do the firm and its suppliers use universal identifiers, codes and definitions to identify products and procedures within its electronic documents? 1.5 Does the firm link virtual and physical value chain to leverage the power of information and relationships assets?
The Critical Success Factors and Integrated Model for Implementing E-Business
Answers of most of these questions are positive, and the firm is ready for e-business implementation.
AN INTEGRATED SMEBUSINESS MODEL Through above literature review and case study discussions, the authors proposed an integrated SMe-business model to be an easy to follow framework for SMEs pursuing e-business operations as Figure 9. Firstly, the study through e-transition model (e-transformation) to overcome barriers and achieve critical successful factors in e-business and therefore to the integration of the physical and the virtual value chain (create channel relationships and relationships assets). Secondly, to further integrate with knowledge value chain (create knowledge assets) to achieve k-business (knowledge business) (David Skyrme, 2001). Through k-business, SMEs can integrate internal
and external information and knowledge sources to create value. Moreover, the model through e-CRM to link with customer (create customer relationships assets) and through e-supply chain to link with suppliers (create supplier relationships assets). Finally, use EAI (Enterprises Application Integration) to integrate all of information and knowledge systems. EAI refers to the complete integration of business processes to the extent that old-line business is indistinguishable from online business (Subba and Glenn, 2003). This level of integration involves high levels of collaboration between customers and suppliers. Enterprises integration includes full integration of B2B and B2C business including value chain integration. This level of integration utilizes the e-commerce systems to manage customer relationships (CRM) and the supply chain management (SCM). This level of integration is e-commerce+CRM+SCM. This stage is somewhat of an ideal concept for the “e-world” environment. Many of the requirements of this stage still have
Figure 9. An integrated SMe-business model
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technology problems and over-whelming integration issues for SMEs. In summary, the study through case study and literature support, proposed two more items: strategic positioning in KVC and mobilization/ communication to transform e-business to SMebusiness (Strategic k-business + m-business + e-business) for smaller and medium-sized enterprises. This model can help firms to create value, relationship, information and knowledge assets, integrate internal and external resources and to achieve competitive advantage in the future development of e-business.
E-Business Implementation Steps It is necessary for an organization to carry out its own processes toward e-business solutions. A number of organizations have named a chief e-business officer to help coordinate e-business initiatives. This setting allows for centralized control of e-business across an organization, thus resulting in a greater efficiency. Companies must be cautious when they start e-business initiatives; this attitude would help firms quickly move to real-time processes (Karpinski, 1999). However, the speed of implementing these strategies has inspired strategic working alliances across a broad range of industries. This has been demonstrated through the alliances that have occurred between infrastructure organizations and Web boutiques. Firms implementing e-business solutions should recognize the challenges that face their organizations. First, they should comprehend the dot-com advantage. This occurs as a result of clients/customers’ preference for dealing with what they know and trust. This situation is often called the click-and-mortar integration; it occurs not only to the customers, but also to the suppliers. Another challenge is about catching the marketplace rules. That is, the Web will support the supply chain more than ever. The third challenge is that customers should be dealt with first. A quality e-business solution, while being electronic
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and integrative, should improve connectivity, knowledge management, and performance. It thus improves the efficiency of the firms. The study identified seven steps to implement a successful e-business solution. Specifically, they are: 1. Set a vision: start from top-down. The executives in the organization must embrace the e-business initiative. A company must recognize that the e-business functionality is a business project instead of a technical task. 2. Recognize up to date: The firm must ignore all of its old ideas and rules on how business is operated and develop total new ways to conduct business. Especially what are their barriers and CSFs to implement e-business. 3. Know your markets: The firm’s brand identity, customers, competition, and supply chain should be analyzed in the “know your market” phase. 4. Link: The firm must link virtual and physical value chain to form an information value chain, this way can leveraging the power of information and relationships assets. 5. Positioning: Strategic positioning what role the company in e-business and knowledge value chain will act. 6. Integrate: The firm must through EAI to integrate all various corporate systems then “create” its e-business solutions. 7. Evaluate and update anytime: The firm must modify its e-business solution anytime as speed and innovation are the keys to the e-business world.
RECOMMENDATION The study suggests that SMEs utilise the integrated SMe-business model that the company has about itself and its customers, partners and suppliers, and apply it to the marketplace. Then, these companies,
The Critical Success Factors and Integrated Model for Implementing E-Business
even if very small, have the opportunity to outmanoeuvre all bigger players and come in ahead of last year’s champions. For the limited resources, both human and monetary, SMEs especially need to construct their e-business framework step by step and to integrate internal and external resources and to create value, relationship, information and knowledge assets, and therefore to form corporate core competence in order to maintain sustainable competitive advantage. The owners/managers of many SMEs are just beginning to identify how technology and knowledge management may assist them to implement e-business model. The study suggests SMEs should see the integrated model both externally and internally, and as a major opportunity to utilise their potential to the fullest degree possible. The potential, such as knowledge flows and the knowledge integration capabilities of the organisation’s members and outside partners, are considered as crucial for the e-business processes to be successfully implemented. The findings of this theory-building research relied on qualitative methodology, that is, in-depth interview and case studies. These findings may be given further credibility by conducting positivist survey research involving a larger and broader sample than was used in this research. Hence, the study suggests that, due to the integrated e-business model and propositions, the future researchers are able to undertake an empirical study for more SMEs in a selected high-tech industry to obtain a generalised result for specific high-tech industries. Also, the integrated e-business model and propositions can be used to undertake case studies or empirical studies for the other SMEs. This research was confined to organisations in Taiwan in a limited number of industries. As such, qualitative research could be conducted in another country involving a wider range of industries, such as other SMEs of manufacturing and service industries, to test the findings derived from this research.
The integrated model of e-business developed in this research can be further tested using a combination of quantitative and qualitative date to verify its practical usefulness. It is believed that this model presents an integrative approach to the development of e-business in a variety of contexts and settings. In brief, although this research is limited in some ways, it presents exploratory findings that can be further verified and tested in future research using other methodologies.
CONCLUSION The establishment of e-business operations presents tremendous challenges for maintenance in SMEs. The first stage of this chapter is to identify barriers/factors through developing an e-transition recognition model and to find out critical successful factors through analysis of literature review. Secondly, summarize literatures review to construct a conceptual model and proposed some propositions. Finally, through case study is used to develop a new integrated model which can be employed by SMEs as the roadmap in their electronic business implementing process for transforming into digital business successfully and concludes with implementation steps in e-business for practitioners and future researchers.
FUTURE RESEARCH DIRECTIONS Through literature review, case study and discussion, the chapter discusses the characteristics of SMEs to construct an integrated SMe-business model, suggests CSFs and details implementation steps for SMEs. There is a lack of consistent, detailed research into how and why e-business is adopted and what p-business can change the scenario. This chapter has developed a holistic perspective which embraces sets of wider critical successful factors as well as more particular, integrated model which then contribute to the
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development of an e-business model and research propositions in order to address the situation.
REFERENCES Advancing with E-Commerce. (2001). NOIE. Ernest & Young. Retrieved on Sep 10, 2002, from http://www.noie.gov.au/Projects/ CaseStudies/ Ecommerce/PDF/report.pdf
Davy, J. (1998). Electronic commerce: Is going online the right road for your company? Managing Office Technology, 43(5), 20–23. Edurad, T. (2001). Adding clicks to bricks. Consulting to Management, 12(4), 10–23. Gani, H. (2002). Limited funds remain main hurdle for SMEs. Computimes Malaysia, July 25, 2002.
Alexander, A. (1999). Tuning small businesses for E-Commerce. Accounting Technology, 15(11), 48–57.
Hoek, R. V. (1998). Logistics and virtual integration: Postponement, outsourcing and the flow of information. International Journal of Physical Distribution and Logistics Management, 28(7), 508–523. doi:10.1108/09600039810247498
Anonymous,. (1999). APEC adopts electronic commerce models. Computer Dealer News, 15(43), 23.
Hoek, R.V. (2001). E-Supply chains - Virtually non-existing. Supply Chain Management: An International Journal, 6(1), 8, 21-28.
Anonymous. (2007). Prospectsoft CRM Software overview. Retrieved from http://www.prospectsoft.com/crm/solutions/index.htm
Kalakota, R. (2002). M-business: The race to mobility. McGraw-Hill: New York.
Australian Bureau of Statistics. (2004). 8127.0 Characteristics of Small Business, Australia. Retrieved from http://www.abs.gov.au/ausstats/[email protected]/ b06660592430724fca2568b5007b8619/e49e3b 4dc3595c92ca2568a900139377!OpenDocument Beveren, J., & Thomson, H. (2002). The use of electronic commerce by SMEs in Victoria, Australia. Journal of Small Business Management, 40(3), 250–253. doi:10.1111/1540-627X.00054 Bowersox, D. J., & Daugherty, P. J. (1995). Logistics paradigms: The impact of information technology. Journal of Business Logistics, 16(1), 65–80.
Khandelwal, V., Ginige, A., Curry, J., Bajaj, K., Lan, Y., & Schmid, R. (2004). Information technology in Western Sydney status & potential [University of Western Sydney.]. Survey (London, England), 2003. Korchak, R., & Rodman, R. (2001). E-Busniess adoption among U.S. small manufacturers and the role of manufacturing extension. Economic Development Review, 17(3), 20–25. Mirchandani, D., & Motwani, J. (2001). Understanding small business electronic commerce adoption: An empirical analysis. Journal of Computer Information Systems, 41(3), 70–73.
CLM. (1995). World class logistics. CLM, Oak Brook, IL.
O’Keeffe,M. (2001). Myths and realities of ECommerce in the perishable foods industries: Unleashing the power of reputation and relationship assets. Supply Chain Management: An iIernational Journal, 6(1), 12-15
Crowley, J. A. (1998). Virtual logistics: Transport in the marketspace. International Journal of Physical Distribution and Logistics Management, 28(7), 547–574. doi:10.1108/09600039810247470
Rappa, M. (2002). Business models on the Web, Digital Enterprise (May 9, 2002), http://wps. prenhall.com/bp_glover_ebiz_2/0,6571,513282,00.html
Clayton, K. (2000). Microscope on micro business. Australian CPA, 70(2), 46–47.
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Rayport, J., & Sviokla, J. (1995). Exploiting the virtual value chain. Harvard Business Review, 73(6), 75–85. Rogers, E. (1995). Diffusion of innovations. Free Press: New York. Shapiro, C., & Varian, H. R. (1999). Information rules. Harvard Business School Press, Boston, MA. Skyrme, D. J. (2001). Capitalizing on knowledge from e-business to k-business. Reed Educational & Professional Publishing/ Butterworth-Heinemann, Oxford. Subba, S., & Glenn, A. (2003). Electronic commerce development in small and medium sized enterprises: A stage model and its implications. Business Process Management Journal, 9(1), 11–32. doi:10.1108/14637150310461378 Taiwan, I. D. C. (2003). International Data Center, Taiwan. Retrieved from http://www.idc.com.tw/ default.asp Walczuch, R., Braven, G., & Lundgren, H. (2000). Internet adoption barriers for small firms in The Netherlands. European Management Journal, 18(5), 561–572. doi:10.1016/S02632373(00)00045-1 Yang, L. (2000). Knowledge value chain. Journal of Management Development, 19(9), 783–794. doi:10.1108/02621710010378228
ADDITIONAL READING Ellinger, A. & Daugherty, P.J. (1998). The effect of information integration on customer satisfaction. International Journal of Purchasing and Materials Management. Emiliani, M. L. (2000). Business-to-business online auctions: key issues for purchasing process improvement. Supply Chain Management. International Journal (Toronto, Ont.), 5, 176–186.
Garry, M. (1994c). The stepping stone to ECR. Progressive Grocer, 73(6), 59–60. John, K. H., Swatman, P.M.C., & Kurnia, S. (1999). Efficient consumer response (ECR): A survey of the Australian grocery industry. Supply Chain Management, 4. Knill, B. (1990). Quick response: now for the hard part. Material Handling Engineering, 45(3), 67–78. La Londe, B., & Powers, R. F. (1993). Disintegration and re-integration: logistics of the twenty-first century. International Journal of Logistics Management, 4(2), 1–12. doi:10.1108/09574099310804948 Martin, A. (1994). Infopartnering. Oliver Wight Publications Inc. McKenna. (1997). Interactive Marketing. Harvard Business School Press, Boston, MA. O’Keeffe, M. (2001). Supply Chain Management. International Journal (Toronto, Ont.), 6(1), 12–15. Porter, M. (1985). Competitive advantage: Creating and sustaining superior performance. The Free Press, New York, NY. Pramataris, K., Doukidis, G., & Paul, R. J. (1997). Exploring Information Systems in the ECR Context. The 7th European Conference on Information Systems, Cork. Rayport, J. F., & Sviokla, J. J. (1995, NovemberDecember). Exploiting the virtual value chain. Harvard Business Review, 73, 75–85. Robins, G. (1994). Sailing into ECR’s uncharted waters. Stores, 76(10), 43–44. Smith, K. (1993). No brand too small. Progressive Grocer, 72(12), SS4–SS5. Spence, M. A. (1994). EDI quickly becoming the norm. CMA Magazine, 68(5), 14–16.
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Swatman, P. (1993). Integrating EDI into existing organizational structure and internal application systems: the Australian experience. School of Computing, PhD Thesis, Curtin University. Washburn, T. (1995). Create win-win-win promotions. The Nielsen Solution Partnership, pp. 8-9. Wheatley, M. (1996). IT drives the chain. Management Today, pp. 102-4. Wood, P. K. (1996). Preparing for ECR at the store level. Chain Store Age, 72(5), 230.
KEY TERMS AND DEFINITIONS Critical Success Factor (CSF): Is a business term for an element which is necessary for an organization or project to achieve its mission. For example, a CSF for a successful Information Technology (IT) project is user involvement. Customer Relationship Management (CRM): Is a multifaceted process, mediated by a set of information technologies, that focuses on creating two-way exchanges with customers so that firms have an intimate knowledge of their needs, wants, and buying patterns. In this way, CRM helps companies understand, as well as anticipate, the needs of current and potential customers. E-Business: Electronic Business, commonly referred to as “eBusiness” or “e-Business”, may be defined broadly as any business process that relies on an automated information system. Today, this is mostly done with Web-based technologies. The term “e-Business” was coined by Lou Gerstner, CEO of IBM. E-Commerce: Electronic commerce, commonly known as e-commerce or eCommerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown extraordinarily since the spread of the Internet.
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Enterprise Application Integration (EAI): Is defined as the uses of software and computer systems architectural principles to integrate a set of enterprise computer applications. Information Value Chain (IVC): The virtual value chain, created by John Sviokla and Jeffrey Rayport, is a business model describing the dissemination of value-generating information services throughout an Extended Enterprise. This value chain begins with the content supplied by the provider, which is then distributed and supported by the information infrastructure; thereupon the context provider supplies actual customer interaction. It supports the physical value chain of procurement, manufacturing, distribution and sales of traditional companies. K-Business: Knowledge business, while e-business gives us new access, exchange, and sales opportunities relative to information, kbusiness turns knowledge assets within a system into products, services, and profits. For e-business moves up to k-business, David Skyrme (2001) proposed ten Ps offer tips on online marketing that emphasize positioning, packaging, portals, pathways, pages, personalization, progression, payments, processes, and performance. Knowledge Value Chain (KVC): A knowledge value chain is a sequence of intellectual tasks by which knowledge workers build their employer’s unique competitive advantage and/or social and environmental benefit. As an example, the components of a research and development project form a knowledge value chain. Productivity improvements in a knowledge value chain may come from knowledge integration in its original sense of data systems consolidation. Improvements also flow from the knowledge integration that occurs when knowledge management techniques are applied to the continuous improvement of a business process or processes. M-Business: Mobilization business, according to Ravi Kalakota and Marcia Robinson, the mobile Internet is transforming employee, supply chain, and customer interaction, and providing new in-
The Critical Success Factors and Integrated Model for Implementing E-Business
novation, cost-reduction, and revenue opportunities. Their M-Business shows how to reposition and develop business processes and enterprise applications to take full advantage of the mobile business wave that is portrayed as compelling and complex, even if its value is needlessly inflated (“and overtaking your organization even as you read these words)”. Small and Medium Enterprises (SME): Also called small and medium-sized enterprises and small and medium-sized businesses or small and medium businesses or SMBs are companies whose headcount or turnover falls below certain limits. The abbreviation SME occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations and the WTO. The term small and medium-sized businesses or SMBs has become more standard in a few other countries.
Supply Chain Management (SCM): Is the process of planning, implementing and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, workin-process inventory, and finished goods from point-of-origin to point-of-consumption. The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.
This work was previously published in Risk Assessment and Management in Pervasive Computing: Operational, Legal, Ethical, and Financial Perspectives, edited by Varuna Godara, pp. 169-194, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.17
E-Commerce Development in China: An Exploration of Perceptions and Attitudes Antonis C. Stylianou University of North Carolina at Charlotte, USA Stephanie S. Robbins University of North Carolina at Charlotte, USA Pamela Jackson Fayetteville State University, USA
ABSTRACT It is widely recognized that e-commerce represents a critical resource for most business organizations. With over 1.3 billion people and double-digit economic growth, China could potentially emerge as the largest Internet and telecommunications market in the world if certain economic, environmental, and organizational barriers are effectively addressed. This chapter develops a descriptive profile of Chinese business managers with respect to DOI: 10.4018/978-1-60960-587-2.ch417
their awareness of the technological infrastructure as well as their perceptions and attitudes regarding e-commerce. Management’s viewpoint on a variety of environmental, organizational, and personal factors provides insight into the future of e-commerce in China within the framework of organizational commitment to e-commerce driven innovation. Findings indicate that firms interested in engaging in e-commerce in China will find a knowledgeable and supportive business climate; however, e-commerce initiatives may be hindered by constraints imposed by the current infrastructure as well as the political environment.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
E-Commerce Development in China
INTRODUCTION The business potential of e-commerce technologies is seemingly irrefutable given the more than 1.1 billion Internet users worldwide (Internet World Stats, 2007). Of these 1.1 billion users, the largest share, almost 400 million or 36 percent, reside in Asia. Although growth in North America has been steady since the inception of the Internet and it now accounts for 21% of the total, the U.S. share of this global market has been gradually declining (211 million; 19%). In contrast, China, with the second largest Internet user population (139 million; 12.5%), is expected to continue gaining market share (572% growth between 2000 and 2007) (China Internet Network Information Center, 2007). These developments are in line with the rate of adoption theory, which describes the IT diffusion process as initially proceeding through a slow, gradual growth period, followed by dramatic and rapid growth, then gradual stabilization, and finally a decline (Rogers, 1995). With over 1.3 billion people and double-digit economic growth, China could potentially emerge as the largest Internet and telecommunications market in the world if certain economic, environmental, and organizational barriers are addressed effectively. Revenues generated through e-commerce transactions have soared to $127.5 billion in 2006, an increase of 50% from the previous year and “with an estimated 50 million Chinese engaged in e-commerce, growth is extremely promising” (Rein, 2007). However, Internet-based transactions remain a mere fraction of the total traditional business revenue. In spite of this paucity of earnings, the Internet provides the Chinese with easy access to the outside world and many are eager to embrace this new technology. Five pivotal environmental or structural conditions adversely affect the development of a viable e-commerce market in China. First, Internet purchases are generally credit card transactions—a payment system that represents a direct contrast to China’s cash-based consumer culture (Rein,
2007; Markus and Soh, 2002; Steinert-Threlkeld, 2000). Credit card penetration continues to be low (only 50 million cards in circulation compared to 1.1 billion debit cards) and “many analysts argue that Chinese consumers are conservative spenders and not willing to buy on credit” (Rein, 2007). However, the trend is showing a dramatic increase in the adoption of credit cards (500% increase between 2004 and 2007) and surveys are showing that the younger generation (18 to 28) is much more willing to purchase items on credit. A second yet related condition stems from the fact that the use of credit cards to make online purchases requires an infrastructure capable of handling electronic payments. China’s substandard IT/electronic payment infrastructure (Markus and Soh, 2002; Steinert-Threlkeld, 2000) creates a somewhat formidable obstacle. According to Li and Suomi (2006), China does not have a nationwide credit card network and there is no centralized settlement system. Third, in the last 10 years, the Chinese government has enacted several pieces of legislation related to various aspects of e-commerce. These include legislation on electronic signatures, taxation, electronic contracts and others (Yan, 2005). At the same time, the government has continued to use and add restrictive/bureaucratic policies such as content regulations and user registration requirements. Current governmental restrictions continue to hamper the development of a vibrant e-commerce market in China (Li and Suomi, 2006; Markus and Soh, 2002; Rosen, 1999). Fourth, China’s logistics and distribution system is inefficient and unreliable (CMIC, 2007). The final structural impediment stems from China’s substandard telecommunication system (Markus and Soh, 2002). Collectively, these structural deficiencies may provide some basis for the fact that very few of the e-commerce initiatives in China have been successful (Martinsons, 2002). A variety of environmental, organizational, and personal factors are not only instrumental in advancing IT diffusion, but also have a marked impact on management’s perceptions and attitudes
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regarding e-commerce. Environmental factors, such as business-friendly government regulations and infrastructure improvements, are critical if e-commerce is to live up to its potential in China. Organizational factors highlight management’s role in advocating the use of e-commerce within the firm. In general, a manager’s perception of ecommerce will influence attitudes and managers must be cognizant of the potential of e-commerce if they are to remain competitive and capable of positioning their companies to meet the standards of the globally wired business community. Personal factors pertain to an individual’s level of knowledge in IT and e-commerce domains. Clearly, structural conditions have impeded the diffusion of IT in China. Of commensurate importance, however, is the need to examine whether management’s perceptions and attitudes present yet another obstacle to the widespread diffusion of e-commerce in China. This research is designed to develop a descriptive profile of Chinese business managers’ with respect to their awareness of structural conditions as well as their perceptions and attitudes regarding e-commerce. Management’s viewpoint on a variety of environmental, organizational, and personal factors should provide some insight into the future of e-commerce in China within the framework of organizational commitment to e-commerce driven innovation. The sections that follow present an overview of the literature (Section 2), the research design, sampling procedure, data collection procedures, and data analysis (Section 3), findings (Section 4), and conclusions (Section 5).
LITERATURE REVIEW Collectively, the literature suggests that a variety of external factors significantly influence the extent of IT innovation and diffusion. The IT diffusion of innovation (DOI) process may be viewed within the context of Innovation Decision Process theory (Rogers, 1995) which posits that potential adopters
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of a technology must learn about the innovation (knowledge); become persuaded of the value of the innovation (persuasion); decide to adopt it (decision); implement the innovation (implementation); and finally reaffirm or reject the innovation (confirmation). Researchers often employ Davis’ (1986) Technology Acceptance Model (TAM) as a theoretical framework to examine external variables, conceivably because of its goal to “provide an explanation of the determinants of computer acceptance that is general, capable of examining user behavior across a broad range of end-user computing technologies and user populations” (Davis et al., 1989). The model, grounded in social psychology, reflects Fishbein and Ajzen’s Theory of Reasoned Action (TRA), which theorizes that behavior is determined by intentions that are in part influenced by attitude (Fishbein and Ajzen, 1975). Attitude, or the “predisposition to respond favorably or unfavorably to a computer system, application, system staff member, or a process related to the use of that system or application” (Melone, 1990, pp.81), has a strong theoretical background and previous research has conclusively proven that attitude is an accurate predictor of use. TAM postulates that actual behavior is influenced by attitudes that are shaped by external variables as well as perceptions regarding the usefulness and ease of use of the technology under study. In fact, a key premise in TAM is that a user’s attitude toward using information technology is a major determinant of whether the person actually uses the technology. Several extensions or modifications to the TAM have incorporated theoretical perspectives or constructs that reflect the salience of beliefs and attitudes, social or normative influences, and end-user characteristics on acceptance and adoption. Other research augments the TAM with individual, organizational, and system characteristics; many of which have received empirical support as moderators of IT acceptance (Igbaria et al., 1997; Mathieson et al., 2001; Jackson et al.; 1997, Agarwal and Prasad, 1999; Davis, 1993).
E-Commerce Development in China
The research model for this chapter examines environmental, organizational, and personal factors as antecedents to perceptions of e-commerce. Bharadwaj et al.’s (1999) multi-stage research framework, which was developed to conceptualize factors that govern a firm’s IT capability, provides some justification for focusing on these external variables. With the assistance of Delphi panels and focus groups, the researchers identified 30 IT capabilities that were distributed among the following six categories: IT business partnerships, external IT linkages, business IT strategic thinking, IT business process integration, IT management, and IT infrastructure. The authors concluded that an enterprise-wide IT capability embodies both organizational and technological capabilities which, in turn, reflect the firm’s ability to sustain IT innovation and respond to changing market conditions. Several researchers (Devaraj et al., 2002; Gefen and Straub, 2000; Jiang et al., 2000; Moon and Young-Gul, 2001; Lederer et al., 2000) have employed the TAM to examine a variety of external variables related to e-commerce. Collectively, the findings suggest that TAM is a suitable theoretical framework for e-commerce-based studies. In studying user acceptance of digital libraries, Hong et al. (2002) employed the TAM to examine individual differences (self efficacy and knowledge of search domain) and system characteristics (relevance, terminology, and screen design) within the context of user acceptance of digital libraries. The researchers concluded that results strongly supported the utilization of TAM in predicting users’ intention to adopt digital libraries. Venkatesh and Davis’ (2000) TAM2 examined user acceptance through social influence (subjective norm, voluntariness, and image) and cognitive instrumental processes (job relevance, output quality, result demonstrability, and perceived ease of use) while Mathieson et al. (2001) augmented the TAM with a perceived resources construct as a means to examine the influence of organizational infrastructure on use. In each case, TAM proved
to be a parsimonious model for predicting user acceptance. The role of perceptions in predicting acceptance and usage decisions has also received considerable attention (Moore and Benbasat, 1991; Davis, 1993; Gefen and Straub, 1997; Morris and Dillon, 1997; Venkatesh, 1999; Agarwal, 2000; Mathieson et al., 2001). Notably, both Agarwal (2000) and Moore and Benbasat (1991) examined the influence of perceptions on IT acceptance and adoption while Mathieson et al. (2001) emphasized the need to more fully explore perceptions of real world artifacts such as technology. Possibly in response to TAM and DOI’s effectiveness in explaining the propensity to use an IT, Agarwal and Prasad (1997) merged the two theories. After examining the diffusion constructs within the context of Internet usage, the researchers concluded that visibility, compatibility, and trialability influenced current levels of usage while perceived usefulness and result demonstrability influenced continued use decisions. Chin and Marcolin (2001) emphasized the continued need to develop “deep usage” models as well as “conceptualizations of usage as they lead to individual and performance outcomes.” Clearly, then, a review of the literature establishes a precedent for developing models that are derived from the constructs originally presented by Davis. The purpose of this study is to develop a descriptive profile of Chinese business managers’ perceptions and attitudes regarding e-commerce. As such, this study should not be construed as an attempt to offer yet another extension of TAM nor to validate previous findings. Instead, the research model incorporates key TAM constructs in an effort to present a comprehensive profile that represents the triangulation of external variables, perceptions, and attitudes. The theoretical foundation for the model is derived from human behavior theory, which posits that behavior is largely a function of attitudes; attitudes are formed from individual perceptions; and individual perceptions are influenced by external variables.
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RESEARCH METHODOLOGY
•
Research Model The model, shown in Figure 1, adopts the view that a variety of environmental, organizational and personal factors serve as antecedents to perceptions and attitudes regarding e-commerce. Environmental factors are defined within the context of structural conditions that exhibit a strong influence on e-commerce development including electronic payment systems, government regulations, legal issues, and telecommunications. Organizational factors, namely, managerial leadership, commitment, and support, influence the level of technology adoption as well as the behavior of employees in the organization (Agarwal, 2000). Innovation and diffusion of technology requires active leadership and vision by top corporate leaders who are willing to commit scarce resources (Agarwal, 2000). Of equal importance is the influence of executive support and leadership in advocating the use and acceptance of e-commerce. Personal factors pertain to an individual’s knowledge of IT and e-commerce as well as information received through communication with colleagues. The core of the model examines perceptions about e-commerce, which are measured through the following variables:
Figure 1. Research model
•
•
•
The model postulates that environmental, organizational and personal factors serve as antecedents to perceptions of e-commerce, which in turn, moderate an individual’s attitude regarding the implementation and use of e-commerce applications.
Research Design and Sampling Procedure The study, which targeted MBA students in China, entailed administering an Internet-based questionnaire. Managerial experience is generally a pre-requisite for enrollment in Chinese MBA programs; thus, MBA students possess sufficient familiarity with environmental, organizational, and technological factors to provide an accurate profile of Chinese business managers’ perceptions and attitudes regarding e-commerce. Other factors contributing to the decision to target this population include: •
•
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Usefulness: The degree to which a person believes that using a particular system would enhance his or her job performance (Davis, 1989) Ease of use: The degree to which a person believes that using a particular system would be free of effort (Davis, 1989) Importance: The perception of the degree to which e-commerce will aid or improve business functions Security: An individual’s expectations or trust in using e-commerce
Reports indicating that 95 percent of Chinese MBA students are enrolled part time and hold a managerial position in a corporation (http://www.mba.org.cn, 2000) The status accorded to an MBA degree coupled with the required managerial experience implies that respondents can rea-
E-Commerce Development in China
•
•
sonably be expected to have some impact on the future of e-commerce in China MBA students are part of generation X, or those born between 1961-1981 (Generation X: Definitions, 2002), and as such represent key players in the new economy in China. Based on their age and education, it is reasonable to assume that this group has a solid understanding of e-commerce Enrollment in an MBA program is contingent upon successful performance on a rigorous English language capability test; thus, MBA students possess the linguistic ability to read and understand a questionnaire written in English. This point is particularly relevant since technical difficulties hindered efforts to place a viewable Chinese version of the survey questionnaire on the Internet.
Data Collection Procedures Lickert-based rating scales were developed to measure the variables identified in the research model. A small pilot test was conducted to assess the readability of the survey instrument. The instrument was then distributed to five business managers in China. Based on their feedback, slight modifications were made to the terminology. A final version of the Internet survey questionnaire was then designed and published. A mailing list was prepared by collecting e-mail addresses from MBA Web sites in China. The first mailing list included about 530 addresses. An email message was prepared inviting individuals to participate in the study. After nearly 50 percent of the e-mail addresses were returned because of delivery problems, a second mailing list was prepared using e-mail addresses from the most active MBA Web sites in China. The second mailing list, which contained approximately 350 addresses, resulted in a 70 percent delivery rate. In total, about 500 e-mails were successfully delivered for this survey. Sixty-six usable questionnaires were received for
a response rate of 13 percent, an acceptable rate given this type of on-line survey. Notably, the low response rate may be attributed to the length of the survey, language barriers, and/or the fact that Web server logs indicated some participants encountered technical difficulties in accessing the survey. When a follow-up investigation did not provide any conclusive results, further adjustments were deemed unwarranted, although we believe the response rate is understated.
Data Analysis In developing a demographic profile of the respondents, Chi-square analysis was used to determine if significant differences existed with regard to perceptions and attitudes toward e-commerce. The fact that no significant differences were found between (1) male and female respondents, (2) age categories, (3) years of experience as an IS user, or (4) hours using the Internet a week indicates respondents represent a fairly homogeneous group. The aggregated results provide a comprehensive profile of e-commerce use in China by upwardly mobile, well-educated individuals. Demographic information is found in Table 1. To operationalize managerial perceptions and attitudes, descriptions were developed for each of the constructs included in the research model. These descriptions are found in Tables 2 – 11. Pearson product/moment correlation analysis was employed to assess the relationship between the research constructs (external, organizational, and personal factors, the perception variables, and attitude) and was derived by calculating the mean of the individual components for each variable. Table 12 contains the results of the correlation analysis, which is limited to those factors that were correlated at a significant level. The Cronbach’s alpha for the constructs included in the correlation analysis was 0.7417.
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Table 1. Demographics (in %)
Table 2. Environmental factors (in %) 1
2
3
4
5
MEAN
The on-line payment system is:
2
5
20
36
38
4.03
Government Internet policies are:
9
27
30
23
11
3.00
The legal framework is:
2
13
31
33
22
3.61
The telecomm. environment is:
2
22
27
23
27
3.52
Organizational Level President/Director Employee under supervision - Level 1 Employee under supervision - Level 2
7.8 60.9 31.3
Management Experience (in years) More than 10 6 - 10 3-5 1-3 Less than 1
4.8 20.6 38.1 34.9 1.6
Type of Organization Manufacturing Service Commercial – Wholesale Commercial – Retail Government
40.9 36.5 14.3 1.6 4.8
Firm’s # of Employees >10,000 5,000 – 9,999 1,000 - 4,999 500 - 999 100 - 499 < 100
7.8 4.7 12.5 7.8 34.4 32.8
Executive Support/leadership: 27 52 21
Sex Male Female
Does your CEO endorse major e-commerce investments that have not been endorsed by traditional justification criteria and procedures? 1. Frequently 2. Occasionally 3. Rarely
75.4 24.6
Age 18 – 24 25 – 34 > 34
10.3 82.5 7.2
What is your CEO’s vision for e-commerce? 1. Strong vision 2. — 3. — 4. No stated vision
23 23 29 25
MBA Concentration General Management Marketing, Sales, Advertising Finance, Accounting, Information Technology Other
24.1 24.1 8.6 25.9 17.2
Years Experience as IS User > 10 6 – 10 3-5 1-3 <1 Internet Usage – Hours Per Week 0–1 2–4 5–6 7–9 10 – 20 21 – 40 > 40
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Note: 1=Extremely Encouraging; …; 5=Extremely Discouraging
Table 3. Organizational factors (in %)
Use of e-commerce in the Firm: How would you describe your firm’s use of information technology 1. Industry leader 2. Close follower 3. Middle of the pack 4. Somewhat behind 5. Laggard
19 28 23 22 9
4.8 20.6 38.1 34.9 1.6
The organization I work for uses the Web effectively 1. Strongly agree 2. Somewhat agree 3. Neither agree nor disagree 4. Somewhat disagree 5. Strongly disagree
38 45 5 7 5
1.6 9.4 1.6 17.2 34.4 18.8 17.2
Is there a research and development (R&D) budget for investments in e-commerce? €€1. Industry leader in discretionary funding for emerging e-commerce €€2. Modest budget for investments in new technology piloting €€3. Inadequate for our needs €€4. There is no budget
0 23 31 47
E-Commerce Development in China
Table 4. Personal factors: IT knowledge (in %) Level of ability to…
1
2
3
4
5
MEAN
program (e.g., in C, C++, Visual Basic, Java, etc.).
5
12
20
35
28
3.69
use software packages (e.g., Lotus 1-2-3, MS Office, etc.).
26
32
9
0
2.25
build models (e.g., formulate and solve complex simulation models).
9
32 26
9
31
25
3.35
recognize which management science model is appropriate for a particular problem.
6
35
24
27
8
2.95
access data (e.g., data retrieval, queries, etc.).
22
28
23
23
5
2.62
develop (design and implement) databases using generalized database management systems.
11
22
25
28
14
3.13
Note: 1=Extremely High; …; 5=Extremely Low
Table 5. Personal factors: E-commerce knowledge (in %) Knowledge about the…
1
2
3
4
5
MEAN
e-commerce policies and plans within the organization.
9
20
32
17
22
3.22
fit between e-commerce policies and plans and the overall goals and objectives of the organization.
6
25
28
25
17
3.22
existing e-commerce applications within the organization
9
25
27
20
19
3.14
potential for e-commerce technology within the organization
13
42
16
23
6
2.69
potential use of e-commerce technology to achieve competitive advantage
16
42
27
11
5
2.47
Note: 1=Extremely High; …; 5=Extremely Low
Table 6. Personal factors: E-commerce communication (in %) How would you describe the information you have received from colleagues, business associations, etc. about…
1
2
3
global e-commerce
29
31
e-commerce in China
20
34
4
5
MEAN
29
11
0
2.23
31
12
3
2.45
Note: 1=Very Positive; …; 5=Very Negative
Table 7. Perception of e-commerce: Usefulness (in %) 1
2
3
4
5
6
7
MEAN
E-commerce will be of benefit to me personally.
50
16
9
6
9
5
5
2.42
Using e-commerce applications will improve my performance.
48
16
11
9
3
2
11
2.52
The advantages of e-commerce to me will outweigh the disadvantages.
42
25
14
5
5
0
9
2.42
Overall, using e-commerce will be advantageous to me.
52
22
8
5
3
2
9
2.28
Note: 1=Strongly Agree; …; 7=Strongly Disagree
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E-Commerce Development in China
Table 8. Perception of e-commerce: Ease of use (in %) 1
2
3
4
5
6
7
MEAN
I have the skills, capability and knowledge necessary to use e-commerce applications.
42
24
13
11
2
3
5
2.35
Using e-commerce applications is entirely within my control.
14
33
21
14
5
6
6
3.06
Using e-commerce will fit well with the way I work.
41
23
20
11
2
0
3
2.22
Using e-commerce will fit into my work style.
38
23
20
13
3
0
3
2.33
The setup of e-commerce will be compatible with the way I work.
32
24
22
14
3
2
3
2.51
Note: 1=Strongly Agree; …; 7=Strongly Disagree
Table 9. Perception of e-commerce: Importance (in %) Importance in terms of …
1
2
3
4
5
6
7
MEAN
creating new business processes.
39
33
14
5
3
3
3
2.22
improving business relationships.
30
39
16
9
0
3
3
2.33
creating new distribution channels.
33
43
8
10
0
2
5
2.24
increasing sales.
21
31
31
8
7
0
3
2.61
improving customer satisfaction.
32
22
29
8
5
2
3
2.49
creating new products.
13
22
31
17
8
8
2
3.16
enhancing the global presence of the company.
42
23
27
5
2
0
2
2.08
Note: 1=Extremely Important; …; 7=Extremely Unimportant
Table 10. Perception of e-commerce: Security (in %) How concerned are you about…
1
2
3
4
MEAN
Security in relation to making purchases or banking over the Internet
9
5
16
70
3.47
Security features when choosing whether or not to do business with an Internet-based company
2
20
55
23
3.00
Note: 1=Not at all Concerned; …; 4=Very Concerned
Table 11. Attitudes toward e-commerce (in %) 1
2
3
4
5
6
7
MEAN
Implementing e-commerce is a good and wise idea
56
25
11
5
0
0
3
1.80
I like the idea of implementing e-commerce
52
30
10
5
0
0
3
1.83
Using e-commerce applications would be a pleasant experience
43
30
18
5
0
3
2
2.05
Note: 1=Strongly Agree; …; 7=Strongly Disagree
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E-Commerce Development in China
Table 12. Pearson correlations ECE
ESL
FUEC
ITK
ECK
ECE
╯
╯
ESL
╯
╯
FUEC
╯
.46**
╯
╯
ITK
╯
.32*
╯
╯
.59**
ECK
╯ .46**
.51**
.3*
╯ .32*
.59**
.59**
COMM
PEOU
ATT
╯
╯
╯
╯
╯
.5**
╯
╯
╯
╯
╯
╯
.59**
╯
╯
╯
╯
╯
╯
.33**
╯
╯
╯
.27*
╯
╯
╯
╯
╯
╯
.33**
╯
.35** .35**
.31*
╯
╯
╯
PU
╯
╯
╯
PEOU
╯
╯
╯
╯
.44**
PIO
╯
╯
╯
╯
╯
╯
.66**
.67**
PS
╯
ATT
╯
╯
╯
╯
╯
╯
.579**
.677**
╯
.31* .33**
PS
╯
COMM
╯
PIO
.3*
╯
.33**
PU
.27*
.28* .28*
╯ .44**
╯ ╯
.66**
╯
.58**
.67**
╯
.68**
╯
.76**
╯ ╯ .759**
╯
╯
╯
╯
** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).
FINDINGS
Organizational Factors
Demographic Data
Organizational factors are defined within the context of two variables: (1) executive support/ leadership and (2) use of e-commerce in the firm (See Table 3). With respect to executive support and leadership, most respondents (54 percent) rated their CEOs vision for e-commerce along the lower end of the rating continuum while a comparable percentage indicated that their CEO occasionally endorsed major e-commerce investments. Ratings pertaining to the firm’s use of ecommerce indicated an effective use of the Web although most respondents reported an inadequate or non-existent e-commerce R&D budget. In addition to the findings reported in Table 3, 54 percent of the respondents believe that their CEO considers e-commerce as one of the most vital parts of the firm’s competitive strategy while 57 percent indicated that their CEOs think that funds spent on e-commerce represent a strategic investment.
Typically, respondents were male, between the ages of 25 and 34, active Internet users, and employed by a small manufacturing or service company. Table 1 presents a demographic profile of the respondents.
Environmental Factors The literature suggests that China’s development in the area of e-commerce is hampered by structural conditions or environmental factors such as a poor electronic payment infrastructure, strict government regulations, legal issues, and poor telecommunications. The questionnaire queried respondents on their view regarding these factors (see Table 2) and findings provide empirical support for this observation, particularly in the area of on-line payment systems.
Personal Factors Tables 4 through 6 depict three personal factors; namely, IT knowledge, e-commerce knowledge,
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E-Commerce Development in China
and e-commerce communication. With regard to IT knowledge, the majority of the respondents possess fundamental IT skills including a solid understanding of how to use software packages and the ability to access data as needed. However, most lack skills in high-level areas such as computer programming and database design and implementation. Table 5 addresses e-commerce knowledge and indicates that the majority of the respondents recognize the potential of e-commerce within the organization and understand how it can be used to achieve a competitive advantage. Respondents are less clear about policies and plans within the organization for the adoption of e-commerce, how e-commerce policies and plans fit with the overall goals and objectives of the organization, and the existing e-commerce applications within the organization; possibly a consequence of the inadequacy of funds invested in e-commerce and/ or the failure of top-level executives to adequately communicate their technological vision. Table 6 examines e-commerce communication as it relates to information received through communication with colleagues and business associations. Respondents gave higher ratings to information related to global e-commerce than information pertaining to e-commerce in China.
Perceptions about E-Commerce The framework for perceptions of e-commerce is comprised of four variables: usefulness, ease of use, importance, and security (Tables 7 - 10). The majority of the respondents strongly agreed that e-commerce would have a positive impact on career performance and therefore e-commerce was perceived to be very useful. Respondents also perceived that using e-commerce applications fit within the context of their work style thereby making it easy to use. Most expressed support for the perception that e-commerce technologies provide strategic and competitive advantages and perceived themselves as having the skills,
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resources, knowledge, and control to effectively use e-commerce applications. Finally, security issues influenced the decision to conduct business on-line with most respondents reporting a high level of concern when making purchases or banking over the Internet.
Attitudes toward E-Commerce Table 11 clearly indicates that the majority of respondents have a strong positive attitude toward implementing and using e-commerce applications.
Correlation Analysis Pearson product/moment correlation analysis was employed to assess the relationship between the environmental, organizational and personal factors, perception, and attitudes. The results of the analysis can be found in Table 12, which is limited to those factors that were correlated at a significant level. As Table 12 illustrates, environmental factors relating to e-commerce (ECE) are positively correlated to e-commerce knowledge (ECK), which suggests that respondents who are familiar with e-commerce are aware of the issues associated with China’s structural conditions. Variables related to organizational factors include both executive support/leadership (ESL) and the firm’s use of e-commerce (FUEC). As one would expect, a positive correlation exists between these variables. Further, both executive support/leadership and the firm’s use of e-commerce are positively correlated with e-commerce knowledge (ECK). This suggests that the greater the executive’s ecommerce knowledge, the greater the influence in shaping opinion, providing leadership, and creating a technology-infused organizational environment. Analogously, executive support/ leadership is positively correlated with personal IT knowledge (ITK), which is perhaps an indication that IT savvy managers are more positive about executive leadership and support.
E-Commerce Development in China
Variables that model personal factors include IT knowledge (ITK) and e-commerce knowledge (ECK) and communication (COMM) about ecommerce. Again, findings indicate a positive correlation among these variables. IT and e-commerce knowledge are both positively correlated with the perception of ease of use (PEOU) while e-commerce knowledge and communication are positively correlated with perceptions of personal usefulness (PU). The perception of e-commerce is manifested in the perception of personal e-commerce usefulness (PU), the perception of ease of use (PEOU), and e-commerce importance to the organization (PIO) variables. These variables exhibit a positive intercorrelation as well as a moderating influence on attitude about e-commerce. While the model’s variables exhibit a positive intergroup correlation, findings indicate that environmental and organizational factors do not play a role in shaping perceptions or attitudes. This suggests that Chinese manager’s perceptions and attitudes toward e-commerce are independent of current environmental and organizational conditions. One implication is that this new generation of managers may be expected to continue technological pursuits in spite of the environmental shortcomings. Personal factors are partially correlated to usefulness and ease of use but not to perceptions of importance and security. With the exception of security, all of the perception variables demonstrated a positive correlation with attitude while other factors influence perception. Perhaps because all respondents are enrolled in the university system, their educational experiences may have shaped and/or influenced their perceptions and thus attitudes toward e-commerce.
CONCLUSION AND IMPLICATIONS It is widely recognized that e-commerce represents a critical resource for most business organizations, whether in a role of supporting business operations
and managerial decision-making or, increasingly, as a means of gaining a strategic competitive advantage. The majority of the participants in this study are cognizant of current structural deficiencies particularly with regard to payment systems, government regulations, and telecommunications. Yet in spite of these deficiencies, most reported a positive attitude toward implementing e-commerce, agreeing that it is a “good and wise idea.” Respondents indicate that enhancing the global presence of the firm, creating new business processes and distribution channels, and enhancing customer satisfaction and business relationships are of key importance. One implication is that current structural conditions should not seriously impede efforts to implement e-commerce initiatives since the current focus targets relationship and process enhancements that do not require radical changes to the current infrastructure. Findings indicate that a better understanding of the organizational plans and policies regarding IT and specific e-commerce technologies is correlated with more positive perceptions about its usefulness, ease of use, and importance. A higher level of knowledge is also correlated with stronger managerial leadership. By juxtaposing executive support and leadership with vision and investment, inferences may be made with respect to organizational commitment to the implementation of e-commerce initiatives. The occasional investments in e-commerce coupled with the absence of a stated vision hampers dramatic technological innovations in the near future. However, this younger generation of Chinese managers seems to not only recognize the potential benefits of e-commerce but to also embrace the opportunities presented by e-commerce activities. One implication is that firms interested in engaging in e-commerce in China will find a knowledgeable and supportive business climate; however, e-commerce initiatives may be hindered by constraints imposed by the current infrastructure. Certainly, increased funding of R&D initiatives will allow organizations to implement e-commerce strategies that suit Chinese
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E-Commerce Development in China
business practices while enhancing the ability to meet current and future e-commerce initiatives. While this study provides a succinct profile of the perceptions and attitudes of young Chinese MBA students employed in a variety of fields, future research would benefit from expanding the sample to include a broader audience base. By doing so, additional validation tests and factor analysis can be performed. In addition, Internetbased surveys tend to have low response rates, particularly when they are not written in the native language of the population being surveyed. Therefore, a more traditional approach to survey distribution may be warranted. Finally, additional external variables must be identified to facilitate a clearer understanding of the antecedents to ecommerce perceptions.
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Chin, W., & Marcolin, B. (2001). The Future of Diffusion Research. The Data Base for Advances in Information Systems, 32(3), 8–12. China Internet Network Information Center. (2007) Statistical Survey Report on the Internet Development in China. http://www.cnnic.net.cn/ uploadfiles/pdf/2007/2/14/200607.pdf China Market Information Center. (2007) 20062007 Annual report on China’s E-Commerce Market. http://chinamarket.ccidnet.com/pub/ enreport/show_18116.html Davis, F. D. (1986). Technology Acceptance Model for Empirically Testing New End-User Information Systems: Theory and Results. Unpublished doctoral dissertation, Massachusetts Institute of Technology. Davis, F. D. (1989). Perceived Usefulness, Perceived Ease of Use and User Acceptance of Information Technology. MIS Quarterly, 13(3), 319–340. doi:10.2307/249008 Davis, F. D. (1993). User Acceptance of Information Technology: System Characteristics, User Perceptions and Behavioral Impacts. International Journal of Man-Machine Studies, 38(3), 475–487. doi:10.1006/imms.1993.1022 Davis, F. D., Bagozzi, R. P., & Warshaw, P. R. (1989). User Acceptance of Computer Technology: A Comparison of Two Theoretical Models. Management Science, 35, 982–1003. doi:10.1287/ mnsc.35.8.982 Devaraj, S., Fan, M., & Kohli, R. (2002). Antecedents of b2C channel satisfaction and preference: Validation e-Commerce metrics. Information Systems Research, 13(3), 316–333. doi:10.1287/ isre.13.3.316.77 Fishbein, M., & Ajzen, I. (1975). Belief, Attitude, Intention and Behavior: An Introduction to Theory and Research. Reading, MA: Addison-Wesley.
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Martinsons, M. G. (2002). Electronic Commerce in China: Emerging Success Stories. Information & Management, 39(7), 571–579. doi:10.1016/ S0378-7206(02)00009-5 Mathieson, K., Peacock, E., & Chinn, W. C. (2001). Extending the Technology Acceptance Model: The Influence of Perceived User Resources. The Data Base for Advances in Information Systems, 32(3), 86–112. Melone, N. P. (1990). A Theoretical Assessment of the User-Satisfaction Construct in Information Systems Research. Management Science, 36(1), 76–91. doi:10.1287/mnsc.36.1.76 Moon, J., & Young-Gul, K. (2001). Extending the TAM for a World-Wide-Web Context. Information & Management, 38, 217–230. doi:10.1016/ S0378-7206(00)00061-6 Moore, G. C., & Benbasat, I. (1991). Development of an Instrument to Measure the Perceptions of Adopting an Information Technology Innovation. Information Systems Research, 2(1), 192–222. doi:10.1287/isre.2.3.192 Morris, M. G., & Dillon, A. (1997). How User Perceptions Influence Software Use. IEEE Software, 14(4), 58–65. doi:10.1109/52.595956 Rein, S. (2007) Yearning for E-Commerce in China. e-commerce News. February 10. http:// www.e-commercetimes.com/story/55680.html Rogers, E. M. (1995). The Diffusion of Innovations, 4th ed., New York: Free Press.
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This work was previously published in Emerging Markets and E-Commerce in Developing Economies, edited by Kamel Rouibah, Omar E. M. Khalil and Aboul Ella Hassanien, pp. 89-104, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.18
Dynamic Maintenance in ChinaGrid Support Platform Hai Jin Huazhong University of Science and Technology, China Li Qi Huazhong University of Science and Technology, China Jie Dai Huazhong University of Science and Technology, China Yaqin Luo Huazhong University of Science and Technology, China
ABSTRACT A grid system is usually composed of thousands of nodes which are broadly distributed in different virtual organizations. Owing to geographical boundaries among these organizations, the system administrators suffer a great pressure to coordinate when grid system experiences a maintaining period. Furthermore, the runtime dynamicity of service state aggravates the complexity of tasks.
Consequently, building an efficient and reliable maintaining model becomes an urgent challenge to ensure the correctness and consistency of grid nodes. In our experiment with ChinaGrid, a dynamic maintenance mechanism has been adopted in the fundamental grid middleware called ChinaGrid Support Platform. By resolving the above problems with system infrastructure, service dependency and service consistency, the availability of the system can be improved even the scope of maintenance extends to wider region.
DOI: 10.4018/978-1-60960-587-2.ch418
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Dynamic Maintenance in ChinaGrid Support Platform
INTRODUCTION Dynamic maintenance for large-scale resources in grid environment is a big challenge owing to complexity of grid services and exigent requirement of grid users. Inappropriate processes of maintenance lead to unpredictable failures in wide area. Due to geographical distribution of computing and data resources in different administrative regions, a reliable maintenance mechanism is urgently necessary to coordinate different hosts and ensure the efficiency of maintenance task. For the administrators of grids, the maintaining task is running through the whole lifecycle of service components. As shown in Figure 1, Jin and Qi (2007) defined that each service component in grid has the lifecycle of: released, deployed, initialed, activated, and destroyed. Responding to these stages, the maintaining tasks include publish, deploy, undeploy, redeploy, configure, activate, and deactivate. Especially, these tasks should face the distributed challenges in grid environment. A number of earlier investigations have addressed providing and standardizing maintenance for distributed resources. The Configuration, Description, Deployment and Lifecycle Management (CDDLM), proposed by Open Grid Forum (2006), is to standardize distributed software deployment and configuration in a validated lifecycle. Another specification of deployment infrastructure, the Installable Unit Deployment Descriptor (IUDD) released by W3C (2004), also
Figure 1. Lifecycle of service component
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provides a solution of supporting dynamic maintenance in run-time execution environment. Web Services Distributed Management (2006), proposed by Organization for the Advancement of Structured Information Standards (OASIS), discusses how management of any resource can be accessed via web services protocols and management of the web services resources via the former. Talwar and Milojicic (2005) discussed the approaches for service deployment, and defined Quality of Manageability to measure the quality and efficiency of maintenance for service components. Today’s domain consumers demand the maintenances without shutting down the system, but the existing specifications and solutions can not efficiently reduce the downtime due to maintenance. Therefore, the performance and availability of grid services during maintenance need further attention when focusing on the maintenance of resources. As the improvement from infrastructure, researchers believe the feature of dynamic deployment in grid container can achieve higher availability. Weissman (2005) proposed an architecture basing on Apache Tomcat’s dynamic deployment functionality which allows service renovating and reconfiguring without taking down the whole site. Smith and Friese (2005) also introduced a similar solution to support dynamic deployment. Liu and Lewis (2005) designed an intermediate language X# to support the dynamic deployment among heterogeneous implementations of grid container. Above the infrastructure, the maintaining logics focus on the consistency and complexity of grids. Shankar and Talwar (2006) invented a specification-enhanced ECA model, called EventCondition-Precondition-Action-Postcondition (ECPAP), for designing adaptation maintaining rules. The policy-based solution can adapt some specific emergencies (e.g. file transferring mistake, maintaining failure, etc.) in grid. Naturally the efficiency of dynamic maintenance will help achieving high hardware utiliza-
Dynamic Maintenance in ChinaGrid Support Platform
tion and resource sharing. It demands a suitable mechanism which promises high availability, flexibility, incrementally scalable low cost components, and administrative overhead reducing. Therefore, the capability of dynamic maintenance for service components becomes one of essential attributes for grid middleware.
BACKGROUND AND OVERVIEW ChinaGrid ChinaGrid (Jin, 2004), funded by Ministry of Education in China, is an open scientific discovery infrastructure combining 12 top universities in China to create an integrated, persistent computational resource. Connected by high-performance China Education and Research Network (CERNET), ChinaGrid integrates high-performance computers, data resources and tools, and high-end experimental facilities altogether. Currently, ChinaGrid provides more than 20 teraflops of computing power and over 200 terabytes of online and archival data storage capacity. Researchers can freely access these resources from the member universities. With this combination of resources, ChinaGrid is the most comprehensive distributed infrastructure for open scientific research in China.
ChinaGrid Support Platform ChinaGrid Support Platform (CGSP, 2005) is the fundamental platform for ChinaGrid. Without sacrificing local autonomy, CGSP brings people sharing their computational capability, storage capacity and other tools online across corporate virtual organization with geographic boundaries. CGSP includes system services and developing libraries for resource identification, discovery, dynamic management, workflow design, and virtual data management. By using CGSP package,
domain developers and experts can easily deploy, share, and run their applications in ChinaGrid. Based on the common CGSP, ChinaGrid drives five concrete application grids: bioinformatics grid, computational fluid dynamics grid, image processing grid, course online grid, and massive data processing grid. These grids provide powerful utilities and service components for the domain experts of different fields.
Dynamic Maintenance in ChinaGrid Support Platform To manage thousands of resources and services distributed in ChinaGrid efficiently, the dynamic maintenance becomes an indispensable functional module of CGSP. Despite the specifications and implementations mentioned in section 1 defined the interfaces and maintaining actions formally, they ignored the runtime complexity brought by high distribution, service dependency, and consistency of maintenance tasks. The main objective of CGSP is to promise high availability to consumers during the maintenance, and to ensure the consistency of maintenance tasks. Hence CGSP employs a model-based propagating, dependencyaware, and asynchronous architecture to resolve the challenges from (i) service dynamicity, (ii) service dependency complexity, and (iii) maintenance consistency. To achieve these objectives, dynamic maintenance is layered into two parts in CGSP as depicted in Figure 2. (i) The infrastructure part is installed on each resource distributed in different virtual organizations, called Highly Available Dynamic Deployment Infrastructure (HAND). It is response for the dynamicity of runtime and promises the availability during the maintenance. (ii) In the higher architecture part, Guardian Agents provide provisioning services and distributed management services. These agents promise the integrity and consistency of maintenance. As a coordinator, Cobweb Guardian is the user interface that is in charge of accepting maintaining requests, ana-
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Dynamic Maintenance in ChinaGrid Support Platform
Figure 2. Two layers architecture of dynamic maintenance in CGSP
vice updates in three aspects: service dynamicity, service dependency complexity, and maintenance consistency.
Service Dynamicity
lyzing dependencies, and decoupling tasks from administrator or other provisioning modules into atomic maintenances.
MAIN FOCUS With the evolution of grid system, the demands to dynamic maintenance are increasingly critical. Integration and dynamicity of grid service effectively explore the performance scalability but also pose great stress on service availability problem. Widely addressed by Chu (2005), service availability is the foremost issue to evaluate system performance. One typical way to measure service availability is by calculating system functioning time during a watching period. MTBF (mean time between failures) and MTTR (mean time to recovery) are those metrics which need a long time to observe. Researchers believe that better solution of maintenance requires less time to maintain and greater proportion of system available time. Meanwhile, the correctness of maintenance should not be ignored. Motivated by need of proving high availability and correctness during the maintenance, a dynamic maintenance mechanism is proposed in CGSP which support dynamic features of ser-
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Service upgrade and reconfiguration bring dynamicity to grid system. While a new version of service is preparing for install, or system is migrating to another host environment, the dynamicity will cause the performance degradation. An approach is to implement dynamic maintenance infrastructure which better handle service quality problem caused by dynamicity. Although Weissman (2005) proposed a solution, it provides poor performance since its implementation is totally based on Tomcat’s container-level deployment capability. Dealing with service dynamicity, a smaller scope deployment solution is the primary improvement of HAND infrastructure imported in CGSP. A smaller granularity of deployment denotes that deactivation and reactivation of single service will not affect other services. Consequently, the reloading time can be highly reduced and predictable as a majority of services remain functional during maintenance. Shorter maintenance time is beneficial for enhancement of system availability. This infrastructure can dynamically reflect the changes of services by reconfiguring at run time. In particular, the reconfiguration, redeployment and undeployment of specific service will not cause the invalidation of other systematic functions. HAND guarantees the efficiency of maintenance and availability of services to grid users simultaneously. Service-level deployment and container-level deployment are two approaches in HAND: •
Service-level deployment, in which administrators deactivate one or more existing services, install new services, and reactivate those services without reloading the whole container.
Dynamic Maintenance in ChinaGrid Support Platform
•
Container-level deployment, in which the installation of new service involves reloading (reinitializing and reconfiguring) the whole container.
A container-level deployment can save time for large scale maintenance. However, servicelevel deployment will guarantee the efficiency of maintenance, especially when unique grid service maintenance is required. According to the particular demands, HAND can adopt adaptive level to achieve shortest maintaining time.
Service Dependency Complexity Service dependency is ubiquitous in large-scale grid services. It means that a correct execution of selected service is depending on host environment, the dependent service and deployment of prerequisite component. Accordingly, dependency is classified into three categories: invocation dependency, deployment dependency, and environment dependency. Invocation dependency always happens in composite services which depend on additional service functionality. Deployment dependency denotes that the prerequisite software or service needs to be fixed before installation of dependent component. Environment dependency means that the maintenance of selected service could affect the availability of other service in a same container. Intricate dependency relations among service components also aggravate the complexity of service maintenance. Incremental service evolvement brings further partition, replication and aggregation of related service components. Several grid services present its functions by combination of dependent services in multiple remote sites’ containers. This trend requires highly dynamic deployment mechanism to detect the unavailability of depended service. Therefore, propagating any maintenance of service component is obligatory so that dependent services continue to function correctly. As an attempt of higher availability
during service updates, a special mechanism, called Cobweb Guardian system is introduced grounding on special consideration of dependencies. Working over HAND infrastructure, it is considered as a significant part of dynamic deployment mechanism. Cobweb Guardian system is a two-tier model which is composed of one Cobweb Guardian controller (CG) and multiple Guardian Agents (GA). To execute the actual maintenance, CG communicates with GAs and delivers them maintenance instructions as depicted in Figure 2. Authorization center, Session Control, Dependency Optimizer, and Policy controller are four main modules of CG. Since illegal users may deploy harmful service which may cause potential danger, the responsibility of Authorization module is to prove the validity of maintenance requests. The progress of the maintenance is controlled by Session Control module. After confirming the critical path from Dependency Optimizer module, it propagates the maintenance tasks to target Guardian Agent. The Policy controller module is designed to execute on-demand maintenance. Dependency Optimizer module is the key component of CG. The input parameter of Dependency Optimizer module is provided by maintenance administrator. Matching it with dynamic building dependency map, a critical deploy path can be automatically generated from established optimal strategies. Building over HAND infrastructure, CG can support both container-level and service-level maintenance. Comparing with CG, GA also consists of four parts: the Notification module, the Validation module, the Maintenance Interface and the Axis handler. The Notification module reports the maintenance states to all depending services since the latter ones should inform their unavailable states to public before complete execution of maintenance. Meanwhile, system administrators can detect maintenance failure instantly with this module and propagate it to relative GA. The Validation module of GA is responsible of checking maintenance actions of corresponded notifications. The
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actual execution of service deploying, redeploying and upgrading is supported by Maintenance Interface which accepts the requests from Session Control module. Invocation dependency capturing function is implemented using Axis handler which records different dependencies into service dependency map. The two-tier and loosely coupled architecture promises the correctness when maintaining the composite services with highly complicated dependencies. Further more, it achieves high availability in runtime by optimizing the maintenance according to dependency type.
Service Consistency When the resources and services scale grows, the consistency problem becomes further crucial. Currently, the maintenances propagating to heterogeneous resources always need waiting for all the correct ends of replica instructions. The synchronous approach brings unnecessary cost during maintenance. As a simple example, if a maintaining operation (e.g. deploying a replica service for one of storage nodes) is failed due to network congestion, naturally the later operation (e.g. patching the replica service) will be failed. Similarly, if the later maintenance instruction (i.e. patching work) is arrived earlier than the former (i.e. deploying work) in a computational node due to the networking latency, the whole procedure of maintenance will also abort. Meanwhile the maintaining time will be prolonged because of these emergencies. CGSP introduces an asynchronous model to resolve the consistency challenge. A maintaining stack for each resource is initialized first in the internal of CG. When a maintaining task is delivered to virtual maintainer, CG finds out the possible implicational atomic maintenances due to dependencies. And then, the task is decoupled into multiple atomic maintenances and pushed into the maintaining stack of related resources respectively. However, the real maintenance will
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not launch immediately. These maintenances should be started asynchronously when the related services are requested. Namely, these atomic maintenances are triggered on-demand. The on-demand trigger events are delivered by HAND deployed on target resources. Actually, when the ordinary requests arrive, the HAND service will assess the local maintaining states of requested service. After comparing it with the state stored in remote CG, HAND decides whether the maintenance is triggered physically. If necessary, HAND requests a GA to finish the whole maintenance work. This asynchronous model can promise the maintenances for different resources finishing successfully on demand. Especially, it brings better benefits in the resources with high computing capability and bandwidth (i.e. the maintenance for them will be finished in shorter time.). Furthermore, this approach tolerates a great deal of unpredictable failures (e.g. temporal offline and maintenance failures). Naturally, the availability of global system is enhanced.
FUTURE TRENDS The dynamic provisioning and maintenance are increasingly being concerned by major grid middleware. In particular, the demands of automatic management and self-healing, self-organization will motivate the dynamic maintenance to wider applicable areas. For instance, the ideas from sensor network and peer to peer computing technique can benefit dynamic maintenance much on real time states collecting and network bandwidth bottleneck. As another point, the multiple agents and neural network techniques from artificial intelligence community help grid to manage its service components and resources smartly and prevent various predictable failures efficiently.
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CONCLUSION Building dynamic maintenance mechanism with ever-increasing demands on service availability is a great challenge. The design and implementation of dynamicmaintenance mechanism in CGSP investigates the problem from three principal aspects of dynamicity, complexity and consistency demands of maintenance task. By providing different maintenance granularity, HAND infrastructure in this mechanism can substantially reduce service upgrading time. In terms of complexity brought by service dependency, Cobweb Guardian guarantees the correctness and efficiency of maintenance task. It supports recognition of dependency type and executes maintenance task abiding by autogenerated optimal solution. Finally, the proposed mechanism adopts an asynchronous maintenance architecture which provides multilevel replication consistency with performance scalability and fault-tolerance support. Comparing with previous proposed mechanism, dynamicmaintenance mechanism in CGSP behaves more smoothly to system maintenance failures, and provides an efficient solution for system availability during maintenance.
REFERENCES
Jin, H. (2004). ChinaGrid: Making Grid computing a reality. Digital Libraries: International collaboration and cross-fertilization (. LNCS, 3334, 13–24. Liu, P., & Lewis, M. J. (2005). Mobile code enabled Web services. In. Proceedings of ICWS, 05, 167–174. Open Grid Forum. (2006). The configuration, description, deployment and lifecycle management version 1.0. Retrieved from, http://www.ogf.org/ documents/GFD.85.pdf Organization for the advancement of structured information standards (2006). Web services distributed management: management of Web services, version 1.1. Retrieved from, http://docs. oasis-open.org/wsdm/wsdm-mows-1.1-specos-01.htm Qi, L., Jin, H., & Foster, I. (2007). HAND: Highly Available Dynamic Deployment Infrastructure for Globus Toolkit 4. In. Proceedings of PDP, 07, 155–162. Qi, L., Jin, H., Luo, Y., et al. (2007). Service dependency model for dynamic and stateful grid services. In Proceedings of ICA3PP’07 (pp. 278-289).
ChinaGrid Support Platform Project. (2005). http://www.chinagrid.edu.cn/cgsp/
Shankar, C., Talwar, V., & Iyer, S. (2006). Specification-enhanced policies for automated management of changes in it systems. In. Proceedings of LISA, 06, 103–118.
Chu, L., Shen, K., & Tang, H. (2005). Dependency isolation for thread-based multi-tier Internet services. Proceedings of InfoCom, 05, 796–806.
Smith, M., Friese, T., & Freisleben, B. (2005). Intra-engine service security for grids based on WSRF. In. Proceedings of CCGrid, 05, 644–653.
Foster, I. (2003). The Grid: A new infrastructure for 21st century science. In F. Berman, G.C. Fox, & A.J.G. Hey (Eds.), Grid Computing (pp. 65100). New York: Wiley.
Talwar, V., Milojicic, D., & Wu, Q. (2005). Approaches for service deployment. IEEE Internet Computing, 9(2), 70–80. doi:10.1109/ MIC.2005.32
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Weissman, J., Kim, S., & England, D. (2005). A framework for dynamic service adaptation in the grid: Next generation software program progress report. In Proceedings of IPDPS’05. World Wide Web Consortium. (2004). Installable Unit Deployment Descriptor Specification Version 1.0. Retrieved from, http://www.w3.org/Submission/InstallableUnit-DD/ Wu, Y., Wu, S., & Yu, H. (2005). CGSP: An extensible and reconfigurable Grid framework. In. Proceedings of APPT, 05, 292–300.
KEY TERMS AND DEFINITIONS Availability of Maintenance: The proportion of time a system is in a functioning condition in the watching period. More specifically, the availability during the maintenance is the ratio of system’s available time to the longest maintaining time (i.e., watching period). Consistency of Maintenance: Due to the complexity of grid system, the maintenance to particular services always is propagated to many replications. Consistency is a measure to promise the maintenance can be finished in valid period or the correct order. Dynamic Deployment: It denotes the ability for remote clients to request the upload and deployment of new services into, or the undeployment of existing services from, existing grid containers. It is a special case of dynamic maintenance.
Dynamic Maintenance: Dynamic maintenance includes the operations (e.g., deploy, undeploy, and so forth) to large scale service components in the runtime. The dynamicity of maintenance means that the maintenance will not affect the execution of existing components and promise the downtime as less as possible. Normally the maintaining requests are delivered by the administrators and provisioning modules. Grid Container: It hosts web or grid services and executes user requests issued by clients that invoke operations defined by those services. Quality of Manageability: It is a measure of the ability to manage a system component. QoM measures include number of lines of configuration code (LOC) for deployment, number of steps involved in deployment, LOC to express configuration changes, and time to develop, deploy, and make a change. Service Dependency: The correct execution of a service component is always depending on the hosting environment, the dependent calling services, and the dependent deployment service respectively. Service-/Container-/Global-Level of Maintenance: The maintenance of any new service components involves reloading (reinitializing and reconfiguring) the service (or container or whole grid respectively).
This work was previously published in Handbook of Research on Grid Technologies and Utility Computing: Concepts for Managing Large-Scale Applications, edited by Emmanuel Udoh and Frank Zhigang Wang, pp. 303-311, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.19
Engineering Design at a Toyota Company: Knowledge Management and the Innovative Process Darius Mehri University of California-Berkeley, USA
ABSTRACT The author worked in the research and design department at a large Toyota company in the late 1990s and experienced an innovative process where engineers worked in tightly knit groups where monitoring, the informal hierarchy and dependence resulted from an emphasis on collective work. In the approach to innovation during the design process, the Toyota engineers were found DOI: 10.4018/978-1-60960-587-2.ch419
to engage in an inductive process that placed an emphasis on the concrete and an orientation toward the field as a result of an approach that relied on experience based knowledge. The use of tacit and explicit knowledge is discussed within the context of the design process and the author finds that explicit knowledge dominates the improvement of productivity and organizational learning. The latest research in the sociology of culture and cultural psychology is used to highlight the cognitive approach to problem solving during the innovative process.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Engineering Design at a Toyota Company
INTRODUCTION With the rise of Toyota’s renowned position as a producer of high quality automobiles, the past two decades has seen a dramatic increase in the study of the company’s use of knowledge and organizational learning (Cusumano and Nobeoka 1998; Keeney and Florida 1993; Monden 1993; Womack, Jones and Roos 1991). The literature primarily focuses on the principles of the Toyota Production System and it’s unique blend of human resource and management techniques. Scholars claim that Toyota’s success stems from employing principles of continuous improvement and problem solving in what is known as “lean production”. Although the studies initially focused on manufacturing techniques, such as just-in-time manufacturing and continuous improvement (kaizen) to reduce waste and increase quality, scholars claim that management’s use of knowledge in the research and design stage in the Toyota organization is an important aspect of implementing the best practices of lean production. (Liker 2004) suggests that one of the keys to Toyota’s success lies in its ability to create an organizational culture focused on problem solving, continuous improvement and organizational learning implemented at all levels of product development. Another stream of literature focuses on the cognitive processes behind the use of knowledge in organizations. The use of tacit verses explicit knowledge initially discussed by Michael Polanyi has become the basis for studies in knowledge management in Japanese organizations. Tacit knowledge is defined as knowledge known only to an individual by experience. Explicit knowledge, on the other hand, is knowledge that is available in written form and can therefore easily transferred to others. (Nonaka and Takeuchi 1995) claim that Japanese firms do not employ the Western, hierarchical top-down management structure where selected knowledge flows from below to top management who use the information to devise corporate strategy, nor do they employ a bottom
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up strategy where employees are independent, and the hierarchy and the division of labor are eliminated. Japanese firms instead employ a middleup down process of knowledge creation where middle managers are at the center of knowledge management and are best able to exploit the use of both tacit and explicit knowledge to improve organizational learning and productivity. Many of these studies developed in part as a consequence of Japanese manufacturing industries posing a threat to American companies and the turn to investigating intellectual resources and organizational learning during the 1990s (Styhre and Sundgren 2005). Although studies of management and the Toyota Production System have contributed to the understanding of knowledge management in Japan, they are pointed toward learning specific management techniques and rarely focus on the micro-social processes behind the dynamics of innovation. In this paper I will discuss the use of knowledge and innovation through an ethnographic analysis of my experience working at a Toyota company in Japan. I will draw on the Toyota scholarship while discussing the cognitive turn in sociology and the latest findings in cultural psychology. Current research in the sociology of culture and cultural psychology suggest that culture influences the way actors interpret and use knowledge. Sociologists believe that actors’ thoughts, motives and intentions are constituted by the cultures and social institutions of their society and that cultures and institutions are reproduced by the structurally shaped and constrained actions of those actors (Sewell 2005). Structures consist of available rules and schemas (procedures or principles of action), capable of being put into practice in a range of different circumstances. (Swidler 1986) suggests that strategies of action are cultural products which are derived from practices of a group or society that create ways of organizing experience and evaluating reality. Culture shapes a “tool kit” of habits and skills in which individuals construct a strategy of action.
Engineering Design at a Toyota Company
Research in cultural psychology suggest that a “person is a social and collective construction made possible through an individual’s participation in the practices and meanings of a given cultural context.” Many of the studies in cultural psychology are aimed at investigating the cognitive process in a comparative context. For instance, studies by Peng and Nisbett evaluate the cognitive and cultural differences between East Asians and Westerners. They suggest that there are two culturally bound ways of approaching problem solving – an East Asian way of dialectical reasoning, a compromise approach that retains elements of two opposing perspectives and the European-American way that polarizes contradictory perspectives to determine which perspective is correct (Peng and Nisbett 1999). In a follow-up investigation on how cognitive processes influence formal versus intuitive reasoning among East Asians and European Americans showed that European Americans favored rule-based, formal and deductive reasoning whereas East Asians tended to favor intuition and contextualization in problem solving (Norenzayan et al. 2002). Studies by Markus and Kitayama show that individuality is an essential element of the selfconstructs of Americans whereas it is much less relevant for members of a more collectivist society such as Japan (Markus and Kitayama 1991). For example, in response to a question “What is a person” Japanese responded that an individual is a connected and committed being that is bound to others whereas Americans tended to respond that a person is a being that is independent and enters social relations with others by mutual consent. With respect to problem solving within the context of an organization, we would expect Japanese to be inclined toward a compromise approach, to favor intuition and contextualization and to lean toward collectivism in work activities. Individual action in the organization will be based on rules and schemas, or a cultural tool kit of habits and skills.
METHODOLOGY After graduating with a masters degree in mechanical engineering at the University of WisconsinMadison I obtained a job in the research and design laboratories at a Toyota company in Japan (from now referred to as Nizumi) and I worked there from April of 1996 to July of 1999. It was a second tier company that employed over 8000 people and had over 5 billion dollars in sales. I was assigned to the computational fluid dynamics (CFD) group I was responsible for using computer tools to improve the design process and to come up with innovative ideas that could be incorporated into new products. This study is based on my years as a participantobserver. In addition to the direct observation I recorded in my field notes, I also conducted over thirty interviews related to the engineering work and its environment and collected hundreds of pages of information freely distributed to employees. The interviews ranged in duration from ten minutes to two hours. About three quarters of those interviewed were Nizumi workers. I interviewed engineers, temporary laborers, contract employees, and mid to high level managers. Some 20% of the workers I interviewed were foreign, temporary workers, while the rest were permanent Japanese workers. I conducted approximately two-thirds of the interviews on company grounds. These were informal talks. The remaining third were held outside the company and were more formally structured. I have not included anything in this book that I did not personally observe or that did not come from at least two sources. My own observations and experiences have almost always been confirmed by those of my interviewees.
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ETHNOGRAPHIC ANALYSIS The Group and Monitoring When I initially entered the Nizumi offices I was amazed at its size—it was absolutely enormous and completely open. There were no interior walls. The sections were organized into separate entities by desks jammed close together, carving out a space on the floor and a narrow path through which employees could pass. Although the office was open, there seemed to be complete order, with employees communicating politely and efficiently. With managers and their subordinates working shoulder to shoulder in a space without walls, it seemed that the office had been designed to embody egalitarianism but I would soon learn that it served other functions. I was soon immersed in the company design process, but for me the most striking aspect of being at Nizumi was not my actual job but the work environment. For one thing, the close proximity of lower ranked engineers and higher ranked managers all facilitated discussion with other engineers or with my boss with whom I felt at ease to approach. For instance, while working on improving the design of a flagship product I immediately approached him and other engineers in the section for technical advice. This arrangement also allowed for the easy distribution of announcements and technical information that was passed from desk to desk. It was common for engineers and managers to distribute data or reports that was of interest to others in this manner. On the other hand, there was a total lack of privacy. Since every section was entirely open, there was not one place in the whole office that could not be seen by all members of the section. All desks were arranged in blocks of four and they all faced inward. The managers’desks were located on the outer edge of each section making a large rectangle that surrounded the inner blocks. Each manager’s desk faced the lower-ranked workers. The resulting formation meant that everyone could
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see what each other was doing, and in many cases, what they were reading as well. There was one minor exception for my section only. Each desk was separated from the next by a partition nine inches high from the desktop of the desk, partially blocking what the others could see. I surmised that since we were the research division some of our information was proprietary. Nevertheless, I always felt I was being watched. As I sat at my desk, the top of the wall was at eye level, so when I looked up, I always saw the eyes of my facing colleagues over the top edge of the wall. As an American socially conditioned to value privacy, I was uncomfortable with the lack of walls, but what made me even more anxious was the way I was constantly being monitored by my colleagues. It was common practice for employees to look over the shoulders of their colleagues and to poke their noses into their computers or personal documents. Members of the section commonly opened each others’ desk drawers and read each other’s notes, letters, and papers. Nothing was private. My mild-mannered boss, Higuchi, would routinely approach me from behind and stick his face directly into my work to see what I was doing. This was standard management practice. This monitoring unnerved me. At first, I would frequently go to the toilet to be in the one place where I could have privacy, if only for a few minutes. I however eventually became used to the monitoring and soon discovered that it was an integral part of group dynamics at the company. The engineering group, in which all engineers belonged, was to function in solidarity since if one member fell behind on a project, the engineers in his group were required to help him catch up by staying late at work to collectively gather and analyze data. Service overtime, a rule requiring engineers to stay after hours at the company without pay, was enforced particularly when the company had an important project with a strict deadline. I later discovered that if employees did not follow these rules, the entire group could be
Engineering Design at a Toyota Company
punished. Michael Hechter describes monitoring as a form of control to ensure compliance within a group. “A group must be able to detect whether individuals comply with their obligations or not.” For those who chose to free ride, exclusion was the primary form of punishment. Deviants were moved to the corner of the office and were referred to as “members of the window watching” group (mado giwa zoku). The office arrangement had a dual purpose for the management of knowledge – it functioned as a way for engineers and managers to share information and as a tool for monitoring employees. The open interaction of both management and engineers in a single space facilitated continuous improvement and organizational learning since engineers readily received the latest technical information and frequently used it to improve product designs. Both knowledge acquisition and monitoring was however a group activity and those who did not participate were openly punished indicating that my colleagues saw themselves collectively bound to others in the group.
Hierarchy, Training and Knowledge Acquisition After I had been at Nizumi a few weeks, my boss whose name was Higuchi called me to his desk. The upper level managers had decided on using CFD and CAD to improve one of the company’s flagship products, the XT37 -- part of the drivetrain. Higuchi explained my role in the project and what he expected of me – to use the latest in computer simulation technology to create a more innovative product. He was confident that I had acquired the skills to begin working on my first assignment. I was pleased to be getting my career off the ground and excited that I would be learning how to design in Japan, where they made the best products in the world. Nizumi implemented all of the five environmental components important for creativity and innovation (Amabile 1988; Styhre and Sundgren
2005). These include the encouragement of creativity where the company creates an environment where new ideas can be passed freely to all levels of the organization. Autonomy so that employees feel individually free to express their ideas. Resources in the form of technology to carry out the work. Pressures in the form of positive challenges such as the requirement to produce patents for the company and the avoidance of organizational obstacles to creativity such as influences of a conservative perspective to new ideas. Getting my career moving in Japan, however, required me to adjust to the Japanese way of doing things. I learned early on that Higuchi was my only source of information regarding the technology I was using. Since Japanese engineers are not required to be at all knowledgeable before entering a company, on-the-job training by one’s immediate superior was the norm for all engineers at the company. Since Higuchi was responsible for educating me, that meant we needed to develop a traditional Japanese relationship where the superior functioned as the mentor, or senpai, and the subordinate was the kohai. As a kohai and a new recruit, I was very dependent on Higuchi. Since much of the information was proprietary, only Higuchi, with his in-house experience at Nizumi, could provide the education I needed to design the part. As I worked on designing the part for the new drive-train, I became frustrated by the lack of information that Higuchi provided. I always received information on a piece- meal basis. At times it was as if he was giving me secret “hints” about the technology, and when he finished, there was often an awkward silence as I waited for more information that never came. When we discussed design options, I did express my disagreement sometimes, but this was invariably frustrating and time-consuming. Higuchi was usually surprised that I would question his wisdom at all. Although much of his knowledge transferred to me was tacit knowledge in the form of experience with designing products, all employees at the company,
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including Higuchi, were required to document their engineering knowledge and skills in written form for management to evaluate, or as educational reports for lower ranked engineers. Even the engineers in my section were not as forthcoming as I expected. One day Erberto came to my desk and told me that Kurata was holding a contest to come up with the best new drive-train designs. At the meeting to discuss the details, I was surprised when Kurata, who was highlyplaced Director of the Design Division, bluntly stated that the company’s foreign competitors had moved ahead of Nizumi. When I returned from the meeting, I approached members of my section and asked them what they thought about the new designs. To my surprise, they reacted defensively and avoided discussion, as if I was trying to steal their secrets. Because of my frustrations with Higuchi, I was interested in learning how my colleagues interacted with their bosses, so I observed them closely. A superior would yell out the name of an engineer, who would drop what he was doing and rush to his desk. They would talk about the issue – usually loudly enough for everyone in the section to hear. Although the engineers would sometimes raise issues and make objections, in the end, they deferred to what their bosses said. Finally, the superior would give the subordinate a direct order and the engineer would respond with a “hai wakarimashita” and walk away. Both sides avoided a direct clash of ideas. Now I saw why Higuchi was surprised at some of my objections. Although I was only trying to create the best design, I was breaking the rules of social conduct. The steel name-board reified the hierarchy. The names of all the employees in the section were printed on thin magnets. Upon entering or leaving the company, you moved your magnet to a column showing whether you were in the office, at home, or away on business. The names were arranged vertically by rank. The Section Manager was placed at the top of the board, with his direct subordinates placed under him, etc.
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The name board reflected some of the subtleties in the system. Since I was the newest member of the section, I was placed toward the bottom – but higher than a technician who had been there for several years, but who was part of a lower-ranked subsidiary company. The office lady was at the lowest position on the name board. The acquisition of knowledge was highly embedded within the formal and informal hierarchy of the organization. The formal hierarchy consisted of the rankings of employees while the informal hierarchy involved the relationship between the engineer and the manager. Management would guide engineers on how to go about designing products but the knowledge transfer was highly dependent on developing a close relationship with one’s superior. The senpai/kohai relationship was particularly important for career advancement since white collar, full-time employees were expected to stay at the company for the duration of their career and the lack of an external labor market prevented the movement to another company. On-the-job training was the norm at the company and although it was highly context oriented and developed tacitly (i.e. specific computer simulation tools were used to design certain products) knowledge acquisition and knowledge transfer from one employee to another was mostly carried out explicitly. Since middle managers interacted with both higher level management and engineers who did most of the research and design work, and were thus at the center of the knowledge management, explicit knowledge in the form of simulation tools, reports and explicit guidelines were used to improve productivity and organizational learning.
Concrete vs. the Abstract Although my relationship with Higuchi was congenial, the way I discussed the technology with was very different than the way I learned in America. I would frequently ask him questions about design considerations. He would respond
Engineering Design at a Toyota Company
with very specific answers, never discussing the concepts abstractly. All discussions about technology were concrete. While I would always begin my talks with Higuchi with a discussion of basic ideas, he would immediately focus on the details. Once when I brought him 3D pictures of a design I was considering, Higuchi bent forward and put his head right up to a small part of the model. He said, “What about this?” “What?” “This,” he said, pointing to a tiny speck on the model. I thought he was pulling my leg -- but he was serious. I was beside myself that he would consider such a small detail while ignoring the beauty of my overall design. But remembering I was a kohai, I just said I would look at it and went back to work. I did express my disagreement sometimes, but this was invariably frustrating and time-consuming. Higuchi was usually surprised that I would question his wisdom at all, and we would discuss the issue at length, arguing back and forth, with me focusing on the abstract and him on the details. In the end, he wouldn’t budge, so we would end up right where we had started. In retrospect, most of the time he was correct. After all, he was the more experienced engineer. But what I found irritating was the assumption that there was only one way to approach the design project – his way: focus on the concrete. He always remained affable and patient while hearing me out, but I soon saw that our discussions were mostly a way for me to get things off my chest. Unless I had concrete results to show him, he wouldn’t even consider what I had to say. However, if I could prove my ideas with results, he would affably and easily change his mind. Higuchi was open to new ideas -- as long as I could prove them. I observed a similar emphasis on detail during the Friday technical meetings. Everyone in our section was required to present his research and a discussion would follow but a debate about the basic physics of the engineering phenomena rarely occurred. Only concrete information that
could be validated through experiments or through previous designs was considered acceptable for discussion. A manifestation of the emphasis on the concrete was the language used during discussion such as katachi, meaning the form of an object in Japanese, and the gutaikeki, what is concrete or the tangible characteristics of an object. Western engineers from foreign companies who entered Nizumi faced similar problems. When a German engineer named Rolf from a consulting company came to discuss a project he experienced substantial frustration related to crosscultural communication. A number of engineers including myself were assigned to an advanced design project for a product that was planned to be released in five years. The company did not have some of the key technology so they hired a consultant to transfer the technology. When the Japanese engineers presented their designs, laying out CAD drawings of the assembly showing every bolt, curve, and surface. The level of detail was impressive, but Rolf asked how the parts could work together without major malfunctions. His idea of the product was different from theirs. He presented a fundamental reason why they should design it his way, but they did not agree. Rolf gave another reason, and they argued back and forth. During the discussion, the Japanese engineers would always drag Rolf into talking about the details. Rolf, however, would discuss the basics of the design, backing his reasoning with fundamentals. His voice got louder and he began acting agitated. I empathized with him, because for months I had experienced the same frustration. The Japanese engineers argued with Rolf, back and forth, for every component in the product. Then Rolf pointed to a part of the design that would dramatically reduce its efficiency, offering logical reasons why it would not work well. Saiki asked “How do you know it will be inefficient if you don’t have any data?” “I don’t need data!” Rolf was getting angry. He explained yet again what was wrong.
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The conversation continued for a number of minutes but the lesson from this encounter and others that I experienced or observed was that neither approach was the “correct” way of going about the design process. This vignette suggests an emphasis on concrete knowledge in the way that engineers at Nizumi approached the design of their products. Abstract knowledge, unless it could be proven with empirical data, was not acceptable. Engineers at Nizumi always contextualize the object during the analysis and would rarely focus the analysis on the object to debate the fundamentals.
Induction vs. Deduction While I worked on the flagship product my boss wanted me to create many models of various designs. Then we would choose the best among the many options available. The aim was to design a part with the highest efficiency while keeping manufacturing costs down. During the design process, we were required to sit down with engineers in production who explained the manufacturing process and costs. For most projects I my task was to improve the technology or the product (a process famously referred to as kaizen), but once I was assigned to design a completely new product. The project involved designing a device to reduce the aerodynamic drag of the vehicle. The aerodynamic drag is the amount of force pushing on a vehicle in the opposite direction to which the car is moving. Reducing the drag results in better gas mileage. Although drag reducers existed in the industry, Nizumi had never designed one, so we would have to start from scratch (or so I thought). For inspiration, I consulted my fluid mechanics textbook. I thought about the basic physics of the design problem and worked out some equations. I again focused on the object as the point of analysis and refused to look at other designs to maximize the ability to be creative. After a few days, I approached Higuchi with my ideas.
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Higuchi looked at me askance and demanded, “How do you know this? We’ve never designed a drag-reducer before.” Now I was confused. Hadn’t he expected me to use my engineering education and experience to develop a creative design? No, he had not. The next day I discovered the approach he preferred. An engineer who was working on the project named Suzuki walked into the office with a large cardboard poster showing pictures of all of the drag-reducing products currently used in the industry. He’d gotten these pictures from industry magazines. Higuchi got very excited and studied each one, while Suzuki looked on proudly. It was an excellent display; the color photographs revealed every detail of the products. We discussed the merits of some specific designs, then Higuchi told us to create CAD models and analyze them using CFD software on all of the them so we could compare and see which was best. During the weekly technical meetings I continued to learn how my Japanese colleagues approached problem-solving. To arrive at the best design, the engineers would gather huge amounts of information, comparing new designs with previous designs. If the technology unearthed by their research could benefit the product in any way, they would include it in the many alternatives they were considering. Ward, Sobek, Cristiano and Liker’s research describe Toyota’s approach to product development as set-based design where “designers think and reason about sets of design alternatives. Over time, these sets are gradually narrowed as the designers eliminate inferior alternatives until they find a final solution.” They claim this method differs from the practice called “point-based” design common in many American and Western manufacturing companies that involves choosing a single design early on and iterating until a solution is obtained. I would soon learn that set-based design was used extensively at Nizumi. Comparing one design to another was considered the best way to evaluate the advantages of each.
Engineering Design at a Toyota Company
A high level manager named Abe in charge of designing the wind deflector once distributed a memo called “The Vision Method.” This was a step-by- step directive about engaging engineers in the set-based process. One of the steps was “Deciding the Subject”: “To achieve the goal, you must think about as many ideas as you can and write them down. Then you must choose the best idea from all of the ideas.” Abe planned a brainstorming meeting for the new drag reducer Nizumi would produce. I spent many days thinking of the basic physics of the product and engaging in analysis. When the day came, Abe called on each of us to present our new product designs. I was surprised when all the other engineers brought in designs of products that had already been developed or manufactured by other companies. Suzuki and another engineer showed a design that came from a company’s brochure. When my turn came, I presented some novel ideas based on my analysis alone. My proposals were not as clever as some of the others, but they were certainly more original. It was important for a base of knowledge to be obtained from competitor products in the field before a new product was to be developed. Explicit knowledge was used to create a new product while improving the design by investigating the advantages and disadvantages of products that existed in the field. I believe the cognitive approach to product design used by my Toyota colleagues indicated a far different conception of innovation. They used an inductive process, while as an American-educated engineer and a recent university graduate, I had a far different cultural-tool kit in that I had been trained to use deduction.
Organizational Learning and the Benchmarking Process The process of comparing designs of products from various companies in the field is commonly referred to as benchmarking. Benchmarking was
the topic a number of department meetings and one day I had a birds eye view to the amount of effort that went into the process. The section manager announced we would benchmark a European competitor’s product, which was rumored to incorporate the most advanced technology in the industry. When I entered the chop shop later that day, my mouth dropped. Enormous effort had been expended in displaying how the European design compared with the Nizumi’s and other competitor’s similar products. Large, excruciatingly detailed charts filled the walls, comparing efficiency, gas mileage, etc. All the relevant parts had been cut up and placed on a table for us to examine. Each part was compared with the corresponding parts of the competition’s products. The benchmark was so thorough that there was even a comparison of the number of bolts used to put the products together. All parts on display were documented and filed on the intranet so that any engineer in the company could have access to the information at any time. I was amazed. At Nizumi, benchmarking was a crucial part of the design process. During design meetings, each engineer was required to show the main design parameters for the optimal design of the product. For example, if product efficiency was the main criterion, the chart would be a spreadsheet consisting of the design parameters in the columns and the manufacturer’s design of that parameter in the rows, with each cell containing the numerical efficiency. Each design parameter was graded according to efficiency, cost and ease of manufacture. From this information, a preliminary prototype was produced, and after further investigation, the final prototype was made. Then the engineers would improve the design in the technical lab or on the computer by tweaking various design parameters and adding new technology when needed. After further testing, the part was then manufactured. Benchmarking was used at all levels of product development: in research and development, in product design, and in market analysis. It was
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Engineering Design at a Toyota Company
not necessarily used to copy other products but was thought to speed up the design process while generating new ideas. Analysis of and experiment on an existing product was the basic approach to designing a new one. There were several technicians at the company whose only job was to take apart the competitor’s products, test them, and write up the results for engineers. After benchmarking and design iterations the final design decisions occurred in the “big room”. A lower level manager who worked for Abe named Watanabe called a group of us together to discuss the drag reducer. He brought in the analysis information that I had worked on. A Design Manager contributed extremely detailed drawings showing exactly how the product should be designed. An engineer from the industrial design group brought in his own set of drawings. It was Watanabe’s project, so he directed the meeting and spoke first, presenting the analysis information. Then the Design Manager took the floor and we discussed his drawings. A technician remarked that a design would be difficult to include because of noise problems. Other engineers wanted a feature that would benefit the customer, while the design guys wanted to make the vehicle more efficient. The meeting went on and on, as we discussed in minute detail every aspect of the product -- while continually making comparisons to competitor products. Watanabe took out a chart showing the number of vehicles that would include the drag reducer and the number that would not. He held up another detailed chart, comparing the drag reducer with all the other products Nizumi made. Both charts were incredibly beautiful, with neatly drawn, detailed illustrations of the drag reducer. Finally, Watanabe pointed to pictures on the chart and said, “O.K., let’s try this one, that one and this one.”
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DISCUSSION The use of knowledge management in Toyota has garnered much interest in the past two decades but I believe this paper has raised important issues as to how knowledge is used in a Toyota organization. The open office space facilitated the sharing of knowledge for continuous improvement and organizational learning but monitoring was an important element in controlling knowledge and ensuring that employees who did not participate were openly ostracized (see Figure 1 for schematic of knowledge management). Company hierarchy also played a large role in the management of knowledge. Important to engineers was the informal hierarchy. Management would guide engineers on how to design products but the knowledge transfer was highly dependent on developing a tight relationship with one’s superior in a traditional senpai/kohai relationship. Although an informal hierarchy of knowledge transfer from superior to inferior is not unique to Toyota organizations, what made it exceptional was that employees were expected to stay at the company for their career and dependence on a superior for the acquisition of knowledge was particularly important. On-the-job training was the norm at the company and although it was highly context oriented and existed in both tacit and explicit form, the most important knowledge existed explicitly in the form of training material, presentations to employees and computational tools used for the research and design process. Although middle level managers worked in the world between high level managers and engineers who conduced the research and design, they primarily relied on explicit knowledge to improve productivity and organizational learning. Cognition significantly shaped the way knowledge was used at Nizumi to design products. Abstract knowledge was considered suspicious unless engineers could prove their claims with empirical data and contextualizing an object dur-
Engineering Design at a Toyota Company
Figure 1. Step by step knowledge management during the design process
ing the analysis was the primary way engineers would approach the design process. A base of knowledge was obtained from competitor products in the field before a new product was developed. The most important aspect of the design process was the use of explicit knowledge to improve the design of products while continuously taking into consideration the advantages and disadvantages of design characteristics of products that existed in the field. I believe the cognitive approach to product design by my Toyota colleagues – the use of induction and benchmarking - indicated a conception of innovation that differed significantly from the approach implemented by foreign educated engineers. To be sure, a single case study cannot be used to make generalizations about design at Japanese companies or to establish a direct causal link between cognition and innovation at Nizumi. The data however is consistent
with the latest research in the sociology of culture and cultural psychology.
REFERENCES Amabile, T. (1988). A model of creativity and innovation in organizations. Research in Organizational Behavior, 10, 123–167. Cusumano, M., & Kentaro, N. (1998). Thinking Beyond Lean. New York, London, Toronto, Sydney, Singapore: The Free Press. Hechter, M. (1987). Principles of Group Solidarity. Berkeley, Los Angeles and London: University of California Press. Keeney, M., & Richard, F. (1993). Beyond Mass Production: Oxford University Press.
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Liker, J. K. (2004). The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer. McGraw-Hill.
Swidler, A. (1986). Culture in Action: Symbols and Strategies. American Sociological Review, 51, 273–286.
Liker, J. K., Ettlie, J. E., & Campbell, J. C. (Eds.). (1995). Engineered in Japan: Japanese Technology Management Practices. New York and Oxford: Oxford University Press.
Womack, J., Jones, D., & Roos, D. (1991). The Machine That Changed the World: The Story of Lean Production. Harper Perennial.
Markus, H. R., & Shinobu, K. (1991). Culture and the Self: Implications for Cognition, Emotion and Motivation. Psychological Review, 98, 224–253. doi:10.1037/0033-295X.98.2.224 Markus, H. R., & Shinobu, K. (1998). The Cultural Psychology of Personality. Journal of Cross-Cultural Psychology, 29, 63–87. doi:10.1177/0022022198291004 Monden, Y. (1993). Toyota Management System: Linking the Seven Key Functional Areas. Portland, Oregon: Productivity Press. Nonaka, I., & Hirotaka, T. (1995). The KnowledgeCreating Company: How Japanese Companies Create the Dynamics of Innovation. Oxford University Press. Norenzayan, A., Smith, E. E., Beom, J. K., & Nisbett, R. E. (2002). Cultural Preferences for Formal Versus Intuitive Reasoning. Cognitive Science, 26, 653–684. Peng, K., & Nisbett, R. E. (1999). Culture, Dialectics, and Reasoning About Contradiction. The American Psychologist, 54, 741–754. doi:10.1037/0003-066X.54.9.741 Sewell, W. H. (2005). Logics of History: Social Theory and Social Transformation. University of Chicago Press. Styhre, A., & Sundgren, M. (2005). Managing Creativity in Organizations: Critique and Practices. Palgrave Macmillan.
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KEY TERMS AND DEFINITIONS Cognitive Processes: Refers to the faculty for the processing of information and applying knowledge. Culture: Culture consists of such symbolic vehicles of meaning, including beliefs, ritual practices, as well as informal cultural practices such as language, gossip, and rituals of daily life. These symbolic forms are the means through which shared modes of behavior and outlook in a community take place. Explicit Knowledge: Knowledge that can be articulated, codified, and stored in certain media and that can be readily transmitted to others in an organization. Kaizen: Continuous improvement. Lean Production: Practice of production that considers the expenditure of resources, on such things as equipment or the transfer of knowledge, for any means other than the creation of value for the customer to be wasteful, and therefore, should be the target of elimination. Monitoring: To watch and keep track of. Tacit Knowledge: Knowledge only known by an individual through experience and that is difficult to communicate to the rest of an organization.
ENDNOTES 1
Markus, Hazel R., and Shinobu Kitayama. 1998. “The Cultural Psychology of Personality.” Journal of Cross-Cultural Psychology 29:63-87. p.63.
Engineering Design at a Toyota Company
2
3
Hechter, Michael 1987. Principles of Group Solidarity. Berkeley, Los Angeles and London: University of California Press. p. 51 Liker, Jeffrey K., John E. Ettlie, and John C. Campbell (Eds.). 1995. Engineered in
Japan: Japanese Technology Management Practices. New York and Oxford: Oxford University Press. p. 192.
This work was previously published in Handbook of Research on Knowledge-Intensive Organizations, edited by Dariusz Jemielniak and Jerzy Kociatkiewicz, pp. 363-374, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.20
The Internet and SMEs in SubSaharan African Countries: An Analysis in Nigeria Princely Ifinedo University of Jyväskylä, Finland
INTRODUCTION The Internet is a global network of interconnected computers using multiple Internet protocols (IP). Increasingly, it is being used to enhance business operation by both small and medium-sized enterprises (SMEs) and large organizations around the world (Bunker and MacGregor, 2002; Turban, Lee, King, & Chung, Lee, J., King, D. & Chung 2004). One reason is that the Internet, when used to facilitate e-commerce and e-business, offers several benefits for the adopting organizations DOI: 10.4018/978-1-60960-587-2.ch420
(Walczuch, den Braven, & Lundgren, 2000; Turban, et al, 2004). Such benefits include the following: 1) reducing distance barrier, 2) the development of new products and services, 3) opening direct links between customer and suppliers, and 4) enhancing communication efficiency. Our study of the relevant literature reveals that the diffusion of the Internet among businesses in Sub-Sahara Africa (SSA), including SMEs, is the lowest in the world at around 2% (ITU, 2005). A recent report shows that the whole of Africa has only 1% of the total international Internet bandwidth (UNCTAD, 2005). Thus, it is to be expected that businesses in the region with such
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The Internet and SMEs in Sub-Saharan African Countries
poor connectivity and use will be unable to fully reap the benefits of the technology. Against such unfavorable situations, it would seem reasonable for research efforts to uncover why such unfavorable conditions prevail in the region. Sadly, very few studies exist that have investigated such issues. Little is known about the perceptions of the Internet or the factors inhibiting its spread among SMEs in SSA. To fill this gap in research, this article aims at adding to knowledge by presenting a summary of the findings of a preliminary study designed to investigate the perceptions of the Internet and the sorts of barriers facing SMEs in SSA desiring to adopt Internet in their operations or for commerce. The study used SMEs in Nigeria, a Sub-Saharan African country. The country was chosen for illustration proposes as it is the most populous country in Africa and has favorable indicators for the use of information and communication technologies (ICT) compared to other SSA countries (Ifinedo, 2005). Importantly, researchers, for example, Ojukwu (2006) have discussed use of ICT among Nigerian SMEs and it is hoped that this present effort will complement similar research efforts.
BACKGROUND SMEs and Economies SMEs can be described in several ways, for example, the European Parliament’s definition of SMEs refers to a business with up to 250 employees. de Klerk and Kroon (2005), writing from the perspectives of the Republic of South Africa, divided SMEs into three main subcategories: micro (< 5 people), small (between 5-50 people) and medium-sized (51-200 people). Nonetheless, we accept SMEs as businesses characterized by informal planning, strong owner’s influence, lack of specialists, small management teams, heavy reliance on few customers, and limited knowledge, amongst others (Bunker and MacGregor, 2002;
Ifinedo, 2006). It is generally accepted that SMEs are the engine of growth of all economies (Bunker and MacGregor, 2002), including those in Africa. According to Ojukwu (2006), 97% of all businesses in Nigeria employ less than 100 employees, and the same is true in many African countries (Ifinedo, 2006). That said, SMEs in developed nations have been able to use ICT products such as the Internet in establishing e-commerce and e-business initiatives (Bunker and MacGregor, 2002; Turban, et al., 2004) and have subsequently benefited from such exercises. On the contrary, little or no progress has been made on such fronts in many developing countries, including SSA ones due to a variety of reasons, including inadequate know-how and a lack of resources (Ifinedo, 2005, 2006; Ojo, 1996; Ojukwu, 2006; Okoli, 2003).
SSA and Internet Commerce Africa, with its population of about 1 billion people, is the poorest continent in the world (World Bank, 2005). In terms of geography, Africa tends to be described as being comprised of two regions - North Africa and SSA. The Northern part is comparable to the Middle East economically and culturally (Ifinedo, 2005). Further, South Africa (also known as the Republic of South Africa (RSA)) tends to be excluded from the rest of SSA because of its relatively high socio-economic indicators. The conditions in SSA are different from those in the excluded regions, and the region of SSA typifies perceptions of Africa more than do the excluded regions. The map Africa highlighting Nigeria, the chosen SSA country for this study is shown in Figure 1. According to the latest World Bank (2005) reports Africa continues to be the only continent with worsening socio-economic indicators. In particular, SSA lags behind on the adoption and use of ICT products such as the Internet. Africa has the lowest diffusion rates for ICT products (for example, computers and telephones) (UNCTAD, 2005). Further, ITU (2005) shows that there
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The Internet and SMEs in Sub-Saharan African Countries
Figure 1. Nigeria on the map of Africa
combe and Heeks, 1999; Beliamourne-Lutz, 2003). In particular, Duncombe and Heeks (1999) highlighted the factors below as the main reasons why the adoption of the Internet among SMEs in Botswana - an SSA country – is very low. • • •
• •
were only 4.9 Internet hosts per 10, 0000 Africans in 2004 and the statistics are unchanged two years. When ICT products are lacking, it is not surprising that Internet commerce (also known as ecommerce) is relatively low on the African continent compared to the rest of the world (Economist Intelligence Unit, 2003; Gateway, 2003; UNCTAD, 2005; Ifinedo, 2005, 2006). Reports by Gateway (2003) state that “E-commerce is concentrated in South Africa and Egypt (regions not considered in this article), while B2B (business-to-business) outside South Africa remains negligible.” As noted above, few have investigated why the penetration rates of ICT products such as the Internet and other ICT products are relatively low in Africa in general and SSA in particular. The available few studies suggest that the slow diffusion can be attributed to the unavailability of technological/technical expertise and other know-how in the region (de Klerk and Kroon, 2005; Ojukwu, 2006; Ifinedo, 2006) while others attribute it to unfavorable cultural influences (Ojo, 1996; Okoli, 2003). Yet others trace the poor penetration rates to a lack of financial resources in the SSA region (Dun-
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Lack of money. Lack of skills or knowledge. Lack of technological infrastructure, for example, telecommunications, electricity supply. Lack of awareness of the business environment and how to take advantage of it. Lack of “critical mass”: Few local people/ organizations use computers/email; thus most are unable to engage in any meaningful Internet commerce.
As mentioned above, the focus of this article is to present the perception of the Internet and barriers for not using it by Nigerian SMEs. The issues relating to the perceptions of the Internet were adapted from the work of Duncombe and Heeks (1999), and with regard to the factors militating against the use of the Internet in Nigerian SMEs, we adapted the variables from Walczuch, den Braven, & Lundgren (2000) to suit the SSA context. That said, we conducted a survey in Nigeria using the judgmental or purposive sampling approach in selecting our respondents (Neuman, 1997). With the approach, the researcher selects his or her respondents given their suitability for the study’s theme. We collected data from SMEs in three Nigerian cities, namely, Lagos, Ibadan, and Port-Harcourt. The chosen cities are among the largest commercial cities in the country. (There is an “urban-rural divide” with regard to the use of ICT facilities in Nigeria which suggests that SMEs in larger cities are more likely to use ICT products in their operations than those in other parts of the country (Ifinedo, 2006). The SMEs selected follow the definitions provided above. Overall, 63 usable questionnaires were obtained for analysis. The views of 22 (35%) proprietors and 41(65%)
The Internet and SMEs in Sub-Saharan African Countries
supervisory/managerial employees are used. Our respondents came from wide ranging industries, including Agro-based business, light engineering (metal works), constructions, retail, and IT consultancy. The majority of the respondents are aged between 26 and 55 years and more than half have university degrees. Our respondents classified according to the sub-classifications offered by de Klerk and Kroon (2005) are as follows: 32 (50.8%), 19 (30.2%), and 12 (19%) respectively for micro, small, and medium-sized organizations. Participation was voluntary and respondents were motivated with a promise that their responses will be kept anonymous. We used a five-point Likert scale to represent the issues, please see Table 1. A summary of the results is shown in Table 1. Only 5 (7.9%) of the SMEs in our sample have their own Web pages. Many of the SMEs - 81% - plan to have their own Web pages at some future time. E-mail is the commonest Internet facility used by the Nigerian SMEs. The Internet (e-mail)
is accessed more from Cybercafés than anywhere else which suggests that the SMEs do not have their own extranets and intranets. 35% of the sampled SMEs agree to using e-mails regularly. About 90% of the respondents “surely” accept that the Internet could be a source of business and business information. Finally, while all of the respondents noted that they prefer conducting business transactions face-to-face, only 22% indicated that the Internet could serve as an alternative transaction platform. Table 2 shows the barriers or reasons for not using the Internet by SMEs in Nigeria. We briefly discuss the top ten issues due to space limitations. The “lack of IT skills for e-commerce development” placed as the topmost barrier. This harks back to the general limitations confronting the SSA region with respect to the availability of technological/technical expertise and know-how (Ifinedo, 2005; Ojukwu, 2006). The next barrier relates to the “general lack of finance”, which
Table 1. Perception of the Internet among Nigerian SMEs Number (N)
Percent (%)
Preference for conducting business: Face-to-face Telephone / fax The Internet Others
63 29 14 11
100 43 22.2 17.5
Does your business have a Web page? Yes No
5 58
7.9 92.1
Which one in particular? E-mail WWW (Web page) Others Missing data
53 5 4 1
84.1 7.9 6.4 1.6
Where do you (and your business) access the Internet? Own business premises Cyber cafés Public places (library etc.) Friend’s Other places
8 49 1 2 2
12.9 79 1.6 3.2 3.2
Number (N)
Percent (%)
Are you planning having a Web page in the near future? Yes No Undecided Missing data
51 4 4 4
81 6.3 6.3 6.3
Does your business have Internet access? Yes No Missing data
57 4 2
90.5 6.3 3.2
How often do you use the Internet (e-mail, WWW etc.)? Very often Often Sometimes Never used it
35 23 3 1
56.5 37.1 4.8 1.6
Accepting the Internet as a source of business and business information Surely Not too sure It cannot be a source… No comment
56 5 1 1
88.9 7.9 1.6 1.6
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researchers such as Beliamourne-Lutz (2003) and Duncombe and Heeks (1999) contend is the most prominent inhibitor to ICT (including the Internet) diffusion in developing countries. The third highly ranked barrier relates to the costs of buying computers. Feedback from one manager in an Agro-based business reads: “To do buying and selling online, our company needs facilities (computers, telephones, and so forth); we’re a small business, we can’t afford to invest such huge sums when apparently our business stands to benefit from any spare cash.” The majority of the feedback received echo similar sentiments. The next barrier concerns “Technical complexity of using IT in business”. This, in some respects, is related to the topmost barrier on the list. The lack of technical know-how continues to be among the most cited inhibitors facing SMEs both in developed and developing countries in their use of ICT-enabled services (Ifinedo, 2006). High costs of using and subscribing to telephone ser-
vices ranked fifth. This is not surprising given the poor statistics for Africa on ICT use and diffusion (ITU, 2005). Apparently, the sixth placed barrier is related to the preceding one. The lack of clear government policy and support for e-commerce (and the use of the Internet for business in Nigerian SMEs) ranked seventh. Poor energy supply came in eighth in the ranking order of barriers. Feedback from a manager/co-owner of a Business Centre reads “If you do business with the Internet, would NEPA [National Electric Power Authority] understand and improve power supply?” She emphasized that due to the poor power supply, her business has had to procure a generating plant to supplement the services provided by the state through NEPA. Indeed, the EIU (2003) noted poor power generation in Nigeria as one of the impediments to e-business growth in the country. The lack of critical mass among SMEs with the technology which is captured by the barrier of “not many of our customers use the Internet”
Table 2. Reasons for NOT having the Internet used by SMEs in Nigeria Reasons or barriers
N
Min
Mean
Std dev.
Max
Lack of IT skills for e-commerce development
63
2
4.84
0.54
5
General lack of finance
63
3
4.43
0.78
5
Too expensive to buy computers
63
3
4.25
0.74
5
Technical complexity of using IT in business
63
3
4.11
0.79
5
Telephone costs is too high
63
3
4.10
0.89
5
Internet subscription fee is too high
63
2
3.97
1.08
5
Not clear government policy and support
63
2
3.97
1.15
5
Poor energy (power) supply
63
2
3.87
1.11
5
Not many of many our customers use the Internet
63
1
3.60
1.01
5
Not suitable for our business
63
1
3.49
1.03
5
The Internet is not safe for our business
63
1
3.32
0.76
5
Does not lead more efficiency or lower costs
63
1
3.14
1.12
5
Lack of time
60
2
3.08
0.79
5
The Internet is too slow
63
1
2.89
1.32
5
The Internet is too difficult to use
63
1
2.75
1.29
5
Does not lead to more sales in our business
63
1
2.62
0.73
5
Never thought about it
57
1
2.25
0.93
5
Likert scale ranging from strongly agree (5) to strongly disagree (1)
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came in ninth place. Finally, the last of the top-ten reasons that the Internet is not used by SMEs in Nigeria is related to the suitability of the technology for local business initiatives. To illustrate this point, a proprietress of a small confectionary business responded that “I make wedding cakes and also participate in the [wedding] ceremonies; my presence is a must for my business…. The Internet can’t help my business”, when asked why she has not considered the use of the Internet for business. Some scholars have suggested that the socio-cultural contexts in developing countries, especially those in SSA, might not be conducive for Internet commerce. Okoli (2003, p.16) comments that “Africans do not have the culture of buying a product without [having] tactile contacts.
CONCLUSION AND FUTURE STUDY The findings of this preliminary study have added to our understanding of the perceptions and use of the Internet among SMEs in SSA. It is easy to notice that a lack of resources (that is, technological, financial, and human) explains the poor state of affairs with regard to the use of the Internet among SMEs in SSA. The general lack of IT skills among SMEs in Nigeria can be attenuated through well-planned schemes and programs. For instance, governments in SSA could follow cues from other developing countries in Asia where cooperation between states and SMEs has started yielding encouraging results with regard to how SMEs in those parts of the world perceive and use of the Internet in their business operations. For example, in Thailand, the Ministry of Commerce arranged free homepages for SMEs. In addition to paying for the homepages, the Thai government helped to provide relevant technical skills and training for some of these SMEs. Our study shows that SMEs in Nigeria may be able to benefit from the Internet as well as if their infrastructural, human, and financial capabilities are improved. To assist SMEs in SSA make progress with the use of the
Internet for their operations and commerce, SSA governments could consider the types of assistance being offered in Thailand or grant soft loans and subsidies to those showing interest in adopting the Internet in their businesses. The availability of funding (finance) is vitally important in redressing the poor use of ICT among SMEs in SSA (Beliamourne-Lutz, 2003; Duncombe and Heeks, 1999; Ifinedo, 2006), and this should be accorded great attention. Efforts need to be directed toward sensitizing SMEs in SSA about modern business practices and technologies. Norms, traditions, or culture must not be allowed to stand in the way of progressive development. This study provides a basis for further investigations. For example, studies could be commissioned to investigate the perceptions of the Internet and the sorts of factors that might be limiting its use among large organizations in SSA. Future studies could consider the perceptions of the Internet among SMEs located in rural communities in SSA; a comparative study between the two parts (rural vs. urban) could enrich the discourse of Internet use among SMEs in SSA.
REFERENCES Beliamourne-Lutz, M. (2003). An analysis of the determinant and effects of ICT diffusion in developing countries. Information Technology for Development, 10, 151–169. doi:10.1002/ itdj.1590100303 Bunker, D. J., & MacGregor, R. C. (2002). The context of Information Technology and electronic commerce adoption in Small/Medium Enterprises: A global perspectives. In Proceedings of the 8th. AMCIS 2002 conference, August 9 – 11, Dallas, Texas. de Klerk, S., & Kroon, J. (2005). E-commerce adoption in South African businesses. South African Journal of Business Management, 36(1), 33–40.
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Duncombe, R., & Heeks, R. (1999). Informatics, ICT and small enterprises: Findings from Botswana Development. Informatics, Working Paper Series, No. 7, The University of Manchester, the UK. Retrieved September 13, 2006, from http: www.sed.manchester.ac.uk/idpm/publications/ wp/di/di_wp07.pdf. Economist Intelligence Unit (EIU). (2003). The 2003 E-readiness Rankings: A White Paper. Retrieved September 13, 2006, from http://unpan1. un.org/intradoc/groups/public/documents/APCITY/UNPAN010006. Gateway (2003). Good prospects for IT industry in 2003. RetrievedAugust 11, 2005, from, http://www. gateway.hr/index.php?folder=148&article=43. Ifinedo, P. (2005). Measuring Africa’s e-readiness in the global networked economy: A nine-country data analysis. The International Journal of Education and Development using Information and Communication Technology, 1 (1), 53-71. Ifinedo, P. (2006). Factors affecting e-business adoption by SMEs in Sub-Saharan Africa: An exploratory study from Nigeria. In N. Al-Qirim, (Ed.), Global Electronic Business Research: Opportunities and Directions. (pp. 319-346). Hershey, PA: Idea Group Publishing. ITU. (2005). ICT statistics. Retrieved September 1, 2006, from http://www.itu.int/ITU-D/ict/ statistics/. Neuman, W. L. (1997). Social Research Method, (2nd.). London: Allyn and Bacon. Ojo, S. O. (1996). Socio-cultural and organizational issues in IT application in Nigeria. In M. Odedra-Straub (Ed.), Global Information Technology and Socio-Economic Development. (pp 99-109). Marietta, GA: Ivy League Publishing.
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Ojukwu, D. (2006). Achieving sustainable growth through the adoption of integrated business and information solutions: A case study of Nigerian small & medium-sized enterprises. Journal of Information Technology Impact, 6(1), 47–60. Okoli, C. (2003). Expert assessments of e-commerce in Sub-Saharan Africa: A theoretical model of infrastructure and culture for doing business using the Internet. Unpublished PhD thesis, Louisiana State University, USA. Turban, E., Lee, J., King, D., & Chung, H. M. (2004). Electronic Commerce: A Managerial Perspective. New Jersey: Prentice-Hall. UNCTAD. (2005). United Nations Conference on Trade and Development. The digital divide report: ICT diffusion index2005. Retrieved September 7, 2006, from http://www.unctad.org/templates/ webflyer.asp?docid=6994&intItemID=2068&la ng=1&mode=downloads Walczuch, R., den Braven, G., & Lundgren, H. (2000). Internet adoption barriers for small firms in the Netherlands. In Proceedings of the 6th. AMCIS conference, August 10 - 13: Long Beach, California. World Bank. (2005). World Development Reports. Retrieved September 10, 2006, from http://www. worldbank.org/. Worldcountries.info. (2006). Map of Nigeria. Retrieved September 16, 2006, from http://www. worldcountries.info/Maps/Region/Africa-450Nigeria.jpg
KEY TERMS AND DEFINITIONS Business-2-Business (B2B): This refers to the commercial activities between firms online. Business-2-Customer (B2C): This refers to the commercial activities between firms and customers online.
The Internet and SMEs in Sub-Saharan African Countries
Cybercafé: This a place where one can use a computer with access to the Internet for a fee; it may or may not serve as a regular café serving food and drinks. E-Business: This refers to the sharing of business information, collaborating with business partners as well as conducting business transactions by means of the telecommunication networks. E-Commerce: This term is used to describe the buying and selling of goods and services online. Information and Communications Technology (ICT): These include technological products such as telephones, computers, the Internet, and so forth which are used to convert, store, protect, process, transmit, and retrieve information.
Internet Protocol (IP): This is a unique number that devices use in order to identify and communicate with each other in a computer network. Internet: This is a global network of interconnected computers using multiple Internet protocols. Small and Medium Sized Enterprises (SMEs): These are businesses characterized by informal planning, strong owner’s influence, lack of specialists, small management teams, heavy reliance on a few customers, limited knowledge, and often employ less than 250 workers. Sub-Saharan Africa (SSA): This is the region of Africa excluding the Northern part of the continent and the Republic of South Africa.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 2183-2188, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.21
E-Business and Nigerian Financial Firms Development: A Review of Key Determinants Uchenna Cyril Eze Multimedia University, Malaysia
ABSTRACT This research discusses Nigerian financial firms’ perspectives on key determinants of e-business deployment. It explores possible differences that exist among financial firms using in-house e-business capabilities and those that outsource their e-business capabilities. This chapter contributes to the few pieces of literature on e-business experiences among firms operating in Africa, particularly Nigeria. The Technology-Organization-Environment (TOE) model underpins
the conceptual framework for this chapter. The independent variables are the firm, technological and environmental factors while e-business use constitutes the dependent variable. The findings reveal that all the factors were significant, but that environmental factors were key determinants of e-business use among the firms. In addition, this study reveals practitioners’ interests in Nigerian government agencies to maintain and enhance the existing e-business legal, regulatory and security frameworks in the country. By extension, this could enable greater e-business use in firms, which could improve the overall economy.
DOI: 10.4018/978-1-60960-587-2.ch421
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
E-Business and Nigerian Financial Firms Development
INTRODUCTION The increasing globalization, enhanced by advances in information system (IS), has spurred national and regional markets integration, international production, distribution, marketing, and consumption. eGlobal report reveals that as the world Internet access grows, the number of active (those who spend at least one hour per week online) users rose to about 640.2 million in 2004 (eGlobal Report, 2005). Similarly, the eGlobal report reveals various forecasts of total world ecommerce revenues by year 2004 ranging from a conservative value of $963 billion to $4 trillion. International Data Corporation (IDC) projects ecommerce revenue by 2004 at $2.8 trillion while Goldman Sachs & Co. estimates $3.48 trillion (IDC, 2002). The report also indicates that 20032005 growth of e-commerce will be driven by the B2B segment not business-to-consumer (B2C) transactions. According to United State Census Bureau 2009, total e-commerce sales for United States for 2008 were estimated at $133.6 billion, an increase of 4.6 percent from 2007. Total retail sales in 2008 decreased 0.6 percent from 2007. E-commerce sales in 2007 and 2008 accounted for 3.2% and 3.3% of total sales, respectively. Based on the foregoing, this paper examines electronic business use in Nigerian financial firms using the technology-organizational-environment framework (TOE). Electronic business (e-business) is often regarded as generally focused on e-commerce, however, the true definition is much broader. The Aberdeen Consulting Group defines e-business as the automation of the entire spectrum of interactions between enterprises and their distributed employees, trading partners, suppliers and customers (Intel, 2003). E-business encompasses the application of electronic systems to transform functional processes (Xu, Rohatgi, & Yangxing, 2007). Both definitions include a broad range of business processes such as multi-entity product design collaboration, electronic product market-
ing and information sharing, e-commerce sales of product to consumers or between firms or governments, internal business process re-engineering, multi-entity supply chain collaboration and customer relationship management. The operational definition of e-business in this paper includes all business transactions firms conduct using open standard [e.g., the Internet] and/or closed standard networks [e.g., Electronic Data Interchange (EDI)]. Revenue generated from e-business support and related services grow at a rapid rate in Nigeria, despite the insecurity in online economic transactions. With the liberalization of the telecommunication sector and the introduction of GSM services, experts predict a boom for e-business activities across Nigeria including Lagos. Lagos is the commercial and economic hub of Nigeria attracting key investments in financial activities and information and communication technology (ICT). As the fastest growing industry in Nigeria, the ICT industry is projected to be the next foreign direct investment driver in the next decades. Ebusiness value was $18.2billion in 2007 up 22.9% from USD14.8billion in 2006. E-business value for 2006 and 2007 were $16.5billion and 17.7billion, respectively (Ujah, 2008). The financial services industry (FSI) is a significant source of development and growth in Lagos. The Lagos corporate sector, especially the financial and oil industries are all expected to experience increased growth in their future EB activities. Notwithstanding enormous corporate interest and many success stories on e-business, there are few contextual studies on factors that determine its deployment in Africa. In addition, prior studies on e-business focused primarily on the statistics and growth patterns of e-business in terms of usage across industries and countries located in the European Union, United States of America and Asia (Eze and Gilbert, 2004; Goren and Turban, 1996). Similarly, Nigeria, like most African countries, provides little empirical studies that explain the dynamics of e-business deployment in firms
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(Eze, 2006; Eze and Gilbert, 2008). The goal of this paper, however, is to contribute empirical material to the scanty literature on e-business development in Africa by examining factors that determine e-business use among Nigerian financial firms. This paper will also examine the dynamics of outsourced and in-house e-business applications among Nigerian financial firms. These may provide some bases for additional future researches that might address specific issues in e-business developments among firms from a comparative perspective.
THE CONTEXT FOR E-BUSINESS AND THE FINANCIAL INDUSTRY Nigeria is located at the south-western coast of West Africa, consists of 36 states, and covers an area of about 923,768 sq km. Nigeria shares borders with Benin, Cameroon, Chad and Niger. Its population, estimated at 130 million (comprising about 250 recognized groups, many divided into subgroups of considerable social, economic and political significance), is sparsely and densely distributed in rural areas and cities (land: 910,768 sq km, water: 13,000 sq km). Nigeria is slightly more than twice the size of California which makes it extremely difficult to provide universal communications access to its entire population. EB activities between government agencies and private entities have not taken strong roots except in the case of government agencies such as the Central Bank of Nigeria and the private banks including oil companies. There is the potential for growth in this area and evidence suggests that more sectors of the economy are following the examples set by the banking and other financial services firms in deploying e-business innovation. As noted earlier, Lagos, the specific site for this research, is the industrial and commercial capital of Nigeria, regionally known as the growth pole and center for local/international financial institutions and IT headquarters (Ujah, 2004). Lagos
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has a population of 13.6 million and is the most important city in Nigeria because of its strategic position in the country’s development process. e-business development in Lagos is driven mainly by the private sector. Firms, particularly banks, oil, and telecommunication players are very active in e-business operations supported by quasigovernmental agencies such as the National Communication Commission and the Nigeria Internet Group. The government of Nigeria is gradually developing a solid e-business infrastructure to enhance operational activities among business partners. Over 75% of manufacturing and trading firms in Lagos use Electronic Data Interchange (EDI) as their key operating platform. With the rapid diffusion of the Internet, greater numbers of firms in Nigeria are moving their operations from the proprietary networks to the World Wide Web. The nature of IS in Nigerian FSI is complex and diverse. On the front end, firms use IS to execute and record customer transactions, whether they are handled in person, by phone, by electronic funds transfer, or on the Internet. On the back end, funds are transferred among firms and individuals via electronic transfer system, such as Swift and giro, which handle hundreds of trillions of dollars in transactions yearly. Because of the less sophisticated Internet systems in Nigeria, most financial firms use EDI and EDI over the Internet as their main platform for e-business activities. The FSI already has benefited from networkenhanced connectivity and interactivity for more efficient information exchange (Fan et al., 2000) and has experienced improvement in operating efficiencies and reduction in operating costs. Clemons and Hitt (2001) demonstrated significant cost savings, owing to electronic business, in product origination processes and operational activities, such as billing and document processing, for a variety of sectors ranging from brokerage, mortgage, and insurance to credit cards. Deploying e-business technologies and practices, however, has been gradual, limited by security’s network structure and international legal, cultural and
E-Business and Nigerian Financial Firms Development
tax concerns (Olazabal, 2002). A case in point is Nigeria, where online security related issues are not only a constant challenge but also a growing risk to the growth and advancement of the financial industry. E-business systems still have the potential to add significant value to all key functional areas in Nigerian financial firms, especially the potential for integrated Web-based applications to improve customer services. Loan applications and insurance forms can be filed out, stock trades initiated, bills, and fund transferred on-line. Customers can now access research tools such as mortgage calculators or retirement planning applications, credit status, and account information online. Applications based on open Internet standard can enable data sharing across firms in this industry. Internally, e-business applications can also improve integration of various proprietary systems. The challenge, however, is for the Nigerian government to strengthen its social, economic, technical and legal infrastructure to enable accelerated growth of e-business, not only in the FSI but also in key sectors of the economy.
CONCEPTUAL FRAMEWORK The TOE framework, developed by Tornatzky and Fleischer (1990), identifies three aspects of an enterprise that influence the process by which the enterprise implements an innovation. These aspects are technology, organization and environment. The technology factors describe the external and internal technology relevant to the firm, which includes existing technologies in the firm and those technologies available in the market. Organization factors define the size, scope and the management structure: the quality of human resources, risk taking ability, management policies and support and available slack resources. Environment factors define conditions in which the firm conducts its business, which includes competitors, customers, suppliers, and
the government. These three factors influence innovation deployment process and consequently the performance of the firm. Although a firm has its contextual strategic approaches to address its environment, identifying the prevalent factors, which firms consider when making investment decisions on an innovation, is very important (Zhu et al., 2004, Teo and Pian, 2003; Zhu et al., 2002; Kendall et al, 2001). The context and TOE factors firms consider when deploying innovations vary depending on their specific needs, internal and external constraints, and the objective of the respective firms. Applying TOE framework in IS research underscores the significance of matching informationprocessing requirements, often determined by environmental and firm factors, with information processing capabilities of the firm. Researchers apply this framework extensively in various areas like economics, finance, and planning (Eccles and Crane, 1988), theorizing new emerging network firms and innovation deployment. Grover (1993), for example, derived empirically a model of five factors (firm policy, technological, environmental, inter-firm and support factors), which influence a firm’s decision to deploy customer-based interorganizational systems. Weill and Olson (1989), on the other hand, identified seven useful factors (environment, technology, task, individual, strategy, structure, and size) in their meta-analysis of contingency research in business information systems. In addition, King and Sabherwal (1992) studied variables in the environmental, firm, and the IS contexts. Several other researchers including Rogers (1995) identified few factors that influence the adoption of innovation including. Although, some factors identified within the TOE framework may vary across studies and research samples, the framework has consistent empirical support. Building on the empirical evidence and literature review, TOE framework is considered appropriate for this study, and this paper extends the theoretical framework to e-business practices in a region less researched, Nigeria.
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The review in this research indicates that existing literature focused mainly on technology adoption (Zhu et al. 2004). Only a few researches have directly examined how TOE factors affect the ability of firms to derive value from e-business innovation (Zhu et al., 2002, 2004; Ramamurthy et al., 1999; Iacovou et al., 1995). Zhu et al (2004) argue that the impact of e-business on firm performance is a consequence of technological, organizational, and environmental factors. Their results were significantly affected by these factors. Based on the foregoing, this research uses the TOE framework in determine factors that may influence e-business use and performance among Nigerian financial firms. This research model (see Figure 1) depicts nine factors within three contexts of the TOE framework: competitive intensity, regulatory policy, uncertainty, technology capability, fit, relative advantage, technology policy, top managers’ support, and risk taking. These factors are proposed to influence e-business use and performance among financial firms (Zhu et al. 2004; Kohli and Devaraj, 2003). As indicated earlier, literature identifies several factors that could influence technology implementation. The choice of the specific factors for this study, particularly the environment factors, was informed by the contex-
tual and innovation deployment dynamics specific to Nigeria, the industry and the region. Nigerian political and economic conditions are quite different from those of the developed societies such as the United States, Canada, United Kingdom, Finland, Australia and Singapore where e-business frameworks are much stronger, developed and are of strong international standard. The next section describes the TOE factors in this paper as they pertain to the Nigerian financial services firms including the hypotheses development.
BUSINESS ENVIRONMENT FACTORS Environmental factors entail those that create opportunities as well as threats to a firm. These factors are typically beyond the control of management, where the firm has to adjust to adapt to any change in the environment. This paper identifies three environmental factors that could influence e-business use and performance: the intensity of competition in the industry; regulatory policy; and uncertainty in the environment. Competitive Intensity: Researchers perceive competitive intensity as an important factor in the innovation adoption literature (Grover, 1993,
Figure 1. The conceptual model of key determinants of e-business
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Iacovou at el. 1995). It refers to the extent that competitors in the marketplace affect the firm. Porter and Miller (1985) analyzed the strategic rationale underlying the relationship between competition intensity and IS innovations. A business environment characterized by an increase in competition fuels the tendency for IS deployment in firms (Zhu et al., 2004, Zhu et al., 2002; Utterback and Abernathy, 1975; Rogers, 1995). Dependence on IS can evolve with time as firms use diverse IS to differentiate products, create switching costs to retain suppliers and customers, impose barriers to market entry, create competitive advantage, or counter other firms’ competitive advantage, and develop new business models (Porter, 2001, 1985). These systems can generate cost reductions, support competitive positioning, and allow the firm to compete in new and dynamics fashions. As firms become more dependent on them to process daily activities, they become critical to the success and survival of the firm (Raven, Huang, & Kim, 2007). For Nigerian financial firms to be competitive in the region, it is imperative they venture into emerging economies such as Southern Africa, China, and India, for new markets, because international experience and knowledge would create core competencies for development, expansion and growth for Nigerian financial services firms. Nonetheless, the costs and risks firms encounter in foreign investments are extremely high. Therefore, using e-business to reach, coordinate, and integrate those markets would save enormous resources. In this regard, the e-business offers a critical low-cost option for a firm to reach wider markets, collaborate with partners and possibly remain competitive in, at least, the region. Hence, the hypothesis: H1: The greater the competition intensity in the industry, the more likely a firm will deploy e-business. Regulatory policy is recognized as a critical country factor affecting innovation use and
performance. For example, Williamson (1983) summarized two ways in which government regulation could affect innovation deployment: (1) by taking specific actions to increase or decrease payoffs via tax and other measures to encourage research and development (R&D), (2) by taking actions that influence innovations via altering the climate in which they are received. Accordingly, Nigerian government could help financial firms to implement strong e-business by regulating the Internet to make it more a trustworthy business platform and establishing supportive business and legal frameworks to protect e-business activities. Recent empirical studies indicate that effective regulatory environment plays an important function in e-business performance (Kraemer et al., 2002). Given that financial transactions often involve very sensitive information, adequate regulatory and institutional frameworks are very critical for the Nigerian FSI. Sato et al. (2001) posited that regulatory environments, together with communication platform, are supporting infrastructures critical for e-business, highlighting the importance of regulatory environment for efficient e-business use and performance in the financial services industry. These theoretical assertions and empirical evidence leads us to the next hypothesis: H2: An enabling regulatory environment will positively influence the capacity of a firm to use e-business. Uncertainty describes the condition in which reasonable knowledge regarding risks, benefits, or the future is not available. It is a measure of how poorly we understand or can predict something such as a parameter or future behavior; in some cases, this is the same as a lack of precision. It also entails failure to know anything that may be relevant for an economic decision, such as future variables, details of a technology, or sales. Uncertainty creates the need for greater innovation and product differentiation requiring a higher
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level of dependence on IS resources (Sabherwal and King, 1989). Uncertainty places time constraints upon decision-making and forces firms to invest in technology for coping mechanisms. Decision-makers, for example, may turn to more sophisticated information analysis such as group collaborative systems, data mining and knowledge management systems (Holsapple and Whinston, 1996). As firms deploy more IS to support core activities and improve performance in unstable business environment, IS dependence increases. Extending this argument to e-business indicates that the rate of change in global business activities increases with every improvement in technology innovation. This paper, therefore, posits that ebusiness will enable Nigerian financial services firms to obtain more and richer information at faster pace compared to, say, 20-30 years ago. E-business also tends to enable better functional area visibility and better access to customers and suppliers. Experience from practitioners indicates that firms are able to manage the level of uncertainty in the business environment when they deploy e-business systems for coordination and collaborative business processes improvement. Hence the following hypothesis:
ogy capability in this paper consists of technology infrastructure and IS human resources, where technology infrastructure refers to technologies that enable Internet-related businesses (e.g., EDI, EFT, intranet, extranet), and IT human resources refer to IT professionals with the knowledge and skills to implement Internet-related applications. By this definition, technology capability is conceptualized as an integrative construct that is reflected not by the physical assets but also by human resources that are complementary to physical assets (Zhu and Kraemer, 2005; Mata et al. 1995). It refers to a firm’s technical capability in the form of distributed computing power in the firm. Technology infrastructure establishes a platform on which e-business can be built; IT human resources provide knowledge and skills to develop e-business applications. Therefore, Nigerian financial firms with a higher degree of technology capability would enjoy greater capacity and readiness to use e-business in their business processes. As a result, they would be more likely to achieve a greater depth in e-business use. Hence:
H3: High uncertainty in the environment will positively influence e-business use and performance among firms.
Fit entails the agreement between an innovation and a firm’s culture, experiences and potential needs (Rogers, 1995). It is common for a firm to deploy innovations that align closely with its specific needs, values and the business processes, which are expected to meet specific requirements of future technological developments in the industry and those that the firm deploys (Ettlie, 1983). The significance of the aforementioned approach include to ensure few changes to the firm’s structure, processes and strategy, thereby enabling less resistance to e-business deployment. Further, the compatibility of new technology enables greater corporate security and minimal risk to the deploying firm, which may in turn save the firm enormous amount of investment resources for other business initiatives.
Technology Factors Technological factors delineate the perceived features of the innovation. Teo et al. (1997) and Tornatzky and Klein (1982) observed that in addition to the many perceived innovation features in prior IS research, technology capability, fit, and relative advantage tend to predict innovation deployment. Technology Capability IS literature indicates that IS capability comprises infrastructure, human resources, and knowledge (Zhu et al. (2005); Mata et al. 1995). Consistent with past research, technol-
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H4: A firm would use e-business if it [the firm] has a strong technology capability.
E-Business and Nigerian Financial Firms Development
The agreement of a technology with the tasks and processes of potential users appear to be the widely researched facet of fit between technology and the firm (Tornatzky and Klein, 1982). This is because in Nigerian, as it is in some countries, firms encounter change resistance irrespective of the size, type of business and location of the firm, and therefore, would deploy an innovation when there is greater possibility of fit between the innovation and the firm culture, structure, existing processes and IS infrastructure. In contrast, Kwon and Zmud (1987) observe that inconsistency of new IS initiatives with existing business processes and IS infrastructure adversely affect users’ attitudes and increases change resistance, which may impede innovation deployment. Hence the following hypothesis:
vendors and customers (Cockburn and Wilson, 1996). The celebrated potential benefits of using e-business include creating a worldwide clientele base, rapid information access, global scale information dissemination, cost-effective document transfer, global market reach, and groundbreaking business models (Rawn, 1994). Nigerian financial firms will derive greater value from conducting business transaction via e-business systems compared to using traditional approaches, such as the telephone. Hence, the following hypothesis:
H5: The more fit e-business is with a firm’s culture and existing IS infrastructure, the more likely the firm will use the innovation.
Firm factors include those variables that affect the firm structure, and which the firm could adjust or change to fit its changing environmental needs. Three factors this research discusses include technology policy, top managers’ support and risk taking. Technology Policy: Ideally, technology policy is a type of long-range environmental scanning and coping mechanism, and entails actions a firm takes to outperform other firms on technology (Ettlie, 1983). These actions may involve top management’s willingness to commit time, effort and financial resources to IS projects, an unflagging pursuit of new technological innovations and development in the market as well as close monitoring of competitors’ e-business deployment performance and positions. This is even more critical in the financial industries in developing countries like Nigeria, where huge gaps still exist between firms’ policy initiatives and policy execution. Ettlie and Bridges (1982) observed that perceived environmental uncertainty promotes an aggressive technology policy (a long-range strategy for the deployment and production of process, product and service innovations), and that such
Relative Advantage: Relative advantage is the level at which potential customers observe the innovation as superior to existing alternatives. Kwon and Zmud (1987) define relative advantage as the degree to which innovation deployment provides greater firm advantage than to maintain the status quo. In essence, it describes the intensity of the reward or penalty of deploying or rejecting an innovation. The degree of relative advantage is usually denoted in economic terms: savings in time and effort, costs reduction, or better reputation in innovation application. Researchers observe relative advantage to be among key predictors of an innovation’s rate of use (Rogers, 1995). Grover (1993) posits that, generally, a positive relationship exists between relative advantages of an innovation and the behavior of firms deploying new technologies. E-business gives firms competitive edge in business activities such as publicity, marketing/advertising; direct selling; research and development; and global marketing, distribution, production, communication with
H6: A firm will likely use EB if it [the firm] perceives greater relative advantage accruing from the innovation.
Firm Factors
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a policy may be a means of coping with dynamic conditions. Ettlie (1983) observed that firms with aggressive technology policies constantly experiment with available processing systems; actively recruiting the best possible technical, production and marketing personnel, and often showing strong commitment to technological forecasting. This suggests that these firms tend to have specialized groups who evaluate new process innovations, which may lead to the implementation of key initiatives. Therefore, firms with aggressive technology policies would consider using e-business in response to the technological trends and market conditions; consistent with arguments on the contexts of information systems management. Thus, this paper proposes: H7: The more aggressive a firm’s technology policy is, the more it will use e-business. Top Managers’ Support: Lederer and Mendelow (1988) observed that top management influence and commitment during the assessment of an innovation and the deployment of any IS initiative is often significant. Top management support for innovation initiatives tends to enable a firm’s commitment in investment needs and accelerate project-planning processes (Teo, et al., 1997). Without strong top managers’ support for an innovation, it becomes difficult to secure the interest and motivation of the Chief Executive Officer (CEO), which may lead to possible rejection of the initiative. Top management influence is also vital to overcome corporate barriers and resistance to innovations and corporate changes in Nigerian financial firms, which will enable efficient overall change management. In addition, the global connectivity and accessibility of e-business permits easy exchange of ideas and knowledge across firms, industrial and geographical boundaries. A financial firm in Nigeria deploying e-business would have to ensure that the system is used to maximum corporate advantage, particularly, in boosting productivity,
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creating and sustaining business relationships and in building new business models (Eze and Kam, 2001). To achieve these, top management influence is crucial. Hence, the hypothesis: H8: The greater the extent of top managers’ support, the more likely the firm will use e-business Risk Taking entails a firm’s willingness and ability to take risks associated with business including changes in the firm’s structure, processes, and strategy (Eze and Kam, 2001). When a firm deploys e-business, it faces complex and dynamic changes in communication culture and reporting patterns (Lederer and Mendelow, 1988). Developing e-business capabilities means that the existing communication hierarchies in the firm may become irrelevant. With e-business, the demarcated walls of knowledge tend to dissipate, allowing information within the firm to become more easily available and accessible. This new pattern of communication and relationships may affect the conventions and culture of the firm in distinct fashions. Management of risk delineates management’s willingness to accept novel innovations. Commercial use of Internet-related e-business technologies dates back to over fifteen years ago, yet some firms still struggle with linking B2B applications to strategic significance that could enable competitive advantages (Grover and Lederer, 2004). In the context of Nigeria, a related issue is that the relevant government agencies have not fully addressed the issue of transaction security and regional standardization, which inhibits the potential corporate benefits accruing from e-business. In addition, if e-business is readily accessible, firms must also take into account privacy and intellectual property rights of firms’ assets, service and product information. Financial risk entails firm top executives’ willingness to commit adequate resources into new IS projects. Although the cost of e-business
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deployment may be significant, a major concern for firms is the accompanying costs of training and educating firm employees in the application of e-business (Teo, et al., 1997). In the context Nigerian financial firms, a related concern is productivity; if employees are hooked on improper use of the systems, then expensive firm time and other vital assets may be used for less productive ends. Therefore, if top management is willing to accept firm restructuring, deploy novel technologies and invest resources in IS applications then the firm may be likely to use e-business. Hence the following hypothesis: H9: The higher the risk-taking propensity of top management, the more likely the firm will use e-business.
METHODOLOGY The data collection for this paper was conducted using survey questionnaire. The questionnaire was designed based on the research conceptual model (see Figure 1). Previous empirical studies on innovation deployment and diffusion provide key reference for the research variables and items (Zhu et al., 2005; Eze, 2003; Zhu et al., 2002; Chau and Hui, 2001; Teo, et al., 1997). Table 1 illustrates the operationalization of each independent variable, the items and their sources. The independent variable, EB use and performance was operationalized by asking the respondents to assess the improvement in their EB use and performance. Responses to the survey questions on the variables were entered on a fivepoint Likert-type scale as follows: 1 = Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree, and 5 = Strongly Agree. Respondents were also requested to identify whether they were users with in-house EB systems, users with outsourced e-business systems or non- e-business users. In addition, the survey questionnaire includes data on participants’ profile including firm type [commercial banks, finance houses, merchant banks,
and insurance firms], number of employees and annual revenues. Several steps were taken to ensure data validity and reliability. Initially, the questionnaire was pre-tested with two academics and two business executives selected from the IS industry. The questionnaire was then revised for any potentially confusing items. Before the administration of the final survey, a random subset of 10 respondents was used for pilot testing to determine further areas in the questionnaire that may need improvement. Six questionnaires were returned, and their recommendations for improvement and thus the content validity of the questionnaire were incorporated into the survey questionnaire. As noted earlier this research benefited from previously validated measurements items (see above) to help ensure the validity of the measures; multiple-item measures were used for most constructs to enhance content coverage. For purposes of reliability, the CIO is considered most appropriate position to respond to survey questions. Directing questions to the most knowledgeable respondent often helps to overcome single source limitations (Premkumar and King 1992). The questionnaires were then mailed to CIOs of the 400 firms from the Nigerian financial industry. In the cover letter, the author assured confidentiality and offered an executive summary of the findings as an incentive for participation. Pre-paid reply envelopes were provided for the return of the responses. Follow-up calls were made to the participants who had not replied to the survey after the specified period. To establish the absence of non-response bias, it is desirable to collect data from a set of non-respondents and compare it to data supplied willingly. For a meaningful number of surveys and for all survey items, this method is rarely achievable. A practical preference, that has been argued to provide reliable results, is to compare the mean values of responses for earlier returns with the means from later returns (Compeau 1995). This approach has the capacity to reveal any dif-
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Table 1. Variable Operationalization Variable
Items
Descriptions
Sources
Environmental Variables Competitive Intensity (CI)
V1 V2 V3
There is stiff competition based on costs; There is stiff competition based on product quality and novelty; There is increasing number of competitors in the industry.
Grover (1993); Utterbach & Abernathy (1975). Zhu et al. (2002)
Regulatory Policy (RP)
V4 V5 V6
Government provides incentive Legal protection for online purchases Required for government businesses
Eze (2006) Teo et al. (1997).
Uncertainty (U)
V7 V8 V9
There is enormous diversity in customers’ buying habits There is enormous diversity in the nature of competition There is enormous diversity in product designs
Toh & Low (1993); Teo et al. (1997).
Technological Variables Technology Capability (TC)
V10 V11 V12
There are adequate IT professionals with requisite skills in the firm There are functional ICTs in the firm There are Internet and W3 capability in the firm
Mata et al., (1995)Zhu and Kraemer (2005)
Fit (F)
V13 V14 V15
E-business use consistent with firm’s culture; Favorable attitudes towards e-business deployment present in the firm; E-business use consistent with firm’s IT infrastructure
Reich & Benbasat (1990); Rogers (1995). Kendall et al. (2001)
Relative Advantage (RA)
V16 V17 V18 V19 V20 V21 V22
Convenient access to worldwide information; Creation of worldwide electronic presence; Selling and buying products through e-business; Extend global market reach; New business models and opportunities; Improve customer service; Lower operational costs using e-business
Cockburn & Wilson (1996); Rawn (1994); Rogers (1995). Kendall et al. (2001
Technology Policy (TP)
V23 V24 V25 V26
Firm’s tradition of being the first to try out new technologies; Firm’s expenditure on developing new products as compared to competitors; Firm’s recruitment of technical personnel; Firm’s awareness of the latest technological developments
Teo and Pian, 2003 Zmud (1984); Eze(2006)
Top Mangers’ Support (TMS)
V27 V28 V29
Top management interested in e-business use; Top management considers e-business use as important; Top management has shown support for e-business use.
Grover (1993), Premkumar & Ramamurthy (1995) Teo et al. (1997).
Risk Taking (RT)
V30 V31 V32
Top management’s willingness to accept organizational changes; Top management’s willingness to accept unfamiliar technologies; Top management’s willingness to invest funds in IT
Clemons & McFarlan (1986); Teo et al. (1997).
Firm Variables
ferences between early and late responders who required prompting. The assumption is that late responders share similarities with non-responders, and if no significant differences exist, the probability is strong that non-response bias does not exist (Armstrong and Overton 1977). Tests were conducted on first week responses and responses after five weeks, and the differences between the two groups were insignificant [two-tailed t-test
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P<0.05], indicating that time had no apparent effect on the perceptions and that non-response bias was remote.
ANALYSIS There were 148 completed responses in this research, producing a 37% response rate. The
E-Business and Nigerian Financial Firms Development
Table 2. Participants Profile Items
Value
Percent of Respondents
Number of Employees
>600
65.76
Annual Revenue
101- 500 and above
65.76
Duration of EC Use
8 year and above
>80
Annual Expenditure on EC
6% and above
57.56
profile of participants is shown in Table 2. About 83% of the participants are CIOs and they have an average working experience of 6.5 years in their firms and 12.5 years in their respective industries. More than 65 percent of the participants are large, with more than 600 employees and average annual revenue ranging from $101 million to more than $500 million. N = 148 Out of 148 firms, 67.6% have sophisticated ebusiness systems while 32.4% do not possess such e-business systems. Over 80% of the participants have been using e-business systems for about 8 years [This includes firms that use EDI and EDI over the Internet for business transactions]. Those firms with e-business systems are regarded as ebusiness users while those without the systems are regarded as non-users. Out of the 100 users, 57% have in-house e-business solutions while the remaining 43% outsourced theirs. Among the non-users, about 69% intend to deploy e-business within the next one year.
RESULTS: MODEL GOODNESS-OF-FIT There is no universally accepted indicator of goodness-of-fit, so it is usual to present several statistics as collective indicators. The Chi Square (χ2) statistic is a fundamental measure but because
it is sensitive to sample size, it is advisable to complement this measure with other measures of fit. The indicators chosen are ones used in previous IS research. These are the Non-Normed Fit Index (NNFI), the Comparative Fit Index (CFI), the Root Mean Square-Error of Approximation (RMSEA), the Root Mean Square Residual (RMSR), and the Tucker-Lewis Index (TLI). The χ2 statistic, also a measure fit, is subject to distortion and is often replaced with the ratio of χ2/d.f. Indexes that exceed 0.09 are acceptable for the NNFL, CFI, and TLI. Values of less than 0.06 for RMSEA and less than 0.10 for the RMSR are acceptable. The preferred value for the χ2/d.f. ratio is below 2 (Nunnally, 1979). The probability for the χ2 for the final measurement model was marginal (P=0.05). Nonetheless, all other goodness-of-fit measures for the final measurement model suggest a strong fit of the study data to the proposed model. Since the ratio of χ2 to d.f. was low (1.47) and all other indexes were well within the prescribed range, the results are accepted as supporting overall goodness-of-fit (see Table 3).
CONSTRUCT VALIDITY AND RELIABILITY To assess the extent to which a particular empirical indicator represents a given theoretical concept, Table 3. Goodness-of-Fit for the Final Measurement Model Item
Suggested Range
χ2
P>0.05
P =0.05
χ /d.f.
<2.00
1.47
Non-Normed Fit Index
>0.90
0.99
Comparative Fit Index
>0.90
0.96
Tucker-Lewis Index
>0.90
0.98
RMSEA
<0.06
0.04
RMSR
<0.10
0.07
2
Measurement Model Value
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it is pertinent to assess the validity and reliability of the indicators. Therefore, to ensure rigorous research protocol, construct validity and reliability assessments were conducted (see Table 4). Construct validity focuses on the extent to which a specific measure relates to other measures in accordance with theoretically derived proposi-
tions. Construct validity may be determined in terms of convergent and discriminant validities. Convergent validity assesses the consistency across multiple operationalizations. While convergent validity assesses whether all the items measuring a construct cluster together to form a single construct, discriminant validity measures
Table 4. Rotated Factor Matrix of the Variables Items
Factor 1
Factor 2
Factor 3
0.2543 0.2465 0.1762 0.8241 0.9043 0.9397 -0.3263 0.1202 -0.1234 3.7 32.6 0.89
0.7032 0.7327 0.8320 0.2120 0.3198 0.2921 0.1094 0.2761 0.1032 2.1 16.9 0.79
0.2165 0.2843 0.0903 0.1968 0.1023 0.1760 0.7948 0.8012 0.7123 1.1 13.9 0.72
0.1342 0.1245 0.1912 0.8453 0.6124 0.7078 0.8192 0.8212 0.8872 0.7834 0.3031 -0.2667 0.1334 4.3 41.1 0.82
0.7328 0.8123 0.7911 0.0766 0.1981 0.1678 0.1232 0.2154 0.3456 0.2198 0.3112 0.3442 -0.1425 2.3 17.1 0.78
0.1283 0.3425 0.0023 0.4322 0.1553 -0.1122 -0.3222 0.2553 0.5442 0.1253 0.7322 0.8390 0.7890 3.1 21.7 0.83
0.2342 0.1211 -0.2122 0.2218 0.7932 0.8333 0.9133 0.0111 0.2122 -0.2111 3.5 19.5 0.75
0.2198 0.1875 0.0117 0.2865 -0.0043 -0.1004 0.3110 0.9001 0.8778 0.8279 2.4 18.5 0.81
0.8911 0.7881 0.7119 0.7295 0.2111 0.1003 -0.1212 -0.3110 0.3004 0.1232 1.9 14.9 0.87
Organizational Variables V1 V2 V3 V4 V5 V6 V7 V8 V9 Eigenvalue Variance (%) Cronbach alpha Technological Variables V10 V11 V12 V13 V14 V15 V16 V17 V18 V19 V20 V21 V22 Eigenvalue Variance (%) Cronbach alpha Environmental Variables V23 V24 V25 V26 V27 V28 V29 V30 V31 V32 Eigenvalue Variance (%) Cronbach alpha
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the extent to which a construct diverge from other constructs, and is indicated by a measure having low correlation with other measures from which it should theoretically differ (Gerbing and Anderson, 1988). Factor analysis can be used to evaluate both convergent and discriminant validities. Considering the sample size and the number of items in this paper, individual factor analyses were performed on the firm, technological, and environmental factors to ensure that the ratio of variable items to the sample size is maintained at 1:10. This rule-of-thumb suggested by Kerlinger (1986) has also been used previously (Grover, 1993; King and Sabherwal, 1992; Premkumar and Ramamurthy, 1995; Teo at el, 1997). Separate factor analysis was performed to ensure stability of the factor loadings of the research constructs. During factor analysis, items were retained according to the following criteria: (i) factor loadings greater than 0.5 and (ii) no cross-loading of items. In other words, items were dropped where they have a loading of less than 0.5 or where their loadings are greater than 0.5 on two or more factors (King and Teo, 1996). The results of two rounds of factor analyses for the firm, technological and environmental variables are shown in Table 4. Both convergent and discriminant validities were satisfied as the
items measuring each factor clustered together to form distinct factors and there were cross-loading of items. With respect to reliability, Cronbach alpha was computed for each variable. Nunnally (1978) suggested that average reliability scores of 0.7 are sufficient for basic research. From Table 4, we see that the Cronbach alpha scores range from 0.68 to 0.89. Since the lowest score is fairly above 0.70, all the constructs are considered to have adequate reliability. Table 5 illustrates the correlation matrix for the factors. The table indicates that the factors – top managers’ support (TMS) and fit (F) relatively correlated highly. A probable explanation is that it is unlikely that top management would support the adoption of EB, if its’ use is considered inconsistent with the firm’s culture, business processes and existing IS infrastructure. In testing the hypotheses, multiple regression analysis was conducted using hierarchical regression procedure. The first regression performed was on firm and e-business value variables, and the second regression was on environment and e-business variables. The level of significance to enter the framework was set at 0.20 and the level of significance to stay in the framework was set at 0.10. Being a directional hypothesis, these values are equal to the one-tailed test with values of 0.10 and 0.05, respectively. The research data
Table 5. Correlation Matrix SOURCE
CI
CI
1.0000
RP
0.0878
RP
U
TC
F
RA
TP
TMS
RT
1.0000
U
0.6734
0.1100
1.0000
TC
0.5678
0.2295*
0.0924
1.0000
F
0.0899
0.1119
0.2231
0.6233**
RA
0.1100
0.1299
0.0310
0.4320**
0.3782
1.0000
TP
0.3991
0.0098
0.1269
0.7560**
0.6512**
0.3782
1.0000
TMS
0.0764
0.1287
0.0876
0.4829**
0.8611**
0.4102
0.7600**
1.0000
RT
0.0986
0.1199
0.0564
0.5673**
0.0328
0.0437
0.5253**
0.0277
1.0000
1.0000
*p < 0.05; **p < 0.01
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Table 6. Results of Regression Analysis Hypotheses
Standard Error
E-business Use Coefficient of Determination
H1. Competitive Intensity
0.13
0.32**
H2. Regulatory Policy
0.17
0.36**
H3. Uncertainty
0.21
0.43**
H4. Technology Capability
0.16
0.35**
H5. Fit
0.11
0.23 *
H6. Relative Advantage
0.13
0.27*
H7. Technology Policy
0.11
0.25 *
H8. Top Managers’ Support
0.17
0.24 *
H9. Risk Taking
0.09
0.42**
*p<0.05; **p<0.01
supported all the hypotheses (see Table 6). However, the strengths of the coefficient of determination vary among the factors. The data supported H1 indicating that industry features characterized by competitive intensity tend to enable firms to generate value from e-business, which confirms Grover and Lederer (2004) findings. Also, the data supported H2, which indicates that efficient regulatory environment would enable more possibilities for firms to generate greater value from
e-business. The findings also supported H3, suggesting that environmental uncertainty tend to enable greater e-business and performance. The research indicates that firms operating strong technology policy have the tendency to use e-business for greater business performance. This result underscores the importance of a solid framework for IS systems planning in firms to compete effectively in this 21st century. H8 was supported as well by the analysis and suggests that, as in most business decisions, top manager’s support for the deployment and use of e-business is very important to enable firms derive the best performance from an e-business initiative. This is consistent with the findings of Zhu et al. (2004). The data also supported H9, indicating that for firms that are proactive and less risk averse, the chance of deriving greater advantage from ebusiness use and performance is would be very high (see Eze and Kam, 2001). The data support for H9 was stronger compared to the H7 and H8.
ANOVA for EB Use Behavior Table 7 presents the results of one-way Analysis of Variance (ANOVA) used to compare the three categories of participants along the 9 factors. Comparisons were made between three groups
Table 7. Testing Factors
Users with In-house Systems Mean (S.D.)
Users with Outsourced Systems Mean (S.D.)
Non- Users Mean (S.D.)
F-Ratio
CI
4.09 (0.61)
3.93 (0.68)
2.67 (0.57)
12.87**
[1]>>[2]>>[3]
RP
3.87 (0.62)
3.91 (0.72)
3.74 (0.83)
1.66
Not significant
U
2.99 (0.87)
2.84 (0.91)
2.81 (0.87)
1.52
Not significant
TC
3.98 (0.63)
3.67 (0.61)
2.76 (0.58)
11.37**
[1]>>[2]>>[3]
F
3.91 (0.65)
3.71 (0.59)
3.32 (0.66)
16.36**
[1]>>[2]>>[3]
RA
4.11 (0.51)
3.79 (0.63)
3.69 (0.77)
4.54*
[1]>>[2]>>[3]
TP
3.63 (0.54)
3.37 (0.59)
2.91 (0.73)
12.33**
[1]>>[2]>>[3]
TMS
3.87 (0.71)
3.70 (0.78)
3.21 (0.71)
14.65**
[1]>>[2]>>[3]
RT
3.34 (0.49)
3.11 (0.62)
3.13 (0.80)
7.91**
[1]>>[2]>>[3]
*p<0.05; **p<0.01
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Tukey Test
E-Business and Nigerian Financial Firms Development
of firms (users with in-house e-business systems, users with outsourced e-business systems, and non- users). Post-hoc analysis using Turkey procedure was carried out to determine which groups are significantly different from the others. Based on Table 7, the analysis indicates significant difference with respect to the respective factors with the exception of regulatory policy and uncertainty. This result suggests that environment factors tend to affect equally the financial services firms in Nigeria [discounting the surprise result for competitive intensity], irrespective of the category of e-business participants.
DISCUSSIONS The results reveal significant difference among the three groups in terms of competitive intensity. All three groups perceive that they operate in relatively different competitive sectors. Hence, the analysis rejects H7. This result is consistent with the findings of King et al. (1989), who found that pressure from competition is an important facilitator for a firm to deploy strategic information systems. However, Thong and Yap (1995) and Teo at el. (1997) observe competitiveness of the environment to be insignificant in the decision to deploy IS. This paper establishes that firms deploying B2B e-commerce do so, partly, because of the business environment they operate in, since both users and non-users of e-business may have different strategies and orientation regarding their business environments. Hence, the competitive intensity in an environment is a key determinant for firms deploying e-business. Interviewing a bank manager in Lagos, he noted, “…the competition among banks in Lagos is getting more intense and every bank wants to be perceived as the best customer-centric company and have invested heavily in e-business systems to provide quality services to customers…”
Regulatory policy is a significant determinant for e-business use among financial services firms in Nigeria, but it is not a significant dedifferentiating factor among e-business users and non-users. The relevant authorities in Nigeria such as the Nigeria Internet Group and the Information and Communication Technology Agency, should work very closely with the industries to develop comprehensive information technology frameworks that could support both national and global e-business activities. This could be done by using benchmarks from, say, Singapore, United States, Hong Kong and Finland. Similarly, the results indicate that uncertainty is a significant factor in firms’ e-business use, which illustrates the growing necessity for financial firms to employ electronic systems to enable business operations in unstable emerging markets, such as Nigeria. However, uncertainty was not a significant factor determining differences among financial firms use of e-business. This may be due to the relatively stable political structure and governance in the country for the past 10 years following the inception of civilian government in Nigeria. Technology capability emerged as a significant determinant of e-business deployment and performance in the firms. This indicates the prominent position advances in electronic technologies takes in business dealings. New e-business applications such as the Internet and wireless applications are driving significant changes in Nigerian business landscape and direction for future business opportunities. Technology capability also emerged as a differentiating factor among the business groups. The stronger and advanced the technology used by the firms the greater the tendency for better performance. According to an investment banker in Lagos, “…there are wider ranges of financial services in Nigeria today compared to 10 years ago, and this is made possible because of the growing impact of Internet and related technologies on the capacity of banks to provide e-business –enabled services...”
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The results depict that fit is a strong determinant of e-business system deployment. Post-hoc analysis indicates significant differences among the three groups. Users with in-house e-business view e-business as an innovation more consistent with their firms’ culture and information system infrastructures, compared with users with outsourced e-business. Similarly, users without in-house solutions perceive e-business to be more consistent with their firms’ culture and information system infrastructure compared to non-users. Therefore, the analysis supports H4. This result reveals the significance of fit between e-business and the firm, which is consistent with the findings of Tornatzky and Klein (1982), that compatibility of a technology with the tasks and experiences of potential users would be a key factor in the deployment decision processes. The result also corroborates the contention that firms would deploy technologies with features that relatively match the firms’ business processes and experiences (Ettlie, 1983). Relative advantage of the innovation is a significant determinant in e-business deployment. The results in Table 6 indicate a significant difference among the three groups. This implies that users with in-house solution perceive their firms as having a relative advantage, by way of the benefits of e-business deployment. Similarly, users with outsourced systems gain relative advantage using e-business. The significant difference between users and non- users of e-business indicates support for H5. This result buttresses the assertion that relative advantage is a key factor critical to e-business deployment, which is consistent with findings of related IS researches (Zhu et al., 2002; Rogers, 1995). The results in Table 6 illustrate that technology policy is a significant determinant in the deployment of e-business. Further, Post-hoc analysis suggests that all the three groups of firms are significantly different from one another. Essentially, e-business users with in-house e-business systems tend to have more aggressive technology policy
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compared to users without the same systems. In addition, e-business users without in-house solutions tend to have more aggressive technology policy compared to non-users of e-business, which supports H1, consistent with prior findings by Teo et al. (1997), and Ettlie and Bridges (1982), who emphasized the significance of an aggressive technology policy as a means to cope with an uncertain business environment. Early users of innovation will thus consider technology policy to be a key component of their corporate strategy formulation (He & Mykytyn, 2007). Top managers’ support is a significant e-business use determinant in Nigerian financial firms. In addition, Post-hoc analysis reveals that all three groups of firms are significantly different from one another. Users with in-house e-business tend to have the highest level of top management influence, followed closely by users with outsourced e-business systems, and non- users. Hence, the data supports H2. This result is consistent with prior related research (Grover, 1993; Premkumar and King, 1992; Premkumar and Ramamurthy, 1995), which revealed top management influence as a key determinant in technology deployment. Potential e-business users should consider gaining support and commitment from top management to reduce organizational resistance, and to ensure sufficient allocation of resources for smooth implementation of e-business. The results illustrate that risk taking is a significant determinant in e-business use and performance. This implies that the risk-taking propensity of top management has enormous impact on the implementation of e-business. Hence, the data supports H3. This result is consistent with the findings of Grover (1993), who concluded that the risk-taking propensity of top management was a significant determinant of inter-organizational systems deployment. The participants in this research perceive e-business deployment as risky since it commands substantial financial investment and often, requires changes in the firm and management structure, strategy and practices,
E-Business and Nigerian Financial Firms Development
but are willing to take the challenges because of anticipated intensity competition. In addition, security and standardization issues are currently being resolved, and with the commitment from the government, commercial activities involving e-business will grow even stronger.
Implications for Practice This paper illustrates that all three TOE constructs are equally important in e-business use and performance among Nigerian financial firms. This paper identifies 9 significant determinants of e-business use in firms within Nigerian context. They are technology policies, top managers’ support, risk seeking, fit with firm culture, beliefs and IS infrastructure, relative advantage, technology capability, competitive intensity, uncertainty, and regulatory policy. The outcome of this paper would be critical for the financial services industry in Nigeria as they plan further investments in their e-business systems. By applying the TOE framework, firms could successfully identify and address key factors in the environment, in the enterprise and related e-business issues necessary to enable effective and functional financial firms in Nigeria and at the international level. The intensity of competition in the financial industry increases with every new technological application and therefore, it is imperative for financial practitioners in Nigeria to be cognizance of the fact and prepare their firms for the business challenges of the next decade of 21st century. In essence, although the competitive use of e-business is permeating all businesses today, firms that are more sophisticated and aggressive in deploying and using advanced e-business systems would be able to keep up with the competition if not gain competitive advantage. The pressure to provide unique and acceptable services and products at reduced costs means increased deployment of e-business innovations even in traditionally low information and knowledge intensive sectors.
The outcome of this paper will also be useful to the Nigerian government and its agencies. All the economic sectors of Nigeria recognize government’s role in facilitating e-business deployment, however, existing regulatory policies are at best inadequate and less comprehensive to enable the complex dynamic legal and structural frameworks needed to, successfully allow maximum business use of e-business innovation. In this regard, the Nigerian government, as a matter of urgency, needs to work closely with the private sector to determine the gaps in ICT policy implementations and initiate concrete directions for stronger e-business processes.
Implications for Research Findings in this paper are consistent with traditional academic models of technology-organization-environment [TOE] framework (Zhu et al., 2002; Eze and Kam, 2001) in a new substantive area, Lagos, Nigeria. In this regard, it extends the field of electronic communication systems and e-business, including the diffusion and TOE perspective of the firm. In addition, this research builds on previous innovation research, and corroborates some of the findings of these studies indicated earlier (e.g., the importance of top management influence), and raises some vexing questions as well. For example, in the context of Nigeria, are uncertainty and regulatory policy still significant factors differentiating financial firms deploying e-business from those that do not, given the complexities in the Nigerian economy? This puzzle is one already being addressed in a followup research within the African region to determine the extent environmental uncertainty, regulatory policy, and competitive intensity influence ICT deployments in firms operating in West Africa. These findings, based on the perception of users and non-users of e-business, suggest that although the external environment appears to push firms to deploy e-business, the internal environment (firm and technological factors) is still important in
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determining innovation systems deployment. This indicates that while the external environment are critical key factors in the deployment of e-business, the firm’s internal environment complexities tend to be the dominant significant considerations in IS deployment decision processes among Nigerian financial firms. Finally, this paper contributes immensely to the e-business literature and creates additional poll of resources practitioners and academics could use to further enrich and extend our knowledge of the evolving phenomenon. Empirical data on e-business development and growth in Nigeria is a small step, a step nonetheless, towards enhancing and extending the discussion on e-business as a global platform for business, economic and industrial activities.
Limitations of this Research There were some study limitations. First, the conclusions drawn from the data, while theoretically sound, are based upon perceptions of single informant. While CIOs are expected to be knowledgeable, study results would have been more reliable if paired with a second informant outside the IT area. Although all responses were anonymous, it is still possible that the CIO responses are biased in favour management information systems benefits. Second, the survey instrument relied primarily on perceptual data. Although, Venkatraman and Ramanujam (1987) and Dess and Robinson (1984) argue that subjective data correlate with objective data, further studies may consider a mix of both subjective and objective data. Third, the sample composition was, on average, large firms and as a result, inferences on the findings would be most appropriate in related cases such as South Africa and Malaysia with respect the firms that participated in this investigation.
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AGENDA FOR FUTURE RESEARCH Possible further research areas from this paper include; first, as this paper investigates the deployment of e-business in predominantly large firms from one industry, it would also be useful to gain greater understanding of e-business deployment in small firms from different multiple industries. Comparison between these categories of firms in terms of e-business implementation purposes, and usage patterns, may be useful for the firms to, properly chart the direction of the innovation implementation. Second, extending future studies to include comprehensive performance impacts of e-business, how such impacts can be evaluated, and the evolution of e-business, would be useful for firms competing in this 21st century. In addition to using a static cross-sectional approach, a longitudinal study on the e-business deployment may provide insights on the dynamics of the innovation implementation processes that may be more useful. This approach may also provide further clues to enable verification of the outcomes in this research on environmental factors. Future research may also consider a comparative study involving Asian, African and European or American firms to determine any underlying dynamics across business cultures, policy issues and entrepreneurial activities in e-business deployment. This would provide some contingency frameworks for practitioners and policymakers at an international level as e-business continues to evolve into a universal business phenomenon across the globe. Finally, future studies may consider using additional TOE factors and possibly revising some of the factors in this paper to provide for more content coverage and generalization. This, however, should be done with particular respect to the respective research circumstance.
E-Business and Nigerian Financial Firms Development
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This work was previously published in Transforming E-Business Practices and Applications: Emerging Technologies and Concepts, edited by In Lee, pp. 321-343, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.22
Lessons Learned from the NASA Astrobiology Institute Lisa Faithorn NASA Ames Research Center, USA Baruch S. Blumberg Fox Chase Cancer Center, USA
ABSTRACT Complex social, economic, political and environmental challenges as well as new research areas that cut across disciplinary, institutional and national boundaries are catalyzing a rapid increase in geographically distributed work groups. At the same time, advanced information technologies designed to facilitate effective communication and collaboration among remote colleagues are having a dramatic impact on social and professional relationships and organizational structures and forms. The practice of science is one of the domains that are undergoing significant change DOI: 10.4018/978-1-60960-587-2.ch422
as a result of this trend toward increased collaboration. In this chapter we describe our efforts to promote collaboration among geographically dispersed multidisciplinary science teams in the NASAAstrobiology Institute. The lessons learned regarding the importance of recognizing and addressing the complex and inter-related dimensions of collaboration have implications not only for science but also for many other contemporary domains of activity.
INTRODUCTION Today, around the globe, there are growing numbers of people connected by shared purposes,
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common goals or strategic interests working in virtual teams and organizations whose effective operations are dependent upon collaboration across distance and other barriers. In theory, these virtual groups, made possible by advanced information technologies, are well suited to address complex issues and problems by having the capability of drawing on needed expertise and other resources wherever they may be located. In practice, however, the establishment and maintenance of thriving virtual groups and organizations remains challenging. Over the last 20 years or so, a significant amount of research has been undertaken with the aim of better understanding the technical and social requirements for, and the best practices associated with productive virtual collaboration (See Duarte & Snyder, 2006; Gignac, 2005; Haywood, 1998; Hinds & Kiesler, 2002; Jones, Oyung, & Pace, 2005; Langhoff, 2006; Lipnack & Stamps, 1997, 2000; York, 2000). The successful implementation of collaboration tools and technologies requires attention to the specific domains and existing organizational cultures into which these new methods of communication and collaboration are being introduced. While some issues are pertinent to a wide range of domains, others are unique to a specific context, for example, business, education, social policy, or science. Our concern here is with the challenges associated with the implementation of electronic collaboration to further scientific research. This chapter focuses on a recent NASA effort to establish a virtual scientific organization, the NASA Astrobiology Institute, made up of geographically dispersed multidisciplinary teams of scientists supported by electronic communication and collaboration tools and technologies. Our discussion is based on work carried out by Lisa Faithorn and her team during her tenure as Manager of Collaborative Research at NAI from 2000 through mid-2004, with the guidance of NAI Director Baruch Blumberg, and during the
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year following Blumberg’s retirement from NAI. We discuss our findings from these several years of research focused on attempts to catalyze and facilitate electronically supported collaboration within and between 15 multidisciplinary teams involving more than 500 participants from over 100 institutions. Our efforts included not only the implementation of a variety of electronic collaboration tools, but also the promotion of an organizational culture in which collaboration across distance, across disciplines, across institutions, and even across generations was emphasized, valued, and sought out. We believe the lessons learned from this endeavor are not only important for science but are also relevant to geographically distributed work groups in education, business, social policy and other activities.
BACKGROUND: SCIENTIFIC RESEARCH AND THE CHALLENGES OF REMOTE COLLABORATION Collaboration among researchers has always been part of the scientific endeavor. Students undergoing their training together, senior and junior scientists in mentoring relationships, or colleagues at the same institutions who then relocate, develop close working relationships maintained across distance and time. Collaborations based on shared research interests also develop through professional societies, conferences, and other meetings. However, most of these formal and informal interconnections among scientists have historically occurred within the same or similar disciplines. What is more recent within the scientific realm is the increasing occurrence of collaboration across a wider array of diverse specialties and disciplines, institutions, and national boundaries. New information and knowledge is accumulating so quickly and is available so readily that it is necessary for researchers to limit the breadth of their expertise in order to develop necessary
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depth of understanding. Individual institutions and laboratories can no longer encompass the study of all possible subjects within a discipline, let alone all the disciplines relevant to a complex project. To address many current science and engineering problems, knowledge must be integrated from a variety of different disciplines. This collaboration among scientists of diverse backgrounds, and of institutions and laboratories with different research emphases and/or expensive, specialized scientific instruments, is being facilitated by advanced information technologies. Broad recognition of this important trend in scientific practice was evidenced by the publication of the seminal National Science Foundation report entitled “Revolutionizing Science and Engineering through Cyberinfrastructure” (Atkins, Droegemeier, Feldman, Carcia-Molina, Klein, Messerschmitt, Messina, Ostriker, & Wright, 2003). The NSF Blue Ribbon Panel charged to produce this report recognized that Advanced networking enables people, tools and institutions to be linked in ways that reduce barriers of location, time, institution, and discipline. In numerous fields new distributed-knowledge environments are becoming essential, not optional, for moving to the next frontier of research. Science and engineering researchers are again at the forefront in both creating and exploiting what many are now seeing as a nascent revolution and a forerunner of new capabilities for broad adoption in our knowledge-driven society (p. 4). Traditional funding and organizational structures have been impacted by these changes in the way science is being done and new organizational forms are being created to further scientific research. This has certainly been the case with the field of Astrobiology and the formation of the NASA Astrobiology Institute.
ASTROBIOLOGY AND THE CREATION OF THE NASA ASTROBIOLOGY INSTITUTE Astrobiology is the study of the origin, evolution, distribution, and future of life on Earth and in the Universe. Fundamental questions include: How did life originate? Are we alone in the universe? What is the future of humans in space? At a more basic level there are additional questions: What is life? How is it defined and characterized? How does biology affect its environment and leave measurable relics after the death or disappearance of the living material itself? (Blumberg, 2000). Although the term “astrobiology” had appeared in scientific literature by the early 1940s, it fully emerged as an important and growing field of study in the mid 1990s, in part through increased funding opportunities provided by NASA. NASA’s interest in astrobiological questions, however, had been growing over the previous two decades. Water is considered a fundamental element for life’s existence, hence initial indications of the possibility of water on other planetary bodies within our solar system increased scientific interest in biologically oriented space missions. NASA’s support for astrobiological research was in part stimulated by the return of images and data from its Viking and Mariner Mars fly-by and Lander missions in the 1970s and 1980s, indicating the possibility of previous vast quantities of liquid water on Mars. The Pioneer 10 mission, launched in 1972, and many subsequent missions, undertook observations of Jupiter and its moons, particularly Europa. By the mid 1990s, it was inferred from images and observations that the surface of Europa was covered with ice overlaying a briny liquid ocean. This research raised the possibility that life could exist elsewhere within our solar system. In 1995 scientists at the Geneva Observatory in Switzerland reported finding the first planet orbiting a sun other than our own. (Mayor & Queloz, 1995) Since then many more extra-solar planets have been observed. These findings again raised
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the possibility that extra-terrestrial life may exist or previously existed, not only within our solar system but elsewhere in the Universe. NASA’s support for Astrobiology was further catalyzed by a report in 1996 on the possibility that a Mars meteorite found in the Antarctic contained microscopic fossils of small bacteria-like organisms. (McKay, Gibson, Thomas-Keprta, Vali, Romanek, Clemett, Chillier, Maechling, & Zare, 1996). The report was front page news and resulted in a “space conference” called by the White House and led by Vice President Al Gore, with a distinguished group of scientists. Although most scientists over time have come to believe that these meteorite markings are not signatures of ancient microorganisms, this discovery also influenced NASA’s commitment to increase its support for astrobiological research and to form the NASA Astrobiology Institute (NAI). NAI was conceived as a multidisciplinary, multi-institution science-directed program, executed collaboratively by universities, research institutes, NASA Centers and other governmental laboratories. Recognizing the importance of both remote and multidisciplinary scientific collaboration in the emergent field of Astrobiology, NAI was designed to provide not only funding but also a cyberinfrastructure for a virtual organization that would support collaboration among a large number of geographically dispersed scientists and institutions (Blumberg, 2003). NASA issued a Cooperative Agreement Notice, inviting multidisciplinary teams to competitively apply for five-year funding grants and membership in the virtual institute. In 1998 the NASA Astrobiology Roadmap Workshop was convened, attended by a broad diversity of scientists from the national and international scientific communities, to set the dimensions of, and define the guidelines for the field of Astrobiology. NAI’s organizational structure was established which included a central management group—NAI Central—located at NASA Ames Research Center in Mountain View, California. Dr. Blumberg joined NAI as its first
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director in May 1999. His initial staff included a Deputy Director, a Manager of Public Outreach, an Information Technology Manager, and support staff. Eleven teams were selected for membership in the NAI, out of the 50 that initially applied. Four new teams were added in 2001 through a second Cooperative Agreement Notice with a third competition scheduled for the conclusion of the first five-year grants. The members of these first 15 teams were drawn from over 100 institutions and varied in size (8-86) and in the number of academic disciplines they included (2-6). All teams were made up of a Principal Investigator (PI), varying numbers of Co-Investigators (Co-I) and Collaborators, numerous postdoctoral fellows and graduate students and a small number of undergraduates. Each team had an Administrative Assistant and NASA also requested that each team appoint an Education and Public Outreach person, and a Technical Support person. NAI membership numbers fluctuated from year to year during our research, due to new projects, the addition of Focus Groups and the inclusion of international participation. When the 15 teams were surveyed in 2001 there were close to 600 members. The count in the NAI Directory in March of 2004 at the close of the research period on which this paper is based showed 962 members.
INITIAL TECHNOLOGY IMPLEMENTATION NAI’s initial technology infrastructure included NASA’s deployment of electronic collaboration and communication tools for use by institute members. State-of-the-art videoconferencing and data sharing equipment was installed at the lead institutions where each team’s PI and several key Co-Is were located, at NAI Central and at NASA Headquarters in Washington, DC. Equipment included a Polycom camera/viewstation, microphones, and a television monitor for the
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videoconferencing; and a computer, projector and a SmartBoard or large interactive electronic screen for data sharing and collaboration during virtual meetings. Each system could be used to conference with groups or individuals at one other site, or could link with multiple sites through a bridging unit housed at Ames Research Center and operated by NASA technicians. These tools were selected to enable synchronous (real-time) communication and collaboration among some members of the NAI community and were primarily intended to facilitate exchange within NAI’s Executive Council. The Council, scheduled to meet virtually eight to nine times annually and three to four times during the year in person, was composed of the team PIs, the senior management group at NAI Central and several NASA Headquarters personnel. An additional collaboration tool was also deployed during this initial phase of NAI’s technology implementation plan. This was a system in development by NASA called Postdoc that provided password protected collaborative workspaces, data and document sharing capabilities and an information storage area. All members of NAI were given access to Postdoc at no cost to them or their institutions. The assumption was that Postdoc could be used by distributed team members as virtual team spaces for asynchronous collaboration, thus bridging physical distance and time zones. From its inception, NAI leadership recognized the importance of researching and evaluating this experiment in promoting scientific collaboration through a virtual institute. The IT Manager at NAI Central and his staff undertook an assessment of the effectiveness of NAI’s electronic collaboration support during NAI’s second year. They surveyed a number of institute members and found that despite the deployment of the sophisticated and expensive videoconferencing and data sharing equipment, the access to Postdoc and the training on these tools available from NAI Central technical staff, a very small number of NAI members
were actually using these tools and/or engaging in electronic collaboration. The PIs were indeed attending Executive Council videoconferences and an initial series of virtual seminars had been organized by the Arizona State University team. However these meetings and seminars were frequently disrupted by technical problems that interrupted the flow of the presentations and greatly frustrated participants. Also, access to the synchronous collaboration equipment was limited to all but those physically located near the room where it was installed. Team members in another building or at a different institution felt they were left out of NAI’s primary electronic communication structures. Additionally, the asynchronous tool, Postdoc, was rejected by most within the NAI community who perceived the system as difficult to access, navigate, and utilize. Given their frustration with meeting disruptions, busy schedules, and unfamiliar technologies most NAI members surveyed were unwilling to put much time in to learning how to use these tools efficiently. This initial NAI self-study revealed that not only was it challenging to promote the use of electronic communication technologies in and of themselves, there also existed a number of non-technical inhibitors to collaboration. Greater focus was needed on the human participants and the human/technology interface in the virtual institute experiment. It was determined by NAI Central staff that a social scientist could bring needed expertise. Thus in September 2000, Lisa Faithorn, a cultural anthropologist and organizational culture specialist, joined NAI Central as the Manager of Collaborative Research.
ADOPTING A HUMANCENTERED APPROACH NAI Central leadership was learning about the challenges inherent in the development and management of virtual teams and organizations and
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agreed that a deeper understanding was needed of how people in the NAI community were going about their work and what they wanted to achieve. We continued exploring the literature on virtual work groups and global organizations within the business sector. We also reviewed research that had been done within the educational arena, on distance learning programs, on on-line degree, certification and other training programs, and on effective collaboration efforts within and among geographically distributed learning groups (Jones, 2001, also see recent work by Buzzetto-More, 2006; Ferris & Godar, 2005). We found much less published material on virtual science organizations and on successful collaborative endeavors among remote scientists supported by electronic technologies (Koslow & Huerta, 2000; Kraut, Egido, & Galegher, 1990; Olson & Teasley, 1996; Sonnenwald, Bergquist, Maglaughlin, Kupstats-Soo, & Whitton, 2001). However, through an article published in Science on-line entitled “Scientific Collaborations at a Distance” (Teasley & Wolinsky, 2001), we were led to a very significant resource in University of Michigan’s School of Information called the Collaboratory for Research on Electronic Work (CREW). Their work and that of others focusing on the development of collaboratories was particularly relevant to our project at NAI. We recognized that collaborating across distance involved a learning curve that is difficult for many, with unfamiliar work practices and the challenge of learning how to use new tools and technologies. We increasingly saw our work as an effort to influence NAI member attitudes and behaviors, orienting them toward the idea of being a virtual (Reingold, 1994) or Web-based community (Kim, 2000) that valued collaborative work and the development of “communities of practice” (Hildreth & Kimble, 2004; Wenger 1998; Wenger, McDermott, & Snyder, 2002).
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DEVELOPING A “CULTURE OF COLLABORATION” Any organizational culture is based on a set of underlying shared assumptions that manifest themselves through the behavior and espoused values of its members (Schein, Edgar 1992). Over time these assumptions become so deeply embedded and taken for granted that they resist challenge or change. Most of the scientists funded by NAI were situated within a larger academic culture that still recognized and rewarded individual over collective accomplishment despite the increase in collaborative and multidisciplinary scientific work. They were also extremely busy and many of the senior scientists in particular had little time for learning new ways of interacting via electronic tools and technologies with unproven benefit. We knew we needed to be sensitive to the deeply held assumptions still very alive within the larger organizational culture of academia as we worked to promote an inclusive style of leadership and what we began calling a “culture of collaboration” within NAI. Working closely with NAI Director Blumberg throughout, Faithorn’s initial steps were to form and take on the management of two new working groups. The first, the Collaborative Research Support Group (CRSG) was made up of staff from NAI Central, technical support people for the NAI cyberinfrastructure from Ames Research Center and occasionally research and development information technologists from Ames. The group met weekly to review and refine NAI’s Technology Implementation Plan, update requirements for the virtual institute based on what we were learning and troubleshoot issues as they arose. Up until that time the technical support staff for the operation and maintenance of NAI-deployed equipment had little regular exchange with NAI Central management other than the IT Manager. Their experience with the members of the scientific teams was limited to initial training sessions given to a handful of team members at each lead institu-
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tional site when equipment was installed and/or to calls for help from frustrated team members when equipment failed or they didn’t know how to use it. We recognized the need to build stronger and more positive collaborative working relationships between the Ames technical support staff and the science teams as well as with NAI Central staff to resolve the recurrent technical problems that disrupted virtual meetings. A second support team, the NAI Information Technology Working Group was also formed. This consisted of members of the CRSG along with IT Points of Contact from the NAI-funded science teams. Also participating was collaboration research specialist Claude Whitmyer from FutureU, a San Francisco-based consulting firm. Whitmyer and his partner Gail Terry Grimes continued to work with us on a number of the tasks and projects we undertook to develop the virtual institute throughout the time we are reporting on here. The Information Technology Working Group (ITWG) began to meet monthly by videoconference. The purpose was to develop a team of experts on effective electronic collaboration using the tools NAI had made available and impart this expertise to their local science teams through training and hands-on support. The group served as a venue for increased information exchange between the science teams and NAI Central and was encouraged to solve problems together, pilot and evaluate new tools, and build relationships across team boundaries. It quickly became evident that those serving as the team IT Points of Contact differed widely in their expertise. In some cases the person designated was an IT specialist at the PI’s institution, in other cases he or she had little IT experience, assigned to serve dual team roles along with being the team Administrative Assistant or Education and Public Outreach person. A few teams had no one designated for the IT support role. To address these gaps we provided special funding to teams
where needed to strengthen team IT support and bring new people into the ITWG. As technical problems were resolved and the ITWG members became more proficient with their own use of NAI’s existing collaboration tools, they were better able to support local team members and satisfaction with the monthly Executive Council meetings improved. We also added two virtual seminar series. The first, called the Director’s Seminar, was a monthly presentation by a senior researcher from one of the NAI teams. The second, the Forum on Astrobiology Research, which came to be known as FAR, also was scheduled to meet monthly. The presentations in these seminars were by graduate students and postdoctoral fellows. These seminars were regarded very positively by participants who experienced them as events that furthered learning about other disciplines, and broadened understanding of the field of Astrobiology as a whole. For graduate students and postdoctoral fellows in particular, the seminars provided a venue for them to present their work, get useful feedback, and expand their professional network. Because of the frequent in-person NAI events (meetings, annual science conferences, field trips), in time, virtual acquaintances and friends became actual. Initially these virtual seminars could only be accessed as live events by those at the lead institutional sites where NAI videoconferencing equipment had been installed. We worked to find other tools that would increase NAI member access at outlying institutions as well as to the general public. One solution we were able to quickly provide to several distant key Co-Is who were PC users was a standards-based desktop system called Via Video. However, both the lack of crossplatform compatibility and the cost prohibited wider distribution. Electronic solutions that greatly increased participation in the virtual seminars came later and are discussed in the “Design and Development” section of this chapter. In our work to foster shared values and behavior consistent with a culture of collaboration and to
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support this electronically in our virtual institute we recognized the importance of periodic faceto-face interaction. We knew this was of value not only when a virtual team or organization is in its formative stage, but also throughout its development. We already had in-person meetings of the Executive Council several times a year, and annual science meetings where all team members could interact. An in-person graduate student science conference was also later funded by NAI and organized by the students themselves. We also secured funds to bring IT Working Group together at the annual science meetings. This helped strengthen the group and in some instances deepened the working relationships between the IT specialists and the astrobiological researchers who were members of the distributed teams they technically supported. Another means to encourage scientific collaboration came through NAI’s support of topical Focus Groups that were formed for limited periods to accomplish specific scientific goals. These groups included participants from different disciplines both from within the teams and from the larger scientific community. Initial Focus Groups included Astromaterials, Europa, EvoGenomics, Mars, Mission to Early Earth, and Mixed Microbial EcoGenomics. Others were added as the institute evolved. These Focus Groups met virtually and also held periodic in-person science conferences. Additionally, a number of the Focus Groups sponsored field trips to significant astrobiological research sites, enabling face-to-face contact among group members. To date several Focus Groups have been successful in providing input to future NASA space missions and impacting Earth-based research projects. During this “discovery phase” of our project, from October 2000 through 2001, our focus was on the resolution of technical problems with the collaboration equipment already deployed, and improvements to the existing cyberinfrastructure. A major focus was also on the collection of more detailed information from the NAI community
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through site visits and electronic surveys regarding their current research work and work practices, their hopes and expectations as institute members, their needs and desires for collaboration support and their perspectives on the evolution of the virtual institute.
SOLICITING MEMBER INPUT An important and explicit value in our culture of collaboration was proactive solicitation of member input about various aspects of NAI as a virtual organization and its evolution. Given the wide geographical spread of NAI members, collecting this data meant going to them in person or soliciting information electronically. The Collaborative Research Support Group took both approaches. Throughout 2001 Faithorn made visits to the lead institutions of the first eleven teams and three of the four teams added subsequently. She also visited several other institutional sites where team Co-Is were situated. Interviewing the PI of each team and as many other team members as possible, including administrative and technical support staff, she sought information on their perspectives regarding the virtual institute, what they hoped for as members, what they needed to support their collaborative work, what concerned or frustrated them. One outcome of these meetings, mentioned especially by those who hadn’t had direct contact with other NAI Central management, was that these in-person conversations helped them feel more a part of an organization which up until then had seemed distant and unreal. These site visits were closely followed by a comprehensive institute-wide Needs Assessment developed, administered and analyzed by Faithorn in collaboration with FutureU’s Whitmyer and Grimes. The survey was conducted electronically and sent to everyone listed as affiliated with an NAI team. One hundred and sixty-four (29 percent) of the 572 NAI members listed in the database at that time responded to the survey. Analysis of
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respondent category by team, role and discipline were undertaken. Respondents included people from every team with representation in most instances in similar proportion to the size of the team. Responses came from every team member category except one, that being undergraduate students. One hundred percent of the team PIs participated, approximately 50 percent of the Co-Is, just under half of the Postdoctoral Fellows, a quarter of the graduate students, just over half the administrative, education and public outreach and information technology staff and a quarter of those team members identified as “collaborators.” All of the key astrobiology disciplines were represented as well, and as with team affiliation, survey respondents reflected a similar discipline distribution to that of the total number of scientists in each discipline.
FINDINGS FROM THE DISCOVERY PHASE The NAI Communications and Collaboration Needs Assessment Report (Faithorn, Grimes, & Whitmyer, 2002) was submitted as an NAI white paper to Director Blumberg and then shared widely within and beyond the Institute community. It presented a wealth of detailed information about the composition of NAI membership and the diversity of its multidisciplinary teams, as well as member views and opinions on NAI’s organizational culture and its current and future cyberinfrastucture. We also now had a member-defined set of social and technical requirements (listed below) to inform our work.
Social Requirements for the Virtual Institute •
Recognition of the importance of virtual collaboration in order to further the field of Astrobiology
• • • • • • • • •
Common goals and objectives Shared intellectual interests Willingness to work together and share resources Team cohesion and regular team meetings Communication across teams Exchange of students, postdoctoral fellows and senior researchers Frequent use of technology by many Minimum bureaucracy High productivity with lots of research reported to the Astrobiology community and to the public
Survey respondents confirmed our view that it takes more than technology to foster a culture of collaboration bridging disciplinary and geographical boundaries. They agreed that specific social and cultural attitudes, values and behaviors are essential to an effective virtual institute. Some reported that the historically competitive culture of academic research with its emphasis on individual achievement would hinder the full actualization of NAI’s vision. Others suggested that academic culture is changing in response to the need for multidisciplinary approaches to the urgent issues in our contemporary world. The survey results underscored for us that the tensions between the traditional focus on individual reward and the increasing emphasis on collaborative scientific research informs the larger context in which NAI is evolving. It was also confirmed that NAI members already have much experience collaborating with their colleagues on specific projects past and present. However, in working at a distance most had primarily or exclusively utilized e-mail and teleconferencing to communicate and exchange information and were inexperienced with more advanced collaboration tools. What also was new for some was NAI’s multidisciplinary emphasis. Co-located and remote colleagues alike reported that collaboration across disciplines presented a
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particular set of challenges, notably differences in perspective on the research questions at hand, in professional language, in research methodology, and in the kinds of technology utilized.
Technical Requirements for the Virtual Institute • • • • • • • •
Desktop tools (to include ALL members) Cross platform compatibility Web-based access Easy to use High speed Reliable Secure and private Reasonable cost
asking for proven, dependable solutions, NAI members expected a high-profile NASA endeavor like NAI to support advanced technology. Yet they also clearly wanted costs kept down, which we did as well. The research we undertook in the discovery phase served as foundational for the design, development and deployment phases of our work, which we began in early 2002.
DESIGN PHASE
We learned that for daily office work as well as for scientific research purposes, the NAI respondents to our survey used Apple computers and PC compatibles in roughly equal numbers. This variance was true within teams and even when located at the same institutions. These scientists were under extreme time pressures and wanted any tools they used to be easy to access and operate without involving a steep learning curve or the need for troubleshooting. They also wanted tools they could use both at their desk and in the field. Finally, we were asked for tools that were both cutting edge and reasonably priced. Even while
Our overall goal became continual improvement and increased support for “easy collaboration from anywhere at anytime.” One approach we took was to identify different categories of potential collaborators and the kinds of tools and technologies required to support them. Our categories are shown in Table 1.’ With now a good understanding of the needs of NAI members, we refined our requirements for potential collaboration tools to add to NAI’s information technology infrastructure. Together with our consultants from FutureU we produced a Collaboration Tools Comparison Study (Faithorn et al., 2002), which explored feature by feature all the existing synchronous and asynchronous collaboration tools we could identify as relevant to NAI at that time. During this development phase in 2002 and into 2003 we also ran vendor
Table 1. PIs at the lead institutions
Polycom videoconferencing, SmartBoard data sharing, desktop collaborative tools
Team members at lead institutions
Polycom videoconferencing, SmartBoard data sharing, desktop collaborative tools
Team members not at lead institutions
Desktop collaborative tools
Project work groups within or across teams, Focus Groups
Desktop collaboration tools, specialized research support technologies, e.g. 3-D visualization tools, high-speed computing, computational modeling tools
Team members in the field
Wireless technologies including satellite
Larger Astrobiology community
Desktop collaboration tools
General public
Webcasting
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demonstrations of several promising tools. Invited to the demos were members of NAI Central, the Collaborative Research Support Group, the IT Working Group and in some instances the Executive Council PIs and/or other members of the NAI community. Based on feedback from these demos we implemented specific pilot projects.
DEVELOPMENT PHASE With the beginning of our collaboration tool pilots we shifted into the development phase of the virtual institute project. The first pilot was with WebEx, the real-time desktop-accessible meeting tool which was being widely adopted within the business sector. It had the functions we were seeking and also met our cross-platform requirements better than any other meeting software available then, although it could still not support every computer used by NAI members. This browser-accessed meeting space enabled data, application and desktop sharing, which could augment presentations or provide a virtual meeting place for researchers to engage in real time collaborative work, such as preparing slide presentations, creating models and diagrams or reviewing documents together. A small video window could show one participant or participating site at a time, if users installed small cameras. A meeting participant list and a hand-raising button allowed the facilitator to control meeting flow by calling on people in order. A polling function was also available as well as a chat function. Participants could send text messages to the group as a whole or privately to any individual. We used a NASA teleconferencing number for the audio component, and also experimented with voice-over-IP, which worked well for participants who did not have handy access to a telephone. We initially trained NAI Central staff and our IT Working Group members in the use of WebEx, utilizing it for various administrative meetings
as well as the monthly ITWG meetings. We incorporated mini-trainings as we went about the business of these meetings, rather than having the whole meeting time focus on training. The strategy of using WebEx for meetings with other content focus, and with local support for novice users, proved an effective training approach as we expanded our pilot. We next introduced NAI team PIs to WebEx by using it along with the Polycom videoconferencing system for the monthly Executive Council meetings. The TV monitor displayed participating sites in small windows on the screen while the SmartBoard screen/computer/projector combination displayed the WebEx meeting space. Thus all participants in each conference room could see the agenda and other shared documents or slides on their big screens as the meetings progressed. We used the hand-raising button to facilitate dialogue. This cut down on the latency problem and accompanying awkwardness when two non co-located people spoke up at once and then waited for one another to continue or spoke again at the same time. The team PIs became accustomed to WebEx in this way, in most cases supported by their already trained IT supports. We also incorporated WebEx successfully into our two NAI Seminar Series. This not only improved the quality of seminar participation for those located in the team videoconference room in the same way as for the Executive Council, it also opened the seminars to those who previously had no access. WebEx meeting information was posted on the NAI Web site prior to each seminar. Anyone, including those outside NAI in the wider Astrobiology community or interested members of the public could join the WebEx meeting and dial in to a teleconference from their desktop, thus simultaneously seeing images and hearing the presenter speak. Postdoc, the system originally made available to NAI members for asynchronous collaboration needs, had been removed from our suite of tools in response to NAI member feedback. One frustration
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with Postdoc was that it had no email interface. Because NAI researchers were accustomed to doing much of their collaborative work using email we understood the importance of finding a tool that did not require users to go to a special site in order to post files or other data for storing or sharing. This requirement considerably narrowed our search to only a few tools as potential pilots. With input from the community we selected Livelink, which provided a secure browser-accessed collaboration space for asynchronous collaborative work that met several member-identified needs: easy upload and sharing of large files, effective version control for the co-authoring of research papers and other documents, and the capability for development of a searchable shared information repository by researchers with common interests. We ran a seven-month Livelink pilot with NAI Central, the ITWG members and small scientific project groups from three of the NAI teams.
DEPLOYMENT PHASE Feedback collected from participants in both the WebEx and Livelink pilots indicated that these tools were regarded by most respondents as valuable and that they favored their adoption by NAI. In the deployment phase of our virtual institute project, we implemented WebEx for full on-going use by the NAI community. However, as we neared the end of the pilot period for Livelink we were introduced to a new tool jointly developed by researchers from NASA Ames Research Center and from Xerox, called NX. It had all the features we required and was planned for deployment across Ames as well as other NASA Centers. We found that NX could be extended to NAI members at an extremely reasonable cost. We did a short pilot and made the decision to adopt NX as our main asynchronous collaboration tool. At this stage of the project Blumberg had recently retired from his position as NAI Direc-
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tor. Faithorn was soon to leave NAI for another assignment. We were at a point where we had completed one full discovery, design, development and deployment cycle. We believed we had made some real progress in furthering NAI as a virtual science organization and we certainly had learned some key lessons about what it takes to foster electronically supported collaborative work. We also identified a number of topics that we believe would benefit from future research.
LESSONS LEARNED Some organizations, especially in the business sector, are in a position to mandate electronically supported collaboration among their workforces, as well as dictate what software and hardware participants will use to do their work. NAI members’ collaborative activities with scientific colleagues at a distance, however, were voluntary and motivated by their science agendas. NAI Central’s aim was to encourage, not mandate, new ways of working in the interests of advancing scientific research, using the electronic tools and technologies that NAI members had a voice in selecting. Although scientific collaboration is on the increase, competition between individual researchers and between institutions is still reinforced, both through the traditional system of recognition and reward for individual accomplishments in the academic world and through resource limitations. Cross-institutional and international collaborations are hampered by restricted access to information and policies designed to protect institutional or national security. The key obstacles to scientific collaboration identified by NAI members closely reflected our own observations. These included disciplinary differences in theoretical and methodological approaches and in language, heavy work loads under extreme time pressure, uneven access to collaborative opportunities, skill and generational differences resulting in varying levels of motivation to learn new technologies
Lessons Learned from the NASA Astrobiology Institute
and work practices, and intellectual property and attribution issues. A comment by one of the PIs during an interview was telling: “NAI makes it almost socially acceptable to collaborate with your competitors!” We found that our efforts to overcome these barriers necessarily took time and involved incremental learning, consistent and on-going advocacy by organizational leaders, strong motivation on the part of participants, proactive training and facilitative support and much positive reinforcement. We tried to foster a sense of belonging to a virtual institute that was inclusive and that actively sought member input regarding its operation. The site visits, Needs Assessment and other forms of exchange and information gathering we undertook were intended to send a message to NAI members that their perspectives and opinions were valued by NAI Central and that they were regarded as key players in decisions regarding the development of NAI’s technology infrastructure. In introducing new tools to our members we learned to initially focus on those people most likely to be early adopters and advocates. By and large these turned out to be the younger scientists, as well as our IT Working Group members. We also looked for where collaborative work was already happening or for projects that scientists were clearly eager to take on and then searched for ways to support those efforts, rather than trying to encourage collaboration where there was no existing investment. We also learned our initial focus on collaboration across the teams had obscured the need for us to simultaneously encourage internal team development and cohesion. Scientists had come together from different institutions and different disciplines to propose projects to NAI. Their selection as a team did not mean they in fact already functioned as one.
Theoretical Implications and Future Work One of the most important lessons from our work at NAI that we believe has implications for many other domains of activity in addition to science was about collaboration itself. We realized that it was not possible for us to focus on promoting collaboration across distance using electronic means without also regarding other, interrelated aspects of collaboration. We came to explicitly recognize that our aim as a virtual organization was not only to support remote collaboration but at the same time, given the aims of NAI, necessarily required us to address several other forms of collaboration as well. This included collaboration across disciplines, across institutions, across national boundaries, and across generations. From work in subsequent NASA projects we are now also studying collaboration between humans and robots or humans and other “intelligent” technologies. Each of these collaborative dimensions has their own challenges and potential solutions. A conclusion from our work at NAI is that if virtual science organizations, collaboratories, and other organizational forms of scientific collaboration are going to flourish in this new era of advanced cyberinfrastructure, multiple and interrelated forms of collaboration will need to be explored and addressed. From a theoretical perspective we are thus proposing that to understand collaboration fully and be effective in supporting it in groups and organizations, whether virtual or not, collaboration must be approached as a multi-dimensional reality. The dimensions relevant to any given domain of activity must be distinguished, as each has specific features requiring analysis. Clearly, more research is needed regarding all of these collaborative dimensions as well as the interrelationships among them.
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REFERENCES Atkins, D. E., Droegemeier, K. K., Feldman, S. I., Carcia-Molina, H., Klein, M. L., Messerschmitt, D. G., et al. (2003). Revolutionizing science and engineering through cyberinfrastructure: Report of the national science foundation blue-ribbon advisory panel on cyberinfrastructure. New York: National Science Foundation. Blumberg, B. S. (2000). Director’s introduction. NAI annual science report, Year 2. Mountain View, CA: NASA Astrobiology Institute. Blumberg, B. S. (2003). The NASA astrobiology institute: Early history and organization. Astrobiology, 3(3), 463–470. doi:10.1089/153110703322610573 Buzzetto-More, N. A. (2006). Navigating the virtual forest: How networked digital technologies can foster transgeographic learning. Issues in Informing Science and Information Technology, 3, 103–112. Duarte, D. L., & Snyder, N. T. (2006). Mastering virtual teams: Strategies, tools, and techniques that succeed. San Francisco: Jossey Bass. Faithorn, L., Grimes, G. T., & Whitmyer, C. (2002). Lessons learned from the NASA astrobiology institute: A virtual organization using electronic collaboration technologies to promote interdisciplinary, inter-organizational scientific research. Mountain View, CA: NASA Astrobiology Institute. Faithorn, L., Grimes, G. T., & Whitmyer, C. (2002). Comparison of collaboration tools. Mountain View, CA: NASA Astrobiology Institute. Ferris, S. P., & Godar, S. H. (Eds.). (2005). Teaching and learning with virtual teams. Hershey, PA: Information Science Publishing.
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Finholt, T. A. (2002). Collaboratories. [American Society for Information Science and Technology.]. Annual Review of Information Science & Technology, 36(1), 73–107. doi:10.1002/aris.1440360103 Finholt, T. A., & Olson, G. M. (1997). From laboratories to collaboratories: A new organizational form for scientific collaboration. Psychological Science, 8(1), 28–36. doi:10.1111/j.1467-9280.1997. tb00540.x Gignac, F. (2005). Building successful virtual teams. Norwood, MA: Artech House, Inc. Haywood, M. (1998). Managing virtual teams: Practical techniques for high-technology project managers. Norwood MA: Artech House, Inc. Hildreth, P., & Kimble, C. (Eds.). (2004). Knowledge networks: Innovation through community of practice. Hershey, PA: Idea Group. Hinds, P., & Kiesler, S. (2002). Distributed work. Cambridge, MA: The MIT Press. Jones, R., Oyung, R., & Pace, L. (2005). Working virtual: Challenges of virtual teams. Hershey, PA: CyberTech Publishing. Jones, S. (2001). Collaboration – A threat to academic autonomy? In Meeting at the crossroads. Proceedings of the Annual Conference of the Australian Society for Computers in Learning in Tertiary Education. Melbourne, Australia. Kim, A. J. (2000). Community building on the Web: Secret strategies for successful online communities. Berkeley, CA: Peachpit Press. Koslow, S. H., & Huerta, M. (Eds.). (2000). Electronic collaboration in science. Hillsdale, NJ: Lawrence Erlbaum Associates. Kouzes, R. T., Myers, J. D., & Wulf, W. A. (1996). Collaboratories: Doing science on the Internet. IEEE Computer, 29(8), 40–46.
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Kraut, R. E., Egido, C., & Galegher, J. (1990). Intellectual teamwork: Social and technological foundations of cooperative EWork. Hillsdale, NJ: Lawrence Erlbaum Associates. Langhoff, J. (2006). An overview of remote virtual teams and productivity: A research synopsis. Menlo Park, CA: New Ways of Working. Lipnack, J., & Stamps, J. (1997). Virtual teams: Reaching across space, time and organizations with technology. New York: John Wiley & Sons. Lipnack, J., & Stamps, J. (2000). Virtual teams: People working across boundaries. New York: John Wiley & Sons. Mayor, M., & Queloz, D. (1995)... Nature, 378, 355–359. doi:10.1038/378355a0 McKay, D. S., Gibson, E. K. Jr, Thomas-Keprta, K. L., Vali, H., Romanek, C. S., & Clemett, S. J. (1996). Search for past life on Mars: Possible relic biogenic activity in Martian meteorite ALH 84001. Science, 273, 924–930. doi:10.1126/science.273.5277.924 Mitchell, J., Wood, S., & Young, S. (2001). Communities of practice: Reshaping professional practice and improving organisational productivity in the Vocational Education and Training (VET) sector. Melbourne, Australia. Australian National Training Authority. Olson, J. S., & Teasley, S. D. (1996). Groupware in the wild: Lessons learned from a year of virtual collocation. In Proceedings of the ACM 1996 Conference on Computer-Supported Work. 419427. New York: ACM Press. Reingold, H. (1994). The virtual community. Minerva. Rogers, E. M. (2003). Diffusion of innovations, Fifth Edition. New York: Free Press.
Schein, E. H. (1992). Organizational culture and leadership. Second Edition. San Francisco: Jossey-Bass Publishers. Sonnenwald, D. H., Bergquist, R., Maglaughlin, K. A., Kupstats-Soo, E., & Whitton, M. (2001). Designing to support collaborative scientific research across distances: The NanoManipulator Example. In E. Churchill, D. Snowdon, & A, Munro (Eds), Collaborative virtual environments, (pp. 202-224). London: Springer Verlag. Teasley, S. & Wolinsky, S. (2001). Science 22 June 2001.292(5525) 2254 – 2255. Weiss, J., Nolan, J., Hunsinger, J., & Trifonas, P. (Eds.). (2006). International handbook of virtual learning environments. The Netherlands: Springer Wenger, E. (1998). Communities of practice: Learning, meaning, and identity. Cambridge, England: Cambridge University Press. Wenger, E., McDermott, R. A., & Snyder, W. (2002). Cultivating communities of practice: A guide to managing knowledge. Boston: Harvard Business School Press. York, D. J., Davis, L. D., & Wise, S. L. (2000). Virtual teaming: Breaking the boundaries of time and space. Menlo Park, CA: Crisp Publications, Inc.
KEY TERMS AND DEFINITIONS Astrobiology: The study of the origin, evolution, distribution, and future of life on Earth and in the Universe. Collaborative Science: Scientific research carried our collectively by two or more scientists. Collaboratory: A laboratory without walls where scientists can access instruments, data and one another across distance. Communities of Practice: Groups of individuals with a shared intent who intentionally come
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together to exchange knowledge and learn from one another, often within the context of a larger organization. Culture of Collaboration: Assumptions, values, and behaviors shared by an organization or group that promotes and supports knowledge exchange and collective work. Cyberinfrastructure: Infrastructure based upon distributed computer, information, and communication technology.
Electronic Collaboration: Performing work with a colleague or work group using communication and collaboration tools and technologies. Virtual Organizations/Virtual Teams: Organizations or teams with a shared mission, task, or agenda whose members are geographically dispersed.
This work was previously published in Handbook of Research on Electronic Collaboration and Organizational Synergy, edited by Janet Salmons and Lynn Wilson, pp. 741-756, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.23
Influencing Factors and the Acceptance of Internet and E-Business Technologies in Maritime Canada’s SMEs: An Analysis
Princely Ifinedo Cape Breton University, Canada
ABSTRACT This chapter examines the influence of some relevant factors on the acceptance of internet and E-Business technologies in Maritime Canada’s SMEs (small- and medium-sized enterprises). To examine the influence of the factors, a research framework was developed and nine hypotheses formulated to test the various relationships. A survey was conducted and a total of 162 valid responses were obtained from mainly business DOI: 10.4018/978-1-60960-587-2.ch423
owners and managers. The data supported five out of the nine hypotheses formulated. The key findings are as follows: The sampled SME’s organizational readiness is positively related to their intent to use Internet/business technologies (dependant variable); the two constructs of the technology acceptance model (TAM) were found to be important mediators in the relationship between the management support construct and the dependant variable. Further, no evidence was found to suggest that management support positively influences the intent to use Internet/
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Influencing Factors and the Acceptance of Internet and E-Business Technologies
business technologies among Maritime Canada’s SMEs. The implications of the study’s findings for policy making and research were discussed.
8.1. INTRODUCTION More and more businesses around the world are realizing the critical importance of using information and communication technologies (ICT) in their operations (Net Impact Study Canada, 2002; 2004; Sadowski et al., 2002). Such technologies are being used to reduce operational costs, improve management capabilities, access the global market, among others (Sadowski et al., 2002; Mehrtens et al., 2001; Martin and Milway, 2007). Accordingly, management in both large and small enterprises have realized the beneficial impacts of adopting, accepting, and investing in ICT applications including internet and e-business technologies (Wade et al., 2004; Davis and Vladica, 2006; Martin and Milway, 2007). Further, data and reports continue to highlight the importance of such technologies in global e-commerce and ebusiness engagements, and for national economic developments (Net Impact Study Canada, 2002; 2004; Davis and Vladica, 2006; Martin and Milway, 2007). Specifically, business organizations in Canada (a developed country) are beginning to reap the benefits of employing such technologies in their commercial activities (Net Impact Study Canada 2004; Noce and Peters, 2006; The Daily, 2006). For example, Noce and Peters (2006) note that the value of e-commerce engagements alone in Canada for the year 2004 was $28 billion, an amount which Statistics Canada (2006) expects to grow in the next decade. Despite the positive trend being reported for Canada, it has to be mentioned that it has not been clear sailing for the country’s businesses – large and small – to adopt and use ICT products, including internet and e-business technologies. In fact, the widely publicized Net Impact Study Canada (2002; 2004) reports showed that small
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and medium enterprises (SME) lag behind larger businesses on the adoption of internet business solutions (IBS), a term that we accept as being a connotation of internet and e-business technologies. The phrase “internet and e-business technologies” was borrowed from a study conducted by Davis and Vladica (2006) in the same region as this study’s, wherein such technologies as email, the Internet, and Website were given as examples. These are related, useful technologies for e-commerce and e-business engagements, and in fact Sadowski et al. (2002, p.76) note that “in establishing a new connection to the Internet [business environment], new users are required to adopt a series of related new technologies.” The focus of this chapter will be on the acceptance of such technologies in Canadian SMEs. It is appropriate to pay attention to SMEs, given the universal knowledge of the relevance of such businesses. In a nutshell, SMEs serve as engines for employment generation and national economic growth. According to the Net Impact Study Canada (2002, p.2), “Canadian SMEs deliver 60% of Canada’s economic output, generate 80% of national employment and 85% of new jobs.” Suffice it to say that a broader understanding of the adoption of internet and e-business technologies in Canadian SMEs will benefit both policy makers and researchers. Importantly, the Net Impact Study reports sought to alert Canadian policy makers to two debilitating issues: a) the reluctance of some SMEs in the country to adopt IBS, b) SMEs lag behind larger businesses on the adoption of internet business solutions. It comes as no surprise, therefore, when the Net Impact Study Canada (2004, p.1.) sounded a note of caution to policy makers and industry leaders in the country by stating that: “A lukewarm SME response to IBS adoption may weaken any national strategy to bolster Canada’s international competitiveness. The challenge for industry leaders and policy makers is to bring lagging SMEs online and deepen the capabili-
Influencing Factors and the Acceptance of Internet and E-Business Technologies
ties of those already online. The cost of inaction is to have this vital sector of the economy stall at current levels of engagement while other nations catch up or increase their lead.” This call is pertinent to and, to some extent, has motivated this study. It is worth noting that this study is not designed to provide all the answers as to why some Canadian SMEs appear reluctant to adopt internet and e-business technologies. An attempt to address those concerns would be beyond of the scope of this paper. On the other hand, this research aims at shedding light on the nature of relevant factors affecting the acceptance of internet and e-business technologies among SMEs in a particular geographical region of Canada. Larger firms are excluded from this exploratory study because the literature suggests that SMEs differ from larger enterprises on how resource, i.e., financial and knowledge considerations impact ICT adoption and success issues (Thong et al., 1996; Daniel and Grimshaw, 2002; Ifinedo, 2006). This research will draw on a theoretical framework in the information system (IS) literature as well as other relevant insights.
8.2. BACKGROUND INFORMATION Reports in Canada indicate that the country’s international competitiveness may be negatively impacted if efforts are not directed towards addressing the reticence of some SMEs to adopt relevant internet commerce technologies (Net Impact Study Canada, 2002; 2004). It was also shown that half the number of SMEs in the country has adopted such technologies. How are SMEs defined in Canada, and why are they important for the country? Statistics Canada (2006), generally defines SMEs as firms with fewer than 500 employees. Canadian SMEs provide more jobs to the population than do larger firms, and they contribute significantly to national economic growth (Net Impact Study Canada, 2004). Without a doubt,
one of the major concerns for Canadian’s policy makers would be to gain some understanding of the nature of relevant factors that might impact the acceptance of internet and e-business technologies among the country’s SMEs. This study was designed to provide insights in this regard. Due to the limited resource available for this study, it would be impossible to sample views on the research’s theme across the country. Rather, a region of the country, i.e., the Maritime or Atlantic region, which apparently lags behind the rest of the country on variety of issues including the use of the Internet for business and commerce (Industry Canada, 2001), is chosen for illustrative purposes. This study will include views of SMEs in the Maritime region with provinces including Nova Scotia, Newfoundland and Labrador, Prince Edward Island, and New Brunswick. Indeed, larger and more economically endowed regions such as Alberta and British Columbia are among the leaders regarding the use of Internet for business and commerce (The Daily, 2006; Statistics Canada, 2006). Such regions are excluded in this preliminary study for obvious reasons. Other researchers in Canada have discussed themes similar to this one. For example, Noce and Peters (2006) examined the barriers to ecommerce adoption in Canadian small-sized business organizations. Davis and Vladica (2006) reported findings on the distribution and use of internet technologies and e-business solutions in one of the provinces in Maritime Canada. Using Canadian businesses, Wade et al. (2004) studied the net impact of e-commerce on firms’ performances. Others have investigated the business value of ICT products in SMEs (e.g., Davis and Vladica, 2006; Martin and Milway, 2007). None has studied the nature of some relevant factors impacting the adoption internet and e-business technologies among Canadian SMEs as this research intends to do. This work will draw on the technology acceptance model (TAM) as well as the suggestion that other factors including management support and organizational readiness
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of the adopting organization are relevant in the discourse. Next, well briefly discuss the TAM and the other factors.
8.2.1. The Theoretical Framework: The Technology Acceptance Model (TAM) and the Other Influences Various researchers have used different theoretical frameworks in discussing technology acceptance and adoption (Igbaria et al., 1997). Without a doubt, the technology acceptance model (TAM) is regarded as the most widely used theoretical framework for assessing the acceptance of technologies in the literature (see e.g. Legris et al., 2003). The TAM was developed by Davis (1989). Additionally, the TAM has been shown to be relevant for small organizations in particular (Igbaria et al., 1997). The TAM is illustrated in Figure 1 below. It proposes that users’ acceptance of a new IS can be predicted by the users’ perceptions. These perceptions include the ease of use and usefulness of Information technology (IT) (Davis, 1989). The three core constructs in TAM include the following: perceived ease of use, perceived usefulness, and usage. The conception of the TAM shows that perceived usefulness mediates the effect of perceived ease of use on the intention to use, and at the same time directly influences the construct of intention to use (Davis, 1989). The perceived ease of use describes “The degree to which a person believes that using a particular system would be Figure 1. The research framework
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free of effort” (Davis, 1989, p. 320). Perceived usefulness describes the user’s perceptions of the expected benefits derived from using a particular IS system (Davis, 1989). Intention to use is the dependent variable in TAM. There are limitations in the TAM. In critically reviewing the literature on the use of the TAM in explaining why people accept IS. Researchers, including Igbaria et al. (1997) and Legris et al. (2003), argue that the TAM may be too simplistic in predicting intention to use of computer technologies. Accordingly, Igbaria et al. (1997) and others modeled factors as “Management support” as an external influence on the TAM. Indeed, the literature has suggested that top management support, commitment, and knowledge of technological innovations are crucially important for the success of IT adoption in small-sized businesses in general (Thong et al., 1996; Igbaria et al., 1997), and for the successful acceptance of e-commerce and internet technologies adoption by SMEs in particular (e.g. Mirchandani and Motwani, 2001; Yu, 2006; Qirim, 2007). Likewise, the acceptance of e-commerce and related IT innovations has been known to be strongly influenced by the organization’s ability to understand and assimilate the importance of such applications in their operations (Boynton et al., 1994). In particular, Boynton et al. (1994) asserts that the organizational environment in which a business operates is linked to its ability to absorb and use IT-related technologies. In other words, the firm’s culture,
Influencing Factors and the Acceptance of Internet and E-Business Technologies
values, etc. would impact its ability to use new innovations (Grandon and Pearson, 2004). Mirchandani and Motwani (2001), Mehrtens et al. (2001), and Grandon and Pearson (2004), discussing the adoption of internet and e-commerce, referred to this competence as organizational readiness, and they noted strongly the influence of the adoption of e-commerce solutions by SMEs. In brief, organization readiness refers to the knowledge of IT and Internet among organizational members. The research framework with the hypotheses is illustrated in Figure 1. The discussion of the formulation of the hypotheses follows in the next section.
8.2.2. The Research Hypotheses It has been accepted that perceived usefulness mediates the effect of perceived ease of use on intention to use (Davis, 1989). And, the constructs of perceived usefulness and perceived ease of use have been reported to positively impact intention to use of IT (Davis, 1989). Evidence of this is readily available in the relevant literature (Igbaria et al. 1997). With respect to e-business and internet technologies, research (Mirchandani and Motwani, 2001; Daniel and Grimshaw, 2002; Grandon and Pearson, 2004) have indicated that when both perceived ease of use and perceived usefulness of internet-enabled applications are high, this usually leads to such technologies being accepted by organizational members. In light of the foregoing discussion, we predict that the acceptance of internet and e-business technologies among SMEs in the Maritime region of Canada will be positively influenced by perceived ease of use and usefulness of such technologies. We therefore hypothesize that: H1: Perceived ease of use will have a positive effect on perceived usefulness of internet/ebusiness technologies
H2: Perceived usefulness of internet/e-business technologies is positively related to the intent to use such technologies H3: Perceived ease of use of internet/e-business technologies is positively related to the intent to use of such technologies Regarding the two non-traditional TAM constructs, past research suggests that support from top managers and the readiness of the firm to absorb new ideas tend to augur well for the acceptance of technological innovations (e.g., Iocovou et al., 1995; Igbaria et al., 1997; Grandon and Pearson, 2004; Yu, 2006; Qirim, 2007). This is because top managers act as change agents in the adoption process of technological innovations (Thong et al., 1996; Igbaria et al., 1997). When top managers in SMEs understand the importance of a computer technology, they tend to play a crucial role in influencing other organizational members as well as committing resources to the adoption of such technologies (Thong et al., 1996; Yu, 2006). Conversely, where management support is low or unavailable, technology acceptance and adoption tend to be placed on the back-burners of organizational issues (e.g. Igbaria et al., 1997; Yu, 2006). Likewise, the acceptance of IT-related technologies tend to be more favorable in organizations where the right type of culture and values exist, and where there is a good understanding of the relevance and benefits of the technology in question (Boynton et al., 1994; Grandon and Pearson, 2004; Mirchandani and Motwani, 2001; Qirim, 2007). The foregoing discussion permits us to formulate the set of hypotheses below: H4: Management support will positively influence the perceived usefulness of internet/ebusiness technologies H5: Management support will positively influence the perceived ease of use of internet/ebusiness technologies
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Influencing Factors and the Acceptance of Internet and E-Business Technologies
H6: Organizational readiness and competence will positively influence the perceived usefulness of internet/e-business technologies H7: Organizational readiness and competence will positively influence the perceived ease of use of internet/ e-business technologies H8: Organizational readiness and competence will positively influence the intention to use internet/e-business technologies H9: Management support will positively influence the intention to use internet/e-business technologies
8.3. RESEARCH METHODOLOGY The researcher sampled SMEs generated from telephones directories in the four provinces in Maritime Canada. Two research assistants used a variation of the stratified sampling method -- i.e., every odd number firm was included, and larger firms omitted if it falls on such -- was used to select participating SMEs from across such industries as auto dealership, insurance, manufacturing, retail, and so forth. Organizational informants including owners and presidents were contacted. Each received a packet consisting of a cover letter, a questionnaire, and a self-addressed, stamped envelope. In all, one thousand and seven hundred (1700) questionnaires were mailed in November, 2007 and responses were collected until February, 2008.
8.3.1. Data Collection Of note, participation in the study was voluntary. Respondents were assured that their individual responses would be treated as confidential. A part of the questionnaire is provided (See Appendix). To ensure data validity and reliability, sixteen (16) knowledgeable individuals (i.e., 4 faculty, 2 SMEs top managers, and 10 college students) completed the initial draft of the questionnaire. Comments received improved the quality of the questionnaire mailed to participants. The majority
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of the measures used were taken from previously validated sources (e.g. Davis, 1989; Thong et al., 1996; Yu, 2006) and were anchored on a 6-point Likert scale, ranging from Strongly disagree (1) to Strongly agree (6), on which participants were asked to indicate an appropriate choice. An extra column was also provided, which was labeled “Not Applicable” (NA). The measures in the TAM constructs came from Davis (1989) and Igbaria et al. (1997). The measures used to operationalize organizational readiness and competence were modified from Mirchandani and Motwani (2001) and Grandon and Pearson (2004). The Appendix shows the measures in the questionnaire, and their reliabilities scores. Clearly, the Cronbach alpha for each dimension is above the 0.70 limit recommended by Nunnally (1978), indicating reasonably high reliability of the research measures and constructs. A total of 170 responses were received, of which, 162 were considered valid. The excluded eight (8) responses were either not filled out properly or had a high number of missing entries. From the number sent out, 121 questionnaires were returned as undeliverable due to changed or incomplete addresses. Thus, the effective response rate for the survey is 10.3%., which is good for a study of this nature. Table 1 shows the participants’ demographics and the characteristics of the responding firms. The participants’ average work experience was 13.4 years. The workforce ranged from 1 to 500 employees, with a median of 5 employees.
8.4. DATA ANALYSIS AND RESULTS The PLS (Partial Least Squares) approach of the structural equation modeling (SEM) technique was used to examine the relationships among the factors or constructs. There are two main approaches: PLS (Partial Least Squares) and covariance-based SEM. The PLS approach was chosen for its capability in accommodating small-sized samples (Chin, 1998). Furthermore, PLS recognizes two
Influencing Factors and the Acceptance of Internet and E-Business Technologies
Table 1. Demographic information of the sample (n = 162) Freq.
(%)
Gender Male Female Missing
94 66 2
58 40.7 1.2
Age Less 20 year 21 - 30 31 - 40 41 - 50 51- 60 Above 60 year
1 23 27 55 47 8
1.2 14.2 16.7 34 29 4.9
Job Titles Manager, Accountant Owner, Proprietor Vice President, Director Others
43 64 29 26
26.6 39.5 17.9 16
Type of business Adverting,, Marketing Auto Dealership, Repairs Construction Design outfits, Decorator Education, Driving School Hotel, Hospitality Insurance, Accounting firms Manufacturing Retailer, Wholesaler Real estate, Legal firms Others
12 12 6 8 4 6 17 17 33 9 38
7.4 7.4 3.7 4.9 2.5 3.7 10.5 10.5 20.4 5.6 23.4
components of a causal model: the measurement model and the structural model. The measurement model consisted of relationships among the factors of interest (the observed variables) and the measures underlying each construct. PLS demonstrates the construct validity of the research instrument (i.e. how well the instrument measures what it purports to measure). The two main dimensions are the convergent validity and the discriminant validity. The convergent validity (also known as the composite reliability) assesses the extent to which items on a scale are theoretically related. On the other hand, the structural model provides information on how well the hypothesized relationships predict the theoretical model. The R2 indicates the percentage of a construct’s variance in the model, while the path coefficients (β) indicate
Education Primary school High school College/university Post-graduate Others Annual sales revenues ($) Less $500, 000 $500,000 - $ 1 million $ 1.1 - $5 million $ 5.1 - $ 10 million $ 10.1 - $ 20 million $ 20.1 - $50 million “$” = Canadian dollar Workforce Less 50 employees 51 – 99 employees 100 – 500 employees Missing
Freq.
(%)
6 36 79 31 10
3.7 22.2 48.8 19.1 6.2
75 32 35 7 9 4
46.3 19.8 21.6 4.3 5.6 2.5
146 10 5 1
90.1 6.2 3.1 0.6
the strengths of relationships among constructs (Chin, 1998).
8.4.1. Assessing the Structural Model The squared R (R2) and the paths’ coefficients (β) were generated by PLS Graph 3.0 and are shown in Figure 2. The R2 is 0.36 which suggests that the contingency factors explained 36 of the variance in the intent to use internet/e-business technologies construct. Indeed, the R2 of 0.36 is adequate for the study, indicating that the results in general are supportive of the research model. Chin (1998) notes that both the β and the R2 are sufficient for analysis, and β values between 0.20 and 0.30 are adequate for meaningful interpretations.
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Influencing Factors and the Acceptance of Internet and E-Business Technologies
Figure 2. The PLS graph 3.0 results for the research framework
8.4.2. Assessing the Measurement Model
8.5. FINDINGS AND DISCUSSIONS Table 3 provides a summary of the results. The data strongly supports four of the nine (9) hypotheses (i.e., H1, H4, H5, and H9) and moderately supports one: H3. The results, however, do not support the other four hypotheses (H2, H6, H7, and H8). Next, we discuss the set of supported hypotheses, which is then followed by discussions of the unsupported ones. In accordance with hypothesis H1, perceived ease of use will have a positive effect on perceived usefulness of internet/e-business technologies. This prediction suggests that a higher level of the usefulness of internet/e-business technologies would be brought about when SMEs perceived such technologies were not difficult to use. This seems to be the viewpoint of the sampled SMEs in this study. Hypothesis H2 stated that perceived ease of use of internet/e-business technologies is
PLS Graph 3.0 – the PLS software developed by Prof Chin – was used to compute the composite reliability (convergent validity) of each construct; the item loadings were also provided (see the Appendix). Chin (1998) notes that item loadings and composite reliabilities greater than 0.7 are considered adequate. In assessing the discriminant validity, the square root of the average variance extracted (AVE) for each construct, which provides a measure of the variance shared between a construct and its indicators, is checked. Chin (1998) recommend AVE values of at least 0.50 and that the square root of AVE should be larger than off-diagonal elements. Table 2 presents the inter-correlations among the constructs, AVE and the square root of AVE. The research’s measures indicate that the constructs are distinct and unidimensional.
Table 2. The correlations among the constructs and the AVE AVE
1
2
1: Management support
0.511
0.715
2: Organizational readiness and competence
0.531
0.636
0.729
3: Perceived usefulness
0.685
0.727
0.591
3
4
0.828
4: Perceived ease of use
0.559
0.660
0.548
0.756
0.748
5: Intent to use internet/e-business technologies
0.765
0.722
0.824
0.533
0.540
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5
0.877
Influencing Factors and the Acceptance of Internet and E-Business Technologies
Table 3. Summary of the results Hypothesis
Path coefficient (β)
t-Value for the path
Result
Perceived ease of use → Perceived usefulness (H1)
0.489
1.8643*
Supported
Perceived usefulness → Intention to use internet/ e-business technologies (H2)
-0.037
0.1423
Not Supported
Perceived ease of use → Intention to use of internet/e-business technologies (H3)
0.135
1.0179
Moderately Supported
Management support → Perceived usefulness of internet/e-business technologies (H4)
0.444
1.8951*
Supported
Management support → Perceived ease of use of internet/e-business technologies (H5)
0.673
5.0135**
Supported
Organizational readiness → Perceived usefulness of internet/ebusiness technologies (H6)
-0.048
0.2415
Not Supported
Organizational readiness → Perceived ease of use of internet/ebusiness technologies (H7)
-0.015
0.0791
Not Supported
Management support → Intention to use internet/e-business technologies (H8)
0.046
0.2642
Not Supported
Organizational readiness → Intention to use internet/e-business technologies (H9)
0.734
4.9620**
Supported
* significant at p< 0.01, ** significant at p< 0.001 (two-tailed)
positively related to the intent to use of such technologies. This hypothesis is moderately supported by the data. As Legris et al. (2003) noted in their study, it is not uncommon for studies using the TAM to produce results that are not totally clear or inconsistent. Suffice it to say that among the sampled SMEs in the Maritime region of Canada, the data suggests that the intent to use of internet/e-business technologies is higher when firms perceive such applications as not being difficult to use. In Hypothesis H2, it was stated that management support will positively influence the perceived usefulness of internet/e-business technologies. The data analysis strongly supports this prediction. The result could be interpreted as meaning that the intention to use internet technologies in an SME is higher when the management of such an enterprise has an understanding of the benefits and impacts of such technologies, and then are able to provide the necessary support for the entrenchment of such applications in its organization. Other studies investigating the
diffusion of ICT among SMEs in Canada have presented a finding similar to this study’s (e.g., Noce and Peters, 2006; Martin and Milway, 2007). Similarly, studies from other regions of the world have offered results consistent with the foregoing (e.g., Mirchandani and Motwani, 2001; Yu, 2006; Qirim, 2007). The data analysis strongly supported hypothesis H9. The result shows that a positive relationship organizational readiness and the intent to use internet and e-business technologies exist. That is, the acceptance of ICT tends to be more favorable in SMEs with a good understanding of the relevance and benefits of the technology being considered (Boynton et al., 1994; Grandon and Pearson, 2004). To some extent, the result here corroborates the findings on the adoption of ICT products in Canada that researchers in the country, including Martin and Milway (2007), have made public. They noted that one of the biggest problems facing the growth of ICT use among SMEs is a lack of organizational readiness, as well as poor levels of information awareness of the benefits and impacts of relevant technologies
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Influencing Factors and the Acceptance of Internet and E-Business Technologies
among owners and employees of such businesses. A plausible explanation for the lack of support for the remaining hypotheses might be related to the study’s design, the diversity in the industry sampled firms, among others. With regard to hypothesis H2, which is related to the TAM core, studies have shown that it may not be out of place to have dissenting results (Legris et al., 2003). The direct link between management support and the dependent construct is unsupported, perhaps as result of the foregoing insights.
8.6. CONCLUSION This chapter aims at providing empirical information on the nature of some relevant factors affecting the intent to use internet/e-business technologies by SMEs based in Maritime Canada. The research study has both practical and academic implications. In the context of the research setting in particular and for the country in general, the results may suggest that SMEs would be inclined to adopt internet/e-business technologies and related ICT solutions if they perceived such applications to be easy to use. The implication of this is that external agents, including suppliers and vendors of such e-business technologies, have to emphasize the ease of use of such technologies rather than merely underscore their usefulness. This viewpoint is consistent with that espoused by local researchers (Martin and Milway, 2007) suggesting that the supply side (vendors of such application) could do more for the growth of internet/e-business solution among SMEs in the country if these providers paid more attention to the wares that they offer SMEs in the country. It could be argued that less complex products and appropriate education would go a long way here. Interestingly, the relationship between the management support construct and the intention to use internet/e-business technologies for sampled SMEs is not supported.
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However, the data analysis indicated that when management provide necessary support, interest, and have a clear vision as to use of such applications, the perceived usefulness and ease of use of such technologies tend to be high. (The two core constructs of the TAM act as mediators in the relationships between the management support variable and the dependant construct). This would suggest that for the use of internet business solutions to grow in the Maritime region and perhaps in other regions of the country, the management of small businesses would have to acquire attitudes supportive of emerging ICT innovations. In the same vein, SME’s management could benefit from education designed to accentuate the impacts of such technological innovations in their operations. Needless to say, the apparent reluctance in adopting IBS reported in the Net Impact Study Canada (2004) might have stemmed from a lack of proper education as well as negative attitudes among decision makers in SMEs regarding the impact of internet technologies on their businesses. Feedback from one owner of an SME reads, “My business is very small and I keep quite busy with word of mouth and the yellow pages.” This might be indicative that the right kind of information may not be available to small businesses owners. In order for small businesses in the Maritime region (and for Canada as a whole) to change the unimpressive statistics noted in the opening section of this paper, owners need to be made aware of the benefits of using e-business solutions. Organizational readiness and competence with respect to knowledge about ICT benefits lead invariably to higher levels of need to use internet/e-business technologies. Other local authors (Martin and Milway, 2007) seem to echo this sentiment. Similarly, the academic community benefits from this discourse as well. A study of this nature expands the discussion on factors affecting the use of internet/e-business technologies in a relatively poor part of a developed country, Canada. Results from this study may be pertinent
Influencing Factors and the Acceptance of Internet and E-Business Technologies
to theory development in global IT management as it relates to the adoption of internet business solutions. In general, the study’s results lend support to some prior studies in the literature. For example, the importance of management support and organizational readiness were found to be vitally important in the adoption of internet and e-business technologies by other researchers (Mirchandani and Motwani, 2001; Mehrtens et al., 2003; Yu, 2006; Qirim, 2007). Evidence from this work affirms this viewpoint. Most importantly, this work showed that the amount of variation explained by the TAM model can be improved upon significantly by the inclusion of relevant factors. Igbaria et al. (1997) and others have made assertion in this regard. There are inherent limitations in this study. It is exploratory and the sample selected may not have been random. Personal bias may have been an issue, as only the views of a single respondent were used per firm. The measures for some of the constructs could be improved. This study presents the viewpoints of SMEs in Maritime Canada; it is difficult to say whether the findings can be replicated in other regions of the country. The research did not control for the types of internet/e-business technologies in use by the SMEs. The study lumped together the various internet/e-business technologies such as email, website ownership, internet, and so forth. It is possible that by not distinguishing between technologies in the study, the findings might have been amplified or downplayed. It has to be noted that future studies examining a similar theme could incorporate the impact of relevant inter- and intra-organizational factors such as market pressures and government support. Also, this present study could be replicated in other Canadian regions. When results from such endeavors begin to emerge, will we be able understand why Canadian businesses, especially smaller ones, appear to lag behind in accepting e-business. Additionally, studies are needed to affirm or reject the findings in this study. E-business technologies’ acceptance in both large and SMEs
could be compared. Lastly, better insights and easily verifiable results could emerge if a single internet/e-business technology were used for a given study. This would ensure that confounding effects emanating from the use of diversified technologies would be controlled. Future research should take note of this detail.
ACKNOWLEDGMENT Funding for this research was provided by RP grant (#8241) of Cape Breton University (CBU), Canada. Of note, a version of this article was presented at AMCIS 2008, Toronto, Canada.
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Ifinedo, P. (2006). Key information systems management issues in estonia for the 2000s and a comparative analysis. JGITM, 9(2), 22–44. Igbaria, M., Zinatelli, N., Cragg, P., & Cavaye, A. L. M. (1997). Personal computing acceptance factors in small firms: a structural equation model. MIS Quarterly, 21(3), 279–305. doi:10.2307/249498 Industry Canada. (2001). Micro-enterprises survey 2000: a progress report small business policy http://www.ic.gc.ca/epic/site/sbrp-rppe.nsf/en/ rd01992e.html.
Net Impact Study Canada. (2002). The SME Experience - A Preliminary Report - November 2002 - Canadian e-Business Initiative. http:// www.cebi.ca/epic/site/ecic-ceac.nsf/vwapj/NI4e.pdf/$file/NI4-e.pdf. Noce, A., & Peters, C. (2006). Barriers to electronic commerce in canada: a size of firm and industry analysis (III-C). Industry Canada Electronic Commerce Branch, Ottawa, Canada. Nunnaly, J. C. (1978). Psychometric Theory. New York, NY: McGraw-Hill
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Mehrtens, J., Cragg, P. B., & Mills, A. M. (2001). A model of internet adoption by smes. Information & Management, 39(3), 165–176. doi:10.1016/ S0378-7206(01)00086-6 Mirchandani, A. A., & Motwani, J. (2001). Understanding small business electronic adoption: an empirical analysis. JCIS, 41(3), 70–73. Net Impact Canada IV. (2004). Strategies for Increasing SME Engagement in the e-Economy. (Net Impact IV). http://www.cebi.ca/epic/site/ ecic-ceac.nsf/vwapj/NISME-e.pdf/$file/NI SMEe.pdf.
Statistics Canada. (2006). Survey of electronic commerce and technology. http://www.statcan. ca/Daily/English/061101/ d061101a.htm. The Daily. (2006). E-commerce: Shopping on the Internet. http://e-com.ic.gc.ca/epic/ site/ecic-ceac. nsf/en/gv00152e.html. Thong, J. Y. L., Yap, C. S., & Raman, K. S. (1996). Top management support, external expertise and information systems implementation in small business. ISR, 7(2), 248–267. doi:10.1287/isre.7.2.248 Wade, M., Johnston, D., & McClean, R. (2004). Exploring the net impact of internet business solution adoption on sme performance. IJEB, 2(4), 336–350. doi:10.1504/IJEB.2004.005637 Yu, C.-S. (2006). Influences on taiwanese sme e-marketplace adoption decisions. JGITM, 9(2), 5–21.
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APPENDIX Table 4. The questionnaire measures and the reliability scores Item loading
Cronbach alpha
Composite reliability
Ease of Use Eou1: The use of internet/e-business technologies would be clear and understandable for us
0.7590
Eou2: Learning to use internet/e-business technologies would be easy for our employees
0.8874
Eou3: Overall, internet/e-business technologies would be easy to use in our organization
0.7503
Eou4: It would be easy to become skilful at using internet/ e-business technologies in our firm.
0.7543
0.940
0.832
0.937
0.913
0.943
0.794
0.911
0.814
Perceived Usefulness PUS1: Using internet/e-business technologies would make work easier for our employees/managers.
0.8558
PUS2: Using internet/e-business technologies would increase employees’ & managers’ productivity.
0.7050
PUS3: Using internet/e-business technologies would increase the performance of our employees.
0.8893
PUS4: Our employees and managers would find internet/ e-business technologies useful in their jobs.
0.9020
PUS5: Using internet/e-business technologies would provide information for strategic decisions.
0.9127
Management Support MS1: Management is interested in the use of internet/e-business technologies in our operations.
0.6667
MS2: Management is supportive of the use of internet/ e-business technologies in our operations.
0.7343
MS3: Our business has a clear vision regarding the use of internet/e-business technologies.
0.6772
MS4: Management communicates the need for internet/ e-business technologies usage in the firm.
0.8150
Organizational Readiness and Competence OCR1: Our firm knows how information technology (IT) can be used to support our operations.
0.6489
OCR2: Our firm has a good understanding of how internet/ e-business technologies can be used in our business.
0.8625
OCR3: We have the necessary technical, managerial and other skills to implement internet/e-business technologies.
0.7148
OCR4: Our business values and norms would not prevent us from adopting internet/e-business technologies in our operations.
0.7658
continues on following page
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Influencing Factors and the Acceptance of Internet and E-Business Technologies
Table 4. continued Item loading
Cronbach alpha
Composite reliability
Intention to Adopt Internet/e-business Technologies IntAD1: I am certain my firm/organization will adopt Internet/e-business technologies someday.
0.8954
IntAD2: My firm is committed to adopting Internet/e-business technologies in the future.
0.8481
IntAD3: There is likelihood that my firm will adopt Internet/ e-business technologies in the future.
0.8793
0.943
0.907
To what extent do you agree or disagree with the following statements. (Not Applicable (N/A) = 0, 1 = Strongly disagree, 2 = Disagree, 3 = Somewhat disagree, 4 = somewhat agree, 5 = Agree, 6 = Strongly agree)
This work was previously published in Proliferation of the Internet Economy: E-Commerce for Global Adoption, Resistance, and Cultural Evolution, edited by Mahmud Akhter Shareef, Yogesh K. Dwivedi, Michael D. Williams and Nitish Singh, pp. 168-185, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.24
An Analysis of the Latin American Wireless Telecommunications Market Portfolios of Telefonica and America Movil Steven R. Powell California State Polytechnic University, USA
ABSTRACT In response to slowing growth, intensifying competition in their traditional wireless voice, text markets with an eye toward increasing revenues from offering a bundle of mobile and fixed-line voice, data, text, and video services to subscribers, management at Telefonica and America DOI: 10.4018/978-1-60960-587-2.ch424
Movil have restructured their companies and reconsidered their internationalization strategies. This paper focuses on the two companies’ Latin American wireless market portfolios, providing background on why these reorganizational and strategic actions were taken. In particular, the paper compares the portfolios with respect to their market attractiveness and competitive positions in 2008 relative to 2002 on both an overall average and degree of variance basis across the
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
markets in the portfolios. The portfolio analysis technique employed in the paper may have wider applicability for formulating corporate strategy.
INTRODUCTION On January 13, 2010 America Movil announced that it would launch a tender offer for shares of two companies: Telmex Internacional, the international telecommunications holding company spun off from Telefonos de Mexico, S.A. de C.V. (Telmex) in December, 2007, and Carso Global Telecom (CGT), the company created to hold Telmex shares previously owned by Group Carso (America Movil, 2010a). At the expiration of the tender offer on June 10, 2010 America Movil owned 93.56% of Telmex Internacional’s outstanding shares and 99.44% of CGT’s outstanding shares, giving America Movil almost total control of Telmex Internacional and a large majority of Telmex shares (America Movil, 2010b). Previously, Telefonica, America Movil’s primary competitor in Latin America underwent a reorganization of its own, consolidating its fixed-line and mobile operations into three geographic regions: Spain, Latin America, and Europe, a region into which it had expanded significantly in 2006. Why have America Movil and Telefonica made these organizational and strategic moves? Deteriorating conditions in their mobile voice and text markets in Latin America have played a large part. The companies face slowing growth, fierce competition, increasing regulatory pressures, and new entrants. However, they also wish to capitalize on high-growth opportunities in wireless data and video. America Movil now can integrate its wireless facilities with the fixed-line facilities of Telmex and Telmex Internacional, enabling America Movil to reduce operating costs and increase revenues by offering bundles of fixed-line and wireless phone, broadband and video services (Parker, 2010). Consolidating its fixed-line and wireless operations enables Tele-
1232
fonica to develop a network specifically for video content so that it can expand video services to the home (Sinclair, 2010). The outlook for broadband and video services in Latin America is optimistic. From 2009 to 2014 the compound annual growth rate in broadband subscribers is expected to be 15%, compared with 6% for wireless subscribers (TeleGeography, 2010). With regard to video services, the number of Pay-TV households in Latin America is expected to grow from 20.8 million in 2008 to 28.5 million in 2013, a 7.4% compound annual growth rate. This compares with a worldwide compound annual growth rate of Pay-TV households from 2008 to 2013 of 4.3% (IDATE, 2010). Revenues from IPTV video services in Latin America, a market in which America Movil and Telefonica now both compete, are expected to grow at a much higher rate, from $14.3 million in 2009 to $521.5 million in 2013, a 145.6% compound annual growth rate (SNL Kagan, 2010). The outlook for traditional wireless voice and text services was much more favorable in September, 2000, when America Movil was established in a spin-off from Telmex. At the time of its establishment America Movil operated in two Latin American markets (Guatemala and Ecuador) besides Mexico, as well as in the U.S, and had plans for further expansion into attractive markets in the region. By 2002 the company had added four more Latin American markets to its portfolio; by 2008 an additional nine. Telefonica, which the Spanish government had begun privatizing in 1987, had a significant presence in Latin America in 2000. By 2002 Telefonica was operating in nine markets in Latin America; by 2008, thirteen Latin American markets. Telecommunications companies can derive benefits from expanding internationally, including: diversification of the companies’ investment portfolios; enhanced leverage over regulators; the provision of seamless services for multinational customers; revenues from the transference of existing management and technical know-how from operations abroad; and cost reductions through
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
volume accumulations across country locations and market segments (Sarkar et al., 1999). With their expansion into Latin America, America Movil and Telefonica became two of the most internationalized mobile telecommunications operators in the world. According to Curwen and Whalley (2006, 2008) at the end of 2003 America Movil and Telefonica ranked fifth and sixth in the world, respectively, among most-internationalized mobile telecommunications operators in terms of the number of proportionate subscribers (i.e., number of subscribers controlled by the operator); At the end of 2005 America Movil and Telefonica had moved up in the rankings: ranking second and fifth, respectively, in the number of proportionate subscribers, and ninth and third, respectively, in the number of countries invested (they had not made the top ten in this category at the end of 2003). Among international mobile operators in Latin America, at the end of 2005 America Movil ranked first in the number of proportionate subscribers and second in the number of countries invested. The rankings were reversed for Telefonica. Mariscal (2005, 2007) has observed that by 2005 the total market participation of America Movil and Telefonica in some countries in Latin America exceeded 90%, a degree of consolidation that policy-makers had not anticipated. However, the level of concentration varied a great deal from market to market, ranging from very highly concentrated (e.g., Mexico) to not concentrated (e.g. Brazil). Furthermore, the level of concentration did not correlate strongly with rates, which correlated to a much higher degree with the amount of radio spectrum available in the market. In Mariscal’s opinion, the rapid market penetration experienced by the region was probably caused by pricing strategies like calling party pays and prepaid services. This paper examines the Latin American mobile market, and the roles of America Movil and Telefonica in it, from the point of view of the attractiveness of the markets represented in the companies’ portfolios and the companies’ com-
petitive positions in those markets. In particular, it addresses the following set of questions: (1) How attractive were the markets in which America Movil and Telefonica competed in 2008 compared with 2002? Was there much of a loss in attractiveness during the six-year period? (2) How did the companies’ competitive positions compare in 2008 relative to 2002? Was there much change? And (3) were all the markets in the companies’ portfolios equally attractive or were they, and the companies’ competitive positions in them, different? Did the degree of variance change much during the six-year period? With respect to which criteria was the variance greatest? Market (or industry) attractiveness – competitive position (or business strength) assessment has been a useful portfolio analysis tool for formulating strategy since the 1970s (Abell & Hammond, 1979; Hofer & Schendel, 1978). In its usual formulation market attractiveness is assessed by determining a set of criteria the company finds desirable or wishes to avoid, attaching priorities in the form of weights to each criterion, and rating each of the company’s markets (or industries) in which it competes or wishes to enter on each of the attractiveness criteria. Numerical weights and scores are customarily used in this procedure to calculate a weighted score for each market attractiveness criterion, which are then added together to determine an overall weighted score for the market. The process is repeated for each market in the company’s market portfolio. Using a similar procedure, the company’s overall competitive position is assessed for each market in its portfolio. However, this paper employs a variation on the traditional market attractiveness – competitive position assessment technique. Rather than treating each market separately and computing the overall market attractiveness and competitive position weighted scores for it as in the traditional assessment procedure, here each market attractiveness and competitive position criterion is treated separately and overall weighted scores are calcu-
1233
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
lated for each criterion across all the markets in the portfolio. In Powell (2009), the author used this procedure to rank the overall attractiveness of the foreign market portfolios of six European wireless telecommunications service providers. In that study the companies’ foreign market portfolios were ranked with respect to each of five distinct market attractiveness criteria based on the mean score of the markets in the company’s portfolio weighted by the number of proportionate subscribers in each market. The procedure is extended in this study: (1) by considering competitive position as well as market attractiveness criteria; and (2) by analyzing the weighted, and for comparison purposes, unweighted standard deviations and coefficients of variation of the criteria across the markets in the portfolio, in addition to their weighted and unweighted means. By calculating the standard deviations and coefficients of variation in this study it is possible to assess the variance over time of the markets in America Movil’s and Telefonica’s portfolios with respect to the specified market attractiveness and competitive position criteria. The paper provides additional detail on America Movil and Telefonica and describes their internationalization efforts from 2002 to 2008. The authors describe the method used to analyze the market attractiveness – competitive position characteristics of the two companies’ market portfolios and present results of the analysis. The paper concludes with a summary of the results and some possible directions for future research.
AMERICA MOVIL AND TELEFONICA This section presents a brief overview of the two companies in the study: America Movil and Telefonica. Summary data on the state of the companies’ internationalization efforts in 2002 and 2008 can be found in Tables 1 and 2, respectively. Detailed market data can be found in Tables 3 and 4. The dominance of Telefonica
1234
and America Movil collectively in Latin America in 2008 can be observed in the second column from the right in Table 4: in ten Latin American markets the companies’ combined share of total subscribers exceeded 50%. Revenue characteristics of the companies’ markets can be found in Table 5. Because the companies have not disclosed full revenue data for each market, the data is broken down by geographical regions based on the availability of data. In a few cases in order to determine the monthly revenue per subscriber and percentage of subscribers with prepaid service for the region, weighted averages were used based on the proportionate number of customers in the relevant markets. As previously mentioned, America Movil was established in September 2000 in a spin-off from Telefonos de Mexico (Telmex), the largest provider of local and long-distance telephone services in Mexico. The company is the leading provider of wireless telecommunications services in Mexico and operates through subsidiaries and joint ventures within Latin America and the U.S. At the end of 2002 America Movil operated in Mexico, the U.S., and six Latin American markets (Argentina, Brazil, Colombia, Ecuador, Guatemala, and Nicaragua) and had 31.8 million proportionate customers, and revenues and net income of Ps.57.5 billion (US $5.6 billion) and Ps.5.8 billion (US $563 million), respectively. The company continued to internationalize. By the end of 2008 America Movil had expanded to fifteen countries abroad, having added wireless operations in eight Latin American countries (Puerto Rico, Dominican Republic, El Salvador, Honduras, Chile, Peru, Uruguay, and Paraguay) and Jamaica. The company also had approximately 3.8 million fixed lines in Central America and the Caribbean. America Movil had grown to 182.3 million proportionate wireless subscribers (69% abroad), with overall revenues and operating income of Ps.345.7 billion (US $25.5 billion) and net income of Ps.59.5 billion (US $4.4 billion), respectively. With the exception of the U.S.,
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
Table 1. Comparison of the wireless operations of Telefonica and America Movil: 2002 Telefonica Characteristic
Home
Locations
Spain
Latin America
No. of Countries
1
Venture Customers (M)
America Movil Total
Home
Africa
Spain Latin America Africa
Mexico
Latin America
US
Mexico Latin America US
9
1
11
1
6
1
8
18.4
23.9
1.6
43.9
20.1
13.5
2.0
35.6
Proportionate Customers (M)
17.0
12.6
0.5
30.1
20.1
9.8
1.9
31.8
Proportionate Customers (%)
56.4
41.9
1.7
100
63.2
30.8
6.0
100
Revenues (%)
70.0
27.6
2.4
100
69.0
23.8
7.2
100
Ownership Interests (No. of Countries)
Abroad
Minority – 5; Majority – 6; Equal - 0
America Movil’s networks are based on the GSM standard. During 2007, America Movil began deploying networks based on UMTS in certain of its principal markets, including Mexico, Brazil and Colombia. The company seeks leadership in its markets by providing better coverage and services and benefiting from economies of scale and its emphasis on cost and expense control (America Movil, 2002-2008).
Abroad
Total
Minority – 0; Majority – 8; Equal - 0
Telefonica, formerly Spain’s state-owned monopoly telecommunications service provider, began implementing its Latin America regional strategy in the 1990s, which was carried out by its Telefonica Moviles subsidiary. At the end of 2002 Telefonica had wireless operations in Spain and ten countries abroad - nine in Latin America (Puerto Rico, Mexico, El Salvador, Guatemala, Argentina, Brazil, Chile, Peru, and Venezuela)
Table 2. Comparison of the wireless operations of Telefonica and America Movil: 2008 Telefonica Characteristic
Home
Abroad
America Movil Total
Home
Abroad
Total
Mexico
Latin America1
US
Mexico Latin America US
Spain
Latin America
Europe/ Africa
Spain Latin America Europe/Africa
No. of Countries
1
13
6
20
1
15
1
17
Venture Subscribers (M)
23.6
123.4
48.6
195.6
56.4
115.2
11.2
182.8
Proportionate Subscribers (M)
23.6
100.7
41.8
166.1
56.4
114.9
11.0
182.3
Proportionate Subscribers (%)
14.2
60.6
25.2
100
30.9
63.0
6.0
100
Revenues (%)
27.6
36.9
35.5
100
39.1
56.1
4.8
100
Locations
Ownership Interests (No. of Countries)
Minority – 1 ; Majority – 18; Equal - 1
Minority – 0; Majority – 17; Equal - 0
includes Jamaica
1
1235
1236
26.7
44.6
65.1
Argentina
Brazil
Chile
34.4
29.3
Nicaragua
45.8
45.1
Guatemala
Ecuador
50.6
El Salvador
Colombia
26.8
61.4
Mexico
46.3
NA
39.9
15.1
95.6
U.S.
Puerto Rico
Peru
288.4
55.2
Morocco
Venezuela
29.6
88.5
Spain
12.9
43.3
25.4
173.9
36.6
5.4
12.0
6.5
101.9
3.9
40.7
Risk
Market
Population (M)
1.9
1.9
3.7
2.1
4.3
2.8
2.7
0.8
1.8
0.2
6.3
11.5
36.1
1.3
16.5
GDP/ CAP $ US (000)
12.3
10.6
25.8
8.6
39.6
19.5
17.5
4.6
13.5
13.6
25.2
46.3
48.9
20.6
80.6
Subs/ 100 Inhabitants
65.3
29.4
43.6
40.5
72.4
50.3
26.7
99.2
89.7
85.8
71.6
37.4
20.7
142.1
50.5
CAG (%)
0
0
2.6
1.2
1.8
13.7
1.6
0
0.1
0.2
2.4
0.2
0
1.6
18.4
Venture Subs (M)
0
0
39.2
53.7
29.6
39.4
24.6
0
6.2
26.0
9.3
9.4
0
25.8
54.9
Venture Subs/ Market Subs (%)
0
0
6.9
90.6
43.6
46.2
90.5
0
92.4
83.5
85.0
49.9
0
29.0
92.4
Equity (%)
Telefonica
0
0
0.2
1.1
0.8
6.3
1.5
0
0.1
0.2
2.1
0.1
0
0.5
17.0
Prop. Subs (M)
0.9
2.8
0
0
0
7.9
1.2
0.0
0.6
0
20.1
0
2.0
0
0
Venture Subs (M)
Table 3. Characteristics of the wireless markets of Telefonica and America Movil: 2002
59.1
61.4
0
0
0
22.6
18.2
0.4
39.8
0
77.4
0
1.4
0
0
Venture Subs// Market Subs (%)
America Movil
80.6
95.7
0
0
0
59.3
92.0
99.0
96.0
0
100
0
97.8
0
0
Equity (%)
0.7
2.7
0
0
0
4.7
1.1
0.0
0.6
0
20.1
0
1.9
0
0
Prop. Subs (M)
0.9
2.8
2.6
1.2
1.8
21.6
2.8
0.0
0.7
0.2
22.5
0.2
2.0
1.6
18.4
Venture. Subs (M)
59.1
61.4
39.2
53.7
29.6
62.0
42.8
0.4
46.0
26.0
86.7
9.4
1.4
25.8
54.9
Venture Subs/ Market Subs (%)
Telefonica + America Movil
0.7
2.7
0.2
1.1
0.8
11.0
2.6
0.0
0.7
0.2
22.2
0.1
1.9
0.5
17.0
Prop. Subs (M)
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
49.2
Uruguay
28.8
56.0
42.0
67.9
Chile
Peru
59.2
Brazil
Venezuela
16.8
42.6
Argentina
7.3
3.4
28.1
192.0
39.9
3.4
44.7
55.6
5.7
Honduras
32.8
Nicaragua
13.7
6.1
108.6
10.0
2.7
3.96
311.7
31.6
5.4
10.3
82.3
Panama
47.3
47.8
61.5
Mexico
El Salvador
44.7
Dominican Republic
Guatemala
NA
42.0
Jamaica
88.6
U.S.
Puerto Rico
74.3
55.6
Slovak Republic
Morocco
75.3
Czech Republic
4.4
86.9
86.3
Ireland
Germany
79.8
85.5
Spain
UK
44.5
61.2
Risk
Market
Population (M)
9.6
11.2
4.4
10.1
8.4
8.2
6.8
1.9
1.2
2.8
3.6
10.0
4.6
5.6
17.7
45.6
2.7
17.6
21.0
44.4
63.5
43.2
36.1
GDP/ CAP $ US (000)
104.7
96.3
72.7
88.1
78.5
116.6
111.9
84.9
53.6
109.2
113.3
69.4
72.5
100.6
85.7
86.8
72.2
102.2
133.5
130.4
113.8
123.4
111.7
Subs/ 100 Inhabitants.
47.8
31.0
48.2
15.3
26.6
42.8
40.6
74.9
45.5
49.0
43.3
20.1
28.1
11.6
34.3
11.0
25.4
8.5
7.3
10.6
7.6
6.9
5.9
CAG (%)
1.5
10.6
10.6
6.9
44.9
14.8
1.4
0
0.8
2.2
1.3
15.3
0
0
0
0
7.5
0.5
5.3
14.2
1.7
19.5
23.6
Venture Subs (M)
41.4
39.1
50.7
46.5
29.8
31.8
36.8
0
27.0
14.9
18.1
20.4
0
0
0
0
32.7
9.1
38.2
13.2
34.2
25.8
47.5
Venture Subs/ Market Subs (%)
100
100
98.1
100
50.0
100
100
0
100
99.9
99.1
100
0
0
0
0
32.2
69.4
69.4
100
100
100
100
Equity (%)
Telefonica
1.5
10.6
10.4
6.9
22.5
14.8
1.4
0
0.8
2.2
1.3
15.3
0
0
0
0
2.4
0.4
3.7
14.2
1.7
19.5
23.6
Prop. Subs (M)
0.8
0
7.2
3.0
38.7
15.4
0
1.4
2.1
3.9
1.8
56.4
3.9
0.2
0.7
11.2
0
0
0
0
0
0
0
Venture Subs (M)
Table 4. Characteristics of the wireless markets of Telefonica and America Movil: 2008
22.8
0
34.3
20.3
25.7
33.1
0
22.5
69.1
26.1
25.9
74.9
54.1
7.3
20.5
4.1
0
0
0
0
0
0
0
Venture Subs// Market Subs (%)
100
0
100
100
100
100
0
100
99.3
99.3
95.8
100
100
99.4
100
98.2
0
0
0
0
0
0
0
Equity (%)
America Movil
0.8
0
7.2
3.0
38.7
15.4
0
1.4
2.1
3.9
1.7
56.4
3.9
0.2
0.7
11.0
0
0
0
0
0
0
0
Prop. Subs (M)
2.3
10.6
17.8
9.9
83.6
30.2
1.4
1.4
2.9
6.1
3.1
71.7
3.9
0.2
0.7
11.2
7.5
0.5
5.3
14.2
1.7
19.5
23.6
Venture. Subs (M)
64.2
39.1
85.0
66.8
55.5
64.9
36.8
22.5
96.1
41.0
44.0
95.3
54.1
7.3
20.5
4.1
32.7
9.1
38.2
13.2
34.2
25.8
47.5
Venture Subs/ Market Subs (%)
Telefonica + America Movil
2.3
10.6
17.6
9.9
61.2
30.2
1.4
1.4
2.9
6.1
3.0
71.7
3.9
0.2
0.7
11.0
2.4
0.4
3.7
14.2
1.7
19.5
23.6
Prop. Subs (M)
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
1237
1238
11.4 98.5 11.4 8.3 100 71.6 8.3 3.1 100 3.1 37.1 33.1 Ecuador
13.5
3.9
86.0
26.9
37.2
0.4 6.9
90.3 37.4
0.4 0.4
27.2 99.4
100 6.9
66.2 27.4
0.4 0
10.0 100
0 0
24.1
0
10.0
26.7
46.2 91.9
92.8 2.6 6.2 40.2
53.6
Paraguay
Colombia
Risk Market
5.4
Equity (%) Equity (%) CAG (%)
A four-step analysis method was used in the study: (1) identify the market attractiveness and competitive position criteria of interest and collect the requisite 2002 and 2008 market and company data to measure them; (2) calculate the weighted and unweighted means, standard deviations, and coefficients of variation of the scores associated with the identified market attractiveness and competitive position criteria across all the markets in the companies’ market portfolios using the 2002 data and then the 2008 data. Repeat these calculations for the portfolios consisting only of the companies’ Latin American
45.0
Venture Subs/ Market Subs (%) Venture Subs// Market Subs (%) Venture Subs/ Market Subs (%) Venture Subs (M)
and one in Africa (Morocco). The company had 30.1 million proportionate wireless subscribers (43.5% abroad) and overall revenues and a net loss of €28.4 billion and €5.6 billion, respectively. With the incorporation of O2 and Cesky Telecom in Europe in 2005 Telefonica’s internationalization strategy became bi-regional. By the end of 2008 the company had expanded to nineteen countries abroad, having added wireless operations in five markets in Europe (UK, Ireland, Germany, Czech Republic and the Slovak Republic) and five in Latin America (Panama, Nicaragua, Colombia, Ecuador, and Uruguay). It no longer had an ownership presence in Puerto Rico. Telefonica had grown to 166.1 million proportionate wireless subscribers (85.7% abroad), with overall revenues of €57.9 billion and yearly profits of €7.8 billion, respectively. It also had re-organized its fixed and wireless operations integrating them into three geographical regions: Spain, Europe, and Latin America. Telefonica’s digital mobile networks are based on the GSM/UMTS standard except for some remaining CDMA-based networks in Latin America that the company is migrating to GSM/UMTS. Telefonica has sought to capitalize on economies of scale and integrated management of its operations (Telefonica, 2002-2008).
ANALYSIS METHOD
Population (M)
Table 4. continued
GDP/ CAP $ US (000)
Subs/ 100 Inhabitants.
Telefonica
Prop. Subs (M)
Venture Subs (M)
America Movil
Prop. Subs (M)
Venture. Subs (M)
Telefonica + America Movil
Prop. Subs (M)
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
4.3
0.4 2.9
NA
21.7
15.0
15.8
NA
58.3
20.0
0
0
43.3
0
35.0
Mo. Rev/ Sub ($)
83.3
72.0
68.6
NA
63.4
87.5
0
0
93.8
0
64.7
% Prepaid
1.5
3.7
4.1
5.0
0.8
2.3
0
0
0.7
17.4
13.5
Rev. ($B)
Telefonica
2
1
except Spain; not including Slovakia except for % prepaid in 2008 includes Jamaica and fixed line operations in the Dominican Republic 3 Colombia and Venezuela 4 Argentina, Chile, Uruguay, and Paraguay 5 Ecuador and Peru
Andean5
Southern Cone
0.3
12.0
1.2
Brazil
4
NA
Caribbean South America3
4.8 2.0
0.5
0.2
Central America3
0
0
2.4
0
70.0
% Total Co. Rev.
Mexico
0
0.2
Morocco
0
0
Europe1
Caribbean Islands2
7.1
Spain
U.S.
Rev ($B).
Market
2002
3.1
7.5
8.4
10.2
1.6
4.7
0
0
1.3
35.7
27.6
% Total Co. Rev.
2008
8.3
18.3
15.0
20.2
11.7
12.5
0
0
22.5
37.0
47.5
Mo. Rev/ Sub ($)
90.2
67.5
81
89.1
93.0
94.1
0
0
NA
55.2
38.3
% Prepaid
0.1
0.0
0.7
0.3
0.2
3.9
0
0.41
0
0
0
Rev ($B).
2.2
0.2
12.0
6.1
3.3
69.0
0
7.2
0
0
0
% Total Co. Rev.
2002
13.8
1.2
12.1
10.7
25.8
16.3
0
17.7
0
0
0
Mo. Rev/ Sub ($)
Table 5. Revenue Characteristics of the wireless markets of Telefonica and America Movil: 2002 - 2008
91.7
NA
81.4
68.2
90.2
93.3
0
100
0
0
0
% Prepaid
1.5
2.2
5.1
2.4
1.16
9.8
1.7
1.2
0
0
0
Rev. ($B)
America Movil
5.9
8.8
20.4
9.4
4.6
39.1
7.1
4.8
0
0
0
% Total Co. Rev.
2008
7.8
9.4
11.0
7.3
10.7
14.4
31.0
9.1
0
0
0
Mo. Rev/ Sub ($)
88.8
87.2
79.5
86.7
NA
92.7
79.2
100
0
0
0
% Prepaid
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
1239
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
markets. The coefficient of variation is given by the ratio of the standard deviation to the mean and is a normalized measure of dispersion of a probability distribution. The weighted means and weighted standard deviations (NIST, 1997) were calculated using a weighting scheme based on the number of proportionate subscribers in each market, i.e. the number of subscribers that the company controlled (Curwen & Whalley, 2006); (3) calculate the changes from 2002 to 2008 in the mean, standard deviation, and coefficient of variation values found in (2); and (4) compare the companies based on the results generated in (2) and (3). Five market attractiveness criteria and six competitive position criteria were identified. The market attractiveness criteria consisted of the following: two growth variables - number of cellular subscribers per 100 (market penetration) and the five-year compound annual growth rate of cellular subscribers (market maturity); two market profitability variables - GDP per 100 (wealth) and population, i.e., the number of inhabitants (scale); and one risk variable – country risk, measured by Euromoney Institutional Investor’s country risk indicator. This indicator, which is published in March and September each year, incorporates the following criteria: a country’s political risk, economic performance, debt indicators, debt in default or rescheduled, credit ratings, access to bank finance, access to short-term finance, access to capital, and discount on forfeiting. The highest possible score is 100 (Euromoney International Investor, 2003-2009). Data sources for the growth and profitability variables included the ITU statistical indicator database (ITU, 2002-2008) and the World Bank (World Bank, 2009). The following competitive position criteria were identified: two market share criteria – the percentage of total subscribers in the market who were subscribers to the company’s venture and the percentage of total subscribers in the market based on the companies’ proportion of ownership; two pricing criteria – the monthly revenue per subscriber, (calculated
1240
by taking one-twelfth of the company’s annual revenue and dividing the result by the number of proportionate subscribers) and the percentage of subscribers with prepaid service; and two criteria reflecting the importance of the venture to the company and thus its ability to draw resources from it – the percentage of total company revenue generated by the venture and the percentage of ownership or equity interest that the company has in the venture. Sources for the companies’ financial, market, ownership, and subscriber data included the companies’ annual reports and SEC 20-F filings (America Movil, 2002-2008; Telefonica, 20022008). No attempt was made to ascertain the validity of the data reported by the companies. End of fiscal year 2002-2008 operational and financial data and exchange rates were used. Risk data in March of the fiscal year following the study fiscal year was used for the companies in the study.
ANALYSIS AND COMPARISON OF MARKET PORTFOLIOS The results of the analysis are presented in Table 6 and Table 7 below. Table 6 presents the weighted and unweighted mean values and weighted and unweighted standard deviations of the market attractiveness and competitive strength criteria scores across the markets in the Latin American market portfolios of Telefonica and America Movil in 2002 and 2008, as well as the total market portfolios of the two companies. The weights are based on the proportionate number of company subscribers in the market. The coefficients of variation (i.e. standard deviations divided by the means) of the criteria are presented in Table 7. The following discussion will address the questions posed in the Introduction, focusing on the companies’ Latin American portfolios. In terms of the market attractiveness criteria specified above, a market will be more attractive the higher its risk score, the higher its population
3.4
20.7
52.3
32.6
19.0
7.6
20.4
74.1
62.2
GDP/ Capita ($000)
Subs/100 Inhabitants
5-Year CAG (%)
Venture Subs/ Market Subs (%)
Prop Subs/ Market Subs (%)
% Total Co. Revenue1
Mo. Rev./ Sub ($)1
% Prepaid1
OwnerShip (%)
88.6
83.5
16.1
7.5
28.6
32.0
33.5
87.9
7.9
77.7
53.4
‘08
Mean
26.4
9.4
-4.3
-0.1
9.6
-0.6
-18.8
67.2
4.5
-37.1
6.3
Ch.
Weighting is based on revenue
114.8
Population (M)
1
47.1
Risk
‘02
22.9
9.2
12.5
4.6
11.2
13.9
15.4
7.3
1.7
70.1
11.9
‘02
Latin America
61.3
10.3
5.0
4.9
12.5
10.1
11.6
17.0
2.5
70.7
9.4
‘08
Std. Dev.
38.4
1.1
-7.5
0.3
1.3
-3.8
-3.8
9.6
0.8
0.6
-2.5
Ch.
78.9
67.7
31.3
52.2
36.9
45.2
52.7
54.8
10.9
71.2
70.8
‘02
Telefonica
91.4
60.7
32.3
23.0
31.9
32
23.5
100.2
20.0
68.4
64.6
‘08
Mean
12.5
-7.0
1.0
-29.2
-5.0
-13.2
-29.2
45.4
9.1
-2.8
-6.2
Ch.
22.3
7.5
9.5
30.6
18.2
14.6
15.4
31.5
6.9
58.9
22.6
‘02
All Markets
58.3
20.6
13.9
13.3
12.7
11.6
15.8
21.8
16.8
57.1
16.5
‘08
Std. Dev. ‘02
36.0
13.1
4.4
-17.3
-5.5
-3.0
0.4
-9.7
9.9
-1.8
-6.1
92.4
90.1
15.7
53.9
61.9
64.0
63.0
22.1
5.0
101.4
55.1
Weighted
Ch.
99.8
87.3
13.1
23.3
48.8
52.5
31.7
82.2
7.7
92.8
55.2
‘08
Mean
7.4
-2.8
-2.6
-30.6
-13.1
-11.5
-31.3
60.1
2.7
-8.6
0.1
Ch.
15.8
7.5
3.0
28.8
26.9
23.6
16.7
5.3
2.0
43.1
10.5
‘02
Latin America
1.6
6.1
6.0
15.2
23.1
22.8
12.2
15.5
2.6
66.3
8.9
‘08
Std. Dev.
Table 6. Comparison of the market portfolios of Telefonica and America Movil: 2002 - 2008
-14.2
-1.4
3.0
-13.6
-3.8
-0.8
-4.5
10.2
0.6
23.2
-1.6
Ch
92.7
90.8
15.9
50.6
58.3
60.2
60.5
23.8
6.9
112.7
57.5
‘02
99.7
87.9
12.9
22.4
46.1
49.6
19.3
82.5
10.0
106
57.2
‘08
Mean
America Movil
7.0
-2.9
-3.0
15.3
7.7
2.9
30.3
30.1
27.8
19.3
8.5
8.2
63.5
14.4
‘02
Std. Dev.
2.0
6.6
5.9
15.3
25.3
25.1
12.9
15.0
9.6
83.6
11.9
‘08
-13.3
-1.1
3.0
-15.0
-4.8
-2.7
-6.4
6.5
1.4
20.1
-2.5
Ch.
continues on following page
-28.2
-12.2
-10.6
-41.2
58.7
3.1
-6.7
-0.3
Ch.
All Markets
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
1241
1242
49.9
52.8
44.6
3.9
23.3
57.6
26.4
15.8
5.2
26.2
75.0
65.4
Risk
Population (M)
GDP/ Capita ($000)
Subs/100 Inhabitants
5-Year CAG (%)
Venture Subs/ Market Subs (%)
Prop Subs/ Market Subs (%)
% Total Co. Revenue
Mo. Rev./ Sub ($)
% Prepaid
OwnerShip (%)
95.9
85.8
14.3
5.9
30.1
31.3
38.0
91.7
6.6
38.8
‘08
‘02
Mean
Table 6. continued
30.5
10.8
-11.9
0.7
14.3
4.9
-19.6
68.4
2.7
-5.8
-2.9
Ch.
30.0
10.1
18.2
4.0
14.6
16.1
22.8
12.6
3.3
56.8
19.6
‘02
Latin America
13.8
10.1
4.4
3.3
11.8
11.0
11.2
19.4
3.2
54
10.5
‘08
Std. Dev.
-16.2
0
-13.8
-0.7
-2.8
-5.1
-11.6
6.8
-0.1
-2.8
-9.1
Ch.
64.6
76.2
29.9
14.1
18.2
28.9
64.6
28.3
4.8
42.9
56.3
‘02
Telefonica
90.9
76.1
21.4
11.1
29.3
30.4
28.3
99.0
15.7
37.2
59.6
‘08
Mean
26.3
-0.1
-8.5
-3.0
11.1
1.5
-36.3
70.7
10.9
-5.7
3.3
Ch.
30.4
12.0
16.3
24.9
18.2
16.8
32.9
20.7
4.9
51
20.6
‘02
All Markets
19.6
20.5
12.8
12.2
12.8
11.7
16.7
21.9
17.3
46.2
17.1
‘08
Std. Dev. ‘02
-10.8
8.5
-3.5
-12.7
-5.4
-5.1
-16.2
1.2
12.4
-4.8
-3.5
88.9
85.0
13.3
15.5
36.1
39.9
61.7
14.7
2.6
55.1
41.0
Unweighted
Ch.
99.6
85.7
13.1
13.6
36.2
36.3
37.3
88.8
6.3
31.5
50.7
‘08
Mean
10.7
0.7
-0.2
-1.9
0.1
-3.6
-24.4
74.1
3.7
-23.6
9.7
Ch.
14.6
10.4
8.0
26.5
27.4
27.6
28.0
6.7
1.8
61.8
11.9
‘02
Latin America
1.0
5.3
8.2
12.4
23.0
23.0
15.8
17.3
4.2
50.5
14.0
‘08
Std. Dev.
-13.6
-5.1
0.2
-14.1
-4.4
-4.6
-12.2
10.6
2.4
-11.3
2.1
Ch
90.1
87.5
13.9
14.3
31.7
35.0
56.6
19.0
6.8
84.3
47.8
‘02
99.5
87.7
12.6
12.5
34.3
34.4
35.8
88.7
8.6
48
52.9
‘08
Mean
America Movil
9.4
0.2
-1.3
-1.8
2.6
-0.6
-20.8
69.7
1.8
-36.3
5.1
Ch.
13.9
11.2
7.5
24.4
28.2
28.9
29.7
13.6
12.0
100.3
22.2
‘02
All Markets
1.1
7.3
7.8
11.9
23.6
23.6
16.6
16.8
10.4
83.7
16.4
‘08
Std. Dev.
-12.8
-3.9
0.3
-12.5
-4.6
-5.3
-13.1
3.2
-1.6
-16.6
-5.8
Ch.
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
Table 7. Comparison of the coefficients of variation of the market portfolios of Telefonica and America Movil: 2002 - 2008 Telefonica Latin America
America Movil All Markets
2002
2008
Latin America
2002
2008
Ch.
Ch.
Risk
0.25
0.18
-0.08
0.32
0.26
-0.06
Population (M)
0.61
0.91
0.30
0.83
0.84
GDP/ Capita ($000)
0.48
0.32
-0.17
0.64
Subs/100 Inhabitants
0.36
0.19
-0.16
5-Year CAG (%)
0.29
0.35
Venture Subs/ Market Subs (%)
0.43
Prop. Subs/ Market Subs (%)
2002
All Markets
2008
Ch.
2002
2008
Ch.
0.19
0.16
-0.03
0.25
0.21
-0.04
0.01
0.43
0.71
0.28
0.56
0.79
0.23
0.84
0.20
0.40
0.33
-0.06
1.18
0.96
-0.22
0.57
0.22
-0.36
0.24
0.19
-0.05
0.36
0.18
-0.18
0.05
0.29
0.67
0.38
0.27
0.39
0.12
0.32
0.42
0.10
0.32
-0.11
0.32
0.36
0.04
0.37
0.43
0.07
0.46
0.51
0.05
0.59
0.44
-0.16
0.49
0.40
-0.10
0.43
0.47
0.04
0.52
0.55
0.03
% Total Co. Revenue1
0.61
0.65
0.04
0.59
0.58
-0.01
0.53
0.65
0.12
0.60
0.68
0.08
Mo. Rev./ Sub ($)1
0.61
0.31
-0.30
0.30
0.43
0.13
0.19
0.46
0.27
0.18
0.46
0.28
% Prepaid1
0.12
0.12
0
0.11
0.34
0.23
0.08
0.07
-0.01
0.08
0.08
0
Ownership (%)
0.37
0.69
0.32
0.28
0.64
0.36
0.17
0.02
-0.16
0.16
0.02
-0.14
Coefficients of Variation - Weighted
1
Weighting is based on revenue Coefficients of Variation – Unweighted
Risk
0.37
0.21
-0.16
0.37
0.29
-0.08
0.29
0.28
-0.01
0.46
0.31
-0.16
Population (M)
1.27
1.39
0.12
1.19
1.24
0.05
1.12
1.60
0.48
1.19
1.75
0.55
GDP/ Capita ($000)
0.84
0.49
-0.35
1.02
1.10
0.08
0.68
0.68
0.00
1.76
1.21
-0.55
Subs/100 Inhabitants
0.54
0.21
-0.33
0.73
0.22
-0.51
0.45
0.19
-0.26
0.71
0.19
-0.53
5-Year CAG (%)
0.40
0.30
-0.10
0.51
0.59
0.08
0.45
0.42
-0.03
0.52
0.46
-0.06
Venture Subs/ Market Subs (%)
0.61
0.35
-0.26
0.58
0.39
-0.20
0.69
0.63
-0.06
0.83
0.69
-0.14
Prop Subs/ Market Subs (%)
0.93
0.39
-0.53
1.00
0.44
-0.56
0.76
0.63
-0.13
0.89
0.69
-0.20
% Total Co. Revenue
0.76
0.56
-0.20
1.77
1.10
-0.67
1.72
0.91
-0.81
1.71
0.95
-0.76
Mo. Rev./ Sub ($)
0.70
0.31
-0.39
0.55
0.60
0.05
0.60
0.63
0.03
0.54
0.62
0.08
% Prepaid
0.14
0.12
-0.02
0.16
0.27
0.11
0.12
0.06
-0.06
0.13
0.08
-0.05
Ownership (%)
0.46
0.14
-0.32
0.47
0.22
-0.26
0.16
0.01
-0.15
0.15
0.01
-0.14
1243
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
score, the higher its GDP per capita score, the lower its number of subscribers per 100 score, and the higher its 5-year CAG. In terms of the competitive position criteria specified, a company’s position in a market will be stronger the higher the percentage of total market subscribers it possesses, the higher the percentage of total market subscribers that are proportionate subscribers (i.e., the company controls), the higher the percentage of total company revenue generated in the market, the higher the monthly revenue per subscriber, the lower the percentage of prepaid (lower paying, non-contract) customers, and the higher the degree of the company’s equity participation in the venture. The variance of the markets in a company’s portfolio in a given year with respect to a specific market criterion can be measured by the standard deviation of the scores for that criterion across the portfolio. The lower the standard deviation, the less dispersed the scores are about the mean and more similar the markets are with respect to that criterion. With this in mind, and taking into account the fact that we are dealing with the collection of markets in the companies’ portfolios on an average basis when calculating the mean value with respect to a given criterion, it can be observed from the weighted analysis that both companies operated in Latin America in equally risky, relatively unattractive markets, although Telefonica’s markets became somewhat less risky from 2002 to 2008 whereas America Movil’s did not. In the unweighted analysis, Telefonica’s markets became a bit riskier from 2002 to 2008, while America Movil’s became less risky. In the weighted analysis in 2008 both companies also displayed a similar degree of variance in their Latin American markets with respect to risk, somewhat less than displayed in 2002. On the other hand, in the unweighted analysis the degree of variance in risk decreased decidedly for Telefonica’s markets from 2002 to 2008, while America Movil’s risk increased somewhat. With respect to population, in the weighted analysis both companies’ Latin American market
1244
portfolios were relatively attractive with America Movil’s being more attractive than Telefonica’s because it was more populous. In addition, Telefonica’s Latin American market portfolio actually decreased by a sizeable amount in population, while America Movil’s decrease was much smaller. On the other hand, the degree of attractiveness with respect to population was much less in the unweighted analysis, and although it decreased for both companies from 2002 to 2008, America Movil’s decrease was much greater. The dissimilarity of Latin American markets with respect to population in 2008 was quite significant for both companies in both the weighted and unweighted analysis, the change from 2002 increasing considerably for America Movil in the weighted analysis and decreasing in the unweighted analysis. In both the weighted and unweighted analyses the companies’ Latin American market portfolios in 2008 were relatively unattractive with respect to GDP per capita, the level of which was virtually the same for both companies, as was the market variance. The portfolios’ attractiveness changed little from 2002. In addition, in both the weighted and unweighted analyses there was a considerable increase from 2002 to 2008 in the market penetration rate (number of subscribers per 100) associated with the companies’ Latin American market portfolios substantially lessening their attractiveness, which had been quite high. The market variance also increased. The results in 2008 for the 5-year CAG market attractiveness criterion were similar to those for market penetration: in the weighted as well as unweighted analysis the level of attractiveness associated with both companies’ Latin America market portfolios, which was high in 2002, decreased substantially. The portfolios had comparable market variance, which lessened over the six-year interval. The results for the two “market share” competitive position criteria, percentage of the total number of market subscribers who subscribe to the company’s venture and percentage of the total number of market subscribers who are proportion-
An Analysis of the Latin American Wireless Telecommunications Market Portfolios
ate subscribers, were very similar in 2008, not too surprising, since in many markets the number of venture subscribers and proportionate subscribers is the same or close. Because both companies are market leaders, their Latin American market portfolios scored well with respect to these criteria, although America Movil’s scored better with about 50% of the market to Telefonica’s 30%. Dominance of the large Mexican market contributed to American Movil’s strength and may explain why the markets in America Movil’s Latin American market portfolio had a higher degree of variance with respect to the criteria. It also explains why the weighted mean score is higher than the unweighted score. Intense competition is evident from the observation that the portfolios’ venture market share scores have dropped from 2002 to 2008. The markets’ variance with respect to venture market share decreased somewhat over the six-year period. On average, in 2008 Telefonica’s markets in Latin America (national or regional as defined in Table 5) generated a lower percentage of revenues to the company and displayed less variance than did America Movil’s. This is not very surprising, since the revenue contribution of Telefonica’s Latin American market portfolio to the company’s total was much less than America Movil’s. The dominance of the Mexican market for America Movil can be seen in the significantly higher weighted mean score versus the unweighted score, especially in 2002. Although the average score and degree of variance associated with Telefonica’s Latin American market portfolio changed very little from 2002 to 2008, both decreased significantly for America Movil’s Latin American market portfolio, as the company pursued its regional strategy. With respect to the monthly revenue per subscriber in 2008, Telefonica’s Latin American markets on average generated somewhat more revenue than America Movil’s, although this quantity decreased from 2002, as did the markets’ variance. The degree of variance of the markets in
America Movil’s Latin American market portfolio changed little from 2002. The Latin American market portfolios of both Telefonica and America Movil suffered from a high percentage of subscribers with prepaid service in 2008, the percentage of subscribers with prepaid service increasing from 2002 in Telefonica’s case, while decreasing slightly in America Movil’s. The degree of variance in both companies’ Latin American market portfolios changed little from 2002. The percentage of venture ownership results indicate that both companies had strong ownership positions in their Latin American ventures, America Movil having very close to full ownership. However, the degree of market variance was very high in Telefonica’s case, whereas it was minimal in America Movil’s. Telefonica’s percentage of venture ownership increased considerably from 2002 to 2008, as did the variance of its markets, especially in the weighted analysis. This was not the case for America Movil: the average score did not increase a great deal and the variance actually decreased. The final question to be answered relates to the relative degree of variance among markets that each of the market attractiveness and competitive position criteria displayed. Table 7 indicates that for the Latin American markets in 2008 the market attractiveness criterion with the highest degree of market variance regardless of company was population. This is especially true in the weighted analysis. In the weighted analysis this criterion also changed the most during the six-year interval. In the unweighted analysis the change was relatively small for Telefonica. The 5-year CAG and GDP per capita criteria followed with about the same degree of variance, but not as much change from 2002 as population. The market attractiveness criteria with the least degree of variance were subscribers per 100 inhabitants and risk, both of which decreased in degree of variance over the six-year period. The degree of variance was generally higher in the unweighted analysis. The variance ranking was less clear-cut when the
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An Analysis of the Latin American Wireless Telecommunications Market Portfolios
competitive position criteria are considered. In Telefonica’s case, the markets were most dissimilar with respect to percentage of ownership, the competitive criterion whose value also changed the most from 2002. On the other hand, America Movil’s markets were most similar with respect to the percentage of ownership; its markets were most dissimilar with respect to the percentage of total company revenues, which had been the case in 2002 also. However, both companies’ markets displayed quite a bit of variance with respect to the two market share criteria, as they had done in 2002. America Movil’s market variance was fairly high with respect to monthly revenue per subscriber in 2008, although Telefonica’s was less so. The situation was reversed in 2002. Prepaid service was the competitive position criterion with the least variance among Telefonica’s markets in 2008, as it had been in 2002. America Movil’s markets were more dissimilar with respect to this criterion, the degree of variance being slightly higher than in 2002. In general, the degree of variance was higher in the unweighted analysis. Because America Movil’s total market portfolio (i.e. the portfolio containing all the company’s wireless markets) differs from its Latin American market portfolio only with the addition of the U.S., the observations described above pertain to it in 2008 as well. However, there are some significant differences in Telefonica’s case. The inclusion of Spain and the other European markets lowers the risk (more attractive), the size of the population (less attractive), and the growth rate (less attractive) of Telefonica’s market portfolio, but increases the GDP per capita (more attractive) and the market penetration (less attractive). In terms of the competitive position criteria, the inclusion of these markets increases the percentage of revenues per market and monthly revenue per subscriber, and decreases the percentage of prepaid service. There is not much difference in the market share criteria and percentage of ownership criteria. The inclusion of Spain and the other European markets also has a similar effect
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on market variance, increasing (decreasing) the weighted standard deviation when the mean value increases (decreases), except with respect to 5-year CAG and percentage of the market with prepaid service. On a relative basis, the inclusion of these markets advances GDP per capita, 5-year CAG, and percentage of total revenue in the ranking of criteria according to their degree of variance.
CONCLUSION AND DIRECTIONS FOR FUTURE RESEARCH With growth in its traditional Latin American wireless voice and text markets slowing and competition getting fiercer, Telefonica changed its internationalization strategy, shifting its resources into Europe in 2006 with its purchase of O2, and later re-organizing regionally, integrating its fixed-line and wireless operations to cut costs and position itself to offer a bundle of voice, data, text, and video services. America Movil had the same integration objectives in mind when it acquired control in June, 2010 of Telmex International and Carso Global Telecom, the holding company for Telmex shares previously owned by Grupo Carso. This paper provides some background for these reorganizational and strategic actions, analyzing the expansion efforts of America Movil and Telefonica into the mobile communications markets of Latin America during 2002-2008. During the first few years of that period both companies made a concerted effort to expand their footprints in the region, becoming market leaders. The paper addressed three sets of questions: (1) How attractive were the markets in which America Movil and Telefonica competed in 2008 compared with 2002? Was there much of a loss in attractiveness during the six-year period? (2) How did the companies’ competitive positions compare in 2008 relative to 2002? Was there much change? And (3) were all the markets in the companies’ portfolios equally attractive or were they, and the companies’competitive positions in them, different? Did the degree of
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similarity change much during the six-year period? With respect to which criteria was the degree of variance greatest? In order to answer these questions the paper employed a variation on the traditional market attractiveness – competitive position assessment technique used in corporate market portfolio analysis. The customary procedure is to calculate a weighted score for each market attractiveness and competitive position criterion and then add the scores together to determine an overall weighted score for the market. The process is then repeated for each market in the portfolio. Here each market attractiveness and competitive position criterion was treated separately and overall weighted (and unweighted) mean, standard deviation, and coefficient of correlation scores were calculated with respect to the criterion across all the markets in the company’s market portfolio. The weightings were based on the number of proportionate subscribers the company possessed in each market. Among the paper’s findings were the following: while the companies’ Latin American markets have lost some attractiveness from 2002 to 2008 - their growth indeed slowing, their penetration ratios increasing, and competition intensifying - they have also gained some attractiveness: increasing their GDP per capita, and at least in Telefonica’s case, becoming less risky. Furthermore, expanding in Europe increased the attractiveness of Telefonica’s total market portfolio by increasing significantly the GDP per capita of the average market as well as decreasing its riskiness. The competitive position situation in Latin America in 2008 seemed to favor America Movil; although Telefonica’s competitive strength did increase with respect to some criteria over the six-year period. On average Telefonica had an approximately 20% lower market share than America Movil’s approximately 50%. In addition, Telefonica was weakened over the six-year period by an increase in the percentage of prepaid subscribers. However, it was strengthened by an increase in average equity participation in its ventures, although this varied quite a bit from market to market. Increasing its
ownership percentage strengthened its position with respect to market share based on the number of proportionate subscribers. America Movil’s competitive position was strengthened somewhat by a small decrease in the percentage of prepaid service subscribers and an increase in its ownership position, which was strong to begin with. The percentage of ownership varied very little from market to market. The average monthly revenue per subscriber was roughly the same for the two companies and did not change very much during the six-year period. Regarding the degree of market variance among criteria, in 2008 the market attractiveness criterion with the highest degree of market variance regardless of company was population. The degree of market variance of this criterion also changed the most of all criteria during the six-year interval. Next were the 5-year CAG and GDP per capita with about the same degree of variance, but not as much change in degree of variance from 2002 as population. The market attractiveness criteria with the least degree of market variance were subscribers per 100 inhabitants and risk, both of which decreased in value over the six-year period. There are several possible directions for future research, three of which will be mentioned here. One direction for future research is to pursue the study of America Movil and Telefonica described here several years into the future. In particular, it would be interesting to see if, and by how much, America Movil’s restructuring changed the market attractiveness – competitive position criteria scores across the company’s market portfolio. A second direction for future research is to investigate the companies’ strategies, as well as their portfolios, in greater detail. Among the additional market attractiveness and competitive position factors that could be investigated are degree of regulation, financial factors, and technological capability. A third, and based on this study quite promising research direction, is to develop and expand the portfolio analysis technique presented in this paper for general applicability for formulating corporate strategy.
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REFERENCES Abell, D. F., & Hammond, J. S. (1979). Strategic Market Planning: Problems and Analytical Approaches. Upper Saddle River, NJ: Prentice-Hall. America Movil. (2010a). Press Room: January 13, 2010. Retrieved October 1, 2010, from http:// www.americamovil.com/index_eng.htm America Movil. (2010b). Press Room: June 16, 2010. Retrieved October 1, 2010, from http:// www.americamovil.com/index_eng.htm America Movil. (2002-2008). Annual and Form 20-F Reports. Curwen, P., & Whalley, J. (2004). Structural adjustment in the Latin American and African mobile sectors. Telecommunications Policy, 32, 349–363. doi:10.1016/j.telpol.2008.02.004 Curwen, P., & Whalley, J. (2006). Measuring Internationalization in the Mobile Telecommunications Industry. International Business Review, 15, 660–681. doi:10.1016/j.ibusrev.2006.09.002
Mariscal, J. (2007). Market Structure in the Latin American Mobile Sector. In Mobile Opportunities: Background Papers. Retrieved from http:// dirsi.net/sites/default/files/dirsi_07_MO_BP_ mar_en.pdf Mariscal, J., & Rivera, E. (2005). New trends in the Latin American telecommunications market: Telefonica & Telmex. Telecommunications Policy, 29, 757–777. doi:10.1016/j.telpol.2005.05.007 National Institute of Standards and Technology, Statistical Engineering Division. (1997, March 18). Dataplot Reference Manual. Powell, S. R. (2009). On the Internationalization of the Wireless Telecommunications Industry: A Market-Based Analysis of Six European Service Providers. International Journal of Interdisciplinary Telecommunications and Networking, 1(4), 16–36.
Euromoney International Investor. (2003-2009). Country Risk – Results & Methodology. London: Euromoney.
Sarkar, M. B., Cavusgil, S. T., & Aulakh, P. S. (1999). International Expansion of Telecommunications Carriers: The Influence of Market Structure, Network Characteristics, and Entry Imperfections. Journal of International Business Studies, 30(2), 361–382. doi:10.1057/palgrave. jibs.8490074
Hofer, C. W., & Schendel, D. (1978). Strategy Formulation: Analytical Concepts. St. Paul, MN: West Publishing Company.
Sinclair, J. (2010). Telefonica to launch new business area, focus on data, video. Dow Jones Newswires. Retrieved from www.totaltele.com
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Telefonica and Telefónica Moviles. (2002-2008). Annual and Form 20-F Reports.
International Telecommunications Union. (20022008). Indicators. Retrieved from http://www.itu. int/ITU-D/ict/statistics/
TeleGeography. (2010). Market forecasts explain Latin American M&A frenzy. TeleGeography’s CommsUpdate. Retrieved from www.telegeography.com
Kagan, S. N. L. (2010). The State of Global IPTV. Global Multichannel Markets Special Report. Retrieved from www.snlkagan.com
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This work was previously published in International Journal of Interdisciplinary Telecommunications and Networking (IJITN), Volume 2, Issue 4, edited by Michael R. Bartolacci and Steven R. Powell, pp. 41-59, copyright 2010 by IGI Publishing (an imprint of IGI Global). 1248
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Chapter 4.25
Exploring Organizational Learning and Knowledge Exchange through Poetry Louise Grisoni Bristol Business School, UK
ABSTRACT The central discussion in this chapter is that poetry can be used to provide a bridge between tangible, rational and explicit knowledge and tacit or implicit knowledge, providing opportunities to access new organizational knowledge, understandings and learning. A study based on 60 middle and senior United Kingdom public services managers is presented. In this study managers worked together to explore how creative inquiry into their organizational experience might help address some of the problematic issues facing their organizaDOI: 10.4018/978-1-60960-587-2.ch425
tions and learn how to develop new ideas about best practice. The challenge was to generate new knowledge about the organization. Poetry in the form of ‘haiku’ was used as a creative research method to access tacit knowledge, which, when combined with explicit knowledge and understanding, led to new insights and organizational learning.
INTRODUCTION In a ‘knowledge society’ how organizations process knowledge and how they create new knowledge to meet the many competing challenges of
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Exploring Organizational Learning and Knowledge Exchange through Poetry
organizational life are held as key issues (Drucker 1968, Bell 1973, Toffler 1990). The business case for innovation and creativity in modern organizations in a constantly changing environment has been well made (Stacey 2005, 2006, Shaw 2002, Weick and Quinn 1999). The general consensus from these authors is that organizations need to be flexible, flatter and ready to adapt when needed. Models of continuous change and adaptation provide opportunities to work with complex adaptive systems within organizations in order to stay competitive and knowledge creation is viewed as a source of competitive advantage (Von Krogh, Ichijo, Nonaka, Ichijo 2000). Organizational learning and knowledge exchange form part of the dynamic change process where organizational members work creatively together to find solutions to problems and create new organizational knowledge. There is a tension both in management practice with its current focus in the public sector on performance indicators and evidence based practice, and in the literature - between explicit rational and measurable approaches to knowledge exchange and intangible, tacit and implicit including narrative approaches. Epistemological and ontological differences between approaches to knowledge creation are at the heart of the tension. Chia (2003) argues that new organizational knowledge can be accessed through exploration of intangible and tacit knowledge and an integration of organizational knowledge and organizational learning can be achieved using a ‘social process perspective’ (Chiva and Alegre 2006) where individual and organizational learning and knowledge exchange are viewed as mutually constitutive and constantly changing. Knowledge creation as an inter-subjective, aesthetic process is developed through narrative and story telling (Gabriel 2000, Banks and Banks 1997, Czarniawska 1998, Hatch, Kostera, Kozminski 2005) and I argue that working with poetry provides additional emotional richness and textured nuance to organizational knowledge and learning by distilling and refining story tell-
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ing into a revised form - poetry, which then offers the potential for further levels of understanding, analysis and insight.
USING NARRATIVE AND POETRY TO CONTRIBUTE TO KNOWLEDGE CREATION AND ORGANIZATIONAL LEARNING The contribution of narratives and story telling as ways of understanding organizations is well developed (Gabriel 2000, Banks and Banks 1997, Czarniawska 1998, Hatch, Kostera, Kozminski 2005) and has been used as the starting point for sense making (Weick, 1991) in organizations. ‘Documenting and analyzing organizational stories can enhance our understanding of human behavior. It can also enrich our appreciation of what it means to be a participant in an organization. We gain insights into ways that people interact, communicate, project anxieties, cope with problems and solve dilemmas in human relations. We also discover how people view organizations and what they expect socially aesthetically and symbolically. Hence the information and hypothesis have a practical application’. (Jones, Moore, and Snyder, 1988:14). Working with stories that are constructed between participants as part of an inquiry process draws on narrative analysis (Czarniawska 1998, 1999) where the stories contribute to the continual creation and re-creation of our understanding of organization and our place within them. Important stories are not so much the ones that have become part of an organization’s mythology that persist within an organizational culture (Gabriel 1999), rather they are participants’ stories that have been created with others with a particular focus and narrative. These stories tend to be immediate and relevant to current experience – they may be told relatively infrequently but have a relevance
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to the time place when they were created. As a result they are closely linked to experience and tend to contain an emotional element that would not otherwise find expression. Story telling can be described as a ‘poetic’ form. According to Dilthey (1887), ‘Poetic’ is the term we use for the nature that enables us to enjoy vitality. ‘Poetic’ is above all the nourishing, strengthening and awakening within ourselves of this vitality, this energy of the life-sentiment; a sentiment that resonates in all images, music, words and is found in poetry. It is described as an experience, which can only be appropriated through reflexivity, by being set in relation to other lived experiences. It enables lived experience to be understood in its essence and as a result, in its meaning (in Strati, 1999:60). The place of poetry in organizational life has been acknowledged in a special edition of Management Decision (James and Weir, 2006), which focused explicitly on the relations between poetry, organization, emotions, management and enterprise. The combined work in this issue demonstrates the richness that poetry brings to organizational life, as a way of exploring a range of management and organizational issues including culture, leadership and communications. Poetry is a particular and specialized form of narrative – and as such is an extension of story telling. Creating a poem involves crafting stories and transforming them. By immersing in the experience of organizational life through poetry, customary ways of making sense are suspended, and new insights into encountered reality become possible. Poetic expression therefore grasps at newly discovered reality. For example the story of a management ‘Away Day’ is turned into a ‘playful’ performance poem with an ironic twist (Grisoni, in Grisoni and Kirk 2006:519), which on analysis contains heightened double-edged meaning and foregrounds gender, competition, leadership, voice, separation and leaving, belonging and joining, that would have been lost through
extended narrative and explanation. A fragment is provided for illustration below: Away Day ….. Heads: I win. What? Puppy dog – tails: you lose. What? Puppy dog tails – snip! Sugar and spice. Sacrifice Three little mice Roast them twice – nice. …… In introducing poetry as a creative research method (Grisoni 2008), the argument is made that power of poetry lies in its ability to focus not only on events but also on behavioral and affective elements embedded in the experience. Poetry has been used to reveal hidden aspects of organizational life where the essence of an event or episode opens up an opportunity for greater understanding as well as the potential for change in individuals and organizations (Grisoni 2006, Grisoni and Kirk 2006). Whyte (1994) argues that we live in a time when idealism is out of fashion, where there is an absence of compassion and a failing of imagination. He argues that business and organizations need the poet’s insight and powers of attention to ‘weave the inner world of soul and creativity with the outer world of form and matter (1994:9). A good poem seems to occupy a space beyond mere words especially when it is used to explore the full range of life’s experience. According to Grisham: “Poetry is by its nature a compressed communication of emotions and concepts that the listener must decompress and interpret. By participating in the process the listener must complete portions of
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the message, and thereby internalize, absorb, and reconstruct the message.” (Grisham 2006:492). The emphasis is on understanding as it appears from within an individual’s own experience which on sharing becomes an example of organizational learning. Poems are also therefore an act of discovery, and require a degree of effort to write and to be understood. Poetry can cut through superficiality and help us to see the world differently. Grisham (2006), illustrates this well by drawing on Marchant (2005) who refers to the last few lines of a poem by Komumunyakaa (2001) about seeing the Vietnam Veteran’s Memorial in Washington DC: In the black mirror A woman’s trying to erase names: No, She’s brushing a boy’s hair Poetic methods of extended metaphor, broken cadence, juxtaposition and overlay are used to evoke emotions and contain several layers of potential meaning. Kostera’s (1997) work develops the contribution of poetry to research the relationship between feelings and organizing. She argues that poetry, as an approach is well suited for expressing the ambivalence and volatility of the managerial experience. Its strength is that it does not ‘flatten out’ the domains of organizing or ‘translate them into rationality’ (1997:343). As a result she proposes that poetry can be used to understand more about organizational realities. Her aim in using poetry was to learn about the subversive and subjective experience of talking about management topics. She argues that poetry is particularly powerful in that it does not avoid passion and it is disruptive because it is inconclusive. As such poetry does not provide rational answers – it creates and evokes feelings and its form and shape acts as a container to encourage exploration of a range of possibilities, lines of inquiry, analysis, interpretation, understanding and meaning. To illustrate
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this point I have chosen Kostera’s (1997:351-352) summary of her reading of the contributions from others in her article: Management is about dreams, nets, growing seeds out of chaos comes liberation and the god’s listen to deserters’ prayers (sometimes) Ambiguity is painful but also sensual; a necessity a falling angel, falling veil curtain falling down onto the stage (falling in love) Soon its time The rest is science. Analysis of organizational life is complex and multilayered as it involves acknowledgement of emotions and relationships. Choosing to work with poetry in the research process to explore these issues is powerful as poetry captures both the richness of language and harnesses reflective processes that encourage expression of the complexity of organizational experience. As a consequence there is potential for poetry to access tacit organizational knowledge both in the words used the form and in the emotions evoked that lie behind and between them.
INTRODUCING HAIKU The particular form of poetry selected for the research-based case study was haiku. This form was purposely chosen for its structure and brevity, which results in a focused and concentrated capturing of the essence of a situation. Haiku originated in Japan, around the 15th century. It is a specific form of poetry containing seventeen syllables, in three phrases of five-seven-five syllables. It usually presents a moment of heightened awareness in simple imagery, originally using an
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image from nature. Traditional haiku requires a long period of learning, practise and maturity. The mastery of this form exemplifies Chia’s (2003) discussion relating to eastern forms of knowledge creation concerned with flux and transformation, and where indirect, suggestive and symbolic meaning is privileged over literal meaning. The concept of ‘being-in-the-world’ is important here and relates closely to approaches taken by many Western artists and poets. Fermine (2001) in a short novel entitled ‘Snow’ captures the essence of haiku beautifully drawing on the work of one of the earliest Haiku writers, Matsuo Basho (1644-1694). Frozen in the night The water-jar cracks Wakes me One morning a water jar cracks and a drop of poetry forms: ‘Its beauty touches the soul. It is the moment of saying what cannot be said, of making a journey without taking a step. It is the moment of becoming a poet. Do not break the silence. Just watch and write’. (Fermine, 2001:14) The haiku form has been developed and experimented with over many hundreds of years and different fashions, variations, styles and techniques have come and gone. Contemporary haiku is often regarded as an “instant” form of brief verse that can be written by anyone from schoolchildren to professionals. Many present-day writers have dropped traditional standards, emphasizing personal freedom and pursuing ongoing exploration in both form and subject matter. Due to the various views and practices today, it is impossible to single out any current style or format or subject matter as definitive haiku. The term has broadened greatly in modern usage to cover nearly any short verse. According to Pio:
“It is a way of calling the spirit of the thing named, with the eternal and momentary juxtaposed. It is considered the poetry of ahness, because it makes you say, ‘Aha, now I see it!’.” (Pio 2004:16). Another example, this time of an organizational haiku: Three things are certain: Death, taxes, and lost data. Guess which has occurred. (David Dixon) There is a clear qualitative difference between the beautiful Japanese haiku, about elements that address human existence and the states of nature and the ‘office haiku’ about topics such as money, power, process and partnerships which may seem - as one anonymous reviewer put it – ‘miserable’ by comparison. Nevertheless, the haiku form captures in a minimal way, a sense of depth and communion that reaches beyond formal parsimony. Rather than making anything explicit in the sense of formalized transferable knowledge it encourages personal awareness, depth, beauty and instant knowledge and this in turn impacts on organizational knowledge creation. To this end, working with haiku poetry as direct experimental action, is introduced as a creative form of expression within the enabling context of a workshop intervention, and provides the conditions for new ways of working which surface emotions and learning through insights provoked by organizational experiences thereby contributing to fostering emerging relationships and new knowledge creation. Creating haiku provides the focus for attention through instructive forms of talk and relationships (Tsoukas 2003). Through this method the distinctions, which we had previously not noticed, and features, which had previously escaped our attention, are brought into focus. Whilst tacit knowledge cannot be made operational (Chia 2003), new ways of talking, fresh forms of interacting
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and novel ways of distinguishing and connecting can be achieved. Reason (2001) also supports the use of creative methods arguing that they enable researchers and participants access a richer, deeper, more true to life and more useful knowing when constituted in a complex relationship between different forms of knowing.
CREATING A POETIC PROCESS The Chief Executive of a public service organization requested a workshop for all middle and senior managers and staff in a UK county council and partner organizations. It is important to mention at this point that the organization concerned had been recently ‘inspected’ by the Government and was officially rated as a ‘successful, performing authority’ and that the request was made following several years of close association with colleagues in the Business School. The overall aim of the workshop was to provide an opportunity for researchers and practitioners to engage in dialogue in an exploratory way to see how current research and thinking might help address the problematic change issues which are typical of many UK public service organizations, including; performance cultures based on targets, managing increasing client expectations and demands, reducing costs whilst maintaining service levels, working in partnership on new initiatives, and the need to demonstrate added value. A collaborative inquiry (Reason 2001) based on action research (Coghlan and Brannick 2005) was adopted and is particularly suited to action research where the aim is to be critical of the familiar and taken for granted. A collaborative process of inquiry through action research facilitates an engagement of all participants in a process that aims to take action and create knowledge or theory about that action. Working with participants as coresearchers the action research cycle (plan action, act thoughtfully, research action, and evaluate action) is combined with reflective and interpre-
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tive practice in a collaborative process. In this way the stories, recreated in poetic form, fit well with a social-process perspective to organizational knowledge and learning. The workshop approach developed for this research project provides an opportunity to explore organizational issues in a way that echoes Elkjaer’s (2004) call for the development of knowledge and experience by inquiry, ‘to work with situations and events as units of analysis in order to understand individuals and organizations as being mutually formed and forming’ (2004:419). Facilitating a workshop designed to share experiences and create new energy for working with the challenges of the public services agenda was a priority as well as attempting to develop a contribution to new organizational knowledge and learning. The workshop could be described as an example of ‘researched action’ (Tripp 1996) a particular form of action inquiry, planned as research as well as an improvement to practice where: ‘the main aim is to increase our knowledge about a problem or issue, so the action may be primarily an intervention designed to illuminate a research question’ (Tripp, 1996:17). In ‘researched action’ two cycles of inquiry are simultaneously in operation, one in the field of practice and the other in the field of research. It was important to design a workshop that was both consistent with the principles of action research and was innovative in that it would experiment with interpretive processes creating the potential for developing new ways of thinking about and working with change issues. A realization occurred during a planning group meeting that, in order to explore ways of sustaining levels of energy and continuing successful achievement of organizational goals it would be important to access new organizational knowledge. An approach that would cut through accustomed and patterned ways of thinking would be required and at this point my
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colleague, knowing my interest in working with poetry, recommended that I facilitate ‘poetic’ workshops as part of the day. The poetic process workshop was repeated three times during the day to allow groups of around 20 managers per workshop (60 managers in total) explore their experiences of the organization. At the same time that this poetic workshop was running other activities were on offer to the group of managers focusing on different aspects of the service, which were viewed as priorities. These included sessions on: increasing client needs and expectations, collaborative leadership in partnerships, and action planning to meet government targets. Each of the sessions were planned and run jointly with a member of the organization, and I was paired with a manager from the library service who was also particularly interested in the poetic process. In the early stages of planning the workshop there was a pull to design something that fitted existing ways of thinking about new policy implementation with an overriding concern that the workshop would offer value in terms of tangible outputs and plans. This pull towards what was already known by the organization seemed to contradict the requirement to generate new knowledge and understanding. We were concerned to meet the Chief Executive’s needs (our sponsoring client) in a way that would be deemed acceptable to the organization and at the same time meet her aspiration to introduce new ways of thinking and working that might break through some of the established patterns and behaviours in order to access new possibilities for working with change and meeting the challenges facing the public sector. This would help re-energise and re-vitalise participants who were described as ‘exhausted by policy and initiative overload’. The design that emerged was to develop a collaborative inquiry with what Reason (2001) has identified as working at a deeper level encouraging participants through the processes of constructing and using their own knowledge to “see through” the ways in which
the establishment monopolizes the production and use of knowledge for the benefit of only some of its members. As workshop facilitators we recognized that some risk taking and a ‘leap of faith’ (Schon 1985) was required in order to discover whether new ways of working that would cut across the well established patterns in thinking, relating, behaving and understanding would be achieved. The planning group comprising the Chief Executive, representatives of the organizations involved and fellow academics judged that the risks of trying a different approach was important and supported the poetic workshops in the spirit of creative experimentation, innovation and discovery. An action research process for the poetry workshops, capturing each of these activities was developed. Each cycle of the workshop lasted one and a half hours. In small groups of three, participants in the workshop were invited to tell each other stories of significant events from their recent organizational experiences. Listeners noted key words from these stories and together the small group developed short poems using the haiku poetic form. Participants were encouraged to play with words rather than worry about whether the poems they created were good examples of poetry (mastery only comes through repeated practice!) The process of creating poems was new to most participants and this created some anxiety in the groups as tried and tested methods of exploring work related issues had been removed. In this way all were new to the process and needed reassuring – the element of being surprised by what was created was important as the new way of working resulted in new conversations, understandings and insights. The structure for a haiku was useful in that it channeled anxiety into the need to count syllables and ensure that the haiku created met the numeric criteria set. The poems were then read back to the whole group and participants invited to capture the thoughts, feelings that emerged in the hearing and understanding of the new knowledge presented to them. Through this process of
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‘double reflection’- reflection following the story and then reflection on reflection of the haiku, a revised sense of the issues and priorities held in the organization was discovered. Feedback on working with the poetic process of knowledge sharing and creation was also gathered.
Presentation of Haiku The haiku developed by the managers can be grouped in many different ways; collectively they may be read as a rengaa. The haiku were written up and presented back to all the workshop participants as a small booklet, as a record of the day. Examples from the 25 haiku that were jointly created are shown below and allocated to groupings identifying intangible assets. Categories for intangible assets can be divided into three types: employee competence, internal structures and external structures (Sveiby 1997). Employee competence involves the capacity to act in a wide variety of situations to create value. Internal structures include such things as processes; ways of working, new designs or models. External structures include relationships with customers and other stakeholders, reputation and image. All of these assets are based on the relationship between tacit and explicit knowledge.
Employee Competence The group acknowledged the extent of personal learning. Personal learning was identified as relating to periods of study on professional courses, achieving clarity around roles and different working patterns arising from an absence from work (e.g. maternity leave) or as a result of organizational restructuring. There were positive endings and a sense of achievement for many although there were other examples that were more ambiguous where particular challenges had been posed. Many participants referred to their own and other’s enhanced competence, arising from acquisition of information, skills and experience
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and exploration of shared values. The importance of this enhanced competence described by Sveiby (2001) is the capacity to act in a variety of situations in order to add value to the organization. Son’s nursery trial Dumped apprehensive parents No-cry, relief. Out of date, away briefing shouting discussion, back now – enjoy! Member of team Develop role, career Encouraged, valued. This last example of a ‘one-line’ haiku illustrates a less positive outcome: Meeting Outside, Plan Next Week, Time, Unsure, Beyond Skills, Used, Upset. It is interesting to note in the examples above how the boundary between being in the organization and what goes on outside is referred to more than once. Participants were surprised that they felt able to talk about the emotions involved, for example, in dropping their son at nursery – it’s hard to tell whether its relief that the parents didn’t cry or the child. In the second one the contrast between being out of the organization for a period and out of date sits next to enjoyment of being back - the noise of discussion and shouting acts as a bridge to the two experiences. The third haiku catches the sense of being valued as a member of the team this was after a period of absence. In all three cases the issue of being away from the organization and returning is a common theme with different details and a range of emotional expression. A focus on competence, being up to date, coping well and performing pervades all
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four examples with the last one expressing more negative emotions. Creating the haiku facilitated a focus on the emotional aspects of participants’ experiences and confronted previously unchallenged norms in the organization such as whether it was legitimate to talk about life outside the organization and use those experiences to make sense of their current engagement with the organization. • Internal structures: Team Level and Organizational Issues The second grouping seemed to cohere around team level change issues where there were difficulties but achievement of a shared task and sense of working together seemed to be a focus. Pride in organizational achievement was identified as an important outcome of collaborative efforts and many noticed the positive ends in the last line of the haiku and use of positive words throughout the collected haiku. There was a strong desire to associate the organization with success. Losses and gains were evident in many of the examples perhaps pointing to ambivalence in relation to the pressures participants were experiencing in their efforts to make the organization successful which sits in contrast to the positive achievements and external validation that the organization had recently realized. Internal structures referred to the complexity of change, restructuring and technological developments and finance is specifically mentioned as a disabling factor. Emotions and relationships figure significantly, both positively and negatively – feeling proud for others as a result of a positive outcome begs the question of how those expressing the pride might be feeling. As one participant commented, ‘Sometimes what’s not said but implied opens up new avenues for discussion’. The juxtaposition of brief words and phrases seemed to bring this hidden dimension to the fore and created the space for difficult conversations where different views of similar episodes, such as experiences of organizational
restructuring - ‘Change risk frightened us’ could be explored. Project completed Feeling proud for others Outcome positive Understanding loss Care to build relationships Finance frustrates Change risk frightened us Thought safe, but hidden fear revealed. Moved into sparkling sunshine December, budgets bring High expectations. Service provision No money, disappointments. Power-mongers gathered Eloquent, compliments, coup Proud: top partnership External Client Focus Examples of external structures, which were identified in the poems, include development of relationships and networks and reputation. Fog pulling together Positive partnership passion Long way to go Ongoing concern – always People in need, a start Towards positive change! Gentleman, complaint, made safe Confused, concerned, angry, resolved Not what it seemed. Strangers making time Trust the process, insights Carers listening The sense of long term commitment to the client group is expressed in several of these haiku – ‘long way to go’, ‘a start’, ‘ongoing concern’, ‘carers listening’ which also indicate that whilst working in partnership and commitment to the clients is present there is still more to be done. This was problematic for participants as when
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combined with the frustrations of lack of finance and emotional exhaustion from change initiatives what participants wanted was some sense of scale and scope and ultimately sets of priorities on which to focus their depleted energy. This became an important action point from the workshop. At the same time there was an appreciation of what had been achieved and sense of mutual congratulation that spread through the group in a way that the news of the recent successful government inspection had failed to achieve. Participants resolved to maintain levels of appreciation of effort and acknowledgement of hard work and the emotional labour involved in working through multiple sets of change initiatives.
WORKING AT THE BOUNDARY OF EXPLICIT AND TACIT ORGANIZATIONAL KNOWLEDGE FOR NEW KNOWLEDGE CREATION IN PUBLIC SERVICES The context facing public services in the UK is one of continual change in the delivery of services driven centrally by the Labour Government’s modernization agenda. Central to this strategy is the rhetoric of renewal through partnership and inclusion. A significant challenge for senior managers in public services is to work in partnership on new initiatives in the management and delivery of public services that need to demonstrate added value. Fenwick and McMillan (2005) suggest that the assumptions of current government thinking on partnership and the way they can enable learning through knowledge exchange are predicated in the notion that good practice can only be provided by external opinion, in other words through evidence-based thinking. The search for ways to account for the value of services provided has therefore resulted in the rise of evidence-based management techniques. This has established a ‘performativity’ culture, which relies on explicit knowledge to identify tangible
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outputs that measure the added value of the work of these organizations. (Allee 2000, 2003). This ‘performativity’ culture is underpinned by a view of knowledge as cognitive acquisition - a commodity, and as a result much organizational knowledge exchange and learning is based on adaptive behaviour (Common 2004). There is an alternative, counter-cultural view, which argues that knowledge is socially constructed (Spender 1996) and Von Krogh et al. (2000) by highlighting the limits of an evidence-based approach, shift attention away from tangible outputs and explicit knowledge and turn the focus towards the value of accessing tacit organizational knowledge and intangible outputs (Sveiby 1997) as an alternative way of influencing organizational effectiveness. The haiku developed by the managers and presented above point to the significance of emotions and work life balance as they affect employee competence. The impact that structural change and reorganization has on internal structures in teams and departments emerges as a significant issue, and where a sense of achievement and success seems to be fundamental to the ability to cope with the down sides of the change agenda. Finally the external focus particularly on clients is present and provides the reminder of the main purpose and function of the organization – to provide a range of services. Key areas of knowing for the managers on the workshop include knowledge of local community needs, of policy, of local infrastructure and context. The value of the diversity within the organizational partnership is that it provides a range of people with different information, skills and experience to help the transition of information to knowledge. Clearly, a better balance needs to be found between the demands for tangible measurable outputs and finding voice and recognition for the emotion work involved in leading change (Hochschild 1983, Fisher and Ashkanasy, 2000). It is too simple to say that poetry in the form of haiku provides a mechanism for translating tacit knowledge into explicit knowledge. The
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relation of explicit to tacit knowledge and explanations of conversion of one form to the other is complex, problematic and has been criticized (Tsoukas 2003). One key issue is the methodological standpoint adopted for understanding the nature of knowledge is critical as it provides clarity regarding how knowledge is discussed and claims for the generation of new knowledge made. Chia (2003) explores this as a dichotomy where he describes differences between ‘western’ and ‘eastern’ epistemological and ontological underpinnings that characterize the creation of knowledge. In Western approaches knowledge is produced through the process of observation, reflection and reasoning. It is systematically articulated in written form through the medium of language. As a result, reasoning and knowing the cause of a thing is privileged over action. Documented knowledge precedes and therefore predetermines action and performance hence the focus on explicit knowledge. Eastern approaches contain an ontological commitment to flux and transformation, (this is an epistemological reversal to the western approach), where indirect, suggestive and symbolic meaning is privileged over literal meaning. Immediate engagement with tasks and lengthy apprenticeship through sustained experimental practice develops proficiency into mastery. The concept of ‘Being-in-the-world’ is important where: “Such a view would privilege a directness of experiencing and it is this unmeditated directness that encapsulates what we mean here by the broad term ‘eastern’.” (Chia, 2003:956) The focus from this perspective concerns tacit forms of knowledge and the contribution tacit knowledge makes to organizational learning. Tsoukas (2003) develops further clarity into the nature of tacit knowledge arguing that it has been greatly misunderstood in that the essential ‘ineffability’ of tacit knowledge has been ignored. When viewed from this perspective tacit knowl-
edge cannot be captured, translated, or converted in the way Nonaka (1994) originally proposed, but only displayed and manifested in what we do. Tsoukas argues that we need to focus on how we draw each other’s attention to things - instructive forms of talk help us to re-orientate ourselves to how we relate to others and the world around us, thus enabling us to talk and act differently. Distinctions, which we had previously not noticed, and features, which had previously escaped our attention, may be brought forward. We cannot make tacit knowledge operational, but we can find new ways of talking, fresh forms of interacting and novel ways of distinguishing and connecting. Sveiby (1997) makes an additional contribution here and describes four characteristics of knowledge, which include: tacit, action-oriented, supported by rules and constantly changing. All knowledge is either tacit or located in tacit knowledge which means it is rooted in practice and once assimilated, is usually taken for granted. Tacit knowledge is likened to a tool with a focus on a particular object or phenomenon without consciously thinking about the background knowledge brought from experience, enacted, for example, in something like ‘bicycling on the moon’ (Collins 2007). Knowledge from this perspective is action-oriented, meaning that there is a continuous processing and categorising of perceptions into existing theories, methods, feelings, values and skills, for future use. The rules that support knowledge enable people to act skillfully without thinking and automatically filter all new knowledge through the rules already acquired. These rules are generally unknown to the person observing them since: “skills retain an element of opacity and unspecificity; they cannot be fully accounted for in terms of their particulars, since their practitioners do not ordinarily know what those particulars are” (Tsoukas, 2005:145).
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Developing the discussion further, Collins (2007) distinguishes two forms of tacit knowledge each with different causes and consequences. The first kind he calls ‘somatic-limit tacit knowledge’ has to do with the cognitive limitations of the human brain and body, the second ‘collective tacit knowledge’ he argues is ontological – being concerned with its location in the social collectivity. He argues that both forms are rarely distinguished because they are experienced and acquired in the same way; nevertheless, they have different causes and different consequences. The concept of ‘collective tacit knowledge’ is of most relevance to this paper in that it relates to the cultural, relational and situated nature of learning: “This knowledge has to be known tacitly, because it is located in human collectivities and, therefore can never be the property of any one individual. The simplest way to see this is to note the changes in content of the knowledge belonging to communities is beyond the control of the individuals within the communities.” (Collins, 2007:260) This proposition supports the view that knowledge is constantly changing. As soon as it is made explicit it becomes static and what is articulated is always less than what is tacitly known. Accessing tacit knowledge held by individuals’ lies at the heart of the knowledge creation process and finding ways to verbalise and share tacit knowledge is an important first step on the way to new organizational knowledge. In addition, Chia argues that the current preoccupation with explicit knowledge-creation and management may need to be balanced with an equally important emphasis on direct experimental action as a valuable source of meaning innovation and enhanced performance (2003:959). Effective knowledge creation therefore depends on establishing an enabling context for communication and dialogue where emerging relationships can be fostered. The workshop provided the enabling context (Chia 2003) and was characterized by sharing
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stories that created an energized atmosphere where participants engaged in dialogue to access collective tacit knowledge (Collins 2007) to explore organizational experiences. This shared process of sense-making is an important part of knowledge generation and exchange between all participants and from a social process perspective (Chiva and Allegre 2006) provides the possibility for greater integration of organizational knowledge and learning. An important role played by introducing haiku poetry was to emphasize the ‘eastern’ approaches to knowledge described by Chia (2003) emphasizing that knowledge is embedded in experience. In order to maximize the value of knowledge as an intangible asset, the main strategy must be one of enabling rather than controlling (Sveiby 2001). Such a strategy is aimed towards improving what Sveiby refers to, as people’s capacity-to-act, either inside or outside the organization. Allee (2003) emphasizes that attempts to assign monetary value or other hard measures to intangible assets miss the point. If such a value could be attached to them, they would no longer be intangible. The point is not their current value or their ability to reflect past performance, but their potential for future value creation or in the context of public service, future contribution to the public good principally through the actions taken as a result of new insights. The insights gained through the development of haiku during the workshops whilst interesting and revelationary at the time for participants would hold no real value unless translated into future actions. There was clearly a commitment to take the new knowledge about the significance of emotional labour and other key insights back into the organization, however there would need to be detailed follow up to discover whether this has had any real impact. Anecdotally, the Chief Executive resigned recently to follow an alternative career and achieve a childhood ambition to run a teashop. Rumour has it that she was burnt out by the constant pressures of her role.
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At this point it seems possible to move to the dimension of organizational learning and understand it in terms that Clegg et al (2005) articulate: “Here learning is not something that is done to organizations, nor is it something that an organization does; rather learning and organizing are seen as mutually constitutive and unstable, yet pragmatic constructs that might enable a dynamic appreciation of organizational life.” (2005:150) Discussions in groups following the reading of all the haiku instigated a range of thoughts and ideas about the organization. As a result of the workshop there was a realisation that everyone had a story to tell of their experiences and that the organization is made up of individuals who all have a voice and a view. There were some common threads, but many variations and whilst all could be voiced, there was a realisation that some held more ‘organizational currency’ in that they were politically or culturally more acceptable (struggles for resources on behalf of the organization) than others (personal issues), ‘I didn’t realise how emotional I felt about coming back to work’ that were viewed as marginal and therefore less important. This felt like a new realisation for many, brought into focus by using a form that requires brevity, which one participant described as ‘cutting to the chase’. The participants were aware of their well-honed skills of storytelling that had been developed to provide lengthy and detailed articulations of how to account for what they do. The significance of working on an unfamiliar task (creating haiku) helped to disturb established patterns of thinking, explaining and understanding, this allowed a different perspective to enter the interactions leading to ‘truly effective and insightful action’ (Chia 2003:956). Standing back to review the poems providing a ‘double reflection’ also gave a different perspective on the organization to many enabling the celebration of success and as one participant commented, ‘Playfulness is possible in a contained way’.
These seems to confirm that the conditions necessary for enabling new knowledge creation (Von Krogh et al 2000) had been met. Through a process of poetry creation conversations sharing local knowledge, understandings and experiences were facilitated and new relationships established. Stacey’s (2003) complexity view of organizational learning provides a useful explanation from which the reflective comments made by participants can be understood: “[L]earning is the emerging transformation of inseparable individual and collective identities. Learning occurs in shifts in meaning and it is simultaneously individual and social. Learning is the activity of interdependent people and can only be understood in terms of self organising communicative interaction and power relating in which identities are potentially transformed.” (2003:8) It was noticed by the group that the use of poetry enabled a surfacing and discussion of emotions and emotional engagement with the organization in a new and different - more accessible way. Clegg et al (2005) draws on work by Antonacopoulou and Gabriel (2001:48) to illustrate that organizational learning is full of a range of emotions involving an “inner world of passion, ambivalence and contradiction which may be experienced as repressed, expressed or controlled, diffused or diluted, but never actually obliterated” (2005:152). Elkjaer (2004) speaks of the development of experience and knowledge by inquiry and reflection, emphasising the place of intuition and emotion in the process. Anxiety arising from organizational change and the uncertainty challenging a previously held sense of security was identified by the managers during the workshop and discussed as an issue. Alongside this was a sense of hope for the organization and pride in the achievements gained so far. A deeper sense of new emotional knowledge and care emerged from the poems highlighting a need to tend to how people
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treated each other. The process created was one of encouraging creativity and playfulness and would appear, in the moment, to have contributed to both knowledge creation and organizational learning.
CONCLUSION Organizational learning and knowledge exchange form part of the dynamic change process where organizational members work creatively together to find solutions to problems and create new organizational knowledge. I have argued that learning and organizing are mutually constitutive and unstable and that working with poetry can provide emotional richness and textured nuance to organizational knowledge and learning. In particular, this chapter has provided an opportunity to further examine the claim that poetry when used as a creative research method, combined with processes of collaborative inquiry, facilitates new organizational knowledge, understanding and learning. An early proposition was that poetry would provide a way of making tacit knowledge about current organizational challenges and experiences explicit and facilitate new organizational knowledge. Through the poetic process established for the workshops new understandings about the organization and its priorities were raised. The general level of appreciation of individual and organizational effort that was being made to demonstrate added value in order to meet performativity targets was high. As a consequence it was possible to identify a range of intangible values and assets, which supplement the explicit or tangible knowledge used to measure organizational performance and gain an understanding of an approach to organizational learning that emphasizes interdependence. The collaborative inquiry using action research facilitated new approaches to knowledge creation through poetry, enabling different stories and voices to emerge. The process facilitated new understandings and relationships
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by cutting across established patterns or relating and communicating. In terms of action research however, the extent to which these new insights were taken back into the organization to instigate further change requires further investigation. Working with poetry clearly holds the potential to capture emotion and express the unsayable with passion, truth and intensity. The choice about when to use poetry relates to whether the topic or issue to be researched requires a reflective space that taps into emotions and uncovers layers of thought and feelings. The haiku demonstrate an ability to explore the dark side of experience as well as the light and juxtapose the rational realm with the emotional. Creative forms of research invite active engagement, where those who participate in the process become co-creators of meaning. Configuring and reconfiguring words in different ways, in poetic forms, enabled the managers to understand and feel the world differently. Haiku with their particular structure provide a supportive container to discussions relating to emotions, which forms an important part of the organizational learning literature, surfacing and facilitating dialogue about these issues in a way that other processes may not access so directly. Poetry, haiku or otherwise, taps into emotions and cognitions that have not yet been articulated explicitly. However, I would not recommend using poetry for all organizational interventions or even recommend that anyone can adopt these methods. The first danger is that using poetry all the time could be viewed as just another ‘gimmicky’ method and as a consequence the approach could be undermined and cast into that dread place - the ‘toolkit’ of management consultants. In this study there was clear ‘buy in’ to trying a different approach that appeared to meet the organizational need to think and work differently. Most managers in the study were unfamiliar and relatively uncomfortable with poetry but prepared to take the risk to engage with it and this was an important dimension to accessing new knowledge. Not all felt overwhelmed by what they produced,
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but most were able to be surprised and all felt the haiku had initiated new levels of communication and new ideas about the organization and what was important in it. Finally poetry is my passion and bringing poetry and management closer together is one of my principal research interests. However, I remain selective about how and when to introduce poetry to groups that I work with. Further inquiry is recommended in order to continue the development of the contribution poetry can bring to understandings and interpretations of organizational experiences, learning and knowledge and close with a final reflection. Poetic breezes Release management insights More change expected. “Poetry is by its nature a compressed communication of emotions and concepts that the listener must decompress and interpret. By participating in the process the listener must complete portions of the message, and thereby internalize, absorb, and reconstruct the message.” (Grisham 2006:492).
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Banks, A., & Banks, S. P. (1998). Fiction and research By Ice or Fire. Walnut Creek: Sage publications. Bell, D. (1973). Coming of Post-industrial Society: A venture in social forecasting. New York, NY. Chia, R. (2003). From knowledge creation to the perfection of action: Tao, Basho and pure experience as the ultimate ground of knowing. Human Relations, 56(8), 953–981. doi:10.1177/00187267030568003 Chiva, R., & Alegre, J. (2006). Organizational Learning and Organizational Knowledge. Towards the Integration of Two Approaches. Management Learning, 36(1), 49–68. doi:10.1177/1350507605049906 Clegg, S. R. (2005). Learning/Becoming/ Organizing. Organization, 12(2), 147–167. doi:10.1177/1350508405051186 Coghlan, D., & Brannick, T. (2005). Doing Action Research in your own Organization. London: Sage publishers Collins, H. (2007). Bicycling on the Moon: Collective Tacit Knowledge and Somatic-limit Tacit Knowledge. Organization Studies, 28(2), 257–262. doi:10.1177/0170840606073759 Common, R. (2004). Organizational Learning in a Political environment. Policy Studies, 25(1), 35–49. doi:10.1080/0144287042000208224 Czarniawska, B. (1998). A Narrative Approach to Organization Studies. Thousand Oaks, CA: Sage Publications. Drucker, P. F. (1968). The Age of Discontinuity. New York: Harper and Row Elkjaer, B. (2004). Organizational Learning. The ‘Third Way’. Management Learning, 35(4), 419–434. doi:10.1177/1350507604048271
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KEY TERMS AND DEFINITIONS
Sveiby, K. E. (1997). The new organizational wealth: managing and measuring knowledgebased assets. San Fransisco: Berrett-Koehler. Sveiby, K. E. (2001). A knowledge-based theory of the firm to guide strategy formulation. Journal of Intellectual Capital, 2(4), 344–358. doi:10.1108/14691930110409651 Toffler, A. (1990). Powershift: knowledge wealth and violence at the edge of the 21st century. New York: Bantam Books. Tripp, R. (1996). Action Inquirywww.parnetorg/ PARchive/docs/tripp_96/ (Accessed 05.05.2007). Tsoukas, H. (2003). Handbook of Organizational Knowledge. London: Blackwell. Tsoukas, H. (2005). Complex knowledge: studies of organizational epistemology. Oxford, UK: Oxford University Press.
Haiku: Haiku originated in Japan, around the 15 century. It is a specific form of poetry, originally of jesting character, containing seventeen syllables, in three phrases of five-seven-five syllables. It usually presents a moment of heightened awareness in simple imagery, originally using an image from nature. Writing traditional haiku requires a long period of learning, practise and maturity. Modern Haiku are less exacting in their development and use. Knowledge Creation, Exchange, and Organizational Learning: There are epistemological and ontological differences between approaches to knowledge creation. The definition which this chapter works with follows Chia’s (2003) argument that new organizational knowledge can be accessed through exploration of intangible and tacit knowledge and an integration of organizational knowledge. Organizational learning and knowledge exchange are viewed as social constructions which are mutually constitutive and constantly changing. Knowledge creation is an inter-subjective, aesthetic process which is th
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developed through narrative and story telling and in this chapter: poetry. Poem: http://dictionary.oed.com. A piece of writing or an oral composition, often characterized by a metrical structure, in which the expression of feelings, ideas, etc., is typically given intensity or flavour by distinctive diction, rhythm, imagery, etc.; a composition in poetry or verse. A good poem seems to occupy a space beyond mere words especially when it is used to explore the full range of life’s experience. According to Grisham: Poetic: http://dictionary.oed.com. (A). (adjective) Composed as poetry; consisting of or written in verse and having the style or character proper to poetry. Making, creative, formative; relating to artistic creation or composition. (B).(noun) The aspect of literary criticism that deals with poetry; the branch of knowledge that deals with the techniques of poetry. The creative principles informing any literary, social or cultural construction, or the theoretical study of these; a theory of form. In the context of this chapter a poetic process
is defined as the creation of poems (haiku) from organizational stories: inquiring into their meaning through dialogue for new knowledge creation. Poetry: http://contemporarylit.about.com/cs/ literaryterms/g/poetry.htm. Poetry is an imaginative awareness of experience expressed through meaning, sound, and rhythmic language choices so as to evoke an emotional response. Poetry has been known to employ meter and rhyme, but this is by no means necessary. Poetry is an ancient form that has gone through numerous and drastic reinvention over time. The very nature of poetry as an authentic and individual mode of expression makes it nearly impossible to define.
ENDNOTE a
Renga is a poem several poets create cooperatively and comprise often up to 100 haiku.
This work was previously published in Handbook of Research on Knowledge-Intensive Organizations, edited by Dariusz Jemielniak and Jerzy Kociatkiewicz, pp. 98-115, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 4.26
Hybrid Value Creation in the Sports Industry:
The Case of a Mobile Sports Companion as IT-Supported Product-Service-Bundle1 Jan Marco Leimeister Kassel University, Germany Uta Knebel Technische Universitaet Muenchen, Germany Helmut Krcmar Technische Universitaet Muenchen, Germany
ABSTRACT Integrated product-service packages (hybrid products) can open new markets and target groups to companies. However, existing approaches to service or product development do not sufficiently address simultaneous development and domain-specific issues. A very promising new field for such bundles is the health and fitness industry. In this research, we designed and built DOI: 10.4018/978-1-60960-587-2.ch426
an IT-supported training system for running, the Mobile Sports Companion (MSC), which closely interlocks a product and corresponding services using an iterative development process. We tested the pilot system with 14 recreational athletes. The results of the field test show that the MSC proved to be a promising tool to offer athletes an effective individual, flexible, and mobile training. However, the system, as it is, did not sufficiently represent the human trainer behind it, thus lowering its acceptance and the credibility of its recommendations. Our next step is to integrate features that
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Hybrid Value Creation in the Sports Industry
could strengthen the athlete-trainer relationship. The MSC could turn out to be a promising field for future e-business applications in the sports service industry.
INTRODUCTION Services account for a large part of the value added in manufactured goods in developed countries (Sheehan, 2006). Severe competition and cost pressures limit the growth of many companies across various industries, and, especially in the case of small and medium enterprises, threaten their existence. This has contributed to the expansion of the service economy over the last several decades. Integrated product-service packages (hybrid products) can enable innovative offerings and open new markets and target groups to companies (Organisation for Economic Cooperation and Development, 2006). However, companies mostly design services and products in separate processes, services being a mere addon component to the product (Ernst, 2005). This separation can also be observed in the research literature. Many widespread process models focus on product construction, such as systems engineering (Daenzer, 1977), various Verein Deutscher Ingenieure (VDI) guidelines (e.g., VDI 2223) (Verein Deutscher Ingenieure, 2004), the Three-Tier-Model (Giapoulis, 1996), or software engineering, such as the Unified Software Development Process (Jacobson, Booch, & Rumbaugh, 1999) or eXtreme Programming (Beck, 2000). Alongside this extensive literature about product development, there is also a distinct literature describing new approaches to service development (see Bullinger & Scheer, 2003; Hermann, Krcmar, & Kleinbeck, 2005; Scheer & Spath, 2004), but they do not sufficiently address integrated, parallel development. Recent publications recognize this gap and present suggestions for integrated models (Spath & Demuß, 2006). However, the concept remains rather abstract and general. In addition,
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it does not consider domain-specific issues. In this research, we try to fill part of this gap while focusing on an example product development in the health and fitness market in Germany, a newly emerging and very promising field for innovative solutions like Computer Supported Collaborative Sports (Wulf, Moritz, Henneke, Al-Zubaidi, & Stevens, 2004). Personal health and well-being gain more and more attention in today’s industrial societies. In Germany, the sports, fitness, and recreation market has a market volume of more than 50 billion Euros. With an annual growth rate of 6% (Deloitte & Touche, 2005), it is one of the booming markets in the health sector. The reasons for the rising attention are mainly twofold: For one thing, health awareness has increased throughout large parts of the population, being considered an important part of a modern lifestyle. Moreover, consequences of unhealthy personal lifestyles on the economy become more and more evident. Ailments as a consequence or complication of being overweight and/or a lack of physical activity, such as cardiovascular diseases, back problems, and diabetes, account for approximately one fifth of the present health costs of German health insurance companies (Scriba & Schwartz, 2004), heavily burdening health insurance companies and employers. Schwarzer (2004) summarizes the results of various studies showing the correlation between certain diseases and lack of exercise. They amount to economic costs of about 530 million Euros per year in Germany (von Lengerke & John, 2005). In spite of these developments, the market for fitness and health service providers, such as gyms or equipment manufacturers, in Germany has been steadily declining over the past 5 years (for a detailed market analysis see Kamberovic, Meyer, & Orth, 2005). Cost pressure and competition threaten small providers especially; many are put out of the market by emerging large franchise chains. To regain competitive advantage, especially above low cost operators, they need to offer innovative products and services going
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beyond the mere provision of sports equipment and occasional supervision that are common today. Personal training, that is individual supervision and support of each athlete by a trainer, could be a way of addressing both of the above-mentioned problems. On the one hand, personal training is known to produce successful and effective results in competitive sports as well as in companies’ management health coaching, and thus is also very likely to show effects in the mass market as well. On the other hand, personal training as a service could be a means of differentiation for small fitness providers. The major obstacle for translating the service of personal training into recreational sports and health management is cost. Health service providers cannot multiply their support services without an immense increase in personnel cost, whereas the clients, be it consumers or institutions on behalf of consumers, will not be willing and able to spend a considerably higher amount on health services. As in many other industries, the solution to this dilemma could be (partial) process automation. The idea of automating sports training and health services is not new. Many vendors have already tried to integrate IT-based training support into a variety of devices, such as heart rate monitors or mobile phones. The most important vendor in the German market is Polar, whose major products are running and cycling computers. Apart from Polar, there are many small and very small vendors with different offerings (e.g., PCSport.de, Technogym Wellness Wizard, iWorkout, PumpOne, etc.). However, virtually all existing systems fall short of solving the above-mentioned issues of integrating service into design. Most vendors try to achieve a full automation of the sports training, concentrating their efforts on hard- and software development, while totally neglecting the design of a corresponding service. Therefore, most systems on the market neglect necessary use scenarios for efficient training. Most systems are designed bottom-up based on and limited to the characteristics of an existing device or software.
To make the design fit for use, it should be derived top-down from use scenarios, as well as users’ goals and requirements. Focus on single parameters. Existing systems base their training plans almost exclusively on heart rates. This is an appropriate method, when determined correctly, but many systems operate on rules of thumb, neglecting important influencing factors, such as physical well-being, stress, daily form, and sometimes even age, sex, and sport discipline. Other effective methods for determining training intensities (for an overview see Neumann & Hottenrott, 2002) are not applied. Require previous knowledge. Many systems offer possibilities for data analysis but no guidance on how to interpret this data. Users who have little knowledge of training methods might not be in the position of adjusting the training to their needs. Especially in case of illness, professional advice is necessary. Depend on the users’ discipline. Most existing systems are fully automated; no relationship between trainer and athlete is established. But especially inactive risk groups are not likely to motivate themselves for their training. To have a continued effect, the training must become part of the user’s lifestyle and be supervised and supported by either a trainer or an institution The objective of this research was to design, build, and evaluate an IT-supported training system for running (MSC) that closely interlocks a product components and corresponding services. The development of both components was simultaneous; the result was an integrated product-service bundle, which was then evaluated in a field test.
DEVELOPING THE MOBILE SPORTS COMPANION Research Framework This research is designed as an explorative study. As a research object, “mobile information
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systems for fitness sport” is very new and not well-investigated, and general theories about the research object do not yet exist. Stating and validating hypotheses purely deduced from theory, as is common in empirical-analytical research designs, are difficult to apply here. According to Ulrich (1981), explorative research starts “... in practice, is focused on analyzing the context of use and ends in practice.” The intention of this research is to design an innovative system to improve real-world situations, following the tradition of the Action Research Method, which can be briefly described by its three main characteristics (Rapoport, 1970), (Lau, 1997): 1. The researcher actively intervenes in a social organization to advance both the organization’s well-being and scientific knowledge. 2. The project consists of phases of interventions and of reflection for research purposes. 3. The researcher has to live up to the ethical challenges of the intervention. Therefore, the effects of the mobile sports companion are tested in a pilot study (field test). Such field tests can, on the one hand, test the feasibility and effects of an innovation in a natural environment, and on the other, hand allow the identification of new demands that need to be addressed in further development. They have the advantage of high external reliability (Witte, 1997). For the design of social innovations, such explorative methods are most fruitful (Szyperski, 1971; Schwabe & Krcmar, 2000b), as recent examples in healthcare (Leimeister, Ebner, & Krcmar, 2005) and government (Schwabe & Krcmar, 2000a) have shown.
Research Design and Development Process Since system requirements were neither completely nor exactly defined, a linear model did not
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seem to fit the uncertainty that arose from the field. An iterative model seemed to be more appropriate for several reasons. It allows to build the system step by step, and to evaluate the outcome of each interval of the iterative development periodically. Moreover, the type of development can be shaped according to the demands of the situation. To achieve this, we used Arnold, Leimeister, and Krcmar’s (2003) Community Platform Engineering Process “CoPEP.” The heart of this process model is an iterative process, adapted from the generic spiral process model (Boehm, 1988; Wigand, Picot, & Reichwald, 1998). It is combined with a prototyping approach. Each consists of four phases: planning, analysis, engineering, and evaluation. Different than in the original spiral model, a much stronger focus is put on the building of prototypes and the involvement of users in evaluations. The goal of the engineering phase of each iteration is the generation of a prototype (hardware, software, and services) in order to get a tangible version of parts or the whole product (for a promising conceptualization of service systems see Mora, Raisinghani, O’Connor, & Gelman, 2009) very early in the development process (for a similar, but rather heavyweight approach to service design see Moller, Chaudhry, & Jorgensen, 2008). Each prototype undergoes an evaluation at the end of its development cycle in cooperation with experts. After each evaluation phase, the next iteration starts over with planning again, but uses information that was learned from the previous iteration in the design. We adapted CoPEP’s iterations to our research topic, and decided to involve target users in the evaluations in addition to experts as their representatives. Figure 1 shows the adapted process model that was used for the development of the mobile sports companion. The method used for evaluation was a mixture of interviews and group discussions. We presented the results of each cycle to a group of experts (iteration 1 and 2) and to a group of users (iteration 3 and 4) during the development
Hybrid Value Creation in the Sports Industry
Figure 1. Development process (adapted from Arnold et al., 2003)
phase. User and expert feedback was integrated into the planning of the next iteration. Finally, the finished prototype was tested in a field study. Through an early involvement of various stakeholders in the development cycle and the visualization of parts of the end product through prototyping, the described process counteracts the danger of dragging wrong requirements fixed in the beginning along to the end product. General requirements get more detailed as the development process goes on and mistakes created in the beginning of the process can be repaired.
Results of the Iterations Iterations 1-3: MockUp to Web Interface In the first iteration, we conducted in-depth interviews with a group of four experts. The experts represented four different scientific disciplines, including training theory, sports psychology, sports medicine, and runners training. The basic idea was to define a service level for training supervision and support in between the high service level offered to professional athletes and the virtually non-existent service level offered in recreational sports; detailed enough to ensure an effective training, but as simple as possible. Through brain-
storming and discussions, the experts specified the relevant measurement categories, interdependencies, and interplays between them and developed a relatively simple model for training supervision and control. We then determined which data must be collected by professional trainers, which data should be collected and documented by the runners themselves, and which calculations the system was to make automatically. Limits and tolerance regions were determined. This model required the service to be made up of two components: first, a face-to-face support where trainer and athlete meet in person, and second, computer-mediated or fully automated support, where users interact with the system only. Based on this input, we developed a mock-up (i.e., a paper and pencil-prototype) of the mobile sports companion, which was approved by the experts. In the second iteration, we implemented the runner’s perspective in a first clickable prototype. The previously described experts checked if all relevant data was collected correctly, and tested the usability of the prototype. Their feedback was documented and implemented in the next iteration. The third iteration produced a functional prototype, including a Web interface for the runners and trainers and a server backend. Apart from the experts, four lead users tested and evaluated the system by means of a structured questionnaire.
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The lead users generally felt that the quality of their training was improved but complained about the missing flexibility and the long time needed for documentation, as they had to memorize their training parameters, then find Internet access after the training, and then reproduce all data from memory or copy it manually from other devices. They wished for a mobile interface.
Iteration 4: Fully Functional Prototype with Web and Mobile Interfaces In the fourth iteration, a mobile interface for the runners was added to increase the athletes’ independence and flexibility while training. This implied the development of new software to fit the mobile device, including an interface to receive data from heart rate monitor devices. Figure 2 shows the data flows in the system. At the beginning of a training period, trainer and runner meet personally. The trainer gathers basic information on the runner, such as height, weight, resting pulse rate, sport history, and conducts a standardized fitness test. Together, trainer and runner define the runner’s training objectives. Using the trainer web interface, the trainer creates a personal electronic file for the
Figure 2. Data flows
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runner. Based on the training objectives and considering the runner’s physical condition, the system suggests value ranges for the number, length, frequency and intensity of training units the runner should complete to reach his or her objective in a predetermined period. Within this range, the trainer adjusts the plan. The runner can interact with the system either by Web interface or by mobile device. Every morning during the training period, he enters his resting pulse rate, and rates his subjective feeling of well-being on a scale from 1-10. The system answers with a recommendation to do the training unit as planned or to modify it. After having completed the day’s training unit, the runner feeds a number of performance indicators—either using the mobile device or the Web interface—into the system, namely time and duration of the training, perceived well-being, and average heart rate. Heart rates can be transmitted directly from the heart rate monitor to the mobile device. Once uploaded, the system analyzes the data, compares planned and actual values, and assigns the result to the stages of a traffic light (green = ok; yellow = contact trainer; red = stop training, contact trainer urgently).
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The trainer can access all data uploaded to the system by his runners, and monitor and supervise their progress. The traffic light system allows him to screen the state of all runners quickly, and to focus on the more problematic cases (i.e., red light) first. This cycle repeats until the training objectives are realized or until the next control meeting. Independent from the system’s recommendations, if necessary, the athletes can contact their trainer at any time via a “contact trainer” button. As in the previous iteration, four lead users evaluated the system. The mobile client was highly appreciated, as it enhanced the user’s flexibility in documenting their training units. They also found the daily recommendations for their training very useful. Overall they felt that the quality of their training had improved. On the other hand, they felt a strong dependence from their trainer. As a consequence of these results, some more functions were added to the system in close cooperation with the before-mentioned experts. To better supervise the runners’ progress and by this increase the quality of the training, we increased the service level and introduced periodical test runs and corresponding analyzing tools. In addition, a tool for weekly comparison of the planned and actual training units was implemented. The trainer was given more possibilities to adjust the system-generated training plans according to his own recommendations. With these alterations, the system was ready to be tested by a larger number of users.
Field Test Purpose The purpose of the field test was to examine: 1. If the mobile sports companion could support users in reaching their training goals (perceived usefulness)
2. How users felt to train with an automated training system (use, perceived ease of use, perceived well-being) 3. If the mix of face-to-face, computer-mediated, and fully automated service components gave the impression of continuous individual support (perceived service level) 4. How the system could be further adapted to the user’s needs It is important to state that the MSC was evaluated as a whole; it is not adequate for an integrated product-service bundle to try and evaluate the single components separately.
Setting The field test was conducted with 14 employees of a telecommunication company, 9 male and 5 female, all between 25 and 40 years old. The participants represented the whole range from sports novices to experienced runners. Figure 3 shows their training habits and weight classification. For the field test, the training period and goal was standardized for all participants: being able to run a half marathon (21 km) after 12 weeks of training, following an individual training plan managed through the mobile sports companion. The training period began with a thorough analysis of the participants’ anthropometric data, such as height, weight, sports experience, past and present diseases, and medications. It also included a lactate threshold test—an individual performance test to assess the physiological condition of each of the runners, lactate being a key indicator for determining training intensity and evaluating training results in endurance sports. In addition, the participants assessed their perceived exertion on a Borg scale2. Based on the diagnostic data, the individual training plans were created. We provided all participants with a mobile device (PDA) and a heart rate monitor. They were asked to document their resting pulse rate and
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Figure 3. Characteristics of the participants of the field test
perceived well-being everyday, first thing in the morning. In reaction, the system recommended them to train as planned, do not train and recreate, or to contact the trainer. The training units were divided into three categories with different training intensities (for details on the intensity levels see Neumann & Hottenrott, 2002), setting a time and pulse rate. After 4, 8, and 12 weeks, all runners made a test run at given constant speed over a given distance. The heart rate served as an indicator for endurance improvement. The participants repeated the Borg rating. At the end of the 12 weeks training period, the lactate threshold test was repeated. To evaluate the subjective training success, perceived well-being and motivation, we used a structured questionnaire both at the beginning and at the end of the training period. Figure 4 illustrates the procedure.
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Technology The server was implemented as a J2EE web application based on the Struts framework. A MySQL database in the backend worked as a persistent data memory. A Web service interface at the server using the Apache Axis framework enabled the communication between the mobile devices (the clients) and the server. The client software was written in C# and based on the. NET 2.0 Compact Framework. It runs on PDAs with Microsoft Windows Mobile 2003 or newer versions. In the field test, the participants used mobile devices (PDAs) of the type O2 XDA II, XDA III, and XDA mini S respectively. The interface for the communication with the heart rate monitor was optimized for Polar S625X, as it is one of the most widespread heart rate monitors in the German market. Integrating the Polar device into
Hybrid Value Creation in the Sports Industry
Figure 4. Field test procedure
the system was most challenging, as the communication protocol was not laid open. A role concept defined the right to access and manipulate data; it comprised the three roles of trainer, runner, and administrator.
Empirical Results The first questionnaire was administered at the beginning of the field test. It was completed by all 14 participants. The second questionnaire was administered at the end of the testing period. It was only completed by 10 participants. Two of the participants had already left and another two participants were not able to keep the appointed date of the survey.
Empirical Results Use and perceived ease of use On average, the users tended to agree that by use of the MSC, they trained more regularly than before. However, they did not document their training data and even less their diurnal data very accurately. Most of them felt especially the measuring of the resting pulse rate in the mornings as too timeconsuming and annoying. Another reason could be the usability of the Web and mobile interfaces. Though their usability is rated slightly positively, the users do not judge it well (Table 1). Some users reported repeated difficulties in loading up their data from the mobile device to the server.
Perceived Usefulness In respect to perceived usefulness, the respondents tended to assess the quality of their training and training supervision. Moreover, they clearly agree that using the MSC has advantages for them and consider technical devices in general as helpful for training (Table 2). Table 1. Usage and usability of the MSC mean
std. dev.
By use of the MSC, I trained more regularly than before.
0.4
1.9
I have documented my diurnal data regularly.
-0.7
1.7
I have documented my training data regularly.
-0.2
1.6
The web interface was easy to use.
0.5
0.8
The mobile interface was easy to use.
0.7
0.8
*Annotation: 5-point scale from “totally agree”=+2 to “do not agree at all”=-2
Table 2. Perceived ease of use mean
std. dev.
With the MSC I feel better supervised and supported*
0.7
1.2
By use of the MSC, the quality of my training was increased.*
0.4
1.6
Using the MSC has advantages for me.*
1.2
1.2
Technical devices during training are…**
0.8
0.9
*Annotation: 5-point scale from “totally agree”=+2 to “do not agree at all”=-2 ; **+2=very helpful to -2=not helpful at all
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The physiological data confirmed these perceptions. In the lactate threshold tests, the heart frequency measuring, as well as the self-assessment according to the Borg scale, the participant’s performance had continuously increased.
Perceived Well-Being After 12 weeks of training, the participants had the impression that their fitness level had increased, though still being far from ideal. They also felt more energetic and satisfied with their bodies (Figure 5).
Perceived Service Level It was the idea of the field test that the trainers stayed in the background as much as possible, leaving the sportive guidance to the MSC. Personal interference should only happen if an athletes training data was so unexpected that the trainer’s traffic light turned “red.” This however was not accepted well by the participants. Most of them repeatedly tried to contact the trainers instead of relying on them to communicate their recommendations via the MSC, if necessary at all. When the trainers gave no or very little additional information, some participants were extremely dissatisfied, and the research team had once again to explain the reasons for their approach. Nevertheless, in the final discussion, the majority of the group wished for more personal advice. Figure 5. Perceived well-being
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We think that the greater part of this reaction was due to an organizational misunderstanding in the beginning. The participants of the field study were recruited with the assistance of the corporate health service provider, not personally by the research team. As the task of contacting potential participants was passed on from one person to the other within the service provider, they might have communicated a wrong picture of the MSC. Some of the participants were told they would receive personal feedback to all actions performed in the program (not only in case of problems and via the MSC channel). Naturally, these (wrong) expectations were not satisfied. In future studies, we will address this issue with standardized information material and training for the recruiters as well as for the participants starting the program. Nevertheless, offering a feedback channel within the MSC, such as an “E-Mail to trainer” button will be considered in future studies to enable the participants to give proactive information (e.g. did not exercise because of illness) and for urgent questions. The principal exercise guidance however will still be communicated via the MSC.
SUMMARY AND OUTLOOK We developed a concept and iteratively implemented a prototype of a semi-automatic training system. The starting point in each iteration was the
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athlete’s requirements and the necessary service elements deduced from them. We field-tested the prototype with 14 volunteers with different sports experience. In general, the MSC proved to be a promising tool to offer athletes an individual, flexible, and mobile training. In contrast to most automated training systems on the market, the MSC concept integrates personal services like the initial health checkup or face-to-face meetings with a trainer. However, the system, as it is, did not do a good job of representing the human trainer behind it, thus lowering its acceptance and the credibility of its recommendations. As a consequence, the service component seemed insufficient to the test users. Based on the experience gained in these studies, we have two major action points for further developing the MSC. First, we must adapt the computer-mediated and automated service components to better resemble an individual support, and second, we must reduce cost and effort of the face-to-face service components. The next steps for our research are: 1. Develop motivational features: The voluntary participation of the field-test participants attests to a certain degree of intrinsic motivation for being physically active. However, training progress is a long-term process. Many people will not discipline themselves to follow the plan without strong extrinsic incentives. A combination of motivational features implemented in the software, for example, game elements (Lin, Mamykina, Lindtner, Delajoux, & Strub, 2006) and virtual group experience (Mueller & Agamanolis, 2005) would contribute to the perseverance in following the training plan. Incentives, for instance set by a company for their employees, could enforce this trend. 2. Set individual goals: Running a half marathon in 12 weeks proved to be too high a goal for the greater part of the participants. Especially in the field of recreational or
preventive sports, more general goals such as “loose weight” or “stay fit” should be addressed (Stevens, Wulf, Rohde, & Zimmermann, 2006). 3. Extend and diversify methods of performance measuring and training plan design: The training plan design and control based on the lactate threshold proved to be very time-consuming and tiring for both athletes and trainers. Based on personal goals and proficiency level, other ways of testing and planning might be appropriate. Training documentation could be enhanced by further data, such as GPS data, weather, amount of sleep etc. 4. Establish trainer-athlete relationship: Seeing the trainer for control sessions and in case of unexpected events was not enough to give athletes the impression of a good supervision, even if they knew he would check their training data on the server. We need to examine if this perceived deficiency can be reduced by altering the look and feel of the software, and at what time the trainer has to interfere personally. Based on the frequency of this interference and on the variations of data collection and performance tests mentioned above, a large variety of service levels could be developed. Business models and pricing are further questions in this area. 5. Further field tests including control groups: A large-scale field test including control groups who train without the support of the MSC would allow a comparison of cost and effect. We developed the MSC along an iterative process model, turning learning from earlier stages into requirements for later stages. Service components were considered from the beginning. Experts and users were integrated in all phases of development. The process seemed appropriate to collect and react to user suggestions and requirements in all phases of the development. However,
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in the pilot test the MSC did not fully satisfy all participants. Therefore, we have to further explore and evaluate our method. In this research, our pilot study was carried out in a German telecommunications company with a quite homogenous group concerning education and cultural background. For future work, we plan to explore the MSC in multi-cultural environments in Germany (e.g., with the staff of a manufacturing company) and in international contexts. The creation of business models and the design of value networks that could offer the MSC also hold great potential for further research.
LIMITATIONS OF THE STUDY This research has certain limitations. First, the test group was rather small, the statistic calculations showed a considerable variance. Second, as the members of the test group participated voluntarily and out of interest in the study, their motivation and positive attitude towards the MSC is not necessarily representative. Third, there was no control group to compare the effect of the MSC-supported training to a conventional training. Finally, selfreport measures as we applied among others, can always be biased by the participants’ intended or unintended false answers. We believe that the major advantage of MSC is that it allows supervision of and situational reactions to user behavior, but at the same time, the computer-mediated delivery and supervisor support functions allow a fast and efficient supervision and administration. Therefore, practice will find the MSC and similar designs eligible and useful for large-scale corporate or public health programs, providing an alternative to conventional interventions requiring personal presence.
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Stevens, G., Wulf, V., Rohde, M., & Zimmermann, A. (2006). Ubiquitous fitness support starts in everyday’s context. Paper presented at the 6th World Conference on the Engineering of Sport, Munich, Germany. Szyperski, N. (1971). Zur wissensprogrammatischen und forschungsstrategischen orientierung der betriebswirtschaft. Zeitschrift für Betriebswirtschaft, 23, 261–282. Ulrich, H. (1981). Die betriebswirtschaftslehre als anwendungsorientierte sozialwissenschaft. In M. N. Geist & R. Köhler (Eds.), Die führung des betriebes. Festschrift für curt sandig (pp. 1-26). Stuttgart, Germany: Poeschel Verlag. Heidelberg,Springer, S. Verein Deutscher Ingenieure. (2004). VDI richtlinie 2223—methodisches entwerfen technischer produkte. Berlin, Germany: Beuth. von Lengerke, T., & John, J. (2005). Gesundheitsökonomische aspekte der adipositas— bisherige ergebnisse der kooperativen gesundheitsforschung (KORA). Cardio News, 8(3), 46. Wigand, R., Picot, A., & Reichwald, R. (1998). Information, organization and management: Expanding corporate boundaries. Chichester, UK: Wiley.
Wulf, V., Moritz, E., Henneke, C., Al-Zubaidi, K., & Stevens, G. (2004). Computer supported collaborative sports: Creating social spaces filled with sports activities. In Proceedings of the Third International Conference on Entertainment Computing (ICEC 2004) (pp. 80-89). Springer.
ENDNOTES 1.
2.
An earlier version of this article appeared in the Proceedings of the Fifteenth European Conference on Information Systems. H. Österle, J. Schelp, R. Winter (Eds.) (pp. 81-92), St. Gallen, Switzerland: University of St. Gallen. The Borg Rating of Perceived Exertion or Borg Scale is a method of determining the intensity of physical activity. Perceived intensity is rated on a scale from 6 (no exertion at all) to 20 (maximal exertion). A person who wants to engage in moderate-intensity activity would aim for a Borg Scale level of “somewhat hard” (12-14) (Borg, 1998). The Borg Scale is widely used in clinical studies and in professional sports, and it is considered an appropriate method for controlling physical activity intensity (Löllgen, 2004).
Witte, E. (1997). Feldexperimente als innovationstest—die pilotprojekte zu neuen vedien. Zeitschrift für betriebswirtschaftliche [zfbf]. Forschung, 49(5), 419–436.
This work was previously published in International Journal of Information Systems in the Service Sector (IJISSS), Volume 2, Issue 1, edited by John Wang, pp. 11-25, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 4.27
Management Information System in Higher Education Juha Kettunen Turku University of Applied Sciences, Finland
INTRODUCTION The communication and implementation of a strategic plan is typically based on various measures in educational institutions. The balanced scorecard approach has in the 1990s attained an important role worldwide in private and public sector organisations. Large organisations have different organisational levels, where it is useful to apply the balanced scorecard. This emphasises the need for the automation of the measuring system. The information is typically collected from various data sources. These characteristics underline the
DOI: 10.4018/978-1-60960-587-2.ch427
need to plan a management information system (MIS) to support the management process. Strategic management is bridge building between the perceived present situation and the desired future situation (West-Burnham, 1994; Wheale, 1991). Strategic management involves taking stock of the educational policy, local economy, and other factors in the organisation’s environment. It adapts the organisation to its environment but, on the other hand, tries to exert a positive effect on the development of its local community (Bush & Coleman, 2000; Kettunen, 2003; Middlewood & Lumby, 1998). The balanced scorecard approach developed by Kaplan and Norton (1996, 2001) is an approach to communicate and implement the strategic plan.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Management Information System in Higher Education
The approach creates strategic awareness among the management and members of the organisation and translates the strategy into tangible objectives and measures. It also aligns the strategies of different administrative units and aggregates the lower organisational levels to the upper levels. If the MIS does not support management, the introduction of the balanced scorecard is easily left halfway finished. The purpose of this article is to show how the MIS can be planned to support the management process using the balanced scorecard approach. An example is given from the Turku University of Applied Sciences (TUAS), which introduced the balanced scorecard in 2002. The entire management process was described in 2004, and the MIS was implemented from 2004-2006. The development project is clearly strategic because it directly supports and shapes the competitive strategy of an organisation as explained by Remenyi (1990). The new system is also open to the personnel, which enhances strategic dialogue and supports the commitment of the personnel to the chosen strategic outlines.
BACKGROUND The balanced scorecard approach translates the strategy into objectives and places them typically in four different perspectives: • • • •
Customer Finance Internal processes Learning
Each objective placed in the perspectives is described by the measures, and their target values are typically set for several years. The management of an organisation sets the objectives, measures, and targets for the organisational units responsible. The MIS is planned to support the balanced scorecard approach.
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When the balanced scorecard approach was introduced in 2002 at the TUAS, it was evident that utilising the new management tool properly would require a more sophisticated information system. The first difficulty was the ambiguity of measures in applying the balanced scorecard. The interpretability was high because the content and definitions of measures were ambiguous. This inhibits reliance on strategic management. The second difficulty was the manual maintenance, which required automation to be reliable and efficient. The data could not be directly transferred from the basic data sources. The use of measures combining data from several basic systems needed manual calculation, which was not reasonable in a large organisation. Management in a knowledge intensive organisation applying the balanced scorecard requires organised and controlled information technology architecture. The data warehousing approach was selected to provide an integrated database. This integrates data derived from various data sources. It is an effective means of handling the large amounts of data needed in the management process. A management portal was planned to utilise the data warehouse, support the management process, and communicate the implementation of the strategy throughout the institution. Our experience shows that the balanced scorecard may easily be an insufficient tool to communicate and implement the strategic plan due to troublesome calculation and unreliable measures. A proper MIS is necessary in large organisations having many organisational levels. A proper MIS presupposes modeling and developing the entire management process and tailoring the information system to meet the specific needs of the organisation.
Management Information System in Higher Education
MAIN FOCUS OF THE ARTICLE E-Management Portal in Higher Education Figure 1 describes the architecture of the academic MIS including the e-management portal. The management process is at the top of the hierarchy. The academic management portal and the data architecture are designed to build the MIS. The management and personnel of the organisation use the management portal. It utilises data from the data warehouse, where existing data on the various operational data systems are collected. The balanced scorecard approach was introduced at the TUAS in 2002 without any specific information system designed for the new management approach (Kettunen, 2003, 2005; Kettunen & Kantola, 2005). It is important that the strategic planning with all the necessary elements of implementation should permeate all the levels of the organisation from the overall institutional level to the degree programmes and individual employees. The balanced scorecard approach has not been properly introduced if the existing information systems do not directly support it. This was one of the main reasons for initiating the project
of the new MIS with a portal at the beginning of 2004. The description of the management process is a necessary phase because it facilitates the time tables so that they take into account the steering of the Ministry of Education, the budgeting process of the institution, and the internal target negotiations between the rector and administrative units of the institution. The detailed description of the management process produced a large sheet, which was put on a wall. About 700 concepts were defined at the different levels of the organisation for the information system. The management process includes the following sequences of main activities: •
•
Objectives: Strategic planning produces strategic objectives. It is important that the capabilities of the personnel are taken into account to define the objectives in the learning perspective. The other objectives must also be defined consistently in relation to each other. Operations: The operations of the internal processes are planned to achieve the strategic objectives.
Figure 1. Architecture of the management information system
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•
•
Resources: Financial resources are allocated in the budgeting process for the operations to achieve the strategic objectives. Results: Operations are performed to achieve the desired objectives within an agreed time and budget.
The elements of the management process should be consistent with the objectives and their causal relationships defined in the balanced scorecard approach. The e-management portal was developed to support the management system. The concept of the portal refers to an access to information and services in the net (Rose, 2003; Smith, 2004; White, 2000; Zhou, 2003). The management will require that the persons at the different organisational levels use the portal of the MIS. Individuals have diverse user rights and roles in the portal. The portal has electronic forms, which allow different organisational units to draft their strategic and action plans, budgets, workload plans, and reports. The portal also has software for project management. The strategic development framework of the portal enables the automation of the management process. The documents of the portal help the administrators to communicate the strategic objectives and targets of the measures. The data warehouse is a collection of data received from the existing operational systems (Guan, Nunez, & Welsh, 2006; Inmon, 1996). The operational data systems provide information about the performance of the organisation. The planning information produced by management is also stored to the data warehouse. The data warehouse is a consistent, consolidated, and refined information collection that integrates different data sources. The task of the data warehouse is to produce diverse reports, statistics, and analyses based on the data from the operational systems and the information produced in the portal. The data warehouse of the TUAS integrates data from three operational data systems: the accounting system, the human resources system,
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and the study management system. There are also plans to integrate the project management system and the workload planning system into the data warehouse in the future. The integrated systems provide the basic data of the functioning of the organisation. The raw data from these systems are extracted, transformed to a consistent and recognizable form, and then loaded into multidimensional information cubes at the data warehouse (ETL processing). The information system also receives input produced in the portal during the management process. This information includes strategic and action plans, the target values of the measures, budgets, and the human resources planning of the organisational units. The system aggregates the plans and budgets of the units on the level of the organisation and stores the information to be compared with the transaction data in the future. This information is connected to the procedural knowledge of the e-management portal. Table 1 describes the people’s involvement and their roles and functions in the MIS, including the balanced scorecard. The role of top management is strategic planning and the implementation of strategic plans with middle management and other personnel. The measures of the balanced scorecards describe the implementation of the strategy. The target values of the measures are agreed in the internal strategic negotiations between top and middle management. The development manager helps top management with the planning and support of the portal and the planning of measures. The information service coordinator assumes responsibility for providing reliable data obtained from the basic data sources. The system does not require any additional activities of the personnel but provides them with more information on how the information they produce in accounting, student and personnel administration, and other activities used in management.
Management Information System in Higher Education
Table 1. People involvement in the MIS Persons
Roles and functions
Balanced Scorecard
Top management
Strategic planning and the implementation of strategic plans
Selection of measures and setting target values for the planning period
Middle management
Operative management
Proposition of target values based on the action plan
Development manager
Portal planning and support
Planning of measures with top management
Information service coordinator
Provision of information needed
Collection of data from data sources for data warehouse
Personnel
Using basic information systems
Input of reliable data to the data sources
FUTURE TRENDS Management Using the MIS The MIS based on the balanced scorecard is a management tool to be used at all organisational levels. User roles have been specified for the individuals’ organisational positions. Different roles enable users to observe different views and allow them to accomplish the tasks that have been defined for the user roles in process descriptions and instructions. The system issues reminders about the tasks which need to be done. All the organisational units prepare their strategic and action plans, budgets, and human resource plans using the portal. Each head of an organisational unit has the responsibility for preparing the plans for the three-year planning period. The system is open and has dialogue with the members of the personnel. The head of the unit submits the plans through the portal to the personnel, who may comment on these documents and suggest modifications and changes. Thereafter, the head of the unit revises the plans and submits them to the rector of the institution. The MIS is used in strategic target negotiations using the portal. These negotiations are arranged between the rector’s top management group and the management groups of the various organisational units. The rector typically makes a counteroffer to be discussed in the target negotiation. The plans of the organisational units are agreed,
finalised, and saved in the portal. The plans of the units are aggregated to the overall organisational level. As a document archive, the portal is open to all the members of the organisation. The reporting of the results is used to evaluate how the institution and its organisational units have been able to reach their strategic objectives and agreed target values of measures. The reports are based on the data obtained from the data warehouse and the qualitative information provided by the various organisational units. The information system also produces reports for the Ministry of Education, the owner of the institution, and for Statistics Finland.
Quality Assurance Using the MIS The European Ministers responsible for higher education agreed in the Bologna Process on joint objectives for the development of a coherent and cohesive European Higher Education Area by 2010. The desired objective based on the Bologna Process is to make Europe “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth and with more and better jobs and greater social cohesion” (Berlin Communiqué, 2003). The quality of higher education is at the heart of establishing a European Higher Education Area. The ministers responsible for higher education agreed in Berlin that the national quality assurance systems should be evaluated by 2010
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(Berlin Communiqué, 2003). The national governments take the responsibility for establishing quality assurance systems for higher education. External quality assurance is based on peer review and evaluation. The quality assurance includes a verification that internal processes are appropriate to the purpose and have been appropriately applied. A quality audit is a check to see whether the institution and its processes are adequately structured to achieve the strategic objectives (Woodhouse, 2003). Each higher education institution has the responsibility for quality assurance representing its academic and organisational autonomy. A proper MIS system can be a valuable tool in quality assurance. It describes the management process and quality assurance. It is also a document archive where the continuous improvement can be verified. The MIS is not only a document archive but integrates strategic management and quality assurance.
CONCLUSION Strategic management has been widely used as a management system in various educational organisations. Even though the management processes are similar in different organisations, they also differ. Information systems are not equal in different organisations. Therefore, the MIS has to be tailored for each organisation. The experiences of this study show that the balanced scorecard is a useful basis for the MIS because it translates the strategic plan into objectives and tangible measures. The MIS requires organised and controlled information technology architecture. The diverse data sources of an organisation form the basis for data warehousing. The data from various systems are extracted, transformed into consistent and recognizable form, and then loaded into the data warehouse. Data warehousing provides an integrated database to facilitate the technical infrastructure of management. It provides an ef-
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fective means for handling the large amounts of data needed in various tasks of an organisation. A portal of the MIS is a tool developed to support the management process and communicate the strategic objectives throughout the organisation. A useful MIS portal can be used with a Web browser and by all the members of the personnel. An advantage of this is that the members of the organisation can directly see how they can contribute to the organisation’s strategic objectives and are committed to implementing the strategy. Data warehousing makes the collection and processing of data much more effective and reliable compared to the systems where the data are decentralised to different data systems.
REFERENCES Berlin Communiqué. (2003, September 19). Bologna Process Berlin 2003: Realising the European higher education area. Paper presented at the Conference of Ministers Responsible for Higher Education in Berlin. Bush, T., & Coleman, M. (2000). Leadership and strategic management in education. London: Paul Chapman Publishing. Guan, J., Nunez, W., & Welsh, J. F. (2002). Institutional strategy and information support: The role of data warehousing in higher education. Campus-Wide Information Systems, 9(5), 168–174. doi:10.1108/10650740210452274 Inmon, W. H. (1996). Building the data warehouse. New York: John Wiley & Sons. Kaplan, R., & Norton, D. (1996). The balanced scorecard. Boston: Harvard Business School Press. Kaplan, R., & Norton, D. (2001). The strategyfocused organisation. Boston: Harvard Business School Press.
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Kettunen, J. (2003). Strategic evaluation of institutions by students in higher education. Perspectives: Policy and Practice in Higher Education, 7(1), 14–18. doi:10.1080/13603100307743
White, M. (2000). Corporate portals: Realizing their promise, avoiding costly failure. Business Information Review, 17(4), 177–184. doi:10.1177/0266382004237737
Kettunen, J. (2005). Implementation of strategies in continuing education. International Journal of Educational Management, 19(3), 207–217. doi:10.1108/09513540510590995
Woodhouse, D. (2003). Quality improvement through quality audit. Quality in Higher Education, 9(2), 133–139. doi:10.1080/13538320308156
Kettunen, J., & Kantola, I. (2005). Management information system based on the balanced scorecard. Campus-Wide Information Systems, 22(5), 263–274. doi:10.1108/10650740510632181 Kettunen, J., & Kantola, M. (2006). Strategies for virtual learning and e-entrepreneurship. In F. Zhao (Ed.), Entrepreneurship and innovations in e-business: An integrative perspective (pp. 107-123). Hershey, PA: Idea Group Publishing. Middlewood, D., & Lumby, J. (1998). Strategic management in schools and colleges. London: Paul Chapman Publishing. Remenyi, D. S. J. (1990). Strategic information systems: Development, implementation, and case studies. Manchester: NCC Blackwell. Rose, J. G. (2003). The joys of enterprise portals. Information Management Journal, 37(5), 64–70. Smith, M. A. (2004). Portals: Toward and application framework for interoperability. Communications of the ACM, 47(10), 93–97. doi:10.1145/1022594.1022600 West-Burnham, J. (1994). Strategy, policy and planning, In T. Bush & J. West-Burnham (Eds.), The principles of educational management (pp. 77-99). Harlow: Longman. Wheale, J. (1991). Generating income for educational institutions: A business planning approach. London: Kogan Page.
Zhou, J. (2003). A history of Web portals and their development in libraries. Information Technology and Libraries, 22(3), 119–128.
KEY TERMS AND DEFINITIONS Balanced Scorecard: The Balanced Scorecard approach was developed to communicate and implement the strategic plan. The Balanced Scorecard approach translates the strategic plan into tangible objectives and measures and balances them typically into four different perspectives: customer, finance, internal processes and learning. Data Warehouse: Data warehouse is a consistent, consolidated and refined information collection that integrates data from various data sources. The data warehouse produces information, reports and statistics for decision-making and other purposes. E-Management Portal: An e-management portal is an electronic platform for the management process and quality assurance. The implementation of the strategic plan and the continuous improvement of quality assurance are described in the action plan of the portal. Extract Transform and Load (ETL) Processing: The data from diverse data sources are extracted, transformed into consistent and recognizable form and then loaded into the data warehouse. Higher Education Institution: Higher education institutions include typically traditional universities and in many countries professionally-
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oriented institutions known as universities of applied sciences or polytechnics. Management Information System: A management information system presupposes modelling the entire management process of an organisation and tailoring all the necessary components of the information technology support system to meet its needs. The management information system should include a description of how the strategic objectives will be achieved and the necessary measures.
Management Process: The management process typically includes a sequence of management activities with the necessary descriptions. The main management activities include the definition of strategic objectives, operations of internal processes, allocation of resources and achievement of results. Strategic Planning: Strategic planning involves taking a view of the long-term future planning with clearly articulated values, mission, vision and strategic objectives.
This work was previously published in Encyclopedia of Information Communication Technology, edited by Antonio Cartelli and Marco Palma, pp. 542-547, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Section V
Organizational and Social Implications
This section includes a wide range of research pertaining to the social and organizational impact of global business around the world. Chapters introducing this section critically analyze interoperability, collaboration, synergy and interpersonal communication/knowledge sharing. Additional chapters included in this section look at trust and tension in telework practices, which has been recognized as one of the main causes of the collapse of a large number of dot-com companies. With 20 chapters the discussions presented in this section offer research into the integration of global global business as well as implementation of ethical considerations for all organizations.
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Chapter 5.1
Business Relationships and Organizational Structures in E-Business Fang Zhao Royal Melbourne Institute of Technology, Australia
INTRODUCTION In today’s e-business, context, technology, customers, competitors, and partners can change rapidly. Technology can become obsolete in the blink of an eye and customers can appear and disappear with a keystroke. There are practically no barriers to new entrants (competitors) in an ebusiness world. Likewise, e-business partnerships and virtual organizations become ephemeral and opportunistic in nature. This article explores the dynamics of the changing nature, process, and DOI: 10.4018/978-1-60960-587-2.ch501
practice of business relationships and network form of organizations in the cyberspace. It also identifies and discusses a series of management issues raised in the processes of e-partnerships and virtual organizations.
BACKGROUND The virtual organization, which is actually a network form of organization, is a revolution in organizational design and has changed the definitions, boundaries, and forms of interorganizational collaboration and partnerships.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Business Relationships and Organizational Structures in E-Business
The network form of organizations is the defining business transformation of this generation (Hagel & Singer, 2000; Jin, 1999; Malone & Davidow, 1994). Cisco, for example, is a network of suppliers, contract manufacturers, assemblers, and other partners, which is connected through an intricate web of information technology. Seventy percent of Cisco’s product is outsourced to its e-partners through Cisco’s network (McShane & von Glinow, 2000). As previously shown, virtual organizations rely on IT network and e-partnership. Theoretically, e-partnership refers to a partnership relying on electronic (information) technologies to communicate and interact amongst partners. In practice, the term e-partnership is mostly associated with e-commerce or e-business partnerships. It may take different forms and involve various partners from or between virtual enterprises and brick-and-mortar companies depending on the nature of e-business activities. It flourishes in particular in e-supply chains through adding electronic components to the business partnership across firms (O’Toole, 2003, Zhao, 2006). For example, in the manufacturing industry, the e-partners may include raw materials providers, component manufacturers, final assembly manufacturers, wholesalers, distributors, retailers, and customers (Cheng, Li, Love, & Irani, 2001). This supply chain may involve a number of hundreds or thousands of suppliers and distributors. The use of Internet and other electronic media and the introduction of inter-organizational information systems are constitutive to e-partnerships and lead to the growth of virtual organizations. E-partnerships share some common characteristics with traditional inter-organizational partnerships (Segil, 2004). But they are different in many ways and thus require different strategies and structures to manage them. Bell (2001) and de Man, Stienstra, and Volberda (2002) studied the differences and found that e-partnerships are generally entrepreneurial and less planned in
nature, must move at Web speed, require flexible network structure, and have a short lifespan. E-partnerships as “a new breed of online alliances are fast emerging as the result of an incredible amount of Internet business in recent years” (Trask, 2000, p. 46). Entering an e-partnership is no longer a soft option but a vital need for gaining a competitive advantage and customer satisfaction in the trend of economic globalization (by globalization it means an increasing trend of economic integration worldwide). On the other hand, globalization is pushing companies to build informal network organizations, such as virtual organizations, that are able to work in a faster, cheaper and more flexible way. E-partnerships and virtual organizations are products of the globalization and IT advancement over the past decade and they have fundamental synergy between them. They interrelate and interact with each other in this digital era.
ADVANTAGES The greatest advantage of e-partnership and virtual organization lies in the fact that they eliminate the physical boundaries of organizations, and that cross-functional teams and organizations are able to operate and collaborate across space and time by communicating with each other via electronic channels. The Internet becomes the most important interface between participating organizations, teams, and individuals. E-partnerships and virtual organizations enable businesses to sell and deliver products and services across the world in a more efficient way in terms of speed and cost. Amazon. com, Priceline.com, and E*Trade are some of the successful e-businesses who have depended on, and maximized profits from, e-partnerships. Other perceived benefits of e-partnerships and virtual organizations may include greater business opportunities, better integration of suppliers and vendors, better management information, lower operational costs, better market understanding and
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expanded geographical coverage (Damanpour, 2001). E-partnerships and virtual organizations may also offer the opportunity of consolidating resources of all partners and organizational flexibility as other forms of inter-organizational partnerships and alliances do. In this rapidly changing competitive landscape, few organizations can rely on their internal strengths only to gain a competitive advantage in national and/or international markets. Inter-organizational collaborations, alliances, joint ventures, partnering, and the like are gaining unprecedented momentum, regardless of their organizational and management structures and styles and communication channels. An organization’s resources are limited in one way or another. Forming a business e-partnership and taking a network form of organization is increasingly one of the most popular strategies available to an organization to take advantage of an Internet Highway on the one hand and share risks, capabilities, and revenue with partners on the other. The driving forces behind building an e-partnership and a virtual organization share a lot in common with those driving any other forms of inter-organizational collaborations. They include: •
• • • •
To gain a competitive advantage or increase market share in national and/or global markets To share revenue and expand sales between merchant and partners To prevent competition loss To meet changing demands of customers and markets To gain core competencies from competitors (Dussauge & Garrette, 1999; Sierra, 1994; Trask, 2000)
KEY ISSUES However, like e-business and e-commerce, epartnership is also facing a range of issues related
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to the use of Internet as well as the reliance on inter-organizational interfaces. The key issues identified are: • • • • •
Challenges and risks of e-partnerships and virtual organizations Productivity and revenue sharing in e-partnerships and virtual organizations Transferring and sharing core competencies between participating organizations Power disparity Quality and effectiveness of communication
Addressing each of these issues has posed a formidable task in front of e-managers of various kinds of inter-organizational collaboration through electronic technologies and e-network. The following discussion explores each of these issues in detail.
Challenges and Risks On the technological side, companies that are involved in e-partnerships must participate in external business relationships by using computer interactions. This forces e-managers to re-engineer their IT strategies and resources and re-think their ways of communicating and doing business with e-partners in a virtual environment. Main issues to be considered are IT infrastructure and managers’ and operatives’ knowledge and skills associated with e-business. On the human resources’ side, e-managers are surely confronting management complexities of making cooperation work. One of the biggest challenges is conflict and differences in organizational and country cultures and systems. Each organization has its own culture developed from its own particular experience, its own role and the way its owners or managers get things done (Hellard, 1995). In addition to the cultural differences at organizational level, multi-national epartnerships encounter inevitably barriers caused by cultural differences between nations such as
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clashes between western and eastern cultures. Differences exist in systems including taxation systems, online intellectual property, and online trade and law. For example, EU member states must enact legislation to ensure that transfers of data outside their boundaries are allowed only to jurisdictions that can offer adequate protection of the data. The US believes that minimal domestic regulation would foster cross-border Internet trade (Damanpour, 2001). Managing the culture and system differences across organizations and across nations is one of the high agendas that challenge managers of e-partnerships and virtual organizations. While the Internet and network organizations facilitate improved communication of data, information and knowledge, they give rise to issues and problems of privacy, data security, and intellectual property protection in the Internet. The information database created through Internet transactions may lead to legal disputes among e-partnerships over ownership of the IP and possible loss of the potential profit generated from the IP (Greif, 2000). Moreover, electronic research projects usually involve new technologies and innovative development, which creates a high level of technological, commercial, and legal risks for every organization involved.
Productivity and Revenue Sharing The primary aim of building e-partnerships and virtual organizations is to generate more profit and achieve the best business results through taking advantage of online resources and extensive e-network. Trask (2000, p. 46) considered that “a well-designed revenue-sharing program may be the best and fastest way to generate online business.” Revenue sharing becomes the most important issue in e-partnerships and virtual organizations when productivity increases and revenue goes up. The nature, timing, and amount of compensation (in the form of referral fees, royalty, and commission) together with the financial
stability and honesty of commission reporting are core considerations of e-partners and crucial factors of success in sustaining e-partnerships.
Transferring and Sharing Core Competencies According to Lei, core competencies comprise a company’s specific and special knowledge, skills, and capabilities to stand out amongst competitors. They are intangible and an integrated part of a company’s intellectual capital and un-tradable asset rather than legally protected intellectual property (Lei, 1997, p. 211). Inter-organizational collaboration provides an opportunity for participating organizations to acquire and absorb the core competencies from each other (Couchman & Fulop, 2000). This opportunity is particularly valuable for innovative business such as e-business. However, the greatest barrier is competitive concerns over information leakage. This is an unavoidable dilemma facing e-partnerships, which makes it difficult for e-partners to achieve the potential that IT technology can offer.
Power Disparity It is normal that a decision-making body of interorganizational collaboration and partnership is proportionately represented by participating organizations in terms of equity holdings in an online joint venture. It should be noted that due to difference in equity holdings, power disparity occurs and is likely to affect performance of interorganizational collaboration, although division of power and responsibility has been clearly defined in legally binding agreements between e-partners.
Quality and Effectiveness of Communication Networking and communication play a key role particularly in coordinating and liaising inter-organizational collaboration. Expanding
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e-networks and achieving effective communication amongst e-partners are a top priority. Like culture and commitment, communication is a soft outcome of a total quality partnership approach and the foundation for inter-organizational collaboration (Aggarwal & Zairi, 1998; Hellard, 1995; Rounthwaite & Shell, 1995). Effective networking and communication help to eliminate barriers to collaboration. Therefore, continuous improvement of quality and effectiveness of communication amongst partners is another key issue in the agenda of e-partnerships and virtual organizations.
Options While sufficient support of IT infrastructure and resources are definitely important to successful e-partnerships and virtual organizations, reducing potential financial, commercial, and legal risks and effectively dealing with human and cultural factors exceed the complexities of technical setup and support in building e-partnerships and virtual organizations. Organizational culture and human resources are increasingly becoming important sources of competitive advantage, as they are difficult for competitors to imitate. How to foster a robust culture and capitalize on the core competence derived from e-partnerships is a crucial and tough issue for managers. Other critical success factors for e-partnerships and virtual organizations include: •
• • • •
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Level of accessibility, security, and compatibility of inter-organizational information systems Level of traffic in collaborative e-commerce activities Level of customer service and e-partner support service Level of transferring and sharing information and knowledge between e-partners Building and sustaining an effective virtual network structure amongst e-partners
• • • •
• • • • • •
Level of individual and organizational commitment to e-partnerships Level of mutual trust, understanding, respect, and openness Level of corporate and business ethics and integrity Level of credibility of e-partners in relation to financial situation and business experience Level of mutual benefit through revenue sharing Effectiveness and efficiency of real-time commission reporting system Level of performance and productivity of e-partners Actively pursuing and sharing core competencies Willingness to share power and empower amongst e-partners Quality and effective networking and continuous improvement of communication (Singh & Byrne, 2005)
Achieving the best collaboration among epartners requires more than tangible resources like IT infrastructure and support. Successful e-partnership needs a high level of intangible commitment and efforts to understand the needs and values of e-partners and customers. By resorting to a total quality partnership approach, it means that business ethics, integrity, honesty, trust, and sharing are required of e-managers of inter-organizational entities at the top and of the individuals and teams throughout the entire virtual organization (Aggarwal et al., 1998; Hellard, 1995; Rounthwaite et al., 1995). Disputes and conflicts caused by culture and system differences like those illustrated in this article could be reduced if e-partners could accept the differences and maintain a flexible and realistic attitude towards the differences.
Business Relationships and Organizational Structures in E-Business
FUTURE TRENDS
CONCLUSION
“The world has finally become a global village, not just in rhetoric, but in reality” (Hennessey, 2000, p.34). In today’s corporate world, it will be more difficult for businesses to survive without joining an e-partnership and taking advantage of the Internet. The fast expansion of Amazon.com, travel.com, and the like through e-partnerships, online syndicates, and e-networks and their business success reinforce the importance of online strategic alliance. Corporate e-partnerships and network-based organizations will be a crucial factor and play a key role in the future development of online business activities. The future trends will be characterized by:
Today’s complex and volatile business world calls for changes and alternatives to old and conventional paradigm of organizational design and new ways of doing business with others. E-business becomes one of the most important forces shaping today’s business. Virtual corporations and e-partnerships become increasingly popular in the perception of managers and in business operations. In such circumstances, it is important that e-business managers have an insightful knowledge and are well prepared to deal with the complexities of e-partnerships and virtual organizations. This article provides a better understanding of the crucial issues in cross-firm business processes and inter-organizational partnerships in the cyberspace. Running inter-organizational partnerships implies multiplication of decision-making bodies from each participating organization and potential clash of interest and values amongst participants. As illustrated in this article, total quality partnership embodies the fundamental principles for managing collaborative partnerships including e-partnerships and can be developed and extended to help interorganizational collaboration to achieve desired outcomes. However, managing e-partnership and virtual organization is more complex than managing intra-organizational collaboration and collaboration between brick-and-mortar companies due to the IT issues, human and cultural issues, and interorganizational partnership issues as discussed in the article. Failure to consider the complexities of any of these issues will lead to a divorce of epartnerships and collapse of virtual organizations.
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More mature (rather than experimental) nature of e-commerce and e-business practices in terms of the scope, quality and credibility of online customer services and products More needs for devising and popularizing e-supply chains due to the needs for integrating the flow of information with the flow of goods (Kotzab, Skjoldager, & Vinum, 2003; van Hoek, 2001) Greater monopoly of the flow of e-commerce and e-business by bigger online syndicates like Amazon.com through building extensive online alliances with online retailers and suppliers (Werbach, 2000) More brick-and-mortar companies moving online to expand their business scope and capitalize on the abundance of the Internet Greater reliance on joint efforts across nations in online legislation to protect IP, security, and privacy of e-commerce and e-business Greater challenge for dot.com industries to achieve sustainability, due to a more uncertain economic environment and the increasing complexities of new technologies and the more globalized economy
REFERENCES Aggarwal, A. K., & Zairi, M. (1998). Total partnership for primary health care provision: A proposed model—Part II. International Journal of Health Care Quality Assurance, 11(1), 7–13. doi:10.1108/09526869810199593
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Bell, J. (2001). E-alliances: What’s new about them? In A. P. de Man, G. M. Duysters, & V. Vasudevan (Eds.), The allianced enterprise (pp. 25-30). Singapore: Imperial College. Cheng, W. L. E., Li, H., Love, E. D. P., & Irani, Z. (2001). An e-business model to support supply chain activities in construction. Logistic Information Management, 14(1/2), 68–78. doi:10.1108/09576050110363239 Couchman, P., & Fulop, L. (2000). Transdisciplinary research bodies: The changing nature of organizational networks and R & D in Australia. Journal of World Business, 8(2), 213–226. Damanpour, F. (2001). E-business e-commerce evolution: Perspectives and strategy. Managerial Finance, 27(7), 16–32. doi:10.1108/03074350110767268 de Man, A. P., Stienstra, M., & Volberda, H. W. (2002). E-partnering: Moving bricks and mortar online. European Management Journal, 20(4), 329–339. doi:10.1016/S0263-2373(02)00051-8 Dussauge, P., & Garrette, B. (1999). Cooperative strategy: Competing successfully through strategic alliances. New York: John Wiley & Sons. Greif, J. (2000). Risky e-business. Association Management, 52(i11), 55. Hagel, J., & Singer, M. (2000). Unbundling the corporation. In N. G. Carr (Ed.), The digital enterprise: How to reshape your business for a connected world (pp. 3-20). Boston: Harvard Business School. Hellard, R. B. (1995). Project partnering: Principle and practice. London: Thomas Telford Publications. Hennessey, A. (2000). Online bookselling. Publishing Research Quarterly, 16(i2), 34. doi:10.1007/s12109-000-0005-9
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Jin, Z. (1999). Organizational innovation and virtual institutes. Journal of Knowledge Management, 3(1), 75–83. doi:10.1108/13673279910259420 Kotzab, H., Skjoldager, N., & Vinum, T. (2003). The development and empirical validation of an e-based supply chain strategy optimization model. Industrial Management & Data Systems, 103(5), 347–360. doi:10.1108/02635570310477406 Lei, D. T. (1997). Competence building, technology fusion, and competitive advantage: The key roles of organizational learning and strategic alliances. International Journal of Technology Management, 14(1), 208–237. doi:10.1504/ IJTM.1997.001724 Malone, M., & Davidow, B. (1994). Welcome to the age of virtual corporations. Computer Currents, 12(1), 12–24. McShane, L. S., & von Glinow, A. M. (2000). Organizational behavior. Sydney: Irwin McGraw Hill. O’Toole, T. (2003). E-relationships—Emergence and the small firm. Marketing Intelligence & Planning, 21(2), 115–122. doi:10.1108/02634500310465434 Robbins, S. P., Bergman, R., Stagg, I., & Coulter, M. (2003). Management (3rd ed.). Sydney: Pearson Education Australia. Rounthwaite, T., & Shell, I. (1995). Techniques: Designing quality partnerships. The TQM Magazine, 7(1), 54–58. doi:10.1108/09544789510076942 Segil, L. (2004). The eight golden rules of alliances. Financial Executive Magazine & Business Week Online, 20(9). Sierra, M. C. D. L. (1994). Managing global alliances: Key steps for successful collaboration. Wokingham: Addison-Wesley Publishing.
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Singh, M., & Byrne, J. (2005). Performance evaluation of e-business in Australia. Electronic Journal of Information Systems Evaluation, 8(1), 23–36. Trask, R. (2000). Developing e-partnerships. Association Management, 52(i11), 46. van Hoek, R. (2001). E-supply chains—Virtually non-existing. Supply Chain Management: An International Journal, 6(1), 21–28. doi:10.1108/13598540110694653 Werbach, K. (2000). Syndication: The emerging model for business in the Internet era. In N. G. Carr (Ed.).The digital enterprise: How to reshape your business for a connected world (pp. 21-34). Boston: Harvard Business School. Zhao, F. (2006). Maximize business profits through e-partnerships. Hershey, PA: Idea Group Publishing.
KEY TERMS AND DEFINITIONS Brick-and-Mortar Organization: An organization located or serving customers in a physical facility as opposed to a virtual organization. Electronic Business (E-Business): A comprehensive term used to describe the way an organization interacts with its key constituencies including employees, managers, customers, suppliers and
partners through electronic technologies. It has a broader connotation than e-commerce because e-commerce is limited to business exchanges or transaction over the Internet only. E-Partnership: A partnership relying on electronic (information) technologies to communicate and interact amongst partners. It is mostly associated with e-commerce or e-business partnerships. E-Supply Chain: The physical dimension of e-business with the role of achieving base level of operational performance in the physical sphere (for more detail see van Hoek, 2001) Intellectual Property (IP): A product of the intellect (intangible property) that has commercial value such as patents, trademarks, copyrights, etc. Online Syndicate: Association of firms with a common interest formed to engage in e-business. Syndication has become an important e-business strategy of many companies. Real Time: In the context of e-commerce, a real-time commission reporting system refers to a system in which a commission request is processed within milliseconds so that a commission report is available virtually immediately to an online salesperson. Virtual Organization: A network form of organization that operates across space, time and organizational boundaries through an intricate Web of information technology.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 477-482, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.2
Exploring the Link between Flexible Work and Organizational Performance Eva Rimbau-Gilabert Open University of Catalonia (UOC), Spain
INTRODUCTION The expansion of flexible work experienced since the 1980s in developed economies is consistent with a more generic trend towards organizational flexibility, which many authors see as essential in order to compete in the dynamic global environment (Volberda, 1998). From this point of view, the changing demands of the environment have forced organizations to seek the ability to adapt rapidly and effectively as a means to be successful or even to survive.
In the quest for flexibility, every area of the organization has been scrutinized in order to render it as “agile” as possible. In the human resources arena, this analysis has led to the definition of diverse “flexible working practices” (FWP) that describe a wide range of employment practices, which differ from the traditional full-time job with a fixed salary and a permanent contract. These practices have been described using other terms, such as “alternative” (Polivka, 1996; Powell & Mainiero, 1999), “non-standard” (Kalleberg, 2000), or “atypical” (De Grip, Hoevenberg, & Willems, 1997), which coincide in denoting their
DOI: 10.4018/978-1-60960-587-2.ch502
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divergence from the most traditional forms of employment. This article will show that quite different practices have been embraced by the common term “flexible working practices.” Subsequently, the results of empirical research regarding the implications for organizational performance of a number of flexible practices will be commented on.
BACKGROUND From the employer’s point of view, flexibility may involve the efficient adaptation of the available human resources and the changes in work organization needed to meet variations in demand and product diversification (Albizu, 1997). In order to address the challenges posed by flexible work, researchers and managers need to understand the diversity concealed under this common term. Descriptions of FWP (Atkinson, 1984; Pfeffer & Baron, 1988; Treu, 1992) have differentiated four forms of flexibility, depending on which facet of work is expected to become flexible: • • • •
The rewards that are paid to workers: pay, reward, or financial flexibility. The place in which the work is carried out: geographical or locational flexibility. The competences of workers: functional flexibility. The number of workers or of work hours: numerical flexibility.
Each of these employment practices can have a variety of consequences for organizations, as will be commented on in the following sections. Given that financial flexibility has been extensively treated in the human resource management literature (there even are a number of international, specialized journals devoted to personnel compensation), this article will focus on the other three types of flexible practices.
Locational Flexibility Locational flexibility implies that the physical place from which workers carry out their activity can be varied. This allows work to be done from home, on the move between two locations, at another office (owned by the same firm, or at a client’s or supplier’s), and so on. Locationindependent working also means that a group of employees does not need to coincide in the same place to carry out a joint project. The quick development of information and communication technologies (ICT) has to a large extent favored the expansion of locational flexibility practices, such as telework, home working, or virtual teamwork (Steijn, 2004).
Functional Flexibility Functional flexibility is the ability of firms to vary the type of labor they use without resorting to the external labor market, and “is accomplished primarily by having a labor force that is able to carry out a wide range of tasks—that is, the ability to move workers from one task to another” (Michie & Sheehan, 2005,). It is intended to develop a workforce that may deal effectively with exceptional situations which require creativity and initiative (Huang & Cullen, 2001). This may be facilitated by ICT. As Paauwe, Farndale, and Williams (2005) point out, “e-HRM can be applied to help people be constantly ready for change, encouraging online training and learning activities,” as well as through the creation of discussion groups and communities of practices.
Numerical Flexibility Numerical flexibility is the ability of a firm to vary the number or the distribution of working hours in a given period of time. This ability can be reached through changes in the amount of hours worked by the firm’s employees, without resorting to the external labor market (this kind
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of numerical flexibility is called “internal”), or by the variation in the number of workers employed through the resort to the external labor market (known as “external” numerical flexibility). Some examples of internal flexibility practices are flexitime, part-time or reduced hours, shift working, annual hours contract, and overtime work. Such practices can be facilitated through the use of HRIS, which simplify employee scheduling activities (Hendrickson, 2003). The expression “external numerical flexibility” is frequently used as a synonym for “contingent work arrangements,” which have been defined as “any job in which an individual does not have an explicit or implicit contract for long-term employment” (Polivka, 1996). Contingent work can adopt quite diverse forms: temporary or fixed-term contracts, agency workers, independent contractors or self-employed work, subcontracting, and so on.
FLEXIBLE WORKING PRACTICES AND PERFORMANCE The results of available empirical research do not allow clear conclusions to be drawn about the relation between FWP and performance. The primary cause of these mixed results lies in a trend that pervades research in the field of strategic human resource management: the use of competing models for theorizing about the relation between human resource practices and organizational performance (see Delery & Doty, 1996). Some authors sustain a universalistic or best practice view by which specific flexible practices always lead to positive or negative outcomes for the organization. Other authors hold a contingent view in which context specificities moderate the relation between flexible practices and performance. Finally, the configurational view suggests that the combined application of certain human resource practices gives rise to configurations whose coordinated action positively impacts on results, particularly
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when such configurations are consistent with the firm’s strategic orientation. Taking into account these alternative views, the next sections offer a synthesized overview of recent empirical research into the relationship between firms’ use of FWP, on the one hand, and a number of indicators of performance, on the other.
Universalistic View Empirical research has found some universalistic relations between organizational performance and every flexible working practice described. Many studies on locational flexibility have examined telework effects on both individual and organizational performance. At the individual level, Collins (2005) found that teleworkers were 23% more productive than office-based workers. These results are noteworthy because Collins used an objective measure for productivity instead of the self-reported appraisal used by most of the available literature, which has overwhelmingly agreed upon the superior perceived productivity of teleworkers (Bailey & Kurland, 2002). In contrast, the findings of Hill, Ferris, and Märtison (2003) disagreed with the perception of virtual workers being more productive, since “multivariate analyses actually showed being in the virtual office, as opposed to being in a different work venue, to be a significant predictor of poorer job performance.” At the organizational level, Stavrou (2005) found that teleworking and home-based working had a positive relation with a combined index of profitability, service quality and productivity, and a negative relation with employee absenteeism. From a financial point of view, Nigell (1997) found that employers might obtain some savings due to telework implementation, mainly office cost savings, increased employee effectiveness, and decreased turnover. However, Collins (2005) found that in purely financial terms, telework was virtually neutral because the set-up costs and recurring running costs of teleworking almost compensated the increase in productivity.
Exploring the Link between Flexible Work and Organizational Performance
These conflicting results show that assessing the effects of telework implementation is not an easy task. As Verbeke and Illegems (2003) point out, “there is a lack of academic and managerial consensus on the relevant benefits and costs of telework implementation (...) Furthermore, most effects resulting from telework implementation are medium term and qualitative in nature.” These middle and long-term effects are usually overlooked when analyzing telework results. Turning to functional flexibility, research results generally agree on its positive relation with performance. For example, Bhattacharya, Gibson, and Doty (2005) observed that the two main components of functional flexibility (namely, skill and behavior flexibility) were positively associated with return on sales, operating profit per employee, and sales per employee. They also found that skill flexibility was significantly related to cost-efficiency, although no significant effects were found for behavior flexibility. Additionally, Michie and Sheehan-Quinn’s (2001) study of publicly quoted UK manufacturing and service-sector organizations detected that increased functional flexibility was significantly positively correlated with organizational innovation and perceived financial performance. Results of Lepak, Takeguchi, and Snell (2003) were also consistent with this idea, as they found that extensive reliance on employment systems based on functional flexibility was beneficial for firm performance. In contrast to functional flexibility practices, external numerical flexibility is not as clearly supported by empirical results. On the one hand, Lepak et al. (2003) found that relying on contract work was positively associated with financial measures of performance, and Valverde, Tregaskis, and Brewster (2000) reported that “the greater the proportion of temporary workers present in an organization’s workforce, the more likely the organization is to report a profit in excess of turnover.” On the other hand, Valverde et al. (2000) could not find any statistically significant relationship between performance and the propor-
tion of part-time contracts, fixed-term contracts, subcontracting, or annualized hours. Additionally, Delery and Doty (1996) found that employment security had a strong, positive relation with financial performance in the banking industry, thus suggesting that contingent work, which is based on no warranty of long-term employment, could damage organizational performance. There are even authors who conclude that the introduction of numerical flexibility can “reduce or even destroy the positive correlation otherwise found between investment in HR and corporate performance” (Michie & Sheehan, 2005). Finally, internal numerical flexibility seems to be positively related to performance. On analyzing 27 studies, Kauffeld, Jonas, and Frey (2004) found that flexible work schedules had positive effects on employee productivity, job satisfaction, and employee absenteeism. The results of Shepard, Clifton, and Kruse (1996) also showed that flexible work schedules contributed to improvements of about 10% in productivity. However, it is worth noting that different forms of internal numerical flexibility may have dissimilar effects on performance. Stavrou (2005) found that what she called “non-standard work patterns” (which mainly included annual contracts, part-time work, job sharing, and flextime) decreased staff turnover, while “non-standard work hours” (weekend work, shift work, and overtime) increased turnover. These results brought Stavrou (2005) to suggest that the more “worker-friendly” practices can have a positive impact on performance, but that the effect can be just the opposite when the hours employees work is changed at the employer’s will to meet increased workloads.
Contingent View Empirical research that has adopted a contingent line of enquiry on the flexibility-performance link is scarcer and has reached less significant results than the universalistic framework.
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Definitions of contingency factors adopted in this research differ, ranging from the firm’s business activity, through organizational strategy, to workforce characteristics or management practices. For example, in the case of telework, Pérez, Sánchez, and de Luis (2002) studied quite diverse contingency factors and found that the managers that perceived higher benefits and barriers for telework could be found in smaller, younger, more innovative companies and in companies without training programs for employees. Functional flexibility seems to have a more positive relation with performance in firms high in technological intensity (Lepak, Takeguchi, & Snell, 2003), and in firms pursuing a quality or innovation strategy (Michie & Sheehan, 2005). Additionally, its combination with high performance work systems seems also to improve financial performance and innovation (Michie & Sheehan, 2001). Turning to external flexibility, Michie and Sheehan (2005) found that organizational strategy was a relevant contingency factor, as they reported “a negative correlation between pursuing an innovator/quality approach and the use of externally flexible labour.” Additionally, the characteristics of contingent workers are emerging as a relevant contingency factor (Lautsch, 2002), to the point that “differences between contingent workers and permanent workers may be less significant than differences between types of contingent work” (Connelly & Gallagher, 2003).
Configurational View Firms seem to face an intrinsically conflictive nexus between flexibility and stability in human resources management (Buyens, Auger, Dany, & Wilthagen, 2006). On the one hand, the volatile environment presses HR professionals to create flexibility in the human resources of their companies, both in numerical and functional terms. On the other hand, if they want “to maintain a motivated and committed workforce, it is im-
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portant to create some continuity and stability within the firm” (Dewettinck et al., 2006). For this reason, some combination of functional and numerical flexibility could be positive for firms, which would support the configurational view. Available research seems to agree with this complementary view of functional and external flexibility (Fernandez-Rios, Rico, Martin, & de la Corte, 2005; Ko, 2003). Lepak et al. (2003) reported that return on equity was higher for firms that used both knowledge-based employment (which rather resembles functional flexibility) and contract work (which relies on external flexibility) than for firms that used only one or neither of these employment modes. In other words: the use of specific forms of numerical and functional flexibility was associated with better firm performance, but the combination of both was more beneficial for performance than relying on only one or neither of them. Other types of FWP seem to form coherent bundles, as well. For example, Long (2001), observed that some forms of financial and functional flexibility tended to be used together, since he found a significant, positive relationship between the use of group-based pay and functional flexibility practices.
FUTURE TRENDS Future research might be enriched by a better understanding of the intervening variables in the relationship between FWP and organizational performance. Behavioral, managerial, and technological variables offer promising results. For instance, FWP should result in better performance if managers are competent in managing a blended workforce of contingent and permanent employees, or if they understand the implications of the multi-employer situation generated by several forms of numerical flexibility (see Rubery, Earnshaw, Marchington, Cooke, & Vincent, 2002).
Exploring the Link between Flexible Work and Organizational Performance
Also, adequate use of technology could enable firms to elicit higher results from their FWP. For example, Fenner and Renn (2004) suggest that technology-assisted supplemental work (a combination of numerical and locational flexibility) could lead to superior individual performance if appropriately managed. More research is needed on the role of ICT in the adoption of FWP by firms, as well as on their influence on the FWPperformance link.
CONCLUSION The concept of flexible working practices includes a wide range of practices, which can have both opposing and complementary effects on organizational performance. The issues summarized in this article show that more research is needed in order to clearly understand when different types of FWP can have a positive or a negative impact on performance. Specifically, the effects of these practices seem to vary depending on whether they are implemented in isolation or in bundles, and on the organizational circumstances in which they take place. This may complicate HR managers’ decisions on the optimal combination of FWP for their organizations, a question that has become crucial in today’s turbulent working environments.
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Michie, J., & Sheehan, M. (2005). Business strategy, human resources, labour market flexibility and competitive advantage. International Journal of Human Resource Management, 16(3), 445–464. Michie, J., & Sheehan-Quinn, M. (2001). Labour market flexibility, human resource management and corporate performance. British Journal of Management, 12(4), 287–306. doi:10.1111/14678551.00211 Paauwe, J., Farndale, E., & Williams, R. (2005). Web-based organizing in traditional brick-andmortar companies: The impact on HR. In T. Torres-Coronas & M. Arias-Oliva (Eds.), E-Human resources management: Managing knowledge people (pp. 1-30). Hershey, PA: Idea Group. Pérez, M. P., Sánchez, A. M., & de Luis Carnicer, M. P. (2002). Benefits and barriers of telework: perception differences of human resources managers according to company’s operations strategy. Technovation, 22, 775–783. doi:10.1016/S01664972(01)00069-4 Perry-Smith, J. E., & Blum, T. C. (2000). Work-family human resource bundles and perceived organizational performance. Academy of Management Journal, 43(6), 1107–1117. doi:10.2307/1556339 Pfeffer, J., & Baron, J. N. (1988). Taking the workers back out: recent trends in the structuring of employment. In B. M. Staw & L. L. Cummings (Eds.), Research in organizational behavior (pp. 257-303). Greenwich, CN: JAI Press. Polivka, A. E. (1996). Contingent and alternative work arrangements, defined. Monthly Labor Review, 119(10), 3–9. Powell, G. N., & Mainiero, L. A. (1999). Managerial decision making regarding alternative work arrangements. Journal of Occupational and Organizational Psychology, 72(1), 41–56. doi:10.1348/096317999166482
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Rubery, J., Earnshaw, J., Marchington, M. P., Cooke, F. L., & Vincent, S. (2002). Changing organisational forms and the employment relationship. Journal of Management Studies, 39(5), 645–672. doi:10.1111/1467-6486.00306 Shepard, E. M. III, Clifton, T. J., & Kruse, D. (1996). Flexible work hours and productivity: Some evidence from the pharmaceutical industry. Industrial Relations, 35(1), 123–139. doi:10.1111/ j.1468-232X.1996.tb00398.x Stavrou, E. T. (2005). Flexible work bundles and organizational competitiveness a cross-national study of the European work context. Journal of Organizational Behavior, 26, 923–947. doi:10.1002/job.356 Steijn, B. (2004). ICT, organisations and labour in the information society. In P. Littlewood, L. Glorieux, & I. Jönsson (Eds.), The future of work in Europe. Hants, UK: Ashgate. Valverde, M., Tregaskis, O., & Brewster, C. (2000). Labor flexibility and firm performance. International Advances in Economic Research, 6(4), 649–661. doi:10.1007/BF02295375 Verbeke, A., & Illegems, V. (2003). Moving towards the virtual workplace. Cheltenham, UK: Edward Elgar Publishing. Volberda, H. W. (1998). Building the flexible firm. New York: Oxford University Press.
KEY TERMS AND DEFINITIONS Contingent Work: Any job in which an individual does not have an explicit or implicit contract for long-term employment. Financial Flexibility: Reward policies that link a part of remuneration to some indicator of interest, in order to adapt pay expenses to macro-
economic and labor market variables or to the individual or the organizational activity. Functional Flexibility: Ability of a firm to vary the type of labor they use without resorting to the external labor market; it is accomplished primarily by having a labor force that is able to carry out a wide range of tasks. Labor Flexibility: The competence to efficiently adapt the firm’s available human resources and to change work organization in order to meet variations in demand and product diversification. It includes financial flexibility, locational flexibility, functional flexibility, and numerical flexibility. Locational Flexibility: Working practice that fosters the variation of the physical place from which workers carry out their activity: work can be done from home, on the move between two locations, or at another office (of the same organization, or of a client or supplier). Also the distance from the “traditional” client or collaborator implies locational flexibility, for example: virtual work-teams or distance teaching. It can include mobile work, house-based work, and telework. Numerical Flexibility: Ability of a firm to vary the number or the distribution of work hours in a given period of time. This ability can be reached through changes in the amount of hours worked by the firm’s employees, without resorting to the external labor market (“internal” numerical flexibility), or by the variation in the number of workers employed through the resort to the external labor market (“external” numerical flexibility). Telework: Form of work, in the context of an employment contract, where the tasks are carried out away from the employer’s premises on a regular basis, with the use of information technology to change the accepted geography of work. Work-Life Policies: Work policies that allow people to exercise control over when, where, and how they work, with the intention to support personal equilibrium between life inside and outside paid work.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 392-398, copyright 2009 by Information Science Reference (an imprint of IGI Global). 1305
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Chapter 5.3
E-Business Interoperability and Collaboration Alexander Kipp High Performance Computing Center Stuttgart, Germany Lutz Schubert High Performance Computing Center Stuttgart, Germany
ABSTRACT Current e-business frameworks lack the capability of abstracting the underlying resource infrastructures in order to allow for seamless integration and thus smooth interaction between business entities. Mainly, such frameworks are unable to abstract human, as well as computing resources in a fashion that allows seamless integration into high-level distributed workflow descriptions. Usually, workflows or distributed processes are defined by managers with little background in IT specifications and platforms. Ideally, this should not be necessary at all; however, current solutions DOI: 10.4018/978-1-60960-587-2.ch503
do not provide such abstraction support. In this chapter an approach is presented that will overcome this issue allowing for a high-level resource virtualization approach, in particular enabling the integration of human as well as computational resources within high-level workflow descriptions in a SOA fashion.
INTRODUCTION Increasing business dynamics, changing customer preferences, and disruptive technological shifts pose the need for two kinds of flexibility that inter-enterprise information systems must address-the ability of inter-enterprise linkages to support
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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changes in offering characteristics (offering flexibility) and the ability to alter linkages to partner with different supply chain players (partnering flexibility) (Gosain, Malhotra, El Sawy, 2004). From a technical perspective this enforces a new kind of infrastructures allowing for the transparent communication interception as well as the corresponding transformation considering the business partners needs accordingly. Service provisioning over the internet using web service specifications becomes more and more difficult as real business requirements start to shape the community and thus have to be respected in the transactions. One of the most important aspects relates to dynamic service provisioning: whilst the straight forward web service usage would aim at exposing individual resources according to a fixed description, real organizations would want to expose a flexible description of their complexly aggregated products (Haller, Schubert, Wesner, 2006). Additionally, due to globalization and environmental challenges, there is a growing interest in adopting collaboration technologies so as to support distributed enterprises to work together as virtual teams, thus reducing time and cost. This chapter presents an approach to reduce the technological overhead in virtual service exposition over the internet, and implicitly allowing for more flexibility. To this end, we introduce a dynamic gateway structure that acts as virtual endpoint to message transactions and can encapsulate complex business processes on behalf of the provider, thus abstracting the actual complexity of the provider for the consumer. Furthermore, this chapter discusses an enhancement of the mentioned Gateway towards a “Dynamic Session Management System” which dynamically integrates decision taking and communication tools within an entire collaboration framework. This will allow for the role-based integration of humans in eBusiness collaboration environments, in particular allowing for a synchronous collaboration between humans within an eBusiness workflow. Therefore, the introduced
infrastructure enables establishing a communication channel basing on decision making and communication tools, allowing the involved persons at a specific state of the workflow to interact with each other. The mentioned infrastructure also ensures that the corresponding applications are setup accordingly. It also outlines on how data management and sharing within this dynamic infrastructure is handled while addressing the security concerns of certain individual companies. By providing a virtualisation system that expands directly on the messaging infrastructure, we enable a dynamic communication framework that allows for various extensions according to the usage needs. Let’s investigate this in a simple example: Bob is a manager of a large European airplane manufacturer and has designed a workflow (process) describing the steps for the construction of a specific part of an airplane. Since design as well as construction of the airplane is distributed all over Europe, management and process planning is of utmost importance. Additionally, the construction of an airplane involves a couple of external service providers which also have to be integrated in the execution of the process. For the sake of simplification, we are just considering a small extract from the workflow, namely the aerodynamic simulation of a wing design, which results are stored for the purpose of discussion with external experts. Figure 1 shows this simplified workflow. In this example, Bob designed a workflow representing the construction of an airplane and is responsible for its execution. To this end, Bob requires strong computational resources to execute the actual simulation, and therefore negotiates with different HPC providers to acquire their services. We may safely assume that the airplane manufacturer company for which Bob works, already has a series of existing contracts with different computing providers. In order to enable the communication, Bob had to contact his IT department a couple of times in order to set up a
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Figure 1. Example workflow
corresponding IT-Infrastructure locally as well as for the integration of the target platforms of the corresponding service providers. Typically, Bob will want to run multiple parallel tests to identify the optimal wing configuration given parameters such as lifting force, noise, material stress etc. Since optimisation involves multiple decision takers under different circumstances depending on the simulation results, Bob will devise a second workflow for improving the wing design. This process involves sending the design and simulation results to various experts, who may update the design and / or the simulation parameters, potentially causing the simulation range to spread out, to be altered etc. Obviously, any of these iterations cause massive overhead in configuring the communication protocols, arranging for common discussion dates etc. – the more people involved in the discussion group, the more complex the setup. Even though the group may consist of full-time contracted participants, a more dynamic group that involves relevant experts according to the specific simulation results would speed up progress and improve the quality of the results significantly. What is more, since each iteration can be regarded as a stand-alone process, there is no need to involve the same experts every time, but they may be replaced by experts from identical fields. In summary it should be possible to describe and execute such collaborations from the perspective of sharing data and consuming shared
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resources including computational and human resources. This would allow for an orchestration of resources with a high-level workflow language, like e.g. BPEL (BPEL, 2009) without the need to consider the “technical” details about how the resource can be consumed, enabling also “typical” managing personal without a funded expertise in technical aspects, to describe and setup workflows.
RELATED WORK Today’s eBusiness scenarios require a consequent realization of the Service Oriented Architecture (SOA) paradigm which benefits both sides, the service providers as well as for the service consumers: Service providers can easily expose their “products” (in the sense of aggregated business processes) in such a way that potential service consumers can integrate these services in their own products. This is done in an abstract manner which means in particular that no implementation details of the underlying service implementation need to be considered. On the other hand, consumers can make easier use of services without having to worry about integration and interoperability issues, let alone the potential dynamicity which may occur in distributed environments. Service virtualisation goes even one step further: operational, integration and life cycle issues are faced which is critical regarding the success of SOA (Nash, 2006).
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Service virtualization is already an integral part in our everyday life, e.g. online banking services hide the complex processes to execute financial transactions behind comparatively simple interfaces. Even more commonly, DNS servers replace the complex and dynamic IP addresses in a network with (potentially meaningful) names, thus enabling the network users to connect to machines in an intuitive fashion. Virtualization can be seen as a more abstract view of the corresponding services and resources as well as the according underlying infrastructure. In modern eBusiness scenarios it is necessary to decouple service implementation from the corresponding interfaces in order to maintain the services efficiently, without affecting user or provider. Current web service frameworks enable SOA conformant collaborative infrastructures (Golby, Wilson, Schubert, 2006) but still lack essential dynamicity capabilities in eBusiness and collaborative working scenarios (Schubert, Wesner, Dimitrakos, 2005). An example of the latter type of scenario is addressed by the research project CoSpaces (CoSpaces, 2009). This project aims at developing a framework that allows dynamic collaboration sessions for engineering teams that are distributed all over the world – the main issues to be addressed in this context consist in allowing the relevant people to share knowledge and necessary applications with one another. Approaches like (Sotomayor, Keahey, Foster, 2006) focus just on the provision of virtualized workspaces by providing the corresponding computing resources for a specific job. Existing virtualization systems, like e.g. (Preu, Syrbe, Konig, 1997) provide a first step towards a virtualization infrastructure – generally however, these approaches are limited to specific platforms and do not allow for the relevant dynamicity of configuration which is an essential requirement for eBusiness applications. Other approaches tackle the virtualization aspect at a lower level, like (Nesbit, Laudon, Smith, 2007) or (Padala et.al.,
2007) – yet these approaches do not respect the high-level requirements of eBusiness environments, which require the ability to abstract from the underlying, low-level resource infrastructures. The latter one has been addressed by (Ardagna et.al., 2007). However, the presented approach focuses on a quite static adaptation of web service infrastructure during runtime by allowing the provision of static mapping documents, allowing the introduced mediator service to map requests between varying WSDL descriptions. Another important aspect in SOA based systems is the consideration of advancements of the involved components. Usually, components that are used get modified from time to time, due to potentially changed requirements or bug fixing. (Stuckholz, 2005) therefore presents a connector component allowing for the mapping of component invocations to different version of the according service interfaces. However, this approach lacks in facing the requirement to dynamically and transparently adapt the underlying service infrastructure in the sense to replace components without affecting the other involved components at all. In order to determine the most current version of a service interface (Juric, et. al., 2009) announce an approach describing how to include also older version of an interface definitions within an interface description whilst providing an approach towards an according extension of UDDI in order to allow clients to get the correct interface according to their current setup. However, this approach also just considers changes within an interface of a specific component whilst not tackling a service virtualization approach. Another approach to allow for the versioning of web services is provided by (Kaminski, et.al, 2006) by introducing an adapter chain in order to reflect the changes of the according service interfaces. Therefore, for every change an adapter is provided ensuring that invocations for the outdated interface can be matched to the most current one. In order to reflect all changes of an interface, these adapters have to be organized in a chain. However, this approach does not
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support the virtualization of service endpoints. Additionally, this approach just supports the service provider in maintaining different versions of service interfaces. The customer side is not considered in this context, which is with respect to eBusiness environments, an essential point. However, with a focus on the service provider side, the introduced version chain can be easily integrated within the virtualization gateway of our approach as a chain of filters. (Yu et.al., 2006) identifies in order to ensure interoperability within Web Service based systems standards, ontology, and mediation as essential key points. In order to allow for an integrated view on heterogeneous services our gateway toolkit can be integrated as transparent message interceptor in the introduced communication layer allowing for the transformation of messages according to the corresponding target platform whilst supporting transparent integration of security, accounting, etc.. In current eBusiness scenarios integration of provided services on an abstract level is one of the main issues to be faced. In particular this means that partners within a collaboration want to consume the provided “product” of a partner without taking into account the corresponding service infrastructures (Haller, Schubert, Wesner, 2006). Web service technologies allow the consumption of services without the need to take into account the underlying service logic. This is achieved by providing standardized interfaces to these services basing on the Web Service Description Language (WSDL), which grand service consumers access to exposed methods very similar to a local programming library. Classically, a web service is identical to a stand-alone program being executed in the host’s environment – in order to expose complex, aggregated processes, that compose several services (i.e. a “product”) necessitates a more abstract view of the underlying services. A main disadvantage of the web service approach thereby consists in the fact that changes in the web service interface and / or execution logic typically
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implies that the corresponding client code has also to be adapted to these changes. Notably, there are means to reduce the impact through extension, rather than alteration of the interface – this allows at least for backward compatibility. (Haller, Schubert, Wesner, 2006) coin the term “abstract entities” for service providers that hide complex, potentially distributed processes behind a straight-forward, abstract interface that allow the integration of partners into a higher-level eBusiness process by representing partners as abstract roles. This way, collaborative processes implicitly form a hierarchy of processes that are easy to manage on all levels, thus enabling the design of collaborative eBusiness scenarios without the burden of taken into account the complexity of the underlying service infrastructures and the corresponding service implementations. The main goals from an eBusiness perspective are: • •
Easy encapsulation and usage of services being distributed all over the world Easy composition of services in order to provide a “new product”
To realise these goals a new way of managing service infrastructures is needed with particular focus on the representation of services in a distributed environment: changes of an interface or the service infrastructure should not affect the corresponding client applications. Additionally, service providers should also be able to easily adapt their infrastructures without affecting the corresponding interfaces and consequently the client applications consuming these services. The approach being presented in the following section is also going to ease the provision of new products regarding the currently available services. Another important aspect within dynamic eBusiness environments consists of teams working in virtual enterprises who need to come together frequently to assess the project from different engineering points of view and to ensure that
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the product they are producing is meeting the specifications and the set quality standards. Typically such teams have both planned and ad-hoc meetings to resolve conflicts and to finalize the design. Such meetings are usually organized as traditional face-to-face meetings involving large organizational efforts and travel costs with direct impact on the environment and the quality of life of the team members, affecting also their social and family life. Furthermore, such face-to-face meetings are difficult to organize since the diaries of individuals need to be consulted to find a suitable time, consequently delaying the decision and the time for finalizing the product. The CoSpaces project aims to develop a distributed engineering environment for remote teams to work together efficiently, securely and reducing the frequency of traveling to a single location. It also aims to support both planned and ad-hoc meetings within a distributed virtual environment with appropriate decision making and communication tools. The key technical challenges therefore undertaken are: •
• • •
Dynamic integration of decision making and communication tools within the distributed environment. Secure data sharing approach Multi-user visualization and interaction metaphor for collaborative working Creation of co-located, distributed and mobile workspaces for multi-functional teams.
Therefore, an enhancement of the mentioned gateway toolkit towards a “Dynamic Session Management System” is introduced, which allows the dynamic integration of decision making and communication tools within the CoSpaces software framework. It also describes how data management and information exchange within such a dynamic environment is handled while addressing the security needs of different partners involved. Specifically, the framework will support
users in the on-demand selection of participants, and ensure that data required for the session is made available. The basic approach presented here follows the Grid concepts (Foster, Kesselman, 2003), namely that participants (similar to resources) are selected and integrated on basis of their capabilities and availabilities, and that the actual resource are configured on-the-fly according to the collaborative needs. Similar approaches have been considered in other projects, like Akogrimo (Akogrimo, 2007) and TrustCoM (TrustCoM, 2007). The recently finalised IP BREIN (BREIN, 2009) (Taylor, et. al., 2009) therefore extended this eBusiness approach by merging semantics, agents, and Grid technologies to provide an intelligent, self-manageable infrastructure. The CoSpaces project has been developed in close collaboration with industrial partners to assess real business needs and requirements in the context of collaborative working environment. As expected, in particular security concerns and complexity issues were raised: potentially sensitive data is shared between various types of collaborators who typically only require parts of the full information; also configuration, maintenance and execution should be simple, with little technical knowledge required by the user(s). Even when teams can meet locally, significant administrative overhead is involved in gathering for common sessions, such as establishing a common date where all required persons and resources are available, setting up the resources in so far as needed, distributing the documentation and data, and finally generating a session report and distributing it to the participants. These administrative efforts are even more demanding for globally dispersed teams. In truth, the setup of such collaborative working sessions requires several complex, and mostly manually executed, steps: required applications (such as a shared whiteboard) are installed and configured offline, with the respective configuration / login information being distributed by phone or mail. The problem becomes even more complicated, if more
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complex applications than a shared whiteboard are required, e.g. to discuss a 3D CAD model etc. To ensure correct functioning, additional user context information is required, in particular: • •
The current status of a specific user, such as availability Device status, such as resource type, installed applications/software etc.
This contextual information is necessary for initialising a collaborative working session, so as to determine if all the relevant team members, as well as the required applications, are available. Respecting the fact that in most cases the expertise, rather than the expert is needed, as well as that location of resources may be secondary, the information can be used specifically for ensuring that a working collaboration is possible at all times. Depending on the user’s preferences, this enables companies to use their available resources, e.g. manpower and application services, more efficiently, as well as users to save time and effort in setting up an effective collaboration. The higher the requirements for on-demand collaborative support, implicitly the higher the requirement for coping with high dynamicity, involving setup of the collaboration, as well as replacement of resources (including experts) on the fly. This is of particular relevance in emergency situations, e.g. a terrorist attack at an airport. As opposed to the typical collaborative setups, these situations do not deal with a pre-assigned team and fixed roles, which would render the management too slow for the simple reason of waiting for all team members to become available. Instead, relevant resources (human experts and according applications) need to be identified mostly according to their availability, in order to setup a collaborative environment as quickly as possible. Obviously, set up and maintenance of such a collaboration is extremely time-consuming and currently in particular in emergency situations impossible – consequently, an intelligent
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framework is needed that realizes all these tasks automatically. The CoSpaces framework seeks to achieve this through its Dynamic Session Management (DSM) system. The DSM is responsible for the dynamic ad-hoc role-based setup and steering of participants, machines, and application to support the described dynamic, ad-hoc collaborative working session.
SERVICE CONSUMPTION IN EBUSINESS ENVIROMENTS As mentioned, service WSDLs describe static interfaces for static consumption behaviour – obviously, this does not allow for the necessary flexibility in dynamic eBusiness scenarios. Ideally, only high-level descriptions of the service’s capabilities are provided that are sufficient to invoke the service’s methods without explicitly having to cater for method and data structure. Implicitly, the only relevant information consists in the type of operations supported and the data required for execution. Service virtualization takes an essential step in this direction, by not directly exposing a static interface, but a kind of contract instead that describes the available functionality and how these services can be invoked as well as which information is needed to invoke these services. To this end, we propose a Gateway middleware which extends the messaging infrastructure by intercepting incoming and outgoing calls to enact transformation and security policies upon them. This allows in particular the conversion of abstract calls into concrete invocations and the routing and distribution of messages to a variety of providers, thus implicitly serving composition and dynamicity:
The New Gateway Architecture In this section the Architecture of the new gateway is introduced and described in more detail.
E-Business Interoperability and Collaboration
As mentioned before there is a concrete need in service virtualization and thus consequently in an abstraction layer. This abstraction layer operates as an intermediary service between consumer and the actual service logic by intercepting and analysing invocations and mapping them to the corresponding service(s). This mapping can also involve the necessary transformation steps as the virtualization gateway does not focus on a specific interface description. Since the gateway acts as a single entry point to not only local service logics, but potentially also to the whole virtual collaboration environment, it also provides the functionality to encapsulate services. Through using “double-blind virtualisation” mechanisms, i.e. by deploying the gateway on both consumer and service provider side, it is possible to alter resources and providers without affecting the calling applications. Figure 2 presents a sample deployment of the Gateway infrastructure. The dashed line denotes an indirect link (as the gateway extends the message channel). Figure 3 shows the structure of such a gateway. This structure enables service provider to encapsulate and hide their infrastructure in a way that also allows for virtualization of products. With the gateway being extensible, it provides the basis to non-invasively enact security, privacy and business policies related to message transactions. With the strong SOA approach pursued by
the virtualization gateway, the structure furthermore meets the requirements of minimal impact and maximum deployment flexibility; through its filters, it furthermore supports the standardized messaging support. The gateway is furthermore constructed in a way that allows for participation in multiple collaborations at the same time without requiring reconfiguration of the underlying infrastructure. In effect, this virtualisation technology thus acts as an enhanced messaging infrastructure which can serve the following purposes: •
•
Policy enforcement: The gateway can enforce policies upon message transactions since it allows the definition of criteria that must be fulfilled before a potential consumer is authorized to access a specific service. To this end, policy decision points can be inserted into the message chain (see below). For example, it is possible to differentiate service consumers based on their reputation, so as to estimate the relative trustworthiness, the effort worth investing etc. Message security, identity and access management: In an ideal world, all deployed client applications and web services support the corresponding specifications like WSSecurity, WS-Trust and WS-Federation. Ideally, each client application should be
Figure 2. Sample deployment of the Gateway infrastructure
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Figure 3. Gateway structure
•
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able to fetch security tokens that are necessary for service access, and each deployed service should be able to authorize an incoming request using a claims-based security model with fine-grained authorization. Unfortunately, many applications in production today do not yet adhere to these principles, and the gateway can serve as a migration path towards broader adoption of the claims-based access model. The customer-side gateway can authenticate internal requestors, request security tokens on their behalf and protect (i.e. encrypt) outgoing messages. A service-side gateway can act as a policy-enforcement point to authenticate and authorize incoming calls. For example the gateway can establish a secure connection to the service consumer while the concrete client application does not support any secure data transmission. Protocol translation: Not only are web service protocol specification subject to constant changes, but also a broad scope of protocols serve similar needs, thus leading to recurring interoperability issues between customers and providers. With static interfaces, the consumer has to ensure that
•
•
•
•
his/her service invocation is compatible with the specifications of the provider… Transformation: Since the gateway provides an universal interface for the underlying services a transformation has to be done before the message is forwarded to the corresponding service. Transformation actions can be done as a following step of the protocol translation, in particular regarding the transformation of service specific parameters. Filtering and information leakage protection: The gateway can detect and remove private information from a request, offering a hook to install information leakage detection and prevention mechanisms. Load balancing & fail over: The gateway can act as a load balancer. If e.g. one service is currently heavy in use the gateway may decide to forward requests to this service to an equivalent one. Routing: Using a similar concept to DNS, the gateway allows for dynamic routing of messages depending on registered and available providers (cf. load balancing). This allows on-the-fly replacement of providers, given that no current request is still
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•
in progress (in which case the according data would be lost). Since the gateway exposes virtual endpoints to the consumer, he / she does not have to adapt the process’ logic, if the providers change. Login monitoring: Often it is interesting for a service provider to see which version of a service is still used by the customers. Via the gateway this information is also available.
The gateway of a service provider acts as the virtualization endpoint of the services exposed by the respective organization. Its main task consists in intercepting incoming and outgoing messages to enforce a series of policies related to access right restrictions, secure authentication, transformation etc. thus ensuring that both provider and collaboration specific policies are maintained in transactions. Figure 4 shows the gateway from a customer perspective. As a virtual endpoint, the gateway is capable of redirecting messages from virtual addresses to actual, physical locations (local or in the Internet), thus simplifying endpoint management from client side, i.e. applications / client services are not affected by changes in the collaboration, such as replacement of providers etc. An intrinsic handler in the gateway channel hence consists in an endpoint resolution mechanism that identifies the actual destination of a given message.
In order to announce a service, the service provider announces a virtual service interface definition (WSDL). Incoming calls are intercepted by the gateway in order to transform these messages according to the service implementation’s requirements. To this end the gateway accesses a knowledge base containing all the necessary information like e.g. the mapping of the virtual name to a concrete service endpoint and the transformation of method names and parameters. As the gateway can route to any number of physical endpoints, this approach allows the provider to expose multiple WSDLs for one and the same service, as well as the other way round, namely to expose multiple services via a single (virtual) web service interface. This allows not only to distinguish between various (potentially user specific) instances of a single web service, as is currently being exploited by cloud service farms, but it also enables the service provider to dynamically move service instances between resources, as well as to compose new services through combination of existing applications, without having to rewrite the according logic. It is hence also possible to provide services dynamically – e.g. by announcing new virtual interfaces, or by altering the service logic without having to change the interface. These aspects simplify service management significantly, as it removes the issue of having to cater for individual instances and their representation. For example if used in a cloud like fashion,
Figure 4. The Gateway principle
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updates initiated at the breeding site would automatically spread across the network over time.
Realisation of the New Gateway To realise such a communication interceptor gateway, an ideally transparent intermediary communication infrastructure is needed acting as a message interceptor und as a message transformer. In particular for web services, a HTTP router is needed doing this transformation without affecting the client calling the corresponding service as well as the underlying service implementation – Figure 5 illustrates this: In particular, the HTTP router tunnels a request from a virtual WSDL to a concrete service call of a “real” service interface. Therefore in this example the virtual WSDL provides a virtual endpoint with the name wsa:To=’HPCService’. The HTTP router now maps this web service call to the corresponding concrete service endpoint “https://domain.com/cluster2/node23/service. svc” of the underlying service implementation. This is done completely transparent to the invoking client as well as to the service implementation. The gateway itself can be regarded as an extensible chain of message handlers (or PEPs) that query customizable Policy Decisions Points. Anyone can thus define and register his / her own policies which can take full control over the message handling, in a plugin like fashion. Notably, the plugins need to follow a logical sequence, as e.g. decryption and authentication should be executed at the very beginning of the chain, whilst Figure 5. Technical realization
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the actual forwarding to the physical endpoint should be executed at last. The actual processing logic itself can be controlled through passing additional metadata across plugins. A prototype realization of the gateway has been developed within the IP BREIN using the .NET 3.5 framework following the plugin approach described above. This realization of the gateway infrastructure exposes virtual endpoints (URLs) similar to the Internet Information Service (IIS) and may even be treated as a standalone service. The service administrator can use the virtualization gateway to decide which resources / services / workflows are exposed under which URL – all other services either remain hidden in the infrastructure or are exposed without a virtualization gateway intermediary. Notably, the administrator has full control over which services are exposed to which degree (i.e. which methods under which public name etc.) This way, the administrator can specify concretely which services are exposed in which manner (cp. Figure 6) whilst being fully compliant to already existing WSDL interfaces. Due to the plugin approach the gateway can be enhanced with any kind of filter, thus allowing for any kind of needed message transformation. The current implementation provides a reference implementation focusing on virtual service endpoints by integrating a filter in order to modify the according WS-Addressing fields. Policy handlers can be registered at the virtualization gateway using the according management interface and the identifier of the specific gateway structure. Each service instance can thus
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Figure 6. Gateway structure and its relationship to IIS and service instances
principally be associated with its own gateway and policy handler chain, allowing for maximum flexibility. The Service Instance Registry is a specific type of policy decision point that identifies the actual endpoints on basis of the transaction metadata (sender, related VO, addressed endpoint etc.). It will instruct the message chain about the next endpoint to forward the message to. In the following chapter we are going to describe an enhancement of the introduced Virtualisation Gateway towards an infrastructure allowing also for the consideration of human resources within workflows.
ENTIRE INFRASTRUCTURE FOR A DYNAMIC COLLABORATIVE WORKING ENVIRONMENT The ongoing development of internet technologies is opening up new possibilities for people to collaborate across organizational and geographical boundaries. From the user’s point of view, this means access to remote experts or colleagues, data and services on demand at any time and from any place. However, such on demand access needs to be managed within a given context to ensure that the privacy of others is not invaded nor violated.
For example, before contacting an expert the user needs to know the context of the expert. Is the expert currently available? Is he/she working or on holiday? Is he/she busy? What is the best way to approach her/him (video link, audio, chat)? This would require tracking the user context and making such information available to the rest of the team. Another context dependent issue is to understand the devices, interfaces, and services that are available to support the collaboration. By publishing such information, a collaborative working session could be initialized to suit the context with appropriate hardware and software settings. Classically, a collaborative session is organized in advance by informing the relevant people and agreeing on a common date and medium. Additionally, the collaborative environment for supporting the meeting needs to be installed at each user site before the meeting. If such collaboration is a frequent activity, the collaborative technology infrastructure needs to be permanently installed at each partner site. However, current collaborative technologies only support access to a limited number of application services and therefore the type of discussions that could take place effectively is small. Due to the lack of integration between the applications and the collaborative environments, the users are not in a position to execute various business applications
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on demand for presenting their results to others and contributing to the discussion. Furthermore, current distributed environments provide little support for adaptation according to the available hardware configurations in order to provide an optimized service to the users. As shown in Figure 7, the CoSpaces framework is comprised of several components such as the Portal, Knowledge Support, Group Management, Position and Identification, Resource Management, Dynamic Session Management and Application Controller. A brief description of these components is given below: •
•
•
•
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Portal: This module allows the initiator of the collaboration to plan and execute a collaborative session by selecting people and resources. Knowledge Support: This module maintains information on experts and necessary documents to provide context support. Group Manager: This module maintains the information about people including personal details, access rights, roles etc. Position and Identification: This module tracks the activities of the people using various tracking technologies. Collaboration Broker: This module acts as an intermediary service between all other modules. Beside others, the collaboration broker provides the entire setup for the Dynamic Session Management (DSM)
with all necessary information required to setup a collaborative session. In this section we present a detailed overview over the DSM components. The DSM provides an infrastructure for dynamic ad-hoc collaboration sessions. In particular the DSM-Manager provides a central interface for the collaboration broker. Via this interface the latter is able to submit a configuration for a specific collaboration session which is delegated in the next step to the corresponding partner gateways. To allow for an interoperable configuration between the parties involved, each partner has to provide a corresponding Gateway. The Gateway therefore has been enhanced with an plugin allowing the consumptions of configurations of collaborative working sessions being submitted by the DSM-Manager to configure the hosts of the involved machines. It is also possible that each host machine has its own gateway. Figure 8 provides an overview of the entire system design. Besides for the configuration capabilities, the Gateway also exposes a frontend to the Application Controller at each partner’s machine, which allows the instantiation and the steering of different applications – all machines participating in a collaborative working session with shared applications hence need to provide an Application Controller. Next to instantiation and configuration support, the collaborative extension of the gateway provides support for:
Figure 7. Conceptual view of the CoSpaces framework
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Figure 8. Dynamic session management overview
•
•
A notification subsystem: this notification support realizes a publish-subscribe system, allowing both the propagation of events, e.g. that changes have been done in a document, or that a participant is no longer available, as well as the exchange of chat messages between users and application-specific commands, enabling the bilateral communication between applications on an event-basis. A relationship management subsystem: the setup information being by the collaboration broker contains the links between collaboration partners which are stored in this subsystem. This information is needed in cases where partners become unavailable or their context changes in such a way that they can no longer join the collaboration as originally intended on setup. If one partner recognizes such a change, this statuschange will be propagated via the notification sub-system.
•
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Security issues: since the Gateway allows the configuration of machines belonging to the collaboration partners, it is of fundamental importance that only explicitly allowed parties are granted the according access. This subsystem guarantees that only authenticated and authorized components will be able to set up the corresponding user machine; it also verifies the integrity of the configuration message. Links to metadata: During the collaboration, references to resources such as the expertise of current participants, and other users, as well as access to documents, network capabilities, etc. are needed. The gateway also manages such information which is passed as part of the configuration data submitted from the Collaboration Broker. In the case of the loss of a collaboration partner or a context change, the gateway is informed of the issue. With the information about the capabilities of the
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•
lost resource, it is possible to propagate the loss of a specific expertise needed for the user/application of this gateway to the collaboration broker which, in the next instance, can assign a new partner with the corresponding expertise for that specific task. A proxy: The proxy provides a local representative for the data communication of the application controller as well as for the application. The proxy can be configured by the gateway in such a way, that the communication is redirected to another proxy of a collaboration partner. This communication considers both the data stream of the application as well as the transfer of screenshots for the application remote control and the corresponding HID events. So, for example, in the case that one partner is no longer available for a specific collaborative working session or a new partner has been added to an already running session, no reconfiguration at the application has to take place, since the actual setup for the application remains the same as before.
The proxy furthermore enables message encryption according to the setup information from the collaboration broker to the gateway, and also allows setting up and linking external data converters – this functionality may be needed when partner collaborate that do not have the same applications available, so that corresponding data needs to be transformed accordingly. This ensures that also heterogeneous environments at the application layer are supported. To allow interoperable access to the DSM components the DSM Manager as well as the Gateway are realized with web service technologies (Golby, Wilson, Schubert, 2006) (Wesner, Schubert, Dimitrakos, 2005). This provides an interoperable opportunity to setup a partner’s infrastructure for a specific collaboration.
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Since the Gateway has to handle control and configuration messages as well as proprietary data streams between applications, there are two communication buses described in this approach: The Web Service Bus is used to configure and setup the Gateway as well as for sending out notifications. However, the Network Bus is used for the application specific data and video/audio stream. The network bus is accessed via the proxy, which is a local representative of the network bus allowing the application controller as well as the corresponding application to send a data stream to the collaboration partners, and is also configured by the Gateway.
Collaboration Setup In order to setup a collaborative working session, the Gateway provides an interface to receive configuration data from the DSM-Manager. In particular, for each partner the following information is provided by the Collaboration Broker: • •
•
•
•
The type of application in use Application configuration data, including application-specific parameters needed to start the corresponding application in the relevant collaboration context The network configuration that has to be realized by the corresponding partner allowing participation in a specific collaboration session. In particular this includes: ◦⊦ The IP-addresses of the partners’ machines ◦⊦ The ports that have to be opened at each partner’s side. Certificates of the partners with whom a collaboration should take place to allow a secure communication between these partners. The role needed for a specific collaboration. This ensure, that, even if the person normally being assigned to this role, is not available, automatically a representative
E-Business Interoperability and Collaboration
can be selected to participate within the upcoming collaboration session. To allow secure message and data transfer, a security component is also mentioned in this approach. This component provides the encapsulation of certificates to encrypt the control and configuration messages to and from the Gateway, and the setup of the Proxy with certificates of the corresponding partners to allow a secure data stream between these applications. The Application Controller acts as an interface to an application by providing remote control capabilities. The Application Controller participates in the control of an application, in particular the instantiation, starting and stopping, as well as passing application specific parameters to this application. It takes and submits screenshots of the application to the corresponding users as well as forwarding HDI events from the corresponding users to the application. To enable the dynamic setup of collaborative sessions some information has to be made available in advance. The current context of a user is managed by the Knowledge Support component. The context of a user is described according to her / his current location, available hardware, etc., the currently available applications of this user, as well as the according capabilities. The latter information is particularly important in cases where dynamic and ad-hoc collaboration sessions are to be set up. To provide this data to the knowledge support, every application is registered via the Application Controller and the Gateway to the DSM-Manager. This registration includes, in addition to the application type, the specific capabilities of the application. The DSMManager then sends all the collected information to the Knowledge Support. To allow for the dynamic reconfiguration of a collaborative session, e.g. in the case of the loss of one of the collaboration partners, what might happen e.g. with mobile users, a notification support is also provided by the Gateway.
Via this notification support such changes can be propagated to an authority that can decide, based on this status change, which steps should be taken next. This notification support can also be arbitrarily used by other components running at a partner’s host, e.g. by various applications and the Application Controller, to exchange status and control messages. Finally, the Gateway also manages the relationships between the partners in a collaboration session. Therefore, for each partner, all links to other partners are managed by providing links to corresponding metadata, in addition to pure network and access information. In particular, this includes links to resources, like documents and expertise. To sum up, the DSM allows configuration and execution (via the Application Controller) of dynamic collaboration sessions. In particular, Figure 9 shows the steps being executed for the setup of a participant. 1. The Collaboration Broker sends the setup information of a specific collaboration session to the DSM-Manager. 2. The DSM-Manager determines the partners involved and sends the corresponding configuration information to the specified partner Gateways. This information is provided within the setup information from the Collaboration Broker. 3. After having received the setup information from the DSM Manager the Gateway initiates the authentication procedure by sending an authorization request to all involved partner gateways. 4. After the successful authentication of all involved partners within the corresponding collaborative working session, the Gateway configures the corresponding proxy acting as an intermediary for data streams between all collaboration partners. If needed, a data converter will also be configured to allow a data transfer between heterogeneous envi-
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Figure 9. DSM setup
ronments. The finalization of the configuration is then propagated to the DSM-Manager. 5. After the configuration of all partners has been finished, the collaboration session can now be started by the DSM-Manager. This is done by an explicit start-call to each of the involved partners. After having received a start-call from the DSM-Manager each Gateway starts the application providing the Application Controller functionality.
Security Issues in Dynamic Collaborative Working Environments With an increasing number of distributed and dynamic eBusiness collaborations, security, user authentication and particularly data protection play a significant role. Business secrets, including confidential data, need to be well-protected against the abuse of third parties using sophisticated security mechanisms for example strong encryption and decryption algorithms to protect the information exchange between the partners. Nowadays, a multitude of security principles and procedures are available and approved for daily usage, but most are limited by predefined settings and static configurations. In order to create ad-hoc collaborations and on-demand data sharing, a dy-
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namic security infrastructure must be considered and introduced that allows the greatest possible freedom of action together with the best available security level (Assel, Kipp, 2007). To overcome the problems of dynamic and on-demand business collaboration, the CoSpaces framework made use of an established security framework – Shibboleth (Shibboleth, 2009). Shibboleth was essentially developed to protect online resources across and/or within organizational boundaries. Shibboleth provides a federated Web Single Sign On (SSO) and attribute exchange framework. It also provides extended privacy functionality, allowing the users and their home site to control the attribute information being released to each service provider. Using Shibboleth-enabled access simplifies the management of identity and access permissions for both identity and service providers. Based upon the Shibboleth infrastructure, CoSpaces adapted existing components - identity and service provider modules - by including relevant functionalities within the overall system setup as mentioned in (Assel, Kipp, 2007). Therefore, a so-called three step hand-shake protocol was designed, enabling an efficient and, at the same time, easily implemented solution without requiring any specific configuration during the creation
E-Business Interoperability and Collaboration
of an ad-hoc joint session. This protocol follows the basic authentication procedures enforced by the Shibboleth framework and ensures a flexible management of user/partner identification and access control for certain resources. The three single steps can be briefly summarized as following: 1. After receiving a configuration from the DSM, the gateway, which acts as a Shibboleth service provider and is accessible only for particular users, sends an authentication request to the corresponding partners including the current setup ID, the address of the users IDP address as well as the corresponding shibboleth handle. Therefore, each partner site must host a Shibboleth identity provider typically coupled with the local identity management system to handle user authentication inside the organization. 2. The partner gateway receiving such an authentication requests queries the corresponding IDP for the users credentials and validates the results with its own PDP in order to determine if this user role is allowed to setup a collaboration session using the determined resources of the setup. 3. If the user is allowed to consume the resources being announced in the corresponding setup, an acknowledgement is returned. Otherwise, an corresponding error message is send out and the setup for this partner is stopped. The three step authentication procedure described above is currently based on the organizational level but not limited to it, and can be easily extended to the user level by making use of existing Shibboleth principles and techniques. This processing ensures that only foreseen partners are allowed to consume resources, thus keeping the full control of the resources at the resource providers site. CoSpaces assumes two main usage scenarios requiring different authentication configurations.
In scenario 1, an airplane manufacturer from France wants to collaborate with its subsidiary company in Germany. During this collaboration, every employee of both partners should be allowed to use the corresponding partner services. Therefore, authentication is only requested on the organizational level and is not necessarily required for each single user (the above described a more general authentication procedure). The second scenario is similar to the first one with the exception that a third partner wants to join the collaboration session. A trusted third party (TTP) – e.g. a High Performance Computing Centre - providing different services and resources to both companies wants to restrict the access to its offered services to a certain number of users. The organizational model does not completely fulfil this requirement, so a more fine grain access control must be implemented based on the authentication of each single user (basic principle of Shibboleth). The CoSpaces project has taken a generic approach in developing a collaborative engineering environment by driven through requirements and case studies from three engineering sectors (aerospace, automotive, construction). Given the similarities in areas such as the product life cycle management, IT requirements, and the nature of collaboration in these engineering sectors, the CoSpaces project shall develop a common software framework with appropriate services so that each industry can create a specific instance of this framework to suit their business practices, needs, and culture. The requirements for the overall CoSpaces frameworks have been defined by analyzing the current practices through interviews and by elaborating current and future scenarios, involving end-user companies. The key scenarios considered in the CoSpaces project are distributed design reviews of aerospace and automotive assemblies, co-located design reviews of buildings, expert support for maintenance of aircrafts and solving unforeseen problems in the construction domain. These scenarios have been used to specify the ob-
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jectives of typical collaborative meetings, roles of individual team members, information handling, and system as well as interface functionalities etc. The key technical requirements arising from these case studies have been recognized as: ability to identify and link up with remote experts on demand, access to context-based information, secure data access, context-dependent interfaces for collaboration, dynamic composition of services, real-time multi-user visualization and interaction.
Shared Data Space for eBusiness Collaborations Apart from the dynamic setup of a collaboration sessions, greater considerations have to be given for handling the business sensitive data in a secure manner. Such business data could typically be CAD data, documents, images, videos etc. During industrial collaborations, such critical business data has to be shared between the collaboration partners with appropriate security mechanisms in place. This section summarizes the CoSpaces approach for providing a secure space for sharing business sensitive information for a specific collaboration instance. In many situations, the data produced by individual partners is protected within their own firewalls without allowing any access from external, hence hindering collaboration. In order to overcome these situations, typically OEMs act as the system integrator for collecting data from individual stakeholders to create the final virtual product and to perform design assessment activities at the complete system level. However the access to such data is heavily restricted by OEMs, hence hindering ad-hoc collaboration and on demand collaboration between partners. In the CoSpaces approach, while it assumes that the OEMs or one of the appointed companies will continue to collect data from individual partners to create the final virtual representation of the product, it proposes a data architecture, which could be used to support on demand or ad-hoc
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collaboration between partners. Figure 2 represents the CoSpaces approach for handling shared data among partners of business collaborations. It comprises of a Secure Organizational Space, Shared Data Space and a Shared Data Access Manager. The Secure Organizational Space: This area represents the data spaces within each company which contains the relevant product information relevant for a specific project. Typically, such data are stored within their own PDM systems, data bases or file systems. The data is protected by individual company firewalls using their own security mechanisms. Shared Data Space: This conceptual space has two types of shared data spaces, one controlled within a De-Militarized Zone (DMZ) and one controlled by an external data sharing service agent. The DMZ is a distributed data space, which combines the sub DMZ zones maintained by each stakeholder company. Each sub DMZ zone is maintained by the corresponding stakeholder to place the data that they wish to share with certain stakeholders. Within this Virtual Shared Data Space, every partner is able to upload data from the Secure Organizational Space and assign access right policies for the corresponding data sets and partners. Within CoSpaces, this Virtual Shared Data Space is being realized by providing dedicated data bases as well as a modified version of the BSCW server (BSCW, 2009). The Shibboleth approach has been used within the CoSpaces project for user authentication and authorization tasks. This approach ensures that the company has the authority to load, edit and delete their data within their own DMZ ensuring access to authorized users only. The concept of an External Data Sharing Service provider has been introduced in the data architecture when the data from stakeholders has to be processed (i.e. translate to another data format or combine with data from another stakeholder). This external service provider could be appointed by the stakeholders to offer them with a secure
E-Business Interoperability and Collaboration
data processing service necessary for data sharing. Some examples of services provided by this service provider are: •
• •
Translation of CAD or simulation format to a CoSpaces specific format for visualization purposes. Creation of integrated views of a product from different stakeholders Geometric editing
This Shared Business Entity Server provides the same security, authentication and authorization infrastructure as the Virtual Shared Data Spaces and can be hosted by any external trusted third party. The access rights to the Shared Business Entity Server need to be agreed by the all collaborating partners a priori. In order to evaluate the conceptual approach of the introduced virtualization infrastructure the WCF gateway prototype has been integrated within the Integrated Projects (IP) CoSpaces and BREIN, considering different of the mentioned benefits of such a virtualization infrastructure. Therefore, the virtualization approach being presented within this chapter is used to transparently integrate an authentication and authorization infrastructure within the entire framework without affecting the underlying steering and
coordination infrastructure components as well as the corresponding shared services and data. Consequently, the users as well as the application providers do not have to consider security aspects within their tasks whilst the framework ensures that only foreseen partners are allowed to access the corresponding services and data sets. The IP BREIN faces the challenge that in today’s world, enterprises, independent of their size, have to cooperate closely with other companies to keep their competitiveness, as no company is capable of fulfilling all requirements alone. But setting up these collaborations is still difficult and extremely costly. Especially for SMEs these collaborations are not really cost-efficient, as they have to put in high efforts to be able to compete on the market with other players. Therefore BREIN will enable service providers to reduce costs whilst maximizing profit by providing a framework that will automatically adapt to changes in individual business needs and/or environment in an intelligent manner. Cost and effort for service provisioning will be greatly reduced by simplifying business goal definition, intelligent optimization and decision making support. Therefore, BREIN is going to support the integration of “virtual” resources in workflows in order to achieve a higher degree of flexibility. This approach allows for both, an easier and more abstract usage of resources (e.g.
Figure 10. CoSpaces data space
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a customer just invokes a “simulation” service without considering technical details) as well as an increased support of dynamism in such environments by easing the replacement of service providers (e.g. the customer still invokes a “simulation” service whilst his own company gateway redirects this request to a new service provider). The “classical” WSDL approach would affect in such a dynamic environment that every client of a specific service provider has to adapt their applications to new service interfaces in case of any modification of the corresponding service provider infrastructure or in the case of a service provider change. Additionally a lot of added effort has to be spent for the corresponding service setup. But with the new gateway the client does not need to update his code, although the syntactical interface may have changed, since the messages of the calls via the old interface are mapped or, if needed, transformed, to the interface of the new service. With this gateway the service provider is now able to implement any adoption needed, even regarding changes in inter-communication standards. Now it is possible to provide several interfaces for the same service, each adapting to another interface. E.g. one customer needs a secure connection to the service because sensible data has to be transferred while another one uses another version of WS-Addressing (Box, D. et. al., 2004) or WS-Security (Nadalin, A., et. al., 2006).
service consumer are going to use. This way of announcing services allows the service provider to use and re-use already existing services in a very easy way. Beside this, the composition of services in a workflow has also been improved: Depending on the target outcome of a workflow services can now be combined regarding the announced contract. The service provider is consequently able to provide “new” products depending on the currently available resources, services and their current payload. Resulting from this increase of flexibility, the main benefits of this approach are
eBusiness and the New Gateway
• •
This approach introduces a new abstraction layer for SOAs facing the needs of eBusiness environments. In particular the main benefit is an increment of flexibility: Both, for the technical as well as for the business perspective, flexibility has been increased. From a technical point of view it is now possible to bind services statically in application codes while the corresponding service implementation can be migrated. Additionally the service provider can announce the available services independently from the protocol the potential
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•
• •
•
•
•
•
Increased customers satisfaction: service providers are now able to adapt very fast to different customers’ needs. Easy and improved maintenance of provided services Efficient development since the customers’ technical point of view does not need to be considered within a concrete service implementation. Easy adaptation of provided services to changing web standards. Since web standards in the area of security, addressing, reliable message transfer, etc. are continuously under development and improvement, the corresponding service provider has to support as most of these standards as possible. Decreased costs loose coupling can be better realised with such an approach Monitoring and logging in abstraction layer: enables the administrator to see which versions of a specific service are mostly used Governance guidelines force the realisation of specific functionality which is often not conforming with the current service realisation. Role-based integration of human resources in eBusiness environments
E-Business Interoperability and Collaboration
The presented approach faces these requirements without affecting the service implementation as well as considering the need of synchronous collaborations between humans in an eBusiness environment. Service consumer may use different end user systems to consume the corresponding resources Many “grown” SOA infrastructures available are already existing and need to be integrated. This can be realised with an extremely reduced effort with the presented approach.
EVALUATION Qualitative Evaluation The gateway toolkit supports dynamic and extensible message policy enforcement – this ranges from routing (virtualisation & encapsulation) over authorisation and access restriction (in combination with e.g. the STS (STS, 2009)) to message
transformation (interoperability) and collaboration support. This toolkit enhances the messaging channels of (web service) based transactions, allowing to enforce any amount of policies upon in- and outcoming messages. Through using “double-blind virtualisation” mechanisms, i.e. by deploying the gateway on both consumer and service provider side, it is possible to alter resources and providers without affecting the calling applications. In order to evaluate the gateway toolkit in a qualitative way the following aspects have been considered: • • • • • •
Simplicity (ease of use), cp. Table 1, Reliability & Robustness, cp. Table 2, Provisioning, cp. Table 3, Interoperability, cp. Table 4, Time Constraints, cp. Table 5, Collaboration Support, cp. Table 6,
Table 1. Simplicity (ease of use) Description
Managing the dynamicity and individual messaging requirements per participant in a virtual organisation, including authentication mechanisms, physical location etc. is unnecessarily complicated. In particular maintenance of dynamic endpoints in environments such as dynamic virtual organisations or cloud infrastructures would require the end-user to configure an endpoint that can easily be changed (potentially from external) or he has to constantly update it himself. The principle of virtualisation simplifies such maintenance and should allow end users to have a constant virtual communication endpoint, as well as providers to easily expose dynamic services (see also provisioning). What is more, it should allow for addressing different messaging requirements, such as authentication, encryption and message conversion.
Measurement
1. Difficulty to change a physical endpoint and impact on the overall infrastructure 2. Complexity to achieve enhanced policy enforcement, such as security related requirements
Assessment
The gateway infrastructure extends common virtualisation means to the general web service world and enhances it with two specific capabilities: (1) by “double blind invocation”, meaning that both customer and provider maintain a virtualisation interface and (2) by a policy filter channel which can be easily extended. The double blind invocation allows that endpoints can change (at least) at two levels: within the VO (change of service provider) and within an individual provider (change of resource) without affecting the endpoint of the customer’s application. Adaptation is performed by a simple management invocation of the gateway affected (i.e. for VO level on the end-user side and for resource-level on the provider side), thus automatically changing all related communication. Since this can be regarded as an enhanced messaging channel, it was extended with the capabilities to host a dynamic number of policy filters within its channel, allowing both customer and provider to enforce potentially any kind of policy on incoming and / or outgoing messages, including authentication and even transformation. The policy filters can be principally written in any language and can act upon the whole message easily, thus allowing for custom transformation even between invoking methods. They are individually registered in the messaging infrastructure.
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Table 2. Reliability and robustness Description
Obviously, messaging between participants in a dynamic virtual organisation must be reliable and robust. This does not imply that any transaction must conform to the reliable messaging specifications, but more importantly, that no endpoints are lost, no channel broken during mid-transaction etc.
Measurement
1. Are transactions via the messaging infrastructure as reliable as without it? 2. Can the messaging infrastructure compensate for dynamicity in the virtual organisation?
Assessment
The gateway infrastructure shows about the same reliability as the .NET framework, in other words messages are not more likely to be lost than using the web service communication without the gateway. Notably, the messaging infrastructure does increase the latency of messaging (see section “Quantitative Evaluation”), which implies that the overall throughput decreases. Implicitly, the messaging infrastructure is less reliable than the Internet Information Service (.NET framework) for vast amount of messages (in the order of tens of thousands concurrently), but the individual transaction’s reliability does not increase. What is more important and what is the specific focus of the gateway infrastructure is that the virtual organisation as a whole becomes more reliable. In particular, in order to deal with dynamic endpoints is complicated without the gateway. In principle, any endpoint can move during transaction without leading to errors in the overall transaction – yet practically, this will lead to loss of web service state and thus leads to errors on the actual content level.
Table 3. Provisioning Description
Virtualisation provides a means to simplify provisioning in so far as that it allows exposing services more easily, without having to cater for all the messaging details. In particular this affects dynamic services that typically require a lot of maintenance in order to sustain availability. Related to that, virtualisation is a means to effectively convert interfaces in order to hide the complexity of the underlying interface, thus simplifying usage of the according resources.
Measurement
1. Can services be more easily exposed via the messaging infrastructure 2. Can dynamic services be exposed 3. Can service interfaces be converted 4. Can information be selectively made visible, respectively hidden
Assessment
Obviously, even the gateway infrastructure cannot expose services that do not provide means for interaction and the current implementation focuses still mainly on exposing web services in an enhanced fashion. However, principally it is possible to convert messaging between different protocols, thus e.g. executing applications upon incoming web service invocations etc. thus extending the service provisioning scope accordingly. Note that this is similar to the capabilities of exposing an aggregated workflow. The specific capability of the messaging infrastructure however rests on dynamic service provisioning in a “virtually stable” fashion. This currently covers in particular the location of the service, though the policy filters can be extended to allow for interface conversion too, thus allowing for selective, individualized exposition of capabilities. Notably, the current messaging infrastructure allows that both location of the endpoint, as well as service logic changes on the fly (i.e. during VO enactment) without affecting the customer and / or requiring that the service needs to be exposed anew.
Quantitative Evaluation Since the messaging infrastructure principally acts like an enhancement to other servlet containers, such as Tomcat, Apache Webserver and the Internet Information Service (IIS), it should not limit the capabilities of such container drastically. Notably, not all services will always be exposed with the full gateway enhancements and in may service provisioning cases the “normal” provisioning
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via e.g. Tomcat is sufficient for the provider’s needs, so that the gateway does not need to fulfil the same industrial performance requirements. In addition, it cannot exceed (improve) the performance of these standards, as it is effectively working in close relationship with the IIS and thus cannot show better performance. With the additional processing overhead of the messaging infrastructure (address resolution, routing, policy chain etc.), a performance reduction of factor 10
E-Business Interoperability and Collaboration
Table 4. Interoperability Description
Service provisioning in general is a major source for interoperability issues, as the interface and the messaging protocol typically differ between services and, more importantly, between frameworks. Interoperability issues can principally be decreased through virtualisation techniques.
Measurement
1. Scope of specifications supported by the messaging infrastructure 2. Mapping of protocols and / or interfaces
Assessment
The gateway infrastructure is principally protocol and specification agnostic, even though it is (currently) restricted to web service transactions and hence to the HTTP protocol. Since the gateway does not necessarily interact with either message header or body, any type of messages can be passed through it – however, to actually employ the policy filters of the messaging channel, the message structure should follow the recommendations of the according filters. In particular the Service Instance Registry, and hence the routing capability of the infrastructure requires that the WS-Addressing specification is followed. In addition, the gateway can host enhanced filters that convert between different protocols, e.g. to ensure that other filters or the service receive the information in their respective format. As such, the filter can e.g. convert between the WSRF and the WS-Transfer specification (with some information loss), so that the interoperability scope of the service is extended.
Table 5. Time-constraints Description
Real time constraints in particular apply for the execution of the overall distributed environment and the individual service logic, but less so for messaging itself. Nonetheless, timing plays an important role in message handling, as latency can lead to unwanted behaviour in time-critical situations. Latency of the SOAP protocol is already high and should not be extended by the messaging infrastructure.
Measurement
1. Latency
Assessment
See according measurements in following.
Table 6. Collaboration support Description
Real time constraints in particular apply for the execution of the overall distributed environment and the individual service logic, but less so for messaging itself. Nonetheless, timing plays an important role in message handling, as latency can lead to unwanted behaviour in time-critical situations. Latency of the SOAP protocol is already high and should not be extended by the messaging infrastructure.
Measurement
In order to measure the improvements of the collaboration extension of the gateway, the following workspaces have been developed in cooperation with industrial partners: 1. Distributed Design Workspace to empower ad-hoc and scheduled collaboration between distributed, multi-functional design teams. Collaboration through fixed installations and mobile environments will be considered in this workspace. 2. Co-located Design Workspace to address how ad-hoc and planned meetings between co- located, multifunctional design teams could be supported, providing enhanced immersion, visualisation, interaction, mobility and flexibility. 3. Mobile Service Workspace to address challenges in supporting mobile site workers to collaborate with remote experts during the realisation or the support phase.
Assessment
The DSM has been successfully integrated in all of the mentioned workspaces. The interested reader is referred to the CoSpaces Website (CoSpaces, 2009) for detailed information of the mentioned workspaces.
is to be expected and considered acceptable given the typical usage scenarios that require complex message policy enforcement. In addition, it should be noted that the performance of the messaging infrastructure obviously
directly depends upon the registered policies and their complexity, as well as the system the gateway is running one (bandwidth and performance limitations). Accordingly, all measurements should and will be restricted to plain local (i.e.
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on board) message passing and parsing, without accounting for bandwidth restrictions. Also, in order to provide meaningful results, delays by policy processing will not be accounted for (as every user can register his / her own policies and hence mechanisms), and the only active policy will be related to the message routing functionality (Service Instance Registry), as it is essential for the correct functioning of the gateway. Thus, the two main criteria of interest for measuring the performance of the gateway system are listed in Table 7.
Evaluation Results All tests were executed on Intel Quad Core 2.66 GHz machines with 8 GB RAM. Figures of the IIS (as above) have been provided directly by Microsoft (IIS, 2009) and are thus expected to be slightly higher than what can be achieved by the proposed system.
#1 Scalability As noted, scalability directly depends on the system’s performance (bandwidth, memory restrictions etc.). Since the system has to deal with messaging overhead in the gateway, we expect scalability to be roughly factor 1/10 of the pure IIS. #1a) Amount of concurrent registered services that can be exposed via the gateway. In our tests we figured out that the number of services being exposed is just limited by the amount of memory of the hosting machine of the SIR. Regarding the performance of the message throughput via the gateway the messaging overhead of the Gateway/SIR interaction seem to be the dominant delaying part here. As our tests show (cp. Figure 11), the throughput levelled off between 670 and 620 invocations per second on our test system without being significantly affected by the number of registered services.
Table 7. Quantitative evaluation criteria Criteria #1 Scalability
#2 Latency
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Metric for measurement
Notes
General: relationship between amount of concurrent services and processing speed
The gateway should not perform much lower than the Internet Information Service (IIS6.0). Expected factor: 1:10
#1a) amount of services that can be hosted via the gateway
IIS6.0: 20.000 static-content sites
#1b) amount of concurrent messages that can be handled
IIS6.0: 25.000 requests per second. Taking into account the test system (cp. section Evaluation Results) 2400 requests per second has been considered.
#1c) amount of policy handlers registered in the gateway
There is no comparable product. At least 10.
General: related to scalability, but focusing on the messaging overhead
Reference product is again the IIS version 6.0. Expected factor: 1:10
#2a) Time to process a message with a simple policy chain
IIS6.0: 25.000 requests per second. Taking into account the test system (cp. section Evaluation Results) 2400 requests per second has been considered.
#2b) Time per policy handler (pure passing, without processing)
Similar to IIS: roughly 25.000 requests per second. Taking into account the test system (cp. section Evaluation Results) 2400 requests per second has been considered.
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Figure 11. Amount of concurrent registered services
#1b) Amount of concurrent messages that can be handled by the messaging infrastructure In order to have a reasonable compare with the performance of the IIS, a simple test service has been developed receiving and returning a given string. This service provides a web service interface via which it is invoked. For this performance measurement, the service has been invoked directly as well as via the gateway in order to determine the overhead of the messaging infrastructure. This tests have shown that a direct invocation of the service without interconnect messaging infrastructure allows for about 2400 invocations / second. This test has been done because the IIS benchmark provided by Microsoft does not indicate on which kind of system this benchmark has been performed. The invocation of the service with interconnected gateway has shown a maximum throughput of approximately 700 invocations / second, which is about 30% of the “pure” service invocation. This is due to the fact, that for the routing via the messaging infrastructure 3 additional web service requests are processed:
1. The SIR has to be invoked in order to resolve the virtual endpoint 2. The transformed message is forwarded to the corresponding service endpoint 3. The response is routed back to the invoking client. #1c) Amount of policy handlers that can be registered in the gateway without affecting #1a or #1b The Gateway allows to register any kind of policy handler, thus the complexity of the corresponding policy handler has a significant impact on the payload of the system directly impacting the entire message throughput. Therefore, in order to have a reasonable measurement, just empty policy handlers have been registered to the Gateway. Figure 12 shows that the number of registered policy handlers does not significantly impact the performance of the Gateway. The dominant part here is again the messaging overhead between the Gateway and the SIR.
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Figure 12. Amount of registered policy handlers
#2 Latency Besides for the obvious impact of system performance, the processing duration of the policy handlers, as well as the bandwidth have an impact on latency. We therefore assume “empty” policy handlers (except for the SIR) and local invocations for measurement. #2a) Time to process a message with a simple policy chain The delay caused by the additional message passing was expected to diminish the IIS factor by roughly 1/10. As the results show (cp. #1b) this factor is currently at 1/3 compared to the direct invocation of a service. #2b) Time per policy handler (pure passing, without processing) Effectively, message passing via a policy handler is identical to pure message handling with the factor 2, as handling the result is part of the overall message execution. We therefore expect that roughly 10.000 policy handlers can be handled per second. Notably, as policy handlers are executed
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in sequence, and not in parallel, the measurement directly depends on the amount of concurrent gateway instances, i.e. the number of messages that can be handled in parallel (#1b). As shown in #1c the amount of registered policy handlers does not significantly impact the entire message throughput of the messaging infrastructure.
Assessment Primary objective towards message handling in the BREIN infrastructure was related to increase ease of use and enhance the ways that messages can be handled with. With the specific requirement of using the according infrastructure in business scenario contexts, we expected to reach a performance that is not too far away from the capabilities of the Internet Information Service. As the results show, 1/3 of the corresponding message throughput can be reached with the current prototype realization of the messaging infrastructure without taking into account complex policy handlers. It has been shown that most of this messaging overhead is due to the additional invocation of the SIR for every invocation being routed via the Gateway. Future releases of the messaging infra-
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structure therefore have to particularly consider, in order to minimize this overhead, to optimize the integration of the SIR accordingly. Since the future iterations also want to extend on the semantic matching capabilities and improved error handling for further improvement on ease of use (see chapter 3), further reduction of performance is to be expected, as this increases the messaging overhead accordingly. Specific measurements thus have to be taken to ensure that policy handlers only become active when needed and lead to as little delay, as possible. This will ensure that the average performance does not drop significantly below current measurements.
FUTURE RESEARCH DIRECTIONS We’ve shown in this chapter a new conceptual approach allowing for the integration of high level resources as intended within eBusiness environments. This approach supports the required dynamicity and flexibility of eBusiness environments whilst considering human as well as computing resources by allowing for a corresponding reconfiguration of the underlying infrastructure to easily adapt workflows to changed requirements as well as to replace e.g. not performing business partners with other ones. However, this have to be done “manually” by configuring the gateway accordingly. An interesting enhancement of this approach is to enrich the gateway in order to automatically determine errors in service invocations, e.g. in case of a machine crash, as to re-route the invocation to another corresponding resource. Therefore, also semantic annotations have to be considered in order to find resources providing the corresponding functionality, not only basing on syntactical descriptions of the interface of a resource. Another interesting research issue is the semantic mapping between interfaces for increased interoperability. Actually this mapping is done on a syntactical basis. In particular, the mapping is done by providing
concrete rules describing which method has to be mapped to which target operation. This is also the case for the corresponding data sets respectively. An semantic enhanced mapping would minimize the effort to provide such rules, since a high-level as well as human understandable description of the corresponding service interfaces would allow for a autonomic determination of fitting partner services to reach a common goal as well as a reduced manual overhead in order to reconfigure the infrastructure accordingly.
CONCLUSION In this chapter we presented an approach towards a “real” SOA paradigm and how this can only be realized with a corresponding support of a service virtualization infrastructure. We also presented a conceptual approach to realize this service virtualization taking into account the already existing, partly grown SOA realization with web service technologies. Finally we presented how this concept can be realized in principle taking into account the most common used web services infrastructures. The latter presentation showed that the current available concepts of these web service infrastructure implementations allows an adaptation of the “intelligence” of a service virtualization infrastructure in the sense that the corresponding knowledge support can be added in such a way that incoming messages of a virtual service definition can be mapped to a concrete service implementations. Actually a first prototype of the WCF approach is available which has been tested within the IPs CoSpaces and BREIN. This first prototype actually allows the mapping of virtual EPRs to concrete EPRs including enhancements regarding security, policy enforcement, etc.. This would allow e.g. the description of abstract BPEL processes linking to virtual endpoints. The corresponding service invocations are transparently intercepted, transformed according to the installed plug-ins
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and finally routed according to the corresponding mapping information to the corresponding service providers in transparent way. The mentioned plug-in approach makes the introduced concept quite flexible regarding new requirements. A first prototype supporting the Shibboleth infrastructure is also be available. Dynamic collaboration within distributed business workflows is an exciting and promising field of interdisciplinary cooperation and will provide new and interesting working environments that facilitate cross-organizational data exchange and communication. The field has attracted worldwide attention and several international research projects have already designed and implemented first prototypes for appropriate infrastructures. Currently, projects have failed to resolve a significant shortcoming by not considering dynamism in collaborative environments favouring a static security infrastructure instead of looking for flexible solutions. The presented solutions allows the creation as well as the steering of virtualized ad-hoc collaborative working environments that guarantee the utmost dynamic configuration for designers and engineers without neglecting important security issues. We strongly believe in the success of SOA. The presented approach describes a necessary step towards an entire, SOA enabled eBusiness infrastructure.
ACKNOWLEDGMENT The results presented in this chapter are partially funded by the European Commission under contract IST-5-034245 through the project CoSpaces as well as through the project BREIN under contract number IST-034556. This chapter expresses the opinions of the authors and not necessarily those of the European Commission. The European Commission is not liable for any use that may be made of the information contained in this chapter.
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REFERENCES Ardagna, D., Comuzzi, M., Mussi, E., Pernici, B., & Plebani, P. (2007). Paws: A framework for executing adaptive Web-service processes. IEEE Software, 39–46. Retrieved from http://doi.ieee computersociety.org/ 10.1109/ 10.1109/ MS.2007. 174. doi:10.1109/MS.2007.174 Assel, M., & Kipp, A. (2007). A secure infrastructure for dynamic collaborative working environments. Proceedings of the International Conference on Grid Computing and Applications 2007, Las Vegas, USA Box, D., et al. (2004). WS-addressing. Retrieved from http://www.w3.org/ Submission/ wsaddressing/ Foster, I., & Kesselman, C. (2003). The grid. Blueprint for a new computing infrastructure. Morgan Kaufmann. Golby, D., Wilson, M.D., Schubert, L. & GeuerPollmann, C. (2006). An assured environment for collaborative engineering using web services. CE2006. Gosain, S., Malhotra, A., & El Sawy, O. (2004). Coordinating for flexibility in e-business supply chains. Journal of Management Information Systems, 21(3), 7–45. Haller, J., Schubert, L., & Wesner, S. (2006). Private business infrastructures in a VO environment . In Cunningham, P., & Cunningham, M. (Eds.), Exploiting the knowledge economy: Issues, applications, case studies (Vol. 3, pp. 1064–1071). IOS Press. Juric, M. B., Sasa, A., Brumen, B., & Rozman, I. (2009). WSDL and UDDI extensions for version support in Web services. Journal of Systems and Software, 82(8), 1326–1343. Retrieved from http:// linkinghub. elsevier.com/ retrieve/ pii/ S0164 12120 9000478. doi:10.1016/j.jss.2009.03.001
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Kaminski, P., Müller, H., & Litoiu, M. (2006). A design for adaptive Web service evolution. Proceedings of the 2006 international workshop on Self-adaptation and self-managing systems SEAMS ‘06. (p. 6). Retrieved from http://portal. acm.org/ citation. cfm? doid= 1137677. 1137694 Nadalin, A., Kaler, C., Monzilo, R., & HallamBaker, P. (2006). WS-security. Retrieved from http://www.oasis-open.org/ committees/ download.php/ 16790/wss-v1. 1-spec-os-SOAP Message Security.pdf Nash, A. (2006). Service virtualization–key to managing change in SOA. Retrieved from http:// www.bitpipe.com/ detail/ RES/ 1130171201_ 512.html Nesbit, K.J., Laudon, J. & Smith, J.E. (2007). Virtual private machines: A resource abstraction for multi-core computer systems. Padala, P., Shin, K. G., Zhu, X., et al. (2007). Adaptive control of virtualized resources in utility computing environments. In Proceedings of the 2nd ACM SIGOPS/EuroSys European Conference on Computer Systems 2007. ACM. Preu, T., Syrbe, J., & Konig, H. (1997). Virtual private resources. EDOC ‘97. IEEE.
Stuckenholz, A. (2005). Component evolution and versioning state of the art. ACM SIGSOFT Software Engineering Notes. 30(1), 1-13. Retrieved from http://portal. acm.org/ citation. cfm?id= 1039197 Taylor, S., Laria, G., Ritrovato, P., & Schubert, L. (2009). Business collaborations in grids: The BREIN architectural principals and VO model . In Altmann, J., Buyya, R., & Rana, O. F. (Eds.), Grid economics and business models (Vol. 5745, pp. 171–181). Berlin, Heidelberg: Springer. doi:10.1007/978-3-642-03864-8_14 Wesner, S., Schubert, L., & Dimitrakos, T. (2005). Dynamic virtual organisations in engineering. In proceedings of the 2nd Russian-German Advanced Research Workshop on Computational Science and High Performance Computing, March 14 16, 2005. Yu, Q., Liu, X., Bouguettaya, A., & Medjahed, B. (2006). Deploying and managing Web services: Issues, solutions, and directions. The VLDB Journal, 17(3), 537–572. Retrieved from http://www. springer link.com/ index/ 10.1007/ s00778-0060020-3. doi:10.1007/s00778-006-0020-3
Schubert, L., Wesner, S., & Dimitrakos, T. (2005). Secure and dynamic virtual organizations for business . In Cunningham, P., & Cunningham, M. (Eds.), Innovation and the knowledge economy: Issues, applications, case studies (pp. 1201–1208). Amsterdam: IOS Press.
WEB SITE
Sotomayor, B., Keahey, K., & Foster, I. (2006). Overhead matters: A model for virtual resource management. In proceedings of the Second International Workshop on Virtualization Technology in Distributed Computing (VTDC 2006).
BPEL - Business Process Execution Language. http://www.oasis-open.org/ committees/ tc_home. php? wg_abbrev= wsbpel. Retrieved April 2, 2010
AkoGrimo - EU IST Project (IST-004293). http:// www.mobilegrids.org. Retrieved April 2, 2010 Basic Support for Collaborative Work (BSCW). http://public.bscw.de/. Retrieved April 2, 2010
BREIN - EU IST Project. (IST- 034556). http:// www.gridsforbusiness.eu. Retrieved April 2, 2010 CoSpaces – EU IST Project. (IST-5-034245). http://www.cospaces.org. Retrieved April 2, 2010
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Microsoft Internet Information Services (IIS). http://www.microsoft.com/ technet/ prodtechnol/ Windows Server2003/ Library/ IIS/ 8962d6c9d2ee -4bb2-8a2f- cd31858 edb09.mspx? mfr= true. Retrieved April 2, 2010 Microsoft Security Token Service (STS). http:// msdn.microsoft.com/ en-us/ library/ aa480563. aspx. Retrieved April 2, 2010 The Shibboleth Project. http://shibboleth.internet2.edu/. Retrieved April 2, 2010 TrustCoM – EU IST Project. (IST-2003-01945). http://www.hlrs.de/ organization/ av/isis/ research/ past-projects/ trustcom/. Retrieved April 2, 2010 WCF – Windows Communication Foundation. http://msdn. microsoft.com/ wcf/. Retrieved April 2, 2010
ADDITIONAL READING Arenas, A. E., Djordjevic, I., Dimitrakos, T., et al. (2005) Toward Web Services Profiles for Trust and Security in Virtual Organisations. In: CamarinhaMatos LM, Afsarmanesh H, Ortiz A IFIP Working Conference on Virtual Enterprises (PRO-VE). Vol 186 / 2005. IFIP International Federation for Information Processing. Springer; 2005:175-182. Assel, M., Wesner, S., & Kipp, A. (2009) A security framework for dynamic collaborative working environments. Identity in the Information Society. 2009. Available at: http://www.springer link.com/ index/ 10.1007/ s12394-009-0027-1. Bieber, N., Schubert, L., & Koller, B. (2006) The Requirement for an Interoperability Service: Power-Distribution in an eBusiness World. In: Cunningham P, Cunningham M Exploiting the Knowledge Economy: Issues, Applications, Case Studies.Vol 3. IOS Press; 2006.
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Dimitrakos, T., Laria, G., Djordjevic, I., et al. (2005) Towards a Grid Platform enabling Dynamic Virtual Organisations for Business Applications. In: Herrmann P, Issarny V, Shiu S Trust Management (iTrust 2005).Vol 3477/2005. Lecture Notes in Computer Science. Berlin / Heidelberg: Springer; 2005:406-410. Kipp, A., Schubert, L., & Assel, M. (2008) Supporting Dynamism and Security in Ad-Hoc Collaborative Working Environments. Proceedings of the 12th World Multi-Conference on Systemics, Cybernetics and Informatics(WMSCI 2008), Orlando, USA, July 2008 Kipp, A., Schubert, L., Assel, M., & Fernando, T. (2008) Dynamism and Data Management in Distributed, Collaborative Working Environments. In: Proceedings of the 8th International Conference on the Design of Cooperative Systems.; 2008. Kipp, A., Schubert, L., & Geuer-Pollmann, C. (2009) Dynamic Service Encapsulation. In: Proceedings of the First International Conference on Cloud Computing. Munich; 2009. Schubert L, Kipp A, & Koller B, Wesner S. (2009) Service Oriented Operating Systems: Future Workspaces. in print (IEEE Enterprise Mobility Services). 2009. Schubert L, Kipp A, & Wesner S. (2009) Above the Clouds: From Grids to Resource Fabrics. in print (Future Internet 09). 2009. Schubert, L., Wesner, S., & Dimitrakos, T. (2005) Secure and Dynamic Virtual Organizations for Business. In: Cunningham P, Cunningham M Collaborative Product and Service Life Cycle Management for a Sustainable World - Proceedings of th 15th ISPE International Conference on Concurrent Engineering (CE2008).Vol 2. IOS Press; 2005.
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Schubert, L., Wesner, S., Kipp, A., & Arenas, A. (2009) Self-Managed Microkernels: From Clouds Towards Resource Fabrics. In: In Proceedings of the First International Conference on Cloud Computing. Munich; 2009 Wesner, S., Gallizo, G. M., Kipp, A., & Assel, M. (2009In press). Realizing context aware collaborations using Grids . In Communications in Computer and Information Science. Springer Verlag. Wesner, S., Schubert, L., Dimitrakos, T., et al. (2004) Towards a platform enabling Grid based Application Service Provision. In: Cunningham P, Cunningham M Exploiting the Knowledge Economy: Issues, Applications, Case Studies.Vol 1. IOS Press; 2004.
KEY TERMS AND DEFINITIONS Business Communication: Communication within a supply chain, e.g. between a service consumer and the corresponding service provider
Collaborative Working Environment: Supports people in their individual and cooperative work. Communication System Operations And Management: Infrastructure needed for the provision of communication channels within a supply chain. Dynamic Ad-Hoc Collaboration: Collaborations being setup on demand whilst the concrete content and goal of the collaboration is not necessarily known in advance. Dynamic E-Business Workflows: Workflows allowing for a dynamic adaptation without the need of manual actions. Dynamic Service Integration: Infrastructure allowing for the dynamic adaptation of resource infrastructures without affecting the corresponding resource consumers. Secure Data Management: Environment ensuring that only foreseen eBusiness partners are allowed to access specific data sets as well as a secure transmission channel for the corresponding data sets. Virtual Organization: (eBusiness) Entity which operates primarily via electronic means
This work was previously published in Electronic Business Interoperability: Concepts, Opportunities and Challenges, edited by Ejub Kajan, pp. 153-184, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Chapter 5.4
Assessing Relational E-Strategy Supporting Business Relationships Anne-Marie Croteau Concordia University, Canada Anne Beaudry Concordia University, Canada Justin Holm Concordia University, Canada
INTRODUCTION As per the Census Bureau of the Department of Commerce, the estimate of U.S. retail e-commerce sales for the first quarter of 2009 was $31.7 billion. For the same period, e-commerce accounted for 3.5 percent of total sales with a value of $30.2 billion sales. As electronic business (e-business) has become essential in our economy, organizations have begun to demand a return on their investment in such endeavors (Damanpour and Damanpour, 2001). More recently, research indicates that DOI: 10.4018/978-1-60960-587-2.ch504
web-based technologies enhance performance when the environmental pressures are high, the technical capabilities within the organization are well integrated, and the management team highly supports and sees value in e-business initiatives (Sanders, 2007). An extensive and diverse body of literature has been produced regarding e-business. One research angle that lacked over the years is the definition and assessment of an e-business strategy (e-strategy). Some efforts were made in evaluating e-strategy through an electronic simulation (Ha and Forgianne, 2006). Another recent research observed that human, technological and business capabili-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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ties and e-business implementation influence the business performance at various levels (Coltman, Devinney, and Midgley, 2007). However, both studies did not develop an e-strategy construct empirically tested with managers. The main objective of this paper is thus to develop an integrative construct of e-strategy, mainly focusing on the relationships built between and within companies. Various e-strategies related to the relationships built between a company and its business partners (B2B), consumers (B2C), and employees (B2E) are incorporated into a unified construct called relational e-strategy, which is measured as a second-order factor composed of these three different dimensions. Structural equation modeling using EQS is used to provide a preliminary test of the new model. Results obtained from 220 respondents suggest that the relational e-strategy construct and its three sub-constructs meet all the criteria for construct validation. To provide some indication of its predictive validity, the relational e-strategy is tested against business performance where positive and significant results are obtained. The paper is organized as follows. The first section offers a brief literature review of the relational e-strategy. The methodology used to develop the relational e-strategy measurement tool and collect data is presented next. The findings are then depicted and discussed. The last section provides a discussion and addresses the limitations and implications of this study as well as future directions for research.
RELATIONAL E-STRATEGY Chandler (1962) defines strategy as the “determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (1962, p. 13). Strategy is also defined as “either the plans made, or the actions taken, in an effort to help an organization fulfill
its intended purposes” (Miller and Dess, 1996, p. 38). Therefore, a business strategy is the outcome of decisions made to guide an organization with respect to its environment, structure and processes that influence its organizational performance (Croteau and Bergeron, 2001). In the e-business context, the concept of estrategy refers to how the web-based technologies can restructure organizations by providing them with a new competitive edge (Cagliano, Caniato, and Spina, 2003). The term “relational” is defined as the way web-based technologies are being used to facilitate relationships (Murillo, 2001). Therefore, borrowing from previous definitions, we define “relational e-strategy” as the way organizations use electronic means to facilitate their business relationships. Hooft and Stegwee (2001) attach supplier and customer life cycles to Porter’s (1985) value chain. The value chain views a company as an entity, which transforms raw materials, through a value adding process, into a finished product or service. The supplier and customer life cycles outline the process of interactions with suppliers and customers to buy raw materials and to sell finished goods. Both processes have been revolutionized by IT. Hooft and Stegewee’s model also suggests that a company’s relations with employees are within the company’s value chain. Inspired by their model, the relational e-strategy construct reflects most of the relationships encountered by a company and comprises three dimensions: B2B, B2C, and B2E. This instrument captures how web-based technologies can support business relationships. Explanations for each of the three e-strategy dimensions follow. Business-to-Business e-Strategy refers to the electronic means used to facilitate an organization’s relationships with other businesses. Inter-organizational cooperation can assist companies in deriving a competitive advantage. The e-commerce procurement life cycle outlines how technology is important in facilitating relationships between businesses (Archer and Yuan, 2000),
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which is an important aspect of successful B2B initiatives (O’Keefe, 2001; Galbraith and Merril, 2001). The perceived value of the relationship, inter-firm trust, and relationship commitment are indications of healthy business interactions (Hausman, 2001). Communication and collaboration are crucial parts of developing relationships between businesses (Olesen and Myers, 1999; Olkkonen et al, 2000) and can even enable supplier collaboration in developing products and specifications (Parker, 2000; Burgess et al., 1997). Business-to-Consumer e-Strategy refers to the electronic means used to facilitate relationships and transactions with the consumers of products or services. Easing the purchasing process for consumers with the use of technology can lead to increased sales and is thus a valuable asset to businesses (Lee, 2001; Bontis, 1998). B2C is also facilitating the process of building relationships with consumers who shop over the Internet (Wang et al., 2000). It can be used to customize communication and content for specific consumers, increasing the ability of companies to enhance consumer relations (Jiang, 2000). The analysis of consumer purchasing and browsing patterns can lead to a greater understanding of consumers (Phau and Poon, 2000). Software agents and decision support systems can be employed to learn about and to serve consumers better (Sproule and Archer, 2000). Business-to-Employee e-Strategy refers to the electronic means used to facilitate communication among employees as well as between employees and management. B2E can be used to enable employee development, innovation, and training (Adeoti Adekeye, 1997; Udo, 1998; Bontis, 1998; Kuei et al., 2001; Maier and Remus, 2001). It can also allow employees to access an increased amount of information (Ang et al., 2000). This review reveals that each dimension of the relational e-strategy has been studied separately. Although this groundwork is important, organizations tend to implement all of them (Turban et al., 2008). Therefore, there is a need to provide both
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researchers and practitioners with an integrative understanding of what a relational e-strategy is and how it can be measured using these three dimensions.
METHODOLOGY This section describes the research model, the operationalization of the constructs, the data collection, and analysis. Measurement tools have been developed to validate the relational e-strategy construct, which is assessed as a secondorder factor. B2B, B2C, and B2E e-strategies are measured as first-order constructs and are consequently components of e-strategy. To verify the predictive validity of this proposed construct, the link between the relational e-strategy and the business performance has also been tested using the approach suggested by Venkatraman (1985) when he developed a new measurement of business strategy (STOBE, STrategic Orientation of Business Enterprises). The research model is illustrated in Figure 1. To respond to the plea made for better MIS research instrument validation (Boudreau et al., 2001), particular attention was devoted to the process of developing and validating the relational e-strategy instrument. Following Churchill’s (1979) recommendations, a large number of items were generated and an iterative purification procedure was followed in order to uncover the most relevant items to e-strategy. Clear constructs for e-strategy were lacking at the beginning of the survey development. Because there were no instruments previously developed on relational e-strategy, the construct development process was conducted following guidelines proposed by Venkatraman and Grant (1986). Items from business strategy or IT strategy were derived or adapted. The card-sorting technique was then used to ensure the validity of all dimensions of the relational e-strategy construct. Following guidelines
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Figure 1. Research model
provided by Moore and Benbasat (1991) who originally conducted with paper and envelopes, respondents are asked to consider each survey item and place it in the appropriate category or construct. An on-line adaptation was created to assess the present research instrument. The definitions of the constructs were given in the top frame of the webpage while each item was listed in the lower frame with a selection box for the respondent to choose the construct that they deemed appropriate. Emails were sent to 150 professors at North American universities; 31 were returned to the sender and 12 replied with automated out-of-the-office responses, giving a total sample size of 107. Of the 21 respondents who completed the card sorting exercise, two had not completed the survey completely and four had not selected categorizations for a sufficient number of items. The remaining 15 completed answers were used in the card sorting analysis. This exercise helped in validating the appropriate items; 6 out of 9 items proposed for the B2B e-strategy were kept; 8 out of 11 potential B2C e-strategy items were retained, and 7 out of 11 B2E e-strategy were used for the final instrument. The web-based survey instrument was then pre-tested three times. The items, as well as the web-design, were modified after each pre-test. The first two pretests were conducted with MIS professors who did not participate to the cardsorting exercise, and the last one was completed by IS practitioners. A five-point Likert scale was used with “totally disagree” and “totally agree” as
anchors. A “not applicable” option was also made available. Each page of the final web-based survey provided the definition of each corresponding dimension of the relational e-strategy followed by its corresponding items.
DATA COLLECTION AND ANALYSIS A web-based survey was considered appropriate for this study. Since no suitable database existed, the process of gathering email addresses was automated using software agent technology. The agent was programmed to collect email addresses from stock market data providers using company ticker symbols to avoid duplication. Addresses were collected from the American Stock Exchange, Dow Jones, Nasdaq, and Toronto Stock Exchange. Email addresses were obtained for a total of 4538 companies in the US and 1593 companies in Canada. As the head of IT/IS strategy was targeted, recipients who did not hold such a position were asked to forward the email to that person. Of the 6131 email invitations to participate in the study, 1059 were undeliverable, leaving 5072 delivered emails (3827 in the US and 1245 in Canada). 220 respondents completed the survey, resulting in an overall response rate of 4.34% (3.21% in the US and 7.95% in Canada). Of the 220 respondents, 33% were from the manufacturing industry, 14% from services, and 9% from communications with the remaining respondents being from various industries (finance, health,
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mining, etc.). The organization size was measured in number of employees where 19% of the organizations in our sample have less than 100 employees, 26% have between 100 and 500 employees, and 55% more than 500 employees. The top four job titles were IT/IS Manager (20%), Director IT/IS (16%), CIO (14%), and VP IT/IS (11%). The remaining respondents occupied other various management positions (manager, director, CEO, CTO). Respondents had an average of 4.7 years of experience in their current position and 7.9 years with their company. Three sets of t-tests were performed to determine any significant differences among respondents. The first set compared respondents at an executive level to respondents at a managerial level. The second series of tests examined answers from respondents holding an IT/IS related position and those occupying a non-IT/IS related one. Finally, the third set of t-tests was conducted between Canadian and US respondents. None of these revealed any significant differences on any constructs under study. Skewness values ranging from -0.019 to -0.806 and a normalized Mardia coefficient of 9.69 indicated that the data followed a normal distribution. On average, there were only two missing values (0.91%) per respondent.
RESULTS EQS, a Structural Equation Modeling (SEM) tool, requires complete data for all cases on all measured variables. Mean replacement was thus performed on missing values as suggested by Bentler (1995). SEM also necessitates that the data set comprises 10 times as many cases than the number of measured variables in the model (Bentler, 1995; Byrne, 1994). The minimum required here is 210 cases. Therefore, a sample of 220 respondents is sufficient. The first step in SEM consists of performing the measurement model depicting the links between the latent variables and their observed measures.
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Three indices are used to assess the goodness of fit of the models assessed with the EQS. First, the ratio of chi-square on the number of degrees of freedom provides a good index of fit of the model and is preferred over the chi-square alone which is too sensitive to sample size (Bentler, 1995; Hartwick and Barki, 1994). A ratio value smaller than 3 indicates a good fit of the model (Hartwick and Barki, 1994). Second, the Comparative Fit Index (CFI) is known as a stable goodness of fit index for the structural model. A CFI greater than 0.90 indicates a good fit of the model (Bentler, 1995; Byrne, 1994). Finally, the Average Absolute Standardized Residual (AASR) provides an indication of the proportion of the variance not explained by the model. An AASR smaller than 0.05 is considered appropriate (Bentler, 1995; Byrne, 1994). The resulting measurement models assessing the relational e-strategy and the business performance constructs are respectively presented in Figures 2 and 3. All indices for both constructs meet the goodness of fit criteria, except for the business performance χ2/df ratio, which is higher than 3.00. This, however, is overcome by a CFI of 0.95 and an AASR of 0.003, both values being better than the recommended threshold. The second step in SEM is the evaluation of the relationships among the latent factors. The final model is presented in Figure 4. A very good overall fit of the model was achieved with the CFI reaching a more than acceptable level at 0.92, the χ2/df ratio of 2.12 below the threshold of 3.00, and an AASR index of 0.045 also below the recommended level. The size and significance level of the paths provide strong support to the relationship between the relational e-strategy and the performance.
DISCUSSION The overall model was tested with a sample of 220 managers, using a two-step structural equation modeling approach. Collecting email addresses
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Figure 2. Relational e-strategy measurement model
Figure 3. Business performance measurement model
with the software agent technology and conducting a web-based survey turned out to be an efficient way of reaching relevant respondents. One limitation associated with this approach is that private organizations are not represented in our sample. All respondents were from public organizations hence inducing a sample bias even though companies of different sizes and from various industries were included. The main contribution of this research is the development and validation of an integrative construct of a relational e-strategy that encompasses three dimensions: B2B, B2C, and B2E. The measurement models provided a good fit for the data, furthering the support for the constructs. Overall, the structural model had very acceptable fit. When looking at the links between the
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Assessing Relational E-Strategy Supporting Business Relationships
Figure 4. Structural model
relational e-strategy construct and its respective dimensions, results indicate that B2B has the highest path value, followed by B2C and B2E respectively. This reflects the market evolution of deploying electronic means in fostering electronic relationships. Indeed, the level of B2B activities is estimated to be higher than the one for B2C (Surmacz, 2001; Greenberg, 2004). Our results provide preliminary evidence that these three e-strategies are complementary and significant when defining e-strategy. This instrument turned out to be successful in measuring how web-based technologies can support business relationships. The relationship between the relational e-strategy and the business performance is highly significant, indicating the potential predictive validity of this new measurement tool. Further validation of the relational e-strategy construct and its measurement capability are needed. This instrument could also be used when investigating the strategic impact of e-business applications within organizations. Based on our sample, results indicate that the relational e-strategy is significantly and positively related to business performance, which is mainly measured from a perceived financial angle. E-
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strategy helps in increasing net profits, return on sales and return on investment, sales growth rate and market share. When it comes to the components of the relational e-strategy, B2B e-strategy is the most important one, followed by B2C and B2E respectively. B2B e-strategy stresses the importance of sharing information with business partners, building closer relationship with them and increasing their trust through e-business. It also indicates how web-technologies can support better collaboration and negotiation with business partners when developing products and specifications. B2C e-strategy is designed to allow consumers to make online transactions and reduce the service response time. Such e-strategy uses web-technologies to provide consumers with better information on products and services. It helps in better understanding their needs and building their loyalty. It fosters a sense of closeness between them and the company. B2E e-strategy is set to enable training of employees, help them to find other employees with specific expertise and document their knowledge. Respondents were not asked to rank the importance of each e-strategy compared to the other two but it seems that the B2B e-strategy is the most prominent one. This
Assessing Relational E-Strategy Supporting Business Relationships
could be due to our sample mainly composed of large companies in the manufacturing and services industries that depend a lot on their business partners to manufacture products and offer services. Our instrument catches the contributions of web-technologies applied to the three main relationships that a company needs to build to remain viable and profitable: one with its partners, another with its consumers and finally, one with its employees. As per our findings, all three e-strategies are necessary and complementary.
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KEY TERMS AND DEFINITIONS Business Performance: Measure used to position a company against its competitors and/ or to evaluate how it financially operates Business-to-Business (B2B) E-Strategy: Electronic means used to facilitate relationships between your business and other businesses Business-to-Consumer (B2C) E-Strategy: Electronic means used to facilitate relationships and transactions with the consumers of your products or services Business-to-Employee (B2E) E-Strategy: Electronic means used to facilitate communication between your employees and to help them in carrying out their jobs
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Electronic Business (E-Business): The process of using web-based technologies to improve and transform key business processes Electronic Commerce (E-Commerce): The process of buying and selling products, services and information via computer networks Electronic Strategy (E-Strategy): The way web-based technologies restructure organizations by providing them with a new competitive edge
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Relational E-Strategy: The way organizations use electronic means to facilitate their business relationships Web-Based Technologies: Electronic tools and applications used to support and facilitate exchanges between organizations and individuals
Assessing Relational E-Strategy Supporting Business Relationships
APPENDIX: QUESTIONNAIRE Table 1 shows the list of all items used during the survey, along with the average and standard deviation of each retained item. Table 1. Items and Descriptive Data per Construct Respondents were asked to indicate on a Likert scale if they totally disagreed(1) or totally agreed (5) with the following items:
Item Avg
Item Std
Business-to-Business e-strategy B2B1
Develop closer relationships with business partners
3.36
0.90
B2B2
Enable inter-organizational collaboration in developing products and specifications
3.30
0.92
B2B3
Enable information sharing with business partners
3.42
1.03
B2B4
Assist the procurement of goods and services from suppliers
-
-
B2B5
Enable negotiation
3.11
0.85
B2B6
Increase business partner trust
3.23
0.82
Business-to-Consumer e-strategy B2C1
Gain a better understanding of consumers
3.35
0.96
B2C2
Reduce consumer service response time
3.61
0.94
B2C3
Provide consumers with product and service information
3.80
0.87
B2C4
Allow consumers to make online transactions
3.14
1.04
B2C5
Achieve a closer relationship with individual consumers
3.22
0.88
B2C6
Provide consumers with company specific information
3.82
0.81
B2C7
Measure consumer satisfaction
B2C8
Build consumer loyalty
-
-
3.20
0.87
Business-to-Employee e-strategy B2E1
Enable collaboration between employees
-
-
B2E2
Enable training of employees
3.26
1.07
B2E3
Enable employees to find other employees with specific expertise
2.88
1.06
B2E4
Improve communications between employees and management
-
-
B2E5
Document knowledge of employees
2.81
1.04
B2E6
Provide universal access to information
-
-
B2E7
Increase employees’ productivity
-
-
Business performance BP1
Market share
3.32
0.98
BP2
Sales growth rate
3.06
1.02
BP3
Net profits
3.06
1.10
BP4
Return on sales
3.05
1.08
BP5
Return on investment
3.10
1.06
BP6
Revenue growth relative to the competition
-
-
BP7
Market share gains relative to the competition
-
-
BP8
Net profits relative to the competition
3.35
0.99
BP9
Return on investment relative to the competition
-
-
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 284-295, copyright 2010 by Business Science Reference (an imprint of IGI Global). 1349
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Chapter 5.5
Collaborative Synergy and Leadership in E-Business Kenneth David Strang Central Queensland University, Australia
ABSTRACT Logically, it makes sense that organizations can be successful if their employees collaborate effectively, in a synergistic manner. Economically, e-businesses around the world leverage the Internet for efficient collaboration while in parallel many companies now use enterprise applications for process automation and knowledge sharing. From a human resource perspective, it is argued professionals must inspire and influence their e-business teams to virtually collaborate and synergize across physical organization boundar-
ies using transformational leadership principles. Rationally, investors in e-business need proof that applying knowledge sharing and transformational leadership theories will facilitate team collaboration and synergy and therefore improve organizational performance. Empirically, this e-business industry study develops a statistically significant path model using multivariate linear regression (n=3995), revealing transformational leadership and knowledge sharing factors are mediated by a latent construct of collaborative synergy, which predicts project performance and stakeholder satisfaction. Rival theories are evaluated to stimulate future research.
DOI: 10.4018/978-1-60960-587-2.ch505
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Collaborative Synergy and Leadership in E-Business
INTRODUCTION AND RATIONALE This empirical study answers the general hypothesis: what factors are significant when professionals successfully lead teams to collaborate and synergize across organizations in e-business projects? Given that “collaboration” is “an interactive process that engages two or more participants who work together to achieve outcomes they could not accomplish independently” (Salmons & Wilson, 2008, p. xxxiv), while “organizational synergy” is “an open, integrated process (operational, procedural and cultural) that fosters collaboration and encourages participants to expand connections beyond typical boundaries and achieve innovative outcomes” (Salmons & Wilson, 2008, see Preface p. xxxiv), then it is proposed the interaction of these theories in contemporary e-business project teams (within and between organizations, including partners) becomes “collaborative synergy.” It is argued that collaborative synergy is an unobservable predictive mediator of organizational performance when skilled e-business professionals apply knowledge sharing and transformational leadership principles. E-business is an important dimension of current organizational business process automation whereby mature companies of all sizes strategically leverage Internet-enabled enterprise computer software to effectively and efficiently transform resources to produce and supply products or services to their clients and partners around the world. The term e-business is defined here as doing business online and thereby leveraging the Internet/digital economy as a business process tool to virtually interact with staff, partners and marketplace clients (Kalakota & Robinson, 2003, 2001). Professionals in e-business will have applied practice in the mainstream “e-business domains” such as Supply Chain Management, Enterprise Resource Planning, Client Relationship Management, Human Resource Management/ Workflow, Executive Information Management, Advanced Strategic Planning/Optimization, and
e-Procurement (Bigwood, 2004; Moitra & Krishnamoorthy, 2004). These are the generic e-business software names but not all system vendors utilize these titles. Skilled project leaders are required to manage e-business team collaboration (Cowley, 2003; Golob, 2002; Lampel, 2001) of which minimum corporate hiring criteria include MBA degrees and Project Management Professional certification plus at least five years applied leadership experience (Labrosse, 2007; PMI, 2007). Due to the challenging e-business project demands, professional leaders are often outsourced because the required leadership and project management skills are difficult to develop (Bone, 1996; Parise & Sasson, 2002; Slowinski, Hummel & Kumpf, 2006). People management is a key success factor because e-business project managers lead multidisciplinary, virtual, collaborative teams, having multiple cultures (Manning, 2003; Trompenaars & Woolliams, 2003). Leaders are further challenged to manage e-business project teams that span departmental functions, beyond country boundaries, that frequently include international partners and vendors (Grant & Baden-Fuller, 2004; Powell, Koput & Smith-Doerr, 1996). E-business projects are complex since the applications must accurately and securely interconnect organizational data, processes, rules, and people across the Internet, introducing unknown risks that could potentially constrain performance.
Research Objective It is argued that the transformational leadership and knowledge sharing theoretical constructs can be integrated as a single analytical model, using measured project leader (survey) items to explain how two unobserved latent factors (herein referred to as synergy and collaboration) mediate project outcome variables. The research hypothesis is that in e-business projects, the perceived transformational leadership and knowledge sharing factors will have a covariance, that is mediated by
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Collaborative Synergy and Leadership in E-Business
an unobservable latent construct of collaborative synergy (team collaboration and synergy), that in turn explains (predicts) the dependent organizational performance variables of earned value and stakeholder satisfaction.
BACKGROUND AND LITERATURE REVIEW A literature search using the chapter keywords and index terms did not reveal any empirical studies that specifically investigated both transformational leadership and knowledge sharing, within contemporary e-business projects, during 2000-2007. Some of the recent fugitive literature including conference papers and books such as Kalakota and Robinson (2003) discuss some applied transformational leadership principles or some knowledge collaboration factors in successful e-business companies, but not both theories. There were no empirical studies of collaborative synergy or related constructs found in e-business or other industries. The literature review discusses the major components of the analytic model underlying this study, starting with transformational leadership, then knowledge sharing, in terms of how the factors theoretically relate to unobserved collaborative synergy in teams, and organizational performance. The literature review closes by citing contemporary empirical studies that demonstrate evidence of these principles and models. A subsequent topic critically reviews rival theories in the literature, then suggests improvements and future research issues.
Transformational Leadership, Collaboration and Synergy Transformational leadership theory was most fully conceptualized by Burns (1978) as “leaders inducing followers to act for certain goals that represent the values and the motivations—the wants
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and needs, the aspirations and expectations—of both leaders and followers” (p. 19). Bass (1997) expanded on this by arguing transformational leaders have the ability to arouse or alter the strength of needs which may have lain dormant, and he developed the Multifactor Leadership Questionnaire (MLQ) construct and survey. Yukl added that “transformational leadership involves the influence by a leader of subordinates…to empower subordinates to participate in the process of transforming the organization” (Yukl, 1989, p. 269). Researchers continued to test and refine the transformational leadership and MLQ, confirming the link to organizational effectiveness, as well as the importance of trust and modeling in team collaboration and synergy (Bass & Avolio, 1993). Bass and Avolio (2004) used the MLQ to confirm Burns’ original claims that a transformational leader does not motivate with a task-reward approach (as a transactional leader does); rather, transformational leaders motivate by modeling, creating synergy, cultivating vision and meaning, among followers. Others verified this through empirical studies (Bass, Waldman, Avolio, & Bebb, 1987; Podsakoff, Todor, Grover, & Huber, 1984; Schein, 1991). In MLQ, leadership is categorized by two predominant styles: transformational and transactional, described by three latent factors (with several subscales), and three outcomes (Bass & Avolio, 1995; Podsakoff, MacKenzie, Moorman, & Fetter, 1990; Schein, 1991; Yukl, 1989). The transformational leadership construct is generally described as having six factors categorized into transformational or transactional styles, but additionally including a non-leadership (lassie-faire) management approach (Podsakoff et al., 1990). The contemporary transformational leadership scale (TLS) is listed in Table 1, with a brief explanation of each key factor. The factors and variables in Table 1 are prefixed with a number (#) to illustrate their linkage to Table 2 and Figure 2 of subsequent sections (for consistency and to
Collaborative Synergy and Leadership in E-Business
Table 1. Transformational leadership factor subscales Transformational leadership factor: €€€€€#1. Vision articulation: inspirational motivation (vision) - leading through a visionary approach; raising workers’ expectations and beliefs about the mission and goals through appeals to their emotions; inspire and synergize others with leaders’ plans for the future €€€€€#2. Intellectual stimulation - leading by appealing to workers’ sense of inquiry; challenging them by questioning assumptions and encouraging creative problem solving €€€€€#3. Individual support (individualized consideration) - leading by focusing on the individual and providing coaching and mentoring €€€€€#4. Role modeling (idealized behaviors) - leading by acting as an influential positive role model €€€€€#5. Goal setting and promoting - encouraging followers to share a common vision and goals, foster collaboration among work groups €€€€€#6. High expectations (idealized attributes) - leading by means of charisma; behavior that encourages a follower to trust in the leader. Transactional leadership factor [subscale collapsed in Figure 2 as “#7. Contingent rewards & punishment”] contingent reward - providing reward in recognition of effort and/or achievement of goals, or conversely, discipline for non-achievement active management by exception - concentrating on occurrences which deviate from expected norms, such as irregularities, mistakes, exceptions and failures to meet standards. passive management by exception - taking action only when things go wrong. Non-leadership factor (lassie-faire leadership) - doing nothing, letting things take care of themselves, failing to provide leadership [this is not found significant in e-business and is not retained in Figure 2]. Leadership performance outcomes of: Effectiveness - extent to which leaders see themselves as being effective in achieving outcomes, goals and objectives [captured in Figure 2 as “#8. Deliverable Performance” and “#10. Earned Value”] Extra effort - extra effort that is exerted by followers as a result of leadership [implied in Figure 2 as “#9. Knowledge Growth” through collaboration] #11. Stakeholder Satisfaction – organization, team, leader sense of self-satisfaction resulting from their leadership behavior and activity [as explained later, leader self-reports are excluded in this variable].
biases, and (2) based on the author’s technology experience and studies, the factors are needed due to the complexity of the online e-business context.
facilitate the reader’s interpretation of upcoming results). The rationale for using TLS in this study is succinctly explained, to close this topic. TLS is not the only construct that could be used in this study (other models used by the author were cited)—and as will be discussed, alternative perspectives exist. The two key reasons why TLS is used are: (1) it is theoretically and statistically credible in a way that reduces team perception
Knowledge Sharing, Collaboration and Synergy This section explains the knowledge sharing principles, in terms of how this construct relates to ebusiness team transformational leadership, as well
Table 2. Exploratory data analysis (descriptive statistics) Measure
Demographic
Sample Size=3995
Age
Mean
40.91 41
Standard Error
Transformational Leadership Synergy Collaboration Factors
Project Outcomes
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
Vis.
Int.
Ind.
Role
Goal
High
Con.
Perf.
Know.
E.V.
Satis.
15.97
7.61
5.67
5.4
6.04
6.57
4.59
2.39
0.960
0.180
0.740
0.910
16
8
6
6
6
7
5
2
1.000
0.130
0.660
0.900
0.169
0.167
0.015
0.017
0.029
0.019
0.028
0.015
0.012
0.001
0.002
0.003
0.001
Standard Deviation
10.68
10.55
0.93
1.05
1.86
1.18
1.77
0.94
0.77
0.076
0.121
0.159
0.043
Kurtosis**
-1.25
-1.29
5.10
3.25
-1.20
0.30
2.47
4.87
9.13
8.78
0.310
-1.15
-0.53
Skewness**
-0.03
0.004
-0.56
-0.72
-0.13
-0.814
-1.91
-0.64
-1.31
-2.22
1.405
-0.13
1.116
Median
Yrs Exp.
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Collaborative Synergy and Leadership in E-Business
as to unobservable (but important) collaborative synergy. The topic closes with a discussion of how knowledge sharing can be measured, in terms of a knowledge sharing process and context. Although “online” is not part of the literature’s definition for knowledge sharing, the logical assumption is asserted that the virtual context of e-business projects facilitate the application of this theory. A generally accepted construct of organizational collaboration and synergy underpinning this research is the dynamic knowledge creation/ sharing model (Nonaka, Toyama, & Konno, 2000). Albeit the terms “creation,” “sharing,” “transfer,” and “collaboration” often are used in the literature to explain the construct of knowledge sharing, technically, all are part of the definition referenced here. The well-known contemporary knowledge creation model (Nonaka & Teece, 2001) describes a four-phase cycle: socialization, externalization, combination, and internalization. This knowledge creation cycle accounts for how individuals and teams create and share knowledge, from tacit (cognitive perspectives) to explicit (described in words and discussion forums to document and share), and then back to tacit again as individuals apply (and improve) the organizational knowledge during the course of their project. Knowledge assets (team experiences, synergy, concepts, routines/culture, tangibles) form inputs, act as moderators, and become outputs of the knowledge creation process, all of which takes place in a context or “Ba.” For this research, “Ba” is a shared e-business virtual knowledge collaboration and team synergy phenomena, influenced by strong transformational leadership. Nonaka and colleagues (2000) further describe “Ba” as having Japanese etymological origins, a shared knowledge sharing ontology of cognitive reflection and knowledge-in-action; “not just physical, but a specific time and space”(Nonaka & Teece, 2001, p. 24). Participants of the “Ba” shared context don’t belong to it—no membership is needed as strictly defined in a Community of Practice (Wenger, McDermott, & Snyder, 2002)—
1354
instead team members “relate to it, using it as a place to inter-relate for creating knowledge” (Nonaka & Teece, 2001, p. 24)—inferred here as synergy and collaboration. Nonaka and colleagues further describe the synergistic process of collaboration as “coherence among the Ba is achieved by means of organic interactions among Ba based on the knowledge vision rather than a mechanistic concentration in which the center dominates; in organizational knowledge creation, neither micro nor macro dominates—rather, they interact with each other to evolve into a higher self” (Nonaka & Teece, 2001, p. 28). The relaxing of membership, and emphasis on collaboration as well as synergy, are relevant to explain the unobserved latent constructs of collaborative synergy from TLS. Extensions to this theory suggest that synergy, innovation, and collaboration take place in the knowledge creation cycle through a self-transcending process, which has been described as: “not yet embodied” (Sharmer, 2001), “reflectionin-action” (Schön, 1989; Senge, 1999), “personal mastery” (Senge, 1999), “pure experience … action intuition” (Nonaka & Teece, 2001). These extensions to the “Ba” are mentioned here as they add descriptive meaning to the unobserved latent constructs of team collaboration and synergy (and because readers may be more familiar with these terms). As noted earlier, the interaction of transformational leadership and knowledge sharing in terms of team synergy and collaboration can still be explained by the Community of Practice theory (Wenger et al., 2002). Nevertheless, transformational leaders in e-business must guide inter-organizational teams that are informally solidified by their virtual collaboration and synergistic contributions within the “Ba,” towards their mutual goal of knowledge and deliverable creation. In closing this topic, it is argued that in the ebusiness project “Ba,” transformational leadership integrates with knowledge sharing to give rise to collaborative synergy, which promotes effective
Collaborative Synergy and Leadership in E-Business
team performance. TLS by itself (without knowledge sharing) may not explain how collaborative synergy mediates team performance, and the resulting stakeholder satisfaction. Transformational leadership is the ability to translate knowledge into action, by influencing and promoting team collaboration and synergy towards desired organizational performance (Bass & Stogdill, 1990). An alternative perspective is that knowledge collaboration requires promoting and modeling [two key factors of transformational leadership] for knowledge creation and sharing (Nonaka et al., 2000; Quinn, Faerman, Thompson, & McGrath, 1996). Other researchers have come to this same conclusion that transformation leadership is a required soft-skill for efficient team collaboration, effective decision making and for generating organizational synergy (Senge, Dow, & Neath, 2006; Sheard & Kakabadse, 2004; Straus & Milton, 2003; Yukl, 1998). Therefore, this study uses both TLS and knowledge sharing factors to predict outcomes.
Empirical Evidence of Transformational Leadership and Knowledge Sharing There is statistically significant evidence showing transformational leadership promotes team collaboration and synergy, and this improves organizational performance (Bass & Avolio, 1995; Podsakoff et al., 1990; Schein, 1991; Yukl, 1989). In turn, leadership has been proven to be a key factor in promoting knowledge sharing, collaboration, and team synergy (Mumford, Scott, Gaddis, & Strange, 2002). Empirical studies have shown transformational leadership is a critical competency for guiding collaborative project teams toward effective organizational outcomes (Cowley, 2003; Strang, 2005; Zhu, Chew, & Spangler, 2005). Furthermore, transformational leadership was found to be significant in promoting knowledge creation,
sharing, facilitating collaboration in community of practices, and for achieving organizational synergy across multi-disciplinary project teams (Avolio & Bass, 2004; Bass & Avolio, 1993; Strang, 2003, 2007). It has been argued there is a relationship between transformational leadership, e-business team synergy and collaboration (Stahl, 2000), which increases (enhances) the project deliverables, and thus improves organizational performance. When professional knowledge workers collaborate and synergize, they increase their trust and task effectiveness, which improves project deliverables. It is argued these high quality project deliverables ultimately improve the overall program and organizational outcomes. Transformational leadership is needed to facilitate this knowledge sharing/collaboration and synergy/ trust-building process at the project and program levels. The transformational leadership must be far-reaching enough to guide all internal, interorganizational, and external (partner) resources associated with the project, program and/or organization—thus the Internet can often be leveraged for this purpose of reaching many and distanced e-business resources. Contemporary online methods for professional team collaboration are e-mail, community of practice forums and synchronous discussions—some of these eCollaboration tools are embedded in commercial e-business systems such as GE’s Extranet and IBM’s WebSphere (Kalakota & Robinson, 2003). Recent empirical research illustrated that effective project managers (measured in terms of team perception and organizational outcomes) exhibited a high degree of transformational leadership attributes (Strang, 2005; 2007). A study of e-business students demonstrated likewise (Jung & Avolio, 2000). In a case study of four organizations (including 3M) that regularly complete successful e-business projects, Melum (2002) found that leadership, knowledge sharing, and collaboration were important skills recognized
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and promoted in their management development programs. In a quantitative study of managers across 2,500 successful e-business industry firms, “six competencies appear to constitute the most critical: leadership skills, customer focus, results oriented, problem solver, communication skills, and team worker” (Abraham, Karns, Shaw, & Mena, 2001, p. 847). In an e-business study of Asian, American and UK executives from service, manufacturing and construction sector e-businesses (Zhu et al., 2005), transformational leadership was found to be significantly related to knowledge collaboration and synergy (n=170, r2=0.38, p<0.01), described by Zhu et al. as “capital-enhancing human resource management” (p. 49). Also, transformational leadership was associated with successful organizational outcomes (r2=0.30, p<0.01), using the MLQ leadership assessment instrument (pp. 49-50). Knowledge sharing and transformational leadership are both critical for effective team collaboration and organizational synergy (Mumford, 2004), and to create successful organizational outcomes (Lin & Tseng, 2005; Nonaka et al, 2000). Transformational leadership is especially critical in E-Business contexts (Kalakota & Robinson, 2003; Plessis & Boon, 2004), because contemporary business projects are often complex and their stakeholder membership spans the defined organizational boundaries (Hayes, 2001). An empirical study of new product development by project leaders managing 69 e-business programs in the Mexican oil industry recognized the need for inter-organizational collaboration but emphasizes “there is evidence that the success rate of alliances is less than 50 percent” (Cáñez, Puig, Quintero & Garfias, 2007, p. 50). This finding highlights the need for a leader to take a structured approach for technology acquisition (that is argued here can be generalized across organizations even those managing non e-business projects).
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ISSUES, CONTROVERSIES AND ALTERNATIVE THEORIES As pointed out, while it is generally accepted that leadership, collaboration, and synergy are related and positively associated with successful e-business project performance and client satisfaction, there are differing views on what effective leadership is, and consequently how to evaluate it. For example, the literature contains broad definitions of effective leader traits, such as: cognitive ability, intelligence, emotive, affective ability, technical knowledge, and functional capability. There are other constructs capable of assessing some of the transformational leadership subscales (Yukl, 1989), namely the Leadership Practices Inventory (Kouzes & Posner, 1988), which was successfully applied in similar e-business studies (Strang, 2007). To fully endorse the philosophy of this research handbook, the ensuing topics reveal critical problems and alternative perspectives, then suggests resolutions, encouraging future research to replicate, refute, or extend these ideas.
Assessment Construct Technical Issues MLQ-5X (Bass & Avolio, 1995) is the generally accepted instrument used to measure transformational leadership (Avolio, Bass & Jung, 1999; Mumford et al., 2002; Yukl, 1998; Zhu et al., 2005). Bass and Avolio (1997) report that the MLQ-5X scale Cronbac alphas range from .74 to .94 for validation and .73 to .93 in the cross validation; inter correlations among the five transformational scales were high and positive. The MLQ consists of 45 descriptive items that uses a 5-point Likert type scale ranging from 0-4. On this scale a “0” represents “Not at all,” a “1” denotes “Once in a while,” a “2” indicates “Sometimes,” a “3” signifies “Fairly often,” and a “4” represents “Frequently if not always.” According to Bass and Avolio (1995) the 45-item scale successfully identifies five of the six subscale variables in
Collaborative Synergy and Leadership in E-Business
transformational leadership (explained in Table 1), namely: (1) idealized influence/attribution, (2) idealized influence/behavior, (3) inspirational motivation, (4) intellectual stimulation, and (5) individualized consideration. However, there is no empirical evidence or research guideline from studies applying transformational leadership (MLQ or TLS constructs) with knowledge sharing, collaboration, and synergy for virtual teams within e-business type projects. Recently the critical post-modern movement has challenged the traditional leadership constructs, and suggested there are problems measuring the transformational leadership factors. One recent criticism of the transformational leadership construct is that it is unclear what is being “transformed” in projects (Lincoln, 1998). Also, critics point out that transformational leadership is measured using positivist methods—this is a contrast to the normal qualitative grounded-theory building approach that was used with traditional leadership taxonomies, which used participantobservation in case studies instead of self-report surveys (Yukl, 1989). There are also technical problems asserted for the transformational leadership construct. It is argued here that from a statistical standpoint, the scales in the MLQ (Burns, 1985) are not interval (or ratio) so the outcome variable is not discrete or continuous, which is necessary for assuming a normal distribution (to apply parametric methods). To resolve this problem the scales must be interval, ranging from 0 to 10 (or higher). However, MLO has been proven statistically valid and reliable so any change to it would require replications with confirmatory factor analysis, but theoretically that reduces credibility since it becomes a new instrument. Furthermore, the MLQ has received some criticism for inconsistencies with sample groups in distinguishing between transformational and transactional leaders (Bass, 1993). As well there are reports of inconsistency in replication of the data. Some researchers concluded the MLQ failed
to support first and second order confirmatory factor analysis (Lincoln, 1998); however, when a reduced form of the MLQ was employed, this resulted in construct and predictive validity. Avolio et al. (1999) came to a similar conclusion in a study involving 3786 respondents in 14 independent samples, using various versions of the MLQ, including the MLQ-5X. Avolio et al. (1999) conducted an initial survey and replication of mid-managers, concluding that reducing MLQ items to five factors resulted in “a high degree of consistency in estimates of reliability, inter correlations and factor loadings when comparing the initial with the replication sample results” (p. 13). A significant problem with surveys, including the MLQ, is they are self-reported, and thus can be biased if subjects are self-evaluating their behavior and/or performance. Although the MLQ can use reverse-coded items (questions worded such that low performance is the highest scale), these can be recognized and falsified by subjects. The remedy to this problem is to include items that independently assess the subjects’ desire to “look good” (or in the case of peer assessment, the petition to make a friend look good). It is now customary to include all or part of the Social Desirability Scale (Marlowe-Crowne, 1960) in transformational leadership surveys. The SDS is a 33-item self-reporting scale, which requires the subject to read a statement and respond either “true” or “false,” depending on their agreement or disagreement with the items. The internal consistency of the scale is good at .88 and the test-retest correlation is .89 (Crowne-Marlowe, 1960). The SDS has proven reliable in replications and similar studies to identify self-report measures that are faked, inflated, and/or deflated, such as when a peer dislikes a leader (Carless, 1998; Tichy & DeVanna, 1990; Yukl, 1998). The resolution to many of the MLQ criticisms discussed above is to apply the Transformational Leadership Scale (Podsakoff et al., 1990). TLS uses reverse-worded items across the six transformational factors. The TLS factors are:
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articulates vision, provides appropriate model, fosters acceptance of goals, high performance expectations, provides individualized support, intellectual stimulation, plus the transactional constructs of contingent reward and contingent punishment with laissez-faire behavior (Podsakoff et al., 1984). These are synchronized to Table 1 and Figure 2 (discussed later). Self-reporting bias in TLS is eliminated here through triangulation of evidence (peer not self-reports), and by adding several SDS items, which also partly checks common method variance (Podsakoff et al., 1990). In this study, as will be noted in Figure 2, the non-leadership (lassie-faire), contingent reward and contingent punishment subscales are collapsed into one. In this design, the numerical TLS scales were converted to an interval range from 0 to 10 to improve its statistical design (as per discussed technical flaw). Instructions on the survey maintain MLQ consistency and intent by advising subjects: “0” represents “Not at all,” a “1-4” denotes “Once in a while,” a “5” indicates “Sometimes,” a “6-9” signifies “Fairly often,” and a “10” represents “Frequently if not always.”
Relevant Alternative Theories and Perspectives The most relevant and plausible alternative approach for modeling e-business collaborative synergy is Yukl’s (1998), very credible Multiple-Linkage Model (MLM), that builds on the Path-Goal (Silverthorne, 2001; Shamir, House & Arthur, 1993) concept. MLM includes leadership substitutes as situational latent variables that reduce the need for leadership, indirect longerterm situational variables that can constrain or neutralize leader behavior, and direct short-term intervening variables, namely: subordinate effort, role clarity, task skills, work organization, cohesiveness/cooperation of team, resource availability/support, and external coordination (Yukl, 1998, pp. 276-283). In fact this model has been studied by the author in similar contexts and found
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significant to a certain extent (Strang, 2005), but the context was not isolated to e-business projects (this is hypothesized here to increase the need for transformational leadership). Charismatic leadership is a plausible factor measured in the Path-Goal model but it is not relevant for the context of the current e-business study since it infers principles of perceptual defenses and projection. For example, projection is a perceptional distortion of the tendency to relieve a sense of guilt or failure by attributing personal attitudes or feelings to another person—this is not likely to explain unobserved synergy or collaboration in e-business projects. Leadership Substitutes Theory (Kerr & Jermier, 1978) is unique in that is does not explicitly use intervening variables. Instead, two situational variables are specified which the leader has no control over, but according to the theory, the leader must be aware of, when applying supportive or instrumental (task-oriented) behaviors, and as such it is difficult to measure. Kerr and Jermier (1978) were able to show how certain factors in team projects substituted for transformational leadership, such as when team members know how to do the job well, or the work is very repetitive. Kerr and Jermier (1978) also defined neutralizers, whereby the leader has no authority to evaluate or reward performance. This theory has been argued to be a relevant construct for explaining when leadership is not needed in virtual teams and/or specialized situations, but as discussed earlier, ebusiness needs a high degree of transformational leadership due to the context complexity. Transformational leadership has been argued to be less effective than transactional leadership in contexts that require time-critical team management, such as in military, emergency, and medical operations (Yukl, 1998). This is understandable. The focus of this research is on e-business projects that do not carry this degree of urgency. Thus, it is argued the utility of the model that will be developed is that it will be generalizable to non-critical
Collaborative Synergy and Leadership in E-Business
projects (e-business) that are higher in number and need as compared with emergency situations. There is opposition in the literature concerning the ability to predict good project outcomes using knowledge sharing and transformational leadership factors. Allee (2000) defines a relevant knowledge capital taxonomy that includes factors of business relationships, internal structures, human competence, social citizenship, environmental health, and corporate identity that can predict team performance without assessing or considering leadership, synergy or collaboration per se. However, her interesting work lacks the empirical analysis (it is mostly theoretical with case studies of qualitative comments). Social capital network theory has been described as a way to measure the impact of group synergy using relationships (without involving leadership), to predict outcomes. Social capital network theory is explained as: “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet & Ghoshal, 1998, p 246). Nahapiet’s work is good yet theoretical (without empirical evidence). There are well-known variations of knowledge creation/ sharing constructs that mention possible synergy and collaboration variables, such as the knowledge management model (Wiig, 1997, 2002). Skyrme (1998) proposed an excellent measurement methodology for assessing organizational synergy and knowledge collaboration, using the intellectual capital model, but transformational leadership factors were not included. None of these alternatives include both transformational leadership and knowledge sharing factors that would be relevant for e-business project outcomes (goal-setting, synergy, etc.). The Community of Practice (CoP) is another relevant and plausible theory that could explain an e-business project as a collaborative synergy model. CoP members are not a team but they do have a group identity, a subculture, yet there is no official leader to promote synergy (Wenger et
al., 2002). In comparison, the shared “Ba” context is a place where collaborative synergy is created (which is also the locus of control), its boundaries are fluid (changed by the participants), it is always evolving (with no historical element nor identity), and its membership is dynamic—composed of any combination of individuals and organizations, including CoPs (Nonaka et al., 2001). Other researchers, namely Seely-Brown and Duguid (2001), emphasize the shared practice and social identity of a CoP can replace a leader’s synergistic influence. In a CoP, over time participants develop a common outlook and understanding of the world around them, they share the same sort of judgment, and look to the CoP as place to engage in learning, rather than knowledge sharing and collaboration per se (Brown & Duguid, 2001). A debatable aspect of CoPs is there may be some hierarchy and dependence on organizational authority, which would be contrary to TLS and the latent collaborative synergy construct hypothesized here. Also there is no organizational structure or bureaucratic boundary constraining the knowledge sharing and collaboration in the “Ba” context (Grant, 2001), so “Ba” is favored here over CoP. There are also alternative views that transformational leadership, knowledge sharing, and collaboration have a gender-specific dichotomy (Boje, 2001), which could mediate synergy, yet Burns (1978) and Bass (1985) contend there are no gender differences. Barker and Young (1994) identified a feminist underpinning to transformational leadership in organizations, while Collins (1986) and others took a similar critical postmodern view. For example, qualitative studies have shown women develop a feminine style of leadership, characterized by collaborative-like behaviors of caring and nurturance, while men adopt a masculine style of leadership, which may promote synergy but is not collaborativelike since it is dominating and task-oriented (Feldman, 1999). In an empirical study of 345 metropolitan branch managers, Carless (1998)
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found self-ratings by female managers indicated they perceived themselves as more likely to use transformational leadership than male managers. Furthermore, female managers were more likely than male managers to report that they take an interest in the personal needs of their staff, encourage self-development, use collaborative decision making, give feedback and publicly recognize team achievements. Female managers reported they use more interpersonal-oriented (synergistic) leadership behaviors, compared to male managers (Carless, 1998). This rival dimension was analyzed in this study using MANOVA, to examine the gender groups, in terms of the outcome independent variables, but the result was not significant (p>.01). Culture is another much-debated dimension in transformational leadership. Well-known contemporary multi-cultural research (Manning, 2003; Trompenaars, 1993) indirectly investigated cultural perspectives of certain transformational leadership attributes (e.g. inner/outer directed regarding goal-setting and synergy influence). Tierney (1993a, b) investigated the way in which people of various cultural backgrounds are socialized into power structures. Furthermore, the critical post-modern movement advocates more research is needed into transformational leadership attributes such as: race, social class, gender, and sexual orientation (Boje, 2001). A significant constraint with the alternative leadership and knowledge sharing perspectives discussed above (except culture) is their empirical analysis in the literature predates the emergence of e-business projects. It was argued that e-business subject matter, culture, and online tools necessitate high levels of transformational leadership using influence and electronic communication skills. Although transformational leadership and the TLS also predate e-business as defined here, this theory has been studied empirically in the e-business domain (Hayes, 2001; Kalakota & Robinson, 2003; Plessis & Boon, 2004), but without knowledge sharing principles.
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RESEARCH DESIGN, METHODS AND DESCRIPTIVE STATISTICS In this study, 3995 North American e-business industry participants were surveyed during 20052007, to document and evaluate the 412 project outcomes, and the team perceptions of their 412 project leaders. The 412 projects were reduced from 443, and 3995 valid subject responses were reduced from 4725, due to incomplete projects, insufficient team size, non-response, outliers, and/ or bias factors affecting statistical reliability. The design and methods are explained next, followed by the exploratory descriptive statistics.
Research Design and Methodology The choice of analytic design and methodology warrant explanation to establish credibility and to allow the scientific community of practice to replicate or extend this research. Structural Equation Modeling (SEM), a variation of Multiple Linear Regression, was chosen as the methodology. The key purpose of SEM as I applied it here was to examine the covariance relationships between the transformational leadership and knowledge sharing factors (independent indicators). It was theorized transformational leadership and knowledge sharing were mediated by a latent variable construct of collaborative synergy. In turn, it was theorized the latent variable construct produced a casual predictive influence on the deliverable performance ratios and stakeholder satisfaction (quantitative dependent variables). In practice, latent constructs remain unobserved phenomenon (with no scale identified), but they can be related to the factors and variables in a model as regression equations, using “maximum likelihood techniques” via SEM in LISREL. SEM is appropriate for this type of psychological research where the focus is on the perceptions of the individual in terms of covariance between the independent and dependent variables of the same observed subject, to reduce the error term of
Collaborative Synergy and Leadership in E-Business
the causal relationships in multiple linear regression (Keppel & Wickens, 2004, pp. 306-322). In this study we are measuring leadership factors perceived by each team member, hypothesized to be unobservable collaborative synergy, which predicts e-business project outcomes. In particular, the reason the latent construct of collaborative synergy is proposed, is that it is hypothesized that the transformational leadership and knowledge sharing constructs do not solely explain the phenomenon, because in e-business projects that have good leaders, a hidden (as yet uncategorized) synergy takes place, which improves the deliverable quality and subsequent stakeholder satisfaction. As discussed earlier under the topic of empirical studies, studies prove that good leadership enhances deliverable outcomes, but the hypothesis is that the hidden interaction of team synergy and collaboration make the significant difference in e-business projects, and once replicated, this can be leveraged by other practitioners or disciplines. The merits of using the TLS construct have already been discussed, but what can be technically emphasized is the application of the multivariate model (as compared to univariate). This means patterns of covariance and correlation differences in the subscale factors (from Table 1), per observation record, are used to adjust the means and standard deviations, in order to absorb individual unexplained variability. This is recommended instead of estimating confounding variance within and between groups (Keppel & Wickens, 2004, pp. 375-380). The statistical standard error term is reduced by factoring unexplained variability between indicators perceived by each person, to increase the “explained” cause-effect variance, to create a more robust model. Mediation was chosen over moderation because the former proposes the strength of the relationship among the indicator factors thereby influences the degree of effect on the independent variables, as compared with the latter perspective that a specific factor influences the degree of effect between indicators and dependent variables (Barron & Kenny, 1986). As
noted, moderation (specific latent factors) was the approach used by Yukl (1998) in his Multiple Linkage Model of leadership, and that was statistically significant for his data. It was necessary in this research to connect the SEM “path model” to the transformational leadership and knowledge sharing abstract model in a way that identifies the collaborative synergy phenomena. As applied in this research, the mediators are the latent construct of team collaboration and synergy that represent the “degree” of transformational leadership and knowledge sharing factors perceived by team members, which in turn, affects the “strength” of the relationship between the team collaboration and synergy, predicting deliverable performance as well as stakeholder satisfaction. The next steps in the methodology were: diagram the hypothesized model, as shown in Figure 1, create the hypothesized path model in LISREL, conduct the multivariate analysis described above, then revise the path model using factor analysis to fit the theory to the data as described by Ullman and Bentler (2003, pp. 607–634). The final path model is a structural model fitted with the data, shown in Figure 2. The factors are numbered in the figures and tables for easy cross-reference. Proper ethics were applied. All e-businesses, project teams, leaders, and partners consented to the research as long as the identities of all companies, people, and the project names would remain confidential. A knowledge database was utilized to store the survey and project results, whereby all factors and variables were recorded in a format to facilitate analysis with SPSS and LISREL. Once the e-business organizations consented to participate, primary database keys were defined to link the project outcomes to the leadership data. Master records were established to capture project id, name, leader, team members, and so on. TLS was configured to be issued to the team members using the project name and project id so that the incoming results could be accurately cross-referenced back to the project via primary key. E-business projects are complex and
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intensive: no leader or team member worked on more than one project at a time (statistical non replacement). In early 2005, the database was initially populated with completed projects that had already been recorded in terms of their outcomes, then the team members were surveyed with the TLS (and these results were also recorded in the database). On an ongoing basis, as projects were completed, the outcomes were recorded in the database, then the team members were surveyed with the TLS (and outcomes entered into the database).
Exploratory Data Analysis The project leaders were not asked to complete the self-report of the TLS. Only the formal and informal (including partner) team members were invited to complete the TLS. On average, the ebusiness project teams had 16 surveyed members. Each TLS was reviewed for accuracy, completeness, and low scores on SDS items. Any TLS results that did not pass this quality assurance were subsequently discarded. Since the planned factor analysis relied on goodness-of-fit (Chi Figure 1. Research design and methods overview
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Square-based) distribution tests require expected frequency values n>0 on all cells as well as n>=5 on at least 80 percent of all cells (Bluman, 2004, p. 568; Levine, Stephan, Krehbiel, & Berenson, 2005, p. 469). Subsequently, any completed “project” having less than five valid team member results was discarded—this meant that for the particular project id, all TLS records, project leader, and linked project data was completely removed from the database (again the data related to that specific project id). Once the data gathering phase closed in early 2007, the TLS results were analyzed on a project level, using a confirmatory factor analysis, to first confirm internal consistency and reliability (i.e., Cronbach’s alpha), and then the inter-rater agreement (Jöreskog & Moustaki, 2006; Jöreskog, Sörbom, & Wallentin, 2006). Cronbach’s alpha was used because it provides an estimate of reliability based on average correlation among items within a test. Inter-rater (inter-observer) reliability is the extent of correlation between the observations of two or more team members whom would have assessed the same e-business leader (Avolio & Bass, 2004; Dyer, Hanges, & Hall, 2005). In
Collaborative Synergy and Leadership in E-Business
other words, it furnishes an assessment of how well TLS items vary together (Keppel & Wickens, 2004) in each factor subscale. Results with insufficient reliabilities, or inter-rater requirements, were discarded (and project data removed from analysis). Outliers were discarded using IQR*1.5 ± quartiles 1 and 3 as the cut-off fences (Bluman, 2004). With the above quality assurance completed, the final dataset contained 3995 records. The results of a customary exploratory data analysis (EDA) on the leadership factors, which now included the project outcome variables (n=3995), confirmed normality assumptions. The key EDA descriptive statistics are listed in Table 2. The only statistics of minor concern were high kurtosis values for “#1 Vision/Synergy,” “#6 High Performance Expectations,” “#7 Non-Leadership/ Contingent Rewards/Punishment,” as well as “#8 Project Deliverable Performance.” Typically the kurtosis should be less than or equal to ±3 (Tamhane & Dunlop, 2000, p. 118). Nevertheless, a higher value simply indicates more concentration of values about the mean (peaked distribution). The standard error and deviations are low for all factors and variables; the Pearson skewness is
generally below the recommended benchmark of ±1 (Bluman, 2004, p 293), so overall this sample approximates a normal distribution. The sample dataset contained 61 percent males and 39 percent females. As explained above, a confirmatory factor analysis was conducted on the TLS fields to determine if the surveyed items supported the TLS psychometric properties (factor subscales), using latent variable analysis in LISREL (Jöreskog & Moustaki, 2006), following a procedure similar to that which Dyer and colleagues (2005) applied on their GLOBE project leader study (n=13,412). The analysis was first performed without the “non-leadership” items combined, then with no significance noted, the subscales were collapsed into one variable (#7) to facilitate further analysis. The inter-rater coefficients and factor covariance’s confirmed the TLS instrument was internally valid and reliable in this study. The proof is: χ2=875.44, goodness of fit index = .75, root mean square residual = .04, and no significant covariance between the seven TLS factors. Since large samples can result in misleading Chi Square indicators, additional statistics were calculated
Figure 2. E-business collaborative synergy path model (** p<.01 (correlation was significant for all latent constructs, variables and t-tests))
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according to the recommendations of Dyer and colleagues (2005, pp 153-155). These indicators were all above .70 indicating a good dataset fit with the TLS construct. The proof is: comparative fit index (CFI)=.95, adjusted CFI= .91, root mean square error of approximation=.05, standardized root mean square residual=.04, r2=.71. The above results are similar to significant transformational leadership studies that used the TLS items as the analytical model (Avolio & Bass, 2004; Bass & Avolio, 2000; Dyer et al., 2005; Mumford et al., 2002; Zhu et al., 2005). The following outcome (ratio type) variables were then calculated, on the project and organizational level outcomes—again these are crossreferenced here to the upcoming Figure 2 variables (to assist the reader): •
•
•
•
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“#8. Timely / Quality Deliverable Performance” = an earned value score calculated for each significant project deliverable, then averaged for the project— “earned value” is explained in more detail below; “#9. Usable Knowledge Growth” = number of new knowledge database documents on the Intranet for this project, as finalized by the Quality Assurance Manager, divided by the pre-existing number of documents, to create a relative index—these documents are user guides, business rules, and so on; “#10. Project Revenue/Cost Earned Value” = all the earned value scores from every #8 deliverable, reduced by the project overhead cost factor representing indirect expenses such as shared systems; “#11. Reflective Stakeholder Satisfaction” = a subjective rating (ratio variable) from the project sponsor (individual level of analysis but reflecting project leader), once
the project was completed, to indicate their overall satisfaction with the project and in particular how well the e-business project leader handled stakeholders (in terms of applied transformational leadership, and team synergy skills). The “earned value score” is a compound ratio type variable representing earned-value, a generally accepted indicator to accurately assess project performance (PMI, 2004). This score was calculated by interacting three variables in the project database: Cost Performance Index (CPI), Schedule Performance Index (SPI), and Scope Defects Index (SDI). CPI and SPI were calculated at the end of the project as specified by the Project Management Body of Knowledge (PMI, 2004, pp. 173-174) – these are earned value ratios of overall project team performance, whereby amounts “equal to or greater than one indicates a favorable condition” (pp. 356, 374). The SDI is a ratio calculated using the formula: WD +1 / (WD + SCR) x 2 + 1, where “WD” is the total Work Defects and “SCR” is the Scope Change Requests that were raised to the project sponsor to resolve a non-conformance that required additional resources and/or time (unplanned re-work). Obviously it is desirable to have the highest value of one for SDI, indicating good scope management. All three ratios were then multiplied together (CPI x SPI x SDI) to form an unbiased overall “earned value score”. The difference between “#8. Timely/ Quality Deliverable Performance” and “#10. Project Revenue/Cost Earned Value” is that the latter variable (#10) reflects the overhead cost of running the entire project and is usually a lower ratio. These four variables were merged into the main dataset, using “project id” as the primary key for the many-to-one link, to provide the dependent variables (project outcomes) associated with each TLS record.
Collaborative Synergy and Leadership in E-Business
ANALYSIS, DISCUSSION AND LIMITATIONS
tiple regression design benchmark of ±2 (Carlson & Thorne, 1997, p. 106), with some t-tests reaching +18 (p<.01). Most of these correlation coefficients indicate support for the general hypothesis that the transformational leadership factors of vision articulation, role modeling, and goal setting contain an unobserved latent construct of collaborative synergy, and most strongly relate to the outcome variables of performance and stakeholder satisfaction. Specifically, “#1 Vision Articulation,” a key element related to team synergy, was highly correlated with “#2 Intellectual Stimulation” (.78) as well as “#6 High Performance Expectations” (.95), moderately with “#3 Individual Consideration” (.44), “#4 Role Modeling” (.40), and “#11 Stakeholder Satisfaction” (.45). It was surprising that #1 correlation was minor with “#8 Deliverable Performance” (.16), which carries through to the related “#10 Earned Value” (-.03) albeit a negative correlation was not anticipated. The same could be pointed out for the negative correlation between “#1 Vision Articulation” and
The SEM approach was used in LISREL to calculate a structural model by taking multiple passes at all records in the database, to first capture covariances, correlations, and descriptive estimates of normality. Then a second pass was made through the records, specifying the polychoric correlation matrices as input to adjust individual means and standard deviations, using the weighted least squares regression method, thus absorbing human differences of e-business team members that have no relevance to the TLS factors and latent construct being modeled. The final pass through the database was to examine the indices to determine if any adjustments were necessary to the structural model (no adjustments were needed). The Pearson correlation coefficients for the TLS subscales are listed in Table 3, with the important correlations bolded for emphasis. The correlations were significant (p<.01) and the t-test statistics were all greater than the mul-
Table 3. Pearson correlation coefficients for TLS factors and outcome variables Exp.
#1 Vis.
#2 Int.
Correlation
Age
Age**
1.00
Exp.**
.99
1.00
#1 Vis.**
.00
.00
1.00
#2 Int.**
.03
.02
.78
1.00
#3 Ind.**
.07
.07
.44
.19
#3 Ind.
#4 Role
#5 Goal
#6 High
#7 Con.
#8 Perf.
#9 Know.
#10 E.V.
#11 Satis.
Method
1.00
#4 Role**
.11
.11
.40
.39
.22
1.00
#5 Goal**
-.06
-.05
.01
.05
.00
.19
1.00
#6 High**
.00
.00
.95
.86
.49
.37
.11
1.00
#7 Con.**
.10
.10
.70
.59
.19
.31
.08
.07
1.00
#8 Perf.**
.04
.04
.16
.20
-.02
.21
.35
.21
.42
1.00
#9 Know.**
.03
.03
-.43
-.39
-.18
-.18
.10
-.41
-.32
.11
1.00
#10 E.V.**
.04
.04
-.03
.03
-.37
-.05
.02
-.04
.32
.51
-.22
1.00
#11 Satis.**
-.09
-.09
.45
.28
.07
-.24
-.25
.40
.05
.33
-.12
.40
1.00
Method**
-.01
-.02
.11
.08
.05
.04
.07
.17
.03
.00
.00
.00
-.01
1.00
** p < .01 (2-tailed). “Method” = common method variance and Social Desirability Scale.
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Collaborative Synergy and Leadership in E-Business
“#9 Knowledge Creation/Growth” (-.43), but this is rationalized as many e-businesses categorize knowledge sharing documents differently and if no emphasis is placed on creating new electronic information then the growth will be lower as it was measured here (by counts of new documents on the e-business project intranet). In fact, several correlations between “#9 Knowledge Creation/ Growth” were negative, such as “#2 Intellectual Stimulation” (-.39), #6 High Performance Expectations (-.41), and “#7 Contingent Reward” (-.32). These correlations suggest an inverse relation to knowledge sharing, especially factors #1 and #2. A final anomaly with “#1 Vision Articulation” was the high correlation with non-leadership “#7 contingent rewards/punishment” (.70), which can be attributed to team members feeling a sense of control in leaders that have a well organized and communicated vision. Several of the correlations with “#6 High Performance Expectations” were not earlier hypothesized, especially with “#2 Intellectual Stimulation” (.86), but these could be a result of the way e-business project leaders document and reiterate scope boundaries during meetings. There were a few generally expected correlations, but these are important normal project management benchmarks. First there was the expected strong correlation between “#8 Deliverable Performance” and “#10 Earned Value” (.51). Also “#11 Stakeholder Satisfaction” was moderately correlated with “#8 Deliverable Performance” (.33) as well as “#10 Earned Value” (.40). Age is highly correlated with experience (.99). For reliability and validity, “common method variance” was measured in TLS using the “social desirability” (SDS) and reverse worded items (Podsakoff et al., 1990), resulting in all correlation coefficients being < .2 (Table 3). The maximum likelihood regression method was used in LISREL to estimate path model parameters, first using the covariance matrix, then with the polychoric correlation matrix, as input for loading, according to the procedure established
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by Jöreskog and Moustaki (2006) and Jöreskog et al. (2006). Several path analysis iterations were generated, each using covariance or correlation matrices, with the best model shown in Figure 2, using “highlights” to relate the structural model to the theory (t-test statistics are not listed but all are > ±2). Figure 2 shows the latent factors #1 to #7, relationships, and outcome variables #8 to #11. This path model shows the predictive influence of the TLS factors through the latent collaborative synergy construct, represented by factors #1 through #7. In particular, factors #1, #2, and #5 relate to synergy, and factors #4 and #5 correlate with collaboration (#7 has a negative influence on collaboration). The collaborative synergy latent construct contains internal covariance (#2 and #4 onto #3, as does #7 with #6). The quantitative outcome variables are: “#8. Timely/ Quality Deliverable Performance,” “#9. Usable Knowledge Growth,” “#10. Project Revenue/Cost Earned Value,” and “#11. Reflective Stakeholder Satisfaction.” The path model in Figure 2 shows the regression coefficient for the transformational leadership factor of “#1 Vision Articulation” positively and significantly predicting “#8 Deliverable Performance” (.71). This factor #1 is the main TLS synergy component (albeit that is asserted herein since other researchers not the TLS authors isolated that). The “#5 Goal Setting” was also a significant predictor of “#8 Deliverable Performance” (.41) and even more so of “#9 Knowledge Creation/Growth” (.49). Somewhat impressive is the “#4 Role Modeling” factor as it predicted “#9 Knowledge Creation/Growth” (.42). As expected, there was a negative relationship between the “#7 Contingent Rewards & Punishment” factor in terms of predicting lower “#9 Knowledge Creation and Growth”. Some factors had a minor predictive effects on one another (such as #3, #4 on #3, and #7 on #6). Several TLS factors had “between effects” meaning outcome variables predicted one another. For example, “#8. Timely/Quality Deliverable
Collaborative Synergy and Leadership in E-Business
Performance” clearly predicted #10 (.98) and #11 (.94). Variable “#10 Project Revenue/Cost Earned Value” was able to predict “#11 Reflective Stakeholder Satisfaction” (.97), while “#9 Usable Knowledge Growth” had a moderate yet significant predictive relationship with “#11 Reflective Stakeholder Satisfaction” (.58). “#11 Stakeholder Satisfaction” was determined as the terminal path outcome. Overall the path model indicates a statistically significant predictive mediating relationship explaining 51 percent of the variance between the transformational leadership factors of the collaborative synergy latent construct, and the quantitative outcomes. Specifically, the TLS factors of “#1 Articulates Vision” (synergy) and “#5 Goal Setting” (collaboration) predicted “#8 Deliverable Performance,” while “#4 Role Modeling” (collaboration) and “#5 Goal Setting” (collaboration) factors had a moderate predictive effect on “#9 Knowledge Creation/Growth.”
unobservable in the collaborative synergy latent variable relationships, but measurable by the “#9 Usable Knowledge Growth” and “#11 Reflective Stakeholder Satisfaction” (dependent outcome variables). During post-hoc analysis, rival theories were re-examined to determine if knowledge sharing might have been documented while this research project was in progress. It had been noted that other researchers attempted to capture knowledge collaboration as “knowledge transfer” (Abou-Zeid, 2002) but his qualitative taxonomy would be difficult to apply in measuring e-business project outcomes. An interesting study measured human capital enhancement from transformational leadership (Zhu et al., 2005) but the outcomes were participant job satisfaction, not organizational performance or stakeholder satisfaction (no dependent effect triangulation).
Limitations
CONCLUSION, IMPLICATIONS, AND FUTURE DIRECTIONS
The major limitation with this study is that the TLS construct was not designed to assess knowledge sharing factors, and this is the first documented application to assess the collaborative synergy latent construct. Nevertheless the TLS factors that contained specific words that referred to knowledge sharing, synergy, and collaboration, were significant in the path model, with respect to the latent construct of collaborative synergy, and to predict the four dependent variables. Notwithstanding this statistical evidence, “#9 Knowledge Creation/Growth” is not a perfect quantitative measure of knowledge sharing or collaboration because it was a frequency created by counting the production of online e-business knowledge artifacts (such as dialog, documentation, etc). This limitation was argued to be somewhat overcome in this study because the TLS questions in the “#5 Goal Setting Knowledge” factor assessed team member perceptions of knowledge sharing,
This chapter makes a contribution to research and practice in several ways. A critical literature review (including rival theories and approaches) encourages further research, the transformational leadership construct is improved, and the empirical methods are explained to facilitate further research. Most importantly, a statistically significant model was developed to answer the research hypothesis. The conclusion is that in e-business projects, the perceived transformational leadership and knowledge sharing factors have a covariance that is mediated by an unobservable latent construct of collaborative synergy, which in turn predicts the dependent organizational performance variables of earned value and stakeholder satisfaction. The chapter was written to apply the philosophy of this research handbook, namely to share knowledge with practitioners and to facilitate further empirical work. The chapter commenced with a logical discussion of the business rationale
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Collaborative Synergy and Leadership in E-Business
driving this study, thereby citing current empirical evidence in support of transformational leadership and knowledge sharing in e-business projects. The literature review focused on the two main theories underpinning the study: transformational leadership and knowledge sharing, starting with succinct descriptions of the relevant constructs, followed by the integration of both, in terms of collaborative synergy. The literature review closed with strong empirical evidence that both transformational leadership and knowledge sharing factors improve project performance, with traceability to collaborative synergy. Alternative theories and perspectives were disclosed, including rival leadership and knowledge management taxonomies. Several controversial issues were revealed, namely, TLS limitations, culture, and gender, in the transformational leadership and knowledge sharing constructs. The TLS was statistically improved using an interval scale, and the reliability was increased by adding social desirability bias items to detect positive or negative team member inflations of their leader’s perceived behavior. Although gender was found statistically insignificant in this study, culture was not addressed, but the theoretical starting points for both culture and gender were cited to allow (and encourage) other researchers to further explore those factors. The research design and methods were explained (aided by a conceptual diagram) to allow researchers to replicate, refute or extend this study. The rationale for the choice of design and methods in this study was articulated. All procedures were explained, ending with descriptive statistics to verify the normality of the sample, and to confirm the validity of the TLS (using confirmatory factor analysis). The data gathering was rigorous because triangulated evidence was obtained from multiple sources, namely team member perceptions, project sponsor satisfaction, and three quantitative metrics from the organizational level. The measurement model was robust in that it used four continuous-data-type dependent variables, while the TLS interval factors were used to esti-
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mate collaborative synergy mediation. Technical aspects of the multivariate linear regression were revealed, including generally-accepted techniques and their benchmark measures, both cited to credible literature sources for research methods and for similar empirical studies. This study created a statistically significant structural equation path model demonstrating that the transformational leadership and knowledge sharing factors in e-business projects are perceived by teams as mediated through an unobserved latent construct of collaborative synergy that can predict performance and client satisfaction. The a priori credible Transformational Leadership Scale was applied to a large North American e-business industry sample (n=3995), using an improved interval response range, and this was reliable through a confirmatory factor analysis. The structural equation modeling approach implemented the maximum likelihood regression method to estimate the path model parameters from a polychoric correlation matrix as input for loading. The path model was statistically significant (p<.01), explaining 51 percent of the covariance between the transformational leadership and knowledge sharing factors, mediated through the collaborative synergy latent construct, to predict four dependent variables of deliverable performance and client satisfaction. The model specifies that all of the seven factors must be managed by ebusiness leaders.
Implications From a deductive perspective, the study replicates the transformational leadership scale (proven in the literature), but in the e-business context. The results suggest management and staff across any industry, must chose (or train) their e-business project leaders carefully. E-business project leaders should know about the transformational leadership and knowledge sharing factors—how to identify them, how to apply all of them, and especially how to influence their teams with
Collaborative Synergy and Leadership in E-Business
both sets of theories, in a way that mediates the collaborative synergy to increase performance. It is critical from the model that collaborative synergy is mediated by the leader managing all of the factors, in a manner individualized for each team member, (including reducing “#7 Contingent Rewards” because it has negative correlation). Individual perceptions and styles will differ so the leader must adjust his/her behavior to match the team member. In terms of priority, e-business project leaders need to put the highest effort into “#1 Vision Articulation” and “#5 Goal Setting” because these two have the most influence on the outcomes. The other factors cannot be ignored—they covary in a way that mediates the collaborative synergy phenomena. Therefore the leader should also apply high levels of “#4 Role Modeling” with “#3 Individual Consideration,” yet in doing so, she/he must apply factors of “#2 Intellectual Stimulation,” as well as “#6 High Performance Expectations.” Care must be taken when using these behaviors as they correlate with the other factors, only indirectly mediating collaborative synergy. Finally, e-business leaders should reduce the perception of “#7 Contingent Rewards,” as this has negative effects on collaborative synergy. As discussed, alternative theories of leader substitutes or neutralizers are not effective in e-business projects. From an inferential stand point, the path model might be generalized to projects within any industry that mirrors the characteristics of these 412 e-business projects, namely those in which the leader’s age range is 31-59, years of experience range is 5-33, the work involves complex information technology, plus the team size is 10 or more (including contract workers and corporate partners), with team age ranges of 22-58, dispersed to different physical locations, with online access and the need for electronic collaboration during tasks.
FUTURE RESEARCH DIRECTIONS E-business projects contain culture and gender attributes—both should be studied with respect to their relationship of transformational leadership, knowledge sharing, and latent collaborative synergy, as there was strong evidence cited in the literature that these factors may confound the TLS measures. Both culture and gender will be assessed by using the contemporary multi-cultural construct (Manning, 2003; Trompenaars, 1993) because one of the dimensions is “masculinity/ femininity.” More quantitative evidence of the relationship between knowledge sharing and collaborative synergy is needed (the predictive influence on the outcome variable was significant, but more exploration of the latent construct will be performed). Future studies will further isolate the knowledge sharing factor of e-business project leadership. One of the limitations here is that this study did not capture tacit (internalized) knowledge sharing, since it counted the externalized outcomes on the intranet. This will be accomplished by measuring team perceptions of tacit knowledge sharing. Finally, the TLS factors and collaborative synergy latent construct were modeled from the perspective of the 3995 team members—future research will expand the data gathering to all stakeholders.
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KEY TERMS AND DEFINITIONS E-Business: Business process automation whereby mature companies of all sizes strategically leverage Internet-enabled commercial enterprise computer software to effectively and efficiently transform resources to produce and supply products or services to their clients and partners around the world. Doing business online and thereby leveraging the Internet/digital economy as a business process tool to virtually interact with staff, partners and marketplace clients
(Kalakota & Robinson, 2003); professional leaders in e-business will have applied practice in managing “e-business projects” such as Supply Chain Management, Enterprise Resource Planning, Client Relationship Management, Human Resource Management/Workflow, Executive Information Management, Advanced Strategic Planning/ Optimization, and/or e-Procurement (Bigwood, 2004; Moitra & Krishnamoorthy, 2004). Collaborative Synergy (in E-Business): An interactive process that engages two or more participants who work together to achieve outcomes they could not accomplish independently, in an open, integrated process (operational, procedural and cultural) that fosters knowledge collaboration, influenced by a transformational leadership that encourages participants to expand connections beyond typical boundaries and achieve required e-business project outcomes. Transformational Leadership: Theory conceptualized by Burns (1978) as “leaders inducing followers to act for certain goals that represent the values and the motivations—the wants and needs, the aspirations, and expectations—of both leaders and followers” (Burns, 1978, p. 19). Transformational leaders have the ability to arouse or alter the strength of needs which may have lain dormant (Bass, 1997). “[T]ransformational leadership involves the influence by a leader of subordinates… to empower subordinates to participate in the process of transforming the organization” (Yukl, 1989, p. 269). Transformational leaders motivate by modeling, creating synergy, cultivating vision and meaning, among followers (Bass et al., 1987; Podsakoff et al., 1984; Schein, 1991).
This work was previously published in Handbook of Research on Electronic Collaboration and Organizational Synergy, edited by Janet Salmons and Lynn Wilson, pp. 409-434, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.6
Collaborative Learning Experiences in Teaching of E-Business Management Wael Assaf Scuola Superiore ISUFI - University of Salento, Italy Gianluca Elia Scuola Superiore ISUFI - University of Salento, Italy Ayham Fayyoumi Scuola Superiore ISUFI - University of Salento, Italy Cesare Taurino Scuola Superiore ISUFI - University of Salento, Italy
ABSTRACT In the context of the e-Business Management Section (eBMS) of the Scuola Superiore ISUFI at University of Salento (Italy), the case of the International Master in e-Business Management (IMeBM) is discussed here which is aimed to contribute pragmatically to create e-Business Capabilities in Mediterranean Countries. This chapter presents the results obtained in the LaboDOI: 10.4018/978-1-60960-587-2.ch506
ratory Phase of the first two years of Master’s editions, i.e. 2006 and 2007 editions. This phase has been designed on blended (on-line and offline) learning experience. Specifically, it has been structured by mixing the delivery of some Web learning courseware with face-to-face meetings with mentors and e-Business experts. The technological platform designed, developed and adopted for the Web learning activities is called the “Virtual eBMS” that represents the collaborative learning environment of the Mediterranean School. The pedagogical approach adopted by the
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Collaborative Learning Experiences in Teaching of E-Business Management
School, named (“Learning-in-Action”) together with some considerations on the effectiveness and the implications of the Problem-Based Learning (PBL) strategy are also deliberated upon. It also presents how the whole case of the International Master in e-Business Management generated intellectual capital assets, described in terms of Human Capital (competences developed in the e-Business context), Social Capital (networks and cooperation with local institutions and companies) and Structural Capital (research projects).
ORGANIZATION BACKGROUND The e-Business Management Section (eBMS) of the Scuola Superiore ISUFI is an interdisciplinary department focused on Digital, Organizational and Strategic Innovation, with a specific focus on Mediterranean area. In 2004, the school conceived and launched a challenging project aimed to create the “Mediterranean School of e-Business Management”, a network-based organization constituted by competence centers in Southern Mediterranean Countries. Each center is specialized in developing qualified human capital and in promoting new projects for diffusing strategic, digital and organizational innovation, to support the modernization of traditional productive industries (Agro industry, Tourism and Cultural Heritage, Handicrafts), Public Administration, as well as of high-tech sectors (Aeronautics, Aerospace, Electronics, Software and Automotive) and Public Administration. The official start-up of the project was in 2004. Today, besides the Italian node of the network, represented by the Euro Mediterranean Incubator (www.ebms.it), there are three more active competence centres in: • •
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Morocco, in partnership with Al Akhawayn University; Jordan, in partnership with The University of Jordan;
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Tunisia, in partnership with Technopole El-Gazala of Tunisi and the sponsorship of the Tunisian Ministry of ICT.
SETTING THE STAGE Economic and social development is strongly related to the development of human capital, which is related to education (ESCWA, 2005). Recent studies published by the World Economic Forum, INSEAD and World Bank document reflects the connection amongst Human Capital assets, Innovation capabilities and e-Readiness index, in the perspective of the richness of a Country. Through education and training, countries are able to improve the skills of their citizens, and their national innovation systems. In this framework, a nation’s human capital becomes fundamental for the success of the country, if efforts are-to be connected, to develop skilled human capital so as to increase the digital literacy penetration. In this context the Middle East and North Africa (MENA) countries have been able to expand their education and training systems and succeeded in narrowing gender, rural and socio economic gaps in access to schooling and training resources. However, the fact remains that only few countries in the MENA region have developed effective learning programs. Education systems in most MENA countries provide limited opportunities for individuals to gain more skills and acquire more knowledge after completing their formal education (World Bank, 2003). Derived from the necessities of the MENA countries in this area and the expertise in reforming human capital creation processes required for the digital and knowledge based economy, the Mediterranean School of e-Business Management was created to represent a cluster of research centers, which seek to distribute innovative practices in traditional institutions and emerging sectors among the networked countries. This network aims to improve the knowledge exchange flow and
Collaborative Learning Experiences in Teaching of E-Business Management
sharing of expertise among its members along with other local entities; and facilitates and supports the diffusion of strategic, digital and organizational innovation within private and public institutions. In this conceptual framework, this chapter attempts to describe the empirical results obtained during the e-Business laboratory phase of international edition of master level program in e-Business Management, in terms of e-Business Capabilities developed within the laboratory activities. The general objective of the entire Master is to develop the professional profile of Digital and Organizational Innovation Engineers who are able to conceive, design, and diffuse e-Business solutions, with integrated competences related to business management and ICT management. The learning strategy followed in the International Master Program is the “Learning-in-Action” approach that integrates content related to business management and ICT management, combines and integrates practical experience and theoretical knowledge, and involves students in research activities with local and international companies and institutions. With this learning approach, the teacher acts as a mentor and introduces students to the relevant issue and problems while creating the context of the training and activities to facilitate an autonomous learning process. Moreover, students work in laboratories where they can experience applications, tools and methodologies related to digital and organizational innovation in the various fields (Tourism, Agro Business, Web-Learning and New Product development) (See Table 1). During the learning activities, learners are given access to a library that contains the reference manuals for each of the Master’s building blocks, a repository of case studies and reports, multimedia materials consisting of DVDs from prestigious international universities, as well as interactive courses, web-learning paths and webseminars. This is has been made possible because of the Virtual eBMS, a virtual global learning environment. This learning environment for vir-
Table 1. The learning in action approach Learning in Classroom
To Learning in Action
Learners as students in classroom
Learners as “knowledge workers”
Learning is faculty-driven
Learning is self managed
Faculties are teachers
Faculty as mentors
Learning is passive
Learning is interactive
Modules structure is ‘functional’
Modules structure is multidisciplinary
Activities take place in classrooms
Activities take place in research laboratories
Assessment based on grades
Assessment based (mainly) on results or innovations
Structured curricula based on disciplines
Dynamic patterns based on the solutions to develop
Local educational experience
Global cross-cultural educational experience
tual collaboration represents a transversal asset for the other programs and activities as well (See Figure 1).
CASE DESCRIPTION The Problem-Based Learning Approach for Creating Human Capital Researchers have indicated that the current management education does not prepare students for the realities of business life (Bailey et al., 2005). Indeed, the traditional business school pedagogy has focused mainly on: 1. Transferring the content of disciplines, considering the student as a recipient of learning. According to Fekula (1994), “In the face of certainty, course content is both necessary and sufficient; however, when faced with uncertainty, course content, though necessary, is insufficient. To be effective in a world of uncertainty, students must learn to learn”
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Figure 1. The VeBMS supporting different programs and activities
2. A body of knowledge to be taught very theoretically, disconnected from the student needs, and that is delivered exactly in the same way to all the students and without considering their previous experience. In few words, the current management education system is not able to accommodate the needs of the business for which knowledge has to be quickly and directly applicable to specific problems. These considerations require new pedagogical approaches, based on a fundamental rethinking of learning methods, from course-based, one-to-many and off-line provisioning to application-based, peerto-peer and online interactions (Romano et al., 2005). With this new approach, learners should be allowed to learn at their own rhythm or in a self-paced way and to become responsible for their learning process, which happens ‘in action’, rather than in ‘classroom’. This entails a substantial shift from traditional, course-based learning approaches to context-aware, just-in-time, individualised
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learning strategies and processes (Secundo & Passiante, 2007), in which the problem becomes the overall context of the learning process. It is crucial, in this scenario, to adopt a learning methodology that is mainly based on problem definition and problem solving, with which the learner can autonomously acquire the necessary amount of knowledge to face and solve specific problems and, as a consequence, can improve his/ her competences and skills. An educational approach, the so called Problem Based Learning (PBL), provides support to faculty members to develop a new learning style based on the integration and use of three different learning methods, such as the development of internships and mentorships, the introduction of case studies and skills workshops, as well as the experimentation of other instructional innovations. This approach uses a prototypical, real-world problem as the focus for student-centred active learning. In PBL, students learn by solving problems and reflecting on their experiences. PBL is well
Collaborative Learning Experiences in Teaching of E-Business Management
suited to help students become active learners because it situates learning in real-world problems and makes students responsible for their learning (Hmelo-Silver, 2004). It has a dual emphasis on helping learners develop strategies and construct knowledge (Collins et al., 1989; Kolodner et al., 1996). PBL has the following two distinct goals: • •
to learn a required set of competencies or objectives to develop problem-solving skills that are necessary for lifelong learning (Engel, 1991).
According to PBL, a problem (not flat lessons, exercises or other structured material) is assigned to the learner, and the learner has to autonomously search all the information he needs to solve that problem. In this way the learner has a proactive role in his own learning experience and becomes responsible for his competences growth. The PBL approach followed in this experimental case has mainly the following features: •
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A cross-disciplinary approach: According to Meier et al. (1996), students taught within the lecture-based disciplinary system typically have not been able to solve problems that require them to make connections and use relationships between concepts and content. In contrast, crossdisciplinary teaching starts with a topic, theme, problem or project that requires active student participation and knowledge of multiple disciplines in order to reach a resolution. Cross-disciplinary teaching uses relevant applications that motivate students to search for needed facts. Teacher as mentor and learning facilitator: The PBL requires changes in the way teachers plan instruction, direct learning, transmit knowledge, oversee instruction and assess learning (Gordon et al., 2001; Maxwell et al., 2001). In lecture-based in-
•
•
struction, teachers are in control and are the ‘experts’ dispensing knowledge. In PBL, teachers select the problem, present it to the students and then provide direction for student research and inquiry. Teachers behave as facilitators (mentors), and the students are the main actors of the problem-solving process. Action-oriented/experiential learning: Action learning approach relies on application in which the learning link between cognition and action is genuine, pure and direct. Kolb (1984) defined learning as “a process whereby knowledge is created through the transformation of experience”. The students learn through experience and active involvement. Moreover, experiential learning promotes the activation of prior knowledge as new knowledge and its reconstruction as new knowledge is integrated into existing schemata. Unstructured problems:Peterson (2004) describes the workplace as an environment where ‘problems are ill-structured, ambiguous, messy, complex, and most often do not have one correct answer that can be found at the end of the book in the answer key’. Such opportunities would be served using a problem-based approach that is unique and challenging for both faculty and students. However, the development of a problem and how to solve it are often more critical than its solution, which is frequently a matter of experimental skill. Unlike the presented problem, a discovered problem is a situation in which the problem itself has not been formulated but must be identified, and a method for reaching a solution and even the nature of a satisfactory solution are yet unknown.
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‘Virtual eBMS’: A Web-Based System Supporting the PBL Approach A critical element in the change toward the adoption of the PBL approach is the recognition of the need to redesign and integrate the traditional business curricula and to create new knowledge architectures supporting problem-solving methodology and inquiring learning. With the progressive diffusion of Information and Communication Technology (ICT), web-based learning and knowledge management environments provide both collaborative and self-paced learning services with empowered functionalities that conventional face-to-face classroom could not provide. Starting from this consideration, and taking into account the importance of the PBL methodology for creating human capital in the emerging competitive environment, the ‘Virtual eBMS’ system has been designed and developed. This chapter, therefore, describes a web-based environment, named ‘Virtual eBMS’, conceived to support the research and the educational activities of the school researcher and students. Such a complex and innovative technology platform integrates three subsystems of Knowledge Management, Project Management and Web Learning. The Web Learning subsystem has been awarded in 2006 in Denver (Colorado, USA) the International “Brandon Hall Research” prize in the category “Learning Technology”, whereas the Knowledge Management subsystem was recognized as a result of excellence within the Program PON 2000-2006. In particular, the Web Learning subsystem aimed at facilitating and practicing the PBL methodology for creating business leaders, and used for the development and the delivery of complex and interdisciplinary curricula related to technology management and business management domains, for Master and PhD students as well as for enterprises executives and managers. The ‘Virtual eBMS’, a complex platform has been designed and developed in collaboration with some leading international industrial partners
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and stakeholders to support all academic, education, research and project activities in the school. The VeBMS is an integrated Web Learning and Knowledge Management solution, consisting in the design and implementation of innovative technological models and tools for Web Learning and in the management of individual and organizational knowledge. Beside the integration of web learning and knowledge management system components, some innovative approaches has been defined and adopted such as the design of taxonomies of interdisciplinary competences, the design and implementation of services and tools enabling collaborative learning and “just-in-time” learning, the design and creation of interactive and multimedia learning paths, as well as the design and monitoring of on-line learning experiences. Before starting the design phase of the ‘Virtual eBMS’, the team project conducted a deep analysis of the educational and research activities and practices at the school, in order to gather the required information to set up a complete and efficient platform useful for the delivery of effective online learning patterns. The system has been created by integrating different market products and some components developed ad hoc; in particular, at the base of the knowledge management, project management and the web learning system integration process, there is the use of open-source, Linux and Java-based technologies. The Web Learning subsystem offers the following categories of services: •
•
•
Skill Gap Analysis and Competence Profile Management, to manage the different competency profiles within a project team or learning community; Structured Learning Program Management, for realizing structured on line learning paths; Unstructured Learning Program Management, to “self-create” non-predefined learning paths in the perspective of just-in-time learning;
Collaborative Learning Experiences in Teaching of E-Business Management
• •
• •
•
•
•
Tracking and Reporting, to monitoring the performance of a learning path; and Recommendation Engine, to suggest new learning modules and resources corresponding to a given competency level to achieve based on personal interests and preferences. These services operate on the following categories of content: Competence Taxonomy, the backbone of the system with a three-level taxonomy: “Knowledge Domain Level”, “Competence Level” and “Learning Objective Level”; Competence Profiles, the profiles managed by the system through a punctual monitoring of competency levels achieved and gaps to fill; SCORM objects, the traditional learning modules realized according to SCORM standards; Multimedia Knowledge Objects (MKO), aggregation of different types of files (e.g. pdf, word, power point, excel), coming
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from the Knowledge Management subsystem; and Multimedia Learning Modules (MLM), the key objects of learning paths created according to a Problem Based Learning strategy (See Figure 2).
Related to the Knowledge Management subsystem, the main classes of services provided are the following: •
•
•
•
Document Management, to manage the entire lifecycle of documents, including the aspects of workflow to support process automation; Content Management, to manage news, bookmarks and posts on electronic blackboards; e-Library, to manage physical and digital library resources (e-book, CDs, DVD, videos); Search and Retrieval, to retrieve resources stored in the knowledge base of the system. There are different typologies of search available that leverage on both syntactic
Figure 2. The dynamic interactions among classes of services and types of content.
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•
•
•
and semantic features of a text: searches based on tags added in the cataloguing phase (metadata search), searches of keywords contained in the text (text-based search), and searches based on the navigation of domain taxonomies (taxonomyoriented search), and searches based on graphical navigation of conceptual maps (knowledge map); Community, to facilitate the emergence and creation of communities of practice aimed at exchanging experiences, project knowledge, and ideas. Individual and group chat, thematic forums, areas for sharing knowledge and exchanging documents, spaces for collaborative job and virtual meeting all contribute to build the area dedicated to the life of communities; Web Mining, to retrieve knowledge useful for system’s users. Internal and external knowledge sources, also available on the web, are periodically tagged and catalogued, to be found in the research phase; and Recommendation Engine, to suggest news, documents and references to experts useful to deepen a topic, to solve a problem, or to execute a task.
The Project Management subsystem provides users with a set of functionalities useful for a flexible and integrated management of projects. Among the distinguishing features of this system, two aspects are particularly innovative: •
•
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Document Management service, to maximize the effectiveness in managing a project (both in terms of reusing documents contained in the knowledge base and in the perspective of automatically enriching the base at the end of project activities); and Web Learning subsystem to leverage on project tasks in terms of the same competencies and skills which build up the tax-
• •
•
•
•
onomy of competencies contained in the Web Learning subsystem (this allows an optimized allocation of human resource and the involvement of profiles more suitable to executing a specific activity, and it also enables the planning of personal competency development plans inspired to a project-based learning strategy). The following services build up the Project Management subsystem: Phase and Activity Management, for structuring a project in terms of phases and activities. Each activity is then associated to a manager of the preparation and submission of a deliverable. Workflow Definition, to manage and automatically orchestrate the workflow of project documents, including their review and final approval. Reporting, to provide the project manager with integrated snapshots, both synthetic and analytic, on the progression of a project, possible delays, milestones and deliverables, and the responsibilities of single phases and activities; and Recommendation Engine, to suggest and provide “just-in-time” learning paths useful to execute a project task in case the owner does not possess the competency profile suitable to effectively execute the task.
The integrated Web Learning, Knowledge Management and Project Management systems are backed by a multimedia infrastructure for the acquisition, processing, storage and delivery of multimedia content. The infrastructure is constituted by a high resolution fixed acquisition system, a mobile acquisition system, an automatic acquisition system based on sensors, a 4-terabyte storage system, a post-production system, a streaming system to broadcast content, and a documents scanning system. The system also provides
Collaborative Learning Experiences in Teaching of E-Business Management
instruments for the semi-automatic translation of content into other languages (including Arabic).
The Program Approach for Creating e-Business Capabilities
Developing E-Business Capabilities
e-Business Capabilities represent an evolution of traditional management education in the 21st Century (Romano et al., 2001), and can be developed integrating management studies with technological ones. The basic principles of the IMeBM for business leaders’creation are illustrated as follows:
The International Program in e-Business Management The mission of the IMeBM Program is to prepare outstanding people in leading Business Innovations based on the use of ICTs. The aim is to create business Engineers and Change Managers capable to identify and exploit the distinctive potential of the new ICTs for reconfiguring traditional business contexts, which we refer as e-Business capabilities. This program is aimed to organize in mobility between Italy and the Southern Mediterranean Countries and is offered on annual basis, full–time, for a total of 1940 hours and is devoted to people graduated in Business, Engineering or Computer Science coming from Italy, Morocco, Tunisia, Jordan, Egypt and other Southern Mediterranean Countries. As for the case analysis, we observed the IMeBM community, while taking part in it, from January 2006 till January 2008. During the observation time, more than 20 learners coming from Mediterranean countries have been involved in the two cycles of the IMeBM program. According to the methodology chosen, researchers and executive staff actively participated in the program meetings, activities, projects and learning processes. Weekly, questionnaires and daily informal meeting for evaluating students’ satisfaction on learning processes were developed for these students. Monthly meeting and focus group with partners was realized in order to focus on the learning strategy with the current results of the learning patterns.
•
•
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Profile: The overall aim of is to create outstanding people defined as change managers and business engineers able to ideate, design and develop complex e-Business solutions in the changing scenario of the digital economy. This is a multidisciplinary profile pursued through the creation of trans-disciplinary competences profiles able to identify the distinctive potential of emerging technologies and finding the right matching with hidden business needs, integrating both technological and business knowledge (Secundo and Passiante, 2007). Content: A trans-disciplinary approach characterizes this program. Knowledge coevolves with the context of application, dynamically and beyond the contribution of any single discipline. The focus will increasingly be an integrated offering of various disciplinary fields, through integrative modular program design, rather than offering semester length courses in particular specialist topics such as marketing, finance, accounting…etc. (Lorange, 2005). Learning approach: As stated before, the Learning in action strategy lies at the center of the Mediterranean School business leaders’ creation process: the learning process is triggered by a number of activities beyond the classroom, supported by experiential laboratories in which participants think, work and learn together how to invent new ICT-based business solutions.
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Learning does not occur in theory-driven, discipline-based ways, rather it occurs from everyday experience when people act in order to solve a problem and/or to achieve a goal. The logic is reversed: application and experience are not means to learn, but ends from which learning originates, in a process that relies on a series of trials/experiences, observation, reflection, and systematization (Secundo and Passiante, 2007). Strategy: Cross cultural educational experience, with people coming from different countries. Lectures and seminars are held by faculty coming from different Universities and Business Schools located in Europe, USA and Euro-Mediterranean countries and from an International Networking of Academic and Industrial Partners.
Figure 3. The phases of the laboratory experience
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The Laboratory in Practice for Developing e-Business Capabilities Within the IMeBM, activities take place beyond classroom, in the research and development laboratories. Laboratory represents the “learning environment” of all the student activities that bring to the development of innovative e-Business models and solutions in some business contexts, like Agri-food, Tourism, New Product Development and e-Government. The dominant philosophy is that students learn best when they are experimenting, interpreting, and learning through discovery while setting the pace of their own learning. Thus, the learning strategy becomes more experientialoriented and based on simulations, projects, actionlearning exercises with unpredictable outcomes, discussions and independent learning (Baets & van der Linden, 2003). The Laboratory Phase is based on the previous stated principles. Figure 3 shows the integrated view of the e-Business design laboratory phases.
Collaborative Learning Experiences in Teaching of E-Business Management
The laboratories activities of the IMeBM 2006 and 2007 editions have been organized into three main phases: •
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Phase 1: e-Business Design (in Italy. Duration: 7 weeks). The activities of this phase aim to provide participants with a set of competencies related to the benefits deriving from the application of ICTs to business as well as to the methodologies supporting business and organizational change. Moreover, students will be provided with a methodology for the implementation of organizational change through the ICT-driven innovation of business processes. The competencies to acquire in this phase are preliminary to the activities for the experimentation of the following step, and consisting of ICT-based applications for the innovative management of traditional business domains. The competences to acquire during this phase are related to: e-Business models, Network and Technologies for e-Business, e-Business Architecture, e-Business strategy and Project Management. Phase 2: e-Business Implementation (in Italy. Duration: 7 weeks). The activities of this phase are focused on the application of methodologies and tools to verify in “action” the benefits deriving from the e-Business applications in some traditional industries. This phase is characterized by the adoption of a “Project based” learning strategy. Participants, divided up into four groups, are involved in different applicative learning activities related to the Innovative management of Agri-Food Value chain, Tourist destinations, New Product development in aerospace industry and e-Government. The projects developed within the experiential laboratories serve as the “central core” of the learning
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program, by which the knowledge and skills learned are put in practice. Phase 3: e-Business in practices (in Morocco, Tunisia and Jordan. Duration: 10 weeks). This phase is characterized by the analysis and contextualization of ebusiness models and solutions developed during the phase2 to firms operating in the Mediterranean area. Getting involved into complex projects and real issues is the ultimate learning experience. Participants may contextualize the e-Business capabilities with a company that corresponds to a field of interest or specialization area pre-existing within phase2 and represents a variety of industry including Agri-food, Tourism, software companies and other types.
The three phases of the laboratory have been supported by the use of a web learning platform allowing the experimentation of a blended learning experience for the development of e-Business capabilities.
Web Learning Platform Supporting the Development of e-Business Capabilities During all the phases of the laboratory, a blended (on-line and off-line) learning experience on the topic of e-Business was designed and developed. The laboratory’s experience was structured according to the delivery of some Web learning courseware, mixed with face-to-face meetings with mentors and e-Business experts. The technological platform adopted for the Web learning activities was the ‘Virtual eBMS’. With respect to the two Master’s editions, the 2006 edition was much more focused on faceto-face seminars with some use of CD, DVD, and web learning courses. The 2007 edition was more focused on the use of online web learning modules and face to face seminars delivered to a target of 14 young talents coming from Morocco,
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Tunisia and Jordan, especially for a period of 9 weeks during spring 2007. Moreover, by using collaborative synchronous and asynchronous tools, like chat, threaded discussion forum, e-mail, as well as workspaces for document management and sharing, learners could spread and share their personal learning and professional experiences, by discussing and facing in a collaborative environment the main issues related to e-Business. Furthermore, the availability of different ways of knowledge delivery (use of multimedia presentations, Web resources, knowledge objects, SCORM objects), jointly with collaboration tools such as: chat, forum and shared notes (Figure 4) can provide the means for learners to decide how to better personalize their experience based on their learning style, in order to maximize the effectiveness of their learning experience (Elia et al, 2006). To increase effectiveness of the learning experience, Master fellows were organized in workgroups and were assigned some specific project-work related to e-Business design, eBusiness strategies and e-Business technologies. Specifically, the following case studies were selected and assigned: eBay, eLance, Alibaba, Dell, and Expedia. The expected deliverable for project works was a report structured according to a specific template; some of the main elements of this template were the identification of the main company advantages from the Internet revolution; Classification of the case within the landscape of e-Business; Description of the related e-Business model; Identification of the characterizing ebusiness model components according to the Afuah and Tucci (2001) framework; Description of the company’s value chain in terms of primary and support activities; and the identification of the main technology and e-commerce features characterizing the case. The project and reports were assigned in order to allow fellows put in practice the theoretical knowledge on e-Business they acquired during the Web Learning courses fruition (knowledge
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application). From the other side, the deliverable related to each project work allowed learners to extract the main theoretical concepts on e-Business they need in order to have a deep understanding of the knowledge domain they were analyzing (knowledge identification) (Pawlowsky, 2001). During the laboratory an efficient tutorship activity was conducted to provide learners with online support, both from a technological point of view – for technical issues and troubles related to the use of the Virtual eBMS Web Learning platform, and from the content point of view – to explain or clarify some doubts related to the knowledge domain to analyze. The learning pattern designed for the experimentation was organized around six question-oriented learning modules (Table 2). Master fellows learning activities were monitored and tracked by the Virtual eBMS Web Learning system; periodically, a list of reports containing the main information related to learner activities were automatically generated by the system.
RESULTS To conclude the presentation of above described experimentation, here the results obtained from the two editions of the program are shown in terms of e-Business Capabilities developed during all the three phases of the e-Business Design Laboratory. During all the three phases, human capital (competences developed in the e-Business context), Social Capital (networks and cooperation with local institutions and companies) and Structural Capital (innovation projects) have been created. In order to highlight the distinctive features of each laboratory phase, the results will be described as follow: •
the Human Capital developed will be presented mainly referring to phase1 (eBusiness design), since phase1 is the more
Collaborative Learning Experiences in Teaching of E-Business Management
Figure 4. The structure of the learning module of the ‘virtual eBMS’ system
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Table 2. The learning pattern designed for the experimentation
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1. e-Business: how to face challenges related to technological change? 2. Which applications and technologies for e-Business? 3. How to implement CRM in an enterprise? 4. How to set up and manage Supply Chain Management and e-Procurement services in an enterprise?
• •
5. Why and how to guarantee e-Commerce Security? 6. How to build a successful e-Commerce business case?
•
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theoretical one, with the aim to develop basically the human capital dimension (basic capabilities on e-Business); the Structural Capital will be described mainly referring to phase2 (e-Business Implementation), since phase2 is conceived more practically, oriented to develop and configure the structural capital dimension (research and innovation projects); and the Social Capital will be described mainly referring to phase3 (e-Business in practices), since phase3 aims basically to expand the Social Capital dimension (cooperation and relationship with Mediterranean companies and institutions).
Concerning the Human Capital dimension, in Phase1 i.e. e-Business Design, 20 students have been involved (35% coming from Morocco, 48% coming from Jordan and 17% coming from Tunisia). More than 15 mentors and speakers mostly coming from Europe, North-America, and testimonials have been involved in face-toface seminars. During this phase, master students learning activities were monitored and assessed; periodically, a set of reports containing the main information related to learner activities were generated by the master’s coordinator and mentors. The students’ final evaluation made by the mentor was based on the following elements:
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Results of learners’ intermediate test structured according to a set of single choice, multiple choice, matching questions, as well as true/false questions; Results of learners’ final test structured as the intermediate test; and Assessment of the deliverables related to the project assigned.
These three elements have had a different weight on the final evaluation, according to the following percentages: 20% for the intermediate test, 50% for the final test, and 30% for the project deliverable. The mentor assigned a specific score, from 0 (poor) to 5 (excellent) to both the two tests and the deliverable. The final results of each learner are shown in Table 3. As shown in Table 3, the final average score for the initiative is 3.78 on a maximum of 5 points; therefore we can consider the final results as fulfilling in respect to the objective of the laboratory experience. Furthermore, the application of a list of questionnaires in two different phases (during and at the end) of the learning experience provided some useful learners feedback in order to perform a qualitative and quantitative evaluation of the overall experimentation, from four different points of view: • • • •
Contents (the logic architecture of the initiative); Organizational aspects (the quality and the effectiveness of tutorship); Technology (the level of usability of the system); and Learner Satisfaction (learner expectations, knowledge acquired, competencies reached).
By analyzing the gathered data it is possible to conclude that such a learning experience was useful and effective also from the learner perspective, as shown in the following graphs (Figure 5, Figure 6, Figure 7, and Figure 8).
Collaborative Learning Experiences in Teaching of E-Business Management
Table 3. Final evaluation of students involved in the Phase 1 of the e-business design laboratory Learner
Intermediate Test (min 0 – max 5) (weight 20%)
Final Test (min 0 – max 5) (weight 50%)
Report (min 0 – max 5) (weight 30%)
Final Score
Learner 1
4
2.67
4.5
3.49
Learner 2
4.08
3
4.2
3.58
Learner 3
4.5
3.92
4
4.06
Learner 4
4
4
4.5
3.35
Learner 5
3.83
3.25
4.25
3.67
Learner 6
4.42
3.92
5
4.34
Learner 7
3.58
2.75
4
3.29
Learner 8
3.67
4.17
4.5
4.17
Learner 9
3.92
3.25
4.25
3.68
Learner 10
3.83
3.17
5
3.85
Learner 11
3.67
2.5
4
3.18
Learner 12
4
4.42
5
4.51
Learner 13
2.5
3
4
3.20
Learner 14
3.42
3
4
3.38
Learner 15
3.62
3.2
4.5
3.67
Learner 16
3.32
3.4
4.25
3.64
Learner 17
3.83
3.92
4
3.93
Learner 18
3.42
3.2
4
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Figure 5. Content: Logical sequence of the learning material
Figure 6. Tutorship: Tutor problem-solving ability
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Figure 7. Technology: Number of platform bugs/ faults/blocks
The e-Business capabilities created during Phase1 have also contributed to develop the Structural capital – what is usually defined as projects, software and databases during Phase2. These act at the same time as enabling factors (since structural capital is generated for matching projects’ requirements) and as catalysts of the learning-in-action environment of the IMeBM. The projects’ development, then, reinforces the dynamics of interactive learning which constitute the core mission of the Med School. Finally, the Phase3 contributed to create the Social capital in terms of relationship and partnerships with local institutions and companies located in Morocco, Jordan and Tunisia where the students spent this phase contextualizing the e-Business models and solutions developed during the previous phases. We refer at first to the agreement with 15 companies and institutions (35% in Morocco, 48% in Jordan and 17% in Tunisia) in the field of Tourism, ICT, Agrifood, Government and Aerospace in which the Master’s students spent the phase3 of the Laboratory. In particular, in Morocco the 20% of companies belong to Agrifood, 20% to aerospace, 30% to tourism and 30% to governmental institutions; in Jordan the 50% of companies belong to software and ICT industry, 20% to governmental institutions, 15% to tourism and
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Figure 8. Learner: Knowledge acquired
15% to telecommunication industry. In Tunisia, the 20% of companies belonged to Agrifood, 30% to aerospace, 20% to tourism and 30% to governmental institutions.
CHALLENGES AND FUTURE DIRECTIONS Referring to the two IMeBM editions (2006 and 2007), the three phases of the laboratory (for a total of 24 weeks) significantly contributed to develop Human Capital (competences developed in e-Business issues, topics and contexts), Social Capital (networks and cooperation with Mediterranean institutions and companies) and Structural Capital (research and innovation projects). So, especially through the laboratory phase and more in general through the entire IMeBM program, e-Business capabilities have been created in 20 young talents. They represent the first nucleus of people to activate the diffusion of organizational and digital innovation to modernize traditional and emerging industries in Mediterranean Countries. However, the adaptation of acceptance of some learners to rely on a virtual learning environment for attaining the knowledge and create competences is still an issue that is challenging when thinking to move completely online. Moreover, dealing with technology requires the organization
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to cope with new advancements of technology and software and technical upgrades. In addition, the future development of our work will be focused on the activation of similar and complementary initiatives within the Mediterranean School institutional framework, by involving all the managerial levels to promote and diffuse at large scale the e-Business capabilities and practices that represent the real strategic and sustainable lever to leapfrog Mediterranean Countries in the Digital and Knowledge Economy.
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Dasgupta, S. (2006). Encyclopaedia of virtual communities and technologies. Hershey, PA: Idea Group Reference. Davenport, T., & Prusak, L. (1998). Working Knowledge. How organization manage what they know. Boston, MA: Harvard Business School Press. De Bra, P., Stash, N., & De Lange, B. (2003). AHA! Adding Adaptive Behaviour to Websites. In Proceedings of NLUUG. Ede, The Netherlands: De Reehorst. Denman-Maier, E. (2004). Intercultural Factors in Web-based Training Systems. Journal of Universal Computer Science, 10(1), 90–104. Figallo, C. (1998). Hosting Web Communities: Building relationships, increasing customer loyalty, and maintaining a competitive advantage. New York: Wiley Computer Publishing. Gloor, P. (2005). Swarm creativity: Competitive advantage through collaborative innovation networks. New York: Oxford University Press, Inc. Hardaker, G., & Smith, D. (2002). e-learning communities, virtual markets and knowledge creation. European Business Review, 14(5), 342–350. doi:10.1108/09555340210444194 Henderson, A. (2003), The E-Learning Question and Answer Book: A Survival Guide for Trainers and Business Managers (1st Ed). NY: AMACOM/ American Management Association. Horton, W., & Horton, K. (2003). E-learning Tools and Technologies: A consumer’s guide for trainers, teachers, educators, and instructional designers. Indianapolis, IN: Wiley Publishing. Igbaria, M., Shayo, C., & Olfman, L. (1998). Virtual societies: their prospects and dilemmas. In J. Gackenbach (Ed.), Psychology and the Internet (pp. 227-250). San Diego, CA: Academic Press.
Jonassen, D., Howland, J., Moore, J., & Marra, R. M. (2003). Learning to solve problems with technology: A constructive perspective (2nd Ed.). Upper Saddle River, NJ: Person Education. Kim, A. (2000). Community building on the web: secret strategies for successful online communities. Berkeley, CA: Peachpit Press. Lave, J., & Wenger, E. (1991). Situated Learning: Legitimate Peripheral Participation. Cambridge, UK: Cambridge University Press. Lewis, D., & Allan, B. (2005). Virtual Learning Communities: A Guide for Practitioners. Berkshire, UK: Open University Press. Lundvall, B. (2000). The Learning Economy: some implications for the Knowledge Base of health and education systems, OECD (pp. 125-141). Retrieved April 13, 2009, from http://www.gbv. de/dms/goettingen/312704216.pdf Maier, R. (2002). Knowledge Management Systems - Information and communication technologies for Knowledge Management. Heidelberg: Springer-Verlag. McDermott, R. (1999). Learning across teams: the role of communities of practice in team organizations. Knowledge Management Review, 8, 32–36. Morrison, D. (2003). e-Learning Strategies: How to get implementation and delivery right first time. Chichester, UK: Wiley. Najjar, J., Duval, E., & Wolpers, M. (2006). Towards Effective Usage-Based Learning Applications: Track and Learn from User Experience(s). In Proceedings of the Sixth International Conference on Advanced Learning Technologies – ICALT’06, Kerkrade, Netherlands (pp. 1022- 1024). Nonaka, I., & Konno, N. (1998). The concept of ‘Ba’: building a foundation for knowledge creation. California Management Review, 40(3), 40–54.
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Nonaka, I., Toyama, R., & Konno, N. (2000). SECI, Ba and Leadership: a Unified Model of Dynamic Knowledge Creation. Long Range Planning, 33, 5–34. doi:10.1016/S0024-6301(99)00115-6 OECD. (2006). Athabasca University: A case study in Open Educational Resources Production And Use in Higher Education In Canada. Prepared for the Canadian Council on learning. Retrieved April 13, 2009, from http://www.oecd. org/dataoecd/61/45/37647739.pdf Park, I., & Hannafin, M. J. (1993). Empiricallybased guidelines for the design of interactive multimedia. Educational Technology Research and Development, 41(3), 63–85. doi:10.1007/ BF02297358 Piskurich, G. (2003). The AMA Handbook of ELearning: Effective Design, Implementation, and Technology Solutions. New York: AMACOM. Riecken, D. (2000). Personalized views of personalization. Communications of the ACM, 43(8), 26–28. doi:10.1145/345124.345133 Rosenberg, M. (2001). e-Learning - Strategies for Delivering Knowledge in the Digital Age. New York: McGraw-Hill. Rosenberg, M. (2006). Beyond e-learning: approaches and technologies to enhance organizational knowledge learning, and performance. San Francisco, CA: Pfeiffer. Saint-Onge, H., & Wallace, D. (2003). Leveraging communities of practice for strategic advantage. Heinemann, Germany: Butterworth. Sergiovanni, T. (2000). The Lifeworld of Leadership: Creating Culture, Community, and Personal Meaning in Our Schools. San Francisco, CA: Jossey Bass. Teece, D. J., & Pisano, G. (1994). The Dynamic Capabilities of Firms: An Introduction. Industrial and Corporate Change, 3(3), 537–556. doi:10.1093/icc/3.3.537-a
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KEY TERMS AND DEFINITIONS Competence Level: A learning experience referred to the level of expertise a learner has reached in regard to a specific knowledge area. A competence corresponds to the ability of the learner to be able to analyze a specific problem, to understand the reference context, and to find a rational solution for the problem. E-Library: A collection of organized materials that are stored in digital formats and accessible over a network. In the e-library, materials can be retrieved by using keyword, author name, subject or other searches. Knowledge Domain: The knowledge domain refers to the content of a particular field of knowledge.
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Learning Objective: A learning objective is a clear specification of a measurable behavioural outcome of learning. It is also used during the evaluation of learning effectiveness. In the eBMS vision, there is a one-to-one relationship between the learning objectives and the tasks that a knowledge worker has to perform during his research and/or project activities; i.e. a knowledge worker has to acquire just the right knowledge he needs (and therefore he has to reach a specific learning objective) in order to fill a skill gap and to correctly solve a specific problem or a specific activity of a more complex project. Multimedia Knowledge Objects: An object composed of a single document or a collection of documents. Each file composing the object is in its native format (such as text, graphics, image, presentation, audio, video, etc.).
Problem Based Learning (PBL): A learning approach founded on the usage of real-world problems and projects to develop competencies and skills “on the job”. In PBL, learners learn by solving problems and reflecting on their experiences. Skill Gap Analysis: A technique used for understanding the missing skills that people need but don’t have to perform their activities effectively. Skill Gap Analysis helps organizations in refining and defining the skills they need. Web Mining: A technique used to extract useful information from the data gathered from the web, and then using this data to generate value for the organization; i.e: better understanding consumers’ behaviors.
This work was previously published in Cases on Interactive Technology Environments and Transnational Collaboration: Concerns and Perspectives, edited by Siran Mukerji, pp. 281-302, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.7
Trust, Virtual Teams, and Grid Technology Genoveffa (Jeni) Giambona University of Reading, UK Nicholas L. J. Silburn Henley Business School, UK David W. Birchall Henley Business School, UK
ABSTRACT Flexible and remote working is becoming more and more widespread. In particular, virtual team working is growing rapidly. Although virtual teams have attracted the attention of many researchers, until recently little investigation had been carried out specifically on what impact trust – a key element in favouring cooperation among team members – has on the performance of such teams. In the authors’ opinion Grid computing, through the collaborative nature of the technologies employed, provides an opportunity to build trust through the DOI: 10.4018/978-1-60960-587-2.ch507
sharing of common resources and the enabling of rich communications.
INTRODUCTION The rapid development of new technologies has made flexible and remote working more and more widespread. In particular, virtual team working is growing rapidly throughout many types of organization. Although virtual teams have attracted the attention of many researchers (see for example, Lipnack & Stamps, 2000; Lurey & Raisinghani, 2001; Powell et al., 2004; Townsend et al., 2000) until recently (see for example, Zolin & Hinds,
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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2004) little investigation had been carried out specifically on what impact trust has on the performance of such teams. Undoubtedly, trust is a key element in favouring cooperation among team members as it avoids suspicions of opportunism and avoids the occurrence of egotistic behaviour. However, an analysis of the role of trust in the specific field of setting up and maintaining virtual teams would be of great benefit in an age where global working is becoming the norm. Recent research has looked at trust in virtual teams (Birchall & Giambona, 2007; Birchall et al., 2008), information assurance, (Birchall et al., 2003; Birchall et al., 2004), and a variety of issues around the individual’s interaction with information resources (Stewart et al., 2007). All three of these research areas give useful insights into the creation, use, and sharing of information through the lenses of trust and virtual teams – do I trust someone that I am not co-located with enough to share “my” information resources with them and to commit to working jointly with them and sharing responsibility for the outcomes? Grids, through the collaborative nature of the technologies employed, provide an opportunity to build trust through the sharing of common resources and the enabling of rich communications. But is this enough for effective team working? And how can Grid technology help encourage trust overcome these issues linked to trust development? This is the question that this chapter seeks to answer. In this chapter firstly we will cover some of the relevant aspects of the development of Grid computing and its application to modern organizations. We then go on to examine the nature of collaboration and virtual teams in business and organizations, including aspects of trust and its importance. The role that the Grid and Grid concepts can have in supporting virtual teamwork and facilitating trust in virtual organizations is then explored. The final part of the chapter draws
out the conclusions of the material presented and closes with an examination of the implications.
BACKGROUND Grid Technology Grid technology, or Grid computing, is rooted in scientific research ranging from seismology to medicine and pharmaceuticals, to climate modelling (Smith, 2005). It was originally considered as a means of using under-utilised large scale computing resources to solve complex numerical problems (Foster & Kesselman, 1998). Unsurprisingly, today Grid technology is a mix of computer technologies, softwares and protocols which, among other aspects, are concerned with “coordinated resource sharing and problem solving in dynamic, multi-institutional virtual organizations.” (Foster et al., 2001, p. 2). Foster (2002) reinforces the concepts of resource sharing and the “multi-institutional virtual organization” when he suggests that a Grid “integrates and coordinates resources and users that live within different control domains” which can include “different administrative units of the same company; or different companies” (2002, p. 1). Foster goes on to suggest two further central elements of a Grid: the use of “standard, open, general-purpose protocols and interfaces”; and the delivery of “nontrivial qualities of service.” (2002, pp. 1-2). This idea of quality of services is particularly relevant to trust as it covers such issues as resource availability, reliability, and security – issues which will be discussed more later on in this chapter.
The Grid in Organizations In the context of business and organizations there are two main uses for Grid technology which are particularly relevant to organizations and team working. The first finds Grid technology being used in its more conventional sense – the more
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efficient use of existing organizational computer resources. This use is increasingly finding a place within business as a means of sharing “computing resources more effectively, internally at first but increasingly with partners and even through public grids. This sharing of resources will allow companies to boost their computational power while cutting costs.” (Smith & Konsynski, 2004, p. 7). Alkadi and Alkadi (2006) cite a number of examples where Grid technology is being used in the oil exploration and financial services industries: in both cases under-utilised computing resources are being used to process data faster. This is particularly relevant to virtual teams as it gives them greater processing power and less reliance on any one system’s reliability of service. The second use of Grid technology is more sophisticated and has the potential to provide opportunities for people and organizations to collaborate with each other on an unprecedented scale. Here the Grid provides “virtualization, of both information and workload” (Kourpas, 2006, p. 4) where the “Workload is spread across servers and data can be seamlessly retrieved.” (Kourpas, 2006, p. 4). When Grid technology is used in this way, a single user interface can enable the sharing of data, information, knowledge and ideas utilising new media. In the context of business it can facilitate collaboration on new products and services as well as the delivery of the resulting output to consumers and other businesses and organizations. Grid technologies can facilitate resource sharing, such as data, information and codified knowledge, through access to corporate databases and content management systems. It can facilitate the exchange of uncodified knowledge through people-to-people communication utilising new media. It enables collaboration on documentation. In all of these instances, many of these activities can take place within a single organization dispersed across a number of sites. It can also occur across organizations (Alkadi & Alkadi, 2006; Jacob et al., 2005). Hence, in both cases, it can enhance virtual team working, although in its
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application in either mode, it raises issues around how these resources are shared, controlled and made secure. To overcome this, Meliksetian et al. (2004, p. 646) suggest that “resource providers and consumers [should define] clearly and carefully just what is shared, who is allowed to share, and the conditions under which sharing occurs” for this sharing not to trespass into exploitation.
Virtual Teams: What are They? As Torrington et al. (2002) point out, team working is not a new concept: self-managed working groups were already quite common in the 1960s and 1970s (Birchall, 1975). Moreover, in the 1990s team working was offered as a means of empowering employees, improving work-life balance and increasing their responsibility for a more fulfilling work experience (Torrington et al., 2002). However, Kirkman et al. (2002, p. 67) also state that “while work teams were used in the U.S. as early as the 1960s, the widespread use of teams… began in the Total Quality Management of the 1980s. In the late 1980s and early 1990s, many companies implemented self-managed or empowered work teams. To cut bureaucracy, reduce cycle time and improve service, line-level employees took on decision-making and problemsolving responsibilities traditionally reserved for management.” On the other hand, Torrington et al. (2002) go on to warn that generating openness and trust, essential factors for a team to work, is difficult. Indeed, teams lacking in trust and commitment lead to lower productivity and higher dissatisfaction. As already mentioned, virtual team working is a phenomenon which has emerged as a consequence of rapidly developing technologies: information and communication technologies have played a particularly important role in the development of novel organizational work structures and virtual team working (Zakaria et al., 2004). Computerised information systems have led to lower unit costs and higher productivity. Sheer size is no longer
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sufficient for large companies to dominate in a world of fast-moving, flexible smaller organizations. Rapidly changing technology has made the concept of the experience curve obsolete as a strategic competitive tool, and the customer and consumer are both smarter and more demanding (Christopher, 2005). In addition, emerging around the trends identified above is the whole new information economy in which the fundamental sources of wealth are knowledge and communication, rather than natural resources and labour. As a consequence, the notion of new organizational forms began to gain momentum around fifteen years ago (Foss, 2002) and it was related to an increase in firms “adopting new ways of structuring their boundaries and their internal organization” (Foss, 2002, p. 1). Management scholars and practitioners all over the world began to promote concepts such as “knowledge economy” and “new information economy” (Halal, 1998). Nowadays it is accepted that there are several names for these new organizational forms, among others “flexible firms” (Kalleberg, 2003), “shamrock organizations” (Bridge et al., 2003; Handy, 1995; Harris, 2001), “network firms” (Chetty & Blankenburg, 2000; Dyer & Nobeoka, 2000), “boundaryless organizations” (Baruch, 2004). All of them are based around virtual team working. As it might be expected, there is no agreement on a single definition of what virtual teams are. According to some researchers, virtual teams are groups of people working interdependently across space, time and organization boundaries to achieve a common goal and who use technology to communicate and collaborate (see for example, Lipnack & Stamps, 2000). Virtual team members may be located in the same country or across the world, they rarely meet face-to-face and often come from different countries (Maznevski & Chudoba, 2000). Jarvenpaa and Shaw (1998) offer a slightly different definition of virtual teams: they see them as an often self-managed knowledge work team with distributed expertise. They can be formed
and/or dismantled to respond to the organization’s specific goals. However, according to Alper et al. (2000) those who propose self-management and those who instead see socio-technical characteristics as the main distinctive feature of virtual teams at least agree on a minimum critical specification, that is to say the assumption that employees work better in a team when they can control their own internal mechanisms and coordination with minimal external supervision. Ultimately, peer control within the team ensures the application of an internal control system. Indeed, team members are expected to respect the team’s norms and rules as their violation would result in sanctioning by the other members of the team (Wright & Barker, 2000). All this means that teams can have various degrees of autonomy when it comes to the different aspects of decision-making and various organizational forms. Gibson and Manuel (2003) see virtual teams as having the following three main attributes: 1. They must be functioning teams, i.e. members must be interdependent in task management and must have shared responsibility with regard to outcomes. 2. Team members must be geographically dispersed. 3. Team members must rely on technologymediated communication to carry out their tasks. However, the mere use of technology to communicate does not make a team “virtual” as even collocated teams rely on technology to work together. Hence, we do agree with Zakaria et al. (2004, p. 16) when they say that “what is paramount is the degree of reliance on electronic communication… as virtual teams have no option as to whether or not to use it, since they depend on virtuality.” Indeed, more often than not, virtual team members never meet face-to-face. Global teams are seen as a special category within virtual team working (Massey et al., 2003;
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Maznevski & Chudoba, 2000). According to Maznevski and Chudoba (2000) these teams work on projects which usually have international components and repercussions. Also, there is a good chance that these teams will never have face-toface meetings and they just rely on technology to cement their relationships. But as noted by Zakaria et al. (2004, p. 19) an “area of potential conflict in information technology-mediated communication is the language itself.” For example, in the case of global virtual teams who communicate in English, research has demonstrated that native and non-native English speakers have culture-based differences (Ulijn et al., 2000). However, these same language and cultural barriers can be, for example, one of the reasons why global virtual teams are set up, i.e. to work on how best to solve them. In these cases more than ever an atmosphere of trust is vital. Moreover, as these teams usually deal with complex issues lacking clearly defined processes and procedures, trust between virtual team members is vital to achieve effective knowledge generation and transfer. What we have been discussing so far clearly demonstrates that, as already mentioned, there is no single definition of what a virtual team is or can be. However, the temporary lifespan of virtual groups seems to be recognised by most investigators as being a basic characteristic of these teams (Jarvenpaa et al., 2004; Torrington et al., 2002). Other researchers (see for example, Duarte & Tennant-Snyder, 1999; Hoyt, 2000) see the development of technology as the main factor contributing to the rise of virtual team working. We can say though that due to both globalisation and the fast-improving technological tools we have now virtual teams working across boundaries, with time and place no longer being obstacles. Thanks to virtual teams, organizational flexibility, knowledge transfer and sharing among geographically dispersed members in order to increase the organization’s knowledge base, and working together while being apart are becoming a reality.
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It is worth pointing out that for the purposes of this chapter we will adopt the already mentioned Cohen and Gibson’s (2003) definition of virtual teams, with a stress on their reliance on technology-mediated communication to carry out tasks as the most defining characteristic.
VIRTUAL TEAMS AND THE IMPORTANCE OF TRUST What we have been discussing shows that trust appears vital to team working, especially when virtual, so an understanding of it for those involved seems quite important. However, what is trust? And what is the nature of trust in virtual communities? Undoubtedly, trust allows teams to organize their work more quickly, manage themselves better, work more creatively and with more belief (Handy, 1995; Lipnack & Stamps, 2000). Trust facilitates problem solving by encouraging information exchange and aids team members in the absorption of new knowledge and in the formulation of a sense of self-identity (Misztal, 1996). Trust is also a key determinant of co-operation among team members as it protects team members from opportunism and egotistic behaviour: if trust mechanisms are understood, then we will be better equipped to recognise and solve co-operation problems (Eggert, 2001). Much has been written about the nature of trust and many definitions have been offered. Trust is at the basis of human relationships (Barber, 1983; Mayer et al., 1995; Rempel et al., 1985) and in the management world, in particular, trust seems to be an important factor in successful leadership (Mayer et al., 1995), innovation (Clegg et al., 2002; Ruppel & Harrington, 2000) and effective decision-making processes (Driscoll, 1978; Spreitzer & Mishra, 1999). Although authors like Lewis and Weigert (1985) comment that most empirical studies fail to agree on a common working definition of trust, recently a more commonly agreed concept seems to be emerging
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in the literature. However, it should be borne in mind that context is critical to the creation of trust and that such a specific field as virtual relationships requires a somewhat higher level of trust (Jarvenpaa et al., 2004). As people are mainly used to building work relationships based around face-to-face encounters and informal chats over a coffee, the physical barriers which come with a virtual environment, the lack of human contact and media richness, and the asynchronous nature of much of the communication within the virtual community are likely to generate uncertainty and ambiguity which, in turn, can easily jeopardise interactions and task achievement (Birchall & Giambona, 2007). Trust, by its own nature, erodes these barriers. Hence, understanding how trust is engendered and maintained in virtual communities is paramount in order to better design virtual teams and ensure they work effectively. Although, as already mentioned, there is no universally accepted definition of trust, a number of key elements stand at its basis: 1. Risk: Trust always involves an element of risk and doubt (Lewis & Weigert, 1985); 2. Expectation: Trust implies that one party expects another one to be honest, reliable, competent and, based on such expectations, is willing to become “vulnerable” (Ishaya & Macaulay, 1999). 3. Inability to monitor another party and need to act despite uncertainties: If trust exists, the lack of constant monitoring will be accepted, even when the other party’s actions have a bearing on one own’s choices (McEvily et al., 2003). There is no doubt that trust is a mental and emotional state. It has been pointed out (McKnight et al., 1998) that trustworthiness often comes before trust and that the latter can be seen as the voluntary acceptance to depend on somebody else. Of course, a certain degree of predictability of the
other’s behaviour and actions play a major role in this process. However, in practical terms, as far as virtual teams are concerned, we are inclined to agree with Saunders and Thornhill (2004, p. 499) in believing that trust may be seen as “the likelihood of suspending disbelief and a corresponding willingness to become vulnerable.” A culture of trust and openness is needed to allow meaningful knowledge to be exchanged (van Winkelen, 2003). Indeed, if we do not trust other people, we will not open up and work with them. Consequently, some level of trust is both an initial condition for the formation of the relationships as well as a result of positive interactions over time (Sheppard & Sherman, 1998). Ishaya and Macaulay (1999) purport that trust can be systematically developed and is built incrementally in line with Tuckman’s (1965) team development theory which suggests four sequential stages: Forming; Storming; Norming; and Performing. Forming centres on team members working out their roles and responsibilities. Storming is where members express strongly held views, implying conflict, competition and power play. At this stage some members will push forward, others withdraw. Norming is the stage characterised by organization, listening, more openness and problems being seen as belonging to the group. Performing is where all contribute, openness and trust exist and group loyalty has developed. Although having a degree of face validity and of practical use in observing groups at work, the major criticism of Tuckman’s theory is its assumption that development takes place in a linear fashion. Trust development is unlikely to progress in such a neat way as pointed out by Abdul-Rahman and Hailes (2000). The determinants of trust are past history, predictability and repeated interactions. Some prior experience is a necessary condition for establishing the cognitive element of trust and familiarity is the precondition of trust. Trust is strengthened by factors and activities such as collective identity, co-location in the same office, joint goals and commonly shared values. Clearly many
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of these conditions are not present if strangers are brought together into a virtual team. Jarvenpaa and Leidner (1999) suggest that trust is difficult in virtual environments due the potential lack of social interaction. They also indicate that trust development is impaired if an “e-communication only” environment exists as there is an elimination of team roles. Additionally, according to Tyler and Degoey (1996), trust is difficult to build in the short-term so the time span of many virtual teams would seem to preclude this. Many researchers assert that embedded predisposition to trust or “propensity to trust” can be added to the process of trust production (Becerra & Gupta, 2003; Duarte & Tennant-Snyder, 1999; Jarvenpaa et al., 1998; Mayer et al., 1995). Moreover, Creed & Miles (1996) lend further support to the proposition that trust builds incrementally. Abdul-Rahman and Hailes (2000) point out that whatever role trust plays in physical communities it also applies to virtual communities, as, ultimately, all virtual interactions are human bound. Hence, from the more general research, we can draw pointers that are particularly relevant to virtual communities. The selection process for community membership could play a key role. If those forming the virtual team have the respect of other members, if members believe that the selection process will result in members with similar competence levels as well as credible and trustworthy participants there is likely to be a stronger predisposition to trust. Actions taken at the early stages of community building should include dialogue to share personal goals, as well as measures both to reduce cognitive distance and to achieve a sufficiency in alignment of mental frames to foster understanding. Particularly important is the strategy adopted to engage members in deep dialogue and for this to be seen as a legitimate modus operandi by participants. The research by Lewis and Weigert (1985) is particularly useful in understanding the nature of trust emerging through interaction in teams.
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They reported the work of Anderson, who studied relationships and identified four parameters: 1. The greater the homogeneity of the group the higher the trust level. 2. The greater the connectedness of a social network the greater the trust level. 3. The greater the size and complexity of a community the lower the level of trust. 4. The greater the social change the lower the trust. They also found that trust declines in the context of rapid change, when there is an increase in heterogeneity, a decrease in interaction frequency and an increase in the number of outsiders. This suggests that teams within one organization are likely to develop trust in a different way and in different forms to teams comprising people from different organizations, particularly where there is a contractual relationship governing interactions such as buyer-supplier contracts. Individual predisposition to trust may be higher within the organization than with unknown people from outside. In his research Larson (1992) suggested that the process by which significant relationships are built between entrepreneurial firms is based on reciprocity, trust and mutual respect. However, according to Fuller and Lewis (2002) most inter-firm relations are not densely collaborative ties. Trust and reciprocity are seen as processes of governance in inter-firm networks. The very act of personal social actions such as exchanging knowledge and problem solving convert intermittent relationships into ongoing relationships which form the basis for inter-firm business (Boissevain & Mitchell, 1973, quoted in Fuller & Lewis, 2002). After studying 36 independent small businesses, Fuller and Lewis (2002) identified five categories of relationship strategy: network, contract, personal, personal service and strategic development. The descriptions of trust varied between each category but were present in all five. The network relationship strategy put the business at the centre of informa-
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tion flows enabling the trading of information and then being able to act proactively on emergent opportunities. The personalised relationship strategy includes adapting relationships as appropriate and the tasks involved in doing business appear to be the medium for the personal relationships rather than vice versa. This indicates the different ways in which individuals will approach relationship building and the centrality, or otherwise, of trust in this process. Although they are not determinants of trust in themselves, time and leadership/facilitation appear to be moderating variables, influencing the relationships between the other factors, e.g. the elapsed time and environment available for interaction and dialogue between team members. Effective leadership behaviour is linked to trust development. Kayworth and Leidner’s (2000) research suggests that a crucial role of the leader is to provide a setting for group socialisation and cohesiveness building as an aid to developing trust. There is some evidence that facilitation can support the development of relationships and hence trust. The building of relationships between team members is a fundamental concern of facilitators (McFadzean & McKenzie, 2001). Pauleen and Yoong (2001) see effective communication as key in building relationships which then influence team effectiveness. In turn they report research which has demonstrated the impact of strong relational links in enhancing creativity and motivation, increasing morale, improving decisions and reducing process losses. Their research focussed particularly on boundary-crossing virtual teams and they emphasised the role of the facilitator in blending the team members’ individual cultures into a single team culture. Building on the work of Nonaka and Takeuchi (1995), they conclude that, in order to build mutual trust, individual emotions, feelings, and mental models must be shared. As already mentioned, communication is a key factor in trust building. Hence, in relation to information and communications technology, important aspects of trust development include
availability, reliability, capacity and user-friendliness, all of which are important in the process of communicating trustworthiness (Kasper-Fuehrer & Ashkanasy, 2000) and network security (Aldridge et al., 1997). The selection and utilisation of communications methods to initiate and develop meaningful dialogue is the first step in building trust and collaboration (Holton, 2001). Face-to-face communication has been found to be the most efficient means for co-ordinating individual cooperative behaviour (trust) to achieve maximum outcome (Eggert, 2001; Lipnack & Stamps, 1999). Nevertheless, the researchers acknowledged the constraint of time and it was noted that trust decays in large groups when confronted with co-operation problems. Many virtual teams are programmed to have only short lives. Hence they may differ from other groups in ways which preclude the long-term development of trust. According to Duarte and Tennant-Snyder (1999) trust should be built as quickly as possible; models of trust which focus on building long-term relationships may not apply to many virtual teams due to their short life. The concept of Swift Trust may instead apply. Swift trust is less about relating than it is about doing. Inferences are driven by generic features of the setting rather than by personalities or interpersonal relations (Meyerson et al., 1996). It is therefore likely to be rooted in the rational perspective. Jarvenpaa et al. (1998) found that swift trust was evident in high trust teams: it enabled members to take action, making them less likely to be distracted from the task. Meyerson et al.’s view (1996) is that in temporary teams not enough time is available for things to go wrong and interactivity reduces ambiguity, uncertainty and strengthens trust. They posit that people in these circumstances deal with each other primarily in terms of the professional roles each individual performs, making clear what specific value each member brings into the virtual team, not in terms of developing social relationships. Whilst swift
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trust might apply in virtual teams, it seems less relevant to learning communities which exhibit some different features such as lack of focus on a common task, lack of time pressure, no established working processes, voluntary membership and the importance attached by participants to networking, in part to open up new business opportunities. In summary, the emergent view is that communication, interaction, leadership and contextual factors can all combine in the development of trust amongst team members. But it is clear that some of the features supporting trust development in face-to-face working are less likely to be found in virtual team working. This is mainly due to physical barriers, the lack of human contact and media richness, and the asynchronous nature of much of the communication within the virtual community.
FACILITATING TRUST IN VIRTUAL TEAMS: THE ROLE OF THE GRID Earlier in this chapter nine key elements of interpersonal trust were identified: 1. Risk expectation 2. Inability to monitor another party and need to act despite uncertainties 3. Past history 4. Predictability 5. Repeated interactions 6. Level of connectedness 7. Size and complexity of a community 8. Communication 9. Group homogeneity Whilst all of these trust elements are dependent upon some degree of human behaviour or human relationships, some are also open to support and encouragement by technology. So how can Grid technology facilitate some of these trust elements? Firstly, through the multiplicity of resources within the Grid appearing seamless to the user it can help
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to mitigate the virtual organization’s size and complexity. Secondly, Grid technology can provide versatile tools of communication: asynchronously through data and information repositories and synchronously through rich media systems such as audio and video. Thirdly, by ensuring that everyone in the virtual organization has access to the technology, the level of connectedness between members can be maximised. Fourthly, by ensuring Grid content is up to date (which may require continuous, or very frequent, synchronisation of Grid components), the risk of accessing out of date data will be minimised. Lastly, allowing users access to authorship meta-data associated with data and documents held in such Grids will enable consumers of the data/document to form a view on the quality, reliability and trustworthiness of the document based on their level of interpersonal trust of the author. However, there are issues around the use of Grid technologies and the technology itself that need to be addressed if such technology is going to gain wider acceptance in the business community. In whatever way Grid technology is used within an organization or across organizations, it can only act as a facilitator of typical group tasks such as generating ideas, planning activities, problem solving, decision making, resolving conflict, and executing agreed activities (McGrath & Hollingshead, 1994). Grid technology can encourage teams to undertake these tasks in a virtual environment, by being seamless, easy to use and reliable, but it cannot force the kind of sharing and collaboration required by these tasks on its own. Ultimately “People will use it only because they want to communicate with resources or people that they care about and need to do their work.” (Smarr, 2003, p. 8). There are two categories of issues to be considered here – trust in other members of the team, and trust in the technology supporting the virtual team. The important area of interpersonal trust amongst members of the team has been discussed at length in earlier parts of this chapter, however
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it is worth noting at this point that a lack of trust between individuals (whether that be within the same organization they work for or some other organization) can have serious consequences for the usefulness of the Grid. If interpersonal or organizational trust is compromised in some way then the desire by an individual or organization to share resources with another individual or organization will be reduced. A contributor to the Grid can therefore be reluctant to deposit content because they do not trust other individuals, or organizations, which might have access to it. A second issue is a Grid user’s trust in the Grid itself – does the user have confidence that the Grid will provide them with what they want when they want it? Will the Grid also keep the data or information they are sharing secure as well? This idea of the Grid providing what people want when they want it is nothing new. Indeed it is one of the key issues with more established client/server based systems in common use within organizations today – for example content management systems. However, research by Davis through his technology acceptance model (TAM) (Davis 1989; Davis et al., 1989) suggests that the main influences on whether a user will use technology or not is down to the perception of its “usefulness” and “ease of use”. The former is based on whether the user sees the technology as useful – in this case is the Grid useful? Does it provide users with the information they need, when they want it, in a form they can use and to a standard of quality that is required? If not, trust in the technology is likely to be compromised. Some of Davis’s concepts were developed further by the research of, amongst others, DeLone and McLean (1992, 2003). They have shown that there are a number of key criteria which need to be met in order for an information system to deliver the benefits sought. These criteria include system quality, information quality and service quality. System quality centres on system security, reliability and availability, ease of use and functionality. Information quality includes such elements as information
accuracy, timeliness, relevance and completeness. The third concept of system quality encompasses the user’s perception of the level of support provided by the information system providers. The DeLone and McLean model suggests that failure to deliver appropriate levels of quality in any of these three areas will have a negative impact on user satisfaction and the user’s intention to use the system thereby compromising the net benefits of implementing the system. Research by Ashleigh and Nandhakumar (2007) provides an interesting discussion of some of the research that has been carried out into trust in computer-based systems suggesting that system experience, meaningful system feedback, and technology reliability are key to developing trust in technology. This reinforces DeLone and McLean’s message on system quality and Davis’s message on system “usefulness” and “ease of use”. Whilst it is possible to use literature and models from the wider information systems research field, the technologically complex nature of the Grid would suggest a more appropriate review of Grid specific literature on security and reliability to explore further these issues and the impact they might have on Gird usage. For instance Rana and Hilton (2006a) suggest that Grid security “remains one of the most significant barriers for the wider adoption of Grid computing even within the same company,” (2006a, p. 8). Cody et al. (2007) suggest that currently, the emphasis in distributed computing is on performance above security. Obviously an appropriate balance needs to be drawn between the two but compromising security will only raise the barrier to Grid adoption in business. It is worth bearing in mind though that Grid security is not just a technical issue of whether the most appropriate protocols and security technology systems are in place, there are also human behavioural issues as well. Because much of the information that will be within the Grid’s databases will have been generated by humans, the quality of the information, its availability and reliability are attributable
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to human endeavour suggesting a lower level of trust between information consumer and information contributor. At a technology level though, the concept of Grid security is complex with a range of possible means of attacking the Grid resources and networks that connect them (Rana & Hilton, 2006a). There are however a variety of means of securing Grids. Using the example of a construction engineering project comprising a virtual organization of designers, suppliers and product manufacturers, Rana and Hilton (2006b) describe the security services in place to prevent unauthorised access to the supporting Grid. Foster et al. (2001) describe a similar set of underlying security technologies but suggest that these technologies be flexible enough to appear seamless to the user, and accommodate the individual security setups of the resources being shared in the Grid. Picking up on Grid reliability, Huedo et al. (2006) state that it is focused on two areas: Grid failure or a loss of quality of service. Either of these can be triggered by the failure of a Grid component or resource, an interconnecting network issue or the failure of a system job. Their paper goes on to discuss the results of empirical research into how fault tolerance can be improved using two different approaches – the GridWay metaschedular and Globus services, concluding that the GridWay metaschedular is the better of the two. Clearly, from information systems literature, the usefulness of the Grid to a virtual organization will be dependent upon the resources available, and the reliability and security of the Grid. Whilst resource availability is down to a willingness, by both organizations and users, to share technology and content, Grid reliability and security is very much down to the appropriate use of technology. It is worth noting though that such technologies are continuously evolving and this needs to be taken into account when setting up a Grid. Failure to respond to the ever changing threats to Grids, particular when it comes to security, will have a detrimental effect on trust in the virtual organization’s Grid.
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CONCLUSION As we have seen, Grid technology has the ability to enhance virtual team working by providing a common system, a common language and the possibility of sharing common resources. Moreover, it provides an instantaneous way of accessing resources and communicating, something which certainly improves the quality of decision-making. The Grid can provide team members with a common language which can facilitate interdependence, a key feature of virtual teams. Indeed, we have seen that the Grid could provide team members with easier data-sharing and real-communication tools which, as discussed, could aid the development of trust within a team environment, especially in dispersed teams. However, Grid technology can also disrupt trust within virtual teams through: •
•
Having inappropriate security settings which restricts access from one organization to another for data required. Leaders and team members having to commit to sharing and making use of resources.
In any case, we cannot assume that all this will happen automatically; on the contrary, for virtual teams to work as expected, with the aid of the Grid, a number of steps should be taken. Hence, for it to work properly, management need to make sure that: •
• •
A suitable communication infrastructure is provided. This should meet not just the task demands but also, as far as possible, the team members’ personal preferences. A team charter which guides behaviours within the team is set up. Coaching of team members in order to avoid long delays in responding, unilateral priority shifts and failure to follow-up on commitments is in place.
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Moreover, managers should make every effort in order to create a supportive climate where ideas can be exchanged freely, where conflict resolution is open and fair and where solutions to problems are well understood and widely accepted (Gibson & Manuel, 2003). In other words, grid technology’s great potential for business is here and ready to be exploited. It is now up to businesses and their managers to make the best use possible of it.
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Kirkman, B. L., Rosen, B., Gibson, G. B., Tesluk, P. E., & McPherson, S. O. (2002). Five challenges to virtual team success: Lessons from Sabre, Inc. The Academy of Management Executive, 16(3), 67–79. Kourpas, E. (2006). Grid Computing: Past, Present and Future - An Innovation Perspective. Retrieved 13 Feb, 2008, from http://www-03. ibm.com/grid/pdf/innovperspective.pdf?S_ TACT=105AGX52&S_CMP=cn-a-gr. Larson, A. (1992). Network dyads in entrepreneurial settings: a study of the governance of exchange relationships. Administrative Science Quarterly, 37(1), 79–93. doi:10.2307/2393534 Lewis, D., & Weigert, A. (1985). Trust as a Social Reality . Social Forces, 63(4), 967–976. doi:10.2307/2578601 Lipnack, J., & Stamps, J. (1999). Virtual teams. Executive Excellence, 16(5), 14–16. Lipnack, J., & Stamps, J. (2000). Virtual Teams. People Working Across Boundaries with Technology. New York: John Wiley. Lurey, J. S., & Raisinghani, M. S. (2001). An empirical study of best practices in virtual teams. Information & Management, 38(8), 523–544. doi:10.1016/S0378-7206(01)00074-X Massey, A. P., Montoya-Weiss, M. M., & Hung, Y. T. (2003). Because time matters: Temporal coordination in global virtual project teams. Journal of Management Information Systems, 19(4), 129–155. Mayer, R. C., Davis, J. H., & Schoorman, F. D. (1995). An integrative model of organizational trust. Academy of Management Review, 20(3), 709–734. doi:10.2307/258792 Maznevski, M. L., & Chudoba, K. M. (2000). Bridging space over time: Global virtual team dynamics and effectiveness. Organization Science, 11(2), 473–493. doi:10.1287/orsc.11.5.473.15200
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McEvily, B., Perrone, V., & Zaheer, A. (2003). Trust as an organising principle. Organization Science, 14(1), 91–103. doi:10.1287/orsc.14.1.91.12814 McFadzean, E., & McKenzie, J. (2001). Facilitating Virtual Learning Groups. A Practical Approach. Journal of Management Development, 20(6), 37–49. doi:10.1108/02621710110399774 McGrath, J. E., & Hollingshead, A. B. (1994). Groups Interacting with Technology: Ideas, Evidence, Issues and an Agenda. Thousand Oaks, Sage Publications Inc. McKnight, D. H., Cummings, L. L., & Chervany, N. L. (1998). Initial trust formation in new organisational relationships. Academy of Management Review, 23(3), 473–490. doi:10.2307/259290 Meliksetian, D. S., Prost, J.-P., Bahl, A. S., Boutboul, I., Currier, D. P., & Fibra, S. (2004). Design and implementation of an enterprise grid. IBM Systems Journal, 43(4), 646–664. Meyerson, D., Weick, K., & Kramer, R. (1996). Swift Trust and Temporary Groups. In T. Tyler (Ed.), Trust in Organizations: Frontiers of Theory and Research. Thousand Oaks: Sage. Misztal, B. (1996). Trust in Modern Societies. Cambridge, MA: Polity Press. Nonaka, I., & Takeuchi, H. (1995). The Knowledge-Creating Company. New York: Oxford University Press. Pauleen, D. J., & Yoong, P. (2001). Relationship Building and the use of ICT in boundary -crossing virtual teams: a facilitator’s perspective. Journal of Information Technology, 16(4), 45–62. doi:10.1080/02683960110100391 Powell, A., Piccoli, G., & Ives, B. (2004). Virtual teams: a review of current literature and directions for future research. ACM SIGMIS Database, 35(1), 6–36. doi:10.1145/968464.968467
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Rana, O., & Hilton, J. (2006a). Securing the Virtual Organization – Part 1: Requirements from Grid Computing. Network Security, (4): 7–10. doi:10.1016/S1353-4858(06)70355-5 Rana, O., & Hilton, J. (2006b). Securing the Virtual Organization – Part 2: Grid Computing in Action. Network Security, (5): 6–10. doi:10.1016/ S1353-4858(06)70385-3 Rempel, J. K., Holmes, J. G., & Zanna, M. P. (1985). Trust in close relationships. Journal of Personality and Social Psychology, 69(1), 95–112. doi:10.1037/0022-3514.49.1.95 Ruppel, C. P., & Harrington, S. J. (2000). The relationship of communication, ethical work climate, and trust to commitment and innovation. Journal of Business Ethics, 25(4), 313–328. doi:10.1023/A:1006290432594 Saunders, M. N. K., & Thornhill, A. (2004). Trust and mistrust in organisations: An exploration using an organisational justice framework. European Journal of Work and Organizational Psychology, 13(4), 492–515. doi:10.1080/13594320444000182 Sheppard, B. H., & Sherman, D. M. (1998). The grammars of trust: a model and general implications. Academy of Management Review, 23(3), 33–45. doi:10.2307/259287 Smarr, L. (2003). Grids in Context. In I. Foster, & C. Kesselman, (Eds.) The Grid 2 Blueprint for a New Computing Infrastructure. 2nd ed. Morgan Kaufmann. Smith, H., & Konsynski, B. (2004). Grid Computing. MIT Sloan Management Review, 46(1), 7–9. Smith, R. (2005). Grid Computing: A Brief Technology Analysis. Retrieved Feb 14, 2008, from http://www.ctonet.org/documents/GridComputing_analysis.pdf
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This work was previously published in Grid Technology for Maximizing Collaborative Decision Management and Support: Advancing Effective Virtual Organizations, edited by Nik Bessis, pp. 131-146, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.8
Examining Tensions in Telework Policies Jennifer L. Gibbs Rutgers University, USA Craig R. Scott Rutgers University, USA Young Hoon Kim Rutgers University, USA Sun Kyong Lee Rutgers University, USA
ABSTRACT This chapter examines workplace policies related to virtual work, with a specific focus on telework policies. Such policies are important to successful telework in communicating rules and expectations and providing a basis for negotiation between individual teleworkers and their employers. A content analysis of 35 state government telework policies revealed that such policies are characterized by two major tensions between autonomy and control and between flexibility and rigidity. The first tension relates to issues such as individual
versus organizational responsibility for monitoring performance, providing equipment, and ensuring physical and data security, while the second tension relates to the standardization of working hours and eligibility criteria, whether rules are clear or left ambiguous, and the degree of work/ family balance. Although explicit contradictions between stated benefits and realities of telework implementation may be problematic, most of the policies used tension productively by providing enough ambiguity to allow for competing individual and organizational interests to co-exist. Practical implications for teleworkers and their managers are suggested.
DOI: 10.4018/978-1-60960-587-2.ch508
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Examining Tensions in Telework Policies
INTRODUCTION There is little debate about the growing importance of virtual work (e.g., telework, virtual teams) in organizations. In some cases these virtual forms represent a type of alternative work arrangement driven predominantly by employee needs and in other instances they reflect management efforts to leverage global expertise in dealing with organizational challenges—but in all situations, virtual forms present several key communication challenges for organizations and their members. From a communication perspective, there has been an interest in issues such as communication technology use (Scott & Timmerman, 1999; Timmerman & Scott, 2006), cross-cultural communication (Cramton & Hinds, 2004; Gibson & Gibbs, 2006; Grosse, 2002), distanced leadership (Connaughton & Daly, 2004; 2005), fostering identification and shared identity (Hinds & Mortensen, 2005; Sivunen, 2006; Wiesenfeld, Raghuram, & Garud, 1999), and creating trust (Jarvenpaa, Shaw, & Staples, 2004; Walther & Bunz, 2005) among virtual workers and teams (for a review, see Gibbs, Nekrassova, Grushina, & Abdul Wahab, 2008). One additional communication topic that has not yet received adequate attention concerns the policies and guidelines surrounding virtual work. Organizations have historically developed policies surrounding issues such as operating procedures, governance, member rights and duties. One function of socialization efforts in most organizations (see Jablin, 2001) is to introduce new members to the formal policies and guidelines of the organization. Even though important informal communication may not always align with these formal policies—which sometimes go unread or are even unknown to organizational members—one should not underestimate the importance of these policies. They do communicate official guidelines and rules relevant to rewards/sanctions so that members know how to act; thus, they represent a type of directive in Speech Act Theory (see Putnam &
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Fairhurst, 2001). Even when unknown or unfamiliar, they are legally forceful. They are often produced in response to organizational practices and may in turn shape various practices. A wide range of organizational members are involved in the creation of such documents—and an even greater percentage are impacted by them. They may also serve as a starting point for ongoing dialogue about issues or even as something to be communicatively resisted. Although the growth in information and communication technologies (ICTs) has led to increased development of policies governing communication—occurring in various types of organizations, with policies developed by multiple stakeholders, and producing online policies that are discussed and updated with greater regularity than ever before—it is not clear how extensive or adequate those policies addressing virtual work are. Regardless, such policies may matter greatly. The success of teleworking, for example, largely depends on whether organizations effectively communicate its necessity and benefits to their employees, which can be done partially by “the provision of carefully crafted organizational policies” (Perez, Sanchez, & Carnicer, 2003, p. 68). However, when policies do not communicate effectively, are not carefully crafted, or otherwise suggest inconsistencies, virtual work practices are almost certainly influenced. As we attempt to illustrate in this chapter through the use of a dialectical framework applied to virtual work (Gibbs, 2009), these policies regularly reveal contradictions and tensions that challenge virtual workers and the organizations for which they work. Thus, one objective of this chapter is to establish the importance of workplace policies related to virtual work, focusing most specifically on telework policies. We then describe the methods used to analyze a set of telework policies from U.S. state governments—which allows us to meet our second objective of describing policies and articulating tensions that exist within and across them. Finally, we seek to offer some scholarly
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and practical implications from this work. Better understanding of the nature of virtual work policies as a form of communication is essential for describing virtual work behaviors, organizational rewards, and several other workplace dynamics.
WORKPLACE POLICIES Although most of the interest in what is broadly called communication and information policy research has centered on “how regulators, governments, and public policies shape communicationinformation industries and social practices” (Mueller & Lentz, 2004, p. 155), this type of large scale policy research has not examined policies in the more local for-profit, nonprofit, or government workplaces where communication policies are developed and enforced. Our focus is to examine those workplace policies as organizational messages (see Scott & Choi, 2009) and to focus on the content of those documents as they reveal and create tensions. This is consistent with Corman’s (2006) call for organizational communication scholars to focus more on messages. It also aligns with a recognized tradition of examining written forms of communication produced by the organization and its members as an important means of constituting organizational life (see Cheney, 1983). Not only do work-related policies represent a form of organizational communication, but they also regularly address communication rights and responsibilities. Prior studies have examined communication policies in contexts such as school board meetings (Castor, 2007), work-family benefits (Kirby & Krone, 2002), and school meal programs (Legreco, 2007). For example, adopting structuration theory and using discourse tracing methods, Legreco examined the talk, texts, and larger discourse that operate during a major policy change in the state of Arizona school meal programs designed to promote healthier eating habits. By showing how different “policies are formulated through dialogue and deliberation, implemented
through negotiation between consumer and producer, and evaluated against other initiatives and programs” (p. iii), Legreco’s research highlights the important communicative role played by policies in the organization of everyday experiences. Kirby and Krone also used a structurational approach to examine ways in which organizational members’ discourse about the issues addressed by formally stated work-family policies may work to undermine the actual use of such policies.
ICT Policies More related to virtual forms of work, policyrelated research on new ICTs exists as well and most commonly examines privacy policies (see D’Urso, 2006; Townsend & Bennett, 2003), telecommunication policies (see Whitman, Townsend, & Alberts, 1999), and/or acceptable use policies (see Barnes, 2002; Simbulan, 2004). However, also included here are various security policies, online access guides, records retention policies, netiquette standards, computer ethics codes, Internet use policies, technology management guidelines, intellectual property/copyright/trademark policies, technology checkout and personal use guidelines, and more. As Scott and Choi (2009) argue, concerns about issues such as cyberslacking and records retention—especially in light of the Sarbanes-Oxley legislation following the Enron scandal (Lange & Nelson, 2005)—have resulted in various ICT policies becoming increasingly common in the workplace (American Management Association, 2006). Despite this, surprisingly little research has focused on these messages directly. Organizations have now begun to actively draft such policies, partly in response to perceived misuse of such tools in organizations (Zetter, 2006). Indeed, Simmers (2002) suggests explicit and clearly communicated policy is key in addressing issues related to loss of intellectual property, sexual harassment lawsuits, productivity losses due to online activity, security threats, and network overload. The 2006 Workplace E-Mail, Instant
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Messaging & Blog Survey from the American Management Association (2006) revealed that 76% of organizations have e-mail usage and content policies, with another 68% using policy to control personal e-mail. Thirty-one percent of organizations have instant messaging policy in place. In each case, these numbers reflect notable increases from surveys done in previous years. Thus, organizational policies specifically related to ICT use have become increasingly common in recent years. Although research on them from any organizational perspective remains relatively limited, it does exist. For example, Pollach’s (2006) study of privacy policies from 50 commercial websites notes that such policies often omit critical information and fail to communicate in a transparent manner. Simmers (2002) reports case studies of eight diverse organizations, each of which illustrates the important role of Internet usage policies—but also the delicate balance in how restrictive they are and the necessity to communicate such directives clearly. Simbulan (2004) examined employee’s perceptions of their organization’s Internet use policy—noting that policies must be clear and that specific time frames were needed for personal use of technology. In one of the more extensive works in this area, Siau, Nah, and Teng (2002) examined the acceptable Internet use policies (AIUP) of three groups of organizations (i.e., educational institutions, Internet service provider, and non-Internet service providers). These authors conclude that policies were generally not comprehensive and contained a number of gray areas. Collectively, these studies suggest both the relevance of this type of policy research and the potential for such policies to be problematic.
TELEWORK POLICY Telework One set of policies clearly linked to virtual forms is what are known as teleworking or telecom-
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muting policies. The terms telecommuting and teleworking have often been used interchangeably (Ellison, 1999) to refer to using ICTs to perform work ‘at a distance’ (Mokhtarian, Salomon, & Choo, 2005), but they were distinguished by Nilles (1998) who defined teleworking as “any form of substitution of information technologies for work-related travel” and telecommuting as “periodic work out of the principal office, one or more days per week, either at home, a client’s site, or in a telework center” (p. 1). Whereas telecommuting emphasizes a reduction in physical travel, telework is a broader category that emphasizes the crucial role of ICTs in reducing or overcoming spatial and temporal limitations in performing work (Garrett & Danziger, 2007; Halford, 2005). We focus on the broader term ‘telework’ here, and define it as an alternative work arrangement in which workers are allowed to perform their tasks elsewhere, usually outside conventional offices using communication technologies to interact with others (Bailey & Kurland, 2002; Baruch, 2001). This academic definition is also in line with that of the Telework Enhancement Act of 2009, which provided a formal definition of telework as a “work arrangement in which an employee regularly performs officially assigned duties at home or other worksites geographically convenient to the residence of the employee” (The Telework Enhancement Act of 2009, p.2). The need to study telework policy is heightened by the number of people engaged in this form of virtual work. Even with the significant difficulty in accurately counting teleworkers (Mokhtarian et al., 2005), low end estimates suggest it includes 8.6 million U.S. households (Makower, 2009). Other marketing research reported a jump to 17.2 million in late 2008 (WorldatWork, 2009) and estimated that another 29 million telecommuters will enter the U.S. workforce between 2009 and 2016, totaling to nearly 43% of all U.S. employees (Suitecommute, nd). A recent agreement between the U.S. General Services Administration and the American Federation of
Examining Tensions in Telework Policies
Government Employees regarding a new national telework policy supporting broad use of telework by federal employees (McCrehin, 2008) could further raise those numbers. The current numbers and potential growth of these virtual workers—not to mention variations in how often they telework and from where they do remote work—create several opportunities and challenges for organizations and their members (both those who are and are not teleworking). One of those concerns development of policy for such programs, which can be viewed as attempts to formalize and clarify expectations and practices regarding teleworking.
communication expectations. Location concerns include who owns and provides equipment, who covers what costs, safety issues, and securing intellectual property. Policy concerns address eligibility requirements, termination requirements, and number of days one can/must telework. Of course, other issues such as arrangements for child and pet care cut across categories. Thus, developing sound policy that appropriately covers a range of issues in this growing area likely presents many organizations with a challenge.
Practitioner Perspectives on Policy Development
Scholarly efforts to examine policy as it relates to teleworkers take several different forms. For some, the connections have been at broader societal levels where social policies encouraging telework are examined (World Wide Waves, 1999). In other cases, the focus has been on policies related to the environment (Nelson, Safirova, & Walls, 2007), IT/broadband (Trkman, Jerman-Blazic, & Turk, 2008), and trade unions (Horner & Day, 1995) as they might then influence telework practices. Baker, Moon, and Ward (2006) specifically examined workplace accommodation policies related to telework, noting that “less examined are the policy and regulatory barriers preventing effective telework outcomes for people with disabilities” (p. 424). In general, however, specific scholarly examinations of actual telework policies appear extremely rare. Igbaria and Tan’s (1998) edited volume on the virtual workplace does not include the term policy in the index, and none of the several specific chapters examining telework look specifically at policy. McCloskey and Igbaria’s (1998) chapter providing a detailed review of existing empirical pieces suggests no prior focus on policy, although some findings had implications for policy. As a more recent illustration of that, Major, Verive, and Joice’s (2008) examination of telework and dependent care produced agency
A number of trade publications as well as telework consultants and groups have specifically pointed to the need for policy. “As more and more employees clamor for the ability to telecommute, it is imperative for companies to have in place a viable telecommuting policy” (Hoskins, 2006, p. 1). For some, the focus of such policies is on minimizing risk and liability for the employer (Prince, 2000; Suitecommute, nd; Thibodeaux, 2003). “The more precise you can be, within the law, the better you will be at controlling your risk exposures,” claims one expert (Prince, p. 22). For others, the emphasis is on cost and productivity issues (Donaldson, 2002; Mills-Senn, 2006). “To avoid those problems [performance issues], work-from-home policies must be well-defined” (Mills-Senn, p. 24). In fact, industry practitioners and other telework experts suggest a wide range of issues that might be covered in telework policies (see Hoskins, 2006; Prince, 2000; Suitecommute, nd). Hoskins suggests these fall into three categories: work concerns, location concerns, and policy concerns. Work concerns may include amount of work expected, setting hours for work and tracking time/attendance, measuring performance, and
Scholarly Perspectives on Policy Development
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policy recommendations from federal home-based teleworkers they surveyed. These included a desire for more flexibility in types and arrangements, permitting dependent care tasks while teleworking, improving fairness and consistency related to telework eligibility, and training managers how to accept and support teleworkers. These recommendations for policy, like much of what is suggested by telework consultants and trade publications, are about specific workplace policies that directly impact teleworkers and other organizational members. Indeed, Baker et al. (2006) conclude that an appropriate focus for telework-related research is not on broad societal policies, but on more localized ones: …available evidence suggests that telework at present remains a practice customized to the needs and capabilities of a particular employer and employee. …In particular, relatively little is known about the range of current telework practices and policies among employers, and research gaps persist in the documentation of actual implementation outcomes. (p. 426) The research reported here attempts to provide some of that focus. In looking specifically at telework policies, we also recognize the complexity and challenges of constructing such communication. As Major et al. (2008) and Kirby and Krone (2002) both note, policies and practices are not always aligned. We suspect in part that this relates to potential inconsistencies, contradictions, uncertainties, and other variations within and across telework policies. We turn next to a framework useful for analyzing these sorts of organizational tensions.
DIALECTICAL TENSIONS IN TELEWORK AND TELEWORK POLICIES A growing body of literature focuses on articulating contradictions and tensions in various organizational settings (Pepper & Larson, 2006;
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Poole & Van de Ven, 1989; Seo, Putnam, & Bartunek, 2004; Tracy, 2004; Trethewey & Ashcraft, 2004). Grounded in Bakhtin’s (1981) dialogism, dialectical theory was originally applied to the study of interpersonal relationships (Baxter & Montgomery, 1996), but it has been extended to organizational settings as well and recent studies have focused on communicative tensions in contexts as varied as correctional facilities (Tracy, 2004), information technology use (Jian, 2007) and family farm succession planning (Pitts, Fowler, Kaplan, Nussbaum, & Becker, 2009). A framework of organizational tensions is helpful in analyzing the necessary contradictions and dualities that arise whenever competing goals and interests exist in organizations (Tretheway & Ashcraft, 2004). Tensions or dualities are defined as bi-polar opposites that often work against each other; rather than being simple alternatives between mutually exclusive options, the choice to focus on one pole elicits tension and makes it difficult to enact both ends of the continuum at once (Seo et al., 2004). Rather than regarding tensions or contradictions as anomalies or exceptions, a tensional approach situates tensions and ambiguity – rather than clarity, stability, consensus, and rationality – as normal, routine features of organizational life (Eisenberg, 1984; Tretheway & Ashcraft; Weick, 1979). Further, rather than necessarily being problematic features of organizing that need to be reconciled or eliminated, tensions may be productive in that focusing on contradictions rather than consistency helps surface inconsistencies in our logic and assumptions and presents researchers with “opportunities to discover different assumptions, shift perspectives, pose problems in fundamentally different ways, and focus on different research questions” (Poole & Van de Ven, 1989, p. 564). Research has distinguished dialectical tensions from simple contradictions (which involve an either-or choice between two opposing alternatives) and paradoxes (which are dilemmas that require impossible choices between mutually exclusive or non-existent options). While
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simple contradictions and pragmatic paradoxes have been found to limit options and constrain action (Tracy, 2004), complementary dialectics are more productive in that they generate new, creative options and transform or transcend the given opposition by enabling the merging of opposites through embracing both alternatives as “both-and” options (Putnam & Boys, 2006; Tracy). Processes of global and virtual organizing, in particular, have been found to be fraught with tensions due to the complex nature of virtual work and the fact that virtual workers are embedded in multiple organizational, geographical, and cultural structures (Gibbs, 2009). Gibbs identified three major tensions in interaction in a global software team: autonomy versus connectedness, inclusion versus exclusion, and empowerment versus disempowerment, and found that such tensions were managed through responses of selection, transcendence, and withdrawal.
Tensions in Telework Participatory and democratic work practices and structures have been characterized as fraught with communicative tensions (Stohl & Cheney, 2001). As such, telework comprises one such highinvolvement participatory organizational arrangement. The popular discourse of telework often touts its alleged benefits to individual employees, organizations, and society more broadly. News articles and reports on telecommuting repeatedly cite organizational benefits such as reduced employee turnover and increased productivity as well as individual benefits of higher job satisfaction (Barett, 2008; Goluboff, 2006; Sedgewick, 2009). Telecommuting is also associated with societal benefits such as reduced commuting costs (Makower, 2009) and is often regarded as a strategy for combating high gas prices, reducing dependence on foreign oil, and easing road congestion (Barett). Similar claims are made in the academic literature about reduced traffic and increased time and energy efficiency (Novaco,
Kilewer, & Broquet, 1991) and greater productivity as well as many individual level benefits such as enhanced worker autonomy, flexibility, work-life balance, and work-family relationships (e.g., DuBrin, 1991; Golden, 2006; Kurland & Bailey, 1999; Lautsch, Kossek, & Eaton, 2009). Employees’ greater autonomy and flexibility in choosing where and when work takes place are also thought to have a positive impact on job satisfaction, productivity, and health conditions (e.g., reduced stress) (Gajendran & Harrison, 2007; Golden, Veiga, & Simsek, 2006). Such unqualified benefits are not always empirically observed, however. For example, many indicators point to the fact that travel and congestion continue to increase (rather than decrease) along with the rise of telecommunication (Mokhtarian, 2009). Other studies have challenged the promised benefits of telework by showing that such anticipated results are not always evident in reality or that conflicting consequences are evident. Perhaps these conflicting findings are the result of inherent contradictions in telecommuting. Telecommuting has been identified as inherently paradoxical (Hylmo & Buzzanell, 2002); for example, many organizations claim to be supportive of telework yet fail to widely embrace it as part of organizational life (Khaifa & Davidson, 2000). Further, telework can function as both success and threat to organizational practices and individual outcomes. On one hand, it can enable organizations to be more flexible, reduce costs, and respond to changing workforce needs, and enable teleworkers to better manage personal and work demands (Pinsonneault & Boisvert, 2001). On the other hand, telecommuting poses a threat by dissolving attachments based on faceto-face communication and leaving teleworkers socially isolated and physically, temporally, and psychologically disconnected (Golden & Veiga, 2005; Hylmo & Buzzanell). Telework has been framed as a mysterious alternative work arrangement in which questions arise as to what teleworkers are doing (and
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Examining Tensions in Telework Policies
whether they are working) and how to maintain relationships without routine interactions (Hylmo & Buzzanell, 2002). Hylmo and Buzzanell’s study of telecommuters revealed a variety of tensions and paradoxes: teleworkers routinely worked more hours than in-house employees and faced a paradox of control as the systems that were designed to allow for more autonomy ended up limiting their freedom and flexibility, as well as being marginalized by in-house employees due to their lack of physical presence. Further, telecommuters expressed confusion over how to do their job, how to advance in the organization and how to maintain relationships with co-workers and they faced a tension in being expected to perform well without sufficient resources (p. 344). Another empirical study of teleworkers identified a tension between perceived organizational demand versus personal life objectives, which produced a secondary tension between autonomy/comfort and control/anxiety (Jian & Rosiek, 2009).
Tensions in Policies Work analyzing organizational policies has also found them to reflect tensions. An analysis of 300 U.S. state government policies regarding the use of ICTs revealed nine tensions related to issues of anonymity and identifiability (Scott & Choi, 2009). These tensions were largely associated with the revealing of personal information and dealt with issues such as privacy and confidentiality, identification of personal information, use of names/passwords, anonymity, and signing of documents. For example, policy messages suggested that anonymity was to be prohibited, but not ignored; that personal information should not be collected, but that information should be collected that is personally identifying; and that user identity should be protected, but that users should be identifiable. The contradictory messages contained in these policy documents illustrate the complexity of such policy and the challenges associated with developing reasonable ICT policy
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due to disagreements over issues such as what constitutes personally identifying information. Similarly, we suspect some of the tensions surrounding telework generally may both result from and lead to problematic telework policies. Despite the demonstrated importance of tensions in global and virtual organizing, telework, and in organizational policies about ICTs, research has yet to examine tensions in telework policy. This chapter represents an attempt to fill this gap, as we address the following research question: What types of tensions are evident in U.S. state telework policies?
METHODS Among many possible virtual work policies, we looked at U.S. state government telework policies (including the District of Columbia). The data collection for this study was part of a larger policybased research project conducted in the spring of 2008 in which publicly available ICT policies were collected for analysis on a number of research topics. This policy database was composed of a variety of ICT-related policies—including, but not limited to, those addressing telework. As Scott and Choi (2009) argue, state governments seem an appropriate context for such work because (a) policy may be better developed here given constitutional protections applicable to public employees, (b) they represent sizable employers who have historically made use of ICTs, and (c) as a public entity their policies are more readily available online. Furthermore, many state governments have regularly offered telework to some degree for the past few decades. We found 35 states having some sort of telework policy through an extensive search for the web-published policy documents. We included a variety of search terms including telework, telecommuting, flexible and alternative work arrangements, flextime, and flexplace, in order to capture as many related policies as possible. We
Examining Tensions in Telework Policies
recognize that these terms are not synonymous but wanted to cast a wide net in light of the varying ways in which telecommuting has been labeled and defined (Mokhtarian et al., 2005). Most state governments had their search functions linked to the Google search, but when we could not locate any relevant policy from a state government website, we tried an independent search from the Google website using the same search terms with the name of the state.1 If we could not locate any policy documents after at least 30 minutes to an hour searching for one, we concluded that the particular state government did not provide them specifically on its website.2
Analysis We employed a qualitative content analysis to examine the identified telework policy documents of the state governments, and three co-authors openly and independently coded those policy documents using ATLAS.ti software. The software is particularly designed for coding sizable amounts of qualitative data; it lets individual coders access documents and code the content by any unit of analysis (i.e., word, sentence, or paragraph) electronically. All three coders initially coded several policies in common in order to establish major coding categories and ensure consistency in coding. We then discussed these major codes and repetitive themes found in those documents. Based on the discussion, the coding framework was established and all 35 state policies were divided among the coders and coded independently. Our analysis resembled the general process of grounded theory regarding constant comparison and coding steps (Strauss & Corbin, 1998). However, our coding was directed by the broader dialectical theoretical framework; we focused on dialectics as the central phenomenon around which we formulated relationships among the codes. The first step in our data analysis was line-by-line open coding, which helped classify the data into different categories and themes.
During this initial coding, we started observing dialectical tensions in policy documents of the state governments. Following open coding, axial coding was used to identify primary and secondary dialectical tensions.
FINDINGS Overall, our analysis indicated that state telework policies ranged from a few to 20 or more pages, although most were between 5-10 pages long. The two most commonly used terms were ‘telework’ and ‘telecommuting.’ Most followed a common format and contained the three categories set forth by Hoskins (2006): work concerns (rules for work hours and measuring performance), location concerns (ownership and provision of equipment and security issues), and policy concerns (eligibility and termination requirements). Telework policies generally started with a preamble addressing the purpose and benefits of telecommuting (to the individual, organization, and community), and went on to address specific eligibility criteria and rules for telework implementation. There was variation, however, in the degree to which policies spelled out specific requirements and guidelines versus leaving room for agencies to work out the details. In response to our research question, the analysis of state telework policies revealed two major sets of tensions: autonomy versus control and flexibility versus rigidity. These primary tensions will now be discussed along with the secondary tensions associated with them.
Autonomy vs. Control In any workplace, a tension between employee autonomy and supervisor or employer control of employee work performance exists. However, due to the shift in workspace and the possibility of reduced communication between employees and their supervisors, the autonomy versus control tension seems to be more prominent for telework-
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Examining Tensions in Telework Policies
ing as a work format; employers still expect teleworkers to observe the same requirements as in the office whereas employees inevitably view telework as an opportunity to be free from a controlled office environment. Teleworkers may want to enjoy some of the autonomy in their home or non-office workspace. On the other hand, due to the nature of telework, it is hard for managers to monitor whether teleworkers actually observe the job requirements that are enforced in the office and they may need to impose additional controls to ensure this. A major tension was evident in the telework policies we studied between allowing for this individual autonomy of teleworkers while maintaining organizational control. This tension was reflected in the framing of telework as (a) a management option versus an employee choice, (b) in the degree to which teleworkers are monitored by the agency versus self-managed, and (c) in the delegation of responsibility for telework infrastructure and security to agencies versus individual teleworkers.
Voluntary, But Not a Choice There was a high degree of consensus in the policy wording that telework was to be a management option rather than an employee choice, privilege or a universal benefit—although most policies simultaneously stressed that telework was to be voluntary for employees. In this sense, an implicit tension existed in that telework was something seen as voluntary for employees yet not up to them to decide. The slippage in language here can be interpreted to mean that employers decide who is eligible to telework, although they cannot oblige employees to telework (except in rare cases of mandating telework). For example, the New York state government’s telework policy highlighted the positive aspects of telework in general. Several of the employee benefits were to provide “greater empowerment,” “improve morale and flexibility,” and “increase family interaction.” However in another provision,
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it emphasized the understanding of telecommuting as another management tool to “improve agency operations.” Ultimately, this policy ended up stressing what was of foremost value: the options of management. This tension can also be seen in the following policy statements: Offering state employees the opportunity to telework is a management option and employees must follow the policies established by their agency… Teleworking is not an employee entitlement. When employee participation is voluntary, telework may be terminated with reasonable notice by the employee or by the agency. Note: some positions include telework as a condition of employment. In these cases, unilateral termination of telework will not be possible. [Washington] Offering the opportunity to work at home is a management option; telework is not a universal employee benefit. An employee’s participation in the State’s telework program is entirely voluntary. The employee, supervisor or manager may terminate teleworking without cause. [Arizona]
Organizational Surveillance vs. Self-Surveillance Efforts to monitor the telework arrangements also reflected a tension between individual and organizational surveillance. Some policies included on-going monitoring efforts by the agencies with further reporting to higher levels of the state, while others provided more of an expectation for employee self-monitoring. Due to the shift to a remote workspace, supervisors’ monitoring of teleworking performance became a critical issue. Many state governments’ policies mentioned that maintaining constant and clear communication between teleworkers and their supervisors or coworkers was important in order to keep them apprised of their work performance and maintain a connection with the main of-
Examining Tensions in Telework Policies
fice. Many policies emphasized supervisors’ responsibility for monitoring teleworkers’ remote work performance—and when supervisors were concerned about a teleworker’s ability to work independently or about whether certain tasks were suitable for virtual work, it was suggested that they not implement telecommuting for their work divisions. While working away from the central office, the primary modes of communication for telework employees will be by telephone and e-mail systems. The teleworker and supervisor will work together to create a reasonable communication plan, including when and how they will communicate daily. Teleworkers are responsible for informing their supervisor and others, in accordance with existing practice, of how to reach them. [California] Supervisors approving a telework arrangement for their employees must ensure that: the teleworker’s position description is up to date; the performance appraisal is up to date and that the teleworker has at least a satisfactory performance evaluation; provide a signed telework agreement that itemizes state equipment and supplies to be used, designations for work hours and location; provide clear understanding of job duties and standards of how work is to be monitored and evaluated. [Indiana] Some state governments suggested that suitable jobs for teleworking were those that could be done independently without frequent observation by supervisors. North Carolina’s policy stated that there should be no demand for constant and in-person contact by supervisors, co-workers and/ or customers in teleworking. However, such a general statement seems to be inconsistent with a more specific level of provision that indicates the same level of control for teleworking sites as in the government office. The specific provision says that “management reserves the right to require the employee to report to the central workplace
on scheduled telework days.” There was some overly intrusive control appearing in several state governments’ telework policies. Beyond the extent of reasonable guidelines, these statements reveal an excessive level of control that may create discomfort for teleworkers. The following illustrates this kind control of teleworkers: Managers…need to decide whether or not to require the same dress code for work at home. [Montana] Although the policy does not mandate that a particular dress code be enforced for teleworkers, raising this as an issue for discussion may be perceived as intrusive by teleworkers, who are not accustomed to having their employer dictate what they wear in the privacy of their home. In addition to dress code, other state government policies expected teleworkers to observe work norms in the same way they did in a traditional office. Although most state government policies required teleworkers to set aside some time during the day to be reached by their supervisors, Arizona’s more rigid policy explicitly stated, While teleworking, employees should be reachable via telephone, within reason, during agreed upon work hours. Teleworkers must notify the office if they leave their telework location, much like they would inform the receptionist when leaving the traditional office during the work day. [Arizona] To the contrary, Colorado’s policy took into consideration some concerns for teleworkers. Its policy explicitly mentioned that “teleworkers are reluctant to leave their phone on their telecommute days, even to use the restroom or take a break, because someone who called might think they are not working.” Colorado’s policy emphasized trust between the state government and the teleworkers as essential for the successful implementation of its telework program:
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Examining Tensions in Telework Policies
Managerial trust is also critical. The employee must be trusted to do the work assigned and manage time appropriately and the supervisor must be trusted to manage by results or outcomes. The manager must trust or be open to the arrangement itself. [Colorado]
Organizational vs. Individual Responsibility Finally, autonomy versus control was evident in a tension over whose responsibility it was to provide and maintain office equipment and ensure security of the home office and data. Due to the shift in teleworkers’ main workspace from the state government office to their home or other alternative places, provision of equipment and establishment of a remote office were issues. There was a great variety in state governments’ telework policies in terms of who was to provide necessary equipment for teleworking including communication technologies; some allowed teleworkers to use their personal equipment, but required them to be responsible for any maintenance and liability even if they were used for work purposes. The issue became more complicated when it came to installing state-owned software into employee-owned computers. Most policies discussed the safety of home workspaces and requested teleworkers to self-certify that their home office was safe and free from health hazards. Some state governments were willing to provide any equipment needed for working at home, but also required teleworkers to secure work-related data including confidential information and limit the use of equipment for work purposes and by authorized users only.
Provision of Equipment State policies varied in terms of whose responsibility it was to provide the equipment, supplies, and telephone/data connection for telework. Some
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stated clearly that agencies were to provide all equipment: Agencies remain liable for state-owned equipment located at the employee’s telework location and assume the risks associated with the equipment… Office supplies for use by teleworkers at their alternate worksites should be provided by the state and should be obtained during the teleworkers’ in-office work time. [Washington] Others did not clearly specify who should provide such equipment, merely that The agency should ensure that the employee has appropriate equipment to safely perform the job without increased risk of injury and should establish minimum safety requirements…All equipment used by the employee, whether provided by the agency or the employee, should be ergonomically correct. [Wisconsin] Still others, such as Tennessee, distinguished between full-time and part-time teleworkers, stating that the agency should provide necessary equipment, supplies, and telephone/data connection for full-time telecommuters, but that parttimers were responsible for providing their own equipment. Policies also differed on whether agencies were to be held liable for job-related injuries or illnesses. While some left this unclear, others stated clearly that agencies were not responsible: The State shall not be liable for injury or property damage to third persons at the telecommuting work site. Telecommuter agrees to indemnify and hold harmless the State, its agents and employees, from and against any and all claims, demands, judgments, liabilities, losses, damages or expenses resulting or arising from any injury or damage to any person, corporation or other entity caused directly or indirectly by the telecommuter’s acts, omissions, bad faith, willful misconduct or negligence excluding acts within the scope of the
Examining Tensions in Telework Policies
telecommuter’s employment pursuant to Tennessee Code Annotated Section 9-8-307(h). [Tennessee]
Physical and Data Security Tensions were also evident in designated responsibility for maintaining security and confidentiality of data, with most policies regarding this as a joint effort in which teleworkers were responsible for safeguarding and protecting company information and materials from unauthorized disclosure or damage, while following security procedures developed by the agency. This dual responsibility can be seen in the following statement: Materials, documents, etc. transported from the official work station are the telecommuter’s responsibility. The telecommuter will protect the Department records and documents from unauthorized disclosure or damage and will comply with the Department policies and procedures regarding such matters…To protect confidentiality and guard against data contamination, telecommuters will follow Department approved data security procedures. [Tennessee] These differences illustrated a tension in determining the responsibility for maintaining a safe, secure home office environment between state entities and individual teleworkers. By assigning dual responsibility, it was unclear who would be to blame if a violation should occur and to what extent individual teleworkers could be held accountable. Overall, the autonomy-control tension suggested that the relationship between the individual telecommuter and the employer was not clear-cut in terms of the decision to telework, the degree to which performance monitoring was to be handled by the supervisor or the teleworker, and whether the organization or the individual held more responsibility for the provision of equipment and the security of the physical office and data.
Although a few policies were clear in specifying organizational control, the ambiguous wording of most of them implied that this tension was to be negotiated between the individual teleworker and his or her supervisor.
Flexibility vs. Rigidity A second major tension could be seen between flexibility and rigidity. Policies varied in the rigidity versus flexibility of their wording, in terms of standardized versus ad hoc eligibility criteria and guidelines for teleworkers, the degree to which rules were clearly stated versus left ambiguous, and in how much leeway they allowed telecommuters to balance work and family.
Standardized vs. Ad Hoc The tension between flexibility and rigidity was evident in the criteria for eligibility to telework as well as the degree of specificity of the rules regarding what teleworkers were and were not allowed to do. First, there was a tension related to eligibility to telework. Some policies provided extensive lists of criteria for teleworkers, such as “no pending personnel related disciplinary action, portable job duties, availability of a work site suitable for telecommuting, not in probationary status…supervisor agreement and approval, nature of the work to be accomplished, job duties with clearly defined performance requirements that are measurable and results oriented, willingness to participate in telecommuter training and Department surveys…” as well as personal qualities such as “dependable, self motivated and responsible, good organizational skills, effective communicator, adaptable to change, results oriented” (Tennessee). Despite these detailed criteria, Tennessee’s policy also included a statement that “An employee is selected to participate at the sole discretion of the Department,” indicating that telecommuting arrangements cannot be completely standardized but are somewhat ad hoc or determined on
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Examining Tensions in Telework Policies
a case-by-case basis. This was evident in other policies as well: It is anticipated that approval to allow telecommuting will be on a case-by-case basis. [Wisconsin] Most policies noted that not all state employees were eligible for teleworking, but certain criteria should be met such as quality of previous work performance, suitability of individual task, and employees’ general and independent work skills. Even when these criteria were provided to determine one’s eligibility, it was often stated that teleworking requests were to be evaluated case by case for each individual worker and the eligibility of a position could be changed depending on the circumstances. Therefore, we identified this somewhat inconsistent application of policy rules as another example showing the tension between standardized rules versus ad hoc application of them. The Department has identified the job classes and positions considered appropriate for telecommuting. Requests will be considered on an individual basis to determine if the incumbent has the necessary skills and abilities to be a telecommuter and if the duties of the incumbent’s position can adequately be performed by telecommuting or telework. [Florida] Eligible position - A position having measurable quantitative or qualitative results-oriented standards of performance that is structured to be performed independently of others and with minimal need for support and can be scheduled at least one day a pay period to participate in teleworking without impacting service quality or organizational operations. The eligibility of a position may change depending on circumstances. [Georgia]
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Statements about eligibility requirements to telework may be the most ambiguous part of telework policy. As discussed previously, in most state governments, telework was pronounced as the management’s option, not the employees’ privilege or right. The fact that state governments view telework as a management option may be related to the fact that they are intentionally or strategically ambiguous (Eisenberg, 1984) with respect to the eligibility of telework and the jobs that are suitable for telework. Employers, in this case state governments, did not seem to be specific about the extent to which the policies included standardized statements regarding who was eligible to telework and what kind of jobs were suitable. Although an individual employee may satisfy the publicly stated eligibility conditions, under certain circumstances, state governments cannot accept all eligible applicants from their point of view. As a result, whether an employer permits certain employees to telework is fully dependent on the employer’s managerial evaluation. For employers, such a managerial judgment may not be appropriately represented in these policy statements. Thus, a tension between standardization and ad hoc occurred when state governments tried to define the eligibility of teleworkers and the boundaries of eligible work. The tension between standardization vs. ad hoc emerged further when state governments’ telework policies specified the provision for equipment: The division director shall determine, with information supplied by the employee and the supervisor, the appropriate equipment needs for each telecommuting arrangement on a case-by-case basis. [North Dakota] The decision to provide equipment will be made on a case-by-case basis based on funding availability and whether or not a business case can be made to fund equipment for the employee. [North Carolina]
Examining Tensions in Telework Policies
Georgia’s telework policy also took an ad hoc approach regarding workspace. Contrary to some states that rigidly defined what a workspace should be (e.g., Colorado), Georgia’s policy only mentioned that the state government needed to make “on-site visits at mutually agreed-upon time.” But, basically, this state’s approach to this issue operated upon “a case-by-case basis.” Such an ad hoc approach may or may not appear to be more rigid than teleworkers expect. In some way, this approach may provide some room for teleworkers to negotiate for more favorable telework conditions. The degree of the negotiation may be dependent upon the specific relationship between employer and employee.
Clear vs. Ambiguous Statement of Rules Similar to eligibility and equipment issues, it seemed that there was a tension between formally and clearly stating the rules or expectations for teleworkers and leaving some ambiguity in what was allowed. First, policies varied in terms of how clearly they spelled out expectations about the work schedules and working hours of teleworkers. Many policies stated that the same policies and number of work hours applied to teleworkers as when they worked in the office. The total number of hours that employees are expected to work will not change, regardless of work location. Employees agree to apply themselves to their work during work hours. [Virginia] Each agency must establish internal policies and procedures related to telecommuting. [Virginia] Other policies left it vague and requested agencies to come up with their own policies, sometimes providing suggestions for what types of issues such policies could include.
A mutually established telecommuting schedule must be defined and agreed upon by the telecommuter and supervisor and remains on file in the Department. However, the Department’s needs take precedence over the telecommuting schedule…The telecommuter must be reachable during the periods outlined in the telecommuting work schedule. [Tennessee] Some policies were rather rigid in their flexibility. Other policies negotiated work schedules differently, but with a similar mix of flexibility and rigidity. For example, the following policy allowed for employees and supervisors to agree on a work schedule, but with a rigid requirement to specify detailed working times in writing: Work schedule, i.e. number of times per week/ month, hours, specific day(s), etc. Include a statement that any hours worked outside of the agreed to work schedule or changes in the agreed to work hours (including working additional hours) must be pre-approved in writing. [Washington] Finally, some policies seemed to be excessively rigid in their specification of rules and guidelines for teleworkers. For example, Wisconsin’s policy was quite restrictive, explicitly prohibiting activities such as “non-work activities, including basic homemaking tasks such as dishes, laundry, etc.” and discouraging visitors, and requiring that: Employees who see clients should be subject to drive by checks of the residence to ensure visitor safety. If deficiencies are found in the maintenance/upkeep of accessible areas (such as the driveway, sidewalk, and stoops), the employee should be given a reasonable amount of time (60-90 days) to make corrections/improvements, with no visitors allowed until the corrections are made. [Wisconsin] Wisconsin’s policy also provided three detailed worksheets to administer related to (a) employee
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Examining Tensions in Telework Policies
eligibility, (b) a telecommuting agreement form (including detailed items such as how often to check email!), and (c) a safety checklist. These worksheets provided little room for flexibility of interpretation, and such restrictive policies could be seen as imposing additional constraints on teleworkers (such as ensuring home maintenance) that would not normally be expected of in-house employees.
Work/Family Balance A final sub-theme under the tension between flexibility and rigidity of policy documents related to work-family balance is an inconsistency between the suggested benefits of teleworking and the application of the rules in practice. Although many policy documents stated the benefit of flexible scheduling for individual teleworkers, which could assist with coordination of their family obligations, most policies mandated that teleworkers have a separate arrangement for dependent care. Tennessee’s policy cited “assistance with family obligations” as an employee benefit of telecommuting; however later in the policy, it stated that “The telecommuter shall have family arrangements, which allow the telecommuting work site to be a productive working environment.” There is considerable ambiguity here in terms of what constitutes a “productive working environment.” Other policies explicitly prohibited attending to family or other personal responsibilities during work. Telecommuting is not intended to serve as a substitute for child or adult care. If children or adults in need of primary care are in the alternate work location during employees’ work hours, some other individual must be present to provide the care. [Virginia] Family pets/animals should be restricted from the work area. Child care/elderly care activity or related responsibilities should occur outside
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of the workday and not within the dedicated work area. [Wisconsin] Other policies, however, acknowledged that teleworkers may take advantage of telework in order to take care of their dependents, at least at certain times. Telework should not be used as a regular substitute for full-time dependent care. The state recognizes that one advantage of working at home is the opportunity to have more time with dependents, but it is the teleworker’s responsibility to ensure that he or she is fully able to complete work assignments on time. [Montana] Employee will also not undertake to provide primary care for an adult…. In some case… the manager may give approval, on a temporary basis, for a teleworker to provide primary care for another family member. [Montana] Hawaii’s policy explicitly stated that telework contributes to “minimizing work/home conflicts.” Such an orientation on a broad level does not materialize at the specific level. When it comes to dependent care, it is required of teleworkers “to agree not to undertake to provide primary care of children/others during core hours.” Although this state’s policy does not state that teleworkers should not take care of their dependents at any time, it adds additional conditions: Telecommuters shall not undertake to provide primary care during core hours for a child (or children) under twelve (12) years of age or a person who has a serious health condition or disability. If such person will be present during that time, another individual shall be present to provide primary care, and if such person is ill and care is required on a temporary basis by the telecommuter, prior approval by the supervisor shall be obtained. [Hawaii]
Examining Tensions in Telework Policies
Whereas tensions in specifying eligibility criteria to telework and working hours were more productive in allowing for managerial discretion and for teleworkers to negotiate with their supervisors, the tensions around work-family balance seemed to be more problematic as they involved contradictions within policies between what was promised and what was allowed in practice. The primary and secondary tensions are summarized in Table 1. The implications of these findings will now be discussed.
DISCUSSION Our analysis of state government telework policies revealed two key tensions in the form of autonomy vs. control and flexibility vs. rigidity. The autonomy-control tension pertains to the degree to which employee autonomy was maintained relative to organizational control, relating to issues of organizational monitoring versus self-surveillance, the extent to which the decision to telework was a management option versus an employee choice, and the degree to which providing equipment for the home office and ensuring physical and data security were the responsibility of the individual teleworker or the state agency. The second tension of flexibility-rigidity encompasses the extent to which policies were standardized versus ad hoc, whether rules were clearly stated or left ambiguous, and the degree to which work and family were explicitly separated or allowed to blend. Although the tensions were evident in different ways, they both represent facets of the larger tension between
individual freedom (in the form of autonomy and flexibility) and organizational constraint (through control and rigidity). We will now discuss the implications of such tensions for telework policies and for virtual work more broadly. Our findings revealed that most tensions arose in the form of discrepancies across different state policies rather than explicit contradictions within the same policy. This suggests that state governments take different approaches to telecommuting and the degree to which they mandate its terms rather than leaving them open to interpretation by agencies and individual teleworkers. Such tensions are likely to be less problematic than contradictions within a single policy, as state governments operate relatively independently and their employees are unlikely to work interdependently with those of different states. They do indicate competing perspectives on how telework should be implemented, however, which reflect inconsistencies in our understanding of telework processes more broadly. When considering the broader discourse about telework, however, a number of policies did suffer from internal tensions between the stated benefits of telework (such as greater flexibility in balancing work and family care) and the realities of telework implementation, which included fairly rigid rules about not caring for dependents and other specific prohibitions of performing domestic work during work hours. There are differences in the extent to which state governments allow teleworkers to exercise their discretion with regard to what they can and cannot do at home. At the very least, overly rigid stipulations of telework policies may
Table 1. Primary and secondary tensions in telework policies Primary Tension
Secondary Tensions
Issues
Autonomy vs. Control
1) Management option vs. employee choice 2) Organizational surveillance vs. self-surveillance 3) Organizational vs. individual responsibility
1) Eligibility to telework 2) Monitoring performance 3) Equipment and physical/data security
Flexibility vs. Rigidity
1) Standardized vs. ad hoc 2) Clear vs. ambiguous statement of rules 3) Work/life balance
1) Eligibility to telework and provision of equipment 2) Work schedules and working hours 3) Dependent care
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be at odds with what teleworkers anticipate as some degree of flexibility while teleworking. This disconnect calls into question the extent to which telecommuting and other virtual work arrangements provide more individual freedom or more control of workers’ home lives, and the extent to which the realities of telework live up to its often-cited promise of providing more freedom, flexibility, and work-life balance. Whereas much of the popular and academic discourse on telework emphasizes these individual benefits (e.g., Barett, 2008; Gajendran & Harrison, 2007; Golden & Veiga, 2005), telework policies seemed to focus more on providing mechanisms to ensure organizational control in ways that may in fact impose additional constraints on teleworkers by regulating their actions within the home rather than enabling autonomy and flexibility. Taking a tensional perspective enables us to account for both individual and organizational needs/goals and ways in which they are inter-related, as well as encouraging us to develop creative responses to transcend polar oppositions and attend to both poles (see Gibbs, 2009; Putnam & Boys, 2006). It is also helpful in understanding the complexities of telework processes, rather than classifying their outcomes into simple categories of positive or negative. Further, although few policies contained striking contradictions, the majority did use ambiguous language that did not clearly specify rules and eligibility criteria. While contradictions regarding dependent care may be confusing or problematic, our findings suggest that most telework policies used tension effectively by providing enough ambiguity to bridge diverse individual and organizational interests and allow them to co-exist (Gibbs, 2009). Literature on dialectical tensions has found that productive tensions allow for both alternatives to be embraced rather than forcing the selection of one or the other (Putnam & Boys, 2006; Tracy, 2004). In this sense, telework policies need to be worded to allow for autonomy of state agencies and individual teleworkers as well as
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organizational control (at both the state and agency levels); they should allow for both flexibility and standardization in interpretation and implementation. Successful policies can thus be expected to strike a balance between these opposing poles and incorporate both. Although prior research on organizational tensions has focused mainly on the lived experiences of organizational members (e.g., Gibbs; Jian & Rosiek, 2009; Tracy), this chapter makes an important contribution by examining formal communication in the form of policy messages and establishing that communicative tensions exist in such messages as well—and that such tensions may even be necessary and useful.
Practical Implications Our findings have practical implications for the implementation of virtual work policies in organizations. Although prior literature on telework (Mills-Senn, 2006; Prince, 2000) would prescribe that policies be written to eliminate ambiguity and provide the utmost degree of clarity, telework practices and virtual work practices more broadly involve inherent oppositions between diverse organizational and individual goals and the need to maintain both autonomy and control, flexibility and standardization. As such, effective policies are not necessarily those that provide the greatest level of clarity (which would select poles of control and rigidity while ignoring the simultaneous need for autonomy and flexibility), but rather incorporate enough ambiguity to allow for these conflicting needs and interests to be mutually attained. While we are not advocating unclear policies or vague guidelines, our findings do suggest that state governments and other organizations should develop strategically ambiguous policies that allow for these tensions to coexist and do not overclarify or overspecify the terms and conditions, in order to allow for more autonomy and flexibility of interpretation and execution of terms and rules. Further, teleworkers and managers should use policy as a guide and
Examining Tensions in Telework Policies
point of departure for conversations about virtual work—– not the final word. Across these state governments, the findings here suggest several differences in some of their telework policies. Although we cannot label some policies as preferable to others, this does point to an opportunity for these organizations to compare policies and work toward development of some best practices. For both managers and individual teleworkers, our findings would suggest the value in fully knowing the policies that do exist. Not only does such knowledge provide one with guidance about organizational expectations, but also the tensions in such policies can reveal space for negotiation and opportunities to create desirable virtual work arrangements. Further, understanding the tensions and contradictions inherent in telework policies may help to reduce potential conflict between managers and the employees surrounding the interpretation of telework policies by making each side aware of the interests and concerns of the other. The mere presence of a formal policy in an organization does not necessarily guarantee effective communication between managers and teleworkers. The high level of ambiguity in many policies leaves much of the implementation of telework rules and procedures up to individual managers to negotiate with individual telecommuters. This suggests that successful telecommuting arrangements may require managers to develop supportive, trusting relationships with teleworkers rather than simply enforce policy and rules in a uniform way. Our findings suggest that enacting organizational policy should not be considered a fixed process, but rather an ongoing process involving all parties. The tensional view we take draws attention to the constitutive role of policies in shaping interaction as they are continuously interpreted and enacted through the participation of all involved organizational members. It is often implicitly accepted that enforcing policies is solely the responsibility of management. But making sense of the ambiguity in such policies
raises the necessity of employees’ participation in the process of enacting such policies.
FUTURE RESEARCH Future research should explore ways in which various forms of telework discourse coincide or conflict, by comparing the communication of managers, teleworkers, and non-teleworking coworkers to the discourse contained in telework policies to identify further tensions. The impact of such formal policies and the degree to which policies are followed and shape telecommuting arrangements should also be assessed. The communicative responses to policies and the tensions they contain also warrant study, as well as the ways in which policy is a relational construction, in that the employer-employee relationship influences how policies are interpreted and implemented. Of course, we have only examined policy in one type of organization here; thus, future research should extend this analysis by examining policy in the private sector and in organizations whose members are more globally dispersed.
CONCLUSION As telework and other forms of virtual work become more and more prevalent, policies related to such work have become increasingly important to organizations. Yet, scholarly analysis of these important organizational documents has often lagged behind. Our objectives in this chapter were to establish the importance of workplace policies related to telework and to articulate tensions that exist within and across them. Our dialectical framework relies on the premise that telework policies contain tensions and ambiguity that may be necessary in order to balance conflicting individual and organizational interests, and that the existence of such tensions may allow space for specific procedures to be interpreted
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and negotiated within the context of particular employer-employee relationships. Our findings identified tensions in the form of ambiguity within and across policies themselves, as well as disconnects between affordances provided by the policies and the larger discourse of telework. We believe the communicative tensions we discuss here offer both practical implications and guidance for future scholarly efforts in this area.
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ENDNOTES 1
2
Weick, K. E. (1979). The social psychology of organizing (2nd ed.). New York: McGraw-Hill, Inc. Whitman, M. E., Townsend, A. M., & Alberts, R. J. (1999). Considerations for an effective telecommunications-use policy. Communications of the ACM, 42(6), 101–108. doi:10.1145/303849.303868 Wiesenfeld, B. M., Raghuram, S., & Garud, R. (1999). Communication patterns as determinants of organizational identification in a virtual organization. Organization Science, 10, 777–790. doi:10.1287/orsc.10.6.777 World Wide Waves. (1999, October). Policy makers need the facts on global effects of telework. Management Services, 43(10), 7.
When we found more than one telework policy document within a given website, the priority choice was a state-wide policy and the most recently updated version of the policy. There needs to be a cautionary interpretation about the fact that no policy document was available for a state government because we found these cases: (a) restricted access to the government materials in which the policy document might exist in a different format (e.g., written document, handbook) but not be publicly available, (b) departmentalization of telework implementation (i.e., telework adopted and applied by each agency of a state government but no state-wide policy available, and/or (c) the establishment of a general guideline or policy under consideration.
This work was previously published in Communication, Relationships and Practices in Virtual Work, edited by Shawn D. Long, pp. 1-25, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.9
Workplace Safety and Personnel Well-Being:
The Impact of Information Technology T. Fagbe ATT Safety Technologies, Nigeria O. D. Adekola Babcock University, Nigeria
ABSTRACT Information Technology (IT) has emerged as the global driving force behind business success, improved performance, ease of operations, and accuracy. The growth of a business cannot be separated from the security and safety of the business environment, where the health of employees and facilities must be guaranteed. Therefore, this DOI: 10.4018/978-1-60960-587-2.ch509
paper examines the role of IT in the management of workplace safety and personnel well-being in a challenging economy. The paper covers IT application in a safe working environment, personnel health, machinery safety, occupational hazards, risks, and accidents. This paper also addresses challenges that hinder the use of IT in the administration of health safety and environment issues. It concludes with a strategy for an effective utilization of this important tool in the development of health safety and environment.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Workplace Safety and Personnel Well-Being
1. INTRODUCTION The issue of workplace safety and well-being has conveniently enlisted among current global challenges that call for effective management measures so as to secure the future ahead. Appreciable effective management could be reached through direct application of Information Technology (IT) strategies and tools. For instance, IT tools are used to monitor workplace environment and track some geographical locations to trace a fault or correct a problem. Also various IT tools are used to keep track of activities in work-areas that offer preventive strategies that safe many situations that are hazardous to safety and people’s well-being. Health and safety, Ray Hurst (2009) declared is about being prudent and intelligent in decision making. The world economy may be enduring a tough time at the moment, notwithstanding Health Safety and Environment standard must be optimally secured to avert the danger of people being needlessly hurt or killed. Information technology has been discovered as the backbone for effective management of Health Safety and Environment Policy in every challenging workplace and global economy. Rapid and dynamic growth in Information Technology has resulted in the discoveries and arrival of tools like different kinds of computers (with incredible functionalities, unbeatable speed and alarming strength), memory devices, Computer Aided Training tools, Noise level measuring device, Dosimeters, Breath Analyzers for drug and alcohol testing, Illuminometers, computerized personnel identification card, In-Vehicle Monitoring Systems (IVMS), Vehicle Tracking Systems, Smoke and Heat detectors among several other Information Technology appliances that are daily being used for Health, Safety and Environment data generation, audit, procedure review, safety training, and workplace overall management. Therefore, this paper addresses the role of Information Technology in the administration of Health, Safety and Environment for the purpose of securing a safe system, safe people and safe
environment regardless of the current global economic challenges.
2. HEALTH SAFETY AND ENVIRONMENT MANAGEMENT SYSTEM Safety, Ameerali Abdeali (2007) explained, as not merely about rules and regulations and procedures but as a serious matter that affects life and death. Safety is the prevention of incidents that kill, permanently destroy the livelihood of victim or business. This above definition is in agreement with Joseph Portelli’s (2008) definition of safety which he defined as absence of danger or physical harm. Occupational safety covers equipment, structure, materials and workplace where risk of harm has been eliminated or reduced to an acceptable level. Workplace environment according to Tan Kia Tang (2007) encompasses hazardous chemicals, physical factors such as noise, vibration, ionizing and non-ionizing radiation, extreme temperature as well as biological agents which on due exposure usually results in health hazards and occupational diseases. This Berjak et al. (1977) listed her composition as microbial decomposers, detrivores, small carnivores and large carnivores. The protection of the environment according to David Towlson (2006) is influenced by workplace environment such as light, sun, heat and external environment such as pollution, damage to air, land and water outside the workplace that may affect the work activities. Health is the “state of well-being” which includes: • •
Physiological and psychological sense. Physical condition of body and mind of all people, employee, visitors and their protection from harms, noise, fatique, stress, and so forth.
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The Nigerian Institute of Safety Professional, in her own contribution to Safety management, defined Health, Safety and Environment Management System (HSE-MS) as a quality management system for addressing risks within the company to ensure the protection of her people, assets, reputation and the protection of the company’s working environment.
3. THE IMPORTANCE OF HSE-MS Critical review of five major multinational companies namely: Shell Petroleum Development Corporation, Mobil Unlimited, Chevron Nigeria Limited, Agip Oil and Schlumberger Oil services all agreed that four principal reasons were behind their business activities on people, assets, reputation and environment. These reasons are: • •
• •
The need to control the company’s risk The importance of being able to demonstrate that the company is controlling her risks To ensure an effective synergy Environment and other business objectives Learn lessons from past incident records
4. INFORMATION TECHNOLOGY ROLE IN MANAGING WORKPLACE SAFETY Standardizing the collection, interpretation and reporting procedure of Health, Safety and Environment’s data Spicketti and Brown (2006) declared as very important. An essential tool for ensuring standardization and meaningful interpretation is the use of Information Technology. Information Technology (IT), as defined by the Information Technology Association of America (ITAA), is the study, design, development, implementation, support or management of computer-based information systems, particularly
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software applications and computer hardware. IT deals with the use of electronic computers and computer software to convert, store, protect process, transmit, and securely retrieve information. Information Technology serves its useful role in the following area of workplace safety and well-being. This area according to Guidance for working together in a Contract Environment Report No. 6:64/291 (1999) as compiled by the Safety, Health and Personnel Competence Committee- Oil and Gas Producer SHAPCC-OGP are: • • • • • • • • • • • •
Administration of work description - this includes the following: Emission and waste generated by activities data Data on activities timing Location of work data Data for site restoration and requirement Data involving reporting according to applicable laws and regulations Training records Competence assurance information Information on materials used/specified Record of alcohol and drug testing policies and implementation Medical policies implementation statistics Information on prohibited work practices and non-compliance
Other applicable areas as outlined by SHAPCC- OGP are: • • • • • • •
Management of identifiable risk Facilitation of safety meetings Preparation of HSE-MS Compilation of operational safety Audit report Environment impact assessment Fire prevention and fire fighting as well as environmental monitoring Research and development information
Workplace Safety and Personnel Well-Being
5. INFORMATION TECHNOLOGY MONITORING EQUIPMENT APPLICABLE TO WORKPLACE SAFETY AND PERSONNEL WELL-BEING As far back as mid 1960s to early 1970s, various mechanical drowsing detection and warning devices were used by researchers for monitoring transport workplace safety Hulbert (1972). In late 1990s, the In-Vehicle Monitoring System (IVMS) and vehicle tracking system were introduced for a more improved workplace safety and security. Apart from transport workplace safety applications, Information Technology (IT) equipment are in the market and freely used in industries. Some of these IT monitoring tools are: •
The use of computers in generating daily, weekly and monthly operational statistics nowadays makes HSE practices much interesting and challenging with numerous opportunities for researchers to carry out research assignments on numerous issues in occupational Health and Safety in a workplace. The areas covered by the use of computers in health and safety and environment statistics are: •
•
Noise dosimeter for measuring environmental noise level Breath analyzer for oxygen intake Alcohol reading meter for alcohol analysis test Illuminometer for light intensity measurement (room visibility) Computerized personal identification card and codes Training facilitation and record monitoring aid Smoke and heat detector alarm system Close circuit monitoring system for office safety management application
•
6. HOW INFORMATION TECHNOLOGY DRIVES WORKPLACE SAFETY AND HEALTH
•
The use of the internet and 3-dimensional navigational tools made acquisition of historical background of a proposed site prior commencement of location scouting and Environmental Impact Assessment exercise of a workplace easier for HSE Personnel.
•
• • • • • • •
•
•
•
Man-Hour worked (MHR) - number of hours employee were actively engaged throughout the company’s life span before and after an accident Accident Frequency Rate (AFR) = number of accident x 106. Man-hour worked without an accident (106 for Oil Cos, 105 for manufacturing Cos) Road Accident Frequency Rate – RTA x 106 Kilometer driven (RTA = Road Traffic Accident) Total Reportable Case Frequency. This is the number of total reportable cases that occurs in every one million man hour worked. TRCF = TRC x 106 Man-Hour Loss Time Injury Frequency (LTIF) which is the number of loss time injury recorded in every one million man hour worked. LTIF = LTI x 106 Man-Hour Accident Severity Rate – ASR
Other statistics covered in the HSE Management with the aid of Information Technology are: Medical record - Photo glare record for night worker, audiometric test report for high noise working environment staff and personnel general medical record update Personnel statistics covering each personnel name, identity number, assigned position, date of engagement, employment status, years of experience, age
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Workplace Safety and Personnel Well-Being
It also covers penalty record, awards, PPE details and dates. Information Technology is also in use in the effective management of workplace emergency management: • • • • • • • • • •
Fatigue and stress management Explosive handling safety and management Thunderstorm and lightening control Chemical management Personal protective equipment and store management HSE CASE formulation Policy and procedure review Safety information dissemination, training and development Work permit for hazardous operation management It is also useful in managing transportation safety
Moreover, incorporating IT into occupational Safety and Health management is no doubt a great achievement since through this Transport Personnel Performance has been found to be easily appraised and the probability of a Road Traffic Accident occurring can be forecasted. The IVMS are information Technology monitoring equipment that records the following: • • • • •
Speed of car and alarm when the car movement is beyond the restricted limit Monitor harsh braking Harsh acceleration Driving hours of the vehicle and Rest period observed by both the driver and the vehicle
Information Technology devices are also used in managing: • •
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Waste Noise control
• • • • •
Pollution control (air, land, sea, atmosphere) Fire disaster prevention and fire fighting Record of past and recent development Illumination, ventilation etc. Safety products procurement, stock management, goods tracking and other logistic services
7. EFFECTIVE UTILIZATION OF INFORMATION TECHNOLOGY Evaluation of five Nigeria major Oil Companies that made use of IT in driving her HSE management system this research found to be highly rewarding to the entire workforce, employers, the public as well as core Safety practitioners. This tool was established as one of the factor that aids safe working environment. Some of the benefits that accrue from effective use of IT in the management of workplace safety and personnel health are: • • • • • •
Improvement in individual and collective personnel efficiency Eliminate job related fatigue that may have arise from excessive paper work Make safety review exercise faster and easier. Eliminate bottleneck in sourcing for health safety and environment information Improve networking among professionals Guarantee safer people, safe work and safer environment
8. CHALLENGES FACING THE USE OF INFORMATION TECHNOLOGY IN THE MANAGEMENT OF WORKPLACE SAFETY AND PERSONNEL WELL-BEING In Nigeria as well as in most West Africa countries and some poorly managed economies across the
Workplace Safety and Personnel Well-Being
world, the application of information Technology in business has been found to be underutilized. The reason for poor use of IT varies from one country to another likewise in the industries. Feedback from respondent on this topic confirmed this fact. Moreover, field experience of the researchers on IT and Safety Management in addition to verifiable fact that emanated from this research work recognized six major factors as vital challenges facing the use of IT in managing this very important area of global business. These challenging factors are: •
• •
•
•
•
Energy challenges especially in Nigeria with population of over 140million having access to just fairly above 2,000MW of power supply from Power Holding Company of Nigeria. Personnel literary skills in the use of IT facilities. Economic situation of the companies and that of individual due to loss of hard earn resources on other utilities services that government failed to provide for the citizenry. Poor awareness level on the application of IT in managing occupational safety & Health by most Nigeria and developing economies leaders and business managers. Over dependent on foreign nations for IT equipment. Thus propelled individual inability to procure IT equipment for personal safety enhancement due to high exchange rate and very poor per capital income of less than US$1,000 per Nigerian per year. Computer safety (e.g. virus)
9. HOW TO IMPROVE THE USE OF IT IN HEALTH SAFETY AND ENVIRONMENT Regardless of the current global challenges, Nigeria energy problem, the soaring foreign exchange
rate as well as low awareness level of higher percentage of Safety professionals in the use of IT, managers of business, the research noted can deploy various strategies to improve the use of IT in managing workplace safety and personnel well-being. These improvement strategies are: • • • •
Investment in personnel IT application training Procurement of IT monitoring equipment for safety purpose application. Increase in budgetary allocation for IT. Leadership commitment with strong political will to enforce an IT driving working environment that can guarantee safe working environment
10. CONCLUSION The issue of workplace safety and well-being the research observed as an essential aspect of very many global challenges within our reach. Information Technology was also established as viable tool for solving day-to-day problems. This research finding with other numerous authors view found IT to have pervaded almost all aspects of human life and environment. Therefore this paper encourage all business stakeholders to engage IT in managing their business numerous risks to achieve the goal of developing safer working environment, safer people and safer operation that can foster global economic development through optimum commitment. The use of IT will also act as motivator and encourage employee to go the extra miles in moving the firm forward in an accident free manner. Moreover, without IT, global investment, working environment and personnel health is doomed. Finally the invention, development and application of information Technology in Health, Safety and Environment practice the greatest achievement so far in managing human resources and her environment.
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Workplace Safety and Personnel Well-Being
REFERENCES Abdeali, A. (2007). Getting your message across. Singapore: Singapore Institution of Safety Officers. OGP. (1999). Guidance for working together (Contract Environment Rep. No. 6:64/291).
Tang, T. (2006). Workplace environment surveillance. Singapore: Singapore Institution of Safety Officers. Towlson, D. (2006). NEBOSH Internaational General Certificate in Occupational Safety and Health workbook. London: RRC Business Training.
Spicketti, J., & Brown, H. (2006). The importance of Risk Management in the Workplace. Singapore: Singapore Institution of Safety Officers.
This work was previously published in International Journal of Green Computing (IJGC), Volume 1, Issue 1, edited by Bhuvan Unhelkar, pp. 28-33, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 5.10
The Impact of Missing Skills on Learning and Project Performance James Jiang University of Central Florida, USA Gary Klein University of Colorado in Colorado Springs, USA Phil Beck Southwest Airlines, USA Eric T.G. Wang National Central University, Taiwan
ABSTRACT To improve the performance of software projects, a number of practices are encouraged that serve to control certain risks in the development process, including the risk of limited competences related to the application domain and system development process. A potential mediating variable between this lack of skill and project performance is the ability of an organization to acquire the essential domain knowledge and technology skills through learning, specifically organizational technology DOI: 10.4018/978-1-60960-587-2.ch510
learning. However, the same lack of knowledge that hinders good project performance may also inhibit learning since a base of knowledge is essential in developing new skills and retaining lessons learned. This study examines the relationship between information system personnel skills and domain knowledge, organizational technology learning, and software project performance with a sample of professional software developers. Indications are that the relationship between information systems (IS) personnel skills and project performance is partially mediated by organizational technology learning.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Impact of Missing Skills on Learning and Project Performance
INTRODUCTION The importance of technical and business skills and knowledge for information systems personnel has been advocated in the IS literature for decades (Cheney & Lyons, 1980; Jiang, Klein, Van Slyke, & Cheney, 2003). In spite of the recognized importance, empirical investigations that examine IS project performance focus too much on the tools rather than employee competence (Rose, Pedersen, Hosbond & Kraemmergaard, 2007). Partly, this is due to an inability to model this lack of skill such that a link becomes evident (Byrd & Turner, 2001). Why should empirical studies contradict experience? Possibly the relationships in an organization where IS personnel skills are applied have too many complexities to be modeled accurately. Could there be a mediating variable between IS personnel skills and IS project performance that further explains how to overcome this essential lack? Perhaps the intervention of certain learning abilities is essential in the ability to apply competences to new projects. Researchers have observed that activities during information system development and implementation offer an opportunity for organizational technology learning, or the ability and practice of bringing new skills and knowledge into the organization related to IS development and the application of IS tools to business domains (Ko, Kirsch, & King, 2005; Stein & Vandenbosch, 1996). For a successful IS implementation, skills must be brought to bear from the application domain and technical domains, which can best happen when the organization encourages the learning of newer skills and knowledge, and has practices to incorporate these newly acquired assets into current and future projects. In short, organizational technology learning is a critical factor for predicting final IS project performance, and a base of knowledge and skills in the IS project team are a necessary condition for organizational technology learning to occur. This suggests that organizational technology learning is a mediator between IS skills and
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knowledge and the performance of the IS project. Unfortunately, no empirical study has attempted to validate this reasoning. The focus of this study is, therefore, to examine the relationship from IS staff development skills and domain knowledge to project performance with organizational technology learning as a mediator. A positive result of this study will provide additional insights on IS skill research and provide an alternative explanation to the unsolved IS skills puzzle of Byrd and Turner (2001). From a survey sample of 212 Institute of Electrical and Electronics Engineers Computer Society members, the results indicate that the lack of system development skills and knowledge in the application domain have a direct negative impact on organizational technology learning and project performance. Furthermore, organizational technology learning has a significant positive impact on final project performance, showing that the impact of IS personnel skill levels on project performance is partially mediated by organizational technology learning.
HYPOTHESIS DEVELOPMENT Broad categories of critical IS personnel skills are identified, including (1) technical specialties/ technology management skills and (2) business domain knowledge and skills (Jiang et al., 2003). Unfortunately, given decades of emphasis, these IS skills were still not linked to IS project performance (Byrd & Turner, 2001). This may be due to the lack of an intervening variable similar to an established relationship between IS staff competency and firm performance where learning is a mediator (Tippins & Sohi, 2003). This study investigates the possibility of a variation on learning as a mediating variable in the project context between IS personnel knowledge and skills and IS project success. This research considers learning from the perspective of general technology skills acquired by the firm in the project context (Cooprider &
The Impact of Missing Skills on Learning and Project Performance
Henderson, 1990). Organizational technology learning is an organization’s furthered understanding of its operational business procedures and information system technology capabilities (Lee & Choi, 2003). The IS application development process itself can be viewed as an intensive activity of skill learning and knowledge acquisition (Rus & Lindvall, 2002). Such learning results in associations, cognitive systems, and memories that are developed and shared by members of an organization. These learned skills can then be used to enhance the performance of a software project and, thus, the organization. From concept generation to implementation, integration of skills and knowledge to achieve a desired product can be viewed as the central theme of the software development process. IS projects require such an in-depth set of skills and knowledge of application domains (Badaracco, 1991). Various project stakeholders (e.g., IS developers and end-users) bring different repositories of expertise, skills, knowledge, and perspectives to the project teams. This potential pool of skills held collectively by project stakeholders represents embedded knowledge (Schramer, 2000). The delivered system represents embodied (i.e., learned) knowledge – referring to how the technical knowledge and knowledge of application domain is formalized and incorporated in the design, functionality, policies, and features of a system. Okhuysen & Eisenhardt (2002) indicated that the successful integration and learning of embedded knowledge into embodied knowledge is the key to successful product and service developments. The information system development process is a process of converting embedded knowledge into embodied knowledge (Robillard, 1999). Proposed organizational practices to achieve this conversion can be found in various literatures on knowledge management, organizational learning, and employee education (Chiva & Alegre, 2005; Kayes, Kayes & Kolb, 2005). In particular, practices have been proposed to enhance knowledge management via information systems, promote learning dur-
ing development, and educating through training (Majchrzak, Beath, Lim, & Chin, 2005; Olfman, Bostrom, & Sein, 2003; Sher & Lee, 2004). As a result, a relatively stable and accessible body of embedded knowledge that exists within the project team may become a necessary condition for an occurrence of organizational technology learning and improved project performance. The notion of organizational entities, like project teams as vehicles for integrating fragmented knowledge, is the core of knowledge-based theory (Grant, 1996). Some knowledge is codified in documents or embodied in procedures and policies, and much is held tacitly in the minds of individuals. The development of new products and services require combining both tacit and explicit knowledge held by many individuals (Kogut & Zander, 1992). Many of the “run-away” IS projects can be related to either embedded customer or technical knowledge that are difficult to be embodied in a system: vague requirements, new technologies/ methods, new development methodologies, new ideas, and changing user needs. To be successful, technical knowledge and knowledge about user functions and needs must be learned by the organization and embodied in the system design and implementation. Based upon the above discussion, we propose the following research model (see Figure 1). We propose that the lack of system development technical knowledge and the lack of application domain knowledge will negatively impact organizational technology learning, and, in turn, negatively impact final project outcomes. For learning to occur, it is accepted that certain conditions must be in place in the organization. One seeming catch-22 is that existing knowledge must be in place for learning to occur (Cohen & Levinthal, 1990). In this instance, learning is not merely the sum of the basic knowledge and skills of the individuals, but the structure in place to retain and transfer knowledge throughout the organization (Schulz, 2001). This by itself indicates that individual knowledge is not sufficient to guarantee that organizational technology learn-
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The Impact of Missing Skills on Learning and Project Performance
Figure 1. Research model of risk impact on learning and performance
rived from the knowledge. A previous knowledge base is important to the rapid dissemination and assimilation of the knowledge required to exploit technology and adopt new technology into productive domain applications (Ko et al., 2005). In addition, diversity of knowledge is important for further learning in order to place new knowledge in a corporate context (Fichman & Kemerer, 1997). Based upon absorptive capacity theory and existing studies demonstrating the importance of previous knowledge, we expect: H1a: There is a negative relationship between the lack of system development skills and organizational technology learning. H1b: There is a negative relationship between the lack of application domain knowledge and organizational technology learning.
ing will take place. Knowledge and skills must be the collective of a project team that can be directed to accomplish the goals of a software development project (Schulz, 2001). Absorptive capacity is a theory-based explanation of this phenomena (Cohen & Levinthal, 1990). The basic premise of absorptive capacity is that the IS project team must have prior related knowledge and skills to assimilate and utilize the new knowledge. Research in other fields supports this premise. Memory development research suggests that an accumulation of prior knowledge improves the ability to store new knowledge and the ability to recall and use knowledge as skills (Bower & Hilgard, 1981). Furthermore, lack of knowledge in the appropriate context limits the ability to make new knowledge intelligible (Lindsay & Norman, 1977). New knowledge must be exploitable as skills and depends upon the transfer of knowledge within the organization (Sarin & McDermott, 2003). Essentially, a lack of knowledge blocks organizational access to further knowledge and the ability to utilize the skills de-
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Risk-based software engineering describes why software project uncertainties have an adverse impact on performance (Boehm, 1991). According to this theory, project uncertainties can be viewed as risk drivers that increase the performance risk of the project. The purpose of software engineering is to manage the particular sources of project risks and lead to a successful project development. If this holds, then project performance depends upon the reduction or control of the various risks in place, including those associated with knowledge deficiencies on the part of the IS development staff. Research based upon the analysis of risk in project environments supports this notion (Jiang & Klein, 2000). Researchers and practitioners have indicated that the lack of knowledge on the part of the IS staff is a significant project risk that could negatively impact a project’s outcome (Schmidt, Lyytinen, Keil, & Cule, 2001). In the IS skill literature, Jiang et al. (2003) found that the lack of skills was correlated with project failures. Based upon the risk management theory and above discussion, we expect that:
The Impact of Missing Skills on Learning and Project Performance
H2a: There is a negative relationship between the lack of system development skills of IS staff and project performance. H2b: There is negative relationship between the lack of application domain knowledge of IS staff and project performance.
H3: There is a positive relationship between organizational technology learning and project performance.
Various learning models incorporate the concept of feedback (Argyris, 1999). Singleloop learning is defined as matching expected consequences to those incurred from action and correcting the actions when a match is not present. Double-loop learning occurs when the mismatch causes a reflection on the underlying rules and principles of the system. This mechanism is similar to the feedback and control mechanisms of cybernetic (control) theory (Henderson & Lee, 1992). In projects, when expectations are not met, this creates feedback that is then used in a learning process to prevent the errors in the future. Thus, when organizational technology learning occurs, subsequent errors in the software development projects are reduced through either corrective action or reformulation of the principles of practice. Performance improvement by learning is a general assumption in learning research (Lee & Choi, 2003; Sarin & McDermott, 2003). A study on shared knowledge has found positive relationships to group performance (Nelson & Cooprider, 1996). Project teams pursuing project goals are usually defined to be groups along the lines of those whose performance can be improved by shared knowledge (Klein, 1991). Organizations benefit from knowledge management practices implanted during system development and completed system projects (Fedor, Ghosh, Caldwell, Maurer, & Singhal, 2003; Sher & Lee, 2004). This process of sharing knowledge is considered one form of learning (Schulz, 2001). Thus, based on limited empirical results and the adaptive learning model, we expect support for:
Sample
RESEARCH METHODS
Questionnaires were mailed to 1,000 randomly selected IEEE Computer Society members. The letter salutation was directed to software engineers. This sample is likely familiar with software development activities and, thus, appropriate for study. Instructions in the letter told the targets to consider their responses in light of their most recently completed software development project. From the initial mailing and a follow-up, 221 responses were received. Nine questionnaires were eliminated due to missing data, leaving a final sample of 212 used in the data analysis. Demographic features of the sample population are in Table 1. Non-response bias occurs when the opinions and perceptions of the survey respondents do not accurately represent the overall sample to which the survey was sent. One test for non-response bias is to compare the demographics of early versus late respondents to the survey (Armstrong & Overton, 1977). T-tests on the means of key demographics (work experience, gender, recent project duration, and team sizes) to examine whether significant differences existed between early and late respondents in the first mailing, and from those received in the first mailing to those in the follow-up mailing, found no significant differences. Since all independent and dependent variables were collected from the same subject at the same time, common method bias was assessed using Harman’s one-factor test (Podsakoff & Organ, 1986). Two models, a single factor model and a four-factor model, were created and tested in EQS. The model fit indices of single factor model
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The Impact of Missing Skills on Learning and Project Performance
Table 1. Demographic information 1. Gender Male 189 Female 23 2. Position: IS Manager 55 Project Leader 71 IS Professional 75 Others 8 3. The industry type of your company: Service 110 Manufacturing 78 Education 12 Others 6 4. Average IS project duration in your organization: 1 years and under 85 1 – 2 years 75 2 – 3 years 23 3 – 5 years 11 6 or more years 13 5. Average size of IS project teams in your organization: 7 and under 113 8 – 15 69 16 – 25 13 26 and over 13
(GFI=0.514, CFI=0.564, Chi-Square = 1343.264, df =152, RMR=0.231, and RMSEA=0.193) are worse than the model fit indices of three factors model (GFI = 0.849, CFI = 0.928, Chi-Square = 343.6, df =146, RMR=0.068, RMSEA=0.08) indicating that common method bias will not be a potential problem in the following analysis.
Constructs Project performance is a comprehensive view that includes meeting project goals, budget, schedule, user requirement, and operational efficiency considerations. This is also reflected in the information systems literature in terms of meeting system budget, meeting delivery schedule, fulfilling user requirements, the amount of work produced, the quality of work produced, and an ability to meet project goals (Jones & Harrison, 1996). The items used in this study were adopted from a previous study (Henderson & Lee, 1992). The questionnaire asked respondents’ satisfaction with the project
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team performance when developing information systems. The specific items are listed in Table 2. Each item was scored using a five-point scale ranging from criterion not met at all (1) to criterion fully met (5). All items were presented such that the greater the score, the greater the satisfaction of the particular item. Organizational technology learning describes the technology knowledge being acquired by the firm (Cooprider & Henderson, 1990). This instrument was applied in previous studies involving organizational technology learning (Cooprider & Henderson, 1990). Three items were used to measure this construct and are shown in Table 2. Respondents were asked to indicate the extent of the items typically incurred when developing IS applications in their organization. Each item was scored using a five-point scale ranging from never occurring (1) to always occurring (5). All items were presented such that the greater the score, the greater the extent of the particular item occurred during the system development. Lack of application domain knowledge relates to the IS staff’s knowledge of the new application areas. Lack of system development skills is the IS staff’s overall lack of expertise of the development methods used during system development. These two risks are all based on items proposed in earlier studies (Barki, Rivard, & Talbot, 1993; Jiang, Klein, & Means, 2000). The items associated with each of these risks are in Table 2. All items were presented such that the greater the score, the greater the extent of the particular item present during the system development projects.
Analytical Procedures The analysis followed a two-step procedure. In the first step, confirmatory factor analysis (CFA) was applied to develop a measurement model describing the nature of the relationship between a number of latent factors and the manifest indictor variable that measures those latent variables. In step two, the measurement model serves to test the
The Impact of Missing Skills on Learning and Project Performance
Table 2. Measurement model – confirmatory factor analysis Construct Indicators
Loadings
T-value
Project Performance (α=.90) Ability to meet project goals
.79
12.64*
Expected amount of work completed
.76
11.98*
High quality of work completed
.82
13.43*
Adherence to schedule
.75
11.87*
Adherence to budget
.71
10.30*
Efficient task operations
.76
12.09*
.86
13.31*
Organizational Technology Learning (α=.80) Knowledge is acquired by your organization about use of key technologies Knowledge is acquired by your organization about use of development techniques
.83
12.69*
Knowledge is acquired by your organization about supporting users’ business
.57
7.95*
Lack of System Development Skills (α=.87) Lack of expertise in the development methodology used in projects
.84
13.86*
Lack of expertise in the development support tools used in projects (e.g., DFD, flowcharts, ER model, CASE tools)
.90
15.41*
Lack of expertise in the project management tools used in projects (e.g., PERT charts, Gantt diagrams, walkthroughs, project management software)
.79
12.68*
Lack of expertise in the implementation tools used in projects (e.g., programming languages, data base inquiry languages, screen generators)
.62
9.03*
.68
10.25*
Lack of Application Domain Knowledge (α=.86) The members of the development team are unfamiliar with the application types Insufficient knowledge of organizational operations
.89
14.97*
Lack of knowledge of the functioning of user departments
.95
14.04*
Lack of expertise in the specific application areas of new systems
.71
10.71*
theoretical model of interest. The indicators used to present the latent variables in the theoretical model tested are identical to those presented in the measurement model. This analysis step may be described as a path analysis with latent variables. The path model consists of the unobservable constructs and the theoretical relationships among them (the paths). It evaluates the explanatory power of the model and the significance of paths in the structural model, which represent hypotheses to be tested. The estimated path coefficients indicate the strength and the sign of the theoretical relationships. Three important assumptions associated with path analysis are: 1) normal distribution of the variables examined; 2) absence of multicollinear-
ity among the variables; and 3) a limit on the maximum number of variables in the model. To test for normality, Mardia’s multivariate kurtosis and normalized multivariate kurtosis tests were conducted. No violation was found. Multicollinearity is present when one or more variables exhibit very strong correlations with one another. The correlations between variables (see Table 3) were all less than.80, thus no present (Anderson & Gerbing, 1988). When conducting a CFA, if the model provides a reasonably good approximation to reality, it should provide a good fit to the data. The CFA for the measurement model resulted in a root mean square residual of.07 (<=.10 is recommended), a chi-square/degree of freedom ratio of 2.41 (<= 3
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The Impact of Missing Skills on Learning and Project Performance
Table 3. Descriptive analysis and correlations of measures Organizational Technology Learning
Lack of Development Skills
Lack of Application Knowledge
Project Performance
3.64
2.64
2.47
3.52
Mean Std. Dev.
.83
.93
.8
.75
Median
3.67
2.75
2.50
3.67
Skewness
-.34
.09
.07
-.51
Kurtosis
-.26
-.56
-.50
.22
Correlations Lack of Development Skills
-.36 (.0001)
Lack of Application Knowledge
-.37 (.0001)
.64 (.0001
Project Performance
.54 (.0001)
-.46 (.0001)
is recommended), a comparative fit index of.90 (>=.90 recommended), and a non-normed fit index of.89 (>=.90 recommended) using the SAS CALIS procedure. The recommended values are based on research traditions and established authors in the field of structural equation modeling (Bentler, 1990). The measurement model was adequate for the data set. Convergent validity is demonstrated when different instruments are used to measure the same construct, and scores from these different instruments are strongly correlated. Convergent validity can be assessed through t-tests on the factor loadings, such that the loadings are greater than twice their standard error (Anderson & Gerbing, 1988). The t-tests for the loadings of each variable are in Table 2. The results show that the constructs demonstrate a high convergent validity since all t-values are significant at the.05 levels. In addition, the reliability of each construct is examined by the Cronbach alpha value, all of which exceeded the recommend level of.70 (Nunnally, 1978). A threat to external validity occurs if the sample shows systematic biases in terms of demographics. An ANOVA was conducted by using project performance as the dependent variable against each
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-.36 (.0001)
demographic category (as independent variables). Results did not indicate any significant relationship to project performance. Similar results were found for the remaining variables in the model. The external validity of the findings is also threatened if the sample is systematically biased – for example, if the responses were generally from projects that are more successful. Table 3 shows the descriptive statistics for the construct. The responses had a good distribution for project performance since the mean and median were similar, skewness was less than two, and kurtosis was less than five (Ghiselli, Campbell, & Zedeck, 1981). Similar results held for the remaining variables. Lastly, external validity is improved if the measures are similar to those found in other studies. In our case, the project performance measure matches within 2% to two other studies (Henderson & Lee, 1992; Jones & Harrison, 1996). Discriminant validity is demonstrated when different instruments are used to measure different constructs and the correlations between the measures of those different constructs are relatively weak. Discriminant validity is accessed by using the confidence interval test (Anderson & Gerbing, 1988). A confidence interval test involves calcu-
The Impact of Missing Skills on Learning and Project Performance
lating a confidence interval of plus or minus two standard errors around the correlation between factors and determining whether this interval includes 1.0 (or -1.0). If the interval (for each pair of constructs) does not include 1.0, discriminant validity is demonstrated. No violations were found.
Results The theorized model in Figure 1 fit the data reasonably well, with a root mean square residual of.08, a chi-square/degree of freedom fit of 2.47, a comparative fit index of.88, and a non-normed fit index of.86. Hypotheses H1a, H1b, H2a, H2b, and H3, were all supported at the.05 significance level. The high R-square value (.49) indicated that the independent variables included in this model were all critical to the project performance. The strengths of these relationships, path coefficients, are on Figure 2.
Figure 2. Research model path coefficients
DISCUSSION The importance of system development skills and business domain knowledge for IS personnel has been advocated in the IS literature for decades. However, empirical examinations that investigated the relationship between these skills and system success provided conflicting results (Byrd & Turner, 2001). To provide an alternative explanation of the IS skill puzzle in the literature, this study proposed that organizational technology learning is a mediator between the lack of system development technical skills and application domain knowledge and project performance. Results indicate that risk of lack of skills and knowledge adversely impacts IS software development projects and interferes with the organizational technology learning required to help overcome the risks. Furthermore, organizational technology learning was found to promote project performance. For researchers, this study complements existing literature in several respects. First, learning does not take place unless a set of knowledge and skills is in place to use as a foundation (Cohen & Levinthal, 1990). This result has specific consequences to the limited framework of the study but also puts forth the idea that risks thought to be associated with project performance may impact other organizational processes and remedies. Second, lack of knowledge and skills is shown to be a large risk to the performance of projects. This study confirms the IS skill literature that a lack of skills does have a negative impact on project performance. Third, the positive relationship between IS skills and project performance may be explained by the mediator -- organizational technology learning. This extends the mediation results found in the organizational setting to the project environment (Tippins & Sohi, 2003). It provides an alternative explanation for a lack of positive relationships between IS skills and project performance in previous studies. Some natural actions to promote learning of the technology may be needed for the newer developments (Schulz,
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2001). Additionally, a direct link between organizational technology learning and the performance of IS projects is established. This goes beyond the literature that considers success limited to the completion of learning, the dissemination of new ideas, or the adoption of new methodologies. For practitioners, the results encourage management to seek ways to overcome risks associated with knowledge deficiencies. The IS personnel literature contains studies of composing teams that have a variety of knowledge and skills (Jiang, Klein & Balloun, 1998). This goes along with a need for a diversity of knowledge and skills. The knowledge management literature supports this knowledge diversity through examples of loyalty in personnel and cross-fertilization of specialties (Nonaka & Takeuchi, 1995). A set of knowledge must be present in order to acquire more knowledge and must be present in the individuals in order for the organization to acquire and utilize the knowledge as applied skills (Cohen & Levinthal, 1990). Hiring practices must be set to ensure the requisite variety and background in the organization as a whole and in the individual expected to grow the knowledge and skills of the organization. Organizational policies or practice may also contribute to the ability to overcome lack of knowledge and skills. Training is still an effective tool in the preparation of employees; however, the organization must appropriately target the training. Employees, or groups of employees, with limited background may not gain as much as employees with a stronger background. Employees with a broad technical, business, and liberal arts background have a larger learning set to grow from than do employees with strictly a technical background. Appropriate structures that promote growth of knowledge should serve to leverage existing knowledge (Nonaka & Takeuchi, 1995). Knowledge systems within an organization serve to distribute the knowledge more widely (Davenport & Prusak, 2000). Each of these techniques must be carefully weighed to determine their value in overcoming deficiencies. Just as importantly,
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the correct knowledge must be targeted. Application knowledge is crucial to the development of a system as well as in the satisfaction of clients (Ramasubbu, Mithas & Krishnan, 2008). The study is limited by its scope, which is narrowly defined to include only certain skill components, and only learning that occurs about technology application. However, it does confirm existing learning theory. A bigger limitation is on the risks considered. Risks are not isolated and are often interrelated. The control of one risk factor may lead to an associated increase in another. Key learning elements, however, can assist in the management of risk and uncertainty (Perminova, Gustafsson & Wikstrom, 2008). As such, establishing learning as a priority can be an important part of a risk management plan. Continuing to follow the procedures associated with learning can thus become an important element in project success.
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This work was previously published in Best Practices and Conceptual Innovations in Information Resources Management: Utilizing Technologies to Enable Global Progressions, edited by Mehdi Khosrow-Pour, pp. 288-301, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Recruiting, Selecting and Motivating Human Resources: Methodological Analysis and Case Studies Applications Konstantinos C. Zapounidis Aristotle University of Thessaloniki, Greece Glykeria Kalfakakou Aristotle University of Thessaloniki, Greece
ABSTRACT This paper’s aim is to analyse practices adapted by different enterprises regarding personnel motivation and human resources approaches to increase their productivity and profitability while examining the methodology of human resources recruitment and selection used by different kinds of enterprises, which cannot exist without human manpower. The objective of this paper is to analyse methods and tools used by several enterprises in DOI: 10.4018/978-1-60960-587-2.ch511
motivation and in human resources recruitment and selection. Regarding motivation, the basic aim of the process adapted was to define whether each enterprise was closer to the participating or to directive management model. Especially in the recruiting and selecting process IT could add important value since adapted IT processes could lead to quicker and more successful transparent results. IT professionals could organise these processes for every enterprise in order to become standard, formulated, and even more accredited procedures which would lead to successful recruiting and selecting results.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Recruiting, Selecting and Motivating Human Resources
INTRODUCTION The environment in which enterprises are operating is extremely competitive and in order to survive, they have to react to the new circumstances, including globalisation, new technologies, innovation and collapse of economic barriers. Moreover, low productivity is a common problem faced by an increasing number of organisations world-wide. When in an enterprise the productivity is not managing to keep up pace with the increasing work cost, then effectiveness, but also the existence of the enterprise, is under important threat. Requirement for each enterprise is competitiveness, productivity, quality and finally efficiency. The objective of this paper is to analyse methods and tools used by several enterprises in human resources recruitment and selection, taking into consideration the aforementioned requirements (Vaxevanidou, 2008; Chitiris, 2001) and, moreover, to examine motivation methods used by them. For this scope important is the role that the human resources recruited provides. The human resources, in the field of organisations and enterprises or the human capital, in the field of society in general, are considered as basic pivot of development and whilst up to now they were defined inductively, a tense is presented to be assessed in knowledge (new and dissemination of existing) and skills (education and training). Human resources are the only factor that could activate and develop all the production elements, in order an enterprise to operate and successfully accomplish all its objectives. Great and successful enterprises are formed by human capital, whilst enterprises fail or are low efficient, as employers could not or are not willing to participate in the objectives’ accomplishment. Machinery, computers, installations and the rest factors of production, do not think, learn, try and of course do not set objectives in order to decide what and how to perform. Furthermore they are not motivated, they do not act collectively and they do not have expectations and needs to de
fulfilled. All these characterise the human nature and action (Chitiris, 2001). The quality of Human Resources is characterized, without any doubt, first priority for a “competitive economy” and for balanced social development. This recognition is depicted in operational level, through the quest and adaptation of methods used for investment’s value assessment and for education and training of production mechanisms. Regarding motivation, the question that derives is what the reasons of low productivity are. A number of executives are pointing as reason for low productivity the decrease of personal motives and the minimisation of “will to work”. Moreover, the decline of devotion to the organisation in correlation with weakening of their commitment to the ethical laws for work is another important factor. The aforementioned explanation has been challenged repetitively by experts on human resources management, based on an important number of results. According to these results, it is proved that, as a rule, an individual human being “wants” to work, “wants” to be productive and to contribute to the organisation’s development. Supporters of the so called “motivation school” support that if the productivity of employees is inadequate, management has not succeeded to apply in a right way the conclusions of the modern science related to work environment attitudes. Rivals as the aforementioned lead to the conclusion that it is difficult to define what the “real” answer for low productivity is. To succeed a common accepted answer, a number of parameters should be taken into account as the possibility that motivation experts and academics could be wrong and the option that individuals are not willing to work or are obliged to work and for this reason do not perform in an efficient way. It is easily perceptible how important Human Resources Management is when it is applied in the right way, in order an enterprise to acquire, preserve and develop capable employers, who will execute their role efficiently and success-
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fully. Indicatively actions that Human Resources Management includes are (Chitiris,2001): • • • • • • • •
Planning of Human Resources Job analysis Recruitment and selection of capable human resources Education and Training Employers’ efficiency evaluation Employers; wages Employers’ protection Negotiation of working relations
The aforementioned actions are interrelated and inter-depending in such a degree that the successful or not execution of one influences the rest. It is obvious that the on time and rational planning of human resources influences the efficiency of actions of recruitment, selection and education, whilst the inefficiency of the system influences human resources planning. In order to highlight the interrelation of human resources actions, it is deliberate to consider them as subsystems of the human resources management system. Each transformation of one of the aforementioned sub-systems (or of their elements) influences the operation and efficiency of the whole system. Human Resources Management, considered as an open system, accepts inputs (human resources) and is being influenced by factors and limitations of the external business environment. Adapting the appropriate processes seeks the accomplishment of specific outputs-objectives, as the qualitative and quantitative performance of the employers, the positive working conditions, high motivation level (Werther, 1996). As it can be conclude, Human Resources Management is a tough project, multi-sectoral, requiring knowledge and art by all involved individuals (Human Resources Managers or not) (Chitiris, 2001). Basic factors for the successful and effective function of an enterprise or organisation constitute the recruitment and the selection of ideal execu-
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tives and workers for any level of hierarchy. The basic aim therefore is that all stages can be comprehensible for an objective and effective selection of the particular candidate for the particular vacancy should be accomplished. It is vital, that the qualifications and the experience which an enterprise requires to be precisely determined, before the enterprise commences to search for the suitable candidate for the job vacancy. This can be achieved with the meticulous job-description and the thorough definition of the candidate specification (Chitiris, 2001; Hindle, 2001). The job-description is useful as a map and as a compass on the direction that each employee is obliged to have for the implementation of the work. It describes in every detail all the content and the breadth of work that it should be executed by the holder of the position (Vaxevanidou, 2008). The candidate specification, or personnel specification, as it is frequently called summary of the knowledge, skills and personal characteristics required of the job to carry out the job to an acceptable standard of performance (Cole, 1999). The next step is the attraction/seeking of human manpower, as it is called the process of inviting of suitable individuals with regard to their knowledge, experience and skills, so that they can correspond to the job required (Leigh, 2001). There are two basic methods of seeking ideal candidates for covering the vacancies: 1) the Internal Attracting/Seeking with the exploitation and upgrade of the existing personnel, and 2) the External Attracting/Seeking via the external environment of the company. Both sources of attracting/Seeking have advantages and disadvantages; thus their combination helps the enterprises to remain competitive in a rapidly altered environment. The observation of an electronic database with the characteristics of the employees, the notification of the vacancy via the company’s table of statements or the company’s publications, the internal system of promotion, the workers’ references and finally the recruitment of former workers of former candidates constitute the in-
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ternal seeking process. The external sources of attracting are various and differ in terms of cost and effectiveness. The most usual are the following: the contact with the Offices of Interconnection of the Universities and Polytechnic Colleges of the country, the contact with technical and professional faculties of specialisation, the communication with the Organisms of Employment of Workforce and the local unemployment agencies, the interaction with the private agencies, the collaboration with companies of benefit of services and selection of executives, the communication with relevant enterprises of the branch that proceed in redundancies, the transcription of executives from corresponding competitive enterprises of the branch (Vaxevanidou, 2008; Chitiris, 2001; Hindle, 2001). Then the process of the selection follows. According to the requirements of each vacancy, a practical combination of examining methods – steps is used, so that all essential information for each candidate arises. In each one of those steps it is possible that the candidate could be rejected; the analytic description of these steps is: First of all, the person in charge (interviewer) examines the CVs and the applications of employment (accompanying letters) that the candidates have sent and divides them into three groups as follows: very suitable - must be interviewed, quite suitable - call for interview if insufficient numbers in previous category, or send holding letter, not suitable - send polite refusal letter, thanking them for their interest in applying (Cole, 1999). If there are numbers of very suitable candidates, then it may be necessary to have one “first” interview of short duration, aiming at the reduction of the suitable candidates who will pass from the “main” selection interview in an acceptable number (Chitiris, 2001). The next step is the second phase of the selection process, the interview, which is the most common technique used for selection purposes. It is very important to be properly prepared before an interview. It enables the interviewer to feel confident in himself about his key role in the
process, and enables him to exploit to the full the information provided by the candidate. It also helps to minimise embarrassment caused by constant interruptions, inadequate accommodation and other practical difficulties. Questioning plays a vital role in a selection interview, as it is the primary means; which information is obtained from the candidate at the time. Questions have been categorised in a number of different ways, however it is enough to distinguish between closed questions, which require a specific answer or a Yes/No response and open questions that require a person to reflect on, or elaborate upon, a particular point in his own way. Open questions invariably begin with what? How? Or why? It is usual to ask closed questions to check information which the candidate has already partly supplied on his application form, and to re-direct the interview if the candidate is talking too much and/ or getting off the point. Open questions tend to be employed once the interview has got under way, with the object of getting the candidate to demonstrate his knowledge and skills to the interviewer (Cole, 1999). Open questions are probably more useful in the interview, since they allow the interviewer to observe the communication dexterities of the candidate (Hindle, 2001). There are three conduct methods of an interview: one-to-one basis, a two-to-one situation and the panel interviews. By the panel interviews it is ensured the fairness of the proceedings, since more interviewers evaluate the candidates and finally agree for the suitability of the candidate. From researches it has been found that it is required relatively few time in order the interviewers to reach a consensus over the suitable candidates. What is critical for the effectiveness of the interview of this type it is the good collaboration and the co-ordination of the examiners. There are several disadvantages, however - the candidate will find it difficult to feel at ease in such a formal atmosphere; the individual; panel members may be more concerned about being cued for their
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questions than being concerned to listen to what the candidate is saying (Cole, 1999; Roth, 1992). There are three basic types of an interview; the standardised where concrete rules for all candidates without exception are applied, the structured where predetermined structure is followed but not necessarily common for all candidates, and the “free” interview, with the form of a free flowed dialogue between the interviewer and the candidate. Besides the interview, the candidate can simultaneously pass from various tests, according to the nature and the requirements of the vacancy. The basic function of the tests is the measurement of the dexterity and the behaviour of the candidate in different cases and under special conditions (Vaxevanidou, 2008).The tests can be divided in a lot of ways; however, the most acceptable way of classification is in two big categories; the attainment tests and the personality tests. With the attainments tests can be measured the possibly highest performance of the candidate, while with the personality tests can be examined the main characteristics of his personality. The assessment centres is an alternative way of selection in which the candidates for high graded vacancies are subjected to an amount of questions and exercises. The processes, which are applied, are about the evaluation of the candidates’ skills with regard to important sectors of professional activity. It is found from researches that the assessment centres, as a selection method, give reliable and valid results. The disadvantage of this method is its high cost and that it time consuming process. It is vital, after every interview, concerning the suitable evaluated candidates, that a confirmation of the information they give in their CV or during the interview be done, on terms of their signed authorisation. As far as the selection decision is concerned, there are two methods; the subjective, which is based on the personal evaluation and the objective, which is based on the results of a statistical analysis (Chitiris, 2001).
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Furthermore, it is vital for particular jobs that medical examinations are done by the new employee, either because there is a relevant relation to the implementation of his work, or in order to exclude the possibility of transmission of dangerous illnesses in the working place. In any case, the physical health of the candidate should be controlled after offering the job. The recruitment under trial gives the opportunity to the company to examine the new employee in practice, to find his skills and to be sure that he possesses the ability to perform the job required. This method is applied for a period of time (one or two years) mainly by the most banks and the biggest organisations. Finally, the employee’s integration is the last and most important step, that the companies usually neglect, since it is between the end of the selection process and the beginning that that the employee undertake his new role (Leigh, 2001). The new-employees’ integration in the company constitutes one of the main functions of the Personnel Management, since it has an essential role, not only for the employees’ performance, but also for their long stay in the company. Managing a company or an enterprise and achieving its targets requires the cooperation of human resources. The administrative actions are characterized by the efforts to motivate work force and to equate company’s objectives with workers’ objectives. The presence of a worker in a company’s project does not contribute towards the promotion of company’s objectives. The contribution could be either positive or negative, depending on the similarity of objectives. Every project team member is considered to be basically a passive element that could be motivated, could produce, but could not undertake initiatives. Thus the activation of the work force in order to produce is the baseline of every managerial effort. Two are considered to be the basic issues that preoccupy the administrative hierarchy of a company:
Recruiting, Selecting and Motivating Human Resources
1. The finding of the level that employees could support efficiency or could increase efficiency in correlation with overall objectives accomplishment. 2. What are the motives related to the efficiency of the employees, in which level these are related to work productivity and in what degree a motivation system could be adapted, in order to support the effective motivation of human resources towards a predetermined direction.
•
•
METHOD Participants The scope of the approach adapted was not to compare organizations of similar characteristics but organizations of different fields that could be activated in the same industry (especially in the construction industry). The reason of such a selection was the fact that the type of the offered services affects in an important degree the recruitment and selection process and, moreover, the motivation policy and the level of employees’ participation. Two groups of organisations under investigation were created; one in order to examine recruitment and selection and one in order to examine motivation. Selecting the organisations that formed the sample for distributing the questionnaires was based on the aim to cover the following 4 axes: 1. 2. 3. 4.
Local Characteristics Construction industry. Private and public sector. Word wide range local enterprises.
The sample of Human Resources’ Selection and Recruitment Sample was consisted of the following enterprises:
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•
•
A Societe Anonyme of the public sector, with 278 employers. The Human Resources Manager and responsible of administrative matters answered the questionnaire, whilst more details of the organisation are not publicised due to their request. An important technical construction company, activated and constructing important projects all over Greece and abroad, either by itself or conglomerating with other companies of the sector. It has 100 employers, whilst this number could be increased depending in the number of the undertaken projects. More details of the organisation are not publicised due to their request. The third company was a local development agency. Its activities are prescribed by the wider European philosophy, for more essential decentralisation, with active contribution in the planning and management of the development resources, through the coordination of all local institutional authorities. The detection, research, promotion, support and realization of integrated proposals for the growth is achieved through the productive exploitation of national and European financial support and development programs. It has 32 employers, depending in the number of projects undertaken. A medium-sized company of the sugar products’ sector. 50% of its production is sold in Greece whilst the rest 50% abroad. It has 40 employers. More details of the organisation are not publicised due to their request. A local branch of a private bank (established in 1982). It has 10 employers and the answers were given by the 2nd manager.
The sample of Human Resources’ Motivation Sample was consisted of the following enterprises:
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•
•
•
•
•
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A technical company constructing private projects (Organisation No.1). The company is activated mainly in the sector of building constructions, covering issuing building permits and constructing private owned buildings (either as constructorsdesign and build or as developers-design, build and sell). The company employs ten individuals and is operating for more than twenty years. The selection of this company was based on the fact that it reflects the typical example of a small company with two owners (engineers with horizontal relationship). The company is considered as medium sized, at local level. An important technical company of general construction operations (Organisation No. 2), employing more than forty individuals. The company is producing private and public works nationally. Moreover, they own concrete production premises, for internal and external, to the company, projects. A factory (Organisation No. 3) producing ready to use concrete (last of the construction industry sector). The company employs ten individuals and is operating for more than twenty years. A participative company which produces, standardises and trades local agricultural products word widely (Organisation No. 4). It constitutes a pilot pioneering company at national level, exporting products in important markets, as the European Union and Russia. The company employs forty to fifty individuals, depending on the production level. As typical sample of the private sector, the local branch of an important Greek bank (Organisation No. 5) was selected, having fifteen employees. The local branch of a public sector organisation (Organisation No. 6). For this specific organisation, it must be noted, that
the director responsible of answering the questionnaire could not answer all questions, as some of them could not be applied in the public sector. These questions were answered by a private sector expert, of the same profession discipline as the responder.
MATERIALS AND PROCEDURE Regarding recruitment and selection three types of questionnaires were produced (closed type graded, closed type of two alternatives, open type). The questionnaires were produced for the scope of this paper and were used for first time within this paper’s framework. Regarding motivation, the questionnaire was based on the research work of Dr. E.S. Stanton (1982), Professor of Management in the Business Administration School of St. John University-New York. The initial thirty questions were adapted at local level and the questionnaire was enriched with fourteen more questions. Each question-proposal is graded from one to four depending on its subject. The possible answers to these questions were: totally agree, generally agree, generally disagree and totally disagree. In the end the grades are added, leading to a possible range of total grade between 44 and 176. The answers were weighed in the way that the lowest total grade results to adaptation of directive management model whilst the highest grade results to adaptation of participating management model, by the organisations under examination. All enterprises under examination were based in the same local environment (Pieria, Greece) and a predefined questionnaire of closed type was addressed to them.
Procedure The completion was consisted of the following steps:
Recruiting, Selecting and Motivating Human Resources
1. Questionnaire composition 2. Distribution of the questionnaires to the executives responsible for human resources management and employment relations. 3. Provision of time in order the questionnaires to be studied and analysed. 4. Predefined on-site meetings and interviews for possible specifications. 5. Questionnaires collection.
RESULTS Human Resources’ Selection and Recruitment Analysis Graded closed-type questionnaire offered four different possible scaled answers: Always-OftenSometimes-Never. Regarding the 25 questions of the graded closed-type questionnaire, these were divided in 4 categories: firstly the questions which displayed “absolute identification” of answers; all companies answered “Always” or “Never”, secondly the questions which displayed “identification” where the companies answered “Always-Often” or “Sometimes-Never”, thirdly the questions which displayed “big dispersion”; in this category the answers “Always” and “Never” occurred simultaneously (possibly the intermediary answers occurring as well) and finally the questions that displayed “small dispersion” with the answers “Often” - “Sometimes” - “Always”
or “Often” - “Sometimes”- “Never”. Grouping as aforementioned, led to the following results: 12% of the answers displayed “absolute identification” and “identification”, while 32% of the answers displayed “big dispersion”. The highest percentage of the answers showed “small dispersion”, which is 44%. As far as the closed-type Questionnaire of two alternative choices is concerned, the 12 questions were grouped in 2 categories: in the questions with two alternatives choices as an answer and in the questions with the additional choice “Combination” of the above mentioned answers, as some of the under investigation companies couldn’t give as an answer one of the two alternatives excluding the other. The questions of the opened type questionnaire couldn’t be possible to be grouped in any way; thus its answer are analysed further below.
Closed-Type Graded Questionnaire The answers provided by the under investigation companies/organisations in the closed-type graded questionnaire are presented according to the grouping aforementioned; identification and dispersion of answers. Absolute identification was pointed in the fact that for each enterprise the general direction is always responsible for the selection process; whilst interviews are always take place within the enterprises premises.
Figure 1. Graded questionnaire: Grouping of answers based on identification-dispersion factor
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Figure 2. Two alternatives questionnaire: Grouping of answers based on combination or selection one of the answers
Identification was presented in the fact that the recruitment of formerly rejected candidates is sometimes necessary because of the specialised type of the services (local development agency and public sector company). Regarding big dispersion, in three companies, the responsibility for the selection process is not taken by the Department of Human Resources Management. This was expected for the two of them (industry of food, local development agency), since they do not have such a Department. The Human Resources Management Department always decides for the selection only in the Public sector company, where the decision of the selection belongs equally to this department; perhaps because of the enormous size of the human resources that recruits. Relatively to the available database, a high dissemination between the answers is observed. As it is also observed, the companies with limited workforce do not hold a database with the characteristics of its each employee or they occasionally hold; while the companies with considerate workforce do that, always or often. An exception of the sample constitutes the local development agency, which despite the limited number of its personnel, always holds a database,
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because of the specialised type of services and the limited offer of work at local level. Regarding small dispersion, the internal recruitment of human manpower is being preferred by the companies that allocate a high number of human resources, compared to the external recruitment (technical company and public sector company). When the personnel is vast, there is the possibility of allocating different responsibilities to people of different sectors, according to the requirements of each position and the experience that they acquired during their professional background in the company. This is a little more difficult to be achieved by a small sized company, which prefers the exterior attraction of human manpower. Nevertheless, most of the companies often give the possibility of recruitment to candidates from other country - members of the European Union. The reason is the international dimension of the used methodology and the use of the English language that is required for the management of many projects, as well as the use of standardised personnel. Only two companies exclude that possibility (bank and the food industry). For the most companies, former employees of a company are never being recruited again. The companies which are excluded have a lot of contract based projects (local development agency, technical company), so it is very likely that a former employee with experience on that specific field will be recruited. In the rest of the companies the employment is depended, which means that the employee resigns either with his will, or is being fired because his employer is not satisfied with his performance. General identification can easily be observed in the answers of the local development agency, the Public sector company and the technical company. It can be ascertained that the common characteristic, which the three companies have, is the formality that distinguishes them with regard to practically but at the same time very important subjects of the selection process. It is also remarkable the recruitment of former employees by these companies; a reasonable explanation for that con-
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stitutes the specialised work in these companies that requires specific qualifications. Finally, an obvious identification in the negative answers of the food industry company and the bank is equally observed because of the standardised work that is considered at the recruitment of personnel.
Closed-Type Questionnaire of Two Alternative Choices The conclusion that anyone can easily reach is that most questions - proposals that required the addition of the answer “Combination” concerned the qualifications that the ideal candidate should possess in order to be recruited by the company; such qualifications are for example the experience, the specialisation, the quantitative and qualitative characteristics, the technical and communication skills. Furthermore, the question concerning the preference of men or women for the recruitment constituted an issue of major interest. The questions that were answered with the two alternative choices concerned the highest percentage the elements of the selection - interview, as for example the type of the questions, the method of the interview and the tests. The conclusions about the answers that were given in all questions - proposals are presented in groups.
With regard to the qualifications that the ideal candidate should have, the overwhelming majority (60%) of the companies (technical company, food industry company and bank) considered that the time experience at work is more important than the specialization. The 20% (public sector company) considered that the specialisation is more important; while also at the same percentage (local development agency) didn’t trace any difference in the degree of the importance between the two qualifications and both of them are being required. The technical dexterities outweigh the communicational skills, according to 40% (Public sector company and technical company), while just the 20% (bank) answered the opposite. It is also remarkable that the 40% of the companies (the local development agency and the food industry company) answered that both dexterities are equally important; that shows that the candidate is examined on terms of technical and communication skills. The companies with low manpower are these companies which considered equally important both dexterities. They included the communicational skills, perhaps because in a small working environment proper working relationships and friendly atmosphere enhances performance. On the contrary, in the big enterprises is given prior-
Figure 3. Important qualifications
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Figure 4. Important dexterities
ity in the technical dexterities, as usually impersonal relations prevail between the workers. Particular interest presents the fact that mostly (60%) (technical company, food industry company and bank), the candidates who are overqualified are rejected because of their high economic requirements they will probable demand. The public sector company recruits them only, as the more qualifications do not play any particular role in the salaries of the public sector. Even if it influences the salary, the state budget has the possibility of covering the difference. Whether overqualified Figure 5. Overqualified candidates
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candidates will be recruited by the local development agency, depends on each project case and on their specialized services. Particular interest presents also the fact that, the majority of the companies (60%) (public sector company, technical company and local development agency) does not present any certain preference regarding the recruitment of men or women, while 40% (food industry company and bank) prefer men. As it appears, in the companies with high manpower and the necessary academic background a certain preference does not exist. This shows that the women have been henceforth equally accepted with the men in the professional sector. A reasonable explanation for the preference of men over women by the industry of food is perhaps the limited presence of women in that field. In what concerns the subjects of the selection interview process the following factors should be taken into consideration: The companies use mostly (60%) (technical company, local development agency and food industry company) the method of the “free” interview, while a lower percentage (40%) (public sector company and bank) use the standardised interview. The public sector functions are, in general, more standardised than the private sector. That is also observed in
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the bank because of its obligatory organisational structure. All companies prefer to conduct “open” typed questions. All companies also consider the personality tests more important than the learning aptitude tests. On the contrary 80% of companies consider the attainment tests more important than the personality tests. An obvious exception constitutes the bank, as it gives priority to the communicational skills contrary to the technical dexterities. There is an absolute identification in all answers between the technical company and the food industry company, apart from the question that concerns the preference of men or women at work. In what concerns the interview part absolute identification is traced in the answers among the above mentioned companies and the local development agency. It is remarkable that the public sector company shows an absolute identification with the bank on the interview grounds, whereas an exception is the preference of the attainment tests instead of the personality tests, while in what concerns other issues there is total incoherence. Finally, there is a relative harmony at the answers of the public sector company and the answers of the local development agency.
Open-Type Questionnaire Although the open-type questionnaire is not susceptible to standardised answers, the following conclusions have been reached after the relative analysis. As for the question whether the companies have a Department of Human Resources Management, the answers are mainly positive. Only two of our sample (local development agency and food industry company) do not have such a Department and do not also consider its existence important. These companies have a common characteristic which is the small size of their personnel (30-40 individuals); this number is not sufficient to justify the operation of such department. An exception constitutes the bank, which despite the few indi-
viduals of its personnel (10 individuals) does have a Department of Human Resources Management, because of its obligatory organisational structure and its total size of the personnel at national level. The individuals who carry out the interview are mostly two or three. There is always a representative of the Human Resources, if there is such a Department or from the administration of the company (the Director or a C.E.O.), if there is not. There are also one or two executives from the corresponding sector. In the case of the technical company the interview is conducted by the Director of the corresponding department. Initially most companies always or sometimes recruit the candidate for a trial period of 4 to 12 months. Only the local development agency does not follow this method of recruitment, because the contracts of the company have concrete time duration and keep pace with the programmatic periods which are financed by the European funds. The examiners are mainly influenced by the combination of the curriculum vitae and the impression that they acquire about the candidate’s personality during the interview. The candidate’s body language during the interview has a major impact on all companies provided that the candidate corresponds in the requirements of the position. Characteristically, public sector company supports that the body language may reveal more than the interview itself. Finally, the candidate is submitted in attainment tests only in two companies (the public sector company and the local development agency), when it is required by the work-position; because the public sector is more standardised, the submission of candidates in tests is expectable. Likewise tests are expected in the local development agency, where specified knowledge is demanded due to the specialized type of the services which offers. It is therefore concluded that there is an agreement in the majority of the answers that the companies provide. General identification is found in the following companies: food industry company and the bank, the public sector company and the
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bank. Considerable disagreement is observed in the following companies: the local development agency and the technical company, the public sector company and the technical company.
HUMAN RESOURCES’ MOTIVATION ANALYSIS All organization under examination have gathered total grade above 110 (average grade:(44+176)/2), characterizing their management style closer to the participating model. Despite the differences of each organization under examination, mainly due to the fact that they have different size, they are activated in different industries (construction, agriculture, finance) or in different sectors of the same industry, the grade range was rather narrow, 122-112=10, leading to 10/176=5,68% of total range. In the organizations of the construction industry (No.1, No.2 and No.3) there is an important spread, mainly based in the different size but also in the different sector of action (private construction, public construction, concrete production). In this way, organization No. 1 is defined as the most participating, as personal relations are important between the owners but also within the hierarchy. Moreover, the organization size is not so enormous, especially in comparison with organization No.2. Rather higher than expected proved to be the participation level in the local branches of the private bank (organization No.5) and of the public sector organization (organization No.6). The reasons could be the increased level of familiarity due to local based environment and the obvious tense for participation and collaboration. The higher grade was the one of organization No.4, which was an expected result, since this organization operates based on quality management systems (for management and production) as HACCP and ISO 9001. Another interesting point that resulted from the analysis is the percentage of coincidence in
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the answers of all organizations, examining the percentage of coincidence and dispersion in their answers. This analysis was based on the grouping of the answers in four different categories: those that presented total coincidence (either totally agree or disagree), those that presented important coincidence (agree either totally or generally and disagree either totally or generally), those that presented high dispersion and those that presented important dispersion (one of the answers were different than the others). Six of the forty four questions presented total coincidence of answers, leading to a percentage of 13.64%. The proposals with coincidence are those stating that: the income is determining independently of the age and family status, the employee who works hard should be rewarded accordingly and in time, when tasks are appointed full details should be described, employees should be asked regarding their tasks and plans, not only financial factors affect the employees. Although the range of total grades is limited to 5.68% (Figure 6), the total and important coincidence is not proved to be so high (13.64+25.00=38.64%). Generally, high dispersion (36.36%) exists, nevertheless all organization were laying in the side of participating model. It is proved thus, that no “rule” exists to characterize a participating organization, due to the existing disperse of opinions. Regarding the type of organizations, important results emerged. Local characteristics outweighed the possible barriers of participation in the national public and private bodies (organizations No.5 and No.6). Multi-sector action (even in the same industry) leads to more directive management of human resources (organization No 2). Organizations with typical production process (organization No.3) present limited participating style due to the standardized production process. The requirement for ideas and proposals (organization No.1) leads to higher participation level.
Recruiting, Selecting and Motivating Human Resources
Figure 6. Total grade of each organization
Finally, all responders were rather cautious, whilst public sector responder required full discretion. All responders agreed that they do not recognize threat as a motivation method, which is rather satisfactory. The sector of Human Resources Management including motivation is not incorporated in the wider management framework of the organizations, which could be expected for local based organizations. Human Resources Management is implemented (in the level that it
is possible) by directors-founders-owners and not by experts of the discipline.
DISCUSSION The general conclusion drawn for human resources’ selection and recruitment is that the companies that follow a similar, if not a common process of personnel recruitment are the following: the
Figure 7. Coincidence-dispersion of answers
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public sector company and the local development agency, the public sector company and the bank, the food industry company and the bank. Regarding the recruitment and selection process, the highest percentage of the enterprises applies the following: Firstly, a form of description is drawn up. The internal attraction of the human manpower is preferred especially by those companies who detain a database with the characteristics of the candidates. In general the personal contact does not influence the companies about the selection – decision. Furthermore candidates who were rejected or released in the past are not being recruited. The percentage of the recruitment of women is the same as men. Remarkable is that candidates from other country - members of the European Union are also being attracted. The newspapers are being used more as a source of attracting, whereas under no circumstances the radio is used. With regard to the qualifications that influence the selection - decision, the experience in the subject of the position is more important than the specialisation. The possession of a postgraduate title constitutes an extra qualification and not a condition for the recruitment. The technical dexterities are also very important, without undermining the importance of the communication skills. Overqualified candidates mostly are not being recruited because of their high economic expectations. The interview is carried out mainly by a committee (a representative of the Human Resources Department and two from the responsible department of the position) in the working place. The method of the free interview with open typed questions is used. The personality tests and the attainments tests are being considered as the most important, although these are not being applied in most companies. Furthermore the initial recruitment is under trial for a period of time. Finally the Management of the Company rather than the Human Resources Department holds total responsibility for the final decision.
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IT processes could support several of the aforementioned steps of a selection and recruiting procedure. IT professionals could support these steps by providing tools and methodologies that could add value to the processes but also increase the transparency factor, along with the procedure speed and, overall, lead to successful selection of the more suitable candidate for each working position. Outcome of the analysis regarding motivation processes was that although organizations motivate their employees, mainly by prompting them to participate in different levels of decision making, and are positioned closer to the participating management model, their approach was rather un-organised and based mainly on interpersonal relations. Generally, it is proved that organizations although positioned closer to the participating management model, they have important opportunities for adapting and developing motivation models and organising leadership tactics. These tactics could be supported by IT professionals that could introduce the required IT tools for successful results in leadership and motivation.
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Burke, R. (1999). Project Management: Planning & Control Techniques. New York: John Wiley and Sons Ltd. Chitiris, L. (2001). Human Resources Management. Athens, Greece: Publications Interbooks. Cole, G. A. (1999). Management theory and practice (5th ed.). Edinburgh, UK: Letts. Dimou, N. (2003). Personnel Management (2nd ed.). Athens, Greece: Ellin. Dvorak, D. E. (1988). References, resumes and other lies. Industry Week. Fletcher, C. (1992). Ethics and the job interview. Personnel management. Fyock, C. D. (1991). Expanding the talent search: 19 ways to recruit top talent. H.R Magazine. Hindle, T. (2001). How to recruit and select. Athens, Greece: Ellinika Grammata. Hough, L. M. (1990). Criterion - related validities of personality constructs and the effect of response distortion on those validities. The Journal of Applied Psychology, 74. Iacocca, L., & Novak, W. (1984). Iacocca: An Autobiography. New York: Bantam. Kantas, A. (1995). Organisational and industrial psychology. Athens, Greece: Greek Letters. Leigh, A. (2001). 20 ways to manage better. London: Chartered Institute of Personnel and Development. Likert, R. (1961). New patterns of Management. Industrial & Labor Relations Review, 17(2), 336–338. Likert, R. (1967). The Human Organisation. New York: McGraw-Hill. Mathis, R. L., & Jackson, J. H. (1994). Human resource management. St. Paul, MN: West Publishing.
Maylor, H. (2003). Project Management (3rd ed.). London: Pearson Education Limited. McDaniel, M. A. (1989). Biographical constructs for predicting employee suitability. The Journal of Applied Psychology, 74(6). doi:10.1037/00219010.74.6.964 Munchns, G. (1992). Check references for safer selection. H.R. Magazine. Polyzos, S. (2004). Management and Planning of Projects. Athens, Greece: Kritiki. Robertson, I., et al. (1990). The validity of situational interviews for administrative jobs. Journal of organizational psychology, 11. Roth, P. L., & Camprion, J. E. (1992). An analysis of the predictive power of the panel interview and pre-employment tests. Journal of Occupational and Organizational Psychology, 65. Seitanidis, P. (1987). Personnel Evaluation (2nd ed.). Athens, Greece: Galaios. Sherman, A., Bohlander, G., & Snell, S. (1998). Managing human resources. Cincinnati, OH: South-Western College. Stanton, E. S. (1982). Reality-Centered People Management Key to Improved Productivity. New York: Amacom. Storr, A. (2006). Fraud. Philadelphia: Naxos/ Audiofy. Tadman, M. (1989). The past predicts the future. Security management, 33(7). Vaxevanidoy, M., & Reklitis, P. (2008). Human Resources Management Theory and Act. Athens, Greece: Propobos. Werther, W. B. Davis, Jr., & Davis, K. (1996). Human resources and personnel management (5th ed.). New York: McGraw-Hill.
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Zapounidis, K., Kalfakakou, G., & Athanasiou, V. (2008). Theories and Models of Motivation and Leadership, Case Study Application. In Proceedings of the PM-04 - 4th SCPM & 1st IPMA/MedNet Conference on Project Management Advances, Training & Certification in the Mediterranean.
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This work was previously published in International Journal of Human Capital and Information Technology Professionals (IJHCITP), Volume 1, Issue 2, edited by Ricardo Colomo-Palacios, pp. 19-35, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 5.12
Knowledge Management in SMEs Clusters Josep Capó-Vicedo Universitat Politècnica de València, Spain José V. Tomás-Miquel Universitat Politècnica de València, Spain Manuel Expósito-Langa Universitat Politècnica de València, Spain
ABSTRACT This chapter highlights the necessity of establishing relationships with other companies and external agents in order to empower the creation and diffusion of knowledge, through factors such as innovation. Likewise, the influence of geographical and territorial factors will be studied in the context of this economy. SMES normally work and are immersed in particular geographical regions so this chapter will analyze the particular case of knowledge generation and sharing in SMES clusters as an essential source of competitive advantage. A new organizational DOI: 10.4018/978-1-60960-587-2.ch512
form will be suggested in order to make possible the creation, transfer and sharing of knowledge in supply chain of SMES clusters. In this sense, a network functioning model is finally proposed.
INTRODUCTION In recent years, the balance between knowledge and resources has changed so dramatically in the developed economies that the former has become the most decisive factor in relation to standard of living. Knowledge has become even more important than traditional resources such as land, machinery and work. However, the existence of economic systems based on small and medium
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enterprises (SMES) represents an important barrier for transition to take place from traditional economies to those based on knowledge. It is important to distinguish between the individual and the organizational level of competences. The individual competences are necessary, but not sufficient, for organizational competence. A high level of organizational competence requires mechanisms to facilitate the conversion of individual, or tacit knowledge, into explicit organizational knowledge, as can be seen in some of the most important Knowledge Management models, particularly in Nonaka and Takeuchi’s (1995). But, besides the organizational level itself, the importance of the external sources of competence and knowledge must be borne in mind, especially in the case of the SMES, which lack the potential, size and resources to be self-sufficient in this area. It is extremely important to establish the necessary mechanisms to acquire new competences and knowledge from outside sources. These range from the recruitment of staff to the interaction with other organizations such as, consultants, clients and suppliers, other firms, universities or research centres, training organizations, banks or public administrations. For these companies, cooperation with others of their same size or larger is a strategic alternative that allows them to take benefit of the competitive advantages of the companies with which they have decided to associate themselves. If these agreements are carried out among a large number of companies, they can knit a lattice of relationships that create compact networks through the links established. In order for this configuration to take place, the existence of an environment which guarantees a series of factors that allows for this configuration and Knowledge Management among the participant companies becomes necessary. In the particular case of SMES, the fact that the companies are located in a certain territory can favour greater product specialization, greater flexibility and a considerable increase in competitiveness.
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The grouping in function of a group of abilities, knowledge, technologies or markets, can be a catalyst that impels the innovative process in companies. In this case, the existing implicit knowledge in a territory plays a vital role, by means of the establishment of mechanisms of collaboration and participation, formal or informal, of the different public and private agents of the territory. This chapter will analyze the particular case of SMES located in a certain territory, forming clusters or industrial districts. Firstly, a brief literature review about Knowledge Management at an inter-organizational level will be carried out. The particular case of industrial districts of SMES will be dealt with, studying the importance of the network concept in order to improve the Knowledge Management process at this level. A new organizational form, based on the Virtual Enterprise will be lastly suggested in order to make Knowledge Management possible in this specific case. A dynamic knowledge network will be proposed, represented within a mechanical analogy, in order to better understand the Knowledge Management process.
RELATION BETWEEN KNOWLEDGE MANAGEMENT AND THE ORGANIZATIONAL AND ENVIRONMENTAL CONTEXTS There is a strong interrelation between knowledge and the organizational and environmental contexts, since it is precisely in this area that knowledge will be generated, so that their features will have an influence on the way in which it is created, transmitted and used. Each specific context will require a different form of Knowledge Management, as well as different support systems for this management. This becomes even more evident when we go outside the limits of a simple organization and talk about inter-organizational Knowledge Management. We may find it necessary to form a relationship or deal
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with organizations whose experience, languages and contexts are very different from our own, and therefore also with their Knowledge Management systems, which may not be perfectly “compatible” with ours. This will mean new organizational ideas will be necessary for businesses, and also an environment of trust and collaboration between enterprises to facilitate the creation and distribution of knowledge. Knowledge management will therefore involve (besides distinguishing between the various types of knowledge, such as tacit and explicit, individual and collective, and the means by which it is transmitted) thinking about the interdependence that exists between knowledge and the organizational context (Ciborra and Andreu 2001).
Brief Literature Review Most of the existing literature on Knowledge Management in an inter-organizational context refers to horizontal relationships between two or more partners, while very few authors deal with vertical relationships between suppliers and clients, i.e., in the supply chain. In any case, most of the results obtained from horizontal relationships are perfectly valid for the vertical type. Whatever the kind of relationship established, the studies carried out indicate that a large number of inter-organizational relationships are unsuccessful. Consequently, many of the studies into collaboration between enterprises aim at trying to discover the reasons for these failures, as well as the factors that are vital to success. From another vantage point, Ding and Peters (2000) indicate that to achieve effective innovation businesses must form relationships with other enterprises. To be precise, collaborative interorganizational networks increase the capacity for innovation of the enterprises that compose them, since they facilitate the transmission of knowledge from one company to another. The same authors review the existing literature on Knowledge Management and conclude that the practices in this
field vary from one enterprise to another. This, they conclude, facilitates the flows of knowledge and at the same time permits innovation, providing that these collaborative networks are created and managed correctly. Another analysis of inter-organizational Knowledge Management was carried out by Levy et al. (2003) where they introduced the term “co-opetition” to show that both co-operation and competition could take place at the same time, as for example in the case of SMES grouped in clusters. This term includes the transfer of knowledge that could be vital to achieve a competitive advantage for the SMES, by means of using the knowledge gained by co-operation to compete in the market. Levy et al. create a work context based on the theory of games to analyze the transfer of knowledge between organizations through “co-opetition”. This study centers on the SMES, since they consider that these kind of enterprises are good knowledge generators but cannot or do not know how to properly utilize it.╯ In another study, Grant (2001) indicates that the key to efficiency in the integration of individual knowledge into the production of goods and services lies in creating mechanisms that avoid learning costs. He suggests that if each individual has to learn what all the others know, the benefit of specialization is lost. In the case of strategic links between enterprises, he states that in many cases the interest is in gaining access to the knowledge of the other partners rather than in acquiring new knowledge. Such access permits a better utilization of resources based on knowledge, which is advantageous for the business when there is uncertainty as to technological change, for example. Grant (2001) also indicates that there are occasions when better integration and diffusion of knowledge are achieved by collaborating with another enterprise rather than by internal collaboration (as in the case of the supply chain of Toyota, or in the SME networks of the north of Italy, for example). This is due to the fact that be-
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tween different enterprises informal relationships are usually created, based on common interests and the will to share experiences, which is much more effective than the more formal processes of the enterprise when knowledge is integrated and transferred. Apostolou et al. (2003) talk about creating networks of knowledge in the field of the Extended Enterprise, indicating that both innovation and competitive advantage increase through the creation and exploitation of knowledge chains. Besides research already mentioned, Knowledge Management papers at an inter-organizational level, that focus on certain sectors, can be found; in the construction sector, Bresnen and Marshall (2000), Cushman (2001) or Egbu and Botterill (2001) can be mentioned; Apostolou et al. (1999) analyze the development and use of cooperation tools, based on the Internet, to facilitate the transmission of knowledge through distinct organizations that form part of the wood and furniture sector. Lastly, some authors that propose models for Knowledge Management at an inter-organizational level can be found, such as Nonaka et al. (2000) or Ciborra and Andreu (2001). These authors start from intra-organizational Knowledge Management models to later study their applicability outside their own organization.
Environmental Factors In the previous section, the importance in the literature of the environment and of the organizational context for knowledge creation and transmission at an inter-organizational level has been analyzed. In short, the importance of creating new organizational forms, by means of which this process is facilitated, has been mentioned. In order for this configuration to take place, the existence of an environment which guarantees a series of factors that allows for this configuration and Knowledge Management among the participant companies becomes necessary. This
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environment should constitute a true business ecosystem that guarantees the following points (Camarinha-Matos, 2002); Trust building, Common interoperability, ontology and distributed collaboration infrastructures, Agreed business practices, Sense of community and Sense of stability. This is especially important in the case of SMES since, because of their characteristics (lack of resources, lack of defined managerial strategies), they have difficulties in thinking about innovation and Knowledge Management. In this particular case, the fact that the companies are located in a certain territory can favour greater product specialization, greater flexibility and a considerable increase in competitiveness. The grouping in function of a group of abilities, knowledge, technologies or markets, can be a catalyst that impels the innovative process in companies. In this case, the existing implicit knowledge in a territory plays a vital role, by means of the establishment of mechanisms of collaboration and participation, formal or informal, of the different public and private agents of the territory. Theories on endogenous growth point to knowledge generation and technological innovation as the true drivers of local (or regional) strategic change. These factors, as opposed to the simple accumulation of capitals, conclude in the innovation of products and processes. Various authors have made similar propositions from different fields: Sabel (1992); Porter (1994); Sweeney (1987), Pyke and Sengenberger (1990), Benko and Lipietz (1994), Becattini (1990), Bagnasco, (1977), Brusco (1982), Cagmani (1992). Therefore, the competitive advantage of the economies and firms seems to reside mainly in their innovation capacity. This corresponds to “know-how” which is, in fact, one of the aspects of the tacit knowledge. It should be considered also that both knowledge dimensions could be effective only if they are supplemented with other factors linked with economic development: physical, social, and organizational assets.
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If we keep in mind, as Scott (1989) points out that “the quality of life of the inhabitants of a territory come, ultimately, from the competitiveness of the firms located there, that is to say, of the capacity of those to produce and sell their products and services to the world, with positive economic results in a sustained way”, it seems that the measures implemented to develop Knowledge Management and generation of the firms located in a territory and concentrated around a cluster would contribute to the improvement of the quality of life of the citizens. In the European case, the preponderance of SMES in the economy represents a barrier to the transition from the traditional economies to those based on knowledge. In this sense, it should not be forgotten that the limited resources of the SMES do not favour their managers or owners in dealing with the processes of strategic change, absolutely necessary in the current scenarios of the new global economy. This circumstance is also reflected in the management patterns followed by most SMES that tend to deal with more short-term problems rather than focus on strategies in the short and medium term. Thus it could be said that SMES tend to adopt a reactive more than a proactive attitude to changes in the environment. In relation to technological change, the EIMS study (European Commission, 1996) points out that the traditional SME tends to deal with it as a contingency, something that appears suddenly and needs to be negotiated if it cannot be avoided, more than as an opportunity (Dankbaar, 1998). Today, after a technologically stable era, many of these companies face radical and rapid changes in their productive processes: digitalization, new systems of the production, etc. A more critical fact is the rejection of the managers of SMES (and especially those in the South) to face the problems of technology in a proactive way. This fact has to be kept in mind by the Public agencies of Innovation when promoting Programs of technology transfer to the SMES.
Equally, SMES tend to value more the information coming from its own environment as the already mentioned EIMS study points out. Also it should be taken into account that not only technical information and knowledge can be a barrier to innovation. Again the EIMS studies point out that commercial technological information is a demand in the innovative process of the SME. In parallel, these problems are more acute in certain territories (the intermediate regions) at a distance from the centres of information (mainly located in urban areas) or where the IT culture has not yet been extended. The clustering strategy consists in the monitoring of the main economic agents of a territory with the purpose of facilitating them information about their optimum success alternatives. These policies are harvesting excellent results in some of the most dynamic regions in the world, with an industrial district profile, when it has been applied to networks of SMES: the Emilia Romagna in Italy, Scotland in UK, Arizona, the Silicon Valley, highway 128 in Boston, New Zealand, Catalonia and the Basque regions in Spain, Finland, etc. The firms of these advanced clusters adopt coordinated strategic change decisions starting from the mutual knowledge of their possibilities. And, in function of them, carry out managerial cooperation activities when designing projects and carrying out developments, which due to their span could reach at individual level with difficulty, being SMES. For the above reasons, the development of specific tools is required to systematize the formulation of clustering strategies and to find the know-how which will empower the local systems of innovation and, with them, the decisive factors of the territorial competitiveness. The recovery of the marshallian theory on industrial districts by Becattini (1987; 1989), starts from the parallelism of the polarized localization of SMES, registered in Italy in the decades of the 70s and the 80s, and the industrial reality of the
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textile and metallurgists industrial districts existing in Great Britain in the XIX century. The direction that seems to take the technological change of the last half a decade, in the measure that facilitates the delocalization of the production and the quick transport of goods, seems to renovate the initial conditions foreseen by Alfred Marshall (1919) for sustaining industrial districts, facilitating the proliferation of small specialized companies that work jointly in well defined areas and with certain outputs in a market open to international competition. The cluster approach derives from the model of Porter (1990), which tries to explain why some nations attain sustained higher levels of productivity. Here the relevant questions appear to be: a) which environmental factors at national or regional level propitiate the development of competitive industries at international level?; and (b) Which are the governing bodies best suited to activate these factors? Porter recurs here to his known diamond model. The strategic school has brought an alternate view on the cluster structure view (Porter, 1990). According to this school of thought, firm performance will be dependent on its favourable position within the structural competitive forces (bargaining power, rivalry, barriers to entry, etc.). A second strategic school of thought (Dyer and Singh, 1998) has recurred to the resource-based view of the firm (Barney, 1991; Rumelt, 1984, Wernerfelt, 1984) to propose that firm competitive advantage may draw from inter organizational relationships: interfirm relation- specific assets, knowledge sharing routines, complementary resources and capabilities and effective governance. This theory links the cluster approach with technology absorption capacity and Knowledge Management. A third school of thought develops these concepts by adding certain elements: building the knowledge repository, the interfirm relationships such as firm leadership, and the global cluster connections.
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KNOWLEDGE MANAGEMENT IN SMES NETWORKS Existing Knowledge Management models will be applicable to SMES provided that the companies involved fulfil certain conditions. These conditions can be summed up in one; companies must establish relationships in such a way that a dynamic network is established in which learning barriers are eliminated so that knowledge can flow freely from one to another. Another point to be considered is if the environment in which the companies operate will have a big influence on their Knowledge Management system. If there is to be a positive interaction between different companies and a knowledge interchange and creation process is to be produced, a series of requisites must be fulfilled that include similarity of systems of management, culture, language, objectives, etc. that do not always occur between two companies in a relationship. That is to say, all the components of each value chain must give their total commitment to creating a climate of cooperation and mutual trust. This is only possible with a durable and stable collaboration in which both partners are equals, so that links are developed and knowledge is exchanged in what is known as knowledge networks. This approach is very close to the concept of the “industrial atmosphere” of the Marshallian industrial districts. It could be described the qualities that companies must have to be successful in the knowledgebased economy. These qualities are of special importance in the case of the SMES since, if they do not occur it will be impossible to generate, acquire, transfer and combine knowledge among them in such a way as to produce satisfied customers. These general requisites are based on the need for an organizational structure in the SMES, encouraging cooperation between businesses in networks and clusters, the latter being especially important for localities and regions. The key to gaining competitive advantages in the knowledge-
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based economy lies in the capacity of companies and other organizations to acquire and absorb knowledge and exploit it to develop new products and processes and to learn from the best practices. It is therefore important, among other factors, to strengthen links with other companies and organizations by establishing inter-organizational networks. Unquestionably, in the end, the directors of the SMES will have to realise that they will be able to generate more value for their companies within a network than in going it alone. Therefore a change of mentality is necessary and a new business culture must be created in which the exchange of knowledge is facilitated in such a way that the tacit knowledge possessed by their employees can be shared and utilised by the entire organization. Within the necessary organizational changes in the SMES there are two important possibilities for cooperation, which are not mutually exclusive and could even be regarded as complementary; cooperation within a geographic region (clusters) and cooperation among businesses (networks).
Cooperation in a Geographic Region The world we live in has become a global economy in which the use of ICT and advanced logistics enables relations to be established between businesses in any part of the world. Nevertheless, in order to establish successful inter-organizational relations or alliances it is important to be able to count on the so-called business ecosystems (Camarinha-Matos, 2002), i.e. on environments favourable to networks of businesses that use similar strategies and practices, where there exists mutual trust among the companies involved, as well as an atmosphere of community and stability. Such favourable ecosystems or environments can be found for instance in the form of networks of specialised companies, concentrated in certain localities in a large number of advanced countries (Italy, Spain, etc.) in the form of clusters or industrial districts.
The fact that businesses can be concentrated geographically in the form of clusters is a key factor for the SMES in their evolution towards the knowledge-based economy. Some companies are finding out that they can get more benefit from their organizational knowledge, even increasing their competences, within an interactive cluster that possesses informal inter-business links favourable to the creation and transfer of knowledge. The study of clusters is not new, but goes back to the Marshallian concept of industrial districts. When transport costs were still high and raw materials were the most expensive cost item, businesses tended to gather around zones with abundant natural resources or around big cities. Nowadays, firms tend to stay close to one another, in search of a reserve of trained workers and specific local infrastructures. Porter (1998) asserts that clusters can be an important source of a sustainable competitive advantage. The firms that compose the cluster can obtain economies of proximity, for example, and even obtain economies of scale through the specialization of the individual companies, joint purchase of raw materials, etc. On this aspect, as regards the range of knowledge, the proximity of institutes, universities, etc., these are proving to be more important factors than the mere fact of being in a geographical cluster. Another important factor in clusters is the fact that, although it may sound paradoxical, the grouping of businesses is of great importance, in spite of the advances in the ICT, since the correct assimilation of tacit knowledge and innovation needs an environment of cooperation and mutual trust among people, who are more easily reachable in such circumstances. Regarding this aspect, the ICT have not yet been able to achieve better results in the exchange of knowledge (not information) than interpersonal relations.
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Interorganizational Networks as Source of Knowledge and Innovation
Territorial Interorganizational Networks
Innovation varies significantly among firms (Cohen and Levinthal, 1990; Dosi, 1988) and it is probably the best indicator of the creation of value (Hitt et al., 1996). Innovation refers to the conversion of knowledge into new products, services or processes to be introduced on the market (or the introduction of significant changes into existing ones). More specifically, innovation and firms’ capacity to innovate can be associated with the capacity to combine and exchange knowledge resources (Kanter, 1988; Kogut and Zander, 1992). Resources in networks include information, products and personnel, as well as support for these resources. Moran and Ghoshal (1996) have argued that new sources of value are generated by means of new exploitations of resources, and more particularly through new ways of exchanging and combining resources. Either way, since the pieces of knowledge to be combined may reside in different parties, the exchange of information becomes a requisite for combination and thus for knowledge creation (Cabrera and Cabrera, 2002) Undoubtedly, knowledge and innovation come both from internal and external sources, yet in the recent strategy and innovation literature a great deal of emphasis has been placed on determinants that are external to the firm. These factors refer to the positive externalities firms receive in terms of knowledge from the environment in which they operate (Van Waarden, 2001). More specifically, interorganizational relationships create opportunities for knowledge acquisition and exploitation (Dyer and Singh, 1998; Lane and Lubatkin, 1998). As the embeddedness perspective argued, access to external innovation sources is associated with the characteristics of the interactions of the firm with other actors in the social networks.
Proximity can be expected to shape social networks by producing a dense structure and strong ties. Therefore, firms benefit from efficiency by exploiting existing opportunities through sharing high quality information and tacit knowledge as well as through cooperative exchange. If geographical dispersion prevents or hinders the generation of routines and redundancies of the interactions, face-to-face interactions between actors induce the frequency and redundancy of the ties (McEvily and Zaheer, 1999). In short, proximity provides frequent, repeated, non-marked, informal contacts, all of which facilitate strong ties and the density of the network of ties. However, one of the primary concerns for researchers is how to generate the growth of cluster development within the context of dynamic innovation systems. Lock-in is part of the positive as well as the negative story of clusters because it is the capability to innovate within exclusive networks that provides the key that locks in learning capacity. Grabher (1993) referred to the risk of lock-in and group-thinking, particularly when the cluster has to cope with external changes. Only when that learning has been superseded and new knowledge is not absorbed does lock-in become a problem (Cooke, 2002). As we understand it, cluster membership produces far more than a proximity effect for firms. Cluster firms enjoy a number of relations which are unavailable to external firms. In terms of structural holes, we know about the existence of local institutions within the cluster that act as intermediary agents by providing contacts with external, otherwise unconnected, “actors” belonging to very different circles. In the context of territorial networks we suggest that, rather than creating this portfolio of ties internally, firms can use external parties (but which are still within the cluster network) to connect themselves to disperse and weakly tied
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networks. Among possible third parties, we focus on local institutions. We can conceptualize that as bridging social capital. Individual and organizations with geographical proximity forms groups that determine attitudes, beliefs, identities and values. At the same time to form part of a group determine access to resources, opportunities and power. It may have a high social capital within the group (bonding social capital) which helps members, but they may be excluded from other groups (they lack bridging social capital). It can be distinguished two types of social networks, bonding social capital as reinforcement of homogenous groups whereas bridging social capital as bonds of connectedness that are formed across diverse social groups (Putnam’s, 2000). In conclusion firms must participate in multilevel networks in order to be provided by knowledge and information required for innovation process. In the following section we analyze different interorganizational networks.
THE MOST IMPORTANT TYPOLOGIES OF INTERORGANIZATIONAL RELATIONSHIPS In recent years many studies have been on the subject of interorganizational cooperation. In this chapter we will follow the classification proposed by Trienekens and Beulens (2001) in which they distinguish vertical relationships in the Value Chain and the Supply Chain, from horizontal relationships in the business background including the theory of networks of businesses engaged in the same industry. As has been mentioned in the introduction, the SMES will have to make changes in the form of their organizations and of doing business in order to evolve and adapt themselves to a knowledgebased economy. These changes will have to include the creation of interorganizational cooperation.
The most usual type of cooperation will be an association with its own suppliers and clients or cooperation with other companies in the same sector or geographical region. Bearing this in mind, in the following sections we will concentrate on two specific typologies of interorganizational relationships proposed by Trienekens and Beulens (2001), which respond to the needs of the SMES. A detailed analysis will be carried out of the Supply Chain and of Networks following the system proposed by Lazzarini et al. (2001). The latter authors point out that these two types of analysis have been traditionally considered in the literature as two distinct approaches to interorganizational cooperation. In one the supply chain is usually defined as a set of organized sequential vertical transactions in the different stages of the creation of value. This involves flows of information, materials and resources among the member companies in the different stages of production. In the other, the network analysis is usually directed towards horizontal relationships among companies and other organizations active in the economy, belonging to a specific industry or sector, although it can also refer to vertical relationships. Although both approaches underline the importance of the interdependence of companies and the way in which interorganizational relationships can bring competitive advantages, they have still not been integrated. Lazzarini et al.(2001) came near to it when they proposed the concept of a netchain, which will be explained in detail later. This chapter will also try to unify these two theoretical approaches to interorganizational cooperation. In the following section we will take a more detailed look at these two approaches in the particular case of the SMES.
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Analysis of the Supply Chain In this section we will summarize the characteristics and tendencies of the first of these approaches. The Supply Chain is an approach to interorganizational relationships based on the successive stages of the creation of value in a vertical structure of business companies. Lazzarini et al. (2001) identify three principal sources of value in this type of organization: •
•
•
Optimization of production and operations: The concept of Supply Chain Management (SCM) originated in logistics although it was later amplified to include interorganizational relationships inside and among companies. SCM includes the coordination and control of the flows of information, finance and materials among the members of the chain (Simchi-Levi et al. 2000). The SCM models aim to achieve the optimization of production and operations as the key source of value for the chain as a whole. Reduction of transaction costs: If efficient relations are established in the Supply Chain the costs of the transactions carried out between members can be reduced. Acquisition of value within the chain: The constituent companies of the SC can acquire value from innovations in other parts of the chain.
The Supply Chain can be defined as “The network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the eyes of the ultimate consumer” (Christopher, 1992). It will be observed that this definition changes the traditional concept of client-supplier based on a simple commercial operation to the concept of the client-supplier chain belonging to Total Quality. To be exact, we can speak of a chain where
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every enterprise is the client of the preceding link and supplier to the next, and where each time a enterprise acts as supplier it must satisfy the requirements demanded by the client, who will have given the supplier a clear description of his needs. In this context, the Supply Chain Management (SCM) is none other than the management system that controls this supply chain; which cannot be the traditional authoritarian system but must be founded on the involvement and commitment of all the members of the chain in a common project, which is the satisfaction of the final consumer. The objective must be to seek the common good of all members of the chain, so that the profits are distributed among all its members, as against the traditional model in which each member seeks to make a profit for himself alone. With regard to its principal characteristics, it must be remembered that the correct SCM must ensure that all operations are carried out as efficiently and effectively as possible, increasing quality and customer satisfaction at the lowest possible price. Therefore, the correct SCM is that which unites and maintains the ties among all the processes and parts of the chain. All the activities involved in the production of any goods or services and their distribution to final consumers should be combined in a continuous process. The SC is not a chain of separate businesses, but is rather a network of multiple relationships. Management of the supply chain offers the opportunity to capture the synergy inside and among companies and implies a new form of managing businesses and also relationships with the other members of the chain (Lambert et al. 1998). In this way, quality, efficiency and efficacy are improved. Thus, a network must be formed to transmit information and knowledge among the members of the chain. Among the tendencies detected the most important is the change in the conception of the Supply Chain itself. The traditional SC began with production and ended with sales to consumers. In this process, the consumer had very little say: the
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whole operation was concentrated on the products that flowed through the different stages and logistic channels, and the manufacturers were the ones who controlled characteristics and volumes. The big mistake in this approach was in the lack of flexibility in the offer of products that really met the consumers’ needs and expectations. Nowadays, the client or consumer is becoming the principal element in the Chain, and we now talk of the Demand Chain (DC), which consists in a circular process flowing from the mind of the consumer to the market. This means that businesses have to think again about their role in the SC, taking on new functions and responsibilities and accepting the global concept of the DC. In a DC products may be developed at any point and by any of the participants in the SC, thus all the members must have a very good idea both of the consumer and the demand. In this context, the efficient interchange of information and knowledge becomes indispensable. For this, the development of new organizational structures is necessary as a consequence of the design and integration of a strategic project in the SC. These new strategic structures will have to serve as a base for the operation of new functions, competences and reconfigurations with clients; in effect, to mobilise the personnel of the enterprise around the strategic structure of the Network. The real situation that we find is that, in many cases, the different firms that participate in a supply chain do not have more contact with each other than is strictly necessary for the operation of the chain, such as communicating termination dates, problems, etc., so that there is never any real coordination or interchange of information and knowledge. There must be an organizational structure that eliminates the barriers to the creation, transference and diffusion of knowledge, while at the same time satisfying the above mentioned requirements, especially that of actively including the client in the Supply Chain (Demand Chain).
This means the aim of the Supply Chain must be to regard itself as one single organization in which economies of scale and responses to competitive strategies can be obtained. This would involve a high degree of cooperation and integration among the member companies. When the various objectives of the chain have been defined as regards satisfying clients’ needs, the utilization of resources and the low cost of optimization, the facilitation of operational activities related to production, distribution and delivery can then become the principal objective of the integration of the supply chain. The key factor will be to create more value than the competition by utilising the competitive advantages offered by each of the members in the chain. One of the initial responses to the need to restructure the companies can be found in Network Organizations. Each member of the network carries out certain functions and it is necessary that somebody coordinates and integrates these operations. Normally, the dominant enterprise is the one that acts as coordinator of the value creating process. In the following section, we will go into a detailed study of the structural models of network organizations.
Network Analysis In the Introduction has been mentioned the need for the creation of cooperation among SMES in order to face the challenges of the knowledgebased economy. With regard to this cooperation we have just seen the type that occurs between one enterprise and others in its supply chain and detected the need for this chain to be configured as an organization in the form of a network. In this section we will examine a second approach to possible interorganizational relationships among the SMES; this is the network or virtual organization and can be structured either vertically or horizontally. This approach must
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be understood as totally complementary to the preceding. Network analysis is an approach to the analysis of cooperation among companies, which has increased greatly in recent years, especially in the form of virtual organizations, which we will now examine. The analysis of this type of organization gives three principal sources of value (Lazzarini et al., 2001). •
•
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Social structure: The theoretical approaches to network analysis agree on the importance of the social structure (interpersonal relationships and the individual positions of the members of the network) on behaviour and results, both individually and collectively. Learning: There are two principal types of learning, with different consequences from the point of view of creation of value. If independent agents or groups develop “local” knowledge and each one specialises in a certain field of knowledge, this results in a diversity of knowledge beneficial for the creation of value and opportunities for innovation. On the other hand, if the efforts are directed towards developing joint specific knowledge “collective” specialization occurs, which can even be harmful in the medium and long term. Generation of external economies in the network: This source of creation of value happens if the benefits of adopting a new technology or working relationship increase in proportion to the number of participants. In this case benefits are produced for the companies in the network as a result of the total increase in value.
Next we will deal with the concept of network or virtual organizations as well as with their principal types and most important characteristics.
Virtual Organizations The application of the term “virtual” to the new forms of organization sometimes mixes different viewpoints. Thus, Hammer and Champy (1993) speak of virtual teams, Davidow and Malone (1992) of a virtual corporation, Benjamin and Wigand (1995) of a virtual chain, and Upton and McAfee of a virtual factory, among others. The term “virtual organization” was first suggested by Davidow and Malone in 1992, referring to market-oriented organizations, i.e. those able to respond immediately to clients’ needs. It is structured as a group of value chains with relationships among suppliers, clients, competitors, other organizations and the enterprise itself. In 1993, the magazines Fortune, Business Week and The Economist wrote articles, the first on February 8, including the term “Modular Corporation”, the second, on the same date, referring to “Virtual Corporation” and the third, two days previously, had remarked that the global enterprise had died and that the new model of enterprise had to concentrate fundamentally on a) a few basic or nuclear activities, a concept that had already been proposed by Prahalad and Hamel (1990), these activities consist of the fundamental business of the enterprise and are also called the Core Business and b) the search for networks through agreements or partnerships to carry out the rest of the activities that complete the value chain of the enterprise. Virtual organizations appear as a response to changes in the working background (specialization, adaptability, opportunity, optimization of cost structures, etc.), i.e. in the areas where companies must concentrate in order to offer a satisfactory response to the needs of their clients.
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TYPOLOGIES OF THE MOST SUITABLE NETWORK ORGANIZATIONS FOR THE SITUATION OF THE SMES Now that the concept of the virtual network organization has been briefly introduced with its various approaches, we will give a more detailed examination the typologies of the principal networks in the literature on interorganizational associations best suited to the situation of the SMES, the Extended Enterprise and the Virtual Enterprise. The SMES normally form two types of basic interorganizational relationship; vertically, with suppliers and clients, i.e. with members of their supply chain, and horizontally, with other companies in the same area. The typology of the Extended Enterprise covers the first case, since it is an “extension” or evolution of Supply Chain Management with a central or “dominant” enterprise. The concept of the Virtual Enterprise goes further and can include both vertical and horizontal relationships in a climate of mutual trust without “dominant” companies. This is the case which most interests us for the subject of this chapter and the one to which we will therefore give most attention.
•
•
•
•
The Extended Enterprise The term “Extended Enterprise” is frequently used to describe a high degree of interdependence among organizations that participate in the same business (Browne and Zhang, 1999). It is an extension of Supply Chain Management. As we concluded in the section on this philosophy of management, to be precise, it tends to direct the supply chain towards network structures in the form dealt with in this section.The most important characteristics of the Extended Enterprise (EC) are as follows:
•
The existence of a dominant enterprise, which extends its influence to the other members of the supply chain: The establishment of alliances or cooperation with other members of the SC; this cooperation is based on mutual agreement and long-term commitment to share resources, rewards and risks. The ultimate objective is to work together to achieve greater added value than each would achieve by working alone. Each of the participants therefore has the opportunity to work and specialize in the fields in which it works best. This type of association is usually established with key suppliers or with intermediaries. Management philosophy. Although in the US alliances are established between members, the fact that there is a dominant enterprise normally means that this enterprise unilaterally imposes its management philosophy. This means there is strong integration in operational and tactical terms but weak in terms of strategy integration. Increase in value added to final product/ service. The product is oriented towards the final consumer (Demand Chain) with the aim of delivering a product or service with the maximum possible added value by means of achieving competitive advantages through the configuration of the Extended Enterprise. Combined capital of participating companies. In the US the capital (human, operational, technological, etc.) of the members of the SC is combined, although only partially. This is because the dominant enterprise forcibly extends its capital to include that of the other partners, over which it achieves control.
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Virtual Enterprise Here we will examine another concept of network organization, the Virtual Enterprise. This model is more advanced than that dealt with in the previous section, and is more appropriate for the aims of this chapter since it does not necessarily include a dominant enterprise but involves relationships based on mutual trust and the creation of value for the network as a whole. The Virtual Enterprise can be considered as a particular evolution of network organizations in which the participants attempt to establish a form of management and organization more “democratic or federal” with regard to the management of the flows of information, goods, decisions and control. Nowadays, production processes are no longer carried out by one enterprise; we normally find that various companies cooperate in a network where each member is a node that adds value to the product. According to Martinez et al. (2001) the principal objective of the Virtual Enterprise is to allow a group of companies to rapidly develop a common work environment and to manage the resources of each one of them so as to achieve a series of common objectives. The model of the Virtual Enterprise was developed from the simplest organizational forms, such as those mentioned in the previous section. The Virtual Enterprise is given support by evolution in the TIC, the evolution of the global market and new concepts in strategic alliances among companies. Since modern markets demand ever faster response times and more flexibility with regard to clients’ needs there is a growing necessity for new and more flexible forms of cooperation in network organizations. In this context, the Virtual Enterprise appears as a structural response based on flexibility, adaptability, opportunity and optimization of cost structures, in such a way that the resulting group can respond efficiently and profitably to clients’ needs.
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All the definitions of the VC agree that it is a network of cooperating companies all of which act as nodes and contribute what they can do better than the others (Core Business). From the clients’ point of view they all belong to the same enterprise. The result is the optimum cost structure. Each time there is a market opportunity the VC is configured. Thanks to open system structures and the use of TIC, communications are quickly established and the configuration is created in real time. This need for rapid configuration means that information and knowledge flow horizontally through the network nodes. All potential participants in the VC must have free access to the background information so as to be able to take decisions and form knowledge networks.
NEED OF A NEW ORGANIZATIONAL STRUCTURE All the above mentioned conditions can be ultimately united in only one; SMES must establish relations among each other in such a way that a dynamic network is created, in which learning barriers are eliminated, so that knowledge can flow freely throughout the network. In order to do this, it is important, among other factors, to strengthen ties, through the establishment of inter-organizational networks. The need for this collaboration is due to two main factors; one is the fact that mechanisms must be established to ensure that the tacit knowledge held by the members of the enterprises is suitably used and developed; the other is the fact that competition is changing and SMES must learn to work together in order to obtain economies of scale and to be able to use new technologies. SMES must change their mentality and create a new business culture in which the exchange of knowledge is encouraged, so that the tacit knowledge possessed by their employees can be shared and utilized by the whole supply chain.
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Total implication from all of the agents is necessary, creating a climate of collaboration and mutual confidence. This is only possible by means of more stable and durable relationships, where equal relations are established. A dynamic network may be created by developing links. So, an organizational structure that eliminates barriers is necessary to the creation, transference and diffusion of knowledge. In this context, concepts related with the Virtual Enterprise (VE) will help us to define the needed organizational model. The Virtual Enterprise model has been considered as one of the most advantageous methods for SMES, due to the short-term nature of the alliances that arise (alliances created for each particular project). The current definitions in the literature consider VE as networks of collaborating companies. Each company is a node which makes a contribution about what it knows best (its Core Competence) to the network. Every time that a market opportunity arises, the VE is configured. Each member of the network will establish good communication with the others and with the environment outside the network. It is crucial for cooperation to understand the activities of others, which will provide a context for the node’s own activity. The most important aspect of a VE is the mutual trust among its members. The need for flexibility and a fast-changing organization implies that information has to flow through the network’s nodes. All members in the VE should have access to the information to be able to take the right decisions. This reinforces the idea of collaboration; neither leaders nor followers exist.The most representative nodes in a project would be the following: •
•
•
Integrator node or Project Manager Node: This node will coordinate, unify and manage the operational nodes. It will be made up of different members of all the other nodes. It will act as an interface with the rest of the nodes.
These nodes will organize themselves to create a flexible and dynamic structure that will allow the network to exchange and share knowledge. Figure 1 represents the required configuration. The Integrator or Project Manager Node will be carried out by the Project Manager and a person in each node included in the network. The leadership of the project will be exercised by different nodes, depending on the phase of the project. The aim is to obtain a balance of power among the nodes. Each person of the Project Manager Node will be part of a change team of his own node. The change team should be formed by people of different hierarchic levels and disciplines. They will work as facilitators, allowing the horizontal and vertical knowledge transmission. The advantage of this configuration is that, for each new project, a different network will be created, on the basis of the nodes’ characteristics.
Figure 1. Principal nodes of the VE
Initiator node: The initiator is the node which is responsible for starting the configuration of the network. Operational nodes: Each of these nodes will provide a complementary core competence to the Virtual Enterprise.
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PROPOSAL OF A DYNAMIC KNOWLEDGE NETWORK To explain the process of creation and transmission of knowledge in SMES networks, a mechanical analogy is proposed; each node of the VE can be seen as a cog that rotates at a given speed. This speed represents the level of organizational knowledge that this node possesses at a particular moment. If the Virtual Enterprise is represented, we would have the following (Figure 2). Figure 2. Representation of the VE All the nodes have been represented with the same size, which means that they all have to turn at the same speed for the right system performance. The fundamental requirements of a dynamic network are that its members have all the same importance and they all have access to the knowledge network. The Project Manager Node will be the system’s motive cog, because in this node the interaction among all of the agents occurs, and so creation, transmission and utilization of knowledge. If new knowledge is created in the project’s framework, the knowledge level of the network will vary, which will be represented in the mechanical analogy as acceleration. Nevertheless, it does not necessarily imply that the dynamic network reaches a new equilibrium point, corresponding to the new velocity. In fact, acceleration can be temporary, returning the network to the initial velocity if each member of the Project Manager Node is not able to transfer that knowledge to its respective node (Project-toBusiness -P2B- transfer) when the project finishes. The change team will become, once the project has finished, the motive cog. They will be the facilitators of a new equilibrium point of the cog, if they are able to turn that new tacit or explicit knowledge into organizational knowledge. These teams should be working continuously so as to get into learning dynamics. At the same time, it has to be able to convert the new knowledge generated into organizational knowledge.
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CONCLUSION In this chapter, the knowledge generation process in SMES has been analyzed. A new organizational form based on the Virtual Enterprise has been suggested in order to make the creation, transfer and sharing of knowledge possible in this case, and a knowledge network model has been proposed, represented within a mechanical analogy, in order to better understand the knowledge creation and transfer process. We have looked first at the chief conditions and requisites for achieving real Knowledge Management in this special case of SMES. We have arrived at the conclusion that collaboration must be established between chain members, in the form of inter-organizational networks, to encourage the exchange and the creation of knowledge. In this, a fundamental factor is that there must be mutual confidence among the members and similarity in the way of thinking.
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This work was previously published in Connectivity and Knowledge Management in Virtual Organizations: Networking and Developing Interactive Communications, edited by Cesar Camison, Daniel Palacios, Fernando Garrigos and Carlos Devece, pp. 106-124, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.13
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in Virtual Organizations Mark E. Nissen Naval Postgraduate School, USA
ABSTRACT In today’s increasingly networked world of organizational practice, information and computer technologies are enabling people and organizations to collaborate ever more virtually (i.e., even when distributed temporally and geographically). Despite the clear and many advantages enabled by the virtual organization, this increasingly common virtual organizational form is very demanding in terms of Knowledge Management. The key problem is that many otherwise knowledgeable
people and organizations are not fully aware of their knowledge networks, and even more problematic, they are not aware that they are not aware. Thus organizational metacognition (e.g., an organization knowing what it knows) offers the potential to elucidate the key issues associated with knowledge networking in the virtual organization. The research described in this chapter builds upon a stream of work to understand and harness dynamic knowledge and organization for competitive advantage, with a particular emphasis upon knowledge networks and flows in the virtual organizational context.
DOI: 10.4018/978-1-60960-587-2.ch513
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in VOs
INTRODUCTION In the increasingly networked world of organizational practice today, information and computer technologies are enabling people and organizations to collaborate ever more closely, even when distributed temporally and geographically. Indeed, organizations themselves are becoming increasingly virtual (e.g., see Davidow and Malone, 1992; Wong and Burton 2000): forming across formal organizational boundaries, national borders, cultures, specializations and time zones to collaborate on the accomplishment of projects that require specific mixes of expertise that the various participants possess (e.g., see Nissen, 2007). Shekhar (2006) reviews substantial literature on virtual organizations, including a variety of definitions: “a temporary network of independent companies” (Byrne, 1993), “a bundle of competencies [...] pulled together to deliver a value” (Donlon, 1997), “an opportunistic alliance of core competencies” (Goldman et al., 1995), “an ever-varying cluster of common activities in the midst of a vast fabric of relationships” (Davidow and Malone, 1992), “a way of structuring, managing and operating dynamically” (Mowshowitz, 1997), and “organization in which workers are not physically but electronically connected” (Fulk and DeSanctis, 1995). Common among these is a focus on competencies and activities that are combined and managed at a distance (e.g., electronically), beyond the authority of a single organization (e.g., independent companies), and that involve dynamic interrelationships between participants (e.g., temporary network). This leads to (p. 468) a working definition that is suitable for our purposes here: “…any organization with non-co-located organizational entities and resources, necessitating the use of virtual space for interaction between the people in these entities to achieve organizational objectives.” By accessing, linking and coordinating the competencies and activities of multiple organizations, the virtual organization is able to increase the
scope of its endeavors without the need to invest in and grow the requisite expertise internally. This can be particularly important in knowledge-intensive competitive arenas, in which opportunities are ephemeral, but the tacit knowledge required to seize such opportunities requires years if not decades to accumulate. Whereas a single firm, for instance, which lacked such tacit knowledge, would be unable to take advantage of a knowledgeintensive opportunity within the time allowed by competitive pressure, this firm could team with one or more others, which had accumulated the requisite knowledge, and compete. Hence the virtual organization offers potential advantages in terms of the speed with which organizations can respond to ephemeral opportunities. Additionally, by teaming with one or more other firms, the resulting virtual organization would distribute the cost and risk of pursuing such opportunity effectively among each of the participating firms. Hence the virtual organization offers potential advantages also in terms of the cost and risk associated with responding to ephemeral opportunities. Despite the clear and many advantages enabled by the virtual organization, however, this increasingly common, virtual, organizational form is inherently very demanding in terms of Knowledge Management (KM). This is the case in particular where knowledge-intensive opportunities are pursued: the same access to and integration of knowledge across participants that offers potential for competitive advantage to the virtual organization also requires identification, organization, sharing and application of such knowledge from different organizations. This serves to exacerbate a well-known KM problem that is severe even within single organizations (e.g., see Kogut and Zander, 1992; Szulanski and Winter, 2002). The problem exacerbation is even more pronounced where the key knowledge required to be access and shared across organizations is tacit: tacit knowledge is notably “sticky” (von Hippel, 1994), appropriable (Grant, 1996) and difficult to codify, substitute or imitate (Saviotti, 1998). Hence to
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realize the potential opportunities enabled by virtual organizations, its inherent and exacerbated KM demands must be met. Knowledge networking becomes critically important in this context of the virtual organization. The term networking implies that the diverse chunks of knowledge are linked together—even loosely and informally—so that they can be identified, accessed, integrated and applied across the various organizational participants. In order to do this in a timely manner (i.e., the central point of the virtual organization), participants must develop the means to identify and access the knowledgeable people, processes and technologies that are distributed across both time and space as well as organizational members. The problem is, many otherwise knowledgeable people and organizations are not fully aware of their knowledge networks. Although the knowledge is networked, the people who need to identify and access such knowledge do not understand the corresponding knowledge network sufficiently well to utilize it. This can undermine any potential advantages sought through virtual organization. Even more problematic, knowledgeable people and organizations are not aware that they are not aware. Hence participants in a virtual organization may not even realize the need for or importance of learning about the knowledge network. In essence, such virtual organization does not know what it knows, and does not know that it does not know. Organizational metacognition focuses on an organization learning and knowing what it knows. Investigation of this phenomenon offers potential to elucidate the key issues associated with knowledge networking in the virtual organization. The research described in this chapter builds upon a stream of work to understand and harness dynamic knowledge and organization for competitive advantage, with a particular emphasis upon knowledge networks and flows in the virtual organizational context. Specifically, we draw from emerging knowledge-flow theory and techniques
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to model and visualize knowledge networks and flows, and we leverage recent fieldwork to illustrate the potential of enhancing organizational metacognition through visualization of knowledge networks and flows. This chapter makes a research contribution through articulation of a powerful and expressive theoretical framework with high applicability to the investigation of KM in virtual organizations. It also illustrates the use and utility of such framework through application in the field. In turn this leads to a practical contribution by demonstrating how the leader or manager can turn to organizational metacognition in his or her organization to learn to know and use the corresponding knowledge networks.
BACKGROUND This section draws heavily from Looney and Nissen (2007) to provide background information pertaining to organizational metacognition. Metacognition implies thinking about thinking or knowing about knowing. In the field of cognitive psychology, metacognition has been studied for some time (e.g., see Metcalf and Shimamura, 1994), but its investigation has been limited exclusively to the individual level of analysis. However, understanding the concepts and principles that are important for Knowledge Management (KM), at the enterprise level, requires rising above this individual level of analysis. For instance, concepts such as organizational cognition (Lant and Shapira, 2001), organizational memory (Stein and Zwass, 1995; Walsh and Ungson, 1991), and organizational learning (Argyris and Schon, 1978; Levitt and March, 1988) rise above such individual-level study accordingly, and address phenomena such as cognition, memory and learning at the organization level directly. This work implies that there is more to organizational cognition, memory and learning than the sums of the cognitions, memories and learning of the
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in VOs
individual people who work in an organization (cf. Simon, 1991). For instance, Nelson and Winter (1982) and Weick and Roberts (1993) make convincing arguments about how organizational routines and like patterns of collective action reflect knowledge beyond the sum of the individuals engaged in the routines. Further, scholars have succeeded in building upon and leveraging individual-level concepts and principles to inform and guide organization-level conceptualization and understanding. Work on absorptive capacity (Cohen and Levinthal, 1990) provides an exemplar. For instance, an individuallevel principle such as, the more that one knows about a topic, the easier it is for him or her to learn about that topic, is applied convincingly at the organizational level, and empirical support (see Nissen, 2006b) in terms of firms entering competitive arenas at different times (e.g., one firm gets a head start) provides some evidence regarding the utility of this approach. Hence organizational memory and organizational learning can be viewed as more than simple metaphors for individual-level cognitive behaviors envisioned to take place at the organizational level. Rather, organizational memory and organizational learning are viewed through this lens as organization-level phenomena directly. A substantial part of the KM literature ascribes to this view, and the research described in this chapter is viewed best as extending such literature to address metacognition as an organization-level phenomenon. Building upon individual-level metacognition (e.g., as with absorptive capacity noted above), we interpret organizational metacognition to mean an organization knowing what an organization knows. With a great part of organizational knowledge—particularly experiencebased tacit knowledge—resident within networks of people and organizations, this is where we look for evidence and effects of organizational metacognition in the enterprise.
KNOWLEDGE-FLOW ANALYSIS AND VISUALIZATION Nissen (2006a) describes the concept knowledge flows in terms of dynamic knowledge, and indicates that it subsumes similar concepts such as knowledge conversion, transfer, sharing, integration, reuse and others that depict changes, movements and applications of knowledge over time. Drawing directly from Nissen (2007), we organize this discussion into four parts: (1) knowledge uniqueness, (2) knowledge flows, (3) knowledge dimensions and visualization, and (4) knowledge-flow analysis.
Knowledge Uniqueness In this characterization, knowledge is conceptually distinct from information, data and signals: knowledge enables direct action (e.g., decisions, behaviors, work); information provides meaning and context for action (e.g., decision criteria, behavioral stimuli, work settings); data answer context-specific questions (e.g., How much profit is expected by selecting Alternative A? Who says that we should honor our commitments to the workers? How many industrial accidents have occurred so far this year?); and signals transmit detectable events across physical space (e.g., light patterns from pages in a book, sound waves from voices in a room, voltage differences across cables in a computer network). Many scholars (e.g., Davenport and Prusak, 1998; Nissen et al., 2000; von Krogh et al., 2000) conceptualize a hierarchy of knowledge, information, and data. As illustrated in Figure 1, each level of the hierarchy builds upon the one below. For example, data are required to produce information, but information involves more than just data (e.g., need to have the data in context). Similarly, information is required to produce knowledge, but knowledge involves more than just information (e.g., it enables action). We operationalize
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Figure 1. Knowledge hierarchy (adapted from Nissen 2006b)
explicit knowledge, which must by definition be formalized, articulated or otherwise made explicit (e.g., via books, graphs, charts, software), and hence is somewhat limited in abundance, tacit knowledge accumulates naturally (e.g., through direct experiences and observations of people), and is quite abundant. This is the basis for the irregular shape depicted in the figure.
Knowledge Flows
the irregular shape of this hierarchy using two dimensions—abundance and actionability—to differentiate among the three constructs. Briefly, data lie at the bottom level, with information in the middle and knowledge at the top. The broad base of the triangle reflects the abundance of data, with exponentially less information available than data and even fewer chunks of knowledge in any particular domain. Thus, the width of the shape at each level reflects decreasing abundance in the progress from data to knowledge. The height of the shape at each level reflects actionability (i.e., the ability to take appropriate action, such as a good decision, effective behavior or useful work). Converse to their abundance, data are not particularly powerful for supporting action, and information is more powerful than data are, but knowledge supports action directly, hence its position at the top of the shape. Notice that we position tacit knowledge “above” its explicit counterpart in this figure. Tacit knowledge is characterized widely as being very rich in terms of enabling action, whereas explicit knowledge represents often a diluted formalization of its tacit counterpart, with many properties and behaviors that are similar to those of information (see Nissen, 2006a for elaboration). Further, unlike
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In terms of knowledge flows (e.g., movements of knowledge across people, organizations, places and times), the two connected knowledge hierarchies depicted in Figure 2 illustrate some key concepts. On the left side, we see a producer’s or source’s knowledge hierarchy, and on the right side, we see a knowledge consumer’s or receiver’s hierarchy. Both of these knowledge hierarchies conform to the characterization above (e.g., abundance vs. actionability, layers building upon one another, distinct concepts, irregular shape). The producer hierarchy includes an arrow pointed downward (i.e., from knowledge, through information, to data), and the consumer hierarchy includes an arrow pointed upward. This depicts the relative direction of knowledge as it flows from producer to consumer. Specifically, following Tuomi (2000), the producer utilizes existing knowledge to create information, which is used in turn to produce data, which are transmitted via signals across some physical space. Then, following von Krogh et al. (2000), the consumer interprets the data from signals, develops information through incorporation of meaning and context, and finally develops actionable knowledge through some learning mechanism. Of course, the directionality of arrows can reverse (i.e., a “producer” can become a “consumer,” and vice versa), and multiple knowledge hierarchies can participate simultaneously, but this provides a phenomenological description of how knowledge flows. Notice that only signals are involved with flows across physical space;
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in VOs
Figure 2. Knowledge flows (adapted from Nissen 2006b)
following Alberts and Hayes (2003), flows of data, information and knowledge take place in the socio-cognitive domain.
Knowledge Dimensions and Visualization Figure 3 depicts a multidimensional space to visualize dynamic knowledge flows. Briefly, the vertical axis represents the dimension explicitness, which characterizes the degree to which knowledge has been articulated in explicit form. This dimension draws from the Spiral Model (Nonaka, 1994), and includes a binary contrast between tacit and explicit knowledge. The horizontal axis represents the dimension reach, which characterizes the level of social aggregation associated with knowledge flows. This dimension draws from the Spiral Model also, and includes several ordinal categories of social aggregation (e.g., individual, group, organization). The third axis represents the dimension life cycle, which characterizes the kind of activity associated with knowledge flows. This dimension represents an extension to the Spiral Model (see Nissen, 2002), and includes several nominal categories of life cycle activity (e.g., create, share, apply). Together, these axes combine to form a three-dimensional space. We include the fourth dimension flow time, which pertains to the
length of time required for knowledge to move from one coordinate in this three-dimensional space to another. This dimension represents an extension to the Spiral Model also, and includes a binary contrast between relatively long (i.e., slow) and short (i.e., fast) knowledge flows. Because visualization in four dimensions does not come naturally to most people, we use arrows of different thickness (e.g., thick for slow flows, thin for fast flows) when delineating various knowledge-flow vectors. For instance in the figure, these four dimensions are used to visualize the kinds of patterns associated with the Spiral Model. Each vector in this loop corresponds to one of four knowledgeflow processes articulated in the model (i.e., socialization, externalization, combination, internalization). We begin at Point A, representing tacit knowledge created by an individual. The socialization flow (A-B) reflects a movement of tacit knowledge across the reach dimension to the group level. The externalization flow (B-C) reflects a movement from tacit to explicit knowledge at this group level. The combination flow (C-D) reflects in turn a movement of explicit knowledge across the reach dimension to the organization level. In terms of flow time, notice that we use a thinner arrow to represent this combination flow, as only explicit knowledge—which is not as
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Figure 3. Multidimensional knowledge-flow visualization (adapted from Nissen 2006b)
“sticky” as tacit knowledge is (see von Hippel, 1994Nissen et al., 2000)—is involved. Penultimately, the internalization flow (D-E) reflects a movement from explicit to tacit knowledge at this organization level. Finally, we include a (reverse) socialization flow from Points E to B (i.e., tacit knowledge moving from the organization to the group level) to complete the one loop. Clearly, myriad other knowledge flows can be represented in this manner, but this single loop is representative of the technique, and it provides an illustration of how the four knowledge dimensions can be integrated into a single figure for flow visualization.
Knowledge-Flow Analysis Finally, knowledge-flow analysis utilizes the multidimensional visualization space from above. To re-iterate, knowledge does not represent a single, monolithic concept. Different kinds of knowledge (e.g., in various parts of the multidimensional knowledge-flow space) have different properties and behaviors. Indeed, one can identify at least 96 (2 levels of explicitness x 4 levels of reach x 6 levels of life cycle x 2 levels of flow time) theoretically distinct kinds of knowledge, each potentially with its own, unique set of properties and behaviors. Hence the position of a particular 1500
knowledge flow within this multidimensional space would appear to be important, and such position can be used for knowledge-flow analysis. For instance, notice that all but one of the knowledge-flow vectors represented in Figure 3 are depicted using relatively thick lines to designate long flow times (i.e., slow flows), and that all such vectors involve flows of tacit knowledge. Drawing from knowledge-flow principles (see Nissen, 2006b), we understand that “sticky,” tacit knowledge flows relatively slowly, and that such flows are constrained generally to individuals, dyads and small groups. Take, for example, the kind of trial-and-error learning associated generally with experience-based knowledge; it takes people years, and even decades, to master certain domains via experience, and learning such experience-based, tacit knowledge represents largely an individual endeavor. However, as noted above, tacit knowledge is very rich in terms of enabling action, with many actions (e.g., riding a bicycle, negotiating a contract, conducting qualitative research) dependent upon experience-based tacit knowledge for effective performance. Hence tacit knowledge flows tend to be limited to a specific portion of the multidimensional space depicted above (i.e., the tacit end of explicitness, the individual range of reach, and the long end of flow time), but it
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in VOs
is rich in terms of enabling action. Alternatively, explicit knowledge flows have contrasting properties and behaviors: they flow relatively quickly and broadly, yet become diluted, and are limited in terms of enabling action (e.g., consider attempting to ride a bicycle, negotiate a contract, or conduct qualitative research based solely upon reading a book about the subject; i.e., with no direct experience to develop tacit knowledge). If one is interested in moving knowledge from one part of the multidimensional space to another, then one has multiple possible paths for the corresponding knowledge flows to follow. Consider the multidimensional knowledge-flow space depicted in Figure 4. Say that some individual creates new, tacit knowledge (e.g., how to accomplish some useful action), and that the organization is interested in such new knowledge being applied, quickly, organization-wide, say by 100 people who are separated across both time and space in a virtual organization. In the figure, such knowledge would have to flow from Point A to Point B. Consider, however, that such path may be infeasible: the organization may not have a process that enables such tacit knowledge to flow—quickly and directly—from an individual to 100 geographically and temporally distributed people. This is depicted in the figure by the symbol “RIDGE” that blocks such a direct flow.
Figure 4. Best knowledge-flow path analysis (adapted from Nissen 2006b)
Instead, we illustrate two, alternate flow paths that the organization could consider. One reflects a thick, curved path that stays within the tacit plane, and which appears to go around the ridge (labeled “Tacit path”). Remaining within the tacit plane as such, this knowledge flow would be relatively slow, but it would retain its richness in terms of enabling action. The corresponding organizational processes could include a series along the lines of: the individual learns (e.g., via trial and error) to apply the new knowledge; then shares such tacit knowledge (e.g., via mentoring) with a small group of colleagues; who participate in turn to mentor other small groups (e.g., in various communities of practice). Alternatively, the organization could choose instead to formalize the tacit knowledge (e.g., in terms of a classroom course). This formalization is represented by Point C, and is depicted by a relatively thick vector (labeled “tacit-to-explicit path”) to indicate slow knowledge flow (e.g., known well through abundant knowledgeformalization research in artificial intelligence), which appears to go over the ridge. Nonetheless, at this point above the tacit plane, the formalized knowledge has been made explicit, and hence can be shared broadly and quickly with many people in the organization (e.g., taking the course). This is represented by Point D, and is depicted by a relatively thin vector to indicate fast knowledge flow. Still, people taking the course would need to internalize the knowledge, and to have it become tacit, before being able to apply it effectively at Point B. Noting the relatively thick arrow depicting the corresponding knowledge-flow vector, such internalization represents a relatively slow process (e.g., few people emerge from a formal training course as “masters” of the subject studied). Moreover, some question remains as to whether this knowledge—even after being internalized and applied as such—would retain the same degree of action-enabling richness as that flowing along the other path (i.e., within the tacit plane).
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Hence one can trade off the relative speed, breadth and dilution of knowledge flowing along this latter, tacit-to-explicit path against the comparatively slow and narrow but rich knowledge flows within the tacit plane. Of course, many other, alternate paths are possible too, and each pair of coordinate points within this multidimensional space offers its own unique set of alternate paths and corresponding tradeoffs. The key is, we have the ability to characterize and visualize a diversity of knowledge flows—taking account of the different properties and behaviors corresponding to various positions within the multidimensional space—and we have a graphical and analytical technique to compare alternate knowledge flows in the organization. This equips us to examine how multidimensional knowledge-flow analysis and visualization can enhance organizational metacognition.
ILLUSTRATION THROUGH FIELDWORK The focal organization in this study is involved with military planning. The organization is virtual, in that it is comprised of people from multiple, different, formal organizations, who come together—as individuals, groups and whole organizational units—temporarily to accomplish a set of common objectives. Details of the organization can be found in Looney and Nissen (2006).
Research Design For background, we draw heavily from Looney and Nissen (2006) to summarize the basics of the research design. We designed a qualitative study in the field, through which we immersed ourselves in the organization, processes, people and technology involved with the 2005 Trident Warrior experiment at sea (Woods, 2005). Trident Warrior represents a series of annual field experiments in which military organizations from multiple nations participate
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collectively in exercises—on land, at sea and in the air—utilizing operational warships and other military weaponry in realistic-yet stylized scenarios. The experimentation series has been the platform for early examination and assessment of novel tactics, techniques, procedures and technologies, set in a “floating laboratory” environment that is manned by real military professionals performing real military activities using real military equipment and methods. Hence results have excellent external validity and generalizability beyond the experimental setting. The setting for this study covered a ten-day military field experiment, during which we conducted direct observations and multiple interviews, and administered surveys. The setting provided a high level of fidelity to observe the planning process directly. One of the authors is a Navy Commander, with substantial experience in this domain, which provided both insight and access to the organization and its people and processes. During the experiment, we were allowed unfettered access to observe all planning events. Additionally, we conducted seven extensive interviews with key planning process leaders and executives; four of those interviews were tape recorded and transcribed. We also administered multiple qualitative surveys, and supplemented our observations with dozens of informal conversations. Other sources of data included archival data regarding details of the planning process. All of this data collection was performed in an effort to corroborate what had been observed directly, as well as provide additional insights and perspectives on the planning process, and in particular to investigate the phenomenon organizational metacognition in the context of the knowledge network associated with this virtual organization.
Planning Process The planning process requires integration of knowledge and expertise from across the organization. From a KM perspective, the planning process
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in VOs
is focused predominately on work flows—producing plans for military operations—without incorporating much opportunity for knowledge flows through the organization. Through discussion with planning group members, we observed that they were largely unaware of what people in different organizations knew. Hence they experienced difficulty incorporating knowledge and expertise from throughout the virtual organization. This situation can be visualized via knowledge-flow patterns. For instance, following Nissen (2006b), such patterns have been shown to identify pathological knowledge clumping, clotting and hemorrhaging in the organization. This enables us to provide a diagnostic view of dynamic organizational knowledge, which can shed light on the virtual organization’s metacognitive state. To illustrate in Figure 5, we characterize the key planning knowledge flows through the virtual organization. The diagram in the figure includes the same dimensional axes and layout as outlined above, but here it includes the pattern observed for the planning knowledge flows. In describing this pattern, we begin with an oval shape, set within the tacit plane of the figure, labeled “Individual OP4 work.” This depicts the cyclic flow of knowledge associated with an individual with “OP4” knowledge who performs and learns from his or her work in the organization (i.e., plotted
at the “Individual” level along the reach axis). It represents cyclic interaction between knowledge application (i.e., using knowledge to accomplish work; plotted at the “apply” point along the life cycle axis) and creation (i.e., learning from work performance; plotted at the “create” point along the life cycle axis). Each individual with such OP4 knowledge would be expected to have a flow similar to this one, and indeed, each distinct kind of knowledge could be represented as such. This represents the accumulation of planning knowledge by an individual in the virtual organization. A similar, oval-shape, cyclic pattern set within the tacit plane is labeled “Group teamwork,” which reflects this same, repetition-based, doinglearning pattern, but at the group level (i.e., plotted at the “Group” level along the reach axis); that is, similar to the manner in which an individual will likely learn through individual work, a group of people is likely to learn through teamwork as a group, and the longer that a (functional) group works together, the greater such group-level learning is likely to be. This represents the accumulation of planning knowledge by the planning group in the virtual organization. Now for the diagnostics, a two-headed arrow should connect these two, cyclic knowledge-flow patterns, and drawing from Nonaka (1994), such arrow would be labeled “Socialization.” This
Figure 5. Observed planning knowledge flows
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would mirror the socialization flow noted above in the Spiral Model, and would be plotted at the “share” point along the life cycle axis. It would depict the manner in which—in a “healthy” virtual organization—an individual would learn to become part of a group, and how a group would learn from the individuals who comprise it. In this observed virtual organization, however, there is no “socialization” vector connecting this individual knowledge flow with the group-level flows of the virtual planning group. Hence the planning group as a whole fails to incorporate the OP4 knowledge, principally because members were not aware of the OP4expertise resident within the planning group. Returning to the figure, notice how a vertical arrow rises from the oval, group teamwork flow in the tacit plane. It depicts the formalization of group planning knowledge in terms of a formalized, explicit plan (e.g., a planning document), and is plotted at the “formalize” point along the life cycle axis. The arrow representing this plan-formalization knowledge flow is depicted using a thinner arrow than those used to depict the other flows. This represents a relatively faster (i.e., shorter flow time) flow, for once the group has socialized and learned from its members, and has worked as a planning team, formalization of a particular plan can be accomplished relatively quickly. Another, relatively thin arrow labeled “Plan distribution” stems from this vertical arrow, and depicts the relatively rapid flow of such explicit planning knowledge (e.g., via a planning document) across the organization (i.e., plotted at the “Organization” level of reach). At this point, the planning knowledge is explicit, and has been disseminated organization-wide. In the observed virtual organization, problematically, the associated plan lacked the required breadth of knowledge and expertise that could have been provided by members possessing OP4 knowledge. Through visual examination of this figure, we identify a systemic pathology associated with the pattern of knowledge flows: the
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knowledge flows do not enable the incorporation of OP4 knowledge into the group planning process. Alternatively, had the people in the virtual planning organization been aware that the organization possessed OP4 knowledge—that is, had the organization known what it knew—it could have revised its planning process to incorporate members with OP4 knowledge. Indeed, had the people been exposed to the diagram illustrated in Figure 5, they may have been able to see—directly, just as the reader of this chapter can—how the disconnected knowledge flows would cause problems with the planning work. This sheds some light on the issue of organizational metacognition: by visualizing the key knowledge flows through a virtual organization, one can become aware of what the organization knows, and one can leverage such organizational metacognition to intervene in pathological work processes such as the planning effort illustrated above.
CONCLUSION In the increasingly networked world of organizational practice today, information and computer technologies are enabling people and organizations to collaborate ever more virtually (i.e., even when distributed temporally and geographically). Despite the clear and many advantages enabled by the virtual organization, however, this increasingly common, virtual, organizational form is very demanding in terms of Knowledge Management. The key problem is, many otherwise knowledgeable people and organizations are not fully aware of their knowledge networks, and even more problematic, they are not aware that they are not aware. In this chapter, we describe how organizational metacognition offers potential to elucidate the key issues associated with knowledge networking in the virtual organization. We build upon a stream of work to understand and harness dynamic knowledge and organization for com-
Visualizing Knowledge Networks and Flows to Enhance Organizational Metacognition in VOs
petitive advantage, with a particular emphasis upon knowledge networks and flows in the virtual organizational context. Drawing upon recent fieldwork pertaining to military planning, we illustrate how knowledge-flow visualization can be used to diagnose pathological, dynamic knowledge patterns in a virtual organization, and articulate how exposing members of the affected organization to such visualization techniques—as an organizational metacognitive enhancement— offers potential for them to intervene to cure such pathological condition. This chapter makes a research contribution through articulation of a powerful and expressive theoretical framework with high applicability to the investigation of KM in virtual organizations. The knowledge-flow framework for analysis and visualization can be applied to myriad other organizations—conventional and virtual alike— and offers substantial room for extension. For instance, the largely qualitative nature of its principal dimensions (i.e., explicitness, reach, life cycle) highlight opportunity to develop more powerful scales (esp. of the interval and ratio types), and as such, the largely heuristic nature of knowledge-flow analysis to date offers potential to be extended to incorporate numerical analysis and possibly even optimization. The chapter also illustrates the use and utility of the knowledge-flow framework through application in the field. Whereas a great many theoretical frameworks never see or support application, this knowledge-flow framework supports direct observation of organizational metacognition in the field, and it enables practical use to diagnose structural, knowledge-network and -flow problems within the virtual military organization. In turn this leads to a practical contribution by demonstrating how the leader or manager can turn to organizational metacognition in his or her organization to learn to know and use the corresponding knowledge networks. The practicing leader or manager can use the study reported in this chapter to guide analysis, diagnosis and treatment directly in his
or her organization, essentially leveraging the benefits of state-of-the-art research to extend the state of the practice in a different application domain. Much more research along these lines will need to be accomplished, of course, for we are only just beginning to realize the potential of organizational metacognition. Nonetheless, even as such, the potential is compelling.
FUTURE RESEARCH DIRECTIONS As noted above, much more research along the lines of this investigation will need to be accomplished. Three directions appear to be particularly promising at present. First, we note above how the powerful and expressive theoretical framework has high applicability to the investigation of KM in virtual organizations, and how the knowledge-flow framework for analysis and visualization can be applied to myriad other organizations—conventional and virtual alike. Extending this investigation to address other organizations represents a straightforward and natural direction for future research. Second, we note above also how more powerful scales (esp. of the interval and ratio types) need to be developed for the knowledge-flow model’s principal dimensions (i.e., explicitness, reach, life cycle). Such scales would enable quantitative measurement of diverse knowledge flows. This could help research along these lines to advance from descriptive and explanatory toward prescriptive and normative theory, and offers potential to be extended to incorporate numerical analysis and possibly even optimization. Pushing the level of our knowledge and understanding toward such theory, analysis and optimization represents a challenging but exciting direction for future research. Third, using the knowledge-flow framework articulated in this chapter, connections to and conceptualization of organizational metacognition may offer great leverage to understand virtual organizations better. Metacognition has proven to be conceptually powerful in psychol-
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ogy, and it offers great promise in the domain of organizations—particularly virtual organizations. We have only just begun such conceptualization here. Hence future research directions are wide open at present.
Lant, T., & Shapira, Z. (2001). Organizational cognition: computational and interpretation. Mahwah, NJ: Lawrence Erlbaum Associates.
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Nissen, M. E. (2007). Knowledge management and global cultures: Elucidation through an institutional knowledge-flow perspective. Knowledge and Process Management, 14(3), 211–225. doi:10.1002/kpm.285 Nissen, M. E., Kamel, M. N., & Sengupta, K. C. (2000). Integrated analysis and design of knowledge systems and processes. Information Resources Management Journal, 13(1), 24–43. Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization Science, 5(1), 14–37. doi:10.1287/orsc.5.1.14 Saviotti, P. P. (1998). On the dynamics of appropriability, of tacit and of codified knowledge. Research Policy, 26, 843–856. doi:10.1016/ S0048-7333(97)00066-8 Shekhar, S. (2006). Understanding the virtuality of virtual organizations. Leadership and Organization Development Journal, 27(6), 465–483. doi:10.1108/01437730610687755 Simon, H. A. (1991). Bounded rationality and organizational learning. Organization Science, 2, 125–134. doi:10.1287/orsc.2.1.125 Stein, E. W., & Zwass, V. (1995). Actualizing organizational memory with information systems. Information Systems Research, 6(2). doi:10.1287/ isre.6.2.85
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This work was previously published in Connectivity and Knowledge Management in Virtual Organizations: Networking and Developing Interactive Communications, edited by Cesar Camison, Daniel Palacios, Fernando Garrigos and Carlos Devece, pp. 74-88, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.14
The Multicultural Organization: A Historic Organizational Theory for Gaining Competitiveness in Global Business Environment Tongo Constantine Imafidon Covenant University, Nigeria
ABSTRACT This chapter avers that over the past years, monolithic organizations, as opposed to multicultural organizations, have been created by many top business executives in order to attain their corporate visions and missions. One particular feature of the monolithic organization is that its leaders psychologically impose the culture of the organization on their subjects (employees). Their expectation is that a business organization should DOI: 10.4018/978-1-60960-587-2.ch514
be able to satisfy the diverse needs of its various stakeholders (customers, suppliers, shareholders, etc.), when a unique set of covert and overt behaviour is revered by a homogenous workforce. Oftentimes, the imposed “organizational culture” is nothing but a mere derivative or microcosm of the wider societal culture in which the organization is domiciled. This was conceivable in yesteryears, given the fact that most organizations only operated within their domestic business enclaves. However, with globalization and the increasing need for organizations to develop
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businesses and cooperation across their national boundaries; it has become imperative for business organizations to solicit for more dynamic cultural models. Consequently, the validity of the monolithic organization is fast waning, and managers, especially those of multinational corporations, are beginning to recognize the dividends to be derived in accepting, valuing, and celebrating the differences that exist in a workforce with inherent heterogeneous human attributes. It is based on this backdrop that this chapter identifies three organizational phenomena (i.e., organizational learning, organizational creativity, and organizational justice) that confer competitive edge on multicultural organizations in relation to specific sectors of today’s global business environment. The chapter also presents the historical relevance of the multicultural organization to the academic field of organizational theory.
INTRODUCTION The importance of culture in the conduct of organizational life is well established in the literature of organizational theory (Jackson, 2004; Kuada, 2007; Okpara, 2007). According to Wren (1994), organizational practices have never been developed in a cultural vacuum. Stakeholders of organizations have always been affected by the cultures of their organizations. For instance, the fact that organizational members in the West and East, and more specifically, the United States and Japan, are influenced by their cultures is well acknowledged. The U.S. organization is characterized by such cultural values as assertiveness, decisiveness, innovativeness, and risk taking, which stem from the frontier- conquering history of the U.S. (Hall & Hall, 1990). The culture of U.S. organizations is also characterized by individualism; the belief in the power and autonomy of the individual (Yeh, 1995). However, Easterners, particularly the Japanese, complain that Americans are too legalistic
and less willing to be flexible (Thorton, 1993). Hence, Japanese organizations, as compared to U.S. organizations, are more likely to have cultures characterized by flexibility, and people and detail orientation. Possibly, these cultural factors are the driving force behind the competitiveness of Japanese organizations. That is, Japanese organizations may rely heavily on the virtues of flexibility, people orientation, detail orientation, and team orientation to achieve greater business performance and customer satisfaction. Relative to Japanese organizations, U.S. organizations are more likely to have cultures characterized by innovation, outcome orientation, and aggressiveness. Further, these cultural values, which characterize the U.S. organization, are likely to impact on their performance because their business strategies and the resulting successes are attributable to their cultural values. Just as Japanese organizations utilize the cultural values that characterize them to achieve greater competitiveness, U.S. organizations will exercise the characteristics of innovation, outcome orientation, and aggressiveness as their competitive weapon to achieve greater business performance and customer satisfaction. Thus, it is expected that the relationship between organizational culture and business competitiveness should vary across national cultures. Therefore, aside from the fact that many studies have already recognized the importance of culture to organizational life; there is also a common consensus amongst them with regards to the impact of national culture on organizational culture. Precisely, these studies have found out that the culture of a work organization is nothing but a mere derivative or microcosm of the wider national culture (Tongo, 2005). According to them, managerial jobs are carried out within organizational cultures that are akin to the national cultures in which these organizations are domiciled. As Hofstede (2001, p. 374) observed in his monumental cross-cultural study:
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…organizations are culture bound. This applies not only to the behaviour of people within organizations and to the functioning of organizations as a whole; even the theories developed to explain behaviour in organizations reflect the national culture of their author, as do the methods and techniques that are suggested for the management of organizations. In the management literature, there are numerous unquestioning extrapolations of organizational solutions beyond the border of the country in which they were developed. This is especially true for the exportation of management theories from United States to the rest of the World, for which the non United States importers, are at least, as responsible as the United States exporters. However, the empirical basis for American management theories is American organizations; and we should not assume without proof that they apply elsewhere. This assumption is found not only in the popular literature; in scholarly journals-even in those explicitly addressing an international readership- the silent assumption of universal validity of culturally restricted findings is frequent… This quotation therefore implies that as long as a national culture is monolithic in nature, all organizations within the boundaries of such a nation should inherit the monolithic culture of the host nation. Also, for organizations located within a multicultural society, it is expected that these organizations should reflect the cultural diversity of the society. However, there are two flaws associated with these deductions from Hofstede’s analysis. The first flaw has to do with the fact that organizational activities and relationships are now being uprooted from local origins and cultures by globalization (Gray, 1999). Information technology has now created the possibility and even likelihood of a global culture. The Internet is sweeping away cultural boundaries. Global entertainment companies now shape the perceptions and dreams of individuals and organizations, wherever they live.
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The sum effect of all of these happenings is that, the cultural boundaries of most nation states are being dissolved, and there is presently a transfer of foreign beliefs and values into indigenous work organizations. Consequently, in this globalization process, there is a built-in dialectical tension between global and local cultures. Today’s competitive organizations are now forced to meet with global standards rather than local standards. Thus, the supposedly reactive posture, taken by previous organizational/national culture interface theorists, which posits that organizations must derive their cultures from those prevailing in their respective national boundaries, may soon become a thing of the past. As Castells (2001) has noted, business organizations that are organized around networks of production, management, and distribution, must respond quickly to changes in the global business environment. In other words, they must, first of all, take up the initiative of transforming their own organizational cultures to conform with standards presented by the global economy, irrespective of the culture of the nations in which they are domiciled. For one thing, any form of national culture transformation is an onerous task and can take as long as many dozens of years. Therefore, business organizations cannot afford to wait for such a long time before they themselves can become culturally transformed. The second flaw associated with the deductions from Hofstede’s analysis is based on the fact that multicultural societies do not always reproduce multicultural organizations. For instance, in spite of the multicultural nature of most African societies, leaders of African organizations psychologically impose a particular form of culture that typifies their own whims and caprices on African employees (Jackson, 2004). In the case of South Africa, the track record of its organizations, in relation to employment equity, suggests that affirmative action may be the only means for ensuring that black employees do not perpetually remain marginal in managerial and professional categories (Human, 1996). Through affirmative
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action, the tendency for African managers to create monolithic organizations that fail to acknowledge, understand, accept, and celebrate the diversities that exist in a typical African workforce is expected to decline. Nevertheless, the use of affirmative action may be needless if modern managers perceive diversity and inclusion as a strategic imperative for effective utilization of their intellectual capital. For instance, in Sodexho (a leading integrated food and facilities management services company in the U.S. with $ 7.3 billion in annual revenue and 125,000 employees), managers are held accountable for diversity results with a direct link to their incentive compensation (Sodexho, 2007). Sodexho is proud to be ranked fourteenth among the top 50 multicultural organizations that are committed to managing diversity in the United States. Sodexho joined distinguished companies such as Coca Cola Co., Colgate-Palmolive, Ford Motor Co., Hewlett Packard, JPMorgan Chase, Starbucks, and Verizon Communications/Wireless, in developing corporate visions that focus on managing diversity in multicultural corporations (Sodexho, 2007). Sodexho believes that embracing the concept of multiculturalism and diversity management is essential to the company’s growth and long-term success. By acknowledging and valuing diversity at work, Sodexho has been able to leverage the skills, knowledge, and abilities of all employees to increase employee, client, and customer satisfaction (Sodexho, 2007). Sodexho posits that management’s ability to respect and manage employee differences is essential to attracting diverse employees and building diverse, high-performing work teams that will allow the intellectual capital, at all levels of the organization, to be unleashed. This will result in innovative solutions that contribute to the company’s competitive advantage in the market place (Sodexho, 2007). Consequently, apart from the theoretical and practical advantages already ascribed to the
multicultural organization in its literature, it is the objective of this chapter to identify three organizational phenomena (i.e., organizational learning, organizational creativity, and organizational justice) that confer competitive edge on multicultural organizations in relation to specific sectors of today’s global business environment. It is believed that in establishing the nexus between these organizational phenomena and the specified environmental contexts, a framework for understanding the historical relevance of the multicultural organization to the academic field of organizational theory would have been provided. For the purpose of achieving this objective, the chapter shall be divided into three sections. The first section shall present discussions on the nature of monolithic and multicultural organizations. The second section shall deal with the competitiveness of multicultural organizations. The third and final section specifies the historical relevance of the multicultural organization to the academic field of organizational theory. The thrust of these sections is hinged on the creation of multicultural corporations for unlocking intellectual capital and gaining competitiveness in the modern world of business.
NATURE OF MONOLITHIC AND MULTICULTURAL ORGANIZATIONS Since the early 1980s, when the significance of culture to organizational studies burst onto the scene, scholarly attention has been focused on the hypothesis that strong cultures, defined as “a set of norms and values that are widely shared and strongly held throughout the organization enhances firm performance (O’ Reilly & Chatman, 1996). According to Sorensen (2002), this hypothesis is based on having highly motivated employees dedicated to common goals. In particular, the performance benefits of a strong corporate culture are thought to derive from three consequences of
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having widely shared and strongly held norms and values; enhanced coordination and control within the firm, improved goal alignment between the firm and its members, and increased employee effort (Sorensen, 2002). It is against this background that CEOs from the early 1980s sought to create organizations that collectively program the minds of members. In order to attain this objective, these CEOs embarked on recruitment, selection, and induction programs that enabled them to employ only persons that can fit into the culture of their organizations. Consequently, these CEOs were able to establish what is now termed as “monolithic organizations.” Typically, monolithic organizations are always devoted to maintaining the dominance of one group over all others on factors such as age, education, religion, gender, or race. The monolithic organization is characterized by exclusionary hiring practices and other forms of discrimination that lead to ethnocentrism. Ethnocentrism amounts to little or no adoption of minority cultural norms by majority group members. Women and ethnic minority men tend to be segregated into lowstatus jobs, reflecting a low degree of integration and inclusiveness into the organizational culture (Konopaske, & Ivancevich, 2004). However, the success story recorded by monolithic organizations was conceivable in time past, given the fact that these organizations only operated within their domestic business enclaves. Nevertheless, in the last 17 years (1990 to be precise), organizations have been seriously confronted with certain environmental forces occasioned by globalization. As globalization continues, organizations have had to expand into new international markets. This expansion has brought the organizations into more direct contact with diverse sets of host-country employees and alliance partners, customers, suppliers, government officials, and union representatives. These individuals are characterized by a variety of ages, religions, ethnicities, languages, and skin colours (Konopaske & Ivancevich, 2004). Therefore, in
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order to develop productive relationships with these stakeholders, managers of organizations will need to have empathy, and develop a thorough understanding of how to relate with these individuals (Konopaske & Ivancevich, 2004). Consequently, the ability of monolithic organizations to cope with these prevailing exigencies has been found wanting. This stems from the cultural rigidity embedded in these organizations, and their perceived inadequacy in responding to these global issues. Hence, organizational theorists have held that the ideal organizational type to handle these global issues should have a reflection of the highly dynamic and diverse environmental context in which organizations currently operate in. This ideal organizational type is often referred to as “the multicultural organization” in the literature of organizational theory. According to Patricia et al. (Patricia, Nemetz, & Sandra, 1996), the foundation and point of departure for effectively managing diversity is the development of a truly multicultural organization. A multicultural organization reflects the contributions and interests of diverse cultural and social groups in its mission, operations, product, or service; acts on a commitment to eradicate social oppression in all forms within the organization; includes the members of diverse cultural and social groups as full participants, especially in decisions that shape the organization; and follows through on broader external social responsibilities, including support of other institutional efforts to eliminate all forms of social oppression (Bailey, Frank, Henry, & Don, 1992). In summary, the multicultural organization not only contains different cultural groups, but also values the diversity that these groups bring to the table (Konopaske & Ivancevich, 2004). Therefore, the next section of the chapter shall direct our attention to the competitive advantage conferred on the multicultural organization by three organizational phenomena in today’s global business environment.
The Multicultural Organization
COMPETITIVENESS OF MULTICULTURAL ORGANIZATIONS IN GLOBAL BUSINESS ENVIRONMENT The competitive advantages of multicultural organizations in the global business environment have been well elucidated by many organizational theorists. For instance, Cox and Blake (1991) have argued that the multicultural organization’s ability to recruit, select, retain, and motivate individuals from diverse backgrounds (age, gender, ethnicity, etc.) helps it achieve and sustain competitive advantage in a variety of key ways, such as: 1. Cost savings: In modern organizations, turnover and absenteeism rates are higher while job satisfaction levels are lower among women and minorities. Diversity management initiatives, such as flexible work scheduling, mentoring, and equal access to training and development opportunities, will help a multicultural organization retain these valuable human resources, especially in times of labour shortages. 2. Resource acquisition: Competitive advantage in human resources can come from hiring and retaining top talent from different demographic groups. Multicultural organizations are increasingly turning to creative advertisements that focus on diversity. 3. Marketing: Having a workforce that is representative of an organization’s customers and other stakeholders can add value in a variety of ways. First, global managers who are from the country or region in which operations are located are able to communicate with and understand the needs and preferences of the host-country customers. Possessing the appropriate intercultural communication skills is important for managing culturally diverse relationships with customers (Victoria, Gregory, Faye, & Thomas, 2001). The same holds true for marketing
to customers and customers that are part of a subculture within the same country. 4. Creativity and problem solving: Research is in support of the idea that multicultural organizations tend to generate ideas and solutions to problems that are more creative and innovative compared to monolithic organizations (William, 2000). Although, too much diversity can lead to a decrease in organizational cohesiveness, companies that foster diversity and openness internally may do better in attracting talented, creative people who can collaborate and produce innovative ideas and solutions (Richard, Robert, & Gary, 2002). Also, the global nature of business today increasingly requires people to collaborate in teams that transcend cultural and geographical boundaries. 5. System flexibility: A successfully managed multicultural organization enhances the ability to react to changes in the environment faster and at less cost. In spite of the identification of the competitive advantages that accrue to multicultural organizations in the organizational theory literature, little or no attempts have been made to relate them with specific sectors of today’s global business environment. The failure to recognize how these advantages directly relate with the environmental context of global business obscures the potential benefits derivable from embracing the concept of multiculturalism in organizations and its overall relevance to the academic field of organizational theory. Consequently, the chapter explores three organizational phenomena that typify the multicultural organization and their relationships with some specific sectors of the global business environment. The three organizational phenomena and their respective environmental contexts are organizational learning and the global economic environment; organizational creativity and the global technological environment; and organi-
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zational justice and the global politico- legal environment. These are discussed next.
Organizational Learning and the Global Economic Environment The global economic environment in which organizations currently function is changing rapidly. Its unpredictability is increasing by the day, as both local and foreign competitions are becoming highly unrestricted. However, one factor that has accelerated the rate of change in the global economy is the fact that knowledge now constitutes the most important factor of production. Knowledge has played an important role in the development of economies throughout history. The transformation from agrarian to industrial and now to the knowledge economy has been brought about by the accumulation of knowledge and advances in information technology (Al-Hawamdeh, 2003). However, today’s knowledge economy is unique in the way by which it drives change in every area of business and industry. Consequently, change has been so intense and continuous that research and development have become major components in the infrastructure of every organization (Joel, 1995). According to Joel (1995), to persist in viewing a service or product in terms of labour and material is now self defeating, negating the vital resources necessary to keep pace with times and competition. This, therefore, implies that knowledge must be seen as an additional factor of production in this new economy. However, just as not all forms of labour and material are required by every organization; the type of knowledge needed by an organization must be tailored towards its own unique peculiarities. Thus, in order to effectively harness knowledge as a factor of production, each business organization must be able to accumulate certain “intangible knowledge assets” that are relevant and specific to its diverse operations. These “intangible knowledge assets” are often
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referred to as intellectual capital, in current business literature (Tongo, 2008). The need to build the intellectual capital of organizations within the knowledge economy has had a great impact on the learning process. Changes in work patterns and mobility and the increased emphasis on skills and competences demand that workers and knowledge professionals adopt learning as a survival tool (Al-Hawamdeh, 2003). A country’s capacity to take advantage of the knowledge economy depends on how quickly it can become a “learning economy.” In the “learning economy,” organizations will be able to create wealth in proportion to their capacity to learn. However, modern research has shown that multicultural organizations have more capacity to imbibe organizational learning than monolithic organizations. According to Sorensen (2002), monolithic organizations (i.e., organizations with strong cultures) incur a tradeoff with respect to their adaptive ability in the face of environmental change. Monolithic organizations facilitate reliable performance in relatively stable environments, but as volatility increases, these benefits are dramatically attenuated. This pattern is consistent with the fundamental tradeoff between exploration and exploitation noted by March (1991), and suggests that monolithic organizations excel at exploiting established competences, but have difficulty exploring and discovering new competences that better suit changing environmental conditions. Also, Lam (2003) found out that, relative to many Japanese multinational enterprises, the United States organizations have developed a greater organizational capacity for coordinating globally dispersed learning and embedding themselves in local innovation networks, because the multicultural environment, within which the United States multinational enterprises have developed, enables them to extend their organizational and human resource systems across institutional and geographical boundaries. By contrast, Japanese multinational enterprises, which are more mono-
The Multicultural Organization
lithically oriented, appear to be more limited in their transnational learning because of the much more tightly integrated organizational culture within which they are embedded.
Organizational Creativity and the Global Technological Environment There is no gainsaying that dramatic movements in the history of industrial change have always been characterized by the successful exploitation of new ideas and the achievements of innovators. For instance, the East Asian economies were able to transform rapidly due to their investment in creativity and innovation, which led to the creation of new high technology industries. Therefore, to say that the global technological environment is driven by the twin forces of creativity and innovation will amount to restating the obvious (Iwuagwu, 2007). In recent past, global dispersion of research and development (i.e., R and D) has been propelled by organizations’ needs to acquire new knowledge and capabilities, and to gain access to unique human resources that can add real value to their creativity and innovation (Cantwell, 1995). Since the mid-1980s, the overseas R and D units of many multinational enterprises no longer confine themselves to transfer parent-company technology to host countries, but are developing major innovations for the global market by leveraging the unique knowledge resources of some host-country environments. Gerybadze and Reger (1999) argue that the proliferation of national innovation systems and knowledge centres at various locations throughout the world has strengthened the incentives for multinationals to go for global knowledge sourcing. When deciding to establish or expand R and D abroad, firms are increasingly motivated by the wish to gain access to sophisticated resources that cannot be found anywhere else. These changes are clearly demonstrated in Pearce and Papanasatassiou’s (1999) survey of
the evolution of overseas R and D labs in the UK. The authors distinguish three different roles of laboratories: support, locally integrated, and internationally interdependent categories. The study shows that the internationally interdependent type, whose aim is to generate new scientific knowledge that can underpin the technological distinctiveness of the multinational enterprise, has emerged as the most prevalent type of laboratory in multinational enterprises’ units in the UK. Consequently, as organizations seek to use knowledge and innovation generated on a global scale, the development of international R and D organization becomes a central issue. Zanfei (2000) describes the new organizational mode of transnational innovation as “a double network” comprising the internal and external networks. The internal networks refer to the organizational mechanisms for the coordination and integration of distributed R and D units, while external networks are constituted by relations with actors outside the firm. A number of authors argue that a subsidiary’s ability to gain access to local knowledge sources is dependent upon its embeddedness in the host country context and the social relations of technological innovation (Blanc & Sierra, 1999; Frost, 2001; Zanfei, 2000). What makes multinational enterprises unique as knowledge acquiring organizations is their ability to generate “transnational social spaces” for organizational creativity. This is achieved by linking their internal networks with their external and locally embedded knowledge networks spanning diverse organizational and institutional contexts. Going by these views, only the multicultural organization would have the capacity to creatively engage in relating with diverse organizational and institutional contexts for the development of new products and services. The most significant problem encountered by monolithic organizations in relating with the global technological environment is that these organizations have cultures that restrict the man-
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The Multicultural Organization
agement of diversity. The result is that they will be unable to create internal and external cultural linkages that foster organizational creativity in a technologically diverse environment.
Organizational Justice and the Global Politico-Legal Environment With the collapse of the Soviet Union, we now seem to have a unipolar world driven by the free-market system. For the reinforcement of a free-market system, there has to be political reforms that align with the functionality of such a system on a global scale. This political-economic alignment has been accentuated by the policies of supranational organizations (i.e., the IMF, World Bank, and World Trade organizations), which necessitate member nations to conform to a liberal political culture. Liberalism, as the name implies, is the fundamental belief in a political culture that allows individuals to pursue their own goals in their own ways provided they do not infringe on the equal liberty of others. Therefore, in order to entrench this liberal political ideology, there has been a convergence of laws regulating businesses in nations that have strong affiliations with these supranational organizations. These business laws promote commitment to the fundamental human rights, equality, rule of law, individual freedom, private property, and a free market. For these business laws to have a full impart on organizational settings, there has been global legislative efforts to deal with discrimination in the workplace. In addition, organizations have considerable incentive to not only follow the laws that prohibit discrimination, but also voluntarily design and implement diversity management programs that lead to greater inclusion of all types of individuals into informal social networks and formal company programs (Konopaske & Ivancevich, 2004). But, to adequately deal with discrimination in the workplace, CEOs must be able to study
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people’s perceptions of fairness in organizations. This is what is termed “organizational justice” in the organizational-theory literature. Organizational justice has been decomposed into three parts; these are distributive justice, procedural justice, and interactional justice. Distributive justice considers perceptions of fairness of outcomes (equity, equality, and needs). Procedural justice emphasizes the importance of fairness of the methods or procedures used in making decisions. Interactional justice is based on the perceived fairness of the interpersonal treatment received, whether those involved are treated with sensitivity, dignity, and respect, and also the nature of explanations given. Therefore, based on the nature of multicultural organizations, it is important to note that all forms of organizational injustices would have no place in them, because the multicultural organization acts on a commitment to eradicate social oppression within the organization. However, expecting that the monolithic organization would one day embrace the concept of organizational justice would amount to wishful thinking. This therefore implies that the multicultural organization is most apt for today’s global politico-legal environment. Figure 1 summarizes the competitive nature of monolithic and multicultural organizations in relation to organizational learning, organizational creativity, and organizational justice in the aspects of the global business environment presented in this chapter. The negative signs attached to these organizational phenomena with respect to the monolithic organization suggest that it is not competitive in the global business environment. Conversely, the positive signs held by these organizational phenomena, with regards to the multicultural organization, depict its competitiveness in the global business environment.
The Multicultural Organization
Figure 1.
THE MULTICULTURAL ORGANIZATION: A HISTORIC ORGANIZATIONAL THEORY Theories about organization do not develop in a vacuum. They always reflect what is going on in the environmental contexts of organizations. Therefore, to understand the significance of the multicultural organization to the academic field of organizational theory, we must appreciate the historical contexts through which this academic discipline developed and the environmental milieus during and in which important contributions were made to its body of knowledge (Shafritz & Ott, 1996). Although no single date can be pinpointed as the beginning of serious thinking about how organizations work and how they should be structured and managed, we can trace writings about organizations as far back as the known origins of commerce. A lot can be learned from the early organizations of Muslims, Hebrews, Greeks, and Romans. After all, it was Aristotle who first wrote about the importance of culture to organizational systems; ibn Taymiyyah who used the scientific method to outline the principles of administration within the framework of Islam; and Machiavelli who gave the world the definitive analysis of the use of power (Shafritz & Ott, 1996).
However, even though it may be useful to delve into the wisdom of the ancients, most analysts of the origins of organizational theory view the beginnings of the factory system in Great Britain in the 18th century as the birth-point of complex economic organizations and, consequently, of the academic field of organizational theory (Shafritz & Ott, 1996; Wren, 1994). Prior to the industrial revolution in Britain, goods were made, or grown, in the home for family’s use. Other products, however, came from two basic methods of industrial organization: the guilds and the domestic system. Guilds consisted of two types: merchant guilds, which were the buyers and sellers of goods; and craft guilds, which were the makers of the goods. Within the craft guilds, there was a hierarchy of authority of masters, journeymen, and apprentices. There was also division of labour and devices to control who did certain types of work. Merchants were intermediaries in trade, buying raw materials to sell to producers or taking finished products for resale. A merchant procured raw materials and farmed them out to individual workers or families who, using their own equipment, would complete the product in their homes and then return it to the merchant for a wage. During these times, economies were essentially static, and they were managed via unilateral decision making by some central authority. Although
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some early ideas of organizational theory appeared, however, they were largely localized. Organizations could be run on the divine right of the king on the appeal of dogma to the faithful, and on the rigorous discipline of the military. There was little or no need to develop a formal body of knowledge that could help predict how organizations function under these nonindustrialized circumstances (Wren, 1994). Economic theory during this time focused on two factors of production, land and labour, and recognized capital as an input factor. The physiocrats recognized a farmer as an entrepreneur, but held that manufacturing and commerce were sterile and unable to produce surplus. Adam Smith recognized the entrepreneur as a factor, but treated the return or the surplus created as return to capital. Jean Baptiste Say (1767-1832), a French economist, was the first to recognize explicitly a fourth factor of production, which was referred to as management. Say noted that some “adventurers” (entrepreneurs) owned the undertaking, but more frequently than not, they owned only a share, having borrowed from others or having formed a partnership. The adventurer thus became a manager for others, and assumed an additional risk in combining the factors of land, labour, and capital. Within this period in which the concept of management, as the fourth factor of production, emerged, the faults of the domestic system of production were becoming conspicuous. This system relied on the use of simple tools and technology, with little incentive to improve them, and in the inefficiencies of small-scale production with a limited division of labour. As the volume of trade grew, the domestic system proved inefficient, and the need for more capital, the benefits of specializing labour, and the economies of scale of centralized workplace led to the factory system of production. The emerging factory system of production, which catalyzed the industrialization process in Britain, posed organizational problems different
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from those encountered before. With the factory system, the need for a rational, formalized, systematic body of knowledge about how to manage organizations became inevitable. The emergence and refinement of the market economy required managers to become more creative, and to be better informed about how best to utilize resources. People began thinking of individual gain, and had to be accommodated in some rational managerial framework. The emergence of larger organizations had to be based on rational ways of making decisions; no longer could the organization be operated on the whims of a few. In order for organizations, during this time, to cope with the pressure for growth, the need came for economies of scale to compete more effectively. Following this problem, Frederick Taylor, and the other forerunners of classical organizational theory, had to develop principles that can help managers effectively and efficiently utilize their human resources. Although, classical organizational theory proved successful, particularly during the period when industry was straining to meet the production demands of World War I, it was widely criticized for treating the worker as a “living tool” with little discretion or variety in work. The excesses of classical organizational theory, sometimes leading to industrial unrest, are invoked to explain the emergence of the human resource theory or the organizational behaviour perspective. Mayo’s classic experiments at the Hawthorne plant in Chicago led to the conclusion that human interaction and the attention paid to the workers by the researchers caused their productivity to increase. This contravened Taylor’s dour philosophy of self interest, suggesting that social factors and the relationship of working groups to management were keys to performance. However, the full acceptance of the human resource theory in most nations must have been facilitated by the economic depression of the World War II, which placed workers in highly unfavourable working conditions.
The Multicultural Organization
This economic depression was the start of a bifurcation in organizational practices in the United States and Japan (Evans, Pucik, & Barsoux, 2002). The depth of the economic depression in the United States meant that organizations had no option except to repudiate these implicit welfare arrangements, which were perpetuated by the human resource theorists. Organizations in the United States therefore turned to a path of explicit and instrumental contracts between employee and employer (performance management, pay-forperformance, and short–term contracts). Due to the militarization of the Japanese economy, the impact of the economic depression was much less severe on the other side of the Pacific. Under legislation fostering “social peace” in the name of national unity, Japanese organizations maintained these welfare experiments, leading step-by-step to an HRM orientation built around implicit contracts (lifetime employment, corporate responsibility for the development of staff, low emphasis on formalized performance evaluation). Endorsed by the strong labour unions that emerged in postwar Japan, these practices became institutionalized, reinforcing and reinforced by cultural differences (Evans et al., 2002). The environmental context in which organizations operated from the 1960s can be characterized as one of burgeoning masses of physical and human resources growing into ever more and more complex patterns and relationships; management is faced with advancing technology, a global market place, and people of diverse needs, educational backgrounds, and degrees of specialized knowledge. The changing means of producing goods and services have had an increasing effect on organizations (Wren, 1994). Confronted with pervasive economic uncertainties, as well as increasing organizational complexity, organizations began a search for theories that can deal with these external shocks. Organizational theorists began to challenge the dominance of the human resource theory, and so, the systems and contingency theories of organi-
zation were propounded. These organizational theories viewed organizations as complex systems of people, tasks, and technology. They recognized that organizations were part of a larger environment with which they interacted. The summary of this section is that the advent of the factory system of production, the economic depression occasioned by World War II, and the pervasive economic uncertainties ushered in after World War II, were mainly responsible for the paradigm shifts in organizational theorizing during these different periods. Thus, each time organizations are confronted with new environmental settings, theories of organizations emerge to deal with these settings. Therefore, with the birthing of the knowledge economy, a technologically diverse environment, and a neoliberal political ideology that now constitute integral parts of the 21st century global business environment, the theory of the multicultural organization becomes invaluable in dealing with these environmental exigencies as long as they persist.
CONCLUSION Even though the multicultural organization has been perceived as the most ideal form of organization to deal with workforce diversity (Cox & Blake, 1991), nevertheless, the importance of the multicultural organization to the global business environment has not been given sufficient attention by the literature of organizational theory. Focusing on three aspects of the global business environment (i.e., global economic environment, global technological environment, and the global politico-legal environment) and three organizational phenomena (i.e., organizational learning, organizational creativity, and organizational justice) that characterize the multicultural organization, this chapter clearly articulates the competitiveness of multicultural organizations in today’s global business environment.
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It is suggested that future studies on the subject matter should be directed to investigating the relevance of the multicultural organization to other aspects of the global business environment, for example, the global demographic and the global socio-cultural environments. It is believed that findings from such studies would further reveal the competitive edge of multicultural organizations vis-à-vis monolithic organizations in the environmental landscape of global business.
Frost, T. (2001). The geographic sources of foreign subsidiaries’ innovations. Strategic Management Journal, 22, 101–123. doi:10.1002/1097-0266(200101)22:2<101::AIDSMJ155>3.0.CO;2-G Gerybadze, A., & Reger, G. (1999). Globalization of R and D: Recent changes in the management of innovation in transnational corporations. Research Policy, 28, 251–274. doi:10.1016/S00487333(98)00111-5
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This work was previously published in Knowledge Ecology in Global Business: Managing Intellectual Capital, edited by Miltiadis D. Lytras and Patricia Ordóñez de Pablos, pp. 72-85, copyright 2009 by Information Science Reference (an imprint of IGI Global). 1521
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Chapter 5.15
Multinational Intellect:
The Synergistic Power of Cross Cultural Knowledge Networks Leslie Gadman London South Bank University, UK Robert Richardson Mental Health Associates, USA
ABSTRACT The world of international business is experiencing transformations of such magnitude that existing business models have become either invalid of incomplete. A fundamental force behind these disruptions has been the emergence of the digital networked economy (Ridderstrale and Nordstrom 2004, Flores and Spinosa, 1998) with its supporting internet and communications technology. One significant manifestation of this economy is the emergence of business models designed DOI: 10.4018/978-1-60960-587-2.ch515
to gain competitive advantage by bonding with customers, suppliers and complementors (Wilde and Hax 2001). From the multinational perspective outsourcing and off - shoring have been the most common examples of this approach, but user lead innovation models (von Hippel 2005) based on Open Source methods are rapidly emerging as the leading source of competitive advantage. Commitment has been argued to play an important role in determining the success of these relationships (Abrahamsson and Livari, 2002) suggesting that entrepreneurs must be adept at building and maintaining commitment based value networks (Allee 2004, Sveiby and Roland 2002,
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Multinational Intellect
Savage 1996, Gadman 1996, Adams 2004). This paper considers the challenges associated with commitment in multinational value networking and finds them to be most problematic in the diffusion of innovation where increasing levels of commitment are required across national boundaries and cultures. (Mauer, Rai and Sali 2004). Current research into core commitment structures of virtual multinational communities is not been well established. By analyzing data from a range of sources the paper concludes that the success of value networks depends on the desire of participants to acquire history - making identities (Gauntlett 2002, Spinosa et al. 1997) by maintaining identity defining commitments across the network. Implications for theory and research are discussed.
INTRODUCTION Existing theories of entrepreneurship focus on the imagination and creativity of the entrepreneur (Mongiovi 2000) and view market imperfection as the driver of enterprise. This view has led to the formation of a manufacturer – centric culture which has been the mainstay of commerce for hundreds of years (von Hippel 2005). In contrast, the networked economy is producing new business models based on value networking (Ridderstrale and Nordstrom 2004, Flores 1998). Emerging economies are finding themselves on the cusp of these tectonic shifts as their low cost business models are failing to attract multinationals who regard people as a rich source of intellectual capital and innovation (Sveiby and Roland 2002, Savage 1996, Gadman 1996). Allee (2004) describes value networks as webs of relationships that generate material or social value through complex dynamic exchanges of both tangible and intangible goods, services, and benefits. Examples range from Southwest Airlines, Dell, IKEA, Lastminute.com, and Google who have successfully found new ways to accomplish old goals, to Burton Snowboards,
CEMEX’s Patrimonio Hoy and the MIT Media Lab Wind – Up Lap Top who are doing entirely different things and shaping marketplace trends (Hax and Wilde 2005, von Hippel, 2005, Flores and Spinosa 1998). For today’s multinational entrepreneur the challenge is to be competent in designing, leading and managing value networks which span both user and manufacturer - centric cultures across national boundaries. The underlying assumption behind these networks is that they are fundamentally architectures of synergistic commitment where integrative interaction (Richardson 2003) among members leads to emergent innovation far greater than that achieved by individual effort (Gadman 1996). This chapter proposes that for entrepreneurs wishing to disrupt market trends rather than follow them a core competence is the skill to manage across national relationships by maintaining commitment to a shared concern among all stakeholders. For example, Jake Burton spent the early part of the 1990’s showing people how snowboards were a viable alternative to skis even though the latter were perfectly adequate. Today, it is hard to imagine a world without the snowboard.
IDENTITY BUILDING AND ARCHITECTURES OF COMMITMENT According to Adams (2004) the internet is revolutionary not because of the great search engines and enormous library of interconnected information but because it’s two-way communications technology allows large numbers of people to interact to satisfy concerns. Indeed commitment can be viewed as a state of attachment that defines the relationship between an actor and an entity (O’Reilly and Chatman 1986). The quality of this attachment can be measured by the strength of the commitments generated as one actor, group or organization of actors delivers results to another actor, group or organization in such a way that there can be agreement that their concerns were
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Table 1. Aspect of Commitment
Description
Focus
Defines the target of one’s commitment. This target can be an organisation, project, community
Strength
Defines how deeply an actor or group is attached toward an entity. An actor is more or less committed than simply committed or not.
Terms
Define what has to be done in order to fulfil the requirements of the commitment. E.g. a contract is an explicit request outlining conditions of satisfaction.
Durability
Depending on the commitment target, the durability of the personal contract varies. E.g. commitment to career may last a lifetime while commitment to a project does not.
Component type or form
Commitment is formed from its components. At least three forms of commitment exist: Affective, normative and compliant. These forms build up to a composite which changes over time. They may also be regarded as the essence of commitment which engenders attachment.
Level of commitment
The unit of analysis in commitment studies. 1) Individual commitment 2) group or team 3) organisation. Each can have a commitment towards an entity
satisfied (Winograd and Flores 1987; Flores and Spinosa 1998). The relationship can be viewed in terms of focus and strength (Brown 1996), durability (Abrahamsson 2001) and component type (Meyer and Allen 1991). These six aspects are common to all commitments. Table 1 briefly describes these six aspects of commitment. Depending on the target of commitment and the circumstances, an actor may be committed to a value network in different forms. They may feel its benefits (affective component) (von Hippel 2001). They may have an emotional and rational investment in the project which drives their continued participation (continuance component). Finally, the organization is bonded by the strength of the collective words of their members and personal identity based on the extent to which a person’s word is or is not their bond (normative component). Most researchers agree that it is the affective component which is the most desirable (Meyer and Allen 1997) because it is that aspect which enables bonding at each level of commitment. For example, FedEx and Amazon.com use the internet to establish bonding through conversation - based interactions where they commit to be reliable. They do this by positioning strategies like letting customers know what’s going on. Alerting customers if problems occur and offering
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counter-proposals designed to resolve the problem to a customer’s satisfaction. Using customer and inventory databases and well-integrated financial and logistical systems, they use the internet to build legitimacy through core commitment structures based on trust (Winograd and Flores 1987). Value networks work in the same way in that they are made up of conversation generated commitment structures formed by the exchange of words in real and virtual space that bond actors to each other. This rich network of commitments delivers value by addressing the concerns of those involved and ultimately those who receive the benefits of the network’s output. Therefore this paper proposes that the essential purpose of commitment based value networks is to achieve synergistic outcomes which are far greater than those achievable by individual effort alone (Richardson 2004). The affective component of value networking is the actor’s willingness to give their word and the ability to carry it out. This is one of the key components of identity building. For example, the late Body Shop founder and managing director Anita Roddik talked of her personal identity being inextricably linked to her corporate mission and Nicholas Negroponte, the co-founder of the Media Lab at the Massachusetts Institute of Technology refers to his $100 wind-up powered laptop
Multinational Intellect
as “the most important thing I have ever done in my life. If we can make education better - particularly primary and secondary schools - it will be a better world.” (Ricciuti 2005). This suggests that richly synergistic communities attract people who are identity seekers who wish to make the world a better place as a result of their actions. Research on the core commitment structures of multinational value networks is uncommon and the overall lack of a theory suggests a qualitative grounded approach to develop analytical categories and propositions (Glaser & Strauss 1967, Meyers 1997, Strauss & Corbin 1990). The theory development in this paper is based on The Tropical Diseases Initiative (TDI) a multinational decentralized, community-wide effort to conduct R&D for neglected diseases. The paper is organized as follows; firstly it provides a review the research method employed in the study. It then provides a history of TDI related development data. It then proceeds to theory induction by an analysis of contributing behaviour exhibited by members of TDI. The paper concludes by discussing implications of the study for theory and research.
RESEARCH METHOD This section describes the research method employed in the study. It proceeded in three phases: Sampling of case, data gathering, and data analysis. One case was selected in order to increase the depth of the analysis, acquire and report experience with the gathering of new and unfamiliar data (Numagami 1998). TDI was sampled because computation is playing an increasing role in biology and the convergence between computing and biology suggests that comparisons might be made with studies of user innovation networks like Open Source (Raymond, 1999). It is further hoped that TDI would reveal areas as yet undiscovered in current research into identity creation in collaborative communities. TDI also offered
an ideal sample because it was in its formative stage with only four individuals making initial contributions. The data in this paper covers the opening period of the TDI project (2004) and studies events occurring during its critical launch up to the present time. Data were gathered from a range of different sources and occurred between February, 2004 and January, 2008. The analysis was inspired by the writings of Winograd, Flores and Spinosa (Winograd and Flores 1987) and their theories of commitment in organisations which fitted closely with the user – centric innovation focus of this paper. They define commitment in organisations as a set of characteristics and their relationships, which together describe the process of committing. The characteristics, relationships and actors performing them are identified and described in this section on the basis of the analysis. Winograd and Flores (1987) have opened the discipline of tracking, mapping, and combining commitments based on the constituting power of human speech. As they put it, “mapping social institutions in terms of their concern and commitment structure tells us what is genuinely new and what is a new way to accomplish old goals” (Flores & Spinosa 1998, p. 357). In their writings on computers and cognition, they propose a general structure for forming commitments for actions to satisfy concerns and by focusing on concerns and commitments, new domains of assessment emerge. When such domains of assessment are shared amongst a user – centric community they can lead to the identification of new institutions arising alongside old ones as was the case with snowboarding and its emergence as a viable challenge to the ski industry. In this paper the social institution to be mapped is the TDI as it takes on a radically new approach to drug discovery in the manufacturer – centric pharmaceutical industry. If this is accepted, TDI can be seen as a new institution arising alongside and old one and possibly a genuinely new way to accomplish old goals. If we are to evaluate whether a change has occurred, we have to look at the changes in concerns and
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commitments, i.e., the changes taking place in the respective actors’ commitment nets. “Once we become familiar with the way commitments drive action, we no longer believe that we have to understand in advance the component parts of whatever social action we seek. Rather, we see that we must identify concerns and begin forming commitments to address them. The basic organising skill is forming and managing a commitment to deal with a concern. “On the basis of one commitment, many others can be grown” (Flores & Spinosa 1998, p. 357). Focusing on identity creation, legitimising and positioning behaviours, data were gathered from the project’s web site which contained a “wiki” (a website that anyone can edit and contribute to) and discussion forums which were archived on TDI’s website and open to anybody who wanted to discuss the project. Finally, in order to obtain contextual understanding of the project, data were gathered from publicly available documents related to the open source model in general and to the TDI project in particular. Among the most important sources were the TDI web pages (e.g. the original concept paper by Maurer, Rai and Sali (2004), magazine articles, news features and links to other projects attempting similar challenges).
TDI HISTORY AND DEVELOPMENT CHARACTERISTICS This section provides a brief history of the TDI project, its wider context, objectives and an overall characterization of the development process. The current manufacturer – centric approach to drug discovery works up to a point, but it is far from perfect. It is costly to develop medicines and get regulatory approval. The patent system can foreclose new uses or enhancements by outside researchers. And there has to be a consumer willing and/or able to pay for the resulting drugs, in order to justify the cost of drug development. Pharmaceutical companies have little incentive to
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develop treatments for diseases that particularly afflict the poor, for example, since the people who need such treatments most may not be able to afford them. It is in this environment that a number of users comprising medical biologists, lawyers, entrepreneurs and health-care activists have sought improvements. They have suggested borrowing the user – centric “open-source” approach that has proven so successful in another area of technology, namely software development. Calling their approach “open source drug discovery,” TDI aims to significantly reduce the cost of discovering, developing and manufacturing cures for tropical diseases. The focus on virtual drug discovery and development as operationalized through these partnerships brings many advantages, as well as scientific and managerial challenges. Some are common to those faced by all drug R&D ventures while others seek drugs with a very low cost of manufacture that are easy to use in resource-poor environments. Open-source approaches have emerged in biotechnology already. The international effort to sequence the human genome, for instance, resembled a user – centric or open - source process. It placed all the resulting data into the public domain rather than allow any participant to patent any of the results. User – centric methods are also flourishing in bioinformatics, the field in which biology meets information technology. This involves performing biological research using supercomputers rather than test-tubes. Within the bioinformatics community, software code and databases are often swapped on “you share, I share” terms, for the greater good of all. The user – centric approach works in biological-research tools and pre-competitive platform technologies. The question now is whether it will work further downstream, closer to the patient, where the development costs are greater and the potential benefits more direct. While from a multinational perspective these initiatives impose no national boundaries, they do impose boundaries of another kind related to information sharing and knowledge genera-
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tion and diffusion. For example, TDI founders Maurer, Rai and Sali (2004) asked the question “Would universities and corporations really let their people volunteer? Won’t they insist on intellectual property rights?” Their believed that life sciences companies would not stand in the way of research that did not benefit them directly. Indeed from a commitment perspective TDI was able to encourage universities and companies to donate the data, research tools, and other resources which added to the strength of the project. The reason for their commitment was they had little to lose because the value of their intellectual property depended almost entirely on US and European diseases. For this reason, it cost them very little to share their information with tropical disease researchers.
THEORY INDUCTION In this section propositions are developed towards a theory of core commitment structures in virtual multinational user - led communities engaged in the process of innovation. Through the application of commitment networks, the propositions are grounded in documented behavioural strategies
of founders attempting to bring their innovative ideas into being through collaborative efforts. According to Abrahamsson (2002) the key concepts constituting the basis of the commitment net are actors, drivers, concerns, actions and outcomes. See Figure 1. These categories are introduced and defined in the following sections.
Actors There are three levels of actors: individual, group and organization (Hage 1980, Curtis et al. 1988). For the purposes of analyzing the development of commitment networks in TDI it is beneficial to distinguish explicitly between these different organizational levels for two reasons. First, each organizational level actor participates in TDI for different reasons, is not necessarily from the same nation and subsequently is affected by TDI differently. Second, the distinction between different organizational level actors allows the layered analysis of the changing commitment forms and drivers in the commitment process, which in turn provides a richer view into the dynamic complexities of the commitment phenomenon in the case studied. Adapting the levels of actors to reflect a more interpretive approach the analysis regards
Figure 1.
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actor roles as respectively: improving, integrating and operating (Gadman 1996). See Figure 1. TDI attempts to change these commitment networks at each level, so as to increase the ability of the network to produce higher quality results within given time and resource constraints and to allow individual members to understand the benefits of the TDI core mission. As one of the founders said, “Generally speaking, I’m interested in the web and emerging technologies, and how these can be applied to the scientific process. The TDI concept is an excellent example of this, and potentially a way to do a lot of good, hence my interest”. The leadership action takes place at the improving level where the task is to sponsor the project by providing the resources for performing the improvement actions. Maintaining uniqueness and direction through monitoring progress and promoting the TDI core mission and values throughout the organization takes place at this level. For example, during one conversation the founders talked about the way TDI “fills the current gap in early-stage drug discovery”. It also aims to “tip the economics of developing downstream drugs”. As such, it provides a service to sponsors and the Virtual Pharmas they have funded to manage development. They also recognised that their “customers” concerns had to be taken into consideration if TDI was to be maximally effective. They needed pharmaceutical and biotech companies to commit their scientists to the effort, to provide access to proprietary data and to grant funding. For example, in one conversation the founders discussed which types of scientists and areas of science were important. “Do we have specific examples of scientists who will (or ought to) be involved”? They felt the TDI would need non-scientists, too. “Social scientists and law professors will be helpful in designing solutions to governance and IP policy questions. Lawyers will be helpful if (a) the TDI site decides to adopt “clickwrap” licenses restricting what people do with its discoveries, and (b) TDI negotiates confidentiality agreements in order to obtain access to proprietary
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data”. This is a key concept in the commitment net formation where different organizations must also be networked into the TDI project. For example, the founders feared that university administrators would be concerned that scientists were contributing information that could be patented by the university. For this reason, each operative level also included external actors working in joint collaboration with groups of university researchers and internal actors within the TDI organization. Operating actors were represented by the various scientists, lawyers, administrator, sponsors, and other volunteers who made up the network. As another founder put it, we need to determine which types of scientists and areas of science are important. Do we have specific examples of scientists who will (or ought to) be involved?” Another replied, “TDI will need non-scientists, too. Social scientists and law professors will be helpful in designing solutions to governance and IP policy questions. Lawyers will be helpful if (a) the TDI site decides to adopt click wrap licenses restricting what people do with its discoveries, and (b) TDI negotiates confidentiality agreements in order to obtain access to proprietary data.” These TDI participants managed and implemented planned process improvement actions. It is these projects that ultimately adopted new behaviour patterns. See Table 2.
Commitment Drivers Research in other disciplines (e.g., Sabherwal & Elam 1995, Meyer & Allen 1997) has shown that the development of commitment is influenced by various drivers. The drivers identified in organizational behavioral literature are mapped to the proposed four categories. Research has also evidenced that the resulting commitment works to strengthen or weaken the drivers (e.g., Mowday et al. 1982). A potential driver is anything affecting the commitment of the actors and can occur in the macro and micro environment as well as within the organisation, group or team. It is for
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Table 2. Actors in TDI context Commitment Net Level
Actor
Role in TDI
Function in TDI
Improving
Local or external to TDI
Leading
Authorization of budgets and resources; provide leadership on strategy interpretation; monitor progress; resolve organizational issues; promote TDI goals
Integrating
Internal to TDI
Managing
Manage interpretation and implementation of strategic plans
Operating
Internal or external to TDI
Key stakeholders
Perform key tactical activities on time and to agreed expectations.
this reason that commitment can never be taken for granted (Table 3). Certain drivers, therefore, are more relevant than others. For example, scholars have observed that newcomers joining technical projects must demonstrate some level of technical expertise as well as understanding of what the community expects in terms of behaviour, in order to make a contribution to technical development (Lovgren & Racer, 2000; Wenger, 1997). Alternatively, the TDI founder’s believed that the TDI project should be targeted toward scientists from universities and industries who “should want to join for the reasons that people often join open source projects (enjoyment from doing creative tasks, recognition, altruism etc.)” For example, the three founders believed that “instead of financial incentives, TDI offers volunteers non-monetary rewards, such as ideological satisfaction, the acquisition of new skills, enhancement of professional reputation,
and the ability to advertise one’s skills to potential employers.” They wanted to attract “capable young scientists who are frustrated by the pace of early career advancement. Find ways to directly fund young investigators. Give them decision-making power”. They needed pharmaceutical and biotech companies to give permission for their scientists to volunteer, to provide access to proprietary data and to grant funding. For example, in one conversation the founders discussed which types of scientists and areas of science were important. “Do we have specific examples of scientists who will (or ought to) be involved”? They felt the TDI would need non-scientists, too. “Social scientists and law professors will be helpful in designing solutions to governance and IP policy questions. Lawyers will be helpful if (a) the TDI site decides to adopt “clickwrap” licenses restricting what people do with its discoveries, and (b) TDI nego-
Table 3. Drivers for TDI projects Commitment Driver
Description
Organisational Behaviour Indicator
Project
Reflects the objective features of the TDI project, such as costs and benefits. Project drivers indicate reasons for TDI to exist.
Investments: transferability of skills. Alternatives: existence of other solutions.
Psychological
Psychological drivers involve key individuals in the project, reflecting properties such as the need for identity as an achiever, past historical success, etc.
Work experiences: job scope, employee role, personal fulfillment, importance and competence.
Social
Social drivers originate from a group rather than an individual. These drivers are, e.g. power and politics, or public identification with the TDI project.
Investments that are hard to reciprocate
Structural
Structural drivers represent the contextual conditions surrounding the project: the environment for TDI activities.
Organizational characteristics: fairness of policy, communication
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tiates confidentiality agreements in order to obtain access to proprietary data”.
Concerns and Action The concepts of concern and action together constitute commitment however, action by itself does not bring about commitment but might be interpreted as a sign. This is consistent with the views expressed by the behavioral school of commitment research which emphasises the role of action as commitment target. Acording to Oliver (1990) “commitment targets should be actions rather than objects, as it is virtually impossible to describe commitment in any terms other than one’s inclination to act in a given way towards a particular commitment target” (p. 30). Consequently, the research sought out evidence of the strength of a person’s commitment by observing patterns and frequency of activity directed at addressing concerns. For example, in the TDI much of the early conversation took place among the founding partners (actors) who played a major part (at the improving and integrating levels) in setting up the initial communications infrastructure. For example, in an attempt to address concerns for a communications platform, one founder volunteered to approach his employer saying, “In principle, NPG (Nature Publishing Group) may be able to provide a home for the site. I’d need to check this with the right colleagues once we’ve worked out what kind of site we’re talking about”. One shortcoming of the research was an inability to say for sure exactly what the deep psychological drivers were and how they were directed toward meeting the overarching concerns of the project. Consequently, while it was not possible to accurately gauge the level of commitment held by the founders of the TDI, their patterns of actions suggested this to be the case. For example, the founders expressed their concern that initial conditions were established such that potential joiners would recognise the benefits of membership. As one person said, “If
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TDI is able to keep data confidential, joining will cost nothing. Companies will receive benefits in terms of moral satisfaction, keeping employee/ scientists happy, and good publicity on a topic that is politically sensitive for them. Benefits should therefore outweigh costs”.
Outcomes Only actions produce outcomes and outcomes bear relevance in this research since it has been shown that it is on the basis of outcomes that future actions are planned (Newman & Sabherwal 1996). For example, if the outcome of a TDI action was considered unsatisfactory for the sponsor, resources could easily have been withdrawn and the project cancelled. Therefore, an outcome has an influence on its operating environment – i.e., on concerns and actions and drivers. In a study on implementing the Lotus Notes groupware tool in an organization, Orlikowski (1992, 1993) distinguishes (among others) between intended and unintended outcome produced by this groupware tool for the organization. Similarly, TDI activities led to intended and unintended outcome (Kautz 1999), which affected both the drivers, concerns and future actions. In TDI, unintended outcomes may take the form of dissatisfaction with an introduced target, which may subsequently lead to difficulties in the co-operation between different operations. Unintended outcome may also be positive. For example, accidental discoveries may clear the way for a range of new TDI activities (that were initially not intended). Intended outcome reflects the fact that the TDI project has achieved the goals set for it.
The Commitment Process The commitment network model identifies the main analytical elements used for explaining the commitment processes in TDI i.e. TDI concerns, change in commitment drivers and in the form of commitment, and outcome. Concern, as was
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stated earlier is an ongoing generalization of needs and therefore, guides actors’ attention to certain targets. For example, TDI’s founders were concerned about incentives to attract members, “A key goal will be to satisfy companies that their data will, in fact, be confidential. Although it is easy to dream up such options, it will be much more practical to have this discussion directly with prospective partners”. TDI projects were initiated for some specific reasons. These reasons could be interpreted as the concerns that had been found to cause problems to civilised society in general and the pharmaceutical industry in particular. Therefore, a TDI project must embody a concern that directs the actions of those in the TDI project. If only actions are pursued without acknowledging the driving concern it is reasonable to expect that the project will face fundamental problems because it will fail to meet the needs of some specific concerns. For example, early on participants were concerned that the TDI would be viewed as an attempt to undermine proprietary drug development and therefore to be against their long-term interests. The founder’s response was, “I suppose you’d have to ask them. I think the threat to their multi-billion dollar enterprise is fairly limited. The main thing we do is take pressure off with respect to L.D.C. issues. My guess is that we’re a net plus for them”. Another key concern was the establishment of a communication platform which involved the target of increasing the effectiveness of idea sharing, theory generation and knowledge dissemination. It was determined that this could be achieved by the formation of a home page. Thus, the content of TDI concern was the effectiveness of the communications activity and the means used for achieving the goal was the establishment of a TDI home page. This concern had then to be transferred to the operational level of the commitment net for action. In addition, the concern had to be transferred to the improving level of the commitment net in order to ensure the availability of financial and human resources for executing it. The means by which improving and
operating commitment nets are changed are the core elements of TDI itself. These TDI elements constitute the infrastructure and the means needed for performing TDI activities through which the different levels of commitment nets change. TDI commitment processes are concerned with studying how TDI concerns and subsequent actions come about in an actor’s commitment net. This is achieved when the changes in commitment drivers and forms are identified in each TDI phase along with the resulting outcomes.
CONCLUSION AND IMPLICATIONS The purpose of this paper has been to apply a commitment based analytical model (Abrahamsson, 2002) to the Tropical Disease Initiative (TDI) to understand the motivations and strategies supporting the desire of its actors to engage in the discovery and commercialisation of innovative cures for tropical diseases. The way these actors went about their task was defined and explained using a commitment networking model. On this basis, the research suggested that value networks like the TDI are commitment based. Three levels of networks – improving, integrating and operating – were defined and network elements – actors, drivers, concerns, actions, and outcomes – were introduced. As a result of this analysis, five assumptions were induced: 1) that actors satisfy a strong normative need to comply with the principles and values of the network by continually monitoring and adapting to other’s perceptions, 2) the belief that the internet increases the capacity to form and manage networks of commitments but does not necessarily increase the quality of those commitments, 3) the idea that individual, corporate and national identity is based upon the perceived affective strength of a person’s commitment to address the specific concerns of the community, 4) the notion that self - identity is beyond the reach of rational cognitive explanation until revealed in the outcomes of committed ac-
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tion. This last point is consistent with the central argument put forward by Kierkegaard (1985) that our primary access to reality is through our committed action. These five assumptions challenge existing commitment research in that they show that commitment does not develop in linear and causal fashion and is controllable. On the contrary, the study shows that personal and national identity and the commitment it engenders is both ambiguous and affective in that actors feel the rightness of commitment before they ever cognitively articulate it. Consequently, multinational enterprise leaders need to be able to declare to followers the public recognition they seek and what is important about their life if they are to build the kinds of commitment based value networks that will help actualise their innovative ideas. Given the concerns of this study, the research suggests that commitment based value networks are primarily about the effective actualisation of innovative ideas. The study also shows that in order to shift the concerns of a multinational culture, entrepreneurs must clearly articulate the concern they are addressing. They must create and maintain clear focus and develop a deep sense of commitment among diverse sets of followers. As the paper illustrates, in the early stages of the TDI formation it was assumed by the founders that “capable young scientists who are frustrated by the pace of early career advancement” would want to join, “for the reasons that people often join open source projects (enjoyment from doing creative tasks, recognition, altruism etc.)”. According to Flickstein (2001) our self-image requires that we learn to objectify our own mental processes. This recognition - based form of identity suggests that our relation to ourselves depends first and foremost on communal practices in general and on the view of others as they are directed towards us in particular. Our sense – of – self, so far as it relates to something important beyond mere coping with our environment requires that we be recognised by others and that we are socialised into norms for right behaviour according to which our actions
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receive positive and negative sanctions by our communities. Self - identity or self - image is a reflexive process which has continuity by virtue of a person’s ability to maintain an ongoing sense making narrative such that its orientation in the past allows anticipation for the future (Gauntlett 2002). The research reveals a complex interaction between the commitment drivers and the successful outcomes of the project especially the unfolding and alteration of commitments in time and through time at the improving, operating and integrating levels as circumstances change. In particular, it shows how over time the objective features of TDI in terms of cost and benefits diminish as obstacles are encountered and psychological and social drivers play a greater part. Indeed it is possible to say that TDI could potentially fail over time if attention is not paid to such changes in the concerns of its commitment network. Some limitations confront the research. Firstly, the constructs and propositions are developed based on data from one case only. Although care was exercised to make the categories and the constructs operational, external validity of the propositions must be verified across a wider sample of cases. Also, due to the focus on self – image through committed and successful action, personal interviews would provide an opportunity to deepen understanding of the psychological drivers of the actors and the way the intended and unintended consequences of their actions shaped their self image. While the exploration on the commitment concept has been focused at the individual level, a more context dependent approach might also be useful. However, one may argue that it is ultimately the individual who makes the decision to change his/her behaviour in line with the ultimate goal of TDI. The study has implications for research into the impact of value networking strategies on strategic management. Firstly, it is important to recall that much strategic planning in business is preoccupied by public reputation, i.e. what the public recognises as important about the business
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and its tradition. The new focus on strategy in both business review articles and in boardrooms reveals the confusions and difficulties corporations are having over determining their self - image (Porter 1980, Prahalad and Hamel 1990). In taking the position that personal and corporate identity is neither wholly the result of total commitment (Gergen 1991) nor wholly the result of recognition - based identity (Hegel (1979), the implications require a deeper consideration of the challenges surrounding collaborative business models especially those based on the Web (Wilde and Hax 2001). Secondly, by suggesting that personal and corporate identity are outcomes of the well positioned enactment of a compelling concern to make something better than it was before, how do business leaders develop successful positioning strategies such that their committed actions result in the emergence of a new world alongside the old? Thirdly, empowerment of individuals is a key part of what makes value networks successful, since in the end innovations tend to come from small groups, not from large, structured efforts. The study shows that value networks don’t rely on containment or tight control of the environment to maintain their position, but rather, an exquisite balance and ability to respond to rapidly changing conditions. This kind of responsiveness is hard for a large company to achieve, but not impossible, especially in the presence of the kind of competition that virtual networking brings back to the market. Finally, the Internet is a value network’s greatest enabler, making large decentralized projects possible. On the other hand, intellectual property is its nemesis and has the potential to stifle and restrict the creative capacity of free-thinking scholars, programmers, scientists, designers and engineers. There is increasing evidence to suggest that a philosophy, a strategy, and a technology have aligned to unleash great innovation. The internet is simple, yet its power is profound. The power to create integrative interactive emergence by
bringing people together in committed conversations that produces outcomes far greater than the sum of the individual parts. The distribution of knowledge is the key contemporary task and if knowledge empowers people, are contemporary systems ready for the disruptive influence of ‘openness’?
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This work was previously published in Strategic Intellectual Capital Management in Multinational Organizations: Sustainability and Successful Implications, edited by Kevin O’Sullivan, pp. 44-57, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 5.16
Knowledge Transfer within Multinational Corporations: An Intercultural Challenge Parissa Haghirian Sophia University, Japan
ABSTRACT A growing interest in the various aspects of knowledge transfer within multinational corporations has been evidenced by a recent surge in empirical research. Despite the fact that the number of empirical studies investigating various aspects of knowledge transfer within multinational corporations has significantly increased, very few insights into the influence of culture on knowledge transfer, DOI: 10.4018/978-1-60960-587-2.ch516
however, have come to light. In fact, the cultural aspects and the individuals involved in the transfer and communication of corporate knowledge within multinational corporations seemed to have been overlooked by researchers. This chapter attempts to fill this gap and investigates the impact culture has upon knowledge transfer processes within multinational corporations. It presents a comprehensive intercultural knowledge transfer model and identifies which aspects of national culture hinder and which aspects foster an effective transfer of knowledge.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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KNOWLEDGE AND ITS RELEVANCE IN THE MODERN CORPORATION As businesses globalize and thus face global competition, they come under pressure to change and renew their existing practices (Choi and Lee, 1997). Thus, it is increasingly difficult for firms to sustain competitive advantages through the reallocation of capital (Bresman and Birkinshaw, 1999). Goods and services have become more sophisticated in content and production, which forces companies to increase their competitiveness. The foundation of competition has become increasingly knowledge-based, with the focus on developing valuable and hard-to-imitate knowledge that yields sustainable competitive advantages (Soo, 2005). Knowledge in an organizational context refers to the intellectual assets of an organization. Knowledge refers to “valuable information arising from reflection, synthesis, and other cognitive activities of the human mind. It is often, but not always, hard to structure, difficult to capture on machines, sometimes tacit, and hard to transfer” (Mockler 2001, p. 3673). The most relevant feature of knowledge is its division into tacit and explicit knowledge. Maasdorp (2001) considers this a distinction between focal (explicit) and background (tacit) knowledge. Explicit knowledge is the most articulable and the most context-free type of knowledge. It exhibits the highest degree of fit between the knowledge and its representation to others (Doz and Santos, 1997). It is knowledge that can be separated from its owner and expressed in a formal and systematic language (Nonaka, 2000), learned by observation and study (Doz and Santos 1997) and can be shared in the form of data, scientific formulas, specifications, manuals, (Nonaka, 2001), patents, technical blueprints, computer software, etc. (Doz and Santos, 1997). Because of its explicit form it is easily processed, transmitted and stored (Nonaka, 1994; Nonaka, Toyama et al. 2001). The role of explicit knowledge in organizations is expanding and it
is considered a key factor of production within the knowledge economy (Zack, 1999). Explicit knowledge is largely characterized by the separation of the individual that holds knowledge and the known. This, however, does not mean that explicit knowledge is easy to handle. Tacit knowledge on the other hand is based on the unity of the person who knows and the object of knowledge (Scharmer, 2000). It is deeply rooted in action, commitment, and involvement in a specific context (Nonaka, 1994). Polanyi (1985) puts it like this: “We know more than we can say”. He observes that although people may be able to perform certain tasks, they may not be able to articulate the way they managed to perform them. Being able to perform an activity does not imply that it is also possible to explain the very same action (Polanyi, 1985). Tacit knowledge is therefore not only strongly connected to its knowledge owner, but is also located within an individual. It refers to knowledge that is not easily articulated and is defined as “non-codified, disembodied, know-how that is acquired via the informal take-up of learned behaviour and procedures” (Howells 1996). In fact, knowledge can never be fully explicit and always shows a certain degree of tacitness. Even if knowledge can be separated from its owner and put down in words or other explicit ways, there is still a part of it which stays tacit and can not be extracted and therefore can not be easily shared. Knowledge-based theory of the firm, which considers knowledge and information the core resources of a firm (Wernerfeld 1984), has helped to raise important questions about the sustainability of competitive advantages and cumulative strategic change within the organization (Choi and Lee, 1997) and deals with the importance of knowledge within the corporation. Drucker (1992) describes the importance of knowledge: Knowledge has become the primary resource for individuals and for the economy overall. Land, labour and capital – the economist traditional
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factors of production – do not disappear but they become secondary. They can be obtained, and they can be obtained easily, provided there is specialized knowledge. (Drucker 1992, p. 95) Knowledge-based approaches in management research consider organizations primarily to be vehicles producing, transferring and combining knowledge (Kogut and Zander, 1996, Nonaka, 1994) and basically see firms as social communities that serve as efficient mechanisms for the creation and transformation of knowledge into economically rewarded products and services (Kogut and Zander, 1993). Hence, a firm can also be understood as an organization specializing in speed and efficiency in the creation and transfer of knowledge. Through this knowledge firms evolve, partly by the generative logic of their capabilities, but also by the opportunities and influences of the external environment (Kogut and Zander, 1996). In an organizational context, knowledge is generated, codified and coordinated; it is transferred from one unit to another and is then used. Knowledge is therefore considered a strategic asset and a valuable resource of the company (Holden, 2002).
KNOWLEDGE TRANSFER WITHIN MULTINATIONAL CORPORATIONS During internationalization processes, the complexity of knowledge management increases, because the establishment of a subsidiary in a foreign market is strongly dependent on the corporation’s ability to access and interpret information in these markets. At the beginning of the process, many management decisions on how to perform in these new markets, however, are taken in head offices and not in the local subsidiaries. Particularly during the early stages of market entry, headquarters strongly attempt to control the expansion processes in the host market and supervise market research
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activities because the success of the market entry often depends on how objectively market opportunities can be recognized. Once the corporation has gained some experience in the new market and developed more confidence in dealing with its customers and their particularities, more and more decisions are made in local units. This also impinges on decision-making processes within the corporations. As market know-how develops in the local subsidiaries, their managers need more freedom to react to market requirements. Local market knowledge then gains more importance, not only for the management of the subsidiary, but also for the rest of the organization. Local units start to access and transfer knowledge from their local market to the headquarters or other subsidiaries, and relinquish their roles as knowledge receivers. The demand for new ideas and products increases, too. Companies can strengthen their competitive advantage by importing ideas from their overseas subsidiaries or by reusing product ideas developed for other markets. In this way, knowledge and its individuality can create major competitive advantages. Knowledge transfer thus not only refers to information shared by headquarters with subsidiaries and their reaction to it. Knowledge management in multinational corporations increasingly turns into an exchange of creative ideas between all members of an organization whether they live and work in the same country or not. Not every product needs to be invented and not every project is new to members of a multinational corporation. The larger the company the higher the chances that somewhere knowledge and experience about certain tasks has been created and stored. As globalization continues product life cycles become shorter and consumers become more demanding and thus knowledge assumes a central role in multinational companies. Bringing new ideas from all over the world to market and transferring these ideas efficiently between corporate units located all over the world becomes vital for
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sustaining competitive positions and creating longterm advantages for global corporations. Effective knowledge transfer is therefore an increasingly pressing issue for multinational corporations, since the capability of efficiently combining knowledge from different locations around the world is vital for survival, and managing knowledge flows between subsidiaries is becoming a determinant of competitive success (Doz and Santos, 1997). Multinational corporations face various challenges with regard to internal knowledge transfer. Subsidiaries have to be motivated to access knowledge in their local market and subsequently make this knowledge accessible to other units that need it. A good example is marketing knowledge, which needs to be exchanged frequently, because it is information about development requirements as well as monitoring and evaluating host markets. The company faces the challenge of finding this information in the appropriate locations and establishing suitable channels of communications for all the participants involved in the processes (Buckley and Carter, 2002). Communication needs to be established between those who need and those who possess knowledge. Therefore, the organization has to choose the best instruments of control, motivation and context (Foss, 2002). Knowledge transfer mechanisms further depend on the location and the context of the potential users of knowledge in the potential market (Doz et al., 1997), and effective knowledge transfer depends on how easily knowledge can be transported, interpreted, and absorbed (Hamel et al., 1989). As a result, the company has to constantly be aware that the knowledge accumulated in various parts of the organizations needs to be localized and examined, because it may have the potential to be re-used at another location within the organization. The ability to move knowledge from one part of the organization to another becomes the basis for competitive advantages for multinational firms (Quinn, 1992).
DEFINITION OF KNOWLEDGE TRANSFER WITHIN MULTINATIONAL CORPORATIONS Accordingly, the main focus of managing knowledge within a multinational corporation is the sharing or transferring of it in an effective way. The concept of knowledge transfer is difficult to capture, because there is no clear distinction between the transfer of knowledge and the creation of new knowledge (Bresman et al., 1999). It is customary to speak of the ‘transfer’ of knowledge between two distant units of a multinational corporation or between two different functional units at the headquarters, between a vendor and a customer, or even between countries. The use of ‘transfer’ implies an image of flow: knowledge ‘flows’ from its primary holder to the secondary holder (Doz and Santos, 1997). Knowledge flows, or knowledge transfer, refers to the transfer of either expertise or external market information of global relevance, but not to the transfer of internal administrative information (Gupta and Govindarajan, 1991). Transferring knowledge means the operationalization of transferring knowledge. This can happen in the form of data, information, blue-prints, parts, subassemblies, machines or other means to represent knowledge. It can also happen via persons, individuals or teams (Doz and Santos, 1997). The organization has to enable communication between those individuals who need and those who own knowledge and furthermore make sure that the relevant subsidiary knowledge is actually made available to those units within the multinational corporation that need it (Foss, 2002). Knowledge flows and knowledge transfers are strategically important to organizations for several reasons. They transmit localized knowhow, which is generated in one sub-unit to other locations in the organization. Knowledge transfers also facilitate the co-ordination of work flows linking multiple, geographically dispersed sub-
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units. Furthermore, they can enable organizations to capitalize on business opportunities requiring the collaboration of several sub-units. Knowledge flows are also crucial to the orchestrated execution of unified strategic responses to the moves of competitors, customers and suppliers. Finally, knowledge flows enable the recognition and exploitation of economies of scale and scope (Schulz and Jobe, 2001). In this chapter, knowledge transfer within multinational corporations is defined as the transfer of either expertise (e.g., skills and capabilities) or external market data of strategic value within the organization. The type of knowledge transferred could refer to input processes such as purchasing skills, throughout processes, e.g. product designs, process designs, and packaging designs, or output processes, for instance marketing know-how and distribution expertise (Gupta and Govindarajan, 1991). However, knowledge management literature gives the impression that knowledge management operates in a kind of unitary vacuum, in which diversity in terms of language, cultural and ethical background, gender and professional affiliation are compressed into one giant independent variable, which is in any case considered of marginal importance. This approach may be convenient for conceptualizing, but is very limited for practical purposes in the modern international business world with its complex forms of intercultural learning, interactive networking, and knowledge acquisition and sharing (Holden, 2002). In multinational corporations cultural differences play an extremely important role, because most company units are geographically dispersed and differ in their national culture. Accordingly, the main concern of organizations when transferring knowledge is the fact that knowledge is sent from one environment to another, which is geographically and culturally different (Holden, 2002). In most cases, organizational internal knowledge transfer takes place between organizational and sometimes dispersed units and divisions of the multinational corporation. Individuals and organizations can
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share several dimensions of context at the same time, e.g. climate, nationality, education, politics, justice, economics, and other systems; corporate governance; management styles and incentive schemes (Doz and Santos, 1997). However, these dimensions of knowledge may also differ greatly.
CULTURE AND KNOWLEDGE TRANSFER Cultural background is an important point that needs to be discussed when talking about knowledge management within multinational corporations. Adler refers to culture as the base of management activities (Adler, 2001), which shape all processes and operations of knowledge management. Neither knowledge nor information can be secluded from their cultural contexts. Culture shapes the idea of what knowledge management is about. It also influences who is managing knowledge and in which way and defines how knowledge is used in specific situations. Generally, we can assume that culture shapes all knowledge management operations in an organization (De Long and Fahey, 2000). We can further conclude that culture also impinges on the success of knowledge transfer processes. If the cultures of the sender and receiver differ, we speak of a intercultural knowledge transfer process. Intercultural knowledge transfer processes can happen between senders and receivers who are working in the same team or organizational unit. In today’s multinational corporations, intercultural knowledge transfer processes increasingly happen between geographically dispersed organizational units. Hofstede (1984) points out that geographical separation and cultural differences can lead to quasi-autonomous suborganizations which may further lead to numerous problems of communication, co-ordination, control and motivation (Hofstede, 1984). Thus, cultural differences within an multinational corporation should not be neglected when discussing
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knowledge transfer and can be regarded as one of the barriers between company divisions and local units of the company (Davenport and Prusak, 1998; von Krogh et al., 2000). Knowledge transfer within units located in the same country may already pose a challenge, but it is clear that the problem associated with transfer increases with geographical and cultural distance (Bresman et al., 1999). So the main concern of organizations when transferring knowledge is the fact that it is sent from one environment to another, which is geographically different (Holden, 2002). Knowledge management literature often leaves us with the impression that this transfer happens between different company units, however, in this case two individuals transfer knowledge and in most cases this geographical distance also leads to a cultural distance between the sender and receiver unit. This cultural distance between the sender and receiver unit may strongly influence the knowledge transfer process. The main aspect of cultures in an organizational context is the fact that culture shapes the actions and the way of thinking of individuals. Hall (1990) says: “Culture can be likened to an enormous, subtle, extraordinarily complex computer. It programs the actions and responses of every person, and these programs must be mastered by anyone wishing to make the system work” (Hall and Hall, 1990). People are, whether they are aware of it or not, resistant to change (Hall and Hall, 1990). Culture influences people’s and individuals’ actions and consequently also creates the context for the managerial practices necessary to transfer knowledge, such as knowledge codification (codification style) and the selection of relevant knowledge (procedural and declarative knowledge). The intercultural knowledge transfer processes within multinational corporations differ slightly from the intercultural communication process. First, the sender is accumulating knowledge from sources inside the organization and chooses which knowledge and what type to transfer. This refers to the intention stage in the communica-
tion process. After this, the message is encoded according to cultural context and sent indirectly (e.g. email, phone, etc.) over a given physical and cultural distance. The receiver on the other end receives the message, decodes it according to his cultural context, and formulates a reaction (gives feedback). Then knowledge is potentially filtered and passed on again to other individuals in the organization. Moreover, the model illustrates that the cultural context is dependent on the agent’s home and host culture at the same time and the overall cultural setting is, in turn, subject to the interaction (acculturation and deculturation) between the two (See Figure 1) (Bargstädt 2007). The main aspect is that the cultural fields do not overlap. Sender and receiver both stay in their cultural fields while participating in the process. At the same time sender and receiver are also separated by a geographical distance. This geographical distance increases communication problems. Knowledge managers are required to adapt to the specific requirements of the knowledge transferring context to increase its success. In a well-known environment this may be an easy task to undertake, whereas adapting the transFigure 1. Intercultural knowledge transfer process (author)
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fer processes to the requirements of an unknown foreign subsidiary and the receivers in it may become more difficult. Accordingly, many intercultural business processes suffer from the fact that there are always gaps in understanding. Even simple activities like writing letters or greeting somebody can be culturally different. These gaps may comprise deficits in understanding the counterpart’s language correctly, reading his or her body language or understanding hidden meanings. To perform efficiently one needs to manage all of these gaps. This is very difficult if participants do not have high intercultural skills as it can lead to stressful situations or culture shock. Once individuals have acquired more expertise in communicating with members of other cultures, this communication and understanding gaps narrow. In an intercultural knowledge transfer process, things get even more complicated because it is often not possible to communicate directly with a counterpart. These gaps become more obvious, when misunderstanding occurs during the process. Participants can not see one another’s reactions and therefore can not adapt their communication to ease the transfer process. Since reactions can not be seen, intercultural knowledge transfer activities can not be adapted. The individual is mostly tempted to perform his or her knowledge transfer processes in his or her culturally acceptable way. Finally, all participants in the intercultural knowledge transfer process have different cultural skills which may further influence the success of the knowledge transfer process.
CULTURAL ATTRIBUTES OF KNOWLEDGE SENDER AND KNOWLEDGE RECEIVER Cultural Openness of Knowledge Receiver Cultural openness is a set of abilities and cultural knowledge, primarily based on past experience,
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which enables a person to engage in appropriate and meaningful interactions with people of divergent national and organizational cultures. People who develop a cultural openness also improve the overall cultural interaction as may be seen in national culture adjustments over time due to the intercultural communication between relationship partners (Griffith and Harvey, 2001). When adapting to new situations and their requirements, human beings have always found ways to deal with differences. Results are mutually beneficial, demonstrating the fact that change and adjustment are happening (Casrnir, 1999). Enhanced cultural openness helps to develop a basic insight into communication patterns and the skills necessary for intercultural communication. Thus, cultural openness leads to a more interactive communication between individuals from different cultural backgrounds and to higher communication competence. Cultural openness of the sender therefore strongly influences the fluency of intercultural communication as well as the success of knowledge transfer.
International Experience Intercultural knowledge transfer within multinational corporations can be influenced by the degree of consistency of core elements among the national cultures of its members (Fox, 1997; Li, 1999). The knowledge recipient needs to be aware of the context of the knowledge sender. The more each party understands the other’s situation, perspectives, and culture, the easier it is to use symbols that will be codified and de-codified in a similar way (Thomas, 2002). Once individuals come into prolonged contact with individuals from other cultures in a shared environment, the “other” as well as the related concepts of difference and change comes to the foreground of any individual’s perception (Casrnir, 1999) and can improve the flow of intercultural communication. Experiences of having lived in a foreign country and interacting with individuals of a different
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nationality and lifestyle can improve intercultural skills. Improving intercultural skills mainly takes place via experiencing intercultural communication challenges and conflicts. The greater the experience in intercultural communication, the greater the knowledge of possible misunderstandings and possible solutions. Since individual intercultural communication is the base for knowledge transfer, we assume that intercultural knowledge transfer is also positively influenced by a high degree of international experience.
Perceived Cultural Distance Perceived cultural distance is another factor influencing the intercultural knowledge transfer within multinational corporations. The concept of cultural distance seeks to measure the extent to which different cultures are similar or different from one another and has been applied to a multitude of research questions, especially in the area of foreign direct investment (Shenkar, 2001). Concerning companies, it shows the degree to which the norms and the values of two firms differ because of their separate national characteristics. The degree of cultural distance is considered one of the major obstacles in successful performance in intercultural business relationships (Williams, et al. 1998). Not surprisingly, one of the main assumptions, concerning multinational corporations, is that the higher the distance between cultures, the worse the performance of foreign subsidiaries (Shenkar, 2001). Cultural distance can be defined on a country and corporate level (Makino and Beamish, 1998). In this chapter the construct of cultural distance refers to perceived cultural distance by the individual (sender) involved in the knowledge transfer process. The intercultural communication process between these interactors is strongly influenced and complicated by the cultural distance or the cultural novelty between partners (Griffith and Harvey, 2001). The reason for this is that communication competencies do vary by cultural distance
and develop differently based on a person’s level and frequency of past interactions, the past success of intercultural communications, and the level of internationalization (Kim, 1988). The greater the cultural distance between people who are attempting to communicate effectively and thus the less consistent the communication environment, the less likely there will be sufficient social bonding among individuals to facilitate effective communication (Griffith and Harvey, 2001). When it comes to knowledge transfer, cultural distance matters, because it raises barriers for understanding other members of the corporation (Simonin, 1999). Johanson and Vahlen (1997) define cultural distance as the result of culture-based factors that impede the flow of information.
Language Ability of Knowledge Receiver One obvious consideration in intercultural knowledge transfer is language as an instrument being used by the partners to communicate. Despite this, the aspect of language is a neglected factor in prior research on multinational corporations (MarschanPiekkari et al., 1999). Language ability refers to the ability to speak, read, listen and understand another culture’s language and allows verbal messages to be communicated (Li, 1999). Language is man’s most important tool of communication and an instrument for transferring cognitive, affective and conative information (Rosengren, 2000). This implies the sender and receiver own a certain language ability to do so. It reflects the ability to interact and empathize with members of other cultures and, if necessary, resolve occurring communication problems. Speaking of knowledge transfer the language abilities of both the individual in the subsidiary and the individual in the head office generally have to be satisfactory, because a lack of language ability may make even well codified knowledge inaccessible (Simonin, 1999). Knowledge transfer in an environment with a common language increases
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the probability of understanding, but also the shared fund of knowledge and a shared system of meanings (Doz and Santos, 1997). When no shared language is available or language skills at subsidiary level are very poor these units may consciously try to avoid or resist the headquarters’ efforts to control by “hiding behind the language” or passively adopt patterns of non-confirmative behaviour (Björkman and Marschan-Piekkari, 2002). Simonin (1999) refers to language differences as a factor increasing cultural distance and Richter (1996) showed that if subsidiaries’ employees lacked a satisfactory level of English or any other appropriate language to communicate with the head office, the company was not able to learn by communicating with the headquarters and thus gain new knowledge. The language ability of the knowledge sender may also influence the way knowledge is transferred. The higher the language ability of the sender, the more likely he or she will prefer to interact verbally and talk directly to his or her counterpart. If language ability is limited, the sender or receiver prefers to communicate via means that reduce the possibility of misunderstandings. In any event, the language abilities of both sender and receiver of knowledge within a multinational corporation have to be satisfactory to guarantee knowledge transfer without losses. On issues of further research, the topic of intercultural knowledge transfer offers numerous potential research avenues. First, the detailed process of transferring knowledge between company units of differing cultural background should be investigated in greater detail. To explore this issue further more qualitative research may be adequate. Greater attention should be paid to the role of the knowledge recipient. His or her attitudes, strategies, and perceptions of knowledge and influences on knowledge transfer and sharing processes have been insufficiently investigated in management research. Secondly, the issue of language in intercultural knowledge transfer needs to be revisited. Knowledge managers in the 21st century will increasingly deal with inter-
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cultural knowledge management issues. Future research will therefore also need to investigate the knowledge management activities within the intercultural workplace, not only in a subsidiary, but in any intercultural team.
CONCLUSION Knowledge transfer within multinational corporations is a process little investigated by scientific research, but is a process that plays a crucial role in international knowledge management processes. It is based on intercultural communication processes. Even if it occurs between two company units, knowledge is in fact communicated between two individuals with differing cultural backgrounds and communication styles who exchange messages and in doing so share knowledge and information. Both communicators are surrounded by numerous culture-related variables which may influence their knowledge choice, knowledge transfer instruments, and acceptance of new knowledge. All of these aspects influence the success of knowledge transfer processes. Different communication styles can lead to misunderstandings and interrupt communication processes. Accordingly, the process is easily interrupted by different perceptions among the communicators. This limits the ability to interact directly and to react to misunderstandings or misinterpretations.
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This work was previously published in Building Organizational Memories: Will You Know What You Knew?, edited by John P. Girard, pp. 57-68, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 5.17
Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University through the Employee Lens: A Quantitative Approach Md Mahbubur Rahim Monash University, Australia Mohammad Quaddus Curtin University, Australia Mohini Singh RMIT University, Australia
INTRODUCTION The focus of the existing body of e-business literature is primarily directed at Business-toConsumers (B2C) and Business-to-Business DOI: 10.4018/978-1-60960-587-2.ch517
(B2B) forms of e-business. In contrast, Businessto-Employee (B2E) is relatively less highlighted in the scholarly literature. Despite the lack of attention given to B2E systems, it represents an emerging area which has the potential to have a major impact on organisations. In general, B2E systems use intra-business networks allowing
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Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
organisations to provide useful services, information, or products to their disperse employees (Turban et al., 2008). By providing easy access to relevant information, services, and products, B2E systems help in creating satisfied workforce that is expected to be more loyal to organisations (Dube, 2005). These systems also help organisations in reducing their administrative costs by streamlining employee related process (Singh, 2005) and eliminating expenses related to paperwork, postage, printing and travel (Killen Associates Report, 2001). Adoption of B2E e-business systems can even assist organisations in outperforming competitors by connecting their employees together (Hansen and Deimler, 2001). Recognising the above mentioned benefits, an increase in the demand for various types of B2E e-business solutions is noted by several industry reports (Killen Associates Report, 2006; Merrill Lynch Capital Markets cited in Brooks, 2004; and Banks, 2004). Regrettably, despite a growing demand for implementing B2E solutions, their usage in organisational settings has not been critically analysed and reported in the current scholarly literature. We argue that evaluation of the use of B2E solutions by employees represents a key research concern because the benefits arising from the introduction of such solutions are unlikely to be realised when they are not satisfactorily diffused among employee community. Therefore, managers need to be aware of the factors that may potentially affect the use of B2E e-business systems in their organisations. Against this background, we report the experience of a large Australian university in introducing an employee portal (a popular form of B2E ebusiness system) by analysing the perceptions of a segment of university staff about the influences of popularly discussed factors on their portal usage behaviour. Our findings provide interesting interpretations of the influence of several factors on the low usage of portal by employees. More specifically, we find that portal usefulness is a complex construct that fundamentally consists
of two dominant dimensions (i.e. perceived collaboration usefulness and perceived information communication usefulness) – both of which are in turn influenced by management support. The discovery of these dimensions represents a major contribution of our work. Our paper is organised as follows. First, we review various streams of literature related to B2E and similar other systems. Next, building on literature review and our prior research in this area, we identify a range of factors that may potentially affect use of B2E systems by employees. Then, our research approach is described. Next, background of the participating university is described. Then, the survey findings are presented and discussed in light of the existing e-business and IS/IT implementation literature. Finally, our contributions are highlighted and future directions of our research are indicated.
BACKGROUND LITERATURE: AN ANALYSIS As the literature on B2E e-business systems is limited, we have consulted several related streams of literature to identify how various factors may influence the use of employee-oriented IT systems in organisational settings. These include: e-business literature, human resources (HR) literature, sales force automation (SSA) literature, diffusion of innovation and IS/IT implementation literature. In the following sub-sections, we provide a brief but insightful review of the key findings from each stream from the perspective of employees using some forms of B2E systems.
E-Business Literature Existing e-Business literature cites the works of several scholars who have studied such aspects as usability and design challenges associated with various types of B2C interactive portals (e.g. Kiebling and Kostler, 2002; Gounaris and
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Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
Dimitriadis, 2003; Holsapple and Sasidharan, 2005) tourist portals, citizen portals) which have some degree of similarity with employee portals. We acknowledge this similarity but argue that distinct differences exist between B2C portals and employee portals in such areas as type of users (external customers vs employees), degree of access given to organisational controls via portals (limited for customers vs high for internal employees), and type of services and information offered (e.g. superannuation is not relevant for customers but of importance to employees). Therefore, as the motivations and purposes of employee portals are different than B2C interactive portals (although many of the underlying technical issues are similar), we can expect that the usage behaviour of portals by employees is different from that of the users of B2C portals. Consequently, we have restricted our literature review attention to the B2E systems only. A review of the B2E systems related studies reported identifies three specific research aspects that have received interest from scholars: organisational adoption decisions of B2E systems, benefits arising from the adoption of B2E systems, and employee satisfaction with B2E systems. The first two aspects are usually examined from management perspective. Typical works representing the first two aspects include those of Scornvacca et al. (2006), Rahim (2007), and Rahim and Singh (2007). The third aspect of this stream has adopted the viewpoint of individual employees about the success B2E systems. Several authors have measured success in terms of satisfaction and investigated employee satisfaction with various forms of B2E systems in terms of a model involving several factors. For example, Huang et al. (2004) analysed satisfaction of employees with a B2E benefit system at a Taiwanese company and found that such factors as convenience, interface, accuracy, price and security affected employee satisfaction with that application. In another study, Sugianto & Tojib (2006) proposed a conceptual model to measure user satisfaction
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with employee portal and identified nine factors that could affect employee satisfaction with portals. In a subsequent study, Tojib and Sugianto (2007) empirically tested that model in a large Australian university setting and found that five factors including usefulness, ease of use, portal design, confidentiality and convenience affected user satisfaction with employee portals.
Human Resource Literature The adoption of various forms of employee related information systems (e.g. HRIS, e-ESS, online recruitment systems, e-HR systems) has been discussed in the HR literature. A group of HR scholars (e.g. Teo et al., 2007; Stone et al., 2007) have focused on the acceptance and usage of HR information systems from the perspective of individual employees. They found individual characteristics of employees and their attitudes to be the determinants of employees’ acceptance and subsequent usage of HR related information systems.
Sales Automation Literature A large portion of this stream addresses the factors that influence individual sales employee’s decisions to use automated systems. Typical works include those of Parthasarathy and Sohi (1997), Speier and Venkatesh (2002) and Schillewaert et al. (2005) among others. In general, these studies acknowledge that perceived usefulness is a major factor to affect actual use of automation systems by sales employees. In addition, the importance of demographic profile of sales force on their acceptance and even use of sales automation technologies is also noted.
IS/IT Implementation Literature Davis (1989) and Davis et al. (1989) proposed Technology Adoption Model (TAM) to address why users accept or reject information technolo-
Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
gies. The model suggests that perceived ease of use and perceived usefulness are the two most important factors in explaining use of information technologies by individuals. More recently, a new version of TAM known as TAM2 is proposed by Venkatesh and Davis (2000) which includes subjective norms and was tested with longitudinal research designs. Many authors have applied TAM model in explaining use of various types of business IT applications. However, analysis of empirical research with TAM is not totally conclusive.
Diffusion of Innovation Literature The adoption and diffusion of innovation literature examines how an innovation spreads through the market from the time of introduction. However, if an innovation meets resistance from consumers, the adoption process can be expected to begin only after this resistance has been overcome. If the resistance cannot be broken down, adoption slows down and the innovation is likely to fail. According to Rogers (2003), rejection to an innovation often takes place even after an innovation has been adopted by individuals. Two important reasons were identified for innovation rejection: a) an innovation is rejected as a result of dissatisfaction with its performance, and b) when an innovation which was initially found to be attractive was eventually observed to be incompatible with the beliefs of individuals. An early study by Rogers (2003) found acceptance and resistance to usage to innovation are related to an individual’s innovativeness.
Gaps in the Existing Literature These five streams of literature recognise that a number of factors influence an individual employee’s decision to accept and use an IT application. They include demographic characteristics of employees, employee readiness, technological
sophistication of employees, system usefulness as perceived by employees, perceived ease of use, attitudes of employees towards the IT system among others. We note that it is implicitly assumed in the e-business literature that adoption decisions made by senior management is likely to lead to wide spread diffusion of B2E technologies among workforce. Hence, scholars have stopped short of calling a measurement of B2E systems’ usage pattern of employees in organisations. We acknowledge that the factors identified from various B2E related streams of literature are useful for understanding the usage of these systems by employees. However, as research into this area is virtually non-existent, it is necessary to dedicate further research effort examining the use of B2E portals. In keeping with this call, this research was undertaken to identify how various factors have influenced use of B2E portals by employees within a large Australian university. In doing so, we have adopted an exploratory research approach and use the factors (identified above) and in our prior studies as a template to guide our research.
RESEARCH APPROACH Choice of Case Organisation The participating case organisation is a large Australian university; its selection is guided by the illustrative strategy principle (Veal, 2005) because of our intention to illustrate the effects of factors which could be observed in an organisation that has made a serious attempt to introduce a B2E system. Moreover, B2E portals are reported to have recently been initiated by some leading Australian universities (Tojib et al., 2005), and hence an organisation from the tertiary industry is quite suitable as they tend to have distributed workforce in many campuses.
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Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
Sample Size A survey questionnaire was developed which included a set of items that operationalise several factors which were short-listed based on our prior qualitative research (Rahim et al., 2009) and literature review. This questionnaire was distributed among 500 staff of the participating university. A total of 161 responses were received yielding a response rate of 32.2%.
Scale Development Drawing on our experience of a prior qualitative research (Rahim et al., 2009) in which several key informants from the portal steering committee were involved, a total of three factors (e.g. perceived portal usefulness, perceived management support, and perceived training) were included in a survey questionnaire (along with four other factors short listed from the literature review). The survey questionnaire included the items for measuring 7 factors. In this article, we however restrict our focus to only those 3 factors which were reported to be highly important by the key informants reported in our previous work (Rahim et al., 2009). A summary of how these three factors were measured is shown in Table 1 and a theoretical justification in support of the relationship between these factors and the employee use of B2E portals is given in Appendix-A. Each item was measured on a scale of 1 to 5, where 1 means strongly disagree, 2 means disagree, 3 means neutral, 4 means agree and 5 means strongly agree. The dependent variable (use of B2E portal) was measured on a five-point interval scale where 1 means never use, 2 means at least once in 3 months, 3 means at least once a month, 4 means at least once a fortnight, and 5 means at least once a week. The survey instrument was reviewed by three domain experts and several changes were incorporated. To address validity of the instrument containing 14 items measuring 3 factors (listed in Table 1), an exploratory factor analysis was carried out.
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Table 1. Sources of the items for measuring factors Factors
No. of Items
Sources
Perceived portal usefulness
9
Yang et al. (2005) and developed by authors
Perceived management support
3
Developed by the authors
Perceived training
2
Developed by the authors
Use of portal
1
Hartwick and Barki (1994)
The results (shown in Appendix-B) are quite interesting as a 4 factor solution was produced. A close look at the factor analysis results indicate that out of 14 items, 2 were removed as they loaded heavily on more than 2 factors (Hair et al., 2006). However, an interesting observation is that perceived portal usefulness can be considered to be of two types: perceived collaboration usefulness and perceived information communication usefulness. Reliability of the items which were eventually retained after factor analysis were evaluated using Cronbach alpha (Nunnaly, 1978) and are found to be quite satisfactory as they had values over.70 and are shown in Table 2.
Table 2. Reliability results of the scales used for the factors Factors
Items included
Reliability (Cronbach alpha)
Perceived collaboration usefulness
5 items PU1, PU3,PU4, PU7,PU9
.769
Perceived information communication usefulness
3 items PU2, PU5, PU6
.70
Perceived training
2 items PT1, PT2
.743
Perceived management support
2 items MS2, MS3
.816
Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
EMPIRICAL FINDINGS The survey results report a low use of the employee portal as the mean use is found to be 3.29 (on a scale of 1 to 5). This means that employees do not regularly use the portal. In fact, they use portals at least once a fortnight. The mean use of the portal is found to vary depending on gender, role of employees (i.e. managerial and non-managerial), and type of employee (i.e. academic/research, administration). However, the differences are not statistically significant (as shown in Table 3). Moreover, the use of portal is not high across any of these demographic categories of employees as the mean portal use is far less than 4.0. We therefore suggest the presence of an overall low trend of portal use among university employees. An interesting observation is that 9% of surveyed employees do not use the portal at all, and that another 19% employees use the portal once in a 3-month. In other words, 28% of employees have no or little interactions with the portal. In contrast, only 20% employees use the portal on a regular basis (at least once a week). Thus, these findings collectively are indicative of the limited usage of the portal by university employees. The mean values of the three independent factors (shown in Table 2) are shown in Table 4. The only benefits that employees experienced are their ability to access information and use that information in support of communication with others. In
contrast, the portal is considered to have limited value from the perspective of exploring collaboration, acquiring work related items (via online ordering) and locating role specific information. Table 4 further suggests that employees perceived a disappointingly low level of support by their senior management in terms of organising employee training (mean: 2.02) and workshops (mean: 1.80) to help employees learn more about the potential merits of the portal. On the matter of management support for portal, the survey findings clearly indicate that employees were unhappy with the support they believed their management has offered to make the portal useful for employees. Employee responses indicate that university management was not seen to have supported regular updating of the relevant information in the portal (mean: 2.88) and inclusion of useful services through the portal (mean: 3.07). We have conducted regression analysis (as shown in Table 5) and found that portal usage is significantly explained by both dimensions of portal usefulness. In contrast, perceived training support and management support were not found to have an effect on employees’ portal usage. However, another two rounds of regression analysis was then conducted to find how perceived training and management support affect both dimensions of portal usefulness. The results (Tables 6 and 7) indicate that management support is strongly related to both dimensions of regression analysis.
Table 3. Mean use of employee portals by employees Demographic Characteristics
Mean use
t-value
df
p-value
Gender Male Female
3.39 3.19
1.062
159
.290
Job Role Managerial Non-managerial
3.16 3.30
-.480
159
.632
Job Type Academic/research Administration
3.44 3.13
1.59
159
.112
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Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
Table 4. Mean rating of employee perceptions about portal Item description
Mean Rating
Perceived Portal Usefulness: Information Search & Communication Value PU1: The portal helps me efficiently carry out work related communication PU2: The portal provides me with ready access to information sources PU3: The portal reduces the time spent on HR related activities PU4: The portal provides me with accurate information to fulfil my needs PU5:The portal provides single point of access to work related information
3.53 3.37 3.51 3.71 3.16
Perceived Portal Usefulness: Collaboration Value PU6: The portal offers collaboration facility with other employees PU7: The portal helps me quickly acquire work related items (e.g. online ordering) PU8: The portal provides role-specific (e.g. managerial, academic, administrative) information
2.75 2.34 3.04
Perceived Portal Training PT1: I was provided with the necessary training to use the portal PT2: I attended workshops to learn how to use the portal
2.02 1.80
Management Support MS1: My management supports regular updating of the portal features MS2: My management supports regular updating of relevant information in the portal
DISCUSSION The limited usage of portal among university employees is surprising given the fact that portal is in use for about 5 years. The perceptions of employees about low portal value perceived by employees shed some light to understand the low usage of portals. Regression analysis confirms that both dimensions of portal usefulness are significantly related to the employees’ portal usage.
2.88 3.07
This observation is supportive of our previously reported qualitative investigation (Rahim et al., 2009) conducted at the same university from the perspective of the portal steering committee as well as is consistent with the views expressed in the IS/IT implementation literature. According to Davis (1989) and Adams et al. (1992), perceived system usefulness is a dominant determinant of technology acceptance by individuals. Likewise, many scholars who examined sales force automa-
Table 5. Results of regression analysis for portal usage Unstandardized Coefficients B (Constant)
Std. Error .503
Standardized Coefficients
t
Beta
B
.427
Sig. Std. Error 1.178
.241
CollUsflns
.428
.110
.329
3.899
.000
InfoUsflns
.212
.104
.171
2.041
.043
Training
.019
.097
.016
.197
.844
MgmtSup
.043
.088
.042
.494
.622
Adjusted R Square = 16.4%, F = 7.882, p =.000
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Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
Table 6. Results of regression analysis for portal usefulness (information & communication value) Unstandardized Coefficients B
Std. Error
Standardized Coefficients
t
Sig.
Beta
B
Std. Error
(Constant)
2.814
training
-.062
.069
-.069
-.904
.368
.256
.059
.330
4.319
.000
management
.207
13.575
.000
Adjusted R Square = 9%, F = 9.34, p =.000
Table 7. Results of regression analysis for portal usefulness (collaboration) Unstandardized Coefficients B (Constant)
Std. Error 1.806
Standardized Coefficients
t
Sig.
Beta
B
Std. Error
.227
7.946
.000
training
.138
.075
.141
1.837
.068
management
.215
.065
.254
3.316
.001
Adjusted R Square = 9.6%, F = 8.43, p =.000
tion systems adoption (e.g. Parthasarathy and Sohi; 1997; Speier and Venkatesh, 2002) have reported that employees were reluctant to use IT applications when those applications were not perceived useful by them in performing their tasks. Thus, for the B2E portal context, we argue that the lack of necessary core services for collaboration and the inability of portal to offer role specific information together have created a negative perception among employees about the usefulness of the portal; this in turn has led to the low use of the portal. Although management support did not contribute directly to portal usage but it is significantly related to both dimensions of portal usefulness. This suggests that employees felt that management support for the portal was low as the portal contents and features were not only inadequate but were also infrequently updated. In other words, the lack of management’s intention to understand how employees would like to use the portal in support of their work is seen to be a major barrier to enhance functionalities of the portal. Our argument is consistent with those of
Ewusi-Mensah (2003), Karimi et al. (2001) and Sauer (1993) who identified inadequate involvement of senior management as a critical factor that slows the uptake of innovative IT applications in organisational settings. According to the regression analysis, the training needs of employees were not adequately addressed by management (as the means score shown in Table 4 are very low), it had no significant effect on both their portal use and the perceived functionalities included in the portal. This is possibly because the portal is easy to use and understand and employees who have high computer literacy did not require much training support. We thus conclude that even though perceived low portal usefulness appear to be the immediate determinant of employees’ low portal use, it is the absence of full commitment and involvement of the senior management that contributed to the perceived limited usefulness. The degree to which portal usefulness is perceived was influenced by the understanding of management about how employees would like to use
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Understanding the Use of Business-to-Employee (B2E) Portals in an Australian University
portal to facilitate their work. We thus call for the greater participation of management in support of portal usage. We suggest that senior management should take responsibility for ensuring IT applications acceptance (thus success) by setting a clear vision, communicating that vision with employees and participating in the organisational IT strategy process. Our position is in agreement with the views of Yehon et al. (2000) and Kerans (2007) who strongly recommend top management support and participation in creating a positive internal environment to facilitate acceptance of IT projects in organisational settings.
CONCLUSION Unlike other popular types of e-business initiatives, B2E represents an under-researched (but important) initiative in which many organisations worldwide have made considerable investment. As such, despite its potential impact on organisations and their workforces, inadequate attention has been paid by e-business scholars to fully understand how the usage of B2E e-business systems is affected in organisational settings. Contrary to the scholarly literature, contemporary e-business trade literature has discussed the merits of commercially available B2E e-business products. However, it is inappropriate to assume that employees would rush to using various types of B2E solutions when they are introduced in organisations. We thus critically analyse the experience of a large Australian university in which the uptake of the portal by employees was found to be less than satisfactory. We also identify the factors which have contributed to the limited usage of the portal. In doing so, we provide rich insights into the role of these factors for slowing down use of the portal by employees. Although these factors have been reported in various streams of related literature, their application to B2E portal context has not been explicitly discussed. Thus, a major contribution of our study is to reinforce the explanatory
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ability of the factors to satisfactorily describe the problematic situation of the portal used within the participating university. In addition, we have contributed to literature by discovering two specific dimensions of portal usefulness (i.e. perceived collaboration usefulness and perceived information communication usefulness) and interpreting their relationships with management support. This particular observation has not been reported in the literature. To sum up, we believe that our study will alert the e-business and IT managers of those organisations which are seriously contemplating the introduction of employee portals. Our study however has some limitations. We have not examined the influence of employees’ personal traits (e.g. innovativeness, techno-phobic or self-willed) in explaining their low use of the portal. Further studies are recommended to address how these aspects may affect employees’ use of the portal. In addition, we have not considered the notion of ‘customer activity life cycle’ in helping identify key services to be offered via the employee portal and its possible influence on portal usage. Further studies are recommended to examine this interesting aspect. Finally, there is a need to replicate this study in other industry sector to determine whether there is any influence of industry context on the factors affecting the uptake of portals by employees.
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KEY TERMS AND DEFINITIONS Business-to-Employee (B2E): It represents an employee centric e-business initiative. Typical examples include various types of innovative webbased B2E products including employee portals, e-HR systems and ESS. Portal: It is defined as a web site or service that offers a broad array of resources and services (e.g. e-mails, search engines, online shopping malls) to individuals. The first web portals were online services, such as AOL, that provided access to the Web. Usage Factors: They represent the conditions that influence the use of an IT application. These conditions can be related to technology (e.g. ease of use, complexity) and organisation (e.g. top management support).
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APPENDIX-A: DEVELOPMENT OF RESEARCH HYPOTHESES Perceived system usefulness: According to the dictionary meaning, a system may be termed useful if it is valuable or productive. This interpretation is consistent with the views expressed by Davis (1989) and other leading scholars who describe perceived usefulness as an individual’s belief that performing a specific behaviour will lead to favourable outcome. The outcome may involve tangible benefits such as some form of economic gains or work performance improvement and intangible benefits like greater work satisfaction. In the context of the B2E portal, customised services and easy access to relevant information would create a positive perception of employees about the merits of portal. This perception of the portal’s quality would lead to greater use of the portal. When a portal provides relevant information to the employees for them to perform better by accomplishing tasks effectively and efficiently, the portal would be perceived as a tool for gaining work related benefits. As a result, the following proposition is put forward: H1: Perceived system usefulness (PSU) has a positive influence on employee portal usage Perceived Training: Although not mentioned in core theories, training is often considered to be a great facilitator of the use of IT-enabled applications. According to Mahmood & Mann (1993), training positively affects use of IT applications because it helps improve users understanding on how to use the application to their advantage. Thus, for the B2E portal, when employees think that they were provided with adequate training to use the system without “breaking” it, they would be more confident about using it to their advantage. Thus, the following proposition is developed: H2: Provision of employee training is positively related with the portal usage by employees Management support for portal: Senior management should authorise addition of new sources of information (both internal and external) and services, and encourage improving features of portals to meet employees’ needs. This creates a positive impression on employees with respect to the management’s interest is supporting the portal. By creating an evolving portal, management can ensure that employees’ information demands are best met. Employee’s perception of degree of support provided by their senior management to the portal would thus help ensure better use of the portal. H3: Perceived management support for portal project will positively affect portal usage of employees
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APPENDIX-B: RESULTS OF FACTOR ANALYSIS Table 8. Item Code
Item description
Component 1
2
PU1
The portal helps me efficiently carry out work related communication
PU2
The portal offers collaboration facility with other employees
PU3
The portal provides me with ready access to information sources which enables me to find job related information quickly
.751
PU4
The portal reduces the time spent on HR related activities (i.e. via employee self-service)
.703
PU5
The portal helps me quickly acquire work related items (e.g. office stationery)
.841
PU6
The portal provides role-specific (e.g. managerial, academic, administrative) information
.690
PU7
The portal provides me with accurate information to fulfil my needs
.751
PU9
The portal provides single point of access to work related information
.718
3
4
.633 .774
PT1
I was provided with the necessary training to use the portal
.856
PT2
I attended workshops to learn how to use the portal
.910
MS2
My organization regularly updates the features of the portal
MS3
My organization updates relevant information on the portal regularly
.879 .974
Eigenvalues
3.56
1.94
1.35
1.21
% variance
29.7
16.1
11.30
10.14
KMO measure of sampling adequacy
.709
Bartlett’s Test of Sphericity
Approx. Chi-Square = 589.34 Df = 66, Sig =.000
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 589-602, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Media Channel Preferences of Mobile Communities Peter J. Natale Regent University, USA Mihai C. Bocarnea Regent University, USA
INTRODUCTION Contemporary organizations are drastically changing, in large part due to the development and application of newer communication technologies and their respective media channel options. Within virtual organizations, business leaders are increasingly faced with issues associated with managing and communicating with their mobile workers. According to Richard L. Nolan and Hossam Galal of the Harvard Business School, global businesses are aggressively exploring and investing in the virtual organization paradigm. Furthermore, organizations of all sizes increasDOI: 10.4018/978-1-60960-587-2.ch518
ingly have become virtual in nature. In the case of organizations involved in information processing, newer communication technologies are being used by 71.9% of small firms and 81.3% of large firms, according to a Small Business Administration study. The same study also concluded that the number of U.S. companies that have virtual and telecommuting programs have more than doubled since 1990. The challenge for leaders within this rapidly changing environment is to determine the best ways to lead and communicate with increasing numbers of mobile staff members. These leaders have an astounding array of high technology communication tools to choose from when communicating with their employees. They also
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Media Channel Preferences of Mobile Communities
have concerns about the preferences and uses these workers have for various forms of communication. As organizations seek to optimize communication and share information with their mobile workers and scholars seek to understand the utility and influence of specific organizational communication technologies, such as PDAs and smartphones, which are rapidly emerging as a new and appealing communication tools. The core capability of these devices is a combination of software and hardware that transfers voice and e-mail wireless messages and performs other business related tasks. Current estimations indicate that mobile data will have a penetration rate among the U.S. population of nearly 60% in 2007. Scholars interested in how media channels are used within organizations have turned their attention to the nature, use, and effectiveness of communication tools such as these. They also have been interested in how the particular characteristics of employees relate to their preferences among traditional and newer communication channels. Media richness theory has been one theoretical framework which has been applied by researchers to this environment. Media richness in the organizational context involves the rational process of media selection in which the characteristics of each communication channel are matched with the content or information richness of a message in order to reduce uncertainty. One variable that may be at work when media types are selected in terms of their richness is “learning styles.” These individual learning styles and their relationship with media choices on the basis of richness has been studied previously (Rex, 2001), but not in the case of portable deices. Learning styles are different ways of learning; essentially scholars and practitioners concerned with learning styles have looked at the preferences of individuals and how they process information through their unique senses.
BACKGROUND Using the media richness theory, this study provides further understanding of learning style as a criterion for the selection of handheld media channels by mobile employees. Previous research indicated that learning styles are related to media channel selection and use, although individual media choices and their relationship with learning styles of members of virtual organizations have rarely been examined where employees are highly mobile. Although many types of learning styles exist, this study concentrates on the expressive learning style when sending and receiving messages. The expressive learning style is based on dividing an individual’s learning into four different processes: concrete experience, reflective observation, abstract conceptualization, and active experimentation. It is worthy of special consideration because individual learning is a continuum through time based on these processes whereby people eventually rely on one preferred learning style. Portable communication technologies are not just being applied in specific organizations; they may be part of a technological trend of more universal importance. Currently many communication and media channel choices exist for organizations to utilize. However, finding the best combination of the most appropriate choices for communication in responding to a changing business environment can be difficult. The unique ways in which mobile devices are used are different from fixed, or full-featured personal computers and telephones. PDAs and smartphones represent different usage patterns and employ a different user interface. These differences could impact usability, including the way text messages are created and sent. Compared with PCs, mobile device screens are small in size, their computing ability and power supply limited, and internal data storage capabilities have fewer megabytes. When used for sending and receiving voice mail, these devices
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Figure 1. Media delivery mechanisms used by virtual workers
primarily support traditional audio options found on a fixed line telephone. Figure 1 graphically describes the use of portable, handheld appliances and their relationship to the tasks of media channel sending and receiving of voice and electronic text messages. Text messaging closely mimics the communication tool known as e-mail. E-mail has the ability to forward mail to an individual’s Internet mail address. Electronic text messages can be sent to an appliance such as a PDA, Blackberry, or pager. Text messaging is typically used for messages that are no longer than a few hundred characters yet this communication medium is interchangeable with e-mail, as their general capabilities are quite similar. The participants in this particular study sent and received electronic text messaging through their portable appliances only. The variable differences between e-mail and electronic text messaging depend on the device that is used to send and receive messages.
INDIVIDUAL MEDIA CHANNEL SELECTION AND USE This study uses the communication technology framework set forth by Daft and Lengel (1984). Their category schemes are used as basic dimensions for defining media characteristics. The theory
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was originally developed to focus on executive level communications. When individuals do not express themselves well during auditory messaging, even though voice and face-to-face channels are ranked as rich media on the media richness scale, situations may arise that confound the media richness criteria (Rex, 2001). In these situations, the result of poor verbalization may adversely impact the communication process for the message receiver. Although voice inflections are valuable cues when using voice messaging, electronic text messaging has a few capabilities that are expanding through the use of graphic symbology. Scholars have analyzed and ranked media along the media richness continuum (Trevino, Daft, & Lengel, 1990). The type of media examined in the past normally has fallen within the categories of face-to-face, telephone, e-mail, and other nonelectronic communication methods, such as paper-based memos. Of the media studied, McGrath and Hollinghead (1993), whose research incorporated newer technologies, found in-person repeatedly ranked higher than phone. Additionally, telephone ranked higher than e-mail. Rex (2001) suggested that when considering the selection of media channels, the richness theory presumes senders and receivers possess certain listening and speaking skills for in-person verbal communications. Another conclusion of the study was that appealing to individual learning styles might increase perceptions of effective communication.
Research Questions Two overarching research questions guided our study: 1. What individual media channel preferences are held by members of a highly mobile organization who use portable appliances? 2. Which media channel, voice or electronic text messaging, is perceived to be most appropriate and effective by members of a
Media Channel Preferences of Mobile Communities
highly mobile organization who use handheld, portable devices, when individual learning styles are taken into consideration? To address these questions, a survey was used to collect data from members of an organization comprised almost totally of mobile workers. These workers used PDAs and smartphones. A total of 112 members of the organization participated in the study with 94 responding to a measuring instrument designed to examine individual learning styles and media preferences according to media richness theory.
Review of the Literature Media Richness and Related Theories Researchers used media selection theories to assess communication effectiveness in organizations. As part of this body of knowledge, two studies—Kock (1998) and Dennis and Kinney (1998—examined communicator’s media choices, group communication dynamics, and the utilization of new technologies. Rice and Shook (1990) indicated that when e-mail and voice messages were used, there was a positive relationship between an individual’s media selection and their organizational group’s media selection. Daft and Lengel (1984) applied the media richness theory to organizations, and they described the primary
conclusion of their research in the following statement: “Organizational success is based on the organization’s ability to process information of appropriate richness to reduce uncertainty and clarify ambiguity” (p. 194). Their findings indicated that organizational managers use rich media for ambiguous communications and select less rich media for unequivocal communications.
Social Presence, Media Richness, and Organizational Communication Based upon social presence theory, it has been found that the amount of contact or closeness that can be conveyed over a medium also coincides with media richness (Short, Williams, & Christie, 1976). The media richness scale presented in Figure 2 closely parallels the continuum of social presence of media proposed by in such studies. This social presence continuum gauges the appropriate selection of a media channel based on the amount of social presence required by the particular communication task. Social presence theory also states face-to-face messages contain the most social presence. Face-to-face is followed by audio and video, audio-only, and print. Research has indicated that organizational communication channels have objective characteristics which determine the capacity of each channel to carry rich information. In order to clarify information, discussions are required to reduce
Figure 2. Media richness
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equivocality. Ambiguity and uncertainty within messages can diminish when more information is made available. Daft and Lengel (1984) developed the media richness theory to assist communicators as they decide which of the following media channels may be suitable for a communication: (a) face-to-face communication, (b) telephone communication, (c) addressed documents, or (d) unaddressed documents. Media richness is also based on the measurement of feedback, multiple cues, language variety, and personal focus. Faceto-face is considered the richest medium and unaddressed documents are the least rich—or lean. Richer media channels are seen as more effective for reducing equivocality (Rex, 2001). Daft and Lengel (1984) indicated communication media can have different capabilities for resolving uncertainty. The media richness theory also implies a protocol for selection and has four components that influence richness: (a) ability of the medium to transmit multiple cues, (b) immediacy of feedback, (c) use of natural language, and (d) personal focus. Fulk (1993) posited that the more frequent the use and the more extensive the experience, the perceptions of richness in a media channel will be greater among individuals using them. Daft, Lengel, and Trevino (1987) posited that, “managers refer to rich media for ambiguous communications and less rich media for unequivocal communications” (p. 355). When communicating, a variety of cues can be used: (a) sound or tone of voice, (b) facial expressions, or (c) body language. Additional research attempts to place newer media into the media richness theory as well. Email has been studied in this context and is found to lack the cues and the function of immediate feedback when the communication is asynchronous. In the technology environment, immediate feedback is most often associated with chat or Instant Message (IM). Personality and the use of natural language within e-mail communication can be varied.
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Within the media richness framework, Dennis and Kinney (1998) indicated high equivocality can be reduced using richer media. Equivocality is generally understood to decrease with richer media and more information. Messages may be more uncertain than equivocal considering certain types of information. Media selection may not only be a logical decision based on the message required or information being delivered, but also a social decision (Huang, Lee, & Wang, 1998). In some instances, there may be social pressure upon an individual to use a certain medium. With the expansion of new media, e-mail and the Internet have become the standard media delivery channels within certain groups. Therefore, there is a need to understand communication in terms of a time-space matrix of communication activities. This is particularly important as it relates to this study, as mobile devices transcend time and space barriers in unique ways.
RESULTS Our research conducted on 94 mobile workers indicates that mobile workers have specific media preferences. Furthermore, their individual learning styles influence those preferences. The results begin to reveal where portable mediums might fit within the continuum of media channels that has been used by previous scholars to evaluate the relative richness of various communication channels used in the workplace. In discussing this topic it is important to note the media choices were quite subjective and dependent on various personal and contextual factors. Analysis of the statistical relationships between the study participants’ media preferences and learning styles showed that, for virtual workers, there are important relationships between their individual learning style and media selections. In the auditory and oral combined learning styles category, there appeared to be a preference for voice mail. One explanation could be the group’s
Media Channel Preferences of Mobile Communities
work environment and the type of messages they send. In this virtual setting, mobile workers are typically provided only limited opportunity to access and send messages when they are not with a client. Because much of the information in their client-related communication is technical in nature, e-mail may be best suited for this particular type of content. E-mails can be reviewed several times, content can be cut and pasted into software programs, and redistribution of the content is simple. Interestingly, when media preferences of the study participants were examined in the Demographic Data Survey, apart from individual learning styles, it appeared that while a number of the respondents selected voice mail, a somewhat larger number selected e-mail. Without further research, it would be difficult to conclude that either the voice or e-mail option for communication would be a better channel for organizational leaders to rely on in all virtual organizations using portable devices as the primary means of communication. Making sure both were deployed in the most appropriate ways, considering individual preferences and individual learning styles would seem to be prudent. Another result of the study indicated that most members of the study group preferred to use their portable devices for sending and receiving messages above all other technologies. Additionally, they also preferred these options over face-to-face communication. A somehow surprising result was that the study group indicated a preference for mobile devices and e-mail when they responded to the demographic questionnaire. Yet when the auditory and oral combined learning style was considered in relationship with media preferences, voice mail was preferred. It can be surmised that these channels generally appear rich and effective to this group for their specific communications, yet learning styles still may modify perceptions of these channels as they are used for various communication purposes. This is a finding with relevance for organizational leadership in the re-
spect that no assumptions or overgeneralizations can be made when evaluating the use of particular channels through which to communicate with virtual workers.
FUTURE TRENDS This study should serve as a good point of departure for further research on media richness, individual learning styles, virtual organizations, their mobile workers, and newer communication technologies. At the very least, it adds to existing studies that have generated contradictory findings when media richness theory has been applied to new technologybased communication channels (Fulk, Schmitz, & Steinfield, 1990; Rex, 2001; Rice, 1992). The purpose of this study was to conduct an examination of a specific group of mobile workers and was an attempt to understand their personal learning style as an element that possibly relates to their preferences for handheld media channels. Data that emerged from the research indicated that individual learning styles could be an important predictor of portable media channel selection. Additional exploration with larger samples of workers and organizations in which mobile devices are used is needed. Expanded studies can also indicate if the media richness theory and personal learning styles applied to PDA and smartphone based media selection and use in organizational settings, are at work in similar or different ways in the case of other portable devices such as short messaging services (SMS) via PDAs, smart pagers, and Instant Messaging (IM) via PDAs, and various technologically advance phones and pagers. Whether using traditional or newer technology based methods of messaging, Nelton (1996) indicated that when communicating, organizational leaders should listen, aim for effective discussion, utilize humor, and appeal to the interest of the receiver. Wheatley (1994) indicated that information informs and forms an organization and selected information will change the organizational landscape.
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Leadership, technology, and communication and the myriad of terms used to describe organizational functions are all essential. Yet, the fundamental principle behind it all is communication. The function of communication is about members within the organization, their relationships, and their locations. With the deployment of new technologies it becomes increasingly critical for leaders to carefully understand the intent, impact, and context of their communication. Rex (2001) found that learning styles indicate when a person is oral expressive. Therefore, knowing this information may help explain an individual’s media channel selection and use. However, if the receiver of the message is a visual learner and prefers a written medium, then although the individual is choosing what is deemed a richer medium, according to media richness theory, it is likely to not be the most appropriate because it is perceived as a less effective method for that particular receiver. In conclusion, leaders or message senders faced with communicating must consider their receivers in order to determine the most appropriate medium based upon the receiver’s preferences (Rex, 2001). If message senders adhere to the approach of considering the learning style of the receiver, organizations may very well improve their ability to communicate effectively overall. As more technologies become available and are applied in the organizational communication setting, this need to study media richness and individual preferences and characteristics will become even more important. These virtual organizations have to communicate effectively in ways that acknowledge that face-to-face communication is not a viable option among workers.
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Daft, R., Lengel, R., & Trevino, L. (1987). Message equivocality, media selection and manager performance: Implications for information systems. MIS Quarterly, 11, 355–366. doi:10.2307/248682 Dennis, A. R., & Kinney, S. T. (1998). Testing media richness theory in the new media: The effects of cues, feedback, and task equivocality. Information Systems Research, 9, 256–274. doi:10.1287/isre.9.3.256 Fulk, J. (1993). Social construction of communication technology. Academy of Management Journal, 36, 921–950. doi:10.2307/256641 Fulk, J., Schmitz, J., & Steinfield, C. W. (1990). A social influence model of technology use. In J. Fulk & C. Steinfield (Eds.), Organizations and communications technology (pp. 117-140). Newbury Park, CA: Sage. Huang, K., Lee, Y., & Wang, R. (1998). Quality information and knowledge management. Upper Saddle River, NJ: Prentice Hall. Kock, N. (1998). Can a leaner medium foster better group outcomes? A study of computer-supported process. In M.Khosrowpour (Ed.), Improvement groups, effective utilization and management of emerging information technologies (pp. 22-31). Hershey, PA: Idea Group. McGrath, J. E., & Hollingshead, A. B. (1993). Putting the “group” back in group support systems: Some theoretical issues about dynamic processes in groups with technological enhancements. In L.M. Jessup & J.S. Valacich (Eds.), Group support systems (pp. 78-96). New York: Macmillan. Nelton, S. (1996, November). Face to face: By communicating the old-fashioned way—through talking and listening to customers and employees—companies are achieving new goals. Nation’s Business, 84(4), 25.
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KEY TERMS AND DEFINITIONS
Rice, R. E., & Shook, D. E. (1990). Relationship of job categories and organizational levels to use of communication channels, including electronic mail: A metaanalysis and extension. Journal of Management Studies, 27(2), 195–229. doi:10.1111/j.1467-6486.1990.tb00760.x Short, J., Williams, E., & Christie, B. (1976). The social psychology of telecommunications. London: John Wiley and Sons. Trevino, L. K., Daft, R. L., & Lengel, R. H. (1990). Understanding managers’ media choices: A symbolic interactionist perspective. In J. Fulk & C. Steinfield (Eds.), Organizations and communications technology (pp.71-94). Newbury Park, CA: Sage.
Mobile Workers: Employees performing their jobs outside the office. Media Richness Theory: The rational process of media selection so that the characteristics of the communication channel is matched with the content of a message in order to reduce its uncertainty. Personal Digital Assistant (PDA): Handheld device that combines computing and networking features. Symbology: The study and interpretation of symbols. Smartphone: Handheld device that integrates the functionality of a mobile phone and a PDA. Telecommuting: Work arrangement in which employees employ telecommunication means to perform their tasks instead of commuting to a central work location. Virtual Organizations: Organizations that primarily conduct their work through electronic media.
This work was previously published in Encyclopedia of Multimedia Technology and Networking, Second Edition, edited by Margherita Pagani, pp. 894-900, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Consumer Information Sharing Jonathan Foster University of Sheffield, UK. Angela Lin University of Sheffield, UK.
INTRODUCTION One area of e-business that has visibly changed in the last few years is the capacity of the Internet for supporting consumer-to-consumer information sharing. By using a variety of social media software applications such as online reviews, blogs, social tagging, and wikis, consumers are increasingly able to generate and share content about the products and services that are available in the marketplace. Collectively the labor expended by consumers in generating such content is considerable, influencing other consumers’ perceptions of DOI: 10.4018/978-1-60960-587-2.ch519
these products and services and informing their purchasing decisions. It has been estimated for example that more than 5 million customers have reviewed products on the Amazon.com site, with many more making purchasing decisions informed by reading such reviews (Amazon, 2008). According to the findings of a recent Pew Internet & American Life Project survey, consumer generated information sources such as product reviews and blogs are also considered equally as important as commercial information, e.g. manufacturers’ specifications, when making a purchasing decision (Horrigan, 2008). This article aims to provide an up-to-date review of the practice of consumer information sharing. First the different kinds of
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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information sought by consumers are identified; second the social media software applications that consumers use to create, organize and share information with other consumers are discussed; and finally consideration is given to the marketing implications of consumer information sharing and how e-businesses can utilize social media for developing and managing relations with their customers.
CONSUMER INFORMATION Consumers seek information in order to reduce any uncertainties or risks associated with an intended purchase (Conchar, Zinkhan, Peters, and Olavarrieta, 2004). Consumers also seek information in order to make sense of a product or group of products. The kinds of information sought by consumers typically relate to product attributes (e.g. specification, price, quality standards), expert and consumer opinions, and vendor reputation. Identifying relevant information sources involves the consumer either in an internal search of their prior knowledge of the same or similar products, and/or an external search of new information sources. An internal search is said to occur when consumers rely on their personal knowledge and experience of a product, while an external search occurs when consumers look for information beyond their own personal knowledge and experience. The range of external consumer information sources includes: store representatives, salespersons, and company websites; commercial media (e.g. magazines, advertisements), expert reviews; social sources (e.g. word of mouth, family and friends) and recommendations; and an increasing range of social media (e.g. blogs, social bookmarking tools, social shopping sites, and wikis) that consumers use to generate, organize, and communicate information about products and services. In sum, consumers seek a range of different kinds of information in order to reduce the uncertainties and risks associated with making a purchasing decision
and to make sense of the products. Information sources can be both internal and external to the consumer and span a spectrum that includes ratings, reviews and recommendations on the one hand, more interactive resources e.g. blogs, and opportunities for fuller participation in consumer wikis and customer communities.
CONSUMER INFORMATION AND SOCIAL MEDIA Socially-owned media applications such as blogs, social tagging, and opinion sites have been enthusiastically adopted by consumers; with the resulting consumer generated content being widely used by consumers in the course of their purchasing activities. Reasons for this adoption include the relatively low costs associated with their implementation, and the dynamic and recent nature of the content. In contrast to traditional commercially-produced sources the use of social media enables consumers to access, produce, and share content generated by their peers. Rather than describe the different types of social media applications that have been developed, the review is organized in terms of the uses that such media have for consumers and for generating consumer content. Consumer uses of social media include reviewing and rating products and services, organizing content for subsequent access by other consumers, communicating with other consumers through weblogs, and collaborating and participating in the development of more substantive resources such as consumer wikis and customer communities. A description of each of these uses is provided here, along with illustrative examples. The review concludes with a short summary of some of the problems that can arise from consumers’ use of social media. Perhaps the most evident use of social media in the consumer domain is in enabling the publishing and reading of consumer reviews. Reviews written by consumers are perceived to be less
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biased than the information provided by advertisers and can provide additional information that enhances the credibility of what is already available from retailers and manufacturers. Different types of consumer review exist, depending on the purpose for which they are intended. These include product reviews, content reviews, and seller reviews. Product reviews normally focus on the functionalities of a product e.g. its usability, efficiency, quality, design, reliability, and so on e.g. Epinions (http://www.epinions.com/); content reviews focus and share opinions on the content of a product e.g. a book, music, or movie e.g. Music Emissions (http://www.musicemissions.com); seller reviews are often used as a mechanism to establish trust between buyers and sellers and to convey a sense of product and service quality e.g. Froogle (http://www.froogle.com), and Ebay (http://www.ebay.com). Consumer reviews have become a valued consumer information source and their use increases consumers’ confidence when making a purchasing decision (Harrell, 2008). Therefore, a growing number of retailers incorporate customer reviews on their site in order to enrich their consumers’ shopping experience. An interactive dimension can be added to these reviews by providing a facility for other consumers to rate the usefulness of particular reviews e.g. Amazon (http://www.amazon.com). Ratings are also used as a simple way of evaluating goods and services. These include dedicated ratings and reviews sites e.g. Bizrate (http://www.bizrate.com) as well as the embedding of ratings scales into reputation systems. Reputation systems enable a consumer to rate a vendor on a given scale. Displays of reputation information often include an aggregated statistical score for positive, negative and neutral ratings; along with the facility to read related limited free-text comments. Enhancements of reputation systems include an interactive facility enabling vendors to respond to consumers’ comments, often in the interests of equity when the vendor perceives a comment to be unfair or partial. A further mechanism for aggregating consumer
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opinions are voting systems. ILikeTotallyLoveIt. com for example carries a facility enabling consumers to vote on their agreement with consumers product stories. Consumers’ preferences can also aggregated and displayed via recommender systems. Recommender systems in e-commerce identify a similarity in the preferences or tastes of one consumer and others (e.g. goods purchased, products viewed); and make recommendations for new purchases drawn from the set of other goods bought or viewed by each of the like-minded consumers (Foster, 2006). Social media also provide an opportunity for users to describe and organize content though the use of descriptors called tags e.g. Flickr (http:// www.flickr.com). In contrast to the hierarchical category systems developed by organizations and designers on the basis of a standardized vocabulary, social tagging systems enable users to generate and navigate meta-data that describe and organize content flexibly on the basis of users’ rather than experts’ terminology. If a critical mass of users use the social tagging system, a folksonomy (a blending of the words ‘folk’ and ‘taxonomy’) of terms is generated that displays the terms used and chosen by users to assign meaning to the site’s content. Although dedicated social tagging sites exist that carry consumer generated content e.g. Digg (http:// www.digg.com), the more popular use of social tags in a consumer context is for them to become embedded in other media and act as metadata for describing and organizing consumer-generated content. For example Amazon (http://www.amazon.com) provides facilities for customer to tag their products. Other consumers then have the opportunity to search for and retrieve relevant products by clicking on these tags. Emerging tags can also be displayed as an ordered alphabetical list, while it has also become popular for groups of user-generated tags to be displayed in the form of a tag cloud that utilizes typographic devices to visualize the frequency and recency with which the tags have been used. Further interactivity is provided by enabling other customers to vote on
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whether they agree or not that the selected tag is related to the product. A further highly trusted source for influencing the customer decision process are consumer weblogs or blogs. These are a form of online journal with entries that record consumers’ personal experiences and opinions of products and companies, as well comments on issues relevant to the consumer marketplace and consumer culture more generally. An important element of consumer blogs is the ability of other consumers to comment on the entries. Third party hosted and personal consumer blogs exist. Gizmodo (http://www. gizmodo.com) for example is currently a popular third party site hosting consumer-to-consumer communication around gadgets; while Festival of Frugality (http://www.festivaloffrugality.com) enables consumers to share cost saving tips. Consumers also use blogs to record their personal experience with a product and make comment on the product after its use. Things I Bought That I Love (http://thingsiboughtthatilove.com) is a personal consumer blog dedicated to describing and recommending products that a consumer has purchased to other consumers; while A Suitable Wardrobe (http://asuitablewardrobe.dynend.com) is a blog written by a men’s clothing enthusiast to share his knowledge of men’s dressing style. Video sharing websites e.g. Youtube (http://www. youtube.com) and Expo (http://www.expotv.com) also carry consumer video reviews; thus combining the benefits of trusted consumer reviews with an element of storefront demonstration. Finally, social media such as wikis allow consumers to edit and modify content and collaborate on the generation of consumer information resources (Foster, in press). Wikitravel (http://wikitravel.org) is a consumer-generated travel guide that aims to be a free, complete, up-to-date, and reliable guide to worldwide travel; while Shopwiki (http://www. shopwiki.com/wiki) carries consumer authored buying and gift guides. Consumers’ use of social media gives rise to a number of business and design challenges.
Preeminent among these challenges is the quality and usefulness of the content generated. At its best, consumer information shares similar properties with those attributed to crowd wisdom that contributions are voluntary, diversified, independent, decentralized, and aggregated (Surowiecki, 2004). There is no guarantee however that opinions shared by consumers are free from bias and are those of individuals who are acting independently; and a number of mechanisms have been put in place to safeguard against this e.g. ranking and voting mechanisms that judge review and reviewer helpfulness, more detailed breakdowns and explanations of ratings and reputation scores, and vendor feedback facilities that enable right of reply. In addition, while the quality of some amateur reviews and customer ratings can be questioned, if there is sufficient critical mass, statistical answers from groups of sufficiently large sizes tend to be accurate (Sunstein, 2006). Hence, aggregation in itself is often a sufficient safeguard against idiosyncratic or commercially-motivated contributions; while more collaboratively developed resources such as consumer wikis rely on the distributed knowledge of individuals as a guide to the accuracy and reliability of the content.
E-BUSINESS, CONSUMERS, AND SOCIAL MEDIA The advent of consumer information sharing and their take up of social media is both an opportunity and a threat for conducting e-business. On the one hand, consumers willing participation in what is from an e-business perspective marketing and brand building is a boon to businesses and brings marketing benefits and increased exposure to branding and an enhanced reputation. On the other hand in a networked environment reputation is often fragile; and therefore one of the key lessons of this trend is for e-businesses to develop and manage relations with their customers in these
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same social media environments (Lin and Foster, forthcoming). Some of the strategies that businesses can use to engage with this new breed of active and participatory consumer include listening, talking, energizing, supporting, and embracing customers and their ideas (Li and Bernoff, 2008). One way to combine these strategies is to develop customer communities. Starbucks for example has developed My Starbucks Idea (http://mystarbucksidea.force.com/ideaHome) which combines crowdsourcing and relationship management in one application; while Amazon hosts a range of customer communities from Harry Potter to martial arts (http://amazon.com/communities) that aim to develop customer loyalty and that utilize all the social media applications described here. In sum, media convergence and the increasingly ubiquitous nature of networked communication have provided marketing opportunities for businesses that go beyond information access and exchange to meaning making and identity formation (Deighton and Kornfeld, 2007).
FUTURE RESEARCH DIRECTIONS Although consumer information has increased in availability and accessibility, there remain many factors that can influence effective consumer information sharing and where further research is needed to understand more of the conditions that affect the take-up of consumer-generated content and its impact on purchasing decisions. These include individual differences among consumers, the quality of the information shared and perceptions of the value of such content. Consumers vary for example in their prior knowledge of a product or brand, their knowledge of appropriate information sources and channels, search skills, as well as external factors such as the time available to them within which to make a decision. The depth of an information search, i.e. the extent to which a consumer will search, will also depend on balancing the costs and benefits of doing the
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information search. That is, when the benefits of an information search are perceived to outweigh the costs, consumers are likely to continue searching; if not consumers are likely to stop searching and to engage in satisficing. Increasing the quality and authority of consumer-generated content will continue to present technical and business challenges; while knowing more about when during the purchasing process and why such content is valued would be valuable for consumer information systems designers and marketing personnel.
CONCLUSION The topic of consumer information sharing can be considered to incorporate study not only of the mechanisms available for the search, aggregation and sharing of information and opinions, but also of the facilities available for discussing these information and opinions once shared – an advance that may also have helped to counter bias in consumer judgments. Of the range of information sources available, non-commercial information sources are regarded by consumers as normally being more accurate, i.e. free from commercial interest and related to objective facts. Access to traditional social sources such as word of mouth and face-to-face communication can sometimes be limited by shared preconceptions of a product or brand; and recent developments in social media have created the reality of making purchasing decisions that are informed, even possibly optimally informed, not only by information and judgments that come from immediate social networks and strong ties but also from extended virtual networks and weak ties (Frenzen and Nakamoto, 1993). In sum, it is clear that engaging with and sharing social media has proven to be popular among consumers and that with certain safeguards as to the quality, authority, and usefulness of the contributions, also beneficial to businesses’ marketing and branding operations.
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REFERENCES Amazon.com. Inc. (2008, November 24). Investors relations: Press release. Retrieved December 10, 2008 from http://phx.corporate-ir.net/ phoenix.zhtml?c=97664&p=irol-newsArticle &ID=1229410&highlight= Conchar, M. P., Zinkhan, G. M., Peters, C., & Olavarrieta, S. (2004). An integrated framework for the conceptualization of consumers’ perceived-risk processing. Journal of the Academy of Marketing Science, 32(4), 418–436. doi:10.1177/0092070304267551 Deighton, J., & Kornfeld, L. (1997). Digital interactivity: Unanticipated consequences for markets, marketing, and consumers. [Working Paper 08-017]. Retrieved from http://www.hbs. edu/research/pdf/08-017.pdf Foster, J. (2006). Collaborative information seeking and retrieval. Annual Review of Information Science & Technology, 40, 329–356. doi:10.1002/ aris.1440400115 Foster, J. (Ed.). (in press). Collaborative information behavior: User engagement and communication sharing. Hershey, PA: IGI Global. Frenzen, J., & Nakamoto, K. (1993). Structure, cooperation, and the flow of market information. The Journal of Consumer Research, 20(3), 360–375. doi:10.1086/209355 Harrell, D. (2008). The influence of consumer generated content on customer experiences and consumer behavior. In P.C. Deans, (Ed.), Social software and Web 2.0 technology trends. Hershey, PA: IGI Global. Horrigan, J. B. (2008). The Internet and Consumer Choice: Online Americans Use Different Search and Purchase Strategies for Different Goods. Pew Internet and American Life Project [Report]. Retrieved from http://www.pewinternet.org
Li, C., & Bernoff, J. (2008). Groundswell: Winning in a world transformed by social technologies. Boston: Harvard University Press. Lin, A. & Foster, J. (forthcoming). Consumer information systems and relationship management: Design, implementation, and use. Hershey, PA: IGI Global. Sunstein, C. R. (2006). Infotopia: How many minds produce knowledge. Oxford, UK: Oxford University Press. Surowiecki, J. (2004). The Wisdom of crowds: Why the many are smarter than the few. London: Abacus.
KEY TERMS AND DEFINITIONS Consumer Generated Content: content generated by consumers’ use of social media. Examples include reviews, ratings, tags, and weblog or wiki entries. Consumer Information: the information needed by consumers when researching, purchasing, and completing a purchase. Examples of consumer information needs include: product attributes (e.g. specification, price, quality standards), expert and consumer opinions, and vendor reputation. Customer Decision Process: The set of stages that consumers pass through when deciding to purchase products or services. When purchasing products, consumers typically pass through a prepurchase stage that involves recognition of need, information gathering, and the evaluation of different product alternatives; a purchase stage in which a decision to purchase is taken; and a postpurchase stage during which customers evaluation the purchase, consider becoming a loyal customer; and finally, dispose of the product. Information Sharing: an umbrella term for the processes involved in the creation, exchange and use of information. Information sharing
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includes the sharing of pre-defined information, and discussion of the information once shared. Recommender System: Recommender systems in e-commerce identify a similarity in the preferences or tastes of one consumer and others (e.g. goods purchased, products viewed); and make recommendations for new purchases drawn from the set of other goods bought or viewed by each of the like-minded consumers. Social Media: socially rather than commercially-owned media enabling its users to rapidly publish and distribute ideas and opinions, primarily although not exclusively, to a peer audience. Examples of social media include: weblogs, social tagging systems, and wikis.
Social Tagging: in contrast to the pre-defined categories and terms of a classification scheme, social tagging systems enable users to create and assign tags that meaningfully organize the content of a website. Aggregation of tags leads to the generation of a folksonomy, a socially-owned socially owned vocabulary, whose terms define and organize the content of a website from the perspective of members of the user community rather than that of experts.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 676-682, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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The Benefits of HomeBased Working’s Flexibility Diana Benito Osorio Universidad Rey Juan Carlos–Madrid, Spain
INTRODUCTION The history of home working in Western economies can only be understood by means of changes in the systems of production in Europe and North America and through changes in the general sphere of women’s responsibilities, which typically include family work as well as paid work (Johnson, 2003). Both new situations produce the most important change: the change in work venue. The development in industrial production has been an uneven and changing pattern, beginning with artisanal guilds of the middle ages and continuing through to industrial production in the 19th DOI: 10.4018/978-1-60960-587-2.ch520
and 20th centuries (Boris, 1996). Mistakenly, the process of industrialization has often been characterized as a unidirectional shift of production from home to factory (Johnson, 2003), but the reality has been very different. The earliest forms of industrialization first appeared within the home setting (Albrecht, 1982). One of the initial impetuses for the use of home-based working arrangements among such employees was provided by the oil crisis of the 1970s which, in conjunction with advances in computer technology, led to a surge of interest in “telecommuting” among white collar workers (Niles, Carlson, Gray, & Hanneman, 1976). However, it was not until the development of personal computers and networked systems in the 1980s that home-based working arrangements
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Benefits of Home-Based Working’s Flexibility
experienced significant growth, growth that has been particularly pronounced among executives, managers, scientists, and engineers in large corporations (Bureau of National Affairs, 1991). This home-based working’s revival, on the early 1980s, was linked to the shift in the structure of employment and production in post-industrial economies of North America and Western Europe (Lipsig-Mummé, 1983). Years later, in the 1990s, this subject was treated again but with a new vision. While adoption of telework was slow during the 1980´s, the subsequent decade’s information revolution resulted in considerable growth in new work forms (Moss, Whitfield, Johnson, & Andrey, 2006; Robertson, 2005) The “renaissance” was interpreted as a symptom of economic restructuring that put increased pressure on domestic industries from off-shore producers (Leach, 1998). The 1990s and now, in the 21st century, have seen a significant increase in work that is conducted entirely online (Gurstein, 2002). Since 1990s business conditions have changed, workers have become more mobile and the guilds of the future may also come from new organizations (Malone, 2004). It is well-known that work is changing becoming increasingly “person based” rather than “place based” (Couclelis, 1998). For these reasons, the way in which the working arrangements in firms adapt in response to these changes is of crucial importance for conciliation between labor and family life (Evans, 2001). In this article I study how technology and flexible location working, in concrete, home-based working, can be combined to achieve the conciliation between labor and family life. Certainly, the new telecommunications technology supports such workplace flexibility (Johnson, 2003).
BACKGROUND We have seen in the previous section that home working has an extensive history related to patterns of change in industrial production, settlement,
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gender roles, and family life (it has generally performed by married women who are usually mothers of young children). Home-based working includes a variety of types of work, done in various occupations, and by workers of various social classes what produces very important differences and similarities among the working conditions of various categories of homeworkers (Johnson, 2003). In the early 1980s, Lipsig-Mummé (1983) used a broad definition of home-based working to include service, white-collar and professional, as well as industrial homeworkers. Home-based work is typified as work performed with help of information and communication technologies where employees are connected to corporate networks while working from their homes1 (Gurstein, 2002). Phizacklea and Wolkowitz (1995) conducted an extensive review of research on the impact of gender, race, and class on home-based work. In this research, the findings showed that women (who used the ICT’s) were more likely than men to consider the ability to look after children as an important advantage of working at home. Nowadays, home-based workers represent a relatively small but growing proportion of the workforce (Johnson, 2003), in the case of the North America, an estimated one-quarter of the working population does some or all of its paid labor from home or close to home. This implies that the number of people who combine work and family responsibilities has increased over the past two decades, especially as more women are participating in the labor force. The societal, demographic, economic, and cultural changes that characterize developed societies, as well as the growing rates of woman incorporation to paid work, have situated the conciliation between labor and family life on the top of the human resources management (HRM) research. Specifically, the demographic variable is an essential factor in analyzing problems and developing appropriate policy responses—and a key factor behind social and economic cohesion.2 Demography is assuming increasing significance
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in all European countries as reduced population growth combined with increased aging continue to transform the age pyramid at an accelerating rate, therefore, the effects of this marked transition towards an older population. Many of the European countries have low birth rates and this implies lack of future manpower and incomes. It is believed that one of the reasons is that many couples find it difficult to combine or conciliate family life and working life. In some countries, this is partly linked to the working hours, the long lunch break, and late working hours. The conciliation between labor and family life has become an important issue for more families, businesses, and government, because conciliation should not be seen as an individual issue, it is a national challenge, and it involves men as well as women, also we have to understand that conciliation is not only linked to family life, but to private life in general; conciliation between professional and private life is an issue for all, not only for those with children. The European Commission is aware of this fact and it has announced (early 2006) an initiative particularly targeting conciliation of work and family life. The Social Partners at European level (CEEP, UNICE, & ETUC) have recognized the importance of the topic and adopted to this end, in 2005, a framework of actions on gender equality. This framework supports the work-life balance as one of four main actions. The European Council of European Municipalities and Regions (CEMR) adopted at the General Assembly in mid-May 2006 a “European charter for equality of women and men in local life,” supported by the European Commission. The charter recommends that local authorities elaborate local action plans to achieve equality for men and women at local level. The debate over the conciliation between labor and family life has come to prominence quite suddenly. For this reason, the discussion has often been plagued by ideas that are ill thought out or even misleading. The literature addresses various aspects of work-life balance but it is unfortunate that so few studies deal with home-based working.
Over the last two decades, sociologist, human resources specialists, and political observers around the world have spilled a great deal of ink on this question (Lavoie, 2004).
HOME-BASED WORKING’S FLEXIBILITY AND CONCILIATION BETWEEN LABOR AND FAMILY LIFE The information age is transforming the idea that working involves making a journey and that it needs to take place at a fixed location. Ictus are enabling to change the way that work is organized (Malone, 2004). Where once there were only flexible contracts and flexible working hours, there is now flexibility in location as well. Malone (2004) argues that a convergence of technical and economic factors (e.g., the rapidly falling cost of communication) is making possible a change. The result is that new forms of flexible working, that enable workers to conciliate labor and family life, are emerging as technology gets better and cheaper.3 The broad term, flexible working covers flexibility in terms of time and location, and it is used to describe two different concepts of change: 1. Change in the nature of employment: in other words, the “non traditional” working practices that offer the varieties of flexible working: flexible contracts, flexible hours, flexible location, and flexible task. 2. Changes in technology: which refers to developments in information and communication technologies that are enabling the new methods of working. Ictus can have a powerful impact on introducing flexibility of location, in particular on home-based working. Using new technologies is making easier to adjust the work requirements towards the needs of employees, wherever they are.
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The analysts in both the U.K. and U.S. think that increases in productivity depend on adopting new models of work organization that involve the use of “innovative work practices” (Michie & Sheehan, 1999). This combination of technology and flexible location working, particularly home-based working, can be the way to conciliate labor and family life and increase the productivity. Furthermore, home-based working, combined with flexi-time,4 can ensure that an employee is always equipped to get with his/her work at the same time that he/she can cover his/her domestic responsibilities the moment that this is necessary. It is very difficult to implement flexible work arrangements in organizations where the focus is on hours rather than output and on presence rather than performance. This means that organizations that want to increase employees labor-family balance need to introduce new performance measures that focus on objectives, results, and output (i.e., move away from a focus on hours to a focus on output). To do this they need to reward output, not hours, and what is done, not where it is done. In the first moment, the objectives of both employers and employees can seem different because workers have specific needs for balancing professional and personal responsibilities, and employers, for their part, must face certain production constrains (Lavoie, 2004), but the joint use of technology and home-based working can be arranged to meet these objectives. For this reason, an increasing number of organizations, in both the private and public sectors, are introducing home-based work as a flexible working option (e.g., sales personnel, social services practitioners, financial advisers, mobile maintenance engineers, and call-centre agents). Therefore, beneficiaries of this new way of working include both employers and employees: •
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Employers can boost staff morale and introduce practices that are more efficient and effective. When workers make their own decisions about how to do their work
•
and allocate their time, they often put more effort, energy, and creativity into their labor life (Amabile, Conti, Coon, Lazenby, & Herron, 1996). To increase the utilization and effectiveness of their own policies and contribute to a more collaborative, systemic effort, we believe employers need to adopt new approaches to dealing with labor-family issues. Firms should continue to act in their self-interest by expanding the array and reach of family-friendly benefits and practices to better enable workers to contribute to their business objectives and meet their family and personal responsibilities. Therefore, to reduce labor vs family conflict and improve overall quality of life, employers need to focus their efforts on three sets of initiatives: ◦⊦ Providing flexibility around time and place of work; ◦⊦ Increasing employees’ sense of control; and ◦⊦ Focusing on creating a more supportive work environment. Employees can reduce stress and become more productive and more motivated as they achieve a better work-life balance (Johnson, 2003). Control over the use of time is one of the most obvious advantages of home-based working compared to the daily schedule of an office worker (Gurstein, 2002). Some studies have found that home-based work introduces flexibility for employed parents, can reduce role overload and thereby supporting family life (Duxbury, Higgings, & Neufeld, 1998; Higgins, Duxbbury, & Lee, 1992; Huws, Korte, & Robinson, 1990; Pratt, 1999; van Sell & Jacobs, 1994). The main gain for the employees from home-based working arrangements is the increased opportunity to fit other commitments and activities in with work, and make better use of their free time. Higgins et al. (1992) observed
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that “work time and work location flexibility have the potential to balance work and family by increasing an employee’s ability to control, predict, and absorb change in work and family roles.” For these reasons, employees feel more in control of their workloads and manage a better balance between life and work. Home-based working has many advantages for people with heavy domestic responsibilities and it can be particularly helpful for people caring for children or other dependants. The home-based worker of this information society should possess the ability of being flexible, working in network and have a rapid access to information, using for this today’s technologies which are available to him/her. Employees must be brought into the process of designing and implementing flexible schedules and practices. Not all who try working at home have the required self-discipline or all infrastructure required to work effectively in a home workspace (Johnson, 2003); for these reasons more highly-skilled workers, and those with longer tenures, tend to be offered more family-friendly benefits (Evans, 2001). Working at home is based on the use of communication technologies using for that the various tools made available by technology (modem, fax, telephone, etc.) and in the management of human resources by objectives. This fact favors an increase in the flexibility of workers, who thus are able to manage their time better, adapting it to their needs.
This increase in flexibility has as first result the promotion of a greater conciliation between family and professional life. This is an important fact, particularly when workers have to play the role of mother/father, wife/husband, and professional. Therefore, home-based work and flexibility are strictly related to improve the conciliation between labor and family life. In this article we have managed the three most important areas: facilities for work, technology, and human factor. The idea is that when these areas are combined it is possible the conciliation between labor and family life, as we can see in the Figure 1. In conclusion, given the right ICT’s infrastructure, it should make no difference where employees are located. The result is that a great number of employees are able to work at home, or use their home as a base, achieving benefits that can be measured in terms of the conciliation between their labor and their family life. Following Duxbury, Higgings, and Coghill (2003), we propose that society begin working together to achieve four high-priority objectives: •
Work design: Employers, employees, and employee representatives should work together to adapt work systems, processes, and schedules to meet the dual agenda (labor and family) of improving work and organization performance and personal and family life. This means seeing potential members both as employees and as citizens, parents, and members of households
Figure 1. The conciliation between labor and family life (Source: Benito Osorio)
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•
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with varying needs. Doing so would mean expanding the organizing model from a narrow one aimed at achieving majority status for collective bargaining to one that provided a full array of representative services to members and their families and to one that pooled resources to reduce the costs of child care, education, job market information, career counseling, and so forth. Technology: We have to bear in mind the challenges faced by people along with their responses and organizing strategies, as they adjust to new technologies, and also, the roles that family, ideology, state policies, and trade union structures can play in distributing information technology-related employment. Particularly, we have to know the differences in the interests and needs of different groups, specifically their vision of technology and science. “Technology makes many changes possible, but only those that fulfill people’s needs and desires actually happen” (Malone, 2004). Place and hours flexibility: These options are needed to allow employers and employees to negotiate arrangements that better suit their varying needs and to administer them together in ways that are mutually beneficial. Employers need to provide employees with more flexibility around when and where they work. The criteria under which these flexible arrangements can be used should be mutually agreed upon and transparent. There should also be mutual accountability around their use—employees need to meet job demands but organizations should be flexible with respect to how work is arranged. The process for changing hours or location of work should, wherever possible, be flexible. Most of American employees spend part of the week at home and part in the office, thereby avoiding
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such problems as isolation, loneliness, and invisibility (Gurstein, 2002). Community empowerment: We need to recognize the importance of community based institutions by fostering greater investment in their services and by facilitating volunteerism in their programs. These groups are diverse and all must be taken into account when work-family problems are defined and work-family solutions are created.
FUTURE TRENDS This article recognizes the increasingly complex interplay between people’s work and personal lives and the challenges involved in managing work, family, and lifestyle responsibilities. It is committed to helping employers and employees establish workplace practices that improve work-life balance, and have introduced a variety of initiatives on work and family. We have to look for new solutions, apart from introducing policies that may help both mother and fathers balance their work, family, and lifestyle responsibilities because the creation of a father-friendly workplace requires intervention that goes beyond the introduction of these policies. There should be an emphasis on education and communication regarding the importance of work-family balance for men and women. In addition, it is important to ensure that the workplace culture supports all employees to use these policies. In fact, we need to map out a radical approach that begins to recognize the importance of wider and fundamental questions about the conciliation between labor and family life. This will require much more research into the nature of modern paid employment, to the character of local labor markets and the recruitment strategies of employers.
The Benefits of Home-Based Working’s Flexibility
CONCLUSION The traditional family model with one parent working full-time and the other parent staying at home full-time is now less widespread, with an increasing number of single parent families and dual income families. Nowadays, one of the most striking long-term trends in the labor market has been the increase in the proportions of couple families where both parents are in paid employment, and lone-parent families where the parent is working. Many firms have begun to find ways of adapting their human resources policies to these changes (Evans, 2001), in the context of new technologies that allow new workplaces. The key point in this article is that technology and flexible location working, in concrete, home-based working, can be combined to achieve the conciliation between labor and family life. If the employees have the use of the right ICT´s infrastructure, it should make no difference where they are located. Certainly, the new telecommunications technology supports such workplace flexibility (Johnson, 2003). For this reason, a great number of employees are able to work at home, or use their home as a base, as they can reduce stress due to achieve a better work-life balance, and become more productive and more motivated. Most people struggle to balance their work and home lives, and a little more flexibility in location and time could benefit many people, whilst at the same time increasing efficiency. In the majority of instances, this is not full-time, but appropriate tasks can be undertaken from home with productivity benefits. It is almost impossible to work effectively and care for children “at the same time,” but home-based working can make the organization and management of childcare much easier and less stressful. It also enables contact with children at crucial times of their day, rather than dashing out of the houses as they do, and not being there when they return. A worker free of parental guilt may be a happier and more motivated worker. In addition, home-based work-
ing combined with flexi-time can ensure that an employee is always equipped to get on with some work. In other words, employees will avoid the stress of commuting at peak times if their start and finish times are staggered or if they work from home, and many employers find that introducing home-based working arrangements reduces their sickness levels.
REFERENCES Albrecht, S. L. (1982). Industrial homework in the United States: Historical dimensions and contemporary perspectives. Economic and Industrial Democracy, 3, 413–430. doi:10.1177/0143831X8234003 Amabile, T., Conti, R., Coon, H., Lazenby, J., & Herron, M. (1996). Assessing the work environment for creativity. Academy of Management Journal, 39(5), 1154–1184. doi:10.2307/256995 Boris, E. (1996). Sexual divisions, gender constructions. In E. Boris & L. Prugl (Eds.), Homeworkers in global perspective (pp. 19-37). New York: Routledge. Brannen, J., Meszaros, G., Moss, P., & Poland, G. (1994). Employment and family life UK Employment Department Research Series, 41(N). Check, C. J. (1996). Technology will strengthen the traditional family. In C.P. Cozic (Ed.), America beyond 2001: Opposing viewpoints (pp. 17-24). San Diego: Greenhaven Press. Couclelis, H. (1998). The new field workers. environment and planning B. Planning and Design, 25, 321–323. Duxbury, L., Higgings, C., & Coghill, D. (2003). Voices of Canadians: Seeking work-life balance. Human Resources Development Canada. Labor Program, 1-96.
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Duxbury, L., Higgings, C., & Neufeld, D. (1998). Telework and BALANCE between work and family: Is telework a part of the problem or part of the solution? In M. Igbaria and M. Tan (Eds.), The virtual workplace (pp. 218-55). Hershey, PA & London: Idea Group Publishing. Evans, J. M. (2001). Firms’ contribution to the reconciliation between work and family life (OECD Labor Market and Social Policy Occasional Papers. 48). OECD Publishing. Gurstein, P. (2002). Wired to the world, chained to the home. Vancouver, BC, Canada: UBC Press. Haddon, L., & Bryning, M. (2005). The character of telework and the characteristics of teleworkers. New Technology, Work and Employment, 20(1), 34–46. doi:10.1111/j.1468-005X.2005.00142.x Helling, A., & Mokhtarian, P. (2001). Worker telecommunication and mobility in transition: consequences for planning. Journal of Planning Literature, 15(4), 511–525. doi:10.1177/08854120122093168 Higgins, C., Duxbury, L., & Lee, C. (1992, December). Balancing work and family: A study of private sector employees. London, ON: National Centre for Management Research and Development, University of Western Ontario. Huws, U., Korte, W. B., & Robinson, S. (1990). Telework: Toward the elusive office. Chincester, UK: Wiley. Johnson, L. C. (2003). The co-workplace. Vancouver, BC, Canada: UBC Press. Lavoie, A. (2004, July). Work-life balance and SMEs: Avoiding the “one-size-fits-all” trap. A literature review of experiences in Canada and around the world. CFIB Research. Leach, B. (1998). Industrial homework, economic restructuring and the meaning of work. Labor/Le Travail, 41(Spring), 97-115.
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Lipsig-Mummé, C. (1983). The renaissance of homeworking in developed economies. Relations Industrielles. Industrial Relations, 38(3), 545–567. Malone, T. W. (2004). The future of work: How the new order of business will shape your organization, your management style, and your life. Boston: Harvard Business School Press. Michie, J., & Sheehan, M. (1999). HRM practices, R&D expenditure and innovative investment: Evidence from the UK’s 1990 workplace industrial relations survey (WIRS). Industrial and Corporate Change, 8(2), 211–234. doi:10.1093/icc/8.2.211 Moss, M., Andrey, J., & Johnson, L. C. (2006). The sustainability of telework: an ecologicalfootprinting approach. Sustainalibilty: Science. Practice & Policy, 2(1), 3–14. Moss, M., Whitfield, J., Johnson, L., & Andrey, J. (2006). Does design matter? The ecological footprint as a planning tool at the local level. Journal of Urban Design, 11(2), 195–225. doi:10.1080/13574800600644381 Niles, J. M., Carlson, F. R., Gray, P., & Hanneman, G. G. (1976). The telecommunications-transportation tradeoff. New York: Wiley & Sons. Phizacklea, A., & Wolkowitz, C. (1995). Homeworking women: Gender, racism and class at work. London: Sage. Pratt, J. H. (1999). Telework America national survey: Cost/benefit of teleworking to manage work/life responsibilities. Report prepared for the International Telework Association and Council. Washington, D.C. Robertson, K. (2005). How telework is changing the traditional corporate office. Retrieved March 3, 2007, from http:/klr.com/articles/how_telework_changing_office.pdf.
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Van Sell, M., & Jacobs, S. M. (1994). Telecommuting and quality of life: A review of the literature and a model of research. Telematics and Informatics, 11(2), 81–95. doi:10.1016/0736-5853(94)90033-7 Wallis, C. (1996). The traditional family will be less prevalent. In C.P. Cozic (Ed.), America beyond 2001: Opposing viewpoints (pp. 25-30). San Diego: Greenhaven Press.
KEY TERMS AND DEFINITIONS Electronic Commerce and Telework Trends (ECATT): A continuing project funded by the European Commission to monitor the development of information age working and business practices. Full-Time Home-Based Worker: Someone who works all of his or her time at home. Home-Based Entrepreneur/Business Operator: Someone who works from home, part or full time, providing a service or product to a variety of clients or customers. Home-Based Worker: Someone who works at home, away from an employer´s office or production facility, part-time or full-time, communicating via telecommunications technologies as an employee for a public institution or private corporation. Typology of home-based workers reformatted from Gurstein (2002): Independent Contractor: Someone who works from home, part o full time, as a contract employee or piece worker on contract to one company. Information and Communications Technologies (ICT): A key phrase to indicate the dynamism that can be achieved with the convergence of computing and telecommunications. Putting the “C” in the middle of IT is important to emphasize that is not just about “techie’s matters” but is relevant to everyone whose job involves communications.
Moonlighter: Someone who works from home on a part-time basis as a supplemental job in addition to a primary job. Occasional Homeworker: Someone who brings work home after work hours from the workplace on a frequent to occasional basis. Part-Time Home-Based Worker: Someone who works four days or less at home and the rest of the time at another work location. Small Office-Home Office (SOHO): Describing a real market in North America and a putative market elsewhere, for cheap consumer electronics used by individuals and small companies, of small (home-based) offices for location-independent teleworkers. Telecommuting: Despite some academic distinctions, this term is used pretty much interchangeably with teleworking, and is the more common term in the United States. The conceptual emphasis is on replacing the commute journey through electronic access to the workplace, in this manner, the person can work from home, communicating with the workplace by, for example, telephone, fax, and/or e-mail: Teleworking: A catch-all term describing any way of working at a distance using a combination of computers and telecommunications. It is often associated with home-based working but includes site-to site electronic working, mobile working, so forth.
ENDNOTES 1
Telework (or telecommuting as it also called in the United States), as distinct from others forms of work based in the home, is defined as work-related substitutions of telecommunications and related information technologies for travel (Huws, Korte, & Robinson, 1990). See Helling and Mokhtarian (2001) and Haddon and Brynin (2005) for classifications of different types of telework depending on
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2
extent, employment arrangements, and use of technology. The Lisbon Strategy, launched in March 2000, paid particular attention to the demographic challenge in setting up the EU medium term policy approach for economic growth and social cohesion. The Lisbon Strategy underlines the importance of balance between work, family, and gender equality in an aging society and the demographic challenge raised by low birth rates. In the other hand, The European Commission issued a green paper on “Confronting Demographic Change: A New Solidarity Between Generations” in March 2005, and the issue was discussed at a conference in Brussels July 11-12, 2005. The debate focused on the policy responses that are needed (in areas such as, e.g., family policy
3
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and work life balance) to allow our societies to cope with demographic change in a successful way. The European Commission is currently preparing a white paper on the demographic future in Europe, planned for 2006, as a follow-up to the conciliation of paid work and family life is expected to be a central element in the forthcoming white paper. Brannen, Meszaros, Moss, and Poland (1994) provide a review of studies of the question for the United Kingdom. An instructive comparison of views is to be found in Check (1996) and Wallis (1996). The term flexi-time is refers to workers´ freedom to work in any way they choose outside a set core of hours determined by the employer.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 102-109, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Section VI
Managerial Impact
This section presents contemporary coverage of the social implications of global business, more specifically related to the corporate and managerial utilization of strategy and resource planning. Core ideas such as training and continuing education of human resources in modern organizations are discussed throughout these chapters. Issues, such as a conceptual model to show how managers evaluate internal (relative advantage and compatibility of adopting an innovation) and external (competitive pressure and partner conflict) determinants that affect the intention to adopt technological innovations in global business, are discussed. Equally as crucial, chapters within this section discuss how low-cost Internet commercialization has led to much more widespread adoption of inter-organizational information systems. Also in this section is a focus on finding a solution to deal with Internet empowered customers and to learn how to apply technologies demanded in the new digital economy.
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Chapter 6.1
Optimizing the Configuration of Development Teams Using EVA: The Case of Ongoing Project Adjustments Facing Personnel Restrictions Alexander Baumeister Saarland University, Germany Alexander Floren Saarland University, Germany
ABSTRACT Resource constrained software development projects are likely to exceed the planned duration as well as the originally planned budget. As variances arise, the revision of team-task-assignments and a resource reallocation might be advisable to avoid a project escalation. In doing so, the development management has to consider the impact on team expertise and possible productivity losses if team members are shifted to other work packages than originally planned. This paper proposes the use of
a modified Earned Value Analysis based on new resource-based performance measures, which provides information on the performance effects of adjustment alternatives. Furthermore, it will be demonstrated how these figures can support the decision which human resources should be shifted if a delay exists in one work package that belongs to the critical chain. In this regard, the idea of the knapsack problem is transformed into the challenging task of shifting resources to find the work package that should release the resources to minimize an overall performance decrease. A case study clarifies the implementation.
DOI: 10.4018/978-1-60960-587-2.ch601
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Optimizing the Configuration of Development Teams Using EVA
INTRODUCTION Accurate forecasts of costs, the duration and quality of software development projects are hardly to achieve (e.g., Barry, Mukhopadhyay, & Slaughter, 2002; Fairly, 2004). The reasons for these overruns arise out of the complexity, conformity, changeability and invisibility of such projects (Brooks, 2010). Whereas the macro level aspects have been widely discussed, consequences for individual decision making are rarely analysed (Abdel-Hamid, Sengupta, & Ronan, 1993). Due to several reasons, the problem of inaccurate forecasts is especially true for the development team performance (Plaza, 2008), which generally has important influence on the overall success. Especially owing to the still existing problems, a lot of research has been done in the field of team design and effectiveness (e.g., Campion, Medsker, & Higgs, 1993; Cohen, Ledford, & Spreitzer, 1996; Li, Li, & Wang, 2009). Hackman and Oldham (1975) elaborated the basics of the Job Characteristics Model, which is according to Fried and Ferris (1987) a rather useful explanation on the individual level. It focuses on task identity and significance, autonomy, feedback and the variety of skills and corresponds to the Team Characteristics Model developed by Strubler and York (2007). Combining both models, the perception of meaningfulness of the work might enable a higher team performance and is itself based on the variety of individual and team skills, task significance and task identity (Stewart, 2006). Empirical studies point out a positive correlation between task characteristics and team performance (Li, Li, & Wang, 2009). Based on this relationship, literature is primarily analysing optimal task design or team configuration to improve team performance (e.g., Chiu & Chen, 2005). In doing so, cost or time restrictions are oftentimes neglected. Thus implicitly, an unrealistic planning situation is presumed in which management can decide without further constraints and has sufficient lead-time to adjust
teams or tasks. Considering software development, this might be an appropriate assumption at the starting point of the project. After the project started, delays oftentimes require to shift work subpackages to other development teams or to adjust team configurations. Due to preliminary decisions and the requirement of ongoing development, an optimal fit between task characteristics and team members compared to the initial planning before the project’s start is frequently not achievable. In fact, the project management has to take productivity losses into account that occur when team members are shifted to other than the originally planned work packages. Since cost, schedule or quality variances are likely to occur, key performance indicators have to be tracked by a project control system (Kerzner, 2009; Meredith & Mantel, 2009; Plaza, 2008). Numerous well-known performance measurement systems already exist, for example: Measurement and Analysis Infrastructure Diagnostic (MAID) evaluation criteria (SEMA Group, 2009), Six Sigma (e.g., Pyzdek & Keller, 2009), Integrated Enterprise Excellence System (Breyfogle, 2008), Practical Software Measurement (McGarry et al., 2001), Goal-Driven Software Measurement (Park, Goethert, & Florac, 1996) or Balanced Scorecard (Kaplan & Norton, 1996). However, all of them provide a formal framework with design recommendations rather than precise metrics, whereas, for example, Kitchenham (2010), Kan (2002) or Fenton and Pfleeger (2000) focus on software metrics rather than on the management process. Farooquie & Farooquie (2009) provide empirical evidence on performance measurement. Kasunic (2008) provides an overview of performance measures, their definition and influencing factors as result of expert workshops organised in the Software Engineering Process Management (SEPM) program (Table 1). Influencing factors show possible impact on the project outcome (Kasunic, 2008; Figure 1):
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Table 1. Overview of performance measures according to Kasunic (2008) Performance measures
Definition
Project effort(=work effort) Productivity (=efficiency)
Total project team that is spent on project related activities during the life cycle of the project. Ratio-between project size and project effort.
Project duration (=time to market)
Length of project in work days minus work days during work stoppages.
Schedule predictability (=schedule overrun/underrun)
Ratio between the project duration deviation and the original estimate of duration
Requirements completion ratio (=requirements planned/delivered)
Ratio between the number of satisfied and planned functional requirements
Post-release defect density (=defect density after deployment)
Ratio between the number of size relevant unique defects during the first six months after deployment and project size.
Figure 1. Overview of influencing factors according to Kasunic (2008)
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The project, software or functional size, oftentimes measured by logical lines of code (LLOC) or function points (FP), drives productivity defined as ratio between project size and project effort. The artefact or software reuse is the ratio between saved project effort by reusing software knowledge and the total project effort. The extent of reusable software knowledge is partially depending on the project or development type (e.g., new or modified software).
The application domain or purpose is the result of the environment and the intended role of the software application. The average and maximum team or project staff size can be measured on the base of headcounts or full-time equivalents. The team, personnel or technical expertise is triggered by the proficiency of team members for each development phase. The process maturity or organisational capability conforms to the extent of defining, managing, measuring and controlling projects using standardised and optimising methods. The functional requirement stability is the ratio between unchanged and total project requirements during the project lifecycle.
Further on, the impact of team expertise on the project duration and productivity will be analysed and a method to optimally adjust team configurations, while the project proceeds, will be proposed. As long as the project performs perfectly well, there is no reason to reallocate the resources. Challenges arise in that moment when the process of a critical work package is not any longer in sufficient time in comparison to the originally planned project process. At that point in time the project management has to decide whether it is willing to except being late
Optimizing the Configuration of Development Teams Using EVA
or whether the impact will be to extensive for the overall schedule performance. To map the consequences, the Earned Value Analysis (EVA) enables by defining effective metrics to size the project and measure its progress. Therefore, it could be the method of choice. By focusing on defined project milestones EVA implicitly regards quality, supports incremental planning and at least implicitly accounts for the most performance measures shown in Table 1. Literature focuses on the process of performance measurement by EVA, whereas activities to adjust project delays or cost overruns under personnel restrictions are rarely analysed in their consequences on earned value metrics. Therefore, the aim of this paper is to demonstrate a heuristic approach for critical path analysis that allows optimal performance adjustments by changes of task-team member-assignments and takes the work efficiency of development team members according to tasks and skills into account. First, key elements of earned value management are pointed out. Second, the basics of resource-based EVM are developed. Then, the optimisation problem that occurs due to ongoing variations of the duration of work packages on the critical chain is formulated. This is the base for the illustration of key steps recommended in a heuristic approach. At last, a case study points out the implementation of the proposed heuristic.
Key Elements of EVM Earned Value Management (EVM) tracks the development progress by multi-dimensionally focusing on cost and time deviations (e.g., Fleming & Koppelman, 2006). For this, a performance measurement baseline is used to measure and analyse performance scalable to all sizes of projects. The key idea is that an established cost target for a scheduled work package of the project is “earned” as originally planned after this work package has been completed. The overall project progress can be tracked by the accumulated earned
value of completed work packages. Therefore, the earned value can be used as metric to measure actual and planned costs for work performed and EVM is the method of choice to manage software development projects. Starting point of EVM is the development of a so called Work Breakdown Structure (WBS) that is the result of project decomposition into work packages of short duration with defined output expectations, milestones, cost budgets and a time schedule (for details ANSI/EIA–748, 1998; NDIA PMSC, 2006; Project Management Institute, 2008). To ensure realistic estimations only that portion of a new software project is planned in detail that is possible to quantify, and the remaining work is left in gross planning packages (Li, Ma, & Dong, 2008). This ideally fits to all incremental and iterative development processes (for an overview Tan et al., 2009; Yu, 2010). Regarding the Rational Unified Process as one example, only the first iteration is planned in detail (meaning defining work packages), the rest is likely to depend on the actual project performance in the first iteration. As this planning process is not detailed enough to employ earned value it is recommended to define Control Account Plans (CAP) for the project to manage the performance of a software development project (Fleming & Koppelman, 2006). Doing so, at least one CAP for each iteration of the Unified Process model has to be defined. Since EVM is oftentimes adapted to the sequential waterfall model, Brownsword and Smith (2005) propose an alternative WBS for incremental development. Figure 2 gives an overview of important terms used in EVM (e.g., Anbari, 2003; Li, Ma, & Dong, 2008). EVM is based on some key performance metrics. For example, cost or schedule variances are determined by the differences between the earned and the actual or planned value. Cost or schedule performance indices indicate the ratios of the cost or schedule variance to the earned value. Variance or Delay at Completion is the difference between the budget and the estimate or the time and plan
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Figure 2. Explanation of important terms used in EVM
at completion that is the current estimate for the total costs or duration of the project. The To Complete Performance Index (TCPI) indicates the required cost efficiency to complete the project within the cost budget (Figure 3). Of major importance for the performance management is, in respect of under-performance, to know how the performance can be corrected by ongoing adjustment activities and to oversee the consequences of the adjustments for meeting project targets. An evaluation of alternatives to improve the overall performance requires forecasts
of cost and duration targets. They have to be compared to the situation without adjustment activities. Simplifying, one may assume, that the project delay or cost overrun
Figure 3. Performance metrics in EVM
Figure 4 shows the equations of at-completionforecasts using typical EVM performance metrics for these four cases with TaC as current estimate for the duration of the project.
1. Can be caught up over time, 2. Stay constant due to an observance of further plans, 3. Increase over time due to a constant performance on a lower-than-expected level of one influencing category or 4. Increase over time due to a combined underperformance in time and cost categories.
Measuring the Project Process with the Earned Resource Method While the project matures, the project management needs to monitor the actual project progress as well as being able to forecast a realistic completion date. Furthermore, the management is probably
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Figure 4. Overview of important assumptions for ongoing forecasts of project costs and duration
even more interested in a prognostication of the resource capacities required for accomplishing the project goals. The above presented earned value method can being used to calculate in future utilised monetary resources but does not take the employed human resources separately into account. For a resource constrained project, which was planned by using a work break down structure with work packages on the lowest level, each work package i ∈ I = {1, …, n} is processed by a defined resource j ∈ J = {1, …, m} with a given number of working times Ri,j. The original earned schedule method uses as unit of measure monetary values. The earned schedule is equal to the projection of the earned value onto the planned value (Lipke, 2009). The approach proposed here is to change the monetary magnitude of the earned value to a time base using the planned resource measured in time units. This corresponds to the definition of work or project effort by Kasunic (2008). If the calculation basis of the earned schedule was changed to the hours of working time available to complete the work package a resource performance can be determined. The earned resource figure can be defined analogous to the earned value figures. The earned resource assigns
to the work performed at a given point of time the amount of resources capacity measured in time units that should have been needed to accomplish the task. On the one hand, the earned resource method requires additional data, in comparison to the database of the earned value and earned schedule method, to compute the earned resource figure. On the other hand, the work breakdown structure has to be installed anyway to implement the earned value method efficiently; the additional expenditure should be worth gaining a higher manageability of the project. The earned resource can be used to calculate figures comparable to those of the earned value or earned schedule. The basic figure is the Resource Variance (RV) that measures the actual performance of the project resources by subtracting the actual resources from the earned resources, given by Resource Variance = Earned Resource – Planned Resource. (1) This figure provides the project management with information regarding the resource efficiency in the past and indicates whether the project probably would have needed more resources to
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complete the planned tasks in time. If only one project is considered, the actual resources should be equivalent to the planned resources unless some extraordinary circumstances took place. Such an exceptional circumstance would be, e.g., illness of several programmers or, in a multi-project environment, the fact that some resources were longer incorporated by another project. Both cases will lead with a high probability to a delay of the work package, which could be monitored with earned schedule figures as well, but using the earned resource will directly present the reason for the delay. Figure 5 shows the basic earned schedule figures together with the earned resource. This figure presents that the calculation foundation of the earned schedule is changeable from a monetary to a time based approach. The schedule variance is obviously smaller then the resource variance, as the resource variance is build on the total working time needed to complete a work package. If the schedule variance has a negative sign, it is likely that the resource variance will have the same sign too. To take the former resource performance into account a Resource Performance Index can be
Figure 5. Overview of resource-based performance measures
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used, which is defined analogues to the earned schedule metrics. This figure is a measure of the resources that should have been needed to complete the former tasks, compared to the actual needed resources. The resource performance index is equal to the ratio of the earned resources to the actual resources: Resource Performance Index (RPI) =
Earned Resources Actual Resources
(2)
These two earned resource figures enable the management to monitor the resource performance measured in time units and provide additional information regarding the work progress compared to the earned schedule figures. If a delay is identified with the earned schedule or the earned resource, the management has to make individual decisions how to control the project.
Shifting Resource Capacities from Uncritical Work Packages to the Delayed Challenges for the project management arise at the moment when the progress of a critical work package is not any longer in sufficient time in comparison to the originally planned project process. The earned resource approach enables the project management to identify a delay on the critical path. The management can decide between two possibilities, on the one hand specifications of the project can be cancelled (Lock, 2007), on the other hand shifting resources from parallel processed work packages to the one on the critical path could solve the problem. Under ordinary circumstances project specifications should only be cancelled after all other possible action alternatives failed and did not improve the overall project performance. Further on, the option of shifting resources to the critical path is discussed which does not exclusively imply that resources are taken out
Optimizing the Configuration of Development Teams Using EVA
of one work package and shifted to an other but also includes the idea of shifting small working tasks from the critical work package to one with available resource capacities. Because the project management will need information regarding the possible capacities that can be used to process other tasks and due to the fact that highly specialised resources are entrusted with the project’s tasks, the company, which executes the project, should have clustered their employee’s skills. This database has to contain a description of working skills of the different resources, e.g., detailed project roles, and information on expected performance factors αi,j,ϑ if resource j is shifted from work package i to (critical) work package ϑ ∈ I. They indicate the percentage under- or over-performance of a resource used in the new compared to the original work package. The effectiveness of the reallocated resource depends on the activity a team member does and will do. If there is a sufficient interrelation between these tasks the efficiency is supposed to be higher than otherwise. Furthermore, the team members’ interpersonal competencies are of major importance (Strang, 2009). To ensure that shifted resources can provide the maximum of their expected performance the source code should be commented to provide reliable information to programmers in general and in specific to the reallocated programmers. Except the advantage of enlarging the comprehensibleness for other programmers a commented source-code speeds-up the process of finding mistakes in the code (van de Vanter, 2002). The expectations are based on the parallels between the tasks the resource currently deals with and those that have to be accomplished after the reallocation. Because the work packages are processed by teams, this factor does not only consider whether the tasks that have to be performed are comparable but furthermore should include whether the resources have already worked before on a former project as a team. Taking this into account, performance factors accumulated on the work package level can also be seen as a
(at least rough) measurement for expected team efficiency. Since original planning should result in an optimal team-task-assignment, the performance factors can be expected between zero and one: 0 ≤ αi,j,ϑ ≤ 1 (∀ i, ϑ ∈ I; j ∈ J). If the performance factor would exceed 1, the shifted resource would outperform the resources that were originally planned to process the work package and this is very unlikely if the project overall efficiency was maximised. If an efficient allocation of resources at the beginning of the project is assumed and if there is no unexpected event during the execution of the project, the project costs should be minimal. But if an extraordinary event happens and a delay on the critical path is detected, it is unlikely that the shifted resources will gain a higher performance then the resources that are already employed on the critical path. Using the resource performance index RPI, the performance factors αi,j,ϑ can be adjusted. If resource j is shifted from work package i to the critical work package ϑ, α i, j ,ϑ is the corrected performance factor which is given by α i,j,ϑ = α i,j,ϑ ⋅ RPI ϑ .
(3)
By multiplying the factor αi,j,ϑ, which is based on comparability of the tasks with the RPIϑ the existing team performance is taken into account. For example, a modified performance indicator of 0,6 implies that each resource hour that is shifted to the critical work package actually supplies the new team with only 0,6 hours (in output categories). Let ri,j,ϑ,z be the amount of resources j employed at work package i (i ≠ ϑ) that are shifted to work package ϑ, which belongs to the critical path for any zϑ,s ≤ z ≤ zϑ,e with zϑ,s as date at which the processing of the critical work package starts and zϑ,e as end date of the critical work package. Because it cannot be said whether relocating resources can close the existing resource gap,
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one has to maximise the actual performance P of those resources that are shifted n
m
P = ∑∑
Z ϑ, E
∑
i =1 j =1 z =z ϑ, S i ≠ϑ
⋅
αi, j ,ϑ ⋅ ri, j ,ϑ,z
(4)
Reallocating the resources results in an extension of the duration of the resource releasing work package. With the assumption that the resources within the work packages are equally distributed a new duration can be calculated. Let Ri be the total amount of resource hours needed to accomplish the work package tasks, ti the originally planned duration of work package i and τi (i ≠ ϑ) the duration of the work package after the resources were redistributed, which is given by τi =
Ri m
Ri − ∑
Z ϑ,E
∑r
j =1 z =z ϑ,S
⋅ ti
(5)
i , j ,ϑ,z
m
Ri − ∑
⋅ ti ≤ bi + ∆t
Z J,E
∑r
j =1 z =z J ,S
∀i ≠ J ∈ I
i , j ,J,z
(6)
As a second restriction the resources j shifted from work package i at the time z are not allowed to exceed the resources j that have been originally planned for the work package i ri, j ,J,z ≤ Ri, j ,z
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Case Study Further on, a new software development project is assumed. The project management decided to use an incremental and iterative development process to improve the overall efficiency. At the beginning of each CAP the rudimentarily planned data are specified and a network plan is set up. In the following, the network plan as presented in Figure 7 is analysed in detail. Furthermore, the
Figure 6. Application flow of the proposed heuristic
assuming time-constant work performance in each work package. The extension of the duration is not allowed to exceed the buffer bi plus the overall schedule variance Δt. The first restriction that follows is given by the equation Ri
To solve the maximisation problem, which belongs to the class of Knapsack problems (Hillier & Lieberman, 2005), in the following a heuristic is used to evaluate on the one hand whether it is possible to compensate the resource gap and schedule variance and on the other hand which resources should be taken. Figure 6 gives an overview of necessary computational steps.
∀i ≠ J ∈ I ; j ∈ J ; z ∈ {z J,S ,..., z J,E }
(7)
Optimizing the Configuration of Development Teams Using EVA
earliest and latest start dates, the duration and the buffer time of each work package of this CAP is shown. The Performance within the CAPs has to be measured and the earned value manage-ment is used for the work packages of the first CAP. It is assumed that the network technique was used to schedule the work packages and there is existing just one critical path. Taking the overall performance of the CAP to estimate the performance
of the others should be allowed as they contain comparable structures. So, earned value metrics can be used to estimate a probable new end date of the project. Figure 8 provides details about the planning situation. It is assumed that within the critical path one work package has a delay. This will result in a delay of the entire CAP and activate additional iterations if the project management is not able
Figure 7. Example for a network plan implemented to schedule processes of a CAP
Figure 8. Data describing one exemplary CAP: Planned matrix R := (Ri, j )1 ≤ i ≤ n , ∈ ℜ +
nxm
1≤ j ≤m
in hours,
planned duration ti and buffer time bi in weeks
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Optimizing the Configuration of Development Teams Using EVA
to solve the problem by shifting resources from uncritical work packages that are in time to the one with delay. It is assumed that the planned resources of the critical path should have been after five weeks 120 h + 520 h + 1/8·800 h = 740 h of work but the earned resources actually are 640 h. The project resources performed with a resource performance index of approximately 86.5% of the original planned performance. The performance factors αi,j shown in Figure 9 are based on the comparability of the tasks that have to be performed and do not consider the team performance of the team working on the critical
path. To take the team performance into account each αi,j has to be multiplied with the resource performance index, in the presented case study RPI = 0,865. The corrected performance indicator a i, j is shown in Figure 10. Because the schedule variance (SV) amounts SV = 1, the project management has to finish the critical work package ϑ=3 within seven weeks to catch up with the schedule. To realise a completion in seven weeks not any longer 800 resource hours are needed to complete work package i = 4 but 915 hours to be on time. From this follows
Figure 9. Matrix Α := (ai, j )1 ≤ i ≤ n , ∈ ℜ + of performance factors to expect for a reallocation of renxm
1≤ j ≤m
sources
nxm := (a ) Figure 10. Matrix Α ∈ ℜ + of RPI-adjusted performance factors i, j 1≤i ≤n,
1≤ j ≤m
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Optimizing the Configuration of Development Teams Using EVA
a resource gap at the beginning of GB = 915 – 800 = 115 resource hours. First, according to the steps pointed out in Figure 6, one has to choose the maximal performance factor α i, j ,ϑ of the resources that are deployed in work packages, which are processed in parallel. Due to this, work packages i = 4 and i = 5 has to be taken into account. The highest factor a = 0.692 belongs to the resource j = 3 and j = 4 of work package i = 4 and further to resource j = 4 of work package i = 5 (Step 1 of Figure 6). Because of R4,3,z > 0 (Step 2), step 3 of the heuristic can be started. The maximum R i of possible resources that can be shifted from work package i to another work package can be derived from equation (5) and is given by m ti R i = ∑ Ri, j − Ri, j ⋅ = ti + bi + ∆t j =1
m
∑R j =1
i, j
ti ⋅ 1 − ti + bi + ∆t
(8)
Using this formula to calculate R i for work package i = 4 results in R 4 = 520 * (1 – 3/6) = 260 hours (Step 3). The maximum is important because if we shifted more resources to the critical work package then the maximum as a result a new path would become critical. This leads to the requirement 11
∑ (r z =5
4, 3, 3,z
+ r4,4,3,z ) ≤ R 4 .
(9)
For work package i = 4 the constraint is fulfilled because resource j = 3 and j = 4 are each 40 hours available, hence 40 h + 40 h = 80 h ≤ 260 h (Step 4). The entire work package i = 4 is processed completely in parallel to work package i = 3. The project management will shift resource r4,3,3,z and r4,4,3,z within z = 5, …, 10 with their maximum capacity onto the critical path.
We assumed that the shifted resources will lose efficiency with the factor a 4,3,3 = a 4,4,3 = 0,692. The actual resource performance of the shifted resources will be in the new work package, given by equation (4). This results in P = 80 * 0,692 = 55,36 ≈ 55 hours (Step 5). This implies a gap, GN, of GN = GB – P = 115 – 55 = 60 resource hours (Step 6). By shifting 80 resource hours from work package i = 4 to the critical path 520 – 80 = 440 resource hours are left to complete the tasks of work package 4. With the 440 resource hours left, it will take 3,54 weeks to complete the work package 4 which results in a shrinkage of the buffer time b4 = 2 – (3,54 – 3) = 1,46 weeks. Due to the fact that there still exists a resource variance, it has to be started again with choosing the next highest RPI-adjusted performance factor. The next relevant RPI-adjusted performance factor is the one of work package 5. Using the same calculations as shown above just substituting bi for the ratio GN/GB leads to the conclusion that 137 resources could be shifted to the critical path with an actual resource performance of 94 resource hours. Because only 60 resource hours are needed to get back on time, the project management should allocate 87 resource hours of resource R5,5 to the critical work package ϑ=3. In total, the most efficient solution is to shift r4,3,3,z = 40 hours, r4,4,3,z = 40 hours and r5,5,3,z = 94 hours to the critical path for z = 5 to 10. Reallocating these resources should theoretically help to gain a sufficient performance to keep up with the originally planned schedule.
CONCLUSION Resource-based performance measures can be used in a modified Earned Value Analysis to adjust the team configuration as plan variances occur under project resource constraints. However, crucial presumptions have to be mentioned. For example, the quality of decision support depends
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on how accurate individual contributions to team expertise can be forecasted. For that purpose, empirical evidence has to be procured. So, Colomo-Palacios, Tovar-Caro, Garcia-Crespo, and Gomez-Berbis (2010) point out the identification of technical competences of IT professionals. Furthermore, classical EVM is bearing some shortcomings. For example, EVM presumes constant project performance, neglects learning curve effects (Plaza, 2008) and some prerequisites for an effective EVM-implementation have to be considered (Kim, Wells, & Duffey, 2003). As enhancement, Solomon and Young (2007) proposed the performance-based earned value (PBEV) that integrates technical, cost and schedule performance and addresses customer satisfaction by taking product requirements and the planned quality into account. Therefore, PBEV is based on a multi-criteria performance measurement, analysing how much work is completed and how many success criteria in terms of technical maturity and quality are met. Further research has to be done to integrate the proposed method into such a multidimensional measurement system. Furthermore, extensions of the proposed model are necessary when dealing with stochastic efficiency of shifted resources. This requires solutions for a stochastic knapsack problem (e.g., Kleywegt & Papastavrou, 1998).
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Solomon, P. J., & Young, R. R. (2007). Performance-based earned value. New York: Wiley. Stewart, G. L. (2006). A meta-analytic review of relationships between team design features and team performance. Journal of Management, 32(1), 29–55. doi:10.1177/0149206305277792 Strang, K. D. (2009). Assessing team members’ interpersonal competencies in new product development e-projects. International Journal of Project Organisation and Management, 1(4), 335–357. doi:10.1504/IJPOM.2009.029105 Strubler, D. C., & York, K. M. (2007). An exploratory study of the team characteristics model using organizational teams. Small Group Research, 38(6), 670–695. doi:10.1177/1046496407304338 Tan, T., Li, Q., Boehm, B., Yang, Y., He, M., & Moazeni, R. (2009). Productivity trends in incremental and iterative software development. In Proceedings of the 2009 3rd International Symposium on Empirical Software Engineering and Measurement (pp. 1-10). Van de Vanter, M. L. (2002). The documentary structure of source code. Information and Software Technology, 44(13), 767–782. doi:10.1016/ S0950-5849(02)00103-9 Yu, A. G. (2010). Questioning the key techniques underlying the iterative and incremental approach to information systems development. International Journal of Information Technology Project Management, 1(1), 15–29.
Software Engineering Measurement and Analysis (SEMA) Group. (2010). Measurement and analysis infrastructure diagnostic (MAID) evaluation criteria, version 1.0 (Tech. Rep. No. CMU/ SEI-2009-TR-022). Pittsburgh, PA: SEI Carnegie Mellon University. This work was previously published in International Journal of Information Technology Project Management (IJITPM), Volume 2, Issue 1, edited by John Wang, pp. 62-77, copyright 2011 by IGI Publishing (an imprint of IGI Global).
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Chapter 6.2
The Impact of Labour Flexibility and HRM on Innovation Haibo Zhou Erasmus University Rotterdam, The Netherlands Ronald Dekker Delft University of Technology, The Netherlands & ReflecT at Tilburg University, The Netherlands Alfred Kleinknecht Delft University of Technology, The Netherlands
ABSTRACT We investigate the impact of labour relations (including use of flexible labour and certain HRM practices) on a firm’s innovative output. Using firm-level data for the Netherlands, we find that active HRM practices such as job rotation, performance pay, high qualification levels of personnel, as well as making use of employees with longterm temporary contracts contribute positively to innovative output, the latter being measured by the log of new product sales per employee. Furthermore, firms that retain high levels of highly qualified personnel are more likely to introduce DOI: 10.4018/978-1-60960-587-2.ch602
products that are new to the market (other than only ‘new to the firm’). Our findings contribute to the growing literature on determinants of innovative performance.
INTRODUCTION It tends to be generally recognized that firms need to be innovative in order to sustain their competitive advantage (e.g. Brown and Eisenhardt, 1997; Cohen and Levinthal, 1990; Leonard-Barton, 1995; McGrath, 2001; Tsai, 2001). Innovation can be regarded as a business process which creates unique and perceptive ideas that are being pushed towards commercial success (e.g. Verloop, 2004).
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The Impact of Labour Flexibility and HRM on Innovation
With the increasing availability of firm-level data such as through the European Community Innovation Survey (CIS) exercise by the European Commission, econometric studies of determinants of innovative behaviour are growing in recent years. This literature focuses on determinants of innovation such as market structure, firm size, (regional and international) knowledge spillovers, R&D collaboration, conditions for appropriation of innovation benefits, and others. By lack of good data on firm level labour relations within the CIS questionnaire, there are only sparse studies on the latter. This is regrettable, as labour relations can be expected to have a significant impact on innovation, among others through their influence on knowledge processes (see e.g. David 1997, Trott 1998) The role of personnel for enhancing creativity and innovation is also recognized by Amabile et al. (1996). An OECD (1997) study indicates that the key of the innovative process is the flow of technology and information among people, enterprises and institutions. Individuals are the carriers of knowledge. Among others, knowledge diffusion can take place via mobile personnel. Furthermore, literature on the impact of labour relations on innovation suggests that active Human Resource Management (HRM) policies might be rewarding for a firm’s innovation and productivity growth (e.g. Kleinknecht et al., 2006; Verburg 2005). As empirical evidence is still sparse, we investigate the nexus between labour relations and innovative output by conducting an empirical study among firms in the Netherlands.
LABOUR RELATIONS IN THE NETHERLANDS Among enterprises in the Netherlands, we find a fairly wide spectrum of different types of labour relations and HRM practices. One end of the spectrum covers typically ‘Rhineland’ enterprises with internal labour markets that offer their personnel
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good wages, fair protection against dismissal, and long-term commitments. The other end of the spectrum includes enterprises that follow AngloSaxon practices; the latter employ lots of labour on fixed-term contracts, labour hired temporarily from temporary work agencies or freelance workers, i.e. self employed entrepreneurs that have no personnel. There is a strand of literature that suggests that ‘Rhineland’ practices are more conducive to labour productivity growth (e.g. Buchele and Christiansen, 1999 for evidence from macro data; Kleinknecht et al., 2006 for evidence from firmlevel data). The rationale is that a longer-term commitment between the firm and its employees may function as an investment into ‘social capital’; i.e. into loyalty, trust and commitment. The latter will diminish the probability of opportunistic behaviour such as the stealing of a firm’s properties or leaking to competitors of crucial trade secrets or new technological knowledge. Moreover, one can argue that, in a Schumpeter II innovation model, the quality of a firm’s products and/or its efficient process performance crucially depends on the long-run historical accumulation of (incremental) technological knowledge. Much of this knowledge is ‘tacit’. Other than publicly documented and codified knowledge, tacit knowledge is defined as ‘un-codified’, ill-documented and idiosyncratic; tacit knowledge is based on personal experience (e.g. Polanyi, 1966). The continuous and longrun accumulation of knowledge, and of ‘tacit’ knowledge in particular, is favoured by continuity in personnel, i.e. by keeping people in the firm for longer time periods. A longer stay with the same employer will also enhance a firm’s readiness to invest in education and training. Against this one can argue that ‘Anglo-Saxon’ practices might be favourable to a firm’s innovation potential. With higher rates of labour turnover, firms have a high inflow of fresh people with new ideas, skills and networks. Moreover, less productive people can be more easily replaced by more productive ones, and the threat of firing
The Impact of Labour Flexibility and HRM on Innovation
might prevent shirking. Easier hiring and firing could also help to keep wages low and allow for a more flexible re-allocation of labour. Moreover, it has been argued that innovation might be difficult to implement among (long) tenured employees due to their lack of openness to new products and processes (e.g. Ichniowski and Shaw, 1995). From this viewpoint, one could argue that some flexibility of labour is needed for innovation, especially for radical innovation.
Labour Flexibility and Innovative Output Flexibility of labour can be categorized into three types, i.e. numerical flexibility, functional flexibility and wage flexibility (e.g. Beatson, 1995; Michie and Sheehan, 2003). In the following, we focus on numerical and functional flexibility. Numerical flexibility is defined as the ability of firms to change the volume of personnel by making use of fixed-term employment contracts, labour hired temporarily, either directly or through temporary work agencies or freelance workers. Numerical flexibility relates to the possibility of responding quickly to changes in demand by easy hiring or firing of personnel through the external labour market. Functional flexibility is the ability of firms to re-allocate labour in their internal labour market, relying on training that allows personnel carrying out a wider range of tasks (e.g. Beatson, 1995; Michie and Sheehan, 2003). Indicators of numerical flexibility are percentages of people on temporary contract, labour hired from temporary work agencies, freelance workers or general labour turnover (i.e. percentages of people that join or leave the firm). An indicator of functional flexibility is the internal labour turnover, i.e. percentages of people that change function or department within the firm. Ichniowski and Shaw (1995) show that long tenured employees may be conservative to outdated products and processes; it may be difficult for them to accept changes and it may require more
money and time for them to adapt to a significant change. Innovation will be difficult to implement with them. Therefore, to a certain extent, external labour turnover is needed by firms; it can stimulate innovation, especially radical innovation. A high external labour turnover, however, may harm the firms’ stability and the continuity of learning. High frequency of hiring and firing of people will de-motivate employees and diminish trust, loyalty and commitment to their firms. As a consequence, productivity gains will be lower. High external labour turnover will make it difficult for firms to store innovative knowledge, in particular of ‘tacit’ knowledge that is attached to individuals. At the same time, firms will hesitate to make investments in manpower training. Coutrot (2003) investigated the relationship between innovation and job stability with the data from the REPONSE (“Industrial relations and firm negotiations”) surveys. Although his hypothesis was that there would be a negative correlation between the intensity of innovation and labour turnover, his econometric analysis does not confirm this. Based on earlier studies (e.g. Coutrot, 2003; Ichniowski and Shaw, 1995), one could argue that external labour turnover has a positive effect on innovative output, becoming negative beyond some optimal point. Internal labour turnover is measured by percentages of employees that are reassigned and rehired inside the firm during a year. Internal labour turnover can reduce hiring and training costs, improve employee morale and motivation, and reduce the effect of uncertainty. Internal labour turnover also gives chances to employees to develop their career inside a firm. Often, internal labour turnover concerns employees in higher positions, i.e. mainly core employees. They typically have higher levels of knowledge and/or experience. By retaining them, firms can sustain their competitive position and ensure the success of their innovation projects. Furthermore, communication barriers between different departments can be reduced by reassigning and reallocating labour inside the firm.
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The Impact of Labour Flexibility and HRM on Innovation
It will decrease the number of misunderstandings in future cooperation on innovation projects and increase knowledge sharing and transfer between different departments, thereby stimulating the process of generating organizational knowledge which is favourable for incremental innovation. We therefore expect internal labour turnover to have a positive impact on innovative output.
Human Resource Management Practices and Innovative Output The aim of human resource management (HRM) is to create and enhance the competitive advantages of firms by recognizing the human resources inside firms (e.g. Verburg and Den Hartog, 2005). Bratton and Gold (2003) define that “human resource management is a strategic approach to managing employment relations which emphasizes that leveraging people’s capabilities is critical to achieving sustainable competitive advantage, this being achieved through a distinctive set of integrated employment policies, programmes and practices” (p. 3). The process of HRM embraces three phases: entry, performance and exit of employees while HRM practices play crucial roles in the whole process (e.g. David, 1997). For innovative firms, hiring knowledgeable and creative people who can bring ideas and skills into the firm will directly affect innovative performance. A mistake in a hiring decision will not only cause more expenditure on recruitment processes but also slow down innovation projects due to a lack of qualified people. Recruitment and selection requirements such as education and experience are important for finding the right people for the right position. In general, firms would like to hire highly educated or more experienced people because they have the capability to independently learn new knowledge and skills. Compared to low educated or less experienced employees, they can quickly adapt to a changing environment. Therefore, we suggest that a higher number of
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highly qualified employees with the appropriate educational background and sufficient experience will contribute positively to innovative output. Performance management concentrates on evaluating, motivating and developing employees’ capabilities and performance in order to improve the effectiveness and efficiency of firms. Appraisal, reward and career development systems are main activities of performance management (e.g. Verburg and Den Hartog, 2005). The reward system can be made up with both financial and non-financial incentives. The financial reward system includes competitive wage, financial compensation for hard working, rewards for learning new skills, knowledge and contributing innovative and creative ideas. The non-financial reward system includes employee care facilities such as child-care and health centres, opportunities abroad and work mobility. A competitive reward system is defined by horizontal comparison with other firms and has been argued that it can stimulate employees’ performance and organizational learning processes. Laurens & Foss (2003) investigate the interrelation between complementarities of HRM practices and innovative performance. Using data from a Danish survey of 1900 business firms, they found that reward systems such as variable pay systems and internal mobility practices will motivate skilled employees to contribute and share their knowledge. Eventually this will be conducive to innovative performance. Similarly, we suggest that incentives within the competitive reward system such as job rotation and performance pay will have a positive effect on innovative performance.
DATA AND VARIABLES In this study, we use firm-level data collected by the Organisation for Strategic Labour Market Research (OSA) in the Netherlands. OSA is sampling all organizations in The Netherlands that employ personnel, with a minimum of five
The Impact of Labour Flexibility and HRM on Innovation
people. Organizations that have taken part in the survey in previous years are again approached for the next survey. Data collection is done by a combination of face-to-face interviews and a written questionnaire to be filled in by a manager and returned by mail. For this chapter, we use data from the 2001 survey, which contains information on the period 1998-2000 for 1482 commercial establishments, covering all manufacturing and commercial service sectors.
Dependent Variables For a test of the impact of flexible labour and HRM practices on innovative output, the OSA database offers a wide range of interesting indicators. The respondents were asked to subdivide their present product range into three types of product in the OSA Survey: 1. Products that remained largely unchanged during the past two years; 2. Products that were incrementally improved during the past two years; and 3. Products that were radically changed or introduced entirely new during the past two years. Subsequently, firms are asked to report the share of these three types of product in their last year’s total sales. That is the definition of innovative output in this chapter. This definition is also relevant for companies with a small number of products in their portfolio, because the definition is based on the turnover share, not on the number of products. As dependent variables, we use: •
•
The log of sales per employee from products ‘new to the firm’ (introduced during the past 3 years) in year 2000 and A categorical variable measuring to what extent new products are ‘new to the market’.
◦⊦ ◦⊦ ◦⊦
Hardly new to the market Partially new to the market Completely new to the market
To construct the log of new product sales per employee, we add up categories (2) and (3), i.e. incremental and radical innovations. One should note that the new product sales according to definition (2) and (3) need to be novel in that they include new technological knowledge or, at least, they should be based on novel (and creative) combinations of existing technological knowledge. The products under (2) and (3) can include products that are new to the firm (already known in the market) or products that are first in the market. In a subsequent question, firms are asked to grade the newness of their present products on a 3-point scale, ranging from 1 ‘hardly new to the market’ to 3 ‘completely new to the market’.
Independent Variables Explaining a firm’s score on the log of ‘new product sales per employee’ and the newness of these products, we use a number of labour relations indicators. The latter include shares of flexible labour and specific HRM practices as independent variables, besides a number of control variables. Descriptive information on these variables is presented in Table 1. Indicators of flexible labour include proxies for external flexibility (percentages of workers on temporary contracts) and internal labour flexibility. HRM practices include proxies for recruitment and selection practices measured by the educational level of the workforce (percentage of workers with higher education). Furthermore we include two dummy variables as proxies for a competitive reward system: job rotation and performance pay. In principle, we expect the six independent variables in the table to have a positive impact on volumes of sales of innovative products as well as the degree of innovativeness, although the impact of temporary contracts might
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The Impact of Labour Flexibility and HRM on Innovation
Table 1. Description of variables Variable name
Variable description
Mean
Dependent variable (Innovative output) Innovation productivity
Log of new product sales per employee
3.93
Was the new product new for the market, partially new for the market or hardly new for the market?
1.82
High external flexibility
Share of workers on temporary contract*short-term contracts (<9 months are more important); cross dummy
0.86
Low external flexibility
Share of workers on temporary contract*longer-term contracts (>9 months are more important); cross dummy
1.58
Internal flexibility
Percentages of workers that changed their function and/or department within the firm
2.85
Highly qualified personnel
Percentages of workers with university or higher professional education degrees
13.33
Performance pay
Dummy: Firm has systems of performance pay (e.g. profit sharing arrangements)
0.48
Job rotation
Dummy: Firm employs job rotation systems
0.69
IT infrastructure
Dummy: Firm uses internet or will have internet access within two years
0.91
Communication technology
Dummy: Organization introduced new logistic or ICT processes in the last 2 years
0.19
R&D intensity
Percentage share of turnover spent on Research & Development
2.18
Small size firm
Dummy: number of employees is between 5 and 49
0.58
Medium size firm
Dummy: number of employees is between 50 and 249
0.27
Large size firm
Dummy: number of employees is 250 and 499
0.07
Industry average new product sales
Average of logs of new product sales per employee in a firm’s sector of principal activity
3.91
Innovativeness Independent variable (Labour flexibility)
Independent variable (HRM practices)
Control variables
be ambiguous. On the one hand, short-term commitments might undermine loyalty of workers and the continuity in knowledge accumulation. On the other hand, lots of highly educated people are, notably in their first job, hired on a temporary basis, often with a perspective of tenure. Moreover, specialist technical and commercial consultants can often be hired on a temporary basis. We make a distinction between short-term and long-term temporary hiring, the division line being 9 months of contract. We would expect that notably when hired on a longer-run basis, such people may positively add to innovative output, even if hired only temporarily.
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Control Variables Our three most important control variables include: 1. A firm’s R&D intensity. Of course, if there is more R&D input, we expect there to be more innovative output. 2. Firm size. Small firms have advantages such as little bureaucracy, short communication lines, or dedicated management by the owner. The literature also reports, however, typical shortcomings of the innovation process in small firms: A strong dependence on the owner as a key person; or a chronic lack of
The Impact of Labour Flexibility and HRM on Innovation
financial and other resources (e.g. technological knowledge; see Tidd et al., 2006). In smaller firms, the innovation process often is a zero/one decision: failure of a single project can mean the end of the firm, while success can mean exceptional growth. Larger firms also have the advantage that they can maintain larger portfolios of risky projects, thus diminishing their innovative risks by means of diversification. 3. Industry average of new product sales: A firm’s score on the dependent variable (log of new product sales per employee) crucially depends on the typical length of the product life cycle in a firm’s sector of principal activity. Obviously, sectors with typically short product life cycles (such as food or fashion) will have higher rates of new product introductions (and higher sales of new products) than sectors with long life cycles such as aircraft production. The dependent variable can therefore not be compared across sectors, unless we correct for life cycle differences. As life cycle data are not easily collected in postal surveys, we use, as a substitute, the log of average new products sales in a firm’s sector of principal activity. Besides correcting for typical differences in product life cycles between sectors, this variable can also pick up other unobserved specifics of sector. Not surprisingly, inclusion of this variable made sector dummies insignificant. Besides, we also include dummies for a firm’s focus on information and communication technologies which is an indication of high technological opportunities.
tween a lower (left-censoring) and an upper (rightcensoring) bound (e.g. Tobin, 1958). The model suggests a linear dependence of a latent variable on xi via a parameter (vector) β. The disturbance terms, ui, follow a normal distribution to capture random influences on this relationship. In this chapter we use a version of the Tobit model with only a lower bound, the observable variable yi is defined to be equal to the latent variable whenever the latent variable is above zero and zero otherwise. In order to have a consistent estimator for the parameter β, a maximum likelihood estimator has been suggested (e.g. Amemiya, 1973). The mathematical representation of a simple Tobit model is as follows:
METHODOLOGY
Where y1 denotes the log of ‘new product sales per employee’; ‘LF’ includes variables of external flexibility measured by percentages of temporary workers and internal flexibility measured by percentage of employees changing function/department within firms; ‘HR’ are
The Tobit model is suitable for analysing the relationship between a dependent variable yi and a vector of independent variables xi, where the domain of the dependent variable is restricted be-
* if y* > 0 y i y = i i 0 if y* ≤ 0 i where yi* is a latent variable yi* = βx i +ui , ui ~ (0, σ 2 ) We use a Tobit procedure (e.g. Maddala, 1985) in this chapter to correct for the specific nonnormality of the distribution of our dependent variable (log of ‘new product sales per employee’). This non-normality stems from the relatively large number of firms that have zero new product sales. These are the left-censored observations in the Tobit output. Our empirical tobit model is formulated as follows: Model 1: y1 = α + β1LF + β2HR + β3Con + εi
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The Impact of Labour Flexibility and HRM on Innovation
variables of HRM practices including percentage of highly qualified personnel, dummies for job rotation and performance pay; ‘Con’ represents control variables. The disturbance term εi follows a normal distribution. We apply an Ordered Logistic Model for analysis of determinants of the degree of innovativeness. It can be regarded as an extension of the logistic regression model for dichotomous dependent variables. It is also referred to as ordered logit and ordered-response model (e.g. Maddala, 1983). The econometric logic behind this model is a linear relationship between a latent continuous variable yi* (i=1,...,n) and the independent variables Xi, yi* = β X i' + εi , where the disturbance term εi follows a logistic distribution with fixed variance at π2/3 with zero means. We use the observed variable yi to estimate the parameter β of equation explaining latent yi* . Corresponding to each observed variable yi (yi = 1,…, J), the latent variable yi* can be divided by some unobserved threshold α1,…,α J-1. It can be illustrated as ln(Θj) = αj – βX and Θj=prob(yi ≤ j)/prob(yi > j), (j=1,…, J-1). The results of the Ordered Logistic Model can be interpreted by ‘log-odds ratios’. Given a positive coefficient and holding constant all other variables, an increase in a particular variable raises the likelihood of moving to a higher engagement level comparing to the present level (e.g. Van der Zwan, 2008). Our Ordered Logistic Model is formulated as follows: Model 2:
Pr(Y = j ) 1 = α + β LF + β HR + β Con + ε ln 1 2 3 i Pr(Y1 = j − 1)
(j=2 or 3)
Where Y1 denotes the degree of innovativeness measured by 3-point Likert-type scale; ‘LF’ includes variables of external flexibility measured by percentages of temporary workers and internal flexibility measured by percentages of employees changing function or department within the firm;
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‘HR’ covers HRM practices, including percentage of highly qualified personnel, dummies for job rotation and performance pay; ‘Con’ represents control variables.
RESULTS Our regression estimates are summarized in Table 2. In the Tobit Model (Model 1), we explain the log of new product sales (per employee) achieved by firms that have such sales. In other words, our interpretation is strictly confined to the group of innovating firms among the respondents to the OSA survey. It is no surprise that R&D intensity has a positive impact on innovative output, which is significant at a 5% level. Processes related to a firm’s innovativeness such as the introduction of new logistic or ICT processes are, as expected, positively (at a 5% significant level) related to innovative productivity. Not surprisingly, we find that an individual firm’s innovative output depends on the average output of its sector of principal activity (at a 5% significant level). Inclusion of the latter variable implies that our model explains a (positive or negative) deviation of an individual firm’s new product sales from its sector average. As to firm size, we have to conclude that the typical advantages or disadvantages of a firm being small or big seem to cancel out each other: there is no difference in sales of innovative products across size classes. Furthermore, we can conclude that most of our variables on flexible labour and on HRM practices behave as expected. High shares of highly qualified personnel enhance innovative productivity, although this is only significant at a 10% level. The same holds for job rotation. Moreover, performance pay (including profit sharing arrangements) is positively related to innovative productivity (at a 5% significant level). This reflects the practice that firms give financial incentives to qualified people in order to keep them in the firm, rather than letting them leave
The Impact of Labour Flexibility and HRM on Innovation
Table 2. Summary of estimates Dependent variable
Model 1 (Log) sales per employee of products new to the firm
Variables for flexible labour:
Coefficients
Model 2 Probability of having products new to the market (other than new to the firm)
t-values
Odds ratio
t-values
High external flexibility
0.100
1.39
0.005
0.45
Low external flexibility
0.091*
1.73*
0.005
0.83
Internal flexibility
-0.017
-0.24
0.002
0.30
Highly qualified personnel
0.042*
1.89*
0.004**
1.96**
Performance pay
2.500**
2.58**
0.114
0.87
Job rotation
1.703(*)
1.61(*)
-0.000
0.00
HRM practices variables:
Control variables: IT infrastructure
6.631**
3.32**
0.077
0.28
Communication technology
3.847**
3.18**
0.257*
1.73*
R&D intensity
0.311**
3.46**
0.025**
2.57**
Small firm
0.475
0.23
-0.443**
-2.13**
Medium-sized firm
0.169
0.08
-0.390*
-1.76*
Large firm Industry average new product sales Constant term
1.707
0.62
-0.147
-0.51
2.168**
4.08**
0.022
-0.25
-22.401**
-5.98**
/cut1
-0.830
/cut2
1.760 335 uncensored observations; 565 censored observations LR chi2(13) = 93.04 (Pr > χ² =0.0000) Log likelihood = -1623.9698 Pseudo R² = 0.0278
1014 observations; LR chi2(13) = 26.17 (Pr > χ² =0.0161) Log likelihood= -979.3277 Pseudo R² = 0.0132
Coefficient just fails to be significant at 10% level * = significant at 10% level ** = significant at 5% level
(*)
and take along their (tacit) knowledge to competitors. To our surprise, however, a high rate of internal (‘functional’) flexibility does not seem to contribute to innovative output. In related estimates, we found that high internal flexibility did contribute to overall sales growth, notably among innovating firms (e.g. Kleinknecht et al. 2006). As to people on temporary contracts, it is interesting to note that higher shares of people with longer contracts (> 9 months) have a weakly significant positive impact on innovative productivity (at a 10% significant level), while higher
shares of people on shorter contracts do not contribute significantly. In an alternative version of our estimate (not documented here) we found that high rates of temporary contracts (without distinction by contract length) had a significant positive impact on innovative performance. This gives some support to the above-quoted argument by Ichniowski and Shaw (1995). Results from the Ordered Logistic Model (Model 2) show that high shares of ‘highly qualified personnel’have a positive impact on the degree of innovativeness (significant at 5% level). Neither 1611
The Impact of Labour Flexibility and HRM on Innovation
flexible labour nor reward systems influence the degree of innovativeness. It is no surprise again that R&D intensity is also positively related to a higher degree of innovativeness (at a 5% significant level). Furthermore, introducing new logistic or ICT processes has a weak positive impact on the degree of innovativeness (at 10% level). Seemingly, communication technology (new logistic or ICT processes) or IT infrastructure (internet access) contribute to the efficiency of innovation processes. High shares of new product sales (new to the firm) at the sector level have no significant impact on the probability of introducing products new to the market. However, firm size seems to matter. The smaller the firm, the less likely are innovations ‘new to the market’.
CONCLUSION AND IMPLICATIONS We examined the impact of labour relations on innovative output, distinguishing two sorts of innovative output: (1) Innovative productivity: measured by the logs of new product sales per employee (i.e. products new to the firm, other than new to the sector) and (2) Innovativeness: measured by the probability that new products are new to the market (and not only new to the firm). Our labour relations indicators differ in their contribution to the two different dimensions of innovative output. The only robust indicator is highly qualified personnel which has a positive impact on both sales of innovative products as well as on the probability that new products will be ‘new to the market’. This underlines the role of human capital to the innovative process. Highly educated employees allow for high learning capabilities, high absorptive capacity, and high analytical and problem-solving abilities, which tend to be individualized and tacitly embedded. Further, we find strong indications that active HRM practices, including job rotation and performance pay do contribute positively to sales
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of innovative products, while the impact of flexibility remains ambiguous. We should add that the model estimated in Table 2 is fairly robust to small model changes (e.g. replacing our size class dummies by a continuous variable). We also experimented with quadratic terms, finding only little evidence of non-linear relationships. An important qualification of our findings is that we use cross-sectional data only. This did not allow introducing time lags between our exogenous and endogenous variables. This implies that one should be extremely cautious with causal inferences. Future research should include the use of longitudinal data which will, however, lead to a substantial loss of observations due to panel attrition. While some of our findings are in favour of the view that ‘Rhineland’ practices may support innovative performance, the evidence is not clear-cut. On the one hand, we find that systems of job rotation and performance pay contribute positively to innovative output; on the other hand, and against our expectation, high rates of internal flexibility do not. Intuitively one would expect that innovative activities are related to high rates of people changing their function or department within the firm. It is therefore puzzling that we do not find a positive coefficient for internal flexibility. Moreover, our estimates give indications that high shares of temporary employees seem to contribute positively to new product sales, while the same variable contributed negatively to the growth of labour productivity in a recent study using the same database (e.g. Kleinknecht et al. 2006). As a qualification, one should remind that our models in table 2 are estimated on one crosssectional wave of the OSA database only. Future research should exploit the longitudinal character of the OSA database. Despite these qualifications, it is reassuring that our model in table 2 is fairly robust to changes in model specifications. Nevertheless, our result indicate that a firm is able to stimulate its innovative output by means
The Impact of Labour Flexibility and HRM on Innovation
of making use of employees on long-term temporary contract or implement competitive reward systems inside firms.
REFERENCES Amabile, T. M., Conti, R., Coon, H., Lazenby, J., & Herron, M. (1996). Assessing the work environment for creativity. Academy of Management Journal, 39, 1154–1184. doi:10.2307/256995 Amemiya, T. (1973). Regression analysis when the dependent variable is truncated normal. Econometrica, 41(6), 997–1016. doi:10.2307/1914031 Audretsch, D., & Thurik, R. (2004). A model of entrepreneurial economy. International Journal of entrepreneurship. Education, 2(2), 143–166. Beatson, M. (1995). Labour market flexibility. In Research Series (No.48). Sheffield: Employment Department. Brown, S. L., & Eisenhardt, K. (1998). Competing on the edge: strategy as structured chaos. Boston, MA: Harvard Business School Press. Buchele, R., & Christiansen, J. (1999). Employment and productivity growth in Europe and North America: The impact of labour market institutions. International Review of Applied Economics, 13(3), 313–332. doi:10.1080/026921799101571 Cohen, W. M., & Levintal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35, 128–152. doi:10.2307/2393553 Coutrot, T. (2003). Innovation and job stability. In Working Paper.Paris: Centre D’Etudes Prospectives et D’Informations Internationales. Ichniowski, C., & Shaw, K. (1995). Old dogs and new tricks; determinants of the adoption of productivity-enhancing work practices, Brookings Papers: Microeconomics, pp. 1-55.
Kleinknecht, A., Oostendorp, R. M., Pradhan, M. P., & Naastepad, C. W. M. (2006). Flexible labour, firm performance and the Dutch job creation miracle. International Review of Applied Economics, 20(2), 171–187. doi:10.1080/02692170600581102 Laursen, K., & Foss, N. J. (2003). New Human Resource Management Practices, Complementarities, and the Impact on Innovative performance. Cambridge Journal of Economics, 27(2), 243–263. doi:10.1093/cje/27.2.243 Leonard-Barton, D. (1995). Wellsprings of knowledge: Building and sustaining the sources of innovation. Boston, MA: Harvard Business School Press. Maddala, G. S. (1983). Limited-Dependent and Qualitative Variables in Econometrics. Cambridge, UK: Cambridge University Press. McGrath, R. G. (2001). Exploratory learning, innovative capacity and managerial oversight. Academy of Management Journal, 44, 118–131. doi:10.2307/3069340 Michie, J., & Sheehan, M. (2003). Labour market deregulation, ‘flexibility’ and innovation. Cambridge Journal of Economics, 27, 123–148. doi:10.1093/cje/27.1.123 Polanyi, M. (1966). The tacit dimension. London: Routledge. Tidd, J., Bessant, J. R., & Pavitt, K. (2006). Managing Innovation. Chichester, UK: Wiley. Tobin, J. (1958). Estimation for relationships with limited dependent variables. Econometrica, 26(1), 24–36. doi:10.2307/1907382 Trott, P. (1998). Innovation management and new product development. London: Financial Times.
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Tsai, W. (2001). Knowledge transfer in intra-organizational networks: Effects of network position and absorptive capacity on business unit innovation and performance. Academy of Management Journal, 44, 996–1004. doi:10.2307/3069443 Van de Zwan, P., Thurik, A. R., & Grilo, I. (2008). (forthcoming). The entrepreneurial ladder and its determinants. Applied Economics. Verburg, R. M., & Hartog, D. (2005). Human Resource Management for advanced technology. In Verburg, R. M., Ortt, J. R., & Dicke, W. M. (Eds.), Managing Technology and Innovation (pp. 43–46). London: Routledge. Verloop, J. (2004). Insight the Innovation: Managing innovation by understanding the laws of innovation. Amsterdam: Elsevier Science.
KEY TERMS AND DEFINITIONS (Degree of) Innovativeness: A categorical variable measuring to what extent new products are ‘new to the market’. Functional Flexibility: The ability of firms to re-allocate labour in their internal labour market, relying on training that allows personnel carrying out a wider range of tasks.
HRM Practices: Human resource management is a strategic approach to managing employment relations which emphasizes that leveraging people’s capabilities is critical to achieving sustainable competitive advantage, this being achieved through a distinctive set of integrated employment policies, programmes and practices. Innovative Output: A two dimensional measure including innovative productivity and the degree of innovativeness. Innovative Productivity: The log of new product sales (new to the firm) per employee. Labour Flexibility: A combined measure of flexibility at firm level including numerical flexibility, functional flexibility and wage flexibility. Numerical Flexibility: The ability of firms to change the volume of personnel by making use of fixed-term employment contracts, labour hired temporarily, either directly or through temporary work agencies or freelance workers. Performance Management: A HRM practice concentrating on evaluating, motivating and developing employees’ capabilities and performance in order to improve the effectiveness and efficiency of firms. Recruitment and Selection: A HRM practice aim at hiring the right people for the right position based on observable characteristics such as education and experience.
This work was previously published in Innovation in Business and Enterprise: Technologies and Frameworks, edited by Latif Al-Hakim and Chen Jin, pp. 150-161, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 6.3
Personnel Performance Management in IT eSourcing Environments Adrián Hernández-López Universidad Carlos III de Madrid, Spain Ricardo Colomo-Palacios Universidad Carlos III de Madrid, Spain Ángel García-Crespo Universidad Carlos III de Madrid, Spain Fernando Paniagua Martín Universidad Carlos III de Madrid, Spain Pedro Soto Acosta University of Murcia, Spain
ABSTRACT Performance management is one of the vital areas within any organization since it permits the supervision, measurement and control of the activities of employees. In outsourcing environments, this kind of activities are even more crucial, since the distance between supplier and client increases the difficulties in carrying out the process. This circumstance requires an improved and more specific level of the management of
performance of the new organizational activities brought about by the client-supplier paradigm. This paper proposes a model of improvement of performance management of the activities of clients and suppliers, governed by the eSCM (eSourcing Capability Model) through the use of the management of performance of human capital defined in the People-CMM (People Capability Maturity Model). The overall objective of the work is to develop the new model that manages, in the most efficient way possible, one of the most important assets of the organizations: human capital.
DOI: 10.4018/978-1-60960-587-2.ch603
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Personnel Performance Management in IT eSourcing Environments
INTRODUCTION
•
“If you can’t define performance, you can’t measure or manage it’’ (Armstrong & Baron, 1998). From this idea, performance can be defined from three different points of view. For example, performance refers to both the actual realization of the work as well as the results obtained (Otley, 1999), or it can be considered as a multidimensional construction formed by a variety of factors (Fitzgerald & Moon, 1996), or it can be defined as the outputs of an organization which provide a strong link between the strategic objectives of the organization, the satisfaction of the consumer, and economic contributions (Rogers, 1994). It is important to determine whether the objective of measurement is to evaluate the results of performance or behaviour, given that the results can be biased by factors external to those implicated in performance (Campbell, 1990). Due to this factor, organizations should distinguish between results and outputs, behaviour (the process), and appropriate means of measurement of performance, as inseparable and interdependent variables must frequently be dealt with (Mwita, 2000). These variables are affected by diverse factors, which should be taken into account when managing, measuring, modifying or recognizing performance. Additionally, these factors may be grouped into personal factors, leadership factors, team factors, system or context (Armstrong & Baron, 1998). Once performance is defined, it can be managed. Performance Management (PM) is a set of plans and revision processes, which span across the entire organization to provide a link between each individual and overall organizational strategy (Rogers, 1994). The general objectives of PM relating to individuals are (NAHT, 1991):
•
•
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Dispose of an increased clarity of what the organization is trying to achieve strategically.
• •
Understand what is expected of them in their work. Entitled to feedback regarding the carrying out of their work. Have continuous support from their managers. Have an opportunity to evaluate their performance obtained in a given period of time.
In the current environment of IT organizations, the externalization of services and processes to an external and specialized organization (Raisinghani, Starr, Hickerson, Morrison & Howard, 2008) is an extended practice and known as Outsourcing (Barthelemy, 2003b). In relations between client and supplier, PM is one of the most important factors for the success of the relationship (Alborz, Seddon & Scheepers, 2003), particularly given that the measurement of performance ensures the quality of outsourcing services (Saunders, Gebelt & Qing, 1997). PM generates information of vital importance to govern and control the life cycle of an Outsourcing relationship (Weimer & Seuring, 2008), moreover poor PM can destroy the Outsourcing relationship (Fink, 1994) given the lack of transparency of results, client satisfaction and continuous improvement (Alborz, Seddon & Scheepers, 2003). On the other hand, PM forms part of SLA (Service Level Agreements) which define in precise terms, the types, reach and character of the services required, delivery deadlines and the levels of performance agreed between the client and provider (Lee, 1996). Additionally, IT Governance, seen it as a ‘holistic system’ (Van Grembergen, De Haes, & Guldentops, 2003), is in part, linked with PM due to the high influence of human factors in IT goals achievement (Roepke, Agarwal & Ferratt, 2000). With the aim of boosting PM in Outsourcing environments, this paper has the objective to propose an enhancement of PM applied to the activities of clients and suppliers governed by the eSCM-CL (eSCM for Client Organization) model
Personnel Performance Management in IT eSourcing Environments
and the eSCM-SP (eSCM for Service Provider) model respectively and independently, using the process areas of PM concerning human capital defined in People-CMM.
BACKGROUND What is Outsourcing? Outsourcing is the process by which an organization moves or uses determinate resources to do specific tasks to an external organization, by mean of a contract (Barthelemy, 2003b). Alternatively, to the acquisition of products and services standpoint of outsourcing, other authors pointed out that outsourcing is a specific form of strategic alliance (Zineldin & Brendenlöw, 2003). The focus of outsourcing has been changing, since its creation in the 1960s (Loh & Venkataraman, 1992), from a focus on hardware, to software on the 1970s, to hardware and software standardization on the 1980s, and to total solution on the 1990s (Lee, Huynh, Kwok & Pi, 2003). Over the last twenty years, outsourcing has been a controversial area of discussion in both academic and practice (Kakabadse & Kakabadse, 2000). The most discussed characteristics of outsourcing have been the related benefits and risk. On one hand, the benefits proposed in the literature are mainly: reduction of operational costs (Lacity & Hirschheim, 1993), economies of scale (Zineldin & Brendenlöw, 2003), access to skilled workforce (Kakabadse & Kakabadse, 2002), increased flexibility and cost efficiency (Niemine & Takala, 2006), and the ability to transform fixed cost into variable costs (Alexander & Young, 1996). On the other hand, the most significant risks related to outsourcing are: right supplier selection (Earl, 1996), supplier dependency (Alexander & Young, 1996), kno-how loss (Doig, Ritter, Speckhals & Woolson, 2001), and hidden costs (Barthelemy, 2001). Focusing on the IT sector, outsourcing may solve two of the main issues of the sector: handle technology
changes more effectively (Bartel, Lach & Sicherman, 2009), and know the real cost of a process or product (Boehm, Abts & Chulani, 2000).
Why is Human Capital Management Needed for IT Organizations and How can it be Achieved? Human resources participate in the processes realized by an organization, both internally and externally by means of Outsourcing. Currently, these resources are without doubt the most important assets from the point of view of the efficiency and the quality of an organization in the IT sector (Becker, 1964). This is due to the fact that each human resource has a profile, experience, capacities, skills, career plans and distinct objectives, both at an individual and collective level. This indicates that management and improvement practices are needed exclusively for each individual, each work group, and for the organization itself, viewing the organization as a set of groups and individuals which cooperate in order to achieve the business functions of the organization (Curtis, Hefley, & Muller, 2001). The organization should efficiently manage the resources which it has available, value the requirement of new additions or transformations through means of career plans, and the training of existing resources (Becker & Gerhart, 1996). In addition, effective IT governance needs a collaboration/ participation relationship between IT people and business (De Haes & Van Grembergen, 2004). In this way, the organization achieves that the work force transforms from being a resource which realizes processes to being part of the processes, establishing a culture of professional excellence for the organization. This change can precisely be achieved through the People-CMM (People Capability Maturity Model) of the Software Engineering Institute (SEI) proposed by Curtis, Hefley, & Muller (2001).
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Personnel Performance Management in IT eSourcing Environments
Why is Human Capital Performance Management Needed, and How can it be Achieved? The performance of a software development organization is determined by various performance layers nested within the organization. These levels are comprised of: projects, teams, members, processes and practices (Humphrey, 2007). The management of the performance of each of the said layers can be realized using models which include performance management inside the framework of the models. On the one hand, the People-CMM model can be applied to the layer which deals with the management of performance of the members, which includes three process areas dedicated to this aim: Performance Management, Quantitative Performance Management, Organizational Performance Alignment (Curtis, Hefley & Muller, 2001). Each of these process areas has its own specific objectives: •
•
•
Performance Management (Level 2): Establish objectives related to the agreed work tasks against which individual and group work performance can be measured, as well as a continuous assessment of performance. Quantitative Performance Management (Level 4): Predict and manage the quality of processes to reach performance objectives. Organizational Performance Alignment (Level 5): Improve the alignment of performance results across individuals, work groups and units with the performance of the organization and business objectives.
How can Outsourcing be Managed? The management of Outsourcing relations is based in two separate but complementary parts which should be adequately managed if satisfac-
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tory results are to be achieved: these components have been defined as the contract and confidence (Barthelemy, 2003a). Other authors divide the management of Outsourcing into two similar parts: MCS (Management Control Systems) and confidence (Das & Teng, 2001a; Speklé, 2001). Focusing on the management of the contract, experience is a key factor for the development of satisfactory contracts for both parties; this experience can be extracted from the capability models eSCM (eSourcing Capability Model): eSCM-CL (eSCM for Client Organizations) (Hefley & Loesche, 2006) and eSCM-SP (eSCM for Service Provider Organizations) (Hyder, Heston & Paulk, 2004). These models include activities for the management of the entire lifecycle of an Outsourcing relationship, presenting different levels of capacities, and additional practices to improve the performance of the relationship.
How can Outsourcing Performance be Managed? Organizations may gain control over the function being outsourced through ongoing monitoring of work performance, as well as monitoring aspects of the Outsourcing relationship throughout the contract period (McFarlan & Nolan, 1995). Performance measures and benchmarks, which focus on areas such as customer satisfaction, delivery responsiveness, product quality and cost, and either included within the contract, or negotiated at a later date, may be used to monitor the performance of an Outsourcing relationship. The performance indicators also provided an efficient form of communication of expectations between both parties (Jarillo, 1988). In addition to the performance layers described by (Humphrey, 2007), a layer may be added to measure the performance of Outsourcing relations based on eSCM models, which define various practices related to PM: eSCM-CL (eSCM for Client Organizations) define:
Personnel Performance Management in IT eSourcing Environments
•
•
•
•
•
•
•
•
Organizational Sourcing Performance, establish and implement procedures to review organizational sourcing performance. Capability Baselines, define capability baselines for the client organization by analyzing sourcing performance data. Benchmark Sourcing Processes, benchmark the client organization’s sourcing-related processes by comparing performance with other client organizations involved in similar relationships. Improve Sourcing Processes, improve sourcing-related processes based on reviews of organizational sourcing performance. Business Value & Impact, analyze the business value and impact of organizational sourcing performance. Define SLAs (Service Level Agreements) & Measures, define the formal service level agreements and performance measures for the services and service conditions. Performance Monitoring, establish and implement procedures to monitor and verify that service commitments are being met. Review Service Performance, establish and implement procedures for reconciling service performance against expectations.
eSCM-SP (eSCM for Service Providers) define: •
• •
Performance Feedback, establish and implement procedures to provide feedback on performance to personnel. Engagement Objectives, define, communicate, and track engagement objectives. Verify Processes, establish and implement procedures to verify that processes are consistently performed as defined. •Organizational Objectives, define, communicate, and track organizational objectives.
•
•
•
•
•
•
•
• •
Review Organizational Performance, establish and implement procedures to review organizational performance. Make Improvements, make improvements based on reviews of organizational performance. Achieve Organizational Objectives, establish and implement programs to achieve organizational objectives. Capability Baselines, define capability baselines for the organization by analyzing performance data. Benchmark, benchmark organizational performance to identify opportunities for improvement. Manage Suppliers & Partners, manage the performance of suppliers and partners against their commitments. Optimize Technology, optimize the overall performance of the technology infrastructure needed to deliver all services. Create Contracts, establish and implement procedures to create contracts. Verify Service Commitments, establish and implement procedures to measure and verify that service commitments are being met.
COMPLEMENTING ESOURCING CAPABILITY MODELS WITH PEOPLE-CMM The research methodology for the present paper was as follows. In the first place, the eSCM models (eSCM-CL and eSCM-SP) were analyzed, extracting the practices and processes related to PM practices. In the second place, the common points between the practices and processes extracted in the previous step and the PM practices of the People-CMM model of human capital management were extracted, obtaining a list of points in common between models.
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The common points included on the list, represents conceptual and functional similarities between eSCM practices and its activities and People-CMM goals, practices and measurements of the process areas selected. The purpose of this list is to obtain a vision from the viewpoint of necessary PM practices of human capital management focused on an Outsourcing perspective. The list is divided on six lists in order to present the common points between the eSCMCL and eSCM-SP practices, and People-CMM process areas independently. Each list represents the common points between a People-CMM area and an eSCM model. The lists include a row for each eSCM practices that includes at least one common point, and the elements of the PeopleCMM process that area related: goals, practices, and measurements. Additionally, a figure is included to summarize the contexts of the list. The description of these Figures is as follows: it is divided in two areas, one on the right side for the People-CMM area and the other one on left side for eSCM model. On the eSCM model area, there are boxes representing each one of the eSourcing life cycle phases: analysis, initiation, delivery, completion, and ongoing, that contains the practices with common points between them and a People-CMM process area. There is included also the level of the process areas of People-CMM and the practices of eSCM models.
Client Side (eSCM-CL) •
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Performance Management (Level 2): The common points extracted are framed in the management of the current conditions of the services which have the potential to be externalized or that are externalized (Confirm Existing Conditions, Continuation Decision, Potential Sourcing Areas), in the definition of the Service Levels (Define SLAs & Measures), the management of the Outsourcing relation (Perform Sourcing Management,
•
Service Provider Management), and the management of performance related to organizational sourcing (Organizational Sourcing Performance). There is a strong relation between Goal 1 of Performance Management and the eSCM-CL related practices that indicates a documentation of performance objectives related to committed work. Additionally, Measurement 1 and 2 are present in the practices related to management of current conditions of the services; that relation indicates the importance of measurement for senior managers on the decision process of what externalize. Finally, eSCM-CL practices with common points focus on level 2 and just one is level 3 (Figure 1, Table 1). Quantitative Performance Management (Level 4). Quantitative Performance Management has 32 points in common with the 95 practices of eSCM-CL, which in its entirety represents a third of the total practices of the model. The common points are spread throughout the model: there are common points in all levels and all eSourcing life cycle phases. Practices 8 and 9 of Quantitative Performance Management are strongly related to the eSCM-CL common points; Practice 8 is present in 14 of the 32 common points, while Practice 9 is present in 13 of them, both represents nearly a 15% of the eSCM-CL model practices. This presence indicates that performance results are recorded and used when needed. In addition, Goal 1 is present in 8 of the 32 common points showing the importance of establishing performance measures that contribute to achieving performance objectives. Finally, the importance of this People-CMM area can be justified by the existence of the relation of all Quantitative Performance Management practices with at least one eSCM-CL practice (Figure 2, Table 2).
Personnel Performance Management in IT eSourcing Environments
Figure 1. Performance management (eSCM-CL)
•
Organizational Performance Alignment (Level 5): The common points of this process area referred to the performance alignment in the organization and are focused on the selection of processes which will be externalized (Sourcing Options,
Stakeholder Involvement, Business Value & Impact, Organizational Sourcing Strategy), and the management of those already externalized (Sourcing Alignment, Align Strategy & Architectures, Business Process Integration). The presence of
Table 1. Performance management (eSCM-CL) Performance Management (eSCM-CL) Related eSCM-CL Practices
eSCM-CL Motivation
Related People-CMM Element Goal
Practice
Measurement
Potential Sourcing Areas (str03)
Prior to carrying out the Outsourcing process, determine the actual performance of the activities to be externalized.
1
1
1
Service Provider Management (gov02)
Document the performance.
1
4, 9, 12
2
Organizational Sourcing Performance (val01)
Establish and maintain procedures for revising the performance of the Outsourcing.
2
2, 5, 12
Confirm Existing Conditions (agr02)
Confirm current performance (Prior to Outsourcing).
1
9
Define SLA’s & Measures (agr05)
Measurement of performance.
1
1, 5, 9, 10
Perform Sourcing Management (mgt01)
Control performance once externalized.
1
4,6
Continuation Decision (mgt11)
Analyze the performance data.
1
1, 2
1,2
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Personnel Performance Management in IT eSourcing Environments
Figure 2. Quantitative performance management (eSCM-CL)
Practice 3 of Organizational Performance Management in all the common points represents the alignment of performance with organizational business objectives, i.e. outsourcing objectives. Goals 1 and 2 are present in half of common points, and are present jointly in two of them; these presences reflect the continual improvement of the alignment of performance and organizational business objectives. Regarding measurements, Measurement 2 has points in common with 5 of the 8 eSCM-CL practices giving support to the purpose of Practice 3 (Figure 3, Table 3).
Service Provider Side (eSCM-SP) •
1622
Performance Management (Level 2): The common points found are related to management and improvement of the Outsourcing relation with regard to performance. The common points are focused on eSCM-SP level 3 practices (4 of 5 practices) are all are ongoing practices. The
•
low presence of Performance Management elements in eSCM-SP model may indicate a reduced importance of performance management in service providers from an Outsourcing standpoint; the focus of performance management may be governed by its business governance models instead of the specific for Outsourcing. (Figure 4, Table 4) Quantitative Performance Management (Level 4): The common points extracted can be classified with the management of internal objectives (Organizational Objectives, Capability Baselines, Review Organizational Performance) and the Outsourcing relation (Verify Engagement Objectives, Service Commitments), the prevention of problems (Prevent Potential Problems), and innovations (Deploy Innovation). There is a strong relation between Practices 1(4), 6 (4), 7 (8), 8 (4) and 9 (3), in brackets the sum of presences of a total of 10 eSCM-SP practices with common points and of 84 eSCM-SP practices.
Personnel Performance Management in IT eSourcing Environments
Table 2. Quantitative performance management (eSCM-CL) Quantitative Performance Management (eSCM-CL) Related eSCM-CL Practices
eSCM-CL Motivation
Related People-CMM Element Goal
Practice
Measurement
Sourcing Constraints (str02)
Identify the current performance objectives of the organization.
Sourcing Objectives (str04)
Define the performance of the objectives of the organization relative to each objective of Outsourcing identified. Determine measures to monitor the performance of the organization relative to the objectives of Outsourcing.
1
1
1, 2
Sourcing Policy (gov01)
Create and implement guidelines to implement the management of service levels. Implement measures of service levels to report.
1
1, 4
1
Service Provider Management (gov02)
Determine the attributes and performance of the relation with the SP so that they can be controlled. Maintain registers of the performance of the SP.
1
1, 8
1
Defined Sourcing Processes (gov04)
Determine the measures to control the performance of the Outsourcing processes.
1
1
Business Process Integration (gov06)
Identify the performance measures of integrated business processes.
1
2
Cultural Fit (rel05)
Identify the cultural attributes which affect the performance of the organization in interactions. Control performance in relation to the plan to achieve cultural fit.
Collaborative Relationships (rel06)
Jointly implement the management of the performance of relations with the SPs.
3
5
Organizational Sourcing (val01)
Establish and implement procedures to revise the performance of the organization in Outsourcing.
1
1
Capability Baselines (val02)
Define capability baselines for CL using the analysis of the performance data of Outsourcing.
9
Benchmark Sourcing Processes (val03)
Benchmark the processes related to Outsourcing, comparing the performance with other CLs involved in similar relationships.
9
Improve Sourcing Processes (val04)
Improve processes related to Outsourcing basing them on performance revisions.
2, 9
Innovation (val05)
Control performance with respect to the program plans, according to the methods of control defined.
1, 8
Business Value & Impact (val06)
Analyze the value of business and the impact of the performance of Outsourcing in the organization.
9
Sourcing Alignment (val07)
Determine the measurements for the revision of the alignment of the Outsourcing activities and the results with the objectives and business strategies. Analyze the performance of the subcontracted services. Identify links between gaps in alignment and performance data.
Stakeholder Involvement (ocm02)
Communicate the performance of Outsourcing to the relevant stakeholders.
8
Define Future State (ocm03)
Determine the performance measures and the standards for services and processes.
1, 2
1
Organizational Change (ocm06)
Determine the actions to realize when the performance data indicate that the implementation is not conforming to the plan
8, 9
2
Provide Required Information (knw01)
Improve performance with respect to the necessary information to develop the assigned responsibilities.
3, 8
8,9
1
4, 9
1
1, 2, 9
1
2
2
continues on following page
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Personnel Performance Management in IT eSourcing Environments
Table 2. continued Quantitative Performance Management (eSCM-CL) Related eSCM-CL Practices
Related People-CMM Element
eSCM-CL Motivation
Goal
Practice
Measurement
Share Knowledge (knw05)
Improve performance based on shared information.
8
Technology Integration (tch03)
Revise the performance of the integrated technologies with respect to the expected performance.
8
Define Current State (opa01)
Determine the performance measures and standards for services and processes.
Service Definition (pln02)
Define the performance baselines for the delivery of the current service.
9
Define SLA’s & Measures (agr05)
Define the performance metrics to control the achievement of service levels.
1, 2
1
Perform Sourcing Management (mgt01)
Have sufficient trained staff available to control the performance of the service provider. Determine the actions to carry out when the performance deviates from the performance that was expected. Maintain registers of the performance of the SP.
7, 8
2
Performance Monitoring (mgt02)
Establish and implement processes to control and verify that the service agreements are being fulfilled. Determine the measurements to control service performance. Provide the performance information and agreements to the SP. Control and monitor the performance of the SP. Analyze the performance.
1, 6, 8, 9
1, 2
Agreement Management (mgt04)
Communicate the key problems of the performance of the SP to senior management.
8,9
Review Service Management (mgt08)
Establish and implement processes to reconcile the performance of service with respect to expectations.
8,9
Stakeholders Feedback (mgt09)
Establish and implement guidelines to recollect and analyze the entrance of stakeholders and feedback (one of the inputs is the performance).
1
Service Value Analysis (mgt10)
Establish and implement procedures to improve value analysis and the performance of the subcontracted service.
Continuation Decision (mgt11)
Establish and implement procedures to take decisions regarding the continuity of the contracted service (one of the factors is performance).
8,9
Resources Transfer from Service Provider (cmp03)
Maintain registers of the resources transferred from the SP, i.e. performance realized.
8
•
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This presence is due to the importance of establishing performance objectives, retaining the performance measurements and using them for taking corrective actions when performance measurements deviate from the expected ones. (Figure 5, Table 5) Organizational Performance Alignment (Level 5): No eSCM-SP practices were
1
1
1, 2
1
1, 7, 8
found related to the practices of this process area of People-CMM, and for this reason this area is supposed to not contribute to the current framework. The lack of common points between this process area and eSCM-SP model may be due to its focus on outsourcing instead of more general objectives for business management.
Personnel Performance Management in IT eSourcing Environments
Figure 3. Organizational performance alignment (eSCM-CL)
FUTURE TRENDS Given the high number of points found in common, it is recommended to undertake more extensive research, analyzing all of the process areas of People-CMM to increase and enhance the common points between the management of human capital and management of the Outsourcing life cycle. Such an analysis should be made taking into account both organizations as well as suppliers, with the objective of having a combined vision of the management of both. The part related to client organization of these analyses is done by same authors in a previous research (HernandezLopez, Colomo-Palacios & García-Crespo, 2009). Once the analysis and extension of the points in common of both models has been completed, it is recommended to realize a study of the comparison of the results of the implementation of the models, initially implementing one of them at an intermediate maturity level and introducing the other model subsequently. The results of the implementation could then be compared with the separate results of the implementation of the other model, with the objective of determining if the
common points found could reinforce the implementation, reducing efforts: time and/or costs.
CONCLUSION The practices of the eSCM models for the management of Outsourcing relations present a number of points in common with the practices, goals and measurements of the key process areas related to PM of People-CMM. From the common points found, it can be deduced that an organization which has already established some or all of the three PM process areas of People-CMMM can benefit from the maturity of the said practices, at the moment it begins to engage in Outsourcing. This can be undertaken considering and subsequently applying the eSCM model which corresponds most appropriately. This may accelerates the implementation and institutionalization of eSCM practices which have points in common with the People-CMM practices that refer to PM. The common points encountered profile the management of performance in service provider organizations as management which crosses the
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Personnel Performance Management in IT eSourcing Environments
Table 3. Organizational performance alignment (eSCM-CL) Organizational Performance Alignment (eSCM-CL) Related eSCM-CL Practices
eSCM-CL Motivation
Related People-CMM Element Goal
Practice
Measurement
Sourcing Objectives (str04)
Align the objectives of the subcontracting with the objectives of the organization.
1
3
Organizational Sourcing Strategy (str05)
Align the subcontracting strategy with the strategy of the organization.
1
3
Align Strategy & Architecture (gov05)
Align the strategies and architectures to support the subcontracting across the entire organization. Linking between the strategies and business plans and the subcontracting strategy, this linking and alignment should be maintained across the long term relationship with the SP.
1
3
2
Business Process Integration (gov06)
Alignment of the business processes between the CL and SP.
1
3
2
Business Value Impact (val06)
Analyse the impact and business value of the performance of subcontracting, both in the externalized services as well as the capacity of the organization to externalize services. Take corrective actions in the case of deviation from performance.
1, 2
3, 6
1, 2
Sourcing Alignment (val07)
Align the activities and the results of the subcontracting activities with the objectives and business strategies. Define methods to evaluate the alignment. Define measures to carry out a revision of alignment. Identify the indicators of the key factors. Determine the performance measures for the said indicators. Involve the stakeholders in the determination of the measures and indicators. Determine the analysis and indicators which will be used to understand and take decisions regarding alignment. Analyze the performance of the subcontracted services. Determine cause links between drivers. Identify the critical link points between business and subcontracting: €€€€€− Cause links. €€€€€− Critical points. €€€€€− Shortages which affect the alignment. €€€€€− Unions where the performance is misaligned. €€€€€− Analyse and prioritize differences between the actual results and the desired results. Identify corrective actions or actions for improvement and success criteria to assure alignment. Maintain the alignment.
1, 2, 3
2, 3, 6
1, 2
Stakeholder Involvement (ocm02)
Identify and involve the relevant stakeholders in subcontracting activities to guarantee the alignment between the strategies and business objectives, and the subcontracting.
2
1, 3
Sourcing Options (opa04)
Define the methods and criteria to analyse the potential service providers based on the alignment with the business objectives and subcontracting.
2
3
life cycle of the relation and scarcely relates with the practices of the analysis, initiation, delivery and completion phases. However, the management of performance in client organizations is a key
1626
1, 2
factor, both in cross-business management as well as in each of the phases of the relationship. For client organizations is particularly significant that Quantitative Performance Management is the PM
Personnel Performance Management in IT eSourcing Environments
Figure 4. Performance management (eSCM-SP)
Table 4. Performance management (eSCM-SP) Performance Management (eSCM-SP) Related eSCM-SP Practices
eSCM-SP Motivation
Related People-CMM Element Goal
Practice
Measurement
Performance Feedback (ppl09)
Determine the attributes to be used for the different types of feedback. Determine and document the methods used for, and the frequency of, performance feedback.
1
4, 5
2
Rewards (ppl11)
Determine measures to encourage achievement of organizational objectives. Periodically review performance against defined indicators and provide rewards or recognition, as appropriate.
1, 4
13, 14
2
Engagement Objectives (prf01)
Periodically review performance against the engagement objectives. Determine corrective actions to take when performance trends deviate from achieving the objectives.
3
2, 10
Review Organizational Performance (prf05)
Periodically review performance against the organizational objectives.
Make Improvements (prf06)
Create a plan for organizational improvement. Track performance against the improvement plan and business case.
5 2
11, 12
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Personnel Performance Management in IT eSourcing Environments
Figure 5. Quantitative performance management (eSCM-SP)
process area with more common points, that may indicate the importance of SLA and monitoring of the externalized services (Larson, 1998). On the other hand, the lack of common points between eSCM-SP and Organizational Performance Alignment jointly with a lower total of common points, in contrast with eSCM-CL, may reside on the design of eSCM-SP as a complement to existing quality models for more general organizational business purpose. Focusing on maturity levels and capability, it is not possible to obtain a parallelism of levels based on the common points of both models, which suggests that the maturity of both models is independent. Nevertheless, numerous practices of the eSCM models at level 2 of maturity have points in common with the Quantitative Performance Management (Level 4) practices and Organizational Performance Alignment (Level 5), which suggests that a high level of maturity in the management of human capital can benefit the maturity of management of the Outsourcing life cycle.
1628
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Personnel Performance Management in IT eSourcing Environments
Table 5. Organizational performance alignment (eSCM-SP) Quantitative Performance Management (eSCM-SP) Related eSCM-SP Practices
eSCM-SP Motivation
Related People-CMM Element Goal
Practice
Measurement
Performance Feedback (ppl09)
Determine the attributes to be used for the different types of feedback. Determine and document the methods used for, and the frequency of, performance feedback.
Engagement Objectives (prf01)
Determine measures to track engagement performance. Create a plan for communicating and achieving the engagement objectives. Collect data on engagement performance. Periodically review performance against the engagement objectives. Determine corrective actions to take when performance trends deviate from achieving the objectives.
1, 2
1, 2, 7, 9
1, 2
Organizational Objectives (prf04)
Determine measures to track organizational performance. Track status and progress against the plan for organizational objectives.
2
1, 2, 7
1, 2
Review Organizational Performance (prf05)
Collect data on organizational performance. Determine corrective actions to take when performance trends deviate from achieving the objectives
7, 8
2
Capability Baselines (prf08)
Identify the performance measures to be used for the capability baselines. Collect performance data for identified measures. Analyze performance measurements to derive capability baselines.
4
2
Prevent Potential Problems (prf10)
Track performance against the program plan and business case, according to the defined tracking methods.
2
6, 7
1
Deploy Innovations (prf11)
Track performance against the program plan and business case, according to the defined tracking methods.
2
6, 7
1
Manage Suppliers & Partners (rel03)
Determine the attributes of supplier and partner performance to be tracked. Select and document the methods used for tracking the defined attributes. Track supplier and partner tasks, according to the defined tracking methods. Maintain records of supplier and partner performance.
1, 2
1, 2, 5, 6, 7, 8
1, 2
Cultural Fit (rel04)
Track performance against the plan for achieving a cultural fit.
2
6, 7
1
Verify Service Commitments (del04)
Determine measures to track service performance. Collect data on service performance. Analyze the data and compare current values and trends to the defined ranges for acceptable performance. Identify gaps between the actual (or predicted) and the planned performance. Take actions, as appropriate, when there are gaps. Maintain the data and analyses for future use.
1, 2
1, 2, 7, 8, 9
1, 2
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8, 9
Becker, B., & Gerhart, B. (1996). The impact of human resource management on organizational performance: Progress and prospects. Academy of Management Journal, 39(4), 779–801. doi:10.2307/256712 1629
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Hefley, W. E., & Loesche, E. A. (2006). The eSCM-CL v1.1 model overview: The eSourcing Capability Model for Client Organizations v1.1 [CMU-ITSQC-06-002]. Pittsburgh, PA: Carnegie Mellon University, IT Services Qualification Center. Hefley, W. E., & Loesche, E. A. (2006). The eSCM-CL v1.1 practice details: The eSourcing Capability Model for Client Organizations v1.1 [CMU-ITSQC-05-001]. Pittsburgh, PA: Carnegie Mellon University, IT Services Qualification Center. Hernández-López, A., Colomo-Palacios, R., & García-Crespo, A. (2009). Recommendations for the adoption of practices in human capital management outsourcing environments: Integration of People-CMM with eSCM-CL. Revista Española de Innovación. Calidad e Ingeniería del Software, 5(1), 20–38. Hoecht, A., & Trott, P. (2006). Innovation risks of strategic outsourcing. Technovation, 26(5-6), 672– 681. doi:10.1016/j.technovation.2005.02.004 Humphrey, W. S. (2007). Software process improvement - A personal view: How it started and where it is going. Software Process Improvement and Practice, 12(3), 223–227. doi:10.1002/ spip.324 Hyder, E. B., Heston, K. M., & Paulk, M. C. (2004). The eSourcing Capability Model for Service Providers v2: Model overview [CMU-ISRI -04113]. Pittsburgh, PA: Carnegie Mellon University, Institute for Software Research International. Hyder, E. B., Heston, K. M., & Paulk, M. C. (2004). The eSourcing Capability Model for Service Providers v2: Practice details [CMU-ISRI -04114]. Pittsburgh, PA: Carnegie Mellon University, Institute for Software Research International. Jarillo, J. C. (1988). On strategic networks. Strategic Management Journal, 9(1), 31–41. doi:10.1002/smj.4250090104
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Kakabadse, A., & Kakabadse, N. (2002). Trends in outsourcing. European Management Journal, 20(2), 189–198. doi:10.1016/S02632373(02)00029-4 Kakabadse, N., & Kakabadse, A. (2000). Outsourcing: A paradigm shift. Journal of Management Development, 19(8), 670–728. doi:10.1108/02621710010377508 Lacity, M., & Hirschheim, R. (1993). Information systems outsourcing: Myths, metaphors and realities. Chichester, UK: Wiley. Larson, K. D. (1998). The role of service level agreements in IT delivery. Information Management & Computer Security, 6(2-3), 128–132. doi:10.1108/09685229810225029 Lee, J. N., Huynh, M. Q., Kwok, R. C. W., & Pi, S. M. (2003). IT outsourcing evolution: Past, present and future. Communications of the ACM, 46(5), 84–89. doi:10.1145/769800.769807 Lee, M. K. O. (1996). IT outsourcing contracts: Practical issues for management. Industrial Management & Data Systems, 96(1), 15–20. doi:10.1108/02635579610107684 Loh, L., & Venkataraman, N. (1992). Diffusion of information technology outsourcing: Influence sources of Kodak effect. Information Systems Research, 334–358. doi:10.1287/isre.3.4.334 McFarlan, F. W., & Nolan, R. L. (1995). How to manage an outsourcing alliance. Sloan Management Review, 36(2), 9–23. Mwita, J. I. (2000). Performance management. International Journal of Public Sector Management, 13(1), 19–37. doi:10.1108/09513550010334461 NAHT. (1991). Performance Management Guide. West Sussex, UK: National Association of Head Teachers.
Nieminen, P., & Takala, J. (2006). Achieving better on-time delivery performance with the help of internal dependencies in the production. International Journal of Management and Enterprise Development, 3(1-2), 181–190. doi:10.1504/ IJMED.2006.008249 Otley, D. (1999). Performance management: A framework for management control systems research. Management Accounting Research, 10(4), 363–382. doi:10.1006/mare.1999.0115 Raisinghani, M. S., Starr, B., Hickerson, B., Morrison, M., & Howard, M. (2008). Information technology/systems offshore outsourcing: Key risks and success factors. Journal of Information Technology Research, 1(1), 72–92. Reopke, R., Agarwal, R., & Ferratt, T. W. (2000). Aligning the IT human resources with business vision: The leadership initiative of 3M. Management Information Systems Quarterly, 24(2), 327–353. doi:10.2307/3250941 Rogers, S. (1994). Performance Management in Local Government. Essex: Longmans. Saunders, C. S., Gebelt, M., & Hu, Q. (1997). Achieving Success in Information Systems Outsourcing. California Management Review, 39(2), 63–79. Speklé, R. (2001). Explaining management control structure variety: A transaction cost economics perspective. Accounting, Organizations and Society, 26, 419–441. doi:10.1016/S03613682(00)00041-6 Van Grembergen, W., De Haes, S., & Duldentops, E. (2003). Structures, process and relational mechanisms for IT governance. In Strategies for Information Technology Governance (pp. 1–36). London: Idea Group. Weimer, D., & Seuring, S. (2008). Information needs in the outsourcing lifecycle. Industrial Management & Data Systems, 108(1), 107–121. doi:10.1108/02635570810844115
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Zineldin, M., & Bredenlöw, T. (2003). Strategic alliance: Synergies and challenges. A case of strategic outsourcing relationship “SOUR”. International Journal of Physical Distribution & Logistic Management, 33(5), 449–464. doi:10.1108/09600030310482004
KEY TERMS AND DEFINITIONS eSourcing Capability Model for Client Organizations: Capability model intended for those organizations that procure, source or delegate IT-enabled services enabling client organizations to continuously evolve, improve, and innovate their capabilities to develop stronger, longer-term, and more trusting relationships with their service providers. eSourcing Capability Model for Service Providers: Is a “best practices” capability model designed to give service providers guidance that will help them improve their capability across the
sourcing life-cycle giving also the capability to assess the capability of service providers. eSourcing Capability Model: A framework designed to improve the relationship between IT Services providers and their customers. It includes two models: eSCM-CL for Clients and eSCM-SP for Service Providers. Human Capital: the aggregation of the innate abilities and the knowledge and skills that individuals acquire and develop throughout their lifetime. Outsourcing: The process by which an organization moves or uses determinate resources to do specific tasks to an external organization, by mean of a contract People Capability Maturity Model: Maturity framework proposed by Software Engineering Institute that focuses on continuously improving the management and development of the human assets of an organization. Personnel Performance Management: A forward looking system of strategic alignment and employee objective setting with regular reviews and reporting.
This work was previously published in Enterprise IT Governance, Business Value and Performance Measurement, edited by Nan Si Shi and Gilbert Silvius, pp. 202-219, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 6.4
E-HRM in Turkey: A Case Study
Yonca Gürol Yildiz Technical University, Turkey R. Ayşen Wolff Haliç University, Turkey Esin Ertemsir Berkin Yildiz Technical University, Turkey
ABSTRACT This chapter is about the role of electronic Human Resource Management (E-HRM) in Turkey. E-HRM can be briefly defined as the planning, implementation and application of information technology for both networking and supporting at least two individuals or collective actors in their shared performing of HR activities. New knowledge economy increased competition throughout the world and living in an age of massive technological evolution is changing the nature of business; especially e-business. E-business is challenging current HRM policies and functions as DOI: 10.4018/978-1-60960-587-2.ch604
it uses internet technology to drive organizational performance. This study attempts to investigate several specific and critical points that will contribute to a better understanding of E-HRM by illustrating how it is used by a Turkish firm in the health sector. In this sense, the authors’ findings will try to exemplify how an E-HRM policy is realized. Our aim is to provide a model for the implementation of E-HRM in other companies.
INTRODUCTION During the past ten years, emerging factors such as globalization, rapid technological developments and limited resources have created a new
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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competitive landscape for all businesses. These developments forced companies to adopt several strategies to survive and to excel in their environment. Obviously, competition and attempts to increase market share between organizations play an important role in the business world. Today information is such an important competitive tool for businesses that a new era has begun known as “The Information Age” or “The New Economy”. Turkey is adapting economically and culturally to a web-based economy, seeing this as essential to its candidacy for the European Union. Although it has been observed that the human factor is among the leading strategic advantages of successful firms’ in Turkey, “traditional personnel management” is still resisting change. Therefore, issues pertaining to human resources are under increasing investigation by academics, as well as by business people. In Turkey the beginning of academic research into human resource management dates back to the 1970s, to early studies of personnel management. In the 1980s, the transition from personnel management to human resource management has influenced academic study in Turkey in all relevant areas of the subject. The changes observed in these years were not limited to a change from personnel management to HRM. Rather, there is the much more important issue of change within the above mentioned transition stemming from the strategic role ascribed to HRM (Gurol et al, 2003). Following this evolutionary process, at present, academic interest in E-HRM has increased. This interest stems from E-HRM’s role in cost reduction development of HR services helping to improve strategic planning. Furthermore E-HRM is seen as a driving force for companies growing both regionally and in labor force. It is becoming a prerequisite for the competitive success of any firm. Using the internet theoretically makes your labor pool global rather than local. You can use information technology to do all the routine HR administrative work automatically at any time, at anywhere.
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BACKGROUND As mentioned in the introduction part, living in age of massive technological evolution is changing the nature of business. This new business structure is named as electronic business(e-business) and can be defined as the overall business strategy that redefines the old business models and uses digital media and network technology to optimize customer value delivery (Karakanian, 2000, 1) which causes certain innovative changes in business life. These computer based innovative changes are especially found in customer relations, marketing, inventory control, and/or human resource management and are clearly affecting the way in which business is conducted. The new mechanism introduced by e-business utilizes Internet-based computing, which supports the open flow of information between systems. For this purpose, e-business uses business portals (established over the Internet) to interact with customers (Mitchell, 2001). Information systems have also been applied to HRM for decades. However, the way of using information systems and the way of processing information for HRM have evolved and dramatically improved over the last decade. As a result human resource management has also gone through a change process, especially in terms of HRM policies and functions. Moving from this point on, Strohmeier (2007) has defined electronic human resource management (E-HRM) as “the planning, implementation and application of information technology for both networking and supporting at least two individual or collective actors in their shared performing of HR activities.” (p.20) According to Ulrich (2007; 2009) human resource managers take place in the strategy designation process with the top managers. As one of the strategic partners, the HR manager derives benefit from Electronic Human Resource Management Systems (EHRMS), which is an important tool in E-HRM, to disseminate and execute the strategy
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within the organization. E-HRM has gained use of technology as it enables employees to manage much of their own HR administrative work. They can take care of many routine transactions whenever they wish, because automated systems don’t keep office hours. In addition to their former operational role, HR professionals can also act as a competency manager by arranging the right people to the right positions in the right time with their new strategic architecture role. With the use of IT for HRM purposes there will be more time left for strategic decision-making, as a result of a decrease in manually performed administrative tasks. Also as a result of the improvement of overall HRM system, there will be parallel decrease in HR related questions from employees and line management (Ruël, Bondarouk& Velde, 2007). In light of all these, this study attempts to investigate several specific and critical points that will contribute to a better understanding of E-HRM. In the following sections, we will first briefly describe HR functions in E-HRM, following this; we will go over our findings of a case-study conducted to show how E-HRM and its certain functions are being used today by a Turkish firm in health sector.
HR FUNCTIONS IN E-HRM Job Analysis and HR Planning E-HRM offers online job descriptions which are the most important output of the job analysis process. The HR specialist can easily establish the competencies of the required applicant in a way that matches the applicant to the job descriptions and rapidly recruit the labor whenever and wherever needed. In the HR planning process it is easier to follow workforce gaps, the quantity and quality of the labor force and to plan future workforce requirements with the help of HR
knowledge systems such as Oracle, SAP, PeopleSoft, Excel etc.
E-Recruitment and Selection HR managers more often use the Internet for recruiting and the selection of new personnel (Stone, 2005). Internal and external labor pool and the job openings can be pursued by HR knowledge systems. It also creates advantage for internal staffing of open positions. Computerized testing for selection is increasingly replacing conventional paper-and-pencil manual tests (Dessler, 2005).
E-Learning / Training / Education / Knowledge Management Setting the training needs, driving web-based courses, evaluating the success of training programs, keeping the results for the future use in the performance and career management functions and storing the organization’s intellectual capital are the most prominent advantages of the E-HRM. The most frequently used education technologies are tele-training, video conferencing and training via internet. E-learning, gives the opportunity to learn online rather than face-to-face. Although it is a very flexible learning opportunity, many people may find it difficult to devote the necessary time.
Performance Management and Appraisal Targeting the performance results and online evaluating the performance provide effectiveness and rapidness for the performance management process. Electronic performance monitoring (EPM) is the ultimate point in computerized appraising in which supervisors electronically monitor the work force and rate them (Dessler, 2005). Having the feedbacks online can diminish wasted time and keep records confidential.
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Career Development Knowing the competencies and educational background of the labor is important to make career targets and construct career paths online. The organization can offer on-site or online career centers, encourage role reversal, establish a “corporate campus”; computerized on and offline programs which are available for improving the organizational career planning process.
Compensation HR managers prefer using knowledge management systems also for compensation and benefit systems, for accessing electronic databases and undertaking corporate promotion (Stone, 2005). Computers play an important role in benefits administration. PC-based systems let employees interactively update and manipulate their benefits packages. Inter and intranet systems enable employees to get medical information about hospitals and doctors and to do interactive financial planning and investment modeling. Additionally, online award programs can also be used to recognize employees on anniversary dates or give their success awards (Dessler, 2005).
Employee Safety and Health Risk and security management is crucial to HRrelated information because it involves private and highly sensitive individual data. It follows that data and multiplatform security aspects which are perhaps the most serious factors that need to be taken into consideration during the formulation of an organization’s E-HRM strategy (Karakanian, 2000, p.3). The workplace access through the carding system makes it possible to know where your worker is at the moment. As a result, HR department can easily search the work place for workers during job accidents and keep up with the workers’ rotation.
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Employee Relationships / Communication Intranet systems, allow better interaction between the workforce and their managers and between colleagues as well. HR specialists can use online communication channels efficiently and share internal and external information with the organization as a whole. E-mail groups, discussion meetings, synchronized conferences via the internet keep the organization updated. It is also possible to use the internet to manage union relations by mass e-mail announcements to collective bargaining unit members, supporters and government officials (Dessler, 2005).
THE RESEARCH METHOD AND RESULTS ON TURKISH E-HRM PRACTICE Method The method adopted in this research is the case study, since with this method it is possible to gain in-depth understanding of the factors that led to electronic use in HR functions and the way in which the process was realized. It will thus be possible to develop a basis upon which a theoretical framework could be attained for explaining the E-HRM system. Researchers have conducted interviews with top managers and line managers in key positions related to HR and also with IT support system specialists. The semi-structured interview questions explored HR functions in general and the technical adaptation problems in the transformation process of E-HRM. The data was collected through a variety of means including in-depth interviews, document analysis and the individual participation of the HR manager. Researchers tape-recorded as well as took notes of the answers during the interviews, and each interview took approximately 30 minutes.
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Currently there are 10 workers in the HR unit and also a couple of interns who update the data of the workforce. On-site observations and small talks with the personnel have also been possible during the interview period. Researchers also examined and analyzed the firm’s official web site, in addition to other written materials provided by the firm.
Electronic Human Resources Management System (EHRMS) and its Difference from the Other Softwares Since Human Resources Department works differently from other departments, its software application is also unlike other departments. For example, in an accounting program, only data is used without any human contact. There is no face to face connection, it’s all electronic! Or the program that the purchasing department uses can be an institutional resource planning system, concerning only that department. The purchasing manager may or may not see an order, but the data will be shared electronically. However, Human Resources Department is not like other departments. It is not related to only one or two people or departments. It gives support and service to all company employees; its’ work is hard and the logic that it uses in its’ software is pragmatic. It is better to analyze Human Resources Software in two parts. The first part is the application that the Human Resources Department uses; the second is the application that the company workers use.
The Application used by Human Resources Department (Back Office) This application organizes the HR Department’s own operations by informing the front office, and in turn by being informed by them. Other departments besides HR do not use it. For example, it
prepares payroll or calculates the budget by entering payment information. It defines the necessary competencies for certain positions which are used in evaluating performance and according to these competencies, mathematical grading is instituted and the right questions are asked. We will call this application “HRMS” (Human Resources Management System). Also it is called “HRIS” (Human Resource Information Systems). There is a fundamental difference between HRIS and E-HRM in that basically HRIS are directed towards the HR department itself. Users of these systems are mainly HR staff. With e-HR, the target group is not the HR staff but people outside this department: employees and management (Ruël et al., 2007).
The Application used by the Company Workers (Front Office) The employees of the company use this application. This application allows examining payrolls during the evaluation process. Data registration improves the back office feedback system between workers and management and defines performance. Data is screened and it is fed by the back office. We call this application “EHRMS” (Electronic Human Resources Management System).
CASE STUDY: APPLIED E-HRM AT THE HR DEPARTMENT OF THE AMERICAN HOSPITAL IN TURKEY Human Resources in the Electronic Environment of Turkey As Turkey has improved in the Human Resources field, use of related technology has grown and a variety of software applications have become integral to daily operations. In the past, modules such as number of employees, paid leaves and over-time working hours were used for building payroll programs and payroll accounts. Although these modules made Human
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Resource work easier by storing data, preparing reports and various other reasons in terms of data access, it caused an extra work load. Nowadays, as the value of Human Resources Department is more appreciated, its functionality has also increased in a parallel way and taken on much of the workload. In the past, Human Resources was seen as a department that registered workers, organized paid leave and prepared the payroll. It has now turned into a department that improves the performance of its employees, prepares training programs for them, specifies work definitions to clarify their career planning and finds the appropriate niche for each employee. At this point, it cannot be neglected to state that, Human Resources managed to adopt itself to such a big workload by taking advantage of the new technology seen especially by the growth of web software.
1996-1997, Koç Holding’s managers (Arcelik, Otosan etc.) were invited to join the hospital administration and were introduced to health-care management. The first HR professionals were educated among them and the HR department was founded in 1997. There are 10 workers in the HR unit at the moment and there are also interns who update the data of the workforce.
Interview Questions and Answers
Our strategic plan is: to open a new hospital of radiology and oncology and to establish a medical faculty in the mid-term. These plans allow for progress.
Please give us some information about the historical background of your organization. Turkey’s first, general, not -for profit hospital, American Hospital and School of Nursing, was established by Admiral L. Bristol in 1920. With its 300 bed capacity, American Hospital continues to develop and give the best quality of service to each specialty of modern medicine. Each year VKF American Hospital serves 131,000 patients. Seeking care, they come from all over Turkey and various parts of the world. The VKF American Hospital offers diagnostic, inpatient and outpatient care in 38 medical specialties. Its 24 hour service meets international standards and has 500 physician specialists and a health care and support service staff of 1,150 people. World standard service is provided with the support of the most modern medical equipment and systems. In 1995 the management of the American Hospital was transferred to Koç Holding. In
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Can you describe the role of HR department in your organization? Is it seen as a strategic partner? Is it a support unit? Human Resources Management is a strategic partner; we undertake operational and managerial roles in our daily planning. Can you give us information about your strategic plans?
Which HR functions do you outsource? The HR department has no outsourcing activities but we do have IT support from the Koç Systems within the Koç Holding group. Which HR functions are carried out in your organization? Human Resources functions include job analyzing, planning, salary, employment, career development, employee satisfaction, and training topics. These are carried out in the hospital. We know that E-HRM is successfully implemented in your hospital. How did you manage the transformation of the related process?
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We first improved the IT infrastructure of the hospital. At the beginning of 2002, we started using Electronic Human Resource Management System and preferred Oracles’ HR module for E-HRM activities. We chose it as an alternative to the SAP software. We use software like PYXIS and PAX in material management. Besides, pneumatic tube systems are supported by personal communication systems and are used in the flow of information and in sending blood and reports, etc. Which HR functions were transferred to electronic environment?
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All Functions transferred into the e-environment; We first transferred job analyses, job definitions and completed their updates. Later on we continued with HR planning.
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For which purposes did you transfer these functions to an electronic environment? •
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With the e-environment we are now able to calculate easily in our integration system: HR Planning; work force loss analyses, follow-up of absenteeism and over-time. Hospital access is done through a carding system so there is the advantage of predicting change and knowing where the worker is. As a result, information is made available on both where the work place of the worker is during work accidents and keeping up with the workers’ rotation. Through the e-system, the emergency nurse logs on so one can know the location of the nurse and where to call in case of an emergency. Through the intranet, doctors can fill out their absence forms. Both the work of the appointment center and the call center got easier, as our doctors made their weekly schedules within the system. Staffing; it is possible to predict the loss of workforce before it occurs through the
• •
e-system. For example, the assignment of 70 people to government jobs was known before hand. We were able to plan, make evaluation of career potential in the candidate pool and were able to fill out positions without any trouble. By the help of EHRMS, we are able to calculate every detail of yearly absences, save them in the system and also plan leaving and replacement. Open positions are visible to everyone in the system and their registration is approved by the managers and HR. Training: In-house training is done through the intranet. The worker gets training whenever he/she wants it. There is no cost for physical space and the time factor can be used efficiently both by the trainer and the trainee. Performance Appraisal; every semester employees are transferred into the system and are tracked in the e-environment. An employees’ development can be followed. Most importantly the “360-degree feedback” performance appraisal is done in this system. Career Planning: the career planning of workers can be tracked. Wage and Salary System: we use the HEY grading system to enable us to calculate the salaries.
What are the advantages and disadvantages of E-HRM? Even though at the beginning of an E-HRM application it is necessary to stick to budget, in the long term there is an increase in the productivity of the workforce and a decrease in cost. In the beginning the system increases workload due to the entering data, but when the system is used actively, the workload decreases. Through this system, data is kept orderly and reports are fully prepared. All statistical information such as; paid leave, performance evaluations and the
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candidate pool can be obtained easily in the data base. When the system is busy like in the performance appraisal period or career target defining process, the system may slow down as the access to the system increases. As in every department, there is also an adaptation period in the HR department with the transfer to electronic systems. The help of IT professionals is necessary during this period. Thank you very much for your contributions to our academic work and for sharing confidential information with us.
FUTURE RESEARCH DIRECTIONS The geographically separated branches of the multinational company can easily handle recruitment and selection, staffing, performance appraisal, training functions via E-HRM applications. In the future, the number of studies in International Human Resource Management field regarding this issue will likely increase. Also, another research trend that will gain importance will probably be based on the software and programs on HR. As mentioned before E-HRM is using web-based-technology channels for implementing HR practices. Setting the s-ma-r-t targets, performance criteria, encouraging e-training, receiving the training results online and using these results as an input for the human performance system will provide further integration of HR functions. As long as the technology changes, electronic human resource management systems will be improved. Moreover, as HR software becomes easier to use and to afford, the number of organizations which prefer E-HRM will continue to increase day by day. It is expected that the HR knowledge systems such as Oracle, SAP, PeopleSoft, etc. will propose new and more functional software and the technology related issues of E-HRM will constitute an emerging trend within the field.
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CONCLUSION At the end of this case study, we concluded that the work of HR employees in the Human Resources Information System got easier and the cost of intra-organizational processes decreased. It was also concluded that better access to data in the e-environment decreased the need for decisionmaking at higher levels of management. For our research, we had information from the HR department managers and their team, and also from the users of the system. As expected, the selection and placement process got easier and through e-training, workers were better informed, better coordinated and were better prepared to improve their performance.
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ADDITIONAL READING Bondarouk, T., Ruël, H., & Heijden, B. V. D. (2009). E-HRM Effectiveness in a Public Sector Organization: a Multi-Stakeholder Perspective. International Journal of Human Resource Management, 20(3), 578–590. doi:10.1080/09585190802707359
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Ceriello, V. R., & Freeman, C. (1998) Human Resource Management Systems: Strategies,Tactics, and Techniques. USA: John Wiley & Sons. Chapman, D. S., & Webster, J. (2003). The Use of Technologies in the Recruiting, Screening, and Selection Processes for Job Candidates. International Journal of Selection and Assessment, 11(2/3), 113–120. doi:10.1111/1468-2389.00234 Collins, C. J., & Smith, K. G. (2006). Knowledge Exchange and Combination: The Role of Human Resource Practices in The Performance of HighTechnology Firms. Academy of Management Journal, 49(3), 544–560.
Holsapple, C. W., & Lee-Post, A. (2006). Defining, assessing, and promoting e-learning success: An information systems perspective. Decision Sciences Journal of Innovative Education, 4(1), 67–85. Hooi, L. W. (2006). Implementing E-HRM: The Readiness of Small and Medium Sized Manufacturing Companies in Malaysia. Asia Pacific Business Review, 12(4), 465–485. doi:10.1080/13602380600570874 Hopkins, B., & Markham, J. (2003). e-HR:Using Intranets to Improve the Effectiveness of Your People. Hampshire, UK: Gower Publishing.
Davenport, T. H. (1994). Saving IT’s Soul: HumanCentered Information Management. Harvard Business Review, 72, 119–131.
Jennex, M. E. (Ed.). (2005). Case Studies in Knowledge Management. Hershey, PA: Idea Group Publishing.
Debowski, S. (2006). Knowledge Management. Singapore: John Wiley&Sons.
Kulik, C. T., & Perry, E. L. (2008). When Less is More: The Effect of Devolution on HR’s Strategic Role and Construed Image. Human Resource Management, 47(3), 541–558. doi:10.1002/hrm.20231
Dewett, T., & Jones, G. R. (2001). The Role of Information Technology in the Organization: A Review, Model and Assessment. Journal of Management, 27, 313–346. doi:10.1016/S01492063(01)00094-0 Farazmand, Ali (2004) Innovation in Strategic Human Resource Management: Building Capacity in the Age of Globalization. Public Organization Review: A Global Journal, 4, 3-24. Gasco, J. L., Llopis, J., & Gonzales, M. R. (2004). The Use of Information Technology in Training Human Resources: An E-learning Case Study. Journal of European Industrial Training, 28(5), 370–382. doi:10.1108/03090590410533062 Gueutal, H., & Stone, D. L. (Eds.). (2005). The Brave New World of e-HR: Human Resources in the Digital Age. San Francisco: Pfeiffer.
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Lippert, S. K., & Swiercz, P. M. (2005). Human Resource Information Systems (HRIS) and Technology Trust. Journal of Information Science, 31(5), 340–353. doi:10.1177/0165551505055399 Martinez-Fierro, S., Mesina-Garrido, J. A., & Ruiz-Navarro, J. (2006) Utilizing Information Technology in Developing Strategic Alliances Among Organizations. Hershey, PA: Idea Group Publishing. Pershing, J. A. (2006). Handbook of Human Performance Technology. San Francisco: Pfeiffer. Rampton, G. M., Turnbull, I. J., & Doran, J. A. (1999). Human Resource Management Systems: A Practical Approach. New York: Carswell. Steinbuch, P. I. (2005). e-HR:Using Intranets to Improve the Effectiveness of Your People. Leadership and Organization Development Journal, 26(1).
E-HRM in Turkey
Strohmeier, S. (2009). Concepts of E-HRM Consequences: a Categorisation, Review and Suggestion. International Journal of Human Resource Management, 20(3), 528–543. doi:10.1080/09585190802707292 Torres-Coronas, T., & Arias-Oliva, M. (Eds.). (2004). E-Human Resources Management: Managing Knowledge People. Hershey, PA, USA: Idea Group Publishing. Ulrich, D. (1997). Human Resource Champions. Boston: Harvard Business School Press. Ulrich, D., & Brockbank, W. (2005). The HR Value Proposition. Cambridge, MA: Harvard Business School Press. Wang, Z. (2005). Organizational Effectiveness Through Technology Innovation and HRM Strategies. International Journal of Manpower, 26(6), 481–487. doi:10.1108/01437720510625403 Wolff, A., Gümüş, S., Çalışkan, S., & Ürü, O. The Impact of The Knowledge-Based Economy on the Universities In Turkey, International Research Conference, 13-15 June 2008, Burgas Free University, Burgas, Bulgaria, proceedings pp. 30-36.
KEY TERMS AND DEFINITIONS E-Business: E-business may be defined as the new business strategy that redesigns the old business models and differentiates with the use of information and communication technologies (ICT) in support of all the activities of business. E-business software requires special technical standards and provides the integration of intra and
inter firm business processes as well as external relationships with customers and partners. Electronic Human Resource Management (E-HRM): Is the planning and application of webbased-technology channels for implementing HR strategies, policies and practices in organizations. Electronic Human Resource Management Systems (EHRMS): Refers to the systems and processes at the intersection between human resource management (HRM) and information technology (IT). Human Resource Management System (HRMS): Also called Human Resource Information System (HRIS) consists of software, hardware and systematic procedures used to acquire, store, analyze, report and distribute relevant demographic and performance information about an organization’s human resources. Human Resource Management (HRM): Is the process of managing the most valued assets of the organization; the employees. HRM include functions as job analyzing, recruitment and selection, staffing, training, performance management, career development, compensation, security and health issues of the workforce, and coordinates them in tune with the job and organizational requirements. Information System: Information system or information technology refers to the specific software platforms and databases that are used to store data records in a computer system and manages all major functions of the organization provided by the softwares such as SAP, PeopleSoft etc. Software Program: It may be defined as the instructions for computers to perform specific tasks.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 530-540, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 6.5
Performance Management in Software Engineering Markus Ilg Vorarlberg University of Applied Sciences, Austria Alexander Baumeister Saarland University, Germany
ABSTRACT Performance measurement in software engineering has to meet a multiplicity of challenges. Oftentimes, traditional metrics focus on sequential development instead of using incremental and iterative development. Output is measured on a pure quantitative (e.g., SLOC), quality-disregarding basis. A project’s input is hard to assign properly using enterprise-unspecific forecasting tools which have to be calibrated at first and which do not account for time preferences. Requirements necessary for behaviourally adjusted project man-
agement and control are rarely discussed. Focusing on these shortcomings, this paper proposes an enterprise-specific approach which combines lifecycle and activity based costing techniques for software development following the incremental and iterative Unified Process model. Key advantages are calibration effort can be avoided, project management decisions are supported by a clear managerial accounting emphasis, precise milestone-depending cost objectives can be determined as the basis for personnel management and control of development teams, and cost and time variance analysis can be supported in a sophisticated way.
DOI: 10.4018/978-1-60960-587-2.ch605
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Performance Management in Software Engineering
INTRODUCTION The challenges of performance measurement as a tool of project management in software engineering are twofold. On the one hand an efficiency control requires adequate metrics to assess the productivity of software development by means of input-output-relations. The multitude of existing metrics already clarifies the missing unambiguousness in this field: for an up to date and broad overview of software metrics research see Kitchenham (2010) and for details Anseimo and Ledgard (2003), Choi and Kim (2005), Foulds and West (2007), Kitchenham and Mendes (2004), Maxwell and Forselius (2000) or Pfleeger (2008). Farooquie and Farooquie (2009) provide empirical evidence on performance measurement. Yet, some problems arise by focusing metrics on traditional sequential software development processes instead of using incremental and iterative development (IID) techniques (Tan et al., 2009; Yu, 2010). On the other hand anticipative personnel project management aims to activate behaviour in accordance with the software development objectives. Requirements discussed in responsibility accounting, for example the realistic but challenging setting of objectives or the controllability of influencing variables needed by developers, have to be fulfilled (e.g., Baker, 1992; Baker, 2002; Choudhury, 1986; Otley, 1999; Zimmerman, 2003). Considering both starting points together, there is some room for improvement: oftentimes, widespread software metrics suppose simple structures of impact by focusing on coding and disregarding other input drivers such as design, analysis or management activities. Besides, the definition of output not only has to account for development progress measured in source lines of code (SLOC) but also for soft facts such as the fulfilment of customers’ demands for example. Hence, output has to be measured with a multicriterial basis, which accounts for quantitative and qualitative indicators (Krishnan, Kriebel, Kekre, & Mukhopadhyay, 2000). Otherwise, a metric based
on SLOC could signal high productivity, whereas in fact the outcome of the project is endangered. Possible risks are unfitting system architectures and user interfaces or the deficient consideration of all stakeholders’ needs. Such accumulation of overseen conceptual non-conformity and the thereby caused bias in productivity more likely deals with traditional process models which are lacking a permanent alignment of objectives. The well-known waterfall archetype for example assumes freezed customer demands for all subsequent stages of development and thus implies a shift of risks towards the future and cost-intensive adjustments (see Figure 1). Moreover, the clear assignment of input to a single project is hard to obtain when the same staff simultaneously work for several projects. Time-Driven Activity Based Costing (TDABC) - based on classical Activity Based Costing (ABC) - is a new approach for a better determination of cost and capacity utilisation of processes (Kaplan & Anderson, 2007). However, TDABC still contains elements of full costing and therefore is not an appropriate basis for decision-making. Even worse, it has been designed as a static accounting scheme while the long-lasting process of developing complex software systems requires an accounting scheme such as lifecycle costing (LCC) which accounts for time preferences. Only some attempts have been made to combine ABC and LCC-elements (e.g., Emblemsvåg, 2003). Besides, precise project-specific milestones and, linked to that, milestone-depending cost objectives are needed to allow for an ongoing performance measurement. They have to deal with the complexity of software development (see Figure 2), for example the identification of competent software engineers (e.g., Colomo-Palacios, TovarCaro, Garcia-Crespo, & Gomez-Berbis, 2010), the formation of software development project teams (e.g., André Ampuero, Baldoquín de la Peña, & Acuña Castillo, 2010), and the ongoing coordination of the activities of team members
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Figure 1. Value at risk due to errors made in the early phases of the waterfall process increases as the project goes on
and the role of leadership (e.g., Abernethy, Bouwens, & van Lent, 2010). Taking these shortcomings into account, this paper presents a new project cost management approach, which: 1. Is enterprise-specific and calibration-free, 2. Is based on iterative and incremental software development,
3. Combines elements of activity based and lifecycle costing and therefore accounts for time preferences, 4. Has a managerial accounting emphasis to support decision-making, 5. Allows for the determination of precise milestone-depending cost objectives which can be used as performance measures,
Figure 2. Challenges to be passed in software development
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6. Is an appropriate basis for performance measurement and control, and 7. Can be used as a basis for a sophisticated variance analysis concluding time deviations. The key issues of the Unified Process as IID-model are pointed out first. It is shown, how some important characteristics of this model form the basis for the mixed ABC-LCC-tool which is developed next. The focus then shifts to variation analysis and performance control using the ABCLCC-approach.
Software Development Processes as a Framework to Software Development The development of complex software inevitably bears serious operative, temporal and in consequence financial risks (Han, & Huang, 2006; Na, Simpson, Li, Singh, & Ki-Yoon, 2007; Wallace, Keil, & Rai, 2004; Zardari, 2009). Software development processes are used to gain control of these challenges of software development. The well-known waterfall lifecycle is one example.
Needless to say that it comes with a great deal of problems like, for instance, its rigidity, its lack of comprehension of the users’ needs, or the danger of discovering design errors too late. A process which has become increasingly popular in the last few years is the Unified Process (Jacobson, Booch, & Rumbaugh, 1999; Kroll & Kruchten, 2003; Kruchten, 2003). It tries to avoid these problems and frequently becomes the process model of choice for analysis and design in software projects (Booch, Rumbaugh, & Jacobsen, 2005). The Unified Process is built up upon several of the best practices, namely use-case-driven development, tackling high-risk and high-value issues in early iterations, continuously encouraging users to evaluate the process and to give feedback, etc. (Kruchten, 2003). Its key idea, however, is incremental development in short, time-boxed iterations. Within these iterations the system grows continuously, concluding any iteration with a production grade subset of the final system, which distinguishes iterative development from prototyping (Kroll & Kruchten, 2003; see Figure 3).
Figure 3. Functionality improves as more and more iterations are passed – each iteration delivers content with viable functionality
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Iterative development facilitates early user feedback and is also a precondition for the early mitigation of high-risk issues. Every iteration makes up a shorter project by itself. IID continuously adapts the iterations coming based on feedback; it focuses thereby on the next iteration and does not lose itself in the detailed planning of uncertain future requirements. Date estimates are vague in early project stages, but they improve as the project goes on (Larman, 2002). Improvement can also be seen because of the learning curve effects from errors made in early iterations. Focusing on the task of project performance management, the IID-model serves as a perfect basis for substantial project controlling activities, because it offers a way to decompose the task of software development into manageable and adequately specified modules (see Figure 4).
Iteration Signatures as Characteristical Elements for Iteration Types The Unified Process consists of four phases, named inception, elaboration, construction and transition. Inception defines the business case for the project and provides a rough time and cost estimate, which may result in the early cancellation of the project. In the next phase, elaboration, serious investigation, the implementation of the core architecture and
the clarification of most of the requirements take place. High risk and high value issues are tackled, use cases are refined and time and cost estimates are recalculated on the basis of the deeper insight in the projects details. The implementation of all remaining elements and preparation for deployment make up the contents of the construction phase and beta tests and deployment constitute the major issues in transition. With the termination of each phase a milestone is reached. These milestones are the lifecycle objective milestone (LCO), the lifecycle architecture milestone (LCA), the initial operational capability milestone (IOC) and the product release milestone (PR) (Kroll & Kruchten, 2003; Larman, 2002). The four phases make up the dynamic structure of the Unified Process. In its static structure the Unified Process is grouped into so-called disciplines, distinguishing six core and three supporting disciplines. Typical activities within the discipline of business modelling are the analysis of the organizational structure, domain object modelling and the description of the main objectives. Within requirements use cases are written, the design discipline covers a wide variety of design aspects, for instance, databases, networks and the overall architecture. Programming and building the system is part of the implementation discipline, the proper interaction of all components is tested in the test discipline. Installing the product at the
Figure 4. Advantages of iterative software development
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users’ machines and interconnecting with legacy systems are example activities in the deployment discipline. Configuration and change management, the first of the three supporting disciplines, is needed to manage the daily builds and to keep track of change requests. Holding on to the rough phase plan and the construction of the iteration plan for the forthcoming iteration is subject matter of project management. The environment discipline is of prominent importance in early project phases, because it delivers the infrastructure needed to run the project (Kruchten, 2003). Iterative development starts with the beginning of elaboration, the majority of iterations can typically be found in construction. Each iteration consists of all nine disciplines, however, the emphasis on business modelling, requirements, design and environment is typical of early project phases whereas the shift to construction, implementation characterizes mature projects. Figure 5 shows this transition over time for a specific example project with horizontal bars representing
the disciplines’ changing intensity from iteration to iteration. Two further aspects ought to be mentioned: when comparing iterations, the similarity of some of them regarding the intensity of disciplines stands out. This aspect can be used to classify iterations into categories called iteration types. Figure 5 shows, for instance, six iterations in construction but only the three iteration types c1, c2 and c3. Theoretically, any combination of all disciplines’ intensities describes a unique iteration type, however, in practice, only iteration types typical of software development projects are needed. Anyhow, it should have become clear that Figure 5 does not contain all possible iteration types and that software development teams will collect a set of typical iteration types over time, just as well as the team’s knowledge about these iteration types will improve from project to project. We call these iteration types “standardised iterations”. Secondly, unlike the typical visualizations of the Unified Process (Kroll & Kruchten,
Figure 5. Discipline intensity varies depending on iteration type and leads to signatures describing each iteration type uniquely
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2003; Larman, 2002), Figure 5 focuses on the disciplines’ intensities from the perspective of iterations resulting in an intensity structure typical of each iteration type. We call this structure the “iteration’s signature”. The iteration signature is not only a graphical concept; each signature may be described with a uniquely identifying number. For this purpose, let us assume that intensity is measured on a discrete level ranging from 0 to 9. The numerical representation of a signature then assigns the first, second, third etc. digit position of the numbers in the decimal system to the intensities of all nine disciplines respectively. The result of this procedure is a unique integer number describing iterations of the same type (see Figure 6). The usefulness of this concept becomes obvious when iteration descriptions of completed projects are stored in an experience database. The iteration signature may then be used to identify historic iteration descriptions similar to an iteration type that is considered for a new project. Furthermore, using some kind of distance metrics (as an example see Chiu & Huang, 2006) iterations of different types but adequate similarity can be found. As a simple approach the cross sum of the absolute intensity differences for each discipline may be used (see Figure 7). To calculate this metric, two iterations signatures are subtracted digit per digit. If the result is negative, the absolute value is taken. The cross sum of this
intermediary result yields the demanded result. The distance metric becomes even more sensitive, when squaring the differences of the signature digits, which is recommended.
Structural Affinities Between the Unified Process and Activity Based Cost Systems As we have shown earlier (Baumeister & Ilg, 2004), interesting affinities between the Unified Process and the activity based cost (ABC) systems can be revealed (for an ABC-overview e.g., Atkinson, Kaplan, Matsumara, & Young, 2007; Hicks, 2002; Horngren, Foster, Datar, Rajan, & Ittner, 2008). Any iteration, for example, consists of the six core and three supporting disciplines with typical activities within each discipline. These activities correspond to the activities known in the context of activity based cost management; the disciplines make up activity groups. The identification of activities, which is usually the starting point for activity based costing, is predetermined by the static structure of the Unified Process. The quantity of the activities set off by the disciplines and consequently their expenses may differ clearly subject to iteration type and development phase. In general, forecasts of the quantity structure which oftentimes depend on various influencing variables are crucial for traditional project calculation (e.g., Boehm, Abts, & Chulani, 2000;
Figure 6. The iteration signature which is based on discipline intensities uniquely describes a specific iteration type
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Figure 7. Measuring the similarity of iterations types c1, c2 and t2 using their signatures
Boehm et al., 2000; Lum et al., 2003; Leung & Fan, 2002). However, the main advantage when building up an activity based cost system for software developments based on the Unified Process has to do with the fact that the consistent structure of the iterations; the disciplines’ types and their corresponding activities remain equal, differing intensities within the disciplines may be used to identify typical iteration types. This facilitates the creation of an activity based cost management system by default for software developments based on the Unified Process. In its dynamic structure, the Unified Process divides the development project into four development phases. The iterations necessary within the development phases differ considerably in type and number for different projects. They connect software- and project-properties with the activities needed to accomplish these requirements on a quantity basis. Iterations may therefore be interpreted as influencing components for activity costs. Iterations make up the cost drivers for activity based cost systems based on the Unified Process. Cost functions are required to calculate total project costs, to predict the presumed costs needed to reach one of the milestones, or to determine the costs of one of the development phases. In acknowledging iterations as cost drivers, they may be used as variables in cost functions.
To forecast costs of a software project most precisely iterations should be estimated individually. This would allow taking into account all the characteristics imaginable for each iteration. At the same time, this approach would not meet the objective of simplifying the calculation by concentrating on a small number of highly significant cost determinants. Therefore, it is advantageous to replace project specific iterations by iteration types with adequate similarity to the iteration considered. The distance metric shown above may serve as a decision criterion to find applicable iteration types. In consequence, this results in iterations grouped by attributes typical of software development, for example the planned number of people working on the project or the personnel structure typical for the iterations. The goal is to peel out homogenous iteration types in order to minimize the shortcomings of the cost allocation, and – at the same time – minimizing the number of iteration types to keep the budgeting approach as simple as possible. When taking account of attributes like personnel structure, which may lead to volatile cost behaviour for specific iterations, an alternative approach to an improved differentiation of iteration types is to implement cost driver functions depending on one or more independent variables
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derived from properties specific to software projects and related implementation decisions. Iteration cost rates quote the amount of activity costs triggered by a single execution of an iteration or iteration type. To calculate iteration cost rates, average intensity dependent costs for each discipline are calculated and summed up. Fundamental to this simple reckoning is the breaking down of activity costs into their causing iterations.
Non-Linear Cost-Behaviour The following example illustrates the calculation of the iteration type cost driver rate. First of all, the activity based cost function is estimated for each discipline. In our example, we assume non-linear cost functions which account for the
fact that increasing the desired output requires disproportionately high increasing input even more because of inefficiency and coordination problems. Depending on the size of the development team and their experience it may be appropriate to apply further scaling factors. Finally, the average cost for each intensity level and discipline is calculated (Figure 8). With this information at hand, the cost driver rates of each iteration type can be calculated easily. For each iteration type, the intensity dependent discipline costs are added, resulting in a cost driver rate for a typical iteration similar to the calculated iteration type (see Figure 9). All calculated iteration types together result in a vector consisting of cost driver rates for each iteration type.
Figure 8. Non-linear cost-behaviour in software development
Figure 9. Calculation of cost driver rate for iteration type c2 and the resulting vector r, when calculating all cost driver rates for all standardised iteration types
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More generally speaking, the vector r := (ri ) ∈ ℜI+ of iteration cost rates ri for 1≤i ≤I
standardised iteration type i is determined by the and the product of matrix C := (ci, j )1 ≤ i ≤ I , ∈ ℜ IxJ + 1 ≤ j ≤J
unit vector u := (1, 1, ..., 1) ∈ ℜJ+ . C contains T
intensity-dependent costs of activities aggregated on the level of disciplines y triggered by iteration type i. Matrix C itself is based upon the intensity signature matrix S := (si , j )1 ≤ i ≤ I , ∈ ℜ+
IxJ
1 ≤ j ≤J
that
contains disciplines intensities triggered by iteration types. ci,j is determined by an intensity-depending cost assignment (see Figure 8) of the following type: ci, j := a j + bj ⋅ sig,,jj
Intensity specific costs per discipline consist of a fixed value aj which corresponds to the cost column for intensity = 0 in Figure 8, and the product of a base value bj and the intensity si,j with a growth factor gj in the exponent. For instance, in the example of Figure 8 is a4 = 0.6, b4 = 6 and g4 = 1.2. Figure 10 illustrates the calculation of iteration cost rates based on the example shown in Figure 5 and Figure 8. Cost functions are incomplete if only the quantity of all iteration types priced with their iteration cost rates have been employed. Additionally, other activity-independent costs have to be accounted for. In any case, direct costs concerning the cost object have to be added, for which consultancy expenses for the development project may serve as an example.
(1)
Figure 10. Calculation of iteration cost rates
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Accounting for Time When calculating long-lasting projects, software cost estimation based on iteration types still remains helpful, however, financing costs should be considered. Because of the constant iteration length in the concept of the Unified Process the cumulative number of subsequent iterations can directly be used as information about the relative payment period of the related iteration costs. Figure 11 illustrates the calculation of the discounted project activity costs (dpac) by discounting the cost driver rate for each iteration. The discount rate should consider appropriate opportunity costs. Hence, it is a company-dependent or even project dependent dimension (for a thorough discussion see Brealey, Myers, & Franklin, 2007).
Getting to the Point with the Cost Targets All arguments mentioned finally result in a rather simple cost function based on Net Present Values (NPV). Due to the specifics of software developments in general and the Unified Process
in particular some of its characteristics shall be highlighted: •
•
Following the direct costing approach, project specific discounted direct costs are considered separately if applicable. There is one iteration per period t = 1, 2, …, T and T as final period of the development project.
The appropriate iteration cost rate is selected by multiplying the selection matrix TxI X := (x t ,i )1 ≤t ≤T , ∈ ℜ + with xt,i = 1 if iteration 1≤i ≤I
type i is appropriate for the period t considered and 0 otherwise. Matrix X can be interpreted as a project signature over time. The iteration cost rates are discounted using t vector q := ∏ q t−1 ∈ ℜT+ with a period t =1 1 ≤ t ≤T specific interest rate wt and qt= 1 + wt. •
The determination of NPV presumes that the cash flow impact of each iteration cost
Figure 11. Discounting iteration costs in software developments based on the Unified Process
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rate is restricted to the respective period. This assumption is easily ensured by adjusting the cash flow impacts of activity and disciplines costs triggered by the iterations as shown in the next chapter. The discounted activity costs of the development project under investigation are determined by: Discounted project activity costs (dpac) = q’⋅X⋅r (2) Figure 12 illustrates the determination of milestone-specific NPV cost targets. For this, the usage of iteration types has to be considered grouped. Interest rate is constant 5% per year and the length of each iteration period is one month.
Variation Analysis as a Tool of Performance Management Financial incentives based on target cost arrangements are often used to support project management (Kadefors & Badenfelt, 2009). If target costs are agreed as performance measure, cost variances should be analysed in detail. This is done in order to eliminate those cost variances that are not
under the control of responsible managers, since the multiplicative combination of cost influencing variables provokes cost variances of first and higher degree. For instance, each fixed cost value aj for discipline j has been built up by the product aj,t:=q’j,t ⋅Βj,t ⋅Pj,t
(3)
Matrices B := (bt ,h )1 ≤ t ≤ Τ, ∈ ℜ +ΤxH and j ,t 1≤h ≤ H j ,t Pj ,t := (pt ,h )1 ≤ t ≤ Τ, ∈ ℜ+ΤxH ∀j=1,2,…,J with 1≤h ≤ H j ,t (bτ,h)j,t and (pτ,h)j,t as quantity and price respectively and input factor h triggered by a single execution of discipline j in period t with lowest intensity and affecting payment in period τ. Vector q t t q ∏ tˆ tˆ=t q 't := 1 t 1 ∏ q tˆ=t tˆ
if t < t Τ if t = t ∈ ℜ+ if t > t 1 ≤ t ≤T t
Figure 12. Determination of milestone specific NPV cost targets
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provides the needed time adjustment. In the introductory example of Figure 10 and Figure 12 τ = t was assumed, but affecting payment time differences may likely occur as well as price variances of input factors over time. In contrast to the introductory example, both cause the need for a differentiation of iteration cost rates over time in a more realistic modelling, hence rt. Therefore, the ∈ ℜJ+ of fixed values has to vector a := (a j ) 1 ≤ j ≤J
be determined by complex tensor multiplications. Once more assuming τ = t and only focusing on a specific discipline k ∈ {1, 2, …, J}, the variance contribution Δak already consists of seven partial variances, one of them of third degree, three of second degree and three of first degree. With Δ as marker for a variance of the respective variable, Δak results with := (b + ∆b ) B ∈ ℜ +ΤxH , t ,h t ,h 1 ≤ t ≤ Τ, 1≤h ≤ H
:= (p + ∆p ) P ∈ ℜ+ΤxH and t ,h t ,h 1 ≤ t ≤ Τ, 1≤h ≤ H
q ' := (qt + ∆qt )
1 ≤ t ≤T
−− −− −−
∈ ℜ +Τ in
−
∆ak := q '⋅ B ⋅ P − q'⋅ B ⋅ P
(4)
Figure 13 illustrates these partial variances for of a given input factor and period, hence indexes h and τ are neglected. The second-degree variances are shaded grey, the third-degree variance is shaded dark grey. Since productivity control has to be restricted to variances influenced by responsible managers (principle of controllability), partial variances no. 1, 2, 4, and 6 have to be eliminated in either case when controlling a development team leader who is not responsible for procurement. This is due to the fact that these variances are at least partially price-driven, e.g. by increased official wages. The elimination of variances (3), and (7) depend on whether they have been triggered by changes of interest rates or not. Changes of the interest rate contrary to time shifts cannot be attributed to a development team leader. In general, for responsibility accounting it is important that Δdpac consists of different variances. To avoid misleading incentive-effects, performance control has to separate controllable and non-controllable partial variances for the controlled person in charge using a differentiated variance analysis. Figure 14 summarizes possible causes of partial variances on a highly aggregated level.
and more descriptive in Box 1. Box 1. ∆ak = (1) ∆bt ,h ⋅ ∆pt ,h ⋅ ∆q t ,h + third degree variance 4) 3) 2) ( ( ( − − − T H bt ,h ⋅ ∆pt ,h ⋅ ∆ q t ,h + ∆bt ,h ⋅ pt ,h ⋅ ∆ q t ,h + bt ,h ⋅ ∆pt ,h ⋅ ∆ q t,h + ∑ ∑ ∆ t =0 h= =1 second degree variances 6) 5) 7) ( ( ( _ − − ∆b ⋅ p ⋅ q b ⋅ ∆p ⋅ q b ⋅ p ⋅ ∆ q t ,h t ,h t ,h t ,h t ,h t,h t ,h t ,h t ,h first degree variaance
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Figure 13. Partial variances of the fixed value ak for a given input factor and period
Figure 14. Possible causes of partial variances of iteration cost rate variances
Case Study for Responsibility Accounting in Performance Management To illustrate the necessary steps in responsibility accounting of cost performance targets, we will discuss a very simplified case with only a few changes compared to the numerous changes in the introductory example.
•
•
•
There is a change in the iteration signature of iteration type c2 (see Figure 6): the new signature is 137.794.631. The fixed cost values a8 and a9 for project management and environment are 0.8 instead of 0.2 totally due to increases in prices of underlying activities. The interest rate is constant 6% per year.
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•
There is a slight change in the project time signature because two iterations of type e3 instead of e2 are used.
Figure 15 illustrates the determination of actual milestone-specific dpac values. Changes in input factors are highlighted grey. Since we often see different managers in charge of the respective milestones, incentive-driven performance management requires rolling target adjustments after having finalised each milestone. Only this clarifies the different performance of responsible managers for milestones. The IOC and PR milestones illustrate, that comparing actual values to original targets is misleading. Instead of a reduced contribution to dpac there are cost overruns. Hence the manager responsible for the LCA milestone is the only one who met and even undercut the target. Before giving a bonus to the manager in charge of LCA and calling the others over the coals, a closer look at partial variances is inevitable. Doing so, it becomes obvious that, for instance, the manager responsible for milestone PR is unburdened: the dpac variance in this area is totally due to higher input factor prices in project management and environment and a discounting-driven effect of – 0.5 due to higher interest rates. Both influencing variables are not under the control of this manager. On the other hand, the manager responsible for milestone IOC can be discharged at least partially: separatedly, the increase of input prices accounts for a dpacincrease of 12.3 and the increase of interest rates
for a dpac-reduction of 5.6. Together, taking variances of higher degree into account, they explain the dpac-increase of 6.7. Therefore, the manager still has to take responsibility for 31.3.
CONCLUSION Due to its structural similarity to the Unified Process, activity based costing may be employed for cost management tasks in all phases of software development. Compared to conventional approaches numerous improvements can be expected. The presented approach is strictly focused on data that are specific to the developers’ business. At the same time it is simple, because it relies on the widely used software development model of the Unified Process and allows the detailed planning and control of costs at the level of short and time-boxed iterations. Additionally, in many companies activity based costing is already being used, which facilitates the successful adaptation of activity based cost management for software developments based on the Unified Process. Furthermore, the financial aspects considered clearly suggest using this approach to manage long lasting and complex software projects. However, the quality of similarity estimations needed to gain the quantity structure of the projects will be crucial for its success. Adopting the new concept of iteration and project signatures will simplify the identification of similar iteration types, at the same time reducing technical requirements
Figure 15. Variance analysis with rolling NPV target adjustments
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of the similarity approach considerably. Finally, the development of an effective and powerful variance analysis will give the project manager the performance measurement tools needed to discover problems in software development at an early stage.
Boehm, B., Abts, C., & Chulani, S. (2000). Software development cost estimation approaches – a survey. Annals of Software Engineering, 10(1-4), 177–205. doi:10.1023/A:1018991717352
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This work was previously published in International Journal of Information Technology Project Management (IJITPM), Volume 2, Issue 1, edited by John Wang, pp. 1-18, copyright 2011 by IGI Publishing (an imprint of IGI Global).
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Strategy and Structure in a Virtual Organization Nazim Ahmed Ball State University, USA Ray Montagno Ball State University, USA Sushil Sharma Ball State University, USA
ABSTRACT The business environment of the 21st century require organizations to respond quickly to market demands and thus traditional organization structures and strategy are no longer capable of sustaining the needs of this relentless pace. New forms of organizations in the form of virtual organization (VO) hold promise in the network world. Several organizations worldwide have already been experimenting virtual organizations’ structures and processes. These new virtual structures and processes, however, will require newer strategies to succeed. This paper attempts to highlight some DOI: 10.4018/978-1-60960-587-2.ch606
strategy and structural issues of a VO. The study is conceptual in nature and inferences have been drawn from existing literature and practices.
INTRODUCTION Advances in internet and communication technologies are mandating organizations to experiment newer forms of organizations structures such as; distributed structures, network structures and virtual organizations for their business. A virtual organization is a network of companies which support each other around a product and or a service idea. The companies in the network should be seamlessly integrated by information
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Strategy and Structure in a Virtual Organization
and communication technologies so that to the customer it is not apparent that the different processes are handled by separate companies. With the availability of internet and other communication technologies a VO is a viable option for many innovative entrepreneurs. According to Lipnack and Stamps (1997), virtual team is “a group of people who interact through interdependent tasks guided by common purpose” that “works across space, time, and organizational boundaries with links strengthened by webs of communication technologies” (p. 7). We are using the same definition for our study. (Mowshowitz, 1986, 1994) used the term Virtual Organization for the first time in 1986. Since then, literature on virtual organizations has grown. There have been numerous definitions of virtual organizations (Dubinskas, 1993). “In a virtual organization, complementary resources existing in a number of co-operating companies are left in place, but are integrated to support a particular product effort for as long as it is justifiable to do so.” (Goldman et al., 1995) “Virtual organizations are distributed ‘business processes’. These processes may be ‘owned’ by one or more organizations acting in partnership. For a specific project, resources are assembled to perform a business process on behalf of the project owner(s), and then disassembled on completion of the contract.” (Wolff, 1995) A virtual organization (VO) is an alliance of companies formed for the purpose of delivering specific products and or services. According to Porter (1990) “A virtual organization is a collection of business units in which people and work processes from the business units interact intensively in order to perform work which benefits all” (Skyrme, 1999). The literature suggests that virtual organizations tend to be non-hierarchical (Beyerlein & Johnson, 1994; Goldman et al., 1995) and decentralized (Baker, 1992). The company who is
responsible for the products and services may be called the “core” company. The core company is linked together by information and communication technologies (ICT) with other companies called “satellite” companies or VO partners. Core company and satellite companies share information, resources and skills in a seamless way so that the core company can deliver products and services to the customer and can create an impression to the customer that they have control over every aspect of the business process (Townsend et al., 1998). With the availability and ubiquitous nature of networked based information technology, a company’s business processes theoretically can span across the entire globe. Opportunity exists for organizations to deliver goods and services to the customer efficiently without the need to have physical control and ownership of many of the businesses processes. So the viability of VO’s is a present reality rather than a distant possibility (Kotorov, 2000; Coulson & Kantamneni, 2000). Nature of a VO varies in terms of its longevity and complexity. Figure 1 depicts several types of VO from very transient to somewhat permanent. A virtual corporation may arise out of some interesting product and/or service idea. The originator of this product and/or service idea may succeed to actually market the product through entrepreneurial initiative using the virtual organization framework. Over time a successful VO may achieve some sort of permanency and may grow to be a traditional company (Pang, 2001). The research on virtual companies can be categorized roughly into three broad categories: 1) the conceptual description and definition, 2) empirical studies, 3) issues related to managerial implications. The concept of virtual organization was evolving in the early 90’s as the internet and e-commerce was gaining momentum (Barnatt, 1995; Flaig, 1992). Davidow and Malone (1992) described virtual corporation as “edgeless, permeable and continuously changing interfaces, among company, supplier, and customer”. Blau
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Figure 1. Typology of virtual organizations (Palmer & Speier, 1997, 2001)
(1997) Concluded that virtual company has little need for physical capital and can be formed anywhere around a market opportunity by deploying intellectual capital and forming alliances based on core competencies of some existing companies. Goldman et al. (1995) defined VO’s as one where, complementary resources exist in several companies which can be profitability utilized by sharing with others. Expert talent is recruited for the duration of the project and profit is shared among the companies. Some recent empirical studies concluded that the many advantages of virtual organizations include flexibility, responsiveness, improved resource utilization in ever changing global business environment (Grabowski & Roberts, 1998; Jarvenpaa & Leidner, 1998; Cascio, 1999; McDonough, Kahn, & Barczak, 2001). Researchers also concluded there are several disadvantages such as low individual commitment, role overload, role ambiguity, absenteeism, customers find a lack of permanency, consistency and reliability in virtual firms (Jarvenpaa & Leidner, 1998; Cascio, 1999). 1664
Potocan and Dabic (2002) describe that virtual organizations enable organizations to bring their core competencies together to tightly coordinate the transactions and activities across a value chain. Snow et al. (1999) suggested that lack of influence and autonomy for the members may be a barrier to the functioning of virtual organizations. They also suggested that lack of human communication, inertia to change, and complexity of still evolving information and communication technologies and cultural differences can affect the performance of virtual organizations. Some authors suggest that virtual organizations may not be suitable for all businesses. Ahuja and Carley (1998) expertise and competence based tasks which is communication intensive can utilize distributed resources to form a virtual organization. It may not be easy for the start-up virtual company to stay competitive in the market place. There are so many competitive forces working in a business environment, it is even hard for a regular company which has all the functional areas within itself to stay competitive. We see even big
Strategy and Structure in a Virtual Organization
corporations becoming stagnant and losing market share for failing to come up with right product and services that will be competitive in the market place. The strategy of being competitive is an ongoing effort (McDonugh et al., 2001). As the product life-cycle shortens, it is imperative that a company must always be on its guard to bring out the right product at the right time to hold and build market share. So if a start up VO wants to mature to a permanent VO should focus on right strategy and structure and continuously update its strategy and structure. This paper investigates some structural and strategy related issues in a VO. A virtual organization adopts different structures depending upon different internal and external uncertainties. Several studies have also supported the argument that the virtual organizations structure also depends upon level of adoption of technology (Ahuja & Carley, 1998). Baker (1992) suggests that all known virtual organizations structures evolved based on their needs. These structures vary by the nature of the task being performed. Few authors suggest that virtual organization structures evolve in three different stages known as establishment, virtualization and institutionalization (Hedberg et al., 1997).
Methodology The literature study constitutes the major part of this study. The research examined a large sample of literature on virtual organization that has been published in information systems journals books, web pages between 1990 and 2006. The study is conceptual in nature and inferences have been drawn from existing literature and practices.
VO STRATEGY In a traditional organization, strategy selection and formulation process involves first formulating the firm’s corporate strategy by analyzing; customers, core competencies, which include workforce,
facilities, market and financial know-how, systems and technology (Sharma et al., 2006). The firm also has to evaluate the changing nature of business environment especially the competitor’s strength. After analyzing the above items the firm comes up with its corporate strategy. Then the corporate strategy is exploded into functional area strategies for functions such as operations, marketing, finance, and accounting. For example if an US auto company decides to go for Chinese market as a part of their corporate strategy, the operations function should design cars specific to that market. Also, they may have to find suppliers in China or setup plants there. Marketing department may have to find a Chinese auto dealership to market their car. Finance department may have to raise money from Chinese banks or investment companies. For a VO which is usually resource constrained, strategy selection may not be that complicated. The basic strategy selection process for VO may be two step decisions. First and foremost, a VO to succeed must have a good product strategy. Then they have to also decide about their competitive priority. Once the product strategy and competitive priorities are decided, then the VO can deal with structure and infrastructure issues. The firm also has to evaluate the changing nature of business environment especially the competitor’s strength. For a VO, a traditional core competency may not exist in the sense that a VO may lack most of the functional components such as design, sales/marketing, manufacturing, distribution and so on. To setup their corporate strategy they have to rely on the core competencies of the companies in the network.
Product Strategy Here in this article our focus is on a company which will actually come up with an actual product or service idea and then market and sell the product to the customers. There are a host of companies which sells products and services from other companies using internet. An example will be a
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phone card company which sells phone different phone cards through their websites. We would not consider them as VO for our purpose as they do not sell their own products. Understanding customer demand is the first step in formulating the firm strategy. For an established traditional company the customer base is already there, however, for a VO the customers are usually new. A VO has to spend a lot of time trying to understand the nature of customer demand and also viability of the product. For developing a corporate strategy, a traditional firm will look at its core competencies in terms of workforce, facilities, market and financial know-how, systems and technology to evaluate whether a certain firm strategy is in line with its capabilities. For a VO, a traditional core competency may not exist in the sense that a VO may lack most of the functional components such as design, sales/marketing, manufacturing, distribution and so on. To setup their company strategy they have to rely on the core competencies of the companies in the network. So it is imperative that the Core company understands the relevant capabilities of the satellite companies. If the core company and the satellite companies do not have established relationship already then the core company should try to get as much information about them using whatever sources available. The main impetus for a VO is the product idea. If one comes up with a brilliant product idea, the next thing is to make that idea succeed. If the product idea is promising, one may investigate into the possibility of using or forming a VO around the product idea. The product idea needs to be thoroughly evaluated analyzing all the related aspects. For a traditional company the feasibility of a product is evaluated by analyzing markets, competition, pricing etc. assuming that operational and supply chain issues will be handled by the organizations and its suppliers and distributors. However, for a VO, apart from analyzing marketability, competition etc., the operational issues
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such as marketing, manufacturing, sales, distribution issues should also have to be evaluated. It may be advisable to come up with a product and or service idea which is not complex. For example, if one has to produce a new automobile or cell phone or a lawn mower, the degree of complexity in manufacturing, distributing and servicing the products could probably render a VO not an attractive option. Here are some strategies for product selection for a startup VO: 1. Products/service itself should be innovative but not complex. The product should be such that there will be a demand for it and at the same time in terms of complexity, the manufacturing and after sales service etc. should be easy to manage. An example of this may be a VO which wants to sell tailor made clothing. They can setup a web-site where they may advertise different kinds of clothing products, including design, style, coloring etc. For each product, there should be clear-cut instructions as to how to make measurements. The customers can select the design, color and give their measurements and find out the price. Once the order has been received, the order will go to a tailoring company in Thailand. When the order will be done it will be sent to a distribution company in U.S. The orders will be shipped by the distribution company to the customers. Complaints will be handled by a customer service company and if there is any re-do it will be handled by a tailoring company inside U.S.A. 2. Concurrent engineering approach should be used for product selection and the idea of concurrent engineering is that all the aspects of manufacturing, supplier issues, pricing, etc. should be resolved while the product is being designed. In a traditional company it is easy to team up with people from different functional area because they all belong to the
Strategy and Structure in a Virtual Organization
same organization and all have stake in the company. However, concurrent engineering is not as easy in VO setting. Never the less it is very important to sort out details before the product is selected. It is important that the core company has interactions and communication with the entire all the satellite company’s which will be ultimately involved in different processes in the supply chain for delivering the product to the customers.
Competitive Priorities Competitive priorities are critical dimension that a process or value chain must focus on to satisfy both the current and future customers. There are four basic competitive priorities:
Cost In most business environment cost is the important competitive priority as lowering price will facilitate gaining customers and increasing market share. To reduce cost, operations strategy should focus on achieving efficiency by redesigning the product, reengineering the processes, addressing supply chain issues and exploring global opportunities.
Quality Competing on the basis of quality imply that company wants to sell products and services to a niche market. For example, a small private airline has a fleet of luxury planes to serve corporate CEOs. If a company uses quality as a competitive priority, then it should focus on two aspects of quality 1): Top quality and 2) Consistent quality. Top quality is those characteristics of a product and or service that create an impression of superiority. This may need superior product with grater tolerances, demanding requirements, high aesthetics and personal attention. Consistent quality is producing products and or services which meet customer
requirement and expectations on continual basis. For example, a luxury private airline will be always punctual in picking up the clients, flying the plane and arriving at the destination.
Time For many firms time is a competitive priority. Especially as the product life-cycle is becoming short it is imperative to bring out products and service ahead of your competition. There are three approaches to time-based competition, 1) delivery speed, 2) On-time delivery and 3) development speed. Delivery speed is how quick a customer’s order can be filled. The time between the receipt of a customer’s order and the filling it is called lead time. To compete on delivery speed one must try to design the order fulfillment process so that the lead time can be reduced. Sometimes companies may keep inventory or cushion or back-up capacities to compete on delivery speed. On-time delivery is meeting the promised schedule. This could be important for an airline. Also it is important for customers who are working on Just-in-time inventory basis. Development speed is important for those companies where it is important to bring in new products or new version of products before the competition. For example Intel and AMD use this competitive priority. Whoever can introduce the newest computer chip in the market gains market share.
Flexibility Competitive priority based on flexibility allows a company to react to changing customer needs quickly and efficiently. A company may compete based on flexibility using one or more of the following strategies, 1) customization, 2) Variety, 3) Volume flexibility. Customization is catering to individual customers needs. For example a custom home builder builds different houses for different customers. Customization generally implies that the products and or service are produced in low
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volume and has a higher degree of complexity. This requires that organization has people have higher skills and should be able to work closely with customers. Variety is producing products and or services with wide array of choices. Variety is different from customization, in the sense that customization is unique to each customer, while variety could entail different features in the product but the product is not unique. Volume flexibility is ability to produce in smaller or larger volumes within the confines of production parameters. The companies who use volume flexibility as a competitive priority must design their processes so that set-up cost is minimal.
panies. So for a VO design seamless integration of the partner companies is very important. This integration has two major aspects. First, there is a need for technological integration so that all the companies in the network can work as one entity. Second, for management purposes there should be interaction among people from the companies in the network so that all the management issues can be handled effectively and promptly (Green & Inman, 2006). For a successful design of a VO, the following issues should be considered: 1) Selection of VO partners; 2) Understanding the nature of communication requirements; 3) Developing E- infrastructure; 4) Simulation and trial run
Selecting Competitive Priority
Selecting VO Partners
Strategy selection process would dictate the firm strategy that will drive firm’s effort in the areas of product design, process design, supply chain management and customer relationship process. Strategy selection would also include selecting a competitive priority which later is used design the structure of the VO. For example, if the VO wants to compete on the basis of cost, then all the satellite company strategy will have to use processes which will minimize cost at the same time providing implied quality. Or else, if the competitive priority selected is superior quality, then the companies in the VO network should gear their processes to provide superior quality and cost may not be the major consideration (Camillus, 1993).
Once the core company has decided about the product and or service, and the competitive priority, the next step is to form the VO. It was mentioned earlier that, the product strategy should involve concurrent engineering, which means that the potential partners in the network should have input in the very beginning of the venture. However, it may be very much likely that, these relationships may be informal. Now is the time to select the partners in the network and design and work out the details of this partnership (Sommer, 2009). One of the driving forces for selecting VO partners is the competitive priority of the core company. If the core company selects cost as it’s core competency, the VO partners should have a similar competitive priority. That means that their processes should be geared towards providing cost savings maintaining expected quality. If the competitive priority is flexibility, the VO partners should have the similar competitive priority and their processes are developed to accommodate variety and customizations. Once, the issues of matching competitive priorities are resolved, a VO partner should be evaluated based on some other performance criteria such as: 1) capability; 2) reputation; 3) Reliability; 4) cost; 5) Technology integration; 6) Experience as a VO partner.
STRUCTURAL DESIGN ISSUES To be successful a VO should have all the responsibilities and attributes of a traditional company from customer point of view. For an ideal VO customer should not be able to know or at the very least feel inconvenienced by the fact that different processes such as order entry, billing, customer service and support are handled by different com-
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A VO partner should have the required capability in it’s area of expertise. For example, a customer service company should have all the resources and people and expertise and technical know to provide customer support. Reputation of the company is very important. If the company does not have good reputation, which means one can expect trouble down the road. A VO partner should be reliable in the sense that it should repeatedly and consistently provide quality performance. For anew VO it is probably hard to judge the reliability of the partners. Some of the information may be obtained from secondary sources using internet resources. Cost can also be an important factor for selecting a VO partner, It is not true that one has to select the lowest cost partner, on the other hand negotiation for cost and prices should be done to the mutual benefits of the core company and the VO partners. Technology integration is an important issue in selecting VO partners. It is imperative that most of the companies now have access to internet and e-mails. Apart from these basic technologies, A VO may need other knowledge management technologies such as: virtual reality, portals, Extensive markup language (XML), personal devices, intranets and extranets etc. It is also important that all the appropriate technologies are seamlessly integrated across the VO so the customer will not have any idea that the VO is a combination of several organizations (Davidrajuh, 2003). So it is important to understand the technology integration issues before selecting a VO partner. Last but not the least, if a company has already have experienced as a VO, then the implementation issues can be taken care of easily (Stough et al., 2000).
Understanding the Nature of Communication Requirements
the VO partners, but also the customer. Table 1 inventories the nature of communication between different entities such as customers, marketing sales, production/operations, accounting and billing and maintenance and customer support. The core company is called the hub company. For, example the nature of communications between the customer and the hub company may be through phone, e-mail and company web-site. There will be probably no communication between customer and production and operations company. The nature of communications between hub company and marketing and sales company may be faceto-face, e-mail, video, work group and phone (Klueber et al., 1999).
Creating E-Infrastructure Once communications requirements between the different entities in the network are established, the next step is to map appropriate information and communication technology to support those requirements. Table 2 shows the information and communication technologies required to support different communication interfaces. Communications between a customer and other customers can be facilitated by online blog or company portal. Communications between hub company and the marketing and sales company can be accomplished by electronic meeting room, phone, internet, intranet, portal for both the companies. Apart from phone, many of the common information and communication technologies such as internet, intranet, video conferencing, portal may already exist among the VO partners. Some other technologies such as electronic meeting room and video conferencing may not be available to some of the partners. So it may be necessary to negotiate cost and other managerial and technical issues which are relevant for use of those technologies.
To develop the e-infrastructure, it is important to understand the nature of communications between different entities in the VO. This not only includes
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Table 1. Nature of communication Entities
Customer
Customer
Remote Information Exchange
Hub Company
Hub Company
Marketing and Sales Company
Productions/ Operations Company
Accounting and Billing Company
Maintenance and Customer Support
Phone e-mail Portal
Phone e-mail mobile
No communication
Phone e-mail Mobile
Phone e-mail Mobile
E-mail Face-to Face Phone Work Group
Face-to face e-mail, Video, Work group Phone
Face-to face e-mail, Video, Work group Phone
Face-to face e-mail, Video, Work group Phone
Face-to face e-mail, Video, Work group Phone
Phone E-mail
e-mail, Video, Work group Phone
E-mail Phone
E-mail Phone
Phone E-mail
Phone E-mail
Phone E-mail
Phone E-mail
Phone E-mail
Marketing and Sales Company Productions/Operations Company Accounting and Billing Company Maintenance and Customer Support Company
Phone E-mail
Table 2. Mapping information and communication technology Entities
Customer
Customer
Marketing and Sales Company
Productions/ Operations Company
Accounting and Billing Company
Maintenance and Customer Support
Portal Phone Mobile technology Internet
Phone Mobile technology Internet Portal
No communication
Phone Mobile technology Internet
Phone Mobile technology Internet
Electronic Meeting Room, Phone, Internet, Intranet
Electronic Meeting Room, Phone, Internet, Intranet, Portal
Electronic Meeting Room, Phone, Internet, Intranet, Portal
Electronic Meeting Room, Phone, Internet, Intranet, Portal
Electronic Meeting Room, Phone, Internet, Intranet, Portal
Intranet Phone E-mail
Electronic Meeting Room, Phone, Internet, Intranet, Portal
Electronic Meeting Room, Phone, Internet, Intranet, Portal
Internet Phone
Productions/ Operations Company
Phone Internet
Phone Internet
Accounting and Billing Company
Phone Intranet
Phone Internet
Hub Company
Marketing and Sales Company
Maintenance and Customer Support Company
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Online Blog Portal
Hub Company
Phone Intranet
Strategy and Structure in a Virtual Organization
Simulation and Trial Run
appearance of physical boundaries have enabled the emergence of virtual organizations from a “futuristic “concept to reality (Greiner & Metes, 1995). Virtual organizations consist of independent companies networked together for providing product and services to the customer on behalf of the core company. VO provides entrepreneurial opportunities for a company with limited resources. However, the implementation of a VO has a lot of challenges which must be overcome (Christie & Levary, 1998). This study augments the existing literature on virtual organizations. The literature research indicate that though virtual organizations suggest network structures in theory but in practice, structural dimensions have been of hierarchy and centralization nature (Black & Edwards, 2000). The relationship between task routineness and structure has been well established in the literature for virtual organizations (Stough et al., 2000). The study is limited to the number of information systems and management journals that were used for virtual organization literature search. The authors recommend that further studies need to be conducted widening the literature survey set on virtual organizations in larger set of journals. Also the conceptual framework needs to be tested for its empirical evidence. In this paper we have discussed issues related to strategy and structure for a VO. Main focus of a VO should be the product strategy. Also, a product
To have a better understanding of how the whole VO works, a simulation may be performed incorporating all the processes starting from placing a customer order, billing process, communicating the information to the operations company, making a prototype, shipping the prototype to the distribution company, sending the product to the customer, handling customer complaints for billing, handling customer returns and so on. Before the trial run or simulation it is important to devise a performance matrix for all the important processes. Table 3 shows example of some of the performance criteria for different processes. All of the performance criteria may not be evaluated during the simulation. The ones which could evaluate, such as time between order and delivery, production lead time, time to answer customer complaint, time for refund etc. may generate valuable information which will help in redesigning the processes (Vakola & Wilson, 2004).
DISCUSSION AND SUMMARY Rapid advancement, availability and affordability of internet-based technologies have changed the way the companies do business to stay competitive. Rapid growth of e-commerce and the disTable 3. Performance criteria for important processes Marketing and Sales and Customer relationship process
Percent of wrong orders Time between order and delivery Percent of delayed order Time to take an order Time to re-do
Productions and Operations
Production lead time Percent of returned order Percent of re-do
Accounting and Billing
Percent of wrong billing Time for refund
Maintenance and customer support
Time to answer customer complaints Percent of customers complaining Types of customer complaint
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Strategy and Structure in a Virtual Organization
strategy should be established in conjunction with competitive priority such as cost, quality, time and flexibility. The competitive priority is important for designing important processes in the VO. For example, if a VO chooses to focus on the competitive priority of cost, then the VO partners should design their processes to be cost efficient at the same time maintaining expected quality. Structural design issues for a VO includes selecting the VO partners, understanding the communication requirements, mapping the information and communication technology and simulating the processes. Simulation of the VO may resolve some technical and managerial issues before the actual operation and enable the company to achieve customer satisfaction from the very start (Vakola, & Wilson, 2004).
Blau, J. (1997). Global networking process management challenges. Technology Management, 40(1), 4–5.
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Grabowski, M., & Roberts, K. H. (1998). Risk mitigation in virtual organizations. Journal of Computer-Mediated Communication, 3(4), 49–65. Green, K., & Inman, R. (2006). Does implementation of a JIT-with-customers strategy change an organization’s structure? Industrial Management & Data Systems, 106(8), 1077–1094. doi:10.1108/02635570610710764 Greiner, R., & Metes, G. (1995). Going Virtual: Moving Your Organization into the 21st Century. Upper Saddle River, NJ: Prentice Hall. Hedberg, B., Dahlgren, G., Hansson, J., & Olve, N. (1997). Virtual Organizations and Beyond. New York: Wiley. Jarvenpaa, S. L., & Leidner, D. E. (1998). Communication and trust in global teams. Journal of Computer-Mediated Communication, 3(4), 18–37. Klueber, R., Alt, R., & Oesterle, H. (1999). Emerging electronic services for virtual organizations - concepts and framework. In P. Sieber & J. Griese (Eds.), Workshop on Organizational Virtualness and Electronic Commerce (pp. 183-204). Zurich, Switzerland: Simowa. Kotorov, R. P. (2000). Virtual Organization: Conceptual Analysis of the Limits of its Decentralization. Journal of Modern Business. Retrieved from http://www.dcpress.com/jmb/jmb.htm Lipnack, J., & Stamps, J. (1997). Virtual Teams: Reaching Across Space, Time, and Organizations with Technology. New York: John Wiley & Sons. McDonugh, E. F. III, Kahn, K. B., & Barczak, G. (2001). An investigation of the use of global, virtual, and collocated new product development teams. Journal of Product Innovation Management, 18(2), 110–120. doi:10.1016/S07376782(00)00073-4 Mowshowitz, A. (1986). Social dimensions of office automation. In Myovitz (Ed.), Advances in computers (pp. 335-404).
Mowshowitz, A. (1994). Virtual Organization: A Vision of Management in the Information Age. The Information Society, 10, 267–288. doi:10.1 080/01972243.1994.9960172 Palmer, J. W., & Speier, C. (1997). A Typology of Virtual Organizations: An Empirical Study. In Proceedings of the Association for Information Systems 1997 Americas Conference, Indianapolis, IN. Palmer, J. W., & Speier, C. (2001). A Typology Virtual Organizations: An Empirical Study. Retrieved from http://hsb.baylor.edu/ramsower/ais. ac97/papers/palm_spe.htm Pang, L. (2001). Understanding Virtual Organizations. Information Systems Control Journal, 6, 42–47. Porter, M. (1990). Competitive Advantage of Nations. New York: Free Press. Potocan, V., & Dabic, M. (2002). The Virtual Organization from the Viewpoint of Informing. In Proceedings of the Informing Science (pp. 1267-1275). Sharma, S. K., Chen, C., & Sundaram, S. (2006). Implementation Problems with ERP Systems in Virtual Enterprises/Virtual Organizations. International Journal of Management and Enterprise Development, 3(5), 491–509. doi:10.1504/ IJMED.2006.009572 Skyrme, D. (1999). Virtual Teaming and Virtual Organizations: 25 Principles of Proven Practice. In Lloyd, P., & Boyle, P. (Eds.), Web-Weaving: intranets, extranets and strategic alliances. Oxford, UK: Butterworth-Heinemann. Snow, C. C., Lipnack, J., & Stamps, J. (1999). The virtual organization: promises and pay-offs, large and small. In Cooper, C. L., & Rousseau, D. M. (Eds.), The Virtual Organization (Vol. 6, pp. 15–30). Trends in Organizational Behavior.
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Vakola, M., & Wilson, I. E. (2004). The Challenge of Virtual Organization: Critical Success Factors in Dealing with Constant Change. Team Performance Management, 10(5-6), 112–120. doi:10.1108/13527590410556836 Wolff, M. (1995). New Organizational Structures for Engineering Design Commissioned Report. Retrieved from http://www.worldserver.pipex. com/ki-net/content.html
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This work was previously published in International Journal of E-Adoption (IJEA), Volume 2, Issue 4, edited by Sushil Sharma, pp. 48-60, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 6.7
Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization Darin R. Molnar eXcolo Research Group, USA
ABSTRACT Leadership in the virtual organization presents unique opportunities and challenges for the manager. Some researchers consider management in the virtual organization to be comprised mainly of challenges while others see it as the opportunity to realize competitive advantage in the global marketplace. Several leadership approaches offer interesting options for the manager within the DOI: 10.4018/978-1-60960-587-2.ch607
context of the virtual organization. One standout approach that has gained increasing popularity over the last 30 years is servant leadership in which the leader is servant first. Those managers in virtual organizations who have committed to a practice of servant leadership recognize the need for assessment instruments to help them understand the level of perceived servant leadership characteristics among organizational members under their guidance. This understanding acts as a foundation for training within this context. With this in mind, Laub’s Organizational Leader-
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Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization
ship Assessment (OLA) offers a reliable survey instrument accepted by the servant leadership practice community. The OLA is easily administered to virtual organization members as a set of Web pages and can be used in conjunction with complementary, third-party data sets such as the World Values Survey database. Future directions for the assessment of servant leadership in the virtual organization include the potential modification of the OLA, as well as the creation of survey instruments to be used in conjunction with it.
INTRODUCTION The practice and training of organizational members as servant leaders in the virtual organization is conducted under the same constraints as any other leadership approach (Bass & Stogdill, 1990; Burns, 1982). An important aspect of any leadership practice is the efficient and effective administration of survey tools to gauge the perceptions of organizational members. This helps managers hone their practice in ways that increase its efficacy in order to serve the organizational members under their guidance. In the case of the virtual organization, servant leaders are presented with the logistical challenge of assessing the perceptions of members in a widely distributed organization. Laub’s (1999) Organizational Leadership Assessment (OLA) instrument offers a reliable tool that is widely accepted by the servant leadership research community. As an introduction to ways in which a servant leader may enhance her practice by using the OLA, this chapter introduces servant leadership and its practice, covers the opportunities and challenges of practicing servant leadership in the virtual organization. It discusses the OLA in greater depth and explains how the OLA might be used in the virtual organization with original and third-party data sets to assess the perceptions of organizational members regarding the level of servant leadership practiced by organizational members. This will help managers better under-
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stand the groups they manage and allow them to tailor training programs as necessary. As a forward-looking conclusion, future directions for the assessment of servant leadership in the virtual organization using the OLA, along with complementary instruments, are offered.
SERVANT LEADERSHIP Greenleaf’s (1970) publication of The Servant as Leader represents a Kuhnian paradigm shift in the truest sense of the term. Kuhn (1996) presents the notion that new ideas arise not from a single prophet in the wilderness, but rather from a groundswell of knowledge and research which most often culminates in a seminal publication, or publications, representing both a consolidation of knowledge and the opening of a new knowledge gateway through which others may pass. The creator of the seminal publication is often quite new to the discipline. This is where the Greenleaf story diverges from the Kuhnian concept of paradigm shift, though paradigm shift it most certainly was. Robert K. Greenleaf presented the idea of servant leadership after he had retired from AT&T where he held various leadership positions for forty years (Frick, 2004). Greenleaf claims to have come upon the idea of servant leadership after reading Hesse’s (2003) Journey to the East in which one of the characters, Leo, plays a central role as guide to a group of Europeans traveling in Asia. After a long and arduous journey in which several characters lose their lives, the main character of the book discovers that Leo, the seemingly insignificant servant of the troupe, is actually “the titular head of the Order, its guiding spirit, a great and noble leader” (Greenleaf, 1977/2002, p. 58). At the time of Greenleaf’s epiphany, the United States was still in the throes of the social discord and violence created by the Vietnam War. Greenleaf eventually published what has become the seminal book on servant leadership, Servant Leadership: A Journey
Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization
into the Nature of Legitimate Power and Greatness (Greenleaf, 1977/2002). One of Greenleaf’s fundamental goals was to create a better society by asking the rhetorical question of students he taught at Dartmouth, Harvard, and MIT: “Who is standing in the way of a larger consensus on the definition of the better society and paths to reaching it?” (Greenleaf, 1977/2002, p. 58). In the intervening years between the publication of The Servant Leader: A Journey into Legitimate Power and Greatness and now, we have seen an explosion of servant leadership publications, seminars, conferences, and university programs in the United States and abroad. Servant leadership has finally become a positive force in making our society more patient, understanding, and compassionate by transforming how leaders and managers in all sectors perform their duties and train their followers. At the foundation of this burgeoning shift is an understanding of the importance of values and the role they play in shaping the behaviors of leaders and organizational members whose initial desire is to serve others. At the very heart of servant leadership praxis is a willingness to lead by first serving others: It begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead. The person is sharply different from one who is leader first, perhaps because of the need to assuage an unusual power drive or to acquire material possessions. For such, it will be a later choice to serve-after leadership is established. The leader-first and the servant-first are two extreme types. Between them are shadings and blends that are part of the infinite variety of human nature (Greenleaf, 1977/2002, p. 27). This quote from Greenleaf speaks to the personal values of the servant leader and how those values affect his or her view of what it means to lead others. Fortunately, the principles of servant leadership have been constructed upon a solid foundation of virtue ethics that extends from the
works of Aristotle (1911/1998) to contemporary times (Annas, 2003; Hookway, 2003; Murphy, 1999; Slote, 2003, Solomon, 2003; Whetstone, 2001). An ethic based upon principles of virtue emphasizes the moralistic character and personal comportment of the agent. In the case of servant leader as agent, the practitioner is required to ask, “What sort of person am I?” whenever confronted with a situation requiring an ethical decision. This stands in contrast to various other normative ethics which prompt the agent to ask questions such as, “How should I behave in this situation in order to maximize the good and minimize the harm for all parties involved?” The servant leader will rely upon intrinsic and deep-seated moral characteristics to make decisions in an ethical manner. In this way, servant leadership is a way of being in which the practitioner is constantly monitoring and adjusting his own functional leadership attributes and behaviors (i.e., ways of doing) with the goal of fulfilling the role of true servant leader. For every way of being there exists one or more ways of doing, and servant leadership is no exception. Before construction of practice guidelines may begin, a measurement strategy should be created to capture and quantify outcomes. Such a strategy must be highly reliable with solid internal consistency and verifiability for researchers while offering a stable standard, or set of standards, that is repeatable within multiple, competing research contexts. The first step in this construction process is the identification and definition of characteristics that are capable of informing the theory, hypotheses, discipline, field, or study. Several good efforts have been made within quantitative and qualitative methodics to identify fundamental behavioral and character attributes of servant leaders (Dennis & Bocarnea, 2005; Dennis & Winston, 2003; Laub, 1999; Page & Wong, 2000; Russell, 2000; 2001; Russell & Stone, 2002; Spears, 2004). The most notable of these efforts at this time are those by Spears (2004), Dennis and Bocarnea (2005), Page
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Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization
and Wong (2005), Russell and Stone (2002), and Laub (1999). The assessment of servant leadership has been problematic since its introduction into the leadership and management literatures. This stems from two facts: (a) servant leadership is a relatively new approach to leading and managing people and an assortment of assessment instruments has not yet amassed and (b) to this point in time servant leadership has been an inherently qualitative approach. The first factor is an understandable dynamic of a new field of study while the second presents a unique challenge. Because servant leadership is a way of being, the practitioner is constantly considering and honing her own functional leadership attributes. When combined with assessment in the context of the virtual organization, the task of assessing servant leadership practice can become daunting. Fortunately, assessment approaches exist that make this task easier for managers.
SERVANT LEADERSHIP IN THE VIRTUAL ORGANIZATION Organizational leadership has been a vigorously discussed topic within the academic community since the early part of the 20th century (Taylor, 1918/1998; Weber, 1947). As the emphasis on the organization as a hierarchical, bureaucratic structure shifted to more flexible forms with less centralized control structures within the leadership literature, new ways of thinking about and analyzing the roles and activities of leaders emerged (Bass & Stogdill, 1990; Burns, 1982). Granted, these new approaches to leadership research were not created exclusively by new organizational forms, yet they were certainly influenced by the need to study organizational leadership and management in a new light. Now, in the early part of the 21st century, these new forms are often heavily influenced by innovative economic forms and technologies available for the analysis of both the structure and management of
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organizations. Argandoña (2003, p. 3) recognizes three basic features of the new economy: “(1) a knowledge- and information-based change, (2) which is taking place in real time on a planetary scale (globalization), and (3) which entails a new, flexible, network –based business organization.” One of these new change-driven forms is the virtual organization. A popular assumption about the virtual organization per se is that it is composed only of geographically dispersed members. As organizations have adapted to new work environments, virtual teams have gained increasing importance as a management structure at the local level. Arnison and Miller (2002) remind us virtual organizations as dispersed teams “could include any team that uses technology to collaborate for a common purpose with the support of the organisation and with the necessary technology to enable the team to reach its goals” (p. 169). This flexible definition speaks to the often transient nature of this type of organization. Temporary virtual project work teams fall under this definition and represent a nimble approach to product development, yet this chapter is concerned with the more stable form of the virtual organization, one that lasts longer than the duration of a project and whose lifetime is considered theoretically perpetual. Hence, the virtual organization under consideration here may range in size from the few members who comprise a startup company to a global virtual powerhouse with hundreds of thousands of members scattered across the globe. Regardless of its size, the virtual organization is now an accepted organizational form. This makes the assessment of servant leadership practice in the context of the virtual organization an important part of ensuring its continued success. Like any innovation, the virtual organization presents opportunities and challenges for managers. Minimal personal interaction, group member accountability and accessibility issues, lack of traditional control mechanisms, performance management logistics, and cross-cultural contexts
Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization
Table 1. Spears’ ten servant leadership characteristics Listening
Listening, coupled with regular periods of reflection, is essential to the growth of the servant-leader.
Empathy
The servant-leader strives to understand and empathize with others.
Healing
Learning to heal is a powerful force for transformation and integration.
Awareness
General awareness, and especially self-awareness, strengthens the servant-leader.
Persuasion
The servant-leader seeks to persuade others rather than to coerce compliance.
Conceptualization
The ability to look at a problem (or an organization) from a conceptualizing perspective means that one must think beyond day-to-day realities.
Foresight
Foresight is a characteristic that enables the servant-leader to understand the lessons from the past, the realities of the present, and the likely consequences of a decision for the future.
Stewardship
Servant-leadership, like stewardship, assumes first and foremost a commitment to serving the needs of others.
Commitment to the growth of people
Servant-leaders believe that people have an intrinsic value beyond their tangible contributions as workers.
Building community
Servant-leadership suggests that true community can be created among those who work in businesses and other institutions.
Note: Adapted from Spears, L. C. (2004). The understanding and practice of servant-leadership. In L. C. Spears & M. Lawrence (Eds.), Practicing servant leadership: Succeeding through trust, bravery, and forgiveness (pp. 9-24). San Francisco: Jossey-Bass.
are just a few of the challenges leaders face in this new world. Personal qualities typically reinforced through daily contact and by example are much harder for leaders to effect in a virtual environment. This makes it vastly more difficult for managers to establish the trust relationships so necessary for the creation and ongoing maintenance of successful training programs. On the other hand, Silbergh and Lennon (2006) and Shekhar (2006) see member perception of the effectiveness of virtual organizations and the highly dispersed nature of the form as grounds for competitive advantage on a global scale. Ultimately, the success of the virtual organization is based upon outcomes realized from leadership characteristics, behaviors, and practices such as strategic thinking, goal setting, positive motivation, and general ethical environment. One particularly effective approach which relies upon all of these, as well as virtue ethics and the personal ethical comportment of the leader, is servant leadership. The distributed nature of the virtual organization requires an ethic that is transparent and trusting, rather than opaque and controlling, and servant leadership answers such a call.
QUALITATIVE APPROACHES TO SERVANT LEADERSHIP PRACTICE ASSESSMENT As the former director of The Greenleaf Center for Servant-Leadership and now the Spears Center for Servant-Leadership, Larry Spears carries considerable weight whenever addressing servant leadership topics, of which he is an expert acknowledged across the world. He identifies 10 characteristics of servant leadership in Table 1 below. These characteristics have been widely accepted within the servant leadership academic and practice communities. In a similar vein, Russell and Stone (2002) offer two complementary lists of servant leadership attributes. These two lists are described by Russell and Stone as (a) functional because their classification “primarily results from their repetitive prominence in the literature” (2002, p. 146) and (b) supporting with regard to the functional attributes. The two lists are presented in Table 2 below. The functional attributions are “operative qualities, characteristics, and distinctive features belonging to leaders and observed through specific leader behaviors in the work-
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Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization
Table 2. Russell and Stone’s servant leadership functional and accompanying attributes Functional Attributes
Accompanying Attributes
Vision
Communication
Honesty
Credibility
Integrity
Competence
Trust
Stewardship
Service
Visibility
Modeling
Influence
Pioneering
Persuasion
Appreciation of others
Listening
Empowerment
Encouragement Teaching Delegation
Note: Adapted from Russell, R. F., & Stone, A. G. (2002). A review of servant leadership attributes: Developing a practical model. Leadership and Organization Development Journal, 23(3), 145-157.
place” (Russell & Stone, 2002, p. 146). The accompanying attributes are secondary characteristics intended to complement the functional list. There exists no correlation between the functional and accompanying attributes; they are merely counterparts which Russell and Stone consider fundamental parts of two basic servant leadership models. In a summary to their literature review, Russell and Stone assert that “since values are the core beliefs that determine an individual’s principles, they are the independent variables in a model of servant leadership. The dependent variable is manifest servant leadership” (2002, p. 153). They suggest two models of servant leadership. Model 1 describes “the relationship between leader attributes and manifest servant leadership” (p. 153) while Model 2 “is a more encompassing model for servant leadership” (p. 153). Model 2 includes considerations of organizational culture, behaviors, and performance in a systemic loop structure. The accompanying attributes act as intervening variables in both models which serve to raise and modify the functional attributes. Regardless of the model, the primary goal of Russell and Stone
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is to construct the groundwork for further discussion and dialogue centered on the establishment of additional servant leadership theoretical and practice frameworks, not for training program development.
PAGE AND WONG’S SERVANT LEADERSHIP MEASUREMENT INSTRUMENTS Page and Wong have developed several servant leadership measurement instruments aimed at self-assessment and the measurement of both positive and negative leadership characteristics (Page, 2004; Page & Wong, 2005; Wong & Page, 2003; Wong & Page, 2005; Wong, Page, & Rude, 2005). The research at the core of these instruments is a qualitative literature review combined with their own experience putting servant leadership principles into practice (Page & Wong, 2000). Their efforts have resulted in 12 servant leadership categories: integrity, humility, servanthood, caring for others, empowering others, developing others, visioning, goal setting, leading, modeling, team building, and shared decision-making. Other researchers (Dennis & Winston, 2003) have taken pains to apply quantitative statistical techniques to Page and Wong’s work in the interest of creating a tractable servant leadership measurement scale. Dennis and Winston’s (2003) principal component factor analysis “indicates that Page and Wong’s instrument measures three of the 12 purported factors and while it did not represent all 12, this scale represents a potential tool with positive implications for training new and existing leaders” (Dennis & Winston, 2003, p. 456). This instrument clearly holds promise, yet lacks the maturity and quantitative methodological rigor sought by so many practicing managers, especially those hoping to use the tool as a training aid.
Assessment Strategies for Servant Leadership Practice and Training in the Virtual Organization
QUANTITATIVE APPROACHES TO SERVANT LEADERSHIP PRACTICE ASSESSMENT While qualitative approaches to assessing servant leadership are an important part of constructing a viable practice, many managers are more comfortable with quantifying results. A popular approach involves the administration of a survey instrument to a sample population followed by application of statistical methods and procedures to attempt hypothesis disproof. Such instruments already exist with more in development. Here, we will examine Dennis and Bocarnea’s (2005) and Laub’s (1999) instruments in greater depth, paying special attention to the utility of Laub’s Organizational Leadership Assessment (OLA) instrument as a way to understand the level of servant leadership in the interest of refining servant leadership training strategies and tactics within the virtual organization context.
DENNIS AND BOCARNEA’S SERVANT LEADERSHIP ASSESSMENT INSTRUMENT Dennis and Bocarnea (2005) build upon Dennis’ (2004) study to create a servant leadership assessment instrument based upon Patterson’s (2003) theory of servant leadership. Dennis and Bocarnea base their instrument solely upon Patterson’s (2003) “component constructs underlying the practice of servant leadership” (p. 15) detailed in Table 3 below. Dennis and Bocarnea’s study constructs a proposed servant leadership characteristic set; it uses the Delphi (i.e., panel-of-experts) method for settling upon a final survey item list gathered from follower data. By conducting a factor analysis with Oblimin rotation, Dennis and Bocarnea (2005) “sought to answer the following question: Can the presence of Patterson’s servant leadership concept be assessed through a written
Table 3. Patterson’s servant leadership constructs Construct
Description
Agapao Love
To love in a social or moral sense
Humility
The ability to keep one’s accomplishments and successes in perspective
Altruism
Helping others selflessly just for the sake of helping
Vision
Necessary to good leadership
Trust
Speaks to leader morality and competence
Service
A mission of responsibility to others
Empowerment
Entrusting power to others
Note. Adapted from Patterson, K. A. (2003). Servant leadership: A theoretical model. Dissertation Abstracts International, 64 (02), 570. (UMI No. 3082719).
instrument?” (p. 610). In the end, they are only able to verify five of Patterson’s seven servant leadership constructs, eliminating the altruism and service factors.
THE ORGANIZATIONAL LEADERSHIP ASSESSMENT INSTRUMENT Laub’s creation of the OLA1 marks a significant contribution to the development of a reliable, internally consistent, and quantifiable servant leadership characteristics scale. Several researchers have utilized the OLA in a range of disciplines from school effectiveness to law enforcement to job satisfaction (Braye, 2001; Drury, 2004; Hebert, 2003; Herbst, 2004; Irving, 2005; Ledbetter, 2004; Miears, 2005; Molnar, 2007; Thompson, 2004). Laub recognizes within the servant leadership scholarly community “a significant lack of quantitative research, as we are still in the early stages of study in this new field; and there is a need for tools to assist in ongoing research” (1999, p. 34). This was an accurate statement in 1999 and still rings true today. Laub’s response to the recognition of the need for more quantitative servant leadership research
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is to develop a three-phase study composed of a Delphi panel, a pilot study, and a cross-sectional survey consisting of a sample drawn from 41 organizations distributed throughout the world. The Delphi panel is composed of 14 recognized experts in the field. Factor analysis of Laub’s study results produced six categories of servant leadership: (a) values people, (b) develops people, (c) builds community, (d) displays authenticity, (e) provides leadership, and (f) shares leadership. The discovery of these factors is important for several reasons and will be more fully explored later. In his doctoral dissertation study, Laub (1999) initially develops 74 survey questions using the Delphi panel technique. This technique ensures qualitative research design rigor (Malterud, 2001; Morgan & Smircich, 1980; Munck, 1998, Tobin & Begley, 2004), which is important during the early design phase of a survey instrument. The origins of this method lie in the Rand Corporation’s early efforts at forecasting military probabilities covering scenarios such as large-scale bombing attacks against the United States (Helmer, 1975, p. xix). Linstone and Turoff (1975) offer a concise definition of the method: “Delphi may be characterized as a method for structuring a group communication process so that the process is effective in allowing a group of individuals, as a whole, to deal with a complex problem” (p. 3). Thus, the Delphi technique is considered an iterative, facilitated, expert group communication process that is, at its heart, a qualitative effort. In this way, Laub’s initial efforts at creating a quantitative servant leadership assessment instrument are grounded in the qualitative realm. This is not the last time we will observe the qualitative and quantitative domains engaged in a relationship in which one needs the other and vice versa. The OLA uses a Likert-type scale that ranges from one for “Strongly Disagree” to five for “Strongly Agree” (see Figure 1 for organization level examples) with six additional questions designed to assess job satisfaction for a total of 80 survey questions. After deciding the survey took
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too much time to complete, Laub settled upon 60 servant leadership characteristic questions plus the job satisfaction questions for a total of 66 questions (Laub, 1999). Seven demographic, or control variable, questions are included. These questions are intended to assess respondents’ categorical responses under gender, age, level of education, type of organization, number of years with the organization, present position with the company, and ethnic origin. These variables are important for researchers because they allow research question and hypothesis testing based upon statements such as, “Gender affects a participant’s view of his/her role within the organization.” Such statements are important because they tie more general statements about servant leadership at the organizational level to organizational members. Laub is able to use the factor analysis statistical technique with his study data to discover the six sub-scores mentioned above: (a) values people, (b) develops people, (c) builds community, (d) display authenticity, (e) provides leadership, and (f) shares leadership. By creating an instrument that “has been developed in such a way that it can be taken by anyone, at any level, within an organization, work group or team” (Laub, 1999, p. 49), the resulting instrument effectively and accurately measures the servant leadership characteristics of respondents at three levels: (a) top management, (b) management, and (c) workforce/ staff. As a quantitative approach, Laub’s OLA is an instrument of high quality and reliability that
Figure 1. Example items from the organizational leadership assessment instrument
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is quickly becoming the de facto standard among servant leadership researchers for measuring servant leadership characteristics in a quantitative way.
PUTTING THE OLA TO USE Laub’s OLA is an effective instrument in the context of the virtual organization in which a researcher administers it to a sample population drawn from that organization. Several researchers have conducted similar studies with great success (Braye, 2001; Hebert, 2003; Ledbetter, 2004; Miears, 2005; Molnar, 2007; Thompson, 2004), and more continue to incorporate the OLA into their work every day. Because the OLA is comprised of 60 items using a Likert-type scale with an upper bound of five, the measure of the quintessential servant leader is 300 (60x5). This allows a researcher several opportunities for good, solid statistical analyses. For instance, the mean, median, and mode and total counts by category are easily accomplished. A good researcher will make use of the OLA’s demographic (control) variables to run the Analysis of Variance (ANOVA) technique with the goal of determining whether any of the demographic variables might influence the servant leadership scores of the respondents. As an example, one may discover whether gender influences the group’s servant leadership practice. This is accomplished using a statistics software package such as SPSS. In such a scenario, the researcher would use the ANOVA function of SPSS to include the gender variable with the mean servant leadership scores for the entire sample. The result would be the discovery of possible influence by one of the genders (for humans, male and female) upon the practice of servant leadership in that particular sample. This example assumes the researcher has the time and resources to pursue such a data collection regimen. In the likely event that time and money act as study constraints, the researcher may use the
OLA and Laub’s (1999) doctoral dissertation study as guides for creation of their own servant leadership index from a secondary data set. Such a data set might come from the researcher’s own organization (e.g., a prior study/human resources department) or from a third-party. Useful for such a study is Hebert’s (2004) doctoral dissertation. Her study includes a factor analysis of Laub’s six sub-scores in which she produces a single factor, servant leadership. This finding is important for two reasons: (a) it compresses multiple servant leadership meta-characteristics into a single factor and (b) it allows other researchers to rely upon her work to define servant leadership characteristics within foreign datasets. An example of this might involve the creative use of Hebert’s compression technique in conjunction with the World Values Survey (World Values Survey, 2008) database. In some ways, the World Values Survey (WVS) represents the ultimate virtual organization. This longitudinal study is comprised of demographic and values data from 80 countries located on all six inhabited continents of the world. It has been conducted in waves starting in 1981, the last taking place over the course of 2005 and 2006. The point is well taken when the WVS Web site states that “the most important product of this project may be the insight that it produces concerning changes at the individual level that are transforming social, economic and political life” (World Values Survey, 2008). Along with plentiful demographic information, the values data points of the WVS consist of survey items such as, “For each of the following, indicate how important it is in your life. Would you say it is…” The values choices for this item are family, friends, leisure time, politics, work, and religion with Likert-type scale answers that include very important, rather important, not very important, and not important at all. Hundreds of similar items exist in the survey and can vary from wave to wave. Though some items may be included in the survey for all of the waves, not all of the questions are asked by interviewers during
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the administration of each wave. This can create interesting gaps for the researcher interested in discovering how values change over time for a particular country or group of countries (e.g., region of the world), yet this is not uncommon for a study of this scope and size. As a way of building a unique “servant leadership index” over several of the WVS items, a researcher will decide which items to include in their fabricated index. This is where the relationship between quantitative and qualitative data decisions rises again. In this case, the researcher will use Laub’s OLA sub-scores, (a) values people, (b) develops people, (c) builds community, (d) displays authenticity, (e) provides leadership, and (f) share leadership, combined with Hebert’s compression of them into the single “servant leadership” factor to make determinations about which WVS variables to include in their own, unique servant leadership index. Once several variables are chosen and a determination regarding which of the five data sets to use is made, the researcher will use a statistical package such as SPSS to run the Cronbach’s Alpha statistical technique to decide whether the chosen variables measure the same construct (i.e., internal reliability), servant leadership. In this way, the researcher has made a qualitative determination about which quantitative values to use. He has also then used a quantitative technique to establish the reliability of the new “instrument” before using other quantitative techniques such as ANOVA and Pearson’s Correlation Coefficient (Pearson’s r) to determine correlations between variables. In the context of a virtual organization, a survey instrument such as the OLA can be created as a set of Web pages that capture the item answers to a database. Since the OLA covers three levels of an organization, (a) top management, (b) management/supervisory, and (c) workforce/ staff, it would be instructive to administer the survey over time to see if and how member views of the level of organizational servant leadership have changed. Such recognition in organizational member perceptions is an important part of main-
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taining a vibrant servant leadership practice. As the mean OLA score for the virtual organization shifts up or down, it will become the task of the leader-manager to understand why such a shift is taking place and create a plan for how to modify organizational dynamics to correct or enhance it. Regardless of the direction of the shift, it will have been the careful and conscientious administration of the OLA that made its recognition possible.
FUTURE DIRECTIONS The ideas presented here regarding the use of Laub’s (1999) OLA constitute a short introduction to the use of such an instrument as a training assessment and program preparation tool in the context of the virtual organization. Laub originally administered the OLA to traditional organizations, yet there is nothing inherently “traditional” in the tool that prevents its use by servant leadership practitioners in virtual organizations. The OLA is an excellent resource for the preparation of training programs by providing clear understanding of the level of servant leadership within the organization. One opportunity for further refinement of the OLA might involve the reduction of the number of items presented by the instrument. Reducing the number of items while retaining its practical efficacy would make the OLA more attractive to organizational members and managers alike. Research into the creation of complementary instruments that consider an individual organizational member’s servant leadership practice would hold enormous utility for managers, as well. Finally, a comparison study of OLA results from traditional and virtual organizations would provide information about servant leadership practice in the virtual organization, as well as valuable research details about differences that might exist between administering such a tool in the two environments. Regardless of the context in which the OLA is used, it is a valuable tool for
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managers to conduct both pre- and post-training assessments of the virtual organization.
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Drury, S. L. (2005). Employee perceptions of servant leadership: Comparisons by level and with job satisfaction and organizational commitment. Dissertation Abstracts International, 65(09), 3457. (UMI No. 3146724). Frick, D. M. (2004). Robert K. Greenleaf: A life of servant leadership. San Francisco: BerrettKohler Publishers. Greenleaf, R. K. (1970). The servant as leader. Indianapolis, IN: The Greenleaf Center for Servant Leadership.
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Arnison, L., & Miller, P. (2002). Virtual teams: A virtue for the conventional team. Journal of Workplace Learning, 14(4), 166–173. doi:10.1108/13665620210427294
Hebert, S. C. (2004). The relationship of perceived servant leadership and job satisfaction from the follower’s perspective. Dissertation Abstracts International, 64(11), 4118. (UMI No. 3112981).
Bass, B. M., & Stogdill, R. M. (1990). Bass and Stogdill’s handbook of leadership: Theory, research, and managerial applications (3rd ed.). New York: Simon & Schuster.
Helmer, O. (1975). Foreword. In H. A. Linstone & M. Turoff (Eds.), The Delphi method: Techniques and applications. Reading, MA: Addison-Wesley Publishing Company.
Braye, R. H. (2001). Servant-leadership: Belief and practice in women-led businesses. Dissertation Abstracts International, 61(07), 2799. (UMI No. 9981536).
Herbst, J. D. (2004). Organizational servant leadership and its relationship to secondary school effectiveness. Dissertation Abstracts International, 64(11), 4001. (UMI No. 3110574).
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Dennis, R. S., & Bocarnea, M. (2005). Development of the servant leadership assessment instrument. Leadership and Organization Development Journal, 26(8), 600–615. doi:10.1108/01437730510633692
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Dennis, R. S., & Winston, B. E. (2003). A factor analysis of Page and Wong’s servant leadership instrument. Leadership and Organization Development Journal, 24(8), 455–459. doi:10.1108/01437730310505885
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Laub, J. A. (1999). Assessing the servant leadership organization: Development of the Servant Organizational Leadership Assessment (OLA) instrument. Dissertation Abstracts International, 62(02), 308. (UMI No. 9921922).
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Linstone, H. A., & Turoff, M. (Eds.). (1975). The Delphi method: Techniques and applications. Reading, MA: Addison-Wesley Publishing Company. Malterud, K. (2001). Qualitative research: Standards, challenges, and guidelines. Lancet, 358, 483–488. doi:10.1016/S0140-6736(01)05627-6 Miears, L. D. (2005). Servant-leadership and job satisfaction: A correlational study in Texas Education Agency Region X public schools. Dissertation Abstracts International, 65(09), 3237. (UMI No. 3148083). Molnar, D. R. (2007). Serving the world: A crosscultural study of national culture dimensions and servant leadership. Dissertation Abstracts International, 68/05, 139. (UMI No. AAT 3266277). Morgan, G., & Smircich, L. (1980). The case for qualitative research. Academy of Management Review, 5(4), 491–500. doi:10.2307/257453
Russell, R. F. (2001). The role of values in servant leadership. Leadership and Organization Development Journal, 22(2), 76–89. doi:10.1108/01437730110382631 Russell, R. F., & Stone, A. G. (2002). A review of servant leadership attributes: Developing a practical model. Leadership and Organization Development Journal, 23(3), 145–157. doi:10.1108/01437730210424 Shekhar, S. (2006). Understanding the virtuality of virtual organizations. Leadership and Organization Development Journal, 27(6), 465–483. doi:10.1108/01437730610687755 Silbergh, D., & Lennon, K. (2006). Developing leadership skills: Online versus face-to-face. Journal of European Industrial Training, 30(7), 498–511. doi:10.1108/03090590610704376 Slote, M. (2003). Agent-based virtue ethics. In S. Darwall (Ed.), Blackwell readings in philosophy: Virtue ethics (pp. 203-226). New York: Oxford University Press.
Munck, G. L. (1998). Canons of research design in qualitative analysis. Studies in Comparative International Development, 33(3), 18–45. doi:10.1007/BF02687490
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Murphy, P. E. (1999). Character and virtue ethics in international marketing: An agenda for managers, researchers, and educators. Journal of Business Ethics, 18(1), 107–124. doi:10.1023/A:1006072413165
Spears, L. C. (2004). The understanding and practice of servant-leadership. In L. C. Spears & M. Lawrence, Practicing servant leadership: Succeeding through trust, bravery, and forgiveness (pp. 9-24). San Francisco: Jossey-Bass.
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Taylor, F. W. (1998). The principles of scientific management. New York: Dover Publications. Thompson, C. H. (2006). The public school superintendent and servant leadership. Dissertation Abstracts International, 66(09). (UMI No. 3190501). Tobin, G. A., & Begley, C. M. (2004). Methodological rigor within a qualitative framework. Methodological Issues in Nursing Research, 48(4), 388–396. Weber, M. (1947). The theory of economic organization (A. Henderson & T. Parsons, Trans., T. Parsons, Ed.). New York: The Free Press.
World Values Survey. (2008). World values survey: The world’s most comprehensive investigation of political and sociocultural change. Retrieved June 25, 2008, from http://www.worldvaluessurvey.org/
ENDNOTE 1
You may find complete information about obtaining and using the instrument at Dr. Jim Laub’s OLAgroup Web site at http:// www.OLAgroup.com.
Whetstone, J. T. (2001). How virtue fits with business ethics. Journal of Business Ethics, 33, 101–114. doi:10.1023/A:1017554318867
This work was previously published in Leadership in the Digital Enterprise: Issues and Challenges, edited by Pak Yoong, pp. 181-193, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 6.8
E-Leadership Styles for Global Virtual Teams Petros Chamakiotis University of Bath, UK Niki Panteli University of Bath, UK
ABSTRACT With time, an increasing number of organizations deploy global virtual teams (GVTs) in an effort to respond to the demands and the competitive nature of the global business arena. Leadership, a factor that is arguably central to the successful functioning of collocated teams, is much altered in view of the virtual backdrop, and thus, management practices, when referring to GVTs’ operation and effectiveness, have to be re-addressed. This chapter explores the contribution of a leader-coordinator in GVTs and – by drawing upon interviews with staff that participate in intra-organizational virtual DOI: 10.4018/978-1-60960-587-2.ch608
teams of an eminent global operator – it discusses leadership approaches suitable for those teams. In addition, this chapter attempts to unveil and discuss the personal values that drive ordinary virtual actors to emergently lead their teams. Ultimately, the chapter suggests e-leadership styles which could be of foremost value to current and future virtual teams and virtual organizations.
INTRODUCTION Global Virtual Teams (GVTs) have attracted an overwhelming attention and popularity among both academics and practitioners. GVTs are often viewed as a means to accomplish an or-
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ganizational task by breaking any geographical or time constraints (Lipnack & Stamps, 1997), whilst enabling organizations to gain advantage of globally dispersed expertise and knowledge (Bell & Kozlowski, 2002; Hargrove, 1998). The forenamed consider GVTs to be organizing units of work which stem from technological advances, respond to the need for product and service differentiation, and create horizontal organizational structures due to their far-flung nature. In spite of the numerous advantages that the virtual milieu can implicitly offer, researchers and practitioners posit an oxymoron when virtual team working comes into practice (Handy, 1995; Kaboli et al., 2006). Goodbody (2005), for instance, argues that less than 30% of virtual teams are led successfully, and this could be attributed to virtual actors considering themselves a substitute, rather than an evolution of face-to-face communication (Caulat, 2006). Not surprisingly, cultural diversity, lack of trust and face-to-face communication, insufficient training and time difference represent some of the novel hurdles that companies have to deal with. Therefore, while exploring GVTs’ nature, potential and efficiency, one needs to question what constitutes the role of a leader is within a virtual arrangement, and what their contribution to the success of these teams could be. Though as we argue – virtual leadership, or e-leadership as we will refer to it here, has attracted a lot of attention in the literature – it still necessitates investigation. This study questions the use of traditional leadership styles and explores new models of shared leadership, while identifying the values which may motivate virtual team members to emerge as leaders. In doing so, we discuss the gaps in the existing literature and, with the use of an empirical study, we explore different e-leadership styles that may be appropriate for GVTs. Specifically, the study commences with a definition of GVTs and a brief description of their challenges and opportunities, while thereafter we continue with
a synopsis of leadership approaches and styles employed in collocated or virtual settings. What makes this issue topical and interesting for study lies in the fact that information technology is continuously transforming organizational arrangements by adding new variables, and affecting the way people work, the tools they use, the relationships amongst themselves, and ultimately the quality of their performance. Therefore, our aim here is to bridge the lacuna between traditional and virtual leadership, and produce a number of applicable recommendations that will amplify GVTs’ potency and effectiveness. Overall, this chapter discusses different emergent e-leadership styles in GVTs, which could be of foremost value to current and future virtual organizations that operate internationally and wish to improve their management styles. Finally, the implications for research and practice will be explored in the chapter.
BACKGROUND Global Virtual Teams Virtual teams comprise individuals who are geographically, organizationally and time dispersed, and are brought together via technological means of communication in order to accomplish a certain organizational task (Alavi & Yoo, 1997; DeSanctis & Poole, 1997; Jarvenpaa & Leidner, 1999; Townsend et al., 1998). In the literature, it is unanimously acknowledged that virtual teams are different from normal teams in that they are flatter environments with high degree of physical separability – in other words they are intact workgroups – guided by a common purpose and facilitated by technologically advanced communication channels (Duarte & Snyder, 1999; Henry & Hartzler, 1998; Lipnack & Stamps, 1997). In addition, Bal et al. (2000) summarized some common characteristics assembled in GVTs, such as goal orientation, geographical dispersion, deployment
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of computer-supported networks, coordination of interrelated activities, mutual accountability in terms of the outcome, joint decision making and problem solving, and finite duration. GVTs are anticipated to play a prominent role in the structural design of organizations in the future, as they offer several advantages to both the employer and the employee (Alavi & Yoo, 1997; Townsend et al., 1998). Bell and Kozlowski (2002) argue that GVTs offer organizations the chance to access the best-qualified people from every field irrespective of geographical limitations, while providing a high degree of flexibility to the employee by enabling them to work remotely. Presently, though, researchers and practitioners have pinpointed opportunities afforded by GVTs, while several studies have emphasized implicit challenges and problems. Powell et al. (2004), for instance, attempted to discern what is known about GVTs from what is not known and urged researchers to investigate the proneness of certain virtual tasks to generate problems and conflicts. In what follows, we discuss, based on current literature, the key issues that are related to leading GVTs in an effort to better explore this theme.
E-LEADERSHIP: STYLES AND CHALLENGES In the traditional organizational literature, leadership is considered to be a process whereby one member influences and controls the behaviour of the other members toward a common goal (Burns, 1978). Leadership in virtual teams refers to the ability of one person to influence the behaviour of others in a virtual, computer-mediated environment; thus e-leadership. Although e-leadership has been discussed both as a theme in and of itself, and in terms of its effect upon team processes and outcomes (Jarvenpaa et al., 1998; Jarvenpaa & Leidner, 1999; Kayworth & Leidner, 2002; Malhotra,et al. 2007, Tyran et al., 2003; Yoo &
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Alavi, 2004), little is known about its different styles. Different leadership styles exist in the traditional leadership literature. In addition to transformational (which motivates team-members to pass from an individual to a collective level) and transactional leadership (which is based on exchange theory, namely on relationships that are seen as having two-way benefits) (Bass, 1998), attention has been paid to several other styles. For example, there are occasions when outstanding personalities steer others (people, companies and nations) to safety during a crisis (Collins, 1998), and this is known as heroic leadership. Likewise, there are people who possess a magnetic presence and are known as charismatic leaders, while other leaders require obedience and conformity and are known as authoritarian leaders. Those leaders base their behaviours on their view of people being incapable of mastering their forces and lacking personal ambitions (Senge, 1990). Further, situational leadership is centrally dependant upon all variables that make one environment different from another, such as organizational culture (MacBeath, 1998), and learning-centred or instructional leadership is premised on the desire to learn and become better (Fidler, 1997). As opposed to the majority of leadership styles, distributed leadership, which can be also phrased as dispersed, shared or collaborative, represents a newly but an increasingly popular idea within the leadership literature (Mehra et al., 2006). In general, there is some agreement that traditional leadership styles are not suitable to emergent types of organizational arrangements, including GVTs. For example, Shamir (1999) discusses the inappropriateness of current leadership theories and practices for the newly emergent organizations. He argues that as organizations increasingly become boundaryless, flattened, flexible, projectbased and team-based, the need for coordination becomes vital and this can be achieved through shared meanings and values. Therefore, as he puts it, “the main function of organization leaders
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becomes that of being ‘centres of gravity’ in the midst of weakening frameworks, and balancing the centrifugal forces exerted by loosely coupled structures, fragmented cultures, temporary membership and technologies that increase the distance between leaders and members” (p. 59). Snow et al. (1992) argued that GVTs stand in need of caretakers, or else ad hoc managers who will be responsible for the successful functioning of the teams, including coordination at different levels. Subsequently, Vogel et al. (2001) explained that such caretakers contribute to the team by supporting regular, detailed, and prompt communication, and by identifying individual role relationship and responsibilities. According to Kerber and Buono (2004), virtual leaders should pull together their subordinates’ strengths, and act against the centrifugal forces such as local priorities or time differences. Not surprisingly, they relate the e-leader to the collocated one, placing them in the absolute centre of any activity or responsibility. Virtuality prevents leaders from reaching consensus with their teams, due to the novel hurdles, such as cultural diversity, time difference, insufficient training and technophobia. In view of those problems, Lipnack & Stamps (2000) introduced the term polycephalous which originates from the Greek language and means ‘to have multiple leaders’. This idea relates back to distributed leadership which disproves any leadership styles used in the past. Advocates of this style find that emergent types of work teams which are primarily based around networks depend on the availability of multiple leaders within the team, rather than the traditional top-down approach between the leader and team members (Mehra et al., 2006). Indeed, Zigurs (2003) agreed that in GVTs the leadership role shifts from one individual to the other, as the wide breadth of leadership attributes needed while a team accomplishes its tasks is unlikely to be covered by a single person. This argument is also congener to the functional approach to leadership which focuses on individual
behaviours within a group, in which all serve leadership functions towards the aimed goals (Pavitt, 2004). The functional approach is also supportive of the views that, on the one hand, leadership behaviours are performed by more than one people, and on the other hand, that different players present similar leadership behaviours at different times. Further to different players involved, GVTs also experience the use of different computermediated communication channels. Thus, depending on the channels used, each leader has to deal with different degrees of virtualness (Staples et al., 1999); with some media revealing more social cues and therefore more richness than others. According to the media richness theory, the higher the degree of richness in the channels used in virtual teams, the more synchronous and effective the communication becomes (Daft & Lengel, 1986; DeRosa et al., 2004). Though this theory has been criticized for ignoring social and contextual variables (Markus, 1994; Panteli, 2002), it has significant importance in our understanding of communication patterns in GVTs and affects the relationships among virtual team members and their leaders. Motivation is an issue that has not seen much attention within this topic. McClelland and Burnham (1976), for example, introduced the Leadership Motive Profile in an effort to connect a successful leader’s profile with various types of motivation. On the other hand, a sense of personal growth, a sense of being worthwhile and a feeling of achievement represent some key factors that may motivate team leaders (McKee, 2004). Still, there is the fear that the achievement motivation (which entails personal success motivation), however beneficial it could be, could also have as a result that leaders concentrate more on retaining their leadership position, thus aiming at personal rather than collective success (De Hoogh et al., 2005).
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WHEN LEADING GVTS COMES INTO PRACTICE: THE ‘ALPHA’ CASE STUDY Issues, Controversies, Problems Following the discussion so-far, we decided to focus on a specific case study in order to respond to our research questions and provide pragmatic solutions. In this section, we present the results of our empirical study that aimed to uncover the emergence of e-leadership in GVTs. In what follows, we briefly describe the research approach adopted and present the results of the study.
Research Approach Our empirical study is exploratory in nature, aiming to gain insight into an issue that has seen limited research and focuses on human beings and behaviours. Case studies generally represent the most appropriate research strategy for investigations at the exploratory phase (Yin, 2003). Our single case study approach involved semi-structured interviews with five individuals. The laddering method, which “elicits the higher level abstractions of the constructs that people use to organize their world” (Bourne & Jenkins, 2005), is hereby employed to extract the consequences that originate from the employees’ virtual activities and, by extension, the values that drive them to take control and lead their teams, with or without realizing it. Though it has been used in psychology (Wright, 1970), consumer research (Gutman, 1982), and in human resources management (Jolly et al., 1988), laddering has not been extensively used in management research (Bourne & Jenkins, 2005). Laddering represents a semi-structured interviewing technique which can be the richest single source of data (Gillham, 2000), while it involves a series of direct probes, typified by the ‘Why is that important to you?’ question, with the goal of determining sets of linkages between
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the key perceptual elements across the range of attributes (A), consequences (C) and values (V) (Reynolds & Gutman, 1988). Attributes are the functional benefits of a product. In the case of GVTs, participation in GVTs can be seen as an initial attribute. Consequences are the benefits that flow from these attributes. They explain how they affect the individual or rather emotional benefits. Finally, values are the motivations underlying consequences and attributes of participating in GVTs. A simple ladder will be of the following form (Figure 1).
The Selected Organization In consideration of the aims and the limitations of this study, we decided to take a focus on a distinguished high-tech company in the computer and office equipment industry, a Fortune 500 company. The company, which we call Alpha for confidentiality, operates at a global level, and increasingly depends on permanent and temporary intra-organizational virtual arrangements consisting of people who work for the same company, but live in different geographical areas across the globe. According to the company’s mission statement, Alpha views its employees as the most valuable assets, and encourages everyone to produce innovative ideas and take initiatives before Figure 1. Simple ladder
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their higher-ups tell them to do so. Further, being a prominent global operator, Alpha provides its employees with cutting-edge technologies and modern communication tools, and is committed to providing a pleasant working atmosphere, while knowledge-sharing, learning from the past, and motivation are importantly promoted through its organizational philosophy. Lastly, Alpha’s senior employees base rewards on performance, they engage their staff in lifelong learning, and they develop leaders who are responsible for exemplifying the company’s values and achieving the anticipated goals. Overall, Alpha’s culture is reflected in its fluid hierarchical structures, the staff’s continuing education, and the fact that everyone is stimulated to innovate and become a leader.
Data Collection Procedure and Analysis The study was carried out between June and August 2007 and it drew upon interviews with several members based in the UK, some of whom have acted as emergent GVT leaders. In-depth interviews are preferably conducted in non-threatening and quite environments which help interviewees to be introspective and elaborate on their experiences (Saunders et al., 2007). The personal contact with each of them also provided an overall image of their personality, as in-depth interviews afford perceptions that cannot be recorded or measured. The interviews were recorded using a digital recorder, while hand-written notes were also taken in case the recorder was damaged. Each interviewee was asked to provide an insight into the day-to-day problems and challenges faced not only by e-leaders, but also by other staff who often participate in GVTs. Interviews lasted approximately 45 minutes each and were listened to twice in order not to miss important elements, and to remove bias. The laddering technique helped us unveil the personal values that drive people to lead their
teams. The ‘why’ probe continued until no further insight was possible, and it was assumed that we had reached the level of values. After identifying performed leadership behaviours, a second set of questions – which was very important in formulating the ladders – was initiated. This phase brought forth the functional and emotional benefits, and self-expressive values the virtual actor seeks whilst leading a GVT. The last set consisted of follow-up questions in order to re-analyze the answers previously given and to cover implicit vagueness. Only three of the interviewees have performed as emergent leaders in current and past GVTs, and consequently, only three ladders where formulated. Lastly, a diagrammatical representation of each interview was formulated, in which all the ladders of the interviewee were combined. Besides, visual displays such as diagrams and matrixes are helpful in analyzing data and drawing conclusions (Gengler & Reynolds, 1995). Due to space limitations, the tables classify both consequences and values into certain broad categories. In these tables, we only refer to consequences and values with frequency of 2 or above, as frequency of just 1 is considered to be insignificant.
Results and Analysis Here, we present a summary of the characteristics of the five employees who were interviewed (Table 1). All five of them are referred to as Persons A, B, C, D and E, preserving their confidentiality. There is homogeneity in terms of age, nationality and other variables, but all have different personalities, different experiences and different approaches. Subsequent to this summarizing table is the analysis of the interviewees, classified by person. Each of the five employees first describes the framework of their GVT experience, and then we critically present their views and stories about the issues that concern this study.
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Table 1. Presentation of interviewees Gender Nationality
Person A
Person B
Person C
Person D
Person E
F
F
M
M
M
British
British
British
British
British
Field
Production
Commodity Management
Development
Management
Procurement
Role
Line Operator
Procurement Specialist
Technical Specialist
Leader
Manager
Virtual Experience
7 years
9 years
10 years
More than 10 years
More than 10 years
Assigned Leader
No
Yes
No
Yes
No
Emerged Leader
Yes
Yes
No
Yes
No
Leadership Realization
No
Yes
-
Yes
-
Leader’s Acceptance
Yes
Yes
Yes
Yes
No
Perceived Outcome Success
99%
80-90%
88%
99%
100% plus risks
Person A Person A represents an open character, and this perhaps contributes to her being a successful leader. She gives the impression of a professional who knows how to be effective and efficient in terms of the company’s productivity, yet she approaches virtuality with anxiety, as “working from different physical locations can be scary.” The UK branch, being a Global Business Unit (GBU), plays a central role in guiding and advising, and therefore, every employee assumes leadership responsibilities somehow. Typically, she collaborates with the USA, and the main body of the GVTs she works in remains stable and does not exceed 10 partners. She uses teleconferencing, phone calls, net-meetings, share rooms, and she believes that “email is the best and the worst thing ever; when a [email] response becomes unprofessional, I always pick up the phone.” Regarding technology expertise, she considers that “if everyone had the skills to fully exploit what technology offers, we would be unstoppable and more productive.”
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She has experienced cultural diversity problems such as different sense of humour, which can easily create misunderstandings. Hence, each time a problem arises, she starts an escalation as diligently as possible. Her role is to ensure that a product maintains a high standard throughout the production process and reaches its end destination on time. Her responsibilities are well-defined and she sees herself as “… a vehicle that initiates a call for a virtual meeting, knows the right people, and has the ability to pull everyone together.” According to her, when a colleague’s voice becomes the one most heard, then they are usually accepted as emergent leaders.
Person B Person B promotes an image of a leader who will not hesitate to act differently and take the initiative. As manufacturing is outsourced at Alpha, Person B’s task it to ensure that quality remains high. Thus, she interacts with suppliers over the phone, via email (continuously), by teleconferencing (twice a week), by videoconferencing (once a month), while she also has face-to-face meetings
E-Leadership Styles for Global Virtual Teams
Figure 2. An example of e-leadership: case of shared leadership
(quarterly). She often posits lack of agreement and coordination as symptoms of diversity. Figure 2 represents a product development process as described by Person B. Person B is often the one to set and finalize a meeting, whilst she also assumes the pay-back analysis, and intervenes when a decision cannot be reached. She has observed situations where “there is a gap and someone steps in and expresses their opinion. When I do this, I speak to people individually first and then I am confident I represent everyone.” She believes that there is always a leader, because, as she puts it, “there’s always a checkpoint;” let alone that “in China, they might say ‘yes’, and you think they replied to your question, even though they mean ‘yes, I’m listening.’” As a leader, she has to “be inclusive and pull people back from wanting to go into the details, although sometimes it’s of value to let the conversation flow and then pull it together.” She argues that “people cannot put their head over the fence and see, because communication is not good enough” and that GVTs require more though than traditional teams, since separation hinders relationship building. For her, an e-leader should meet the following criteria:
• • • • • • • •
One should not be blinked with the target, as they can become dictatorial to have the desire for efficiency to be learnt from and listened to have experience in both leading, and the scientific field to take value from leading and move forward work before the meetings make your team willing to engage with the tasks by affecting the dynamics adapting the leading style according to the circumstances
Person C Person C, a technical specialist within a development group, works with the same virtual people for a number of years, which connotes established relationships with his virtual colleagues and guaranties high level of collaboration in the long-term. Person C appreciates Alpha’s culture that allows fluid structures. Development tasks are classified into three stages: early stage, physical development, and post-development support; Person C is involved in the two latter development processes and he collaborates with five employees from the USA. He mainly uses telephone, email and file sharing, and he travels at least twice a year
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to the USA in order to attend face-to-face meetings, though he also does individual meetings. He generally prefers voice, but “the technical stuff has to be written, so you end up with pictures and graphs”. Additionally, he observes the “absence of coming to one’s office and saying: ‘hey, have a look at this’; in GVTs you don’t get the body language, only the voice language.” When their old manager retired, a new employee took over this managerial role in order to build their team’s framework only, since they “… are all sufficiently experienced and self-driven to need guidance; but in virtual working you don’t always understand the situation correctly.” Judging by his 10-year experience, he defines a set of qualities for a successful e-leader: • • • • •
combination of both technical and managerial skills to be reflected in the results excellent inter-personal relationships ability to re-establish lines of communication and levels of trust ability to pull all different strengths together
Sometimes, one leader from one area is matched by a leader in another area and therefore co-leadership is indicated. Separation in time also requires co-ordination between different leaders, whereby when one leader is unavailable, they hand over to the co-leader and vice versa, and this can be easily delineated in Figure 3.
Person D “Electronic management is wonderful if it doesn’t have to work, if it’s a yes or no answer; for complicated things, you just cannot do it.” Person D represents an experienced leader who is simultaneously engaged in multiple virtual projects and whose job “goes across all technologies”. He is a centred leader who supervises projects lasting from 1 to 15 years. He believes
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that “there’s nothing like speaking to someone; Even if they speak a different language; the next step would be: come over to see me.” Emails are also continual, while he uses video-conferencing 3 or 4 times per week. He is positive that “Without a leader, the project will definitely fall”, though many times a member of staff who is in expert automatically becomes the emergent leader. Equally important Person D views the role of all sub-leaders of a project while a project unfolds, since often “… I might be the leader and then hand on to somebody that takes the next stage.” Moreover, he sees relationship establishment as paramount and he argues that one has to understand personally their subordinates, since “… maybe they have a disabled mother; the leader must understand that.” The grey area in GVTs is owed to language barriers, different working practices and cultural differences. He explains that “… the idea of a product might be born in the USA and the actual implementation of it could be in China; the actual testing of it could be in Germany; people perceive the same procedures differently and this impacts cost and time.” Thus, he adjusts his leadership style according to each GVT. Further, he notes that “… the Japanese will not make a decision, unless everyone agrees on that; that’s a generalization, but they like to be able to agree; they don’t like to say ‘no’ to your face; so they’ll find all sorts of
Figure 3. An example of e-leadership: case of co-leadership
E-Leadership Styles for Global Virtual Teams
ways around it; but when they make a decision, they stick to it.”
Person E As opposed to Person D, Person E prefers the term leader over manager, because the former is about motivating people, whereas the latter is about telling people what to do. Person E gives the impression of a systematic manager, with his level of experience being reflected by the leisure with which he narrates events. In the projects that he is accountable for, they always hit the deadline which indicates a high degree of achievement, yet they take risks and make compromises in order for the product to punctually reach its final destination, the customer. Person E prioritized the communication media his team uses, according to their efficiency, as follows: • •
face-to-face is the best Beta (a pseudonym) is a wonderful full size proprietary video-conferencing system produced by Alpha. One can see a number of TV screens opposite them and then have up to 3 groups talking to each other, and there is a table that joins the screen.
“It’s like you’re all sitting in the same room physically; it’s full size, so you see one person at each frame with high quality and no delays.” •
• •
•
Traditional video-conferencing, where the camera faces the table, is regarded as the next best. Audio conferencing Delta (a pseudonym) is a proprietary type of instant messaging similar to MSN, which offers security and can be used between two people while a meeting is going on. Email is only used to confirm what has been agreed or to pass on information. It
is not used as a debating tool, because it creates misunderstandings and people get offended. “… people perceive sense of humour differently, and emoticons play a role; you don’t see what is serious or not; a joke is really risky, it requires a good relationship, otherwise we don’t make jokes; if it’s a tricky subject and I don’t make jokes in writing.” •
Telephone is often better than emails for conversations
Big product programme meetings use videoconferences twice per week, while the senior management staff attend video-conferences once per week for approximately two hours. Still, emails are only used for confirmation and passing on data, or rarely for peer-to-peer debates. From his experience, when all virtual team members feel ownership of the team’s objectives, a good relationship is developed, and the chance of achieving the target is increased. They have “… both centred and shared leadership, because as a management chain we have matrix organizational structures.” Along with shared leadership though, they also try to maintain clear accountability. Nonetheless, they often break each project down and they “… assign different leaders for each stage.” In Person E’s view, a good e-leader needs a toolbox of skills, a combination of hard and soft skills, and he also argues that, “behaviour is far more important, though you have to adjust to the personality of your team”. Further, an e-leader has to • • • • •
check whether the continuously changing established procedures are followed replay what has just been said emphasize the learning outcome build relationships remotely ensure messages have been received
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• • •
measure the outcome optimize things for next time ask for feedback (not in the form of criticism or calibration)
Person E narrated a current story where one e-leader is not being fully accepted by the rest of his group, as the group comprises very high-level people who do not agree with the leader’s practices, and thus, the project is slowing down. Similarly, he currently faces a second situation where three e-leaders are responsible for one project and “… roles are not clear and issues start to appear.” Therefore, as he states, “… we’ll sit together in two-week time [using Beta video-conferencing] and discuss the roles; if there are personal issues, then face-to-face is always the best way; if there are constraints, we’ll try voice-to-voice, but if it’s not resolved, we’ll approach the local manager.”
Leaders’ Motivation The elicited ladders are cited in the Appendix and the results in terms of the emergent leaders’ motivation are synopsized in Tables 2 and 3. The reasons why people were urged to undertake a leadership position are presented in the first table. All three of them responded to the question “why did you feel that you had to become the leader.” One representative respond was: “It’s the desire for efficiency actually” (Person B). Notably, Person D stated that “there is never any certainty, you make the certainty; and it’s the thrill of getting things done.” Another prominent reason was that the company should thrive in the future and that employees should share knowledge (Person A), learn from their mistakes (Persons A and B), contribute to the commonweal and to Alpha’s promotion (Person B), and improve their everyday lives (Person D). However, it is found that it is not the above reasons per se that actually drive virtual actors to partially or fully lead their GVTs. The interviewees valued those reasons because they linked them
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to the concepts summarized in Table 3. It is therefore evident that more abstract and fundamental motives exist when adopting leadership behaviours. The interviewees reached the values-level via a variety of different ladders, despite the time limitations. They linked this level with the knowledge they gained, with personal comfort, family moments, society’s improvement, and collaboration. These words represent the upper layer of the consequences which resulted in the display of their personal values. The cases of the three emergent leaders’ behaviours being analyzed here disclosed that they are all strong personalities who share prominent principles, self-awareness, and they value their personal integrity high. Furthermore, they all anticipate a high degree of security that Alpha is willing to provide them. Following this, the three emergent leaders also considered satisfaction, happiness, protection of the environment, improvement, and trust building as major personal values. Considering the high results throughout their experience, their high appreciation towards Alpha, and the Table 2. Hierarchical classification of consequences Consequences
Frequency
Understanding / Learning / Contributing
3
Thrill / Desire / Interest
3
Collaboration and Sharing
2
Uncertainty / Problems
2
Everyday life and Society
2
Becoming Better / Comfortable
2
Table 3. Hierarchical classification of values Values
Frequency
Personal Integrity
2
Security
2
E-Leadership Styles for Global Virtual Teams
comparison made in terms of financial rewards, it seems that the company covers the majority of their personal values.
Solutions and Recommendations In this section, we discuss the results of our empirical study and present a set of distinct recommendations which will enhance team coherence and will thereby improve team efficiency, whilst considering the limitations which arise from the working context and the research methods employed. These recommendations will be informed by the literature review and our research findings.
DISCUSSION Alpha is an organization with a global presence; its product ideas are generated in the USA, where research and innovation thrive, while manufacturing is outsourced to Asian countries where labour costs are low. Thus, GVTs are a common phenomenon within this organization. In this study, we interviewed managers with substantial virtual team experience. The laddering technique revealed the interviewees’ personal values and justified their preferred leadership styles. Some of the values emerged can be associated with theories on charismatic leadership (Conger & Kanungo, 1987; Shamir et al., 1993). Charismatic leaders engage in proactive social influence (Person D) and share ideological values such as promotion of the company (Person B), the protection of the environment (Person B), family happiness (Person D) or personal integrity (Person A). The interviewees typically follow a transactional leadership style, whereby they seek to develop a two-way beneficial relationship (Bass, 1998), and this is justified by the fact that they aim for rewards upon completion of a project. Most importantly, Alpha e-leaders make use of multiple leadership styles, as they try to adjust to each group (situational leadership), be authorita-
tive (with reference to the Japanese – Person D), and learn from the outcome (learning-centred leadership – Persons A, B and E). We also find that Alpha e-leaders combine different leadership styles simultaneously. Person D, for instance, being engaged in numerous GVTs, endeavours to adjust his leadership style to the idiosyncrasy of each group, while he suggestively notes that Japanese employees work better under authoritarian practices. Overall, however, there seems to be an agreement that leadership should be shared as the project unfolds, and therefore, it is inevitable that multiple leaders are accountable for the same project. The findings indicate different instances where leadership could be shared; this could be, for example, shared among the different countries where members are based (e.g. example given by Person A) or by different sub-group leaders (e.g. Person B). A critical parameter that allows them to reach their objectives is the opportunities they have in drawing upon different communication media to choose from for their virtual interactions. Several communication channels have been mentioned and, in some instances, these have been categorized based on their efficiency and level of interactivity. For example, e-meetings are held via pioneering interactive technologies such as the Beta or the Delta systems, and we therefore argue that these technologies importantly contribute to the GVTs achieving their goals. Despite that, there seems to be a type of technophobia or lack of technological expertise (Persons A, D), and they still consider important face-to-face meetings, especially when personal issues arise (Person E). Cultural diversity is also an issue in Alpha, albeit the fact that they communicate with Anglophone virtual colleagues (mostly from the USA) heavily reduces culture-related hurdles. Nonetheless, they have developed ways to overcome such difficulties, for example by sending emails for confirmation of what has been already said or agreed (Person E). Alpha e-leaders are usually
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accepted by the rest of the team, while emergent e-leaders make sure they represent their team’s views in order to be fully accepted (Person B). Yet, there are instances where the leader has not been accepted, and for this, Persons C and E suggest that an e-leader has to be managerially and technically skilful.
IMPLICATIONS FOR PRACTICE This project is restricted to the idiosyncrasy of the examined case study, and this would partially prevent us from drawing general recommendations that would apply to each virtual organization. However, we set out a number of points that would be of considerable value to managers and organizations: •
•
•
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By following a pragmatic approach, beneficial changes will be brought about, both for the individual employee’s expectations and the company’s macro-economic objectives. Thus, by embracing the appropriate strategies and adjusting them to situational variables (such as company culture, etc.) an e-leader can achieve high quality results. The research showed that computer-mediated communication cannot be effectively utilized in GVTs, unless members have been adequately trained. Therefore, organizations – regardless of industry and content – should not only invest in the infrastructure per se, but they should equally invest in their human assets (e.g. employee selection and training). Given the qualities that describe the successful e-leader and despite the severe limitation of the context of the paper, virtual organizations should engage in recruiting and promoting the right people who are capable to handle geographical dispersion; in other words, there is a certain set of criteria that a person has to satisfy in order to
overcome virtual hurdles, and companies should filter out future e-leaders, based not on stereotypes, but rather on empirical studies.
FUTURE TRENDS While our goal here is to inform the modern business arena on how to improve their leadership styles and practices, the future seems rather unpredictable due to the constant technological advances and the exigency for efficiency at global level. Leadership is much changed with the advent of instant communication technologies that operate globally, and this chapter could prove useful to a number of organizations, when appropriately studied. Subsequent to our recommendations, we cite the following limitations in order to measure the viability and the degree of applicability and implementation of our models. •
•
The examined sample, in the main, recurrently participates in projects with the same virtual partners; this connotes a high degree of intimacy which leads to the development of trust and well-established relationships. Short-term GVTs have not been explored here. The small sample size importantly limits the generalizability and applicability of our models. Also, because of the nature of the research, the outcome relied upon subjective interpretation of the results. Further research is needed, and we discuss this below.
From our empirical study, several research opportunities, which could expand the academic and working knowledge of virtual leadership, emerge. On the other hand, leadership is not the one and only variable that impacts GVTs’ potency and operation, and thus, the future of the book’s theme could expand to a wider exploration of issues
E-Leadership Styles for Global Virtual Teams
that affect the modern digital enterprise. Concerning our chapter’s future, researchers could move on and provide solutions applicable to a wider spectrum of GVTs. The research opportunities we have identified can be summed up as follows: •
•
•
Future researchers could focus on the plethora of different types of GVTs, varying in length and project types, as well as on different industries and departments. Employment of longitudinal research methodology, for example, could offer a better insight and could shift knowledge on e-leadership from the exploratory to the descriptive and explanatory phases. This would critically aid in understanding the phenomenon of e-leadership and in suggesting new avenues concerning a very wide range of virtual activities. This study initiated an exploration of the factors that motivate virtual actors to spearhead their teams, either a priori or emergently. However, only three of the interviewees have experienced the role of an emergent leader, and thusly, only three ladders were formulated here (Appendix). Therefore, research should examine a larger sample of leaders and should not only expand on the leaders who have acted emergently, but also on the values that determine a priori assigned leaders’ behaviours. Lastly, e-leadership was here studied by looking at two parameters – distribution and motivation. This by no means embraces every single aspect of the phenomenon, and as a result, this chapter is unable to provide successful recommendations in isolation. Considering the relative immaturity of the topic, future research should seek to adapt the majority of the theories on collocated leadership to the uniqueness of the digital enterprise, and form a set of principles which organizations will be
able to follow in order to deploy successful GVTs.
CONCLUSION Drawing on Alpha’s experiences, we agree with existing literature that traditional leadership practices are not always suitable to GVTs, though our data also indicated that these may be seen as appropriate, depending on the situation. Shared leadership was found as the most popular e-leadership style, though the way this is adopted seems to vary. Finally, as our dataset has been limited, we would encourage researchers to extend research in this field, by juxtaposing the theme as entailed in the ‘Future Trends’ section of our chapter.
ACKNOWLEDGMENT We are grateful to Alpha and its employees for their participation in this study.
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Townsend, A. M., DeMarie, S. M., & Hendrickson, A. R. (1998). Virtual teams: Technology and the workplace of the future. The Academy of Management Executive, 12(3), 17–29. Tyran, K. L., Tyran, C. K., & Shepherd, M. (2003). Exploring emergent leadership in virtual teams. In C. B. Gibson & S. G. Cohen (Eds.), Virtual teams that work: Creating conditions for virtual team effectiveness (pp. 183-195). San Francisco, CA: Jossey-Bass. Vogel, D., van Genuchten, M. L. D., Verveen, S., van Eekout, M., & Adams, A. (2001). Exploratory research on the role of national and professional cultures in a distributed learning project. IEE Transactions on Professional Communication, 44(2), 114–125. doi:10.1109/47.925514
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Wright, K. J. T. (1970). Exploring the uniqueness of common complaints. The British Journal of Medical Psychology, 41, 221–232. Yin, R. K. (2003). Case study research: Design and methods (3rd ed.). London: Sage. Yoo, Y., & Alavi, M. (2004). Emergent leadership in virtual teams: What do emergent leaders do? Information and Organization, 14, 27–58. doi:10.1016/j.infoandorg.2003.11.001 Zigurs, I. (2003). Leadership in virtual teams: Oxymoron or opportunity? Organizational Dynamics, 31(4), 339–351. doi:10.1016/S00902616(02)00132-8
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APPENDIX Figure 4.
Figure 5.
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Figure 6.
This work was previously published in Leadership in the Digital Enterprise: Issues and Challenges, edited by Pak Yoong, pp. 143-161, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 6.9
Strategising Impression Management in Corporations: Cultural Knowledge as Capital Caroline Kamau Southampton Solent University, UK
ABSTRACT Impression management is a powerful psychological phenomenon with much unexplored potential in corporate settings. Employees or corporations can deploy impression management strategies in order to manipulate others’ perceptions of them. Cultural knowledge is powerful capital in impression management, yet this has not been sufficiently explored in previous literature. This chapter argues that impression-motivated employees or corporations need to perform a three-step knowledge
audit: (i) knowing what their impression deficits are; (ii) knowing what impression management strategy is needed to address that deficit, based on the taxonomy of impression management strategies tabulated here; (iii) knowing what societal (e.g. collectivist culture or individualist culture) or organization-specific cultural adjustments are needed. A cultural knowledge base can thus be created through cross-cultural training of and knowledge transfer by expatriates. Multinational corporations can also benefit from utilising the knowledge presented in this chapter in their international public relations efforts.
DOI: 10.4018/978-1-60960-587-2.ch609
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Strategising Impression Management in Corporations
INTRODUCTION The success of knowledge transfer often depends on incidental or subsidiary information accompanying the knowledge itself. Communication between humans usually involves nonverbal cues such as facial expressions, gestures, body posture, tone of voice, gaze, clothing style and use of props. Nonverbal cues therefore have an important communicative function (DePaulo, 1992), such as in terms of conveying information on emotional states (Ekman & Friesen, 1971). An individual can strategically manipulate the nonverbal signals that they transmit through a process known as impression management or self presentation (Leary & Kowalski, 1990). Impression management is the strategic attempt to control how one is perceived by others in order to fulfil a deeper aim (Rosenfeld, Giacalone & Riordan, 1995), such as exuding competence in a particular knowledge field or being taken seriously as an expert. There is considerable evidence in organizational settings that impression management by employees can influence supervisors’ ratings of them (Wayne & Liden, 1995; Vilela et al, 2007), increase chances of promotion (Westphal & Stern, 2007) and increase others’ perceptions of ones credibility (Leigh & Summers, 2002). Individuals with knowledge on impression management strategies may therefore successfully utilise this knowledge to, for example, maximise their capacity to influence their organization’s policies and practices. The success of impression management strategies depends on both societal cultural norms on appropriate social behaviour (DePaulo, 1992) and on organizationspecific culture (Drory & Zaidman, 2007), as well as individual characteristics (Snyder, 1974). Impression management in corporate settings has a lot of unexplored potential. This chapter begins by discussing nonverbal communication and compiling a taxonomy of impression management strategies typically used in corporate settings. Cultural knowledge relevant to impres-
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sion management is an invaluable resource to individuals in corporate settings. This chapter explores the impact of societal cultural norms on workers’ choices of impression management strategies, focussing on the contrast between collectivist cultures (e.g. the Far East) and individualist cultures (e.g. Western Europe and North America). The impact of organization-specific culture on employees’ impression management strategies is then discussed. This chapter therefore argues that employees need to acquire a tacit or explicit knowledge base on impression management, and to perform an audit of their impression deficits, the impression management strategies required to resolve these deficits, and the adjustment in strategy needed to accommodate society or organizational cultural norms or individual difference variables. The benefits of cross-cultural adaptation by expatriates, based on fact-finding and the accumulation of knowledge through interactions, and cross-cultural training of expatriate employees, will then be discussed. Having explored impression management from the perspective of employees as individuals, this chapter then goes on to argue that multinational corporations should utilise the kind of knowledge presented in this chapter in their international public relations efforts. Ethical considerations for employees or corporations (concerning their choice of impression management strategy) are then discussed, after which further research questions will be outlined.
Theoretical Background: What is Impression Management? Imagine that Gary, a new systems analyst at an IT department, wants to suggest a major restructuring of a large database. However, his seniors have a reputation for being resistant to change and they are usually hostile towards ideas generated by newcomers. Gary therefore needs to find a way of making his seniors more receptive towards him
Strategising Impression Management in Corporations
as a potential agent for change. Soon after joining the corporation, Gary frequently indicates that he agrees with his seniors’ policies, he laughs generously at their jokes, he frequently does favours for them, and he regularly drops hints that he really admires them. Weeks later, Gary approaches his seniors and casually asks what they think about restructuring the database. Are his seniors likely to say no? Probably not – at least much less so than if Gary had not deployed the impression management strategy of ingratiation. Impression management is therefore a strategic attempt to influence others’ perceptions or reactions in order to fulfil a personal objective (Leary & Kowalski, 1990), a social objective (Baumeister and Tice, 1986) or a material objective (Leary & Kowalski, 1990). Based on Rosenfeld, Giacalone & Riordan’s (1995) wide scale literature review, Table 1 presents a taxonomy of impression management strategies that are widely used in corporate settings. Impression management begins with “impression motivation” (Leary & Kowalski, 1990, pp 35), whereby a person tries to gauge what others think of them and they develop a desire to control this. Impression management therefore begins with the gathering of information that enables an individual to determine what strategy is needed and why. Leary & Kowalski (1990) suggest that “People deliberately search for cues regarding others’ impressions of them and attend selectively to information that is relevant to making the right impression.” (pp 36). An individual then needs to establish what their motive is. For instance, their desire may be personal – to fulfil an ambition or to construct or maintain a public identity, which is said by Baumeister & Tice (1986) to be a major motive behind impression management. Alternatively, the motive may be purely social – e.g. wanting to be liked or respected (Baumeister & Tice, 1986). Some employee ranks may be predisposed towards such social motives. For example, Palmer, Welker, Campbell & Magner’s (2001) study of 95 middle/upper-level
managers suggests that managers are predisposed towards impression management tactics that are concerned with gaining approval from employees. Another possible motive behind impression management is the quest for material gains (Leary & Kowalski, 1990) such as receiving a pay increase through promotion. Strategies such as ingratiation have been shown to successfully impact on liking (Vonk, 2002) and on employees’ promotional chances Westphal & Stern, 2007, 2006). For instance, Westphal & Stern (2007) surveyed managers and CEOs at some of the Forbes 500 companies, and they found that deployment of ingratiatory tactics such as opinion conformity, doing favours and flattery increased the managers/ CEOs’ chances of being recommended for board appointments. After the impression motivation stage is the “impression construction” stage (Leary & Kowalski, 1990, pp 35), whereby an individual deploys an impression management strategy (see Table 1). This involves the enactment of behaviours that fulfil the motive behind wanting to control others’ impressions. People often use nonverbal behaviour in their impression management strategies, since much of human communication occurs without words (DePaulo, 1992). Such behaviour may be subtle, such as the use of gait and walking style to convey information on age, power and mood (Montepare & Zebrowitz-McArthur, 1988), or it may be more overt. For instance, a data clerk who has made many mistakes with data entry one afternoon may yawn a lot and drink coffee in order to give the impression that fatigue is the reason for the errors. However, not all impression management is exclusively nonverbal. In the previous example, fictitious Gary used both nonverbal behaviour (e.g. doing favours for his seniors) and verbal impression management tactics (e.g. saying that he agrees with them).
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Table 1. Taxonomy of impression management strategies commonly used in organizational settings* Impression management strategy
Ingratiation through opinion conformity
Ingratiation: colloquially referred to as “sucking up to” or “buttering up” someone with the expectation that one will be liked more
Ingratiation through doing favours
Example
Agreement with some disagreement
Mary tells her dissertation supervisor how fantastic his recent article was, how original his thinking is and how similar it is to her own opinion, except for one minor detail.
Transformation of disagreement into agreement
Samson’s says that he disagrees with his project manager’s new marketing plan but later in the meeting he starts nodding and saying that he now sees how wonderful the plan is.
Ordinary favours
Matt offers to walk across town daily to collect his department director’s favourite takeaway lunch.
Favours that cannot be directly repaid
Lucy offers to baby-sit her manager’s pets for a week during her vacation leave.
Flattery via third-parties
During an office party, Thomas tells his supervisor’s husband that she has a fantastic, remarkable leadership style.
Timely flattery
Several weeks before a promotions review, Myra tells her office manager how much she wishes that he could run the entire organization because he does such a great job.
Ingratiation through flattery
Self-promotion to show competence
Patrick often talks to his workmates about what he learned during his student days at the prestigious Harvard University.
Self-promotion with some self-criticism
Betty tells her colleagues how lousy she is at golf but how quickly she can clinch a sale with any type of buyer.
Self-promotion to compensate for weakness
After finding a new software package difficult to use, Henry tells workmates what a whiz he usually is with most computer programmes.
Intimidation: behaving in a threatening or cold manner in the hope that doing so will instil fear in others
Intimidation for downward influence
Rachel, the head chef, shouts and uses bad language at junior chefs who make a mistake.
Intimidation for counter-power
Peter is a union activist and he threatens to get his union to alert the press about practices at the company if his supervisor makes him work on weekends.
Exemplification: behaving like a highly conscientious person, with the intention of making onlookers think highly of oneself
Exemplification through model behaviour
Her colleagues and supervisors always find Gertrude working at her desk, no matter how early they arrive in the morning.
Exemplification through self-sacrifice
Charlie, a hotel worker, takes the shifts that other workers dislike and he does not take any days off during high season.
Supplication: belittling or criticising oneself in the hope of evoking liking from others
Supplication to evoke compassion
Melissa, who has just joined a theatre company, criticises herself often and says that she does not feel good enough to be an actor.
Supplication through exchange
Oscar, a university researcher, talks about how bad he is at writing reports but offers to show a colleague how to analyse the data.
Self-promotion: emphasising ones strong points with the expectation that listeners will have a high opinion of oneself
continues on following page
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Table 1. continued Impression management strategy Indirectness: use of third parties to help one enact an impression management tactic (e.g. ingratiation, exemplification) or to increase ones own social standing
Acclamation: making a false or exaggerated positive claim to enhance ones image
Showing group loyalty: behaving in ways that display ones group identity so as to increase other group members’ liking of oneself
Other nonverbal: Use of other nonverbal strategies or the manipulation of ones nonverbal behaviour to help fulfil an impression management aim.
Example
Indirect impression management through associations with others
Drew, a new associate professor of literature, talks often about his good friend the Pulitzer Prize winner.
Indirect impression management through ‘basking in reflected glory’
The day after their firm won a coveted regional award, employees wore t-shirts with the firm’s name during weekends and non-working hours.
Indirect impression management through boosting
Estate agents working at a company that was severely fined for malpractices tell people that their company is actually one of the best estate agents in the country.
Acclamation through claiming entitlement for positive outcomes
When sales of her company’s newspaper trebled, writer Martha says that her articles contributed to the increase in copies bought.
Acclamation through enhancement
When her marketing team received a commission from a successful local company, Frieda tells colleagues that the company is one of the most successful companies in the country.
Showing group loyalty through slating the disloyal
Esther, who works for a supermarket chain, shows dislike for employees who do not buy groceries at that supermarket chain.
Showing group loyalty through perpetuating norms
Morris always carefully checks with colleagues what the organization’s traditional policies and practices are, before doing anything.
Use of nonverbal status symbols
On his desk, stockbroker Stuart has a photo of himself holding a sports trophy, sailing on a yacht, and he wears expensive-looking clothing.
Use of exaggerated nonverbal behaviour
Edna shows that she likes her new workplace by grinning a lot and laughing indulgently at any joke made by a colleague.
Use of nonverbal behaviour to conform
Workers at a creative consultancy firm have a certain unspoken fashion code, which Ian mimics when he becomes an employee.
*This taxonomy of impression management strategies is based on the comprehensive literature review by Rosenfeld, Giacalone & Riordan (1995)
Overarching Argument: The Need for Integrated Knowledge about Impression Management in Corporate Settings This chapter argues that knowing what impression management strategies there are, however, is not enough. Employees and/or corporations wishing to deploy impression management strategies must gain knowledge on a number of other important factors: cultural factors and individual difference variables. This is because the success of impression management attempts depends on general cultural norms (DePaulo, 1992), the culture of
an organization (Drory & Zaidman, 2007) and on interpersonal or individual characteristics (Wayne & Liden, 1995). To date, literature integrating all these concepts (impression management in corporate settings, societal culture, organizational culture, individual differences) is lacking. For instance, relevant literature published in management journals (e.g. Liden & Mitchell, 1988; Westphal & Stern, 2007) tends to focus on workplace impression management strategies per se (particularly ingratiation). Relevant literature published in cross-cultural management journals (e.g. Richardson & McKenna, 2006) tends to focus on the role of societal culture per se in
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workplace impression management. Relevant literature published in human resources journals (e.g. Drory & Zaidman, 2007) tends to focus on the impact of organizational culture on choice of impression management strategies. Relevant literature published in psychological journals (e.g. DePaulo, 1992) tends to focus on the impact of individual difference variables on impression formation and impression management. This chapter therefore integrates these facets of knowledge about impression management in corporate settings, also presenting (later on in this chapter) an impression management knowledge audit model for impression-motivated employees or corporations to use.
Knowledge about Societal Culture and Impression Management Firstly, let us explore the role of societal culture. The cultural norms of the target audience determine the appropriateness of particular impression management tactics particularly when employees are operating in new cultural settings. This is particularly evident if we consider the impact of cultural norms on the appropriateness of different impression management strategies when used in Far Eastern cultures, compared to Western cultures. The kinds of nonverbal communication that can be acceptably utilised vary from culture to culture, according to culturally-specific norms known as ‘display rules’ (Ekman & Davidson, 1994). Culturally-specific display rules determine the appropriateness of particular nonverbal behaviours and people therefore needs to know what a given culture’s norms and display rules are: “To use nonverbal behaviours successfully for self presentation, people need to have some basic knowledge… of the kinds of nonverbal behaviours that are appropriate to use at particular times and in particular situations, and of the kinds of reactions and interpretations that particular nonverbal behaviours are likely to elicit from others.
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…The abstract understanding of display rules … is important.” (DePaulo, 1992, pp 214) In Far Eastern cultures, impression management in many social situations is governed by the notion of “face” or “saving face”, which can be defined as the avoidance of social embarrassment or loss of dignity (Ting-Toomey, 1994). In Chinese culture, ‘saving face’ is termed mien-tzu, which denotes having propriety/respectability, social prestige and keeping a good reputation (Chang & Holt, 1994). The central role of the notion of ‘face’ in impression management in Far-Eastern cultures is likely to be due to the collectivistic nature of such cultures. Collectivism involves emphasis on group identity, group norms and group harmony over personal needs/identity (Triandis, 1989; Hofstede, 1980), with Far Eastern cultures being examples of collectivistic cultures (Markus & Kitayama, 1991). The notion of ‘saving face’ may thus be closely linked to the desire to be seen as someone who represents the prototypical group member, who does not violate group norms and who contributes well to the wellbeing/stability of the group. For instance, Jackson et al (2006) found that collectivism is a significant predictor of group productivity. This altogether leads us to expect that the impression management tactics of exemplification and supplication are commonplace in Far Eastern corporate settings, and that the tactics of self-promotion or acclamation are relatively rare in the Far East, compared to the West. Another characteristic of collectivism is reverence for authority figures (Triandis & Gelfand, 1998), which ties in well with the idea that ingratiation in the Far East is based on acquiescence to the group’s existing structure and the desire to show that one is not challenging that structure. In corporate settings in Far Eastern countries such as China, collectivism is also likely to be prevalent because many businesses are family owned (Silverthorne, 2005). A qualitative study of Chinese people by Chang & Holt (1994) found that placing high importance
Strategising Impression Management in Corporations
on mien-tzu often led to employees not wanting to own up to being wrong about something, especially to someone of lower ‘status’ (such as in terms of age or employment rank). In addition, they found that mien-tzu is often used as a social bargaining tool, such that someone with a high amount of mien-tzu is likely to exact strong influence over other people. For example, if two neighbours have a dispute, a third neighbour with a lot of mien-tzu because he/she is a respected teacher in the local school has the capability to intervene and help the neighbours resolve their dispute. Chang & Holt write that “Work on ones mien-tzu, therefore, involves attempts to manipulate degrees of relationship so as to augment ones social resources” (pp 122). Concurrently, a person interacting with someone of higher mien-tzu would therefore act deferential, self-abasing in acknowledgement of the other person’s higher status. We would therefore expect that impression management in Chinese corporate settings is governed by the concept of mien-tzu, with high-ranking employees manipulating their own prestige to exact influence or power over their subordinates, and with subordinates playing up to senior employees’ mien-tzu and using ingratiating tactics that signal their respect. The impression management strategy of ingratiation (see Table 1) might thus be commonplace in Chinese workplaces. Therefore, based on collectivist norms, Far Eastern cultures may deem some impression management strategies in Table 1 appropriate or desirable, whereas other strategies may be deemed unacceptable. Likewise, some impression management strategies may lead to successful outcomes in Western European/ North American societies, whereas other strategies are likely to be unsuccessful because of individualist norms. Individualism involves emphasis on personal needs and personal identity over group needs/ identity (Triandis, 1989). Impression management through self-promotion or acclamation is likely to be a regular feature in Western corporate settings because Western European and North
American cultures are regarded as prime examples of individualistic cultures (Markus & Kitayama, 1991). Furthermore, in individualistic cultures, impression management strategies such as exemplification, supplication and ingratiation are likely to be motivated by individual ambitions, rather than concerns about the group. Particular impression management strategies may therefore either be deemed socially inappropriate because they violate collectivist or individualist cultural norms, or they may evoke suspicion or cynicism about the actor’s motives. Vonk’s (1998) studies, conducted in the Netherlands, suggest that people in individualist cultures dislike and are suspicious of colleagues who behave in an ingratiatory manner towards seniors. In a study of supervisor/subordinate pairs from Spain, Vilela et al (2007) found a weak, albeit significant, correlation between ingratiation by employees and liking by supervisors. On the contrary, it is possible that employees in Far Eastern corporate settings have different attitudes to ingratiation, viewing it less cynically than Western workers would, and overt ingratiation might be more effective in collectivist cultures than in individualist cultures. Likewise, whereas norms of ‘face’ in the Far East may necessitate strategies such as supplication, a study conducted in France by Chambon (2005) suggests that supplication by employees in individualist settings is not well received by supervisors and it does not produce favourable impressions. Vilela et al’s (2007) Spanish findings suggest that exemplification by employees has virtually no correlation with supervisors’ liking of employees, whereas the tactic of exemplification is likely to be effective in the Far East. In addition, the strategy of self-promotion is likely to be rare in the Far East and the strategy of showing group loyalty is likely to be commonplace. Granose (2007) found that Chinese managers were likely to use collectivist tactics such as contributing to the organization; Shahnawaz & Bala (2007) found that Indian workers in IT/fast food companies were more likely to use collectiv-
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ist tactics than individualist ones; Chang & Lu’s (2007) Taiwanese study found that organizational loyalty was a key feature of corporate culture there. Similarly, Parkes, Bochner & Schneider (2001) found that collectivism amongst workers in South East Asia led to positive outcomes such as tenure, whereas collectivism did not have such an effect in Australia. Kurman (2001) similarly found that the strategy of self-promotion was less prevalent amongst people in Singapore and China than people in Israel. It is therefore in the interests of Western people working in Far-Eastern corporations (or vice versa) to be aware of cultural norms on impression management strategies when establishing themselves. In addition to cross-cultural variation, some impression management strategies are appropriate in some types of organizations but not others, because of the nature of an organization’s culture.
Knowledge about Organizational Culture and Impression Management When choosing impression management strategies, employees should take into account not only their surrounding culture but also the specific culture of their organization. Drory & Zaidman (2007) argue that: “In the context of their work environment, individuals choose their impression management strategies to maximize their personal gain, [but employees] adopt the functional and appropriate impression management tactics, which will best serve their interests under the existing organizational system.” (Drory & Zaidman, 2007, pp 291) Drory & Zaidman (2007) hypothesised that the types of impression management strategies used by employees in the military (as a ‘mechanistic’ organization) would differ from those used by civilian organizations in Israel. Mechanistic organizations are defined by Drory & Zaidman as those with a rigid hierarchy, high levels of formality,
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emphasis on employee obedience to seniors and minimum opportunities for innovative input by employees. On the other hand, organic organizations are defined by Drory & Zaidman as having a high level of informality, with frequent contact between seniors/juniors, many opportunities for employees to make innovative changes, and so on. Drory & Zaidman found that the Israeli army officers made more impression management attempts than employees in non-military Israeli organizations, and that army officers made more ingratiation attempts than employees in less mechanistic organizations. This supports Liden & Mitchell’s (1988) argument that one of the causes of ingratiatory behaviour in organizational settings is the nature of the organization’s culture, such as in terms of the level of inter-dependence within it. The influence of organizational culture can therefore mean that there are variations in the use of impression management strategies even within a wider cultural setting, such as an individualistic one. Rao, Schmidt & Murray (1995) investigated whether the amount of “formalization and routinization” (pp 153) within an organization would correspond with the use of ingratiation as an impression management tactic. Rao et al surveyed 134 manager-subordinate pairs from British manufacturing firms, government bodies and educational institutions. They determined the organizations’ culture using a measure with items such as: the degree of written work schedules, emphasis on written documents, standard operating procedures, defined job responsibilities, and so on. Unlike Drory & Zaidman (whose study was conducted in Israel), Rao et al’s British study found no significant correlation between the use of ingratiation by employees and the degree of formality/ routine in the organizations surveyed. Organization culture may thus create variations within one wider cultural context (individualist or collectivist), especially for some impression management strategies. Rao et al (1995) suggested that the use of ingratiation may be less typical or effective in British workplaces than in
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some other Western countries, such as the United States, – a difference which may be due to organization culture. Wayne & Liden (1995) surveyed pairs of US supervisors/subordinates and found a significant positive correlation between use of ingratiatory impression management tactics and liking by supervisors. Schmidt & Kipnis’s (1984) and Westphal & Stern’s (2007) US studies found similar results. There is therefore an interaction between national culture and organizational culture, as Parkes, Bochner & Schneider (2001) found in their study of workers from Australia and South-East Asia. The extent to which national culture takes precedence over organizational culture (or vice versa) may depend on a number of factors – such as the degree of similarity between the two or the cultural diversity of employees in an organization. Therefore, successful impression management in corporate settings requires that an individual gains important knowledge about both societal and organization-specific culture, and that an individual then uses that knowledge to strategise their impression management.
Knowledge about Individual Differences and Impression Management Irrespective of the culture of the actor or target(s), a person planning an impression management strategy should consider the individual characteristics of each target. Leary & Kowalski (1990) show that the individual attributes of the target audience determine the nature/intensity of impression management strategies chosen. Furthermore, a person’s individual characteristics may make them more competent at impression management or their individual characteristics may influence others’ receptiveness to them. Let us now explore some of the individual differences variables to consider in step three of the impression management knowledge audit model in Table 2. One important individual difference variable to consider is the status or power of the targets or the actor. Generally speaking, people exert more impression management efforts if the target people possess attributes such as high status, power or attractiveness (Schlenker, 1980). Individuals/ corporations may also need to adjust their impression management strategy to accommodate
Table 2. 3-step knowledge audit model for impression management Knowledge audit step 1 Impression deficit = desired impression minus actual impression
Knowledge audit step 2
Knowledge audit step 3
Impression management strategy needed
Adjustment in strategy required? Adjustment required by culture? Collectivist culture
Individualist culture
Organizational culture
=Acceptance deficit
=Show group loyalty
No
Yes
Analyse
=Compassion deficit
=Supplication
No
Yes
Analyse
=Competence deficit
=Exemplification
No
Yes
Analyse
=Credibility deficit
=Indirect tactic
No
No
Analyse
=Liking deficit
=Ingratiation
No
Yes
Analyse
=Power deficit
=Intimidation
Yes
No
Analyse
=Respect deficit
=Self-promotion
Yes
No
Analyse
=Reward deficit
=Acclamation
Yes
No
Analyse
=Status deficit
=Other nonverbal behaviour
No
No
Analyse
Other adjustments required? Case-bycase basis: Individual differences variables – e.g. high status of targets; selfmonitoring trait in self
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their own characteristics. High status, power and/ or attractiveness are likely to make them more successful at impression management (DePaulo, 1992; Schlenker, 1980). At the same time, some characteristics, such as high status, may make some impression management strategies inappropriate or even counter-productive (e.g. ingratiation, supplication), and other strategies may backfire, especially when made public (e.g. intimidation). Another important individual difference variable to consider is the level of ‘self-monitoring’ of the actor. Synder (1974) showed that some individuals are more adept at impression management because they possess high levels of a trait called self monitoring – a trait associated with high need for approval (Paulhus, 1982). Such individuals are also more successful at monitoring the success of their impression management attempts (Gangestad & Snyder, 2000) because of their level of attentiveness to situation cues (Snyder, 1974). People who score highly on the Self Monitoring Scale were found to be able to facially/vocally act out random emotions more successfully than low self monitors, as well as being able to decode others’ facial/vocal emotional expressions (Snyder, 1974). The other important individual difference variable to consider is the gender of the actor or the target(s). Despite advances in gender equality in many countries, sex-role stereotyping still has a pervasive effect on impression formation and on the success of particular impression management strategies. For instance, in their study of 760 US directors, Westphal & Stern (2007) found that male directors who deployed the strategy of ingratiation were more likely to be promoted than female directors who deployed the same strategy. Impression management strategies such as selfpromotion are more frequently used by males than females (Thornton et al, 2006), and women who engage in the strategy of self-promotion may receive hostility because they are viewed as having violated gender stereotypes. Shimanoff
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(1994) reviewed studies on gender differences in face-saving behaviour and concluded that women in many cultures behave in a more polite, subservient way, than men. Supplication has likewise been found to be more prevalent amongst females than males, (Thornton et al, 2006), perhaps because of gender-role stereotypes. At the same time, it is sensible for impression motivated individuals to avoid using tactics (e.g. flattery as part of ingratiation) that targets of an opposite gender could construe as sexual harassment. Timmerman & Bajema’s (1999) review of numerous studies concluded that definitions of sexual harassment vary, but may include such behaviour as unwanted compliments about clothing or appearance. Another important individual difference variable to consider in impression management is based on the concept of ‘idiosyncrasy credits.’ Hollander (1958) postulates that “…by conforming to group norms, people accumulate “idiosyncrasy credits” that allow them to deviate from norms in the future” (see Leary & Kowalski, 1990, pp 42). This suggests that, for example, an individual who usually engages in supplication in conformity to a societal or organizational cultural norm accumulates ‘credits’ that allow him/her to deviate from that supplication without jeopardising his/ her acceptance by the group. Therefore, impression-motivated individuals or corporations need to know about the role of individual difference variables, as well as knowing about the benefits of both society- and organization-specific cultural knowledge.
Integrating and Auditing Impression Management Knowledge: A 3-Step Knowledge Audit Model The first thing that an impression-motivated individual needs to do is to acquire knowledge about other peoples existing impressions of them. An individual who wants to manage others’ impressions of them will need to seek information about what these impressions are in the first place.
Strategising Impression Management in Corporations
Individuals then need to have explicit knowledge of their desired impressions, and to then find out whether there is a deficit between their desired impressions and the actual impressions that people have of them. Overall, there is often a “degree of discrepancy between the image one would like others to hold of oneself and the image one believes others already hold.” (Leary & Kowalski, 1990, pp 39). An impression-motivated individual may find out that there is a deficit in the extent to which they are perceived as competent, powerful, respected, and so on. Secondly, after identifying the nature of the impression deficit, an individual needs to identify the most appropriate strategy to rectify this deficit – something which requires the kind of knowledge that has been presented in this chapter. Table 2 pairs each type of impression deficit with the strategy most likely to rectify that deficit. Of course, more than one impression management strategy may be deployed to attempt to correct a particular deficit. For example, a meta-analytic study by Gordon (1996) of ingratiation studies found that ingratiatory tactics have a significant effect on both performance evaluations and liking. Thirdly, individuals need to find out what the local cultural norms are, as well as finding out about their organizational culture. This will determine the appropriateness of each potential impression management strategy. Individuals or corporations would therefore need to adjust the nature (see Table 1) of their impression management strategy or its intensity, depending on the cultural context. For example, in a Western context, a liking deficit may be solved with an indirect, rather than direct, ingratiation strategy. Therefore, rather than issuing overt flattery, an individual may indicate their flattery through imitation or through a third party. In an Eastern context, rather than engaging in overt self-promotion, an individual may couple their self-promotion with self-criticism, or they may emphasise the contribution of others to their achievements. Furthermore, individuals may need to adjust the nature or intensity of their strategy
to suit the specific culture of their organization, and they may also need to adjust their strategies according to their own individual characteristics or those of their target audience. How can employees – in particular those about to embark on international assignments – acquire this knowledge? Let us now consider the knowledge-enhancing role of cross-cultural training.
Creating an Impression Management Knowledge Base through Cross-Cultural Training Learning a language, reading a travel guide book or watching television programmes of films from a prospective host country is something that some expatriates are likely to do before commencing their jobs abroad. However, more formal cultural knowledge than this is needed. Prior familiarity with a prospective host culture is beneficial to cultural adaptation (Selmer, Chiu & Shenkar, 2007), but familiarity alone cannot sufficiently prepare expatriates for cultural adaptation. Selmer et al found that German expatriates in the USA were better culturally adjusted than American expatriates in Germany, perhaps because of the Germans’ prior familiarity with American culture (through, say, American television programmes or films). Nevertheless, Selmer et al recommended formal cross-cultural training for expatriates before they begin working in new cultural settings. In particular, would-be expatriate workers need to acquire in-depth knowledge about the host country’s cultural norms on interpersonal behaviour and on behaviour in workplaces. Organizations can devise formal cross-cultural training programmes for would-be expatriates, in order to increase their cultural knowledge base. In fact, a cultural knowledge deficit can lead to unreceptive behaviour towards people in the host culture. Richardson & McKenna (2006) conducted a qualitative study of 30 British expatriate academics in the United Arab Emirates, New Zealand, Singapore and Turkey and found that some
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participants discussed a “lack of local knowledge, not being able to relate to people, not having interactions with locals” (pp 13). Cross-cultural training of expatriates should therefore be useful in giving employees knowledge that they can utilise in the new cultural setting, also focussing on giving expatriates knowledge on workplace norms specific to the culture in question. Having prior cultural knowledge would prevent misunderstandings based on a lack of awareness about impression management behaviour in the new culture. Consider Peltokorpi’s (2006) qualitative study of 30 Nordic managers working in Japan from Denmark, Norway, Sweden and Finland. Peltokorpi asked the Nordic managers about their views of Japanese employees’ workplace behaviour. The Nordic managers commented on the prestige associated with age in Japan, such that seniority in rank was often associated with age, rather than competence, and such that “fresh ideas presented by young employees were often shot down before they reached the expatriate managers” (Peltokorpi, 2006, pp 110) because it was considered inappropriate for those of junior rank to present ideas directly to seniors. The Nordic managers also commented on the passiveness of Japanese employees in meetings, with the expatriate managers expressing frustration that the employees did not articulate their own feelings or ideas. The Nordic managers found all these cultural differences problematic. However, prior crosscultural training would have provided knowledge about impression management in workplaces and the impact of Japanese cultural norms on this. For example, junior Japanese employees’ shyness in meetings was probably part of their impression management strategies of supplication and conformity to the concept of ‘face’ – whereby Japanese juniors might not have wanted to risk embarrassing a senior by contradicting his/her ideas in a meeting. The Nordic managers found it problematic that junior Japanese employees sought guidance when asked to complete a task. Again, the Nordic managers appeared to have misinterpreted that as
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a lack of independence when in fact the junior Japanese employees were probably deploying the impression management strategy of supplication, a strategy which was probably usually rewarded by Japanese seniors. The Nordic managers appeared to have recognised the central role of collectivist cultural norms because they pointed out that “… virtually nothing [in the Japanese workplaces] was indicated to occur as a result of individual effort… Individualist and opportunistic behaviour can lead to social sanctions, such as exclusion from the principle social unit” (Peltokorpi’s, 2006, pp 112). However, despite recognising this, the expatriate Nordic managers found it problematic that the Japanese employees worked very well in teams but not so well if alone. Cross-cultural training could have enabled the expatriate managers to recognise the extent to which the impression management strategy of showing group loyalty, based on strong collectivist norms, explains the Japanese employees’ focus on team work, as opposed to individual output. Therefore, cross-cultural training should equip expatriates with knowledge about impression management strategies prevalent in the host culture. Why is this important? Cultural knowledge can make expatriates more culturally adaptive to their new work environment which, as we will now see, has positive effects on their work performance and adjustment.
The Benefits of Cultural Adaptation by Expatriates Cross-cultural adaptation or flexibility by expatriates has many benefits. Before exploring those benefits, it is important to note that adaptation to a new culture need not be assimilation. Pires, Stanton & Ostenfeld (2006) suggest that “adjustment strategies based on immersion in a foreign culture” (pp 156) can be beneficial to expatriates, but this fits the definition of assimilation. Assimilation involves a total immersion into a new culture and the abandonment of ones old culture (Berry, 2001),
Strategising Impression Management in Corporations
whereas cultural adaptation suggests a much more temporary or context-dependent kind of cultural flexibility. Yamazaki & Kayes’ (2007) study of Japanese expatriate managers in the US suggested that they devised ways of adapting to their new culture without actually assimilating in it, suggesting that expatriates do not need to change their cultural practices or beliefs. Therefore, cultural adaptation by expatriates is so called because it involves a dynamic process that ideally begins with fact-finding (such as from cross-cultural training) and continues through interactions with locals that allow further acquisition of knowledge about the impression management tactics that work in that culture. Cultural adaptation by expatriates has been found to have a positive impact on their work performance and/ or adjustment. For example, Shaffer et al (2006) conducted a study of Japanese expatriates working in or soon to be working in the US, as well as Korean expatriates working in other parts of Asia, the Americas and Europe. They found significant, albeit moderate, correlations between cultural flexibility, interaction adjustment (e.g. socializing with locals) and work adjustment (e.g. performing well in ones role). In a separate study of Western expatriates (mainly from the US, UK and Australia) working in Hong Kong, Shaffer et al found significant correlations amongst cultural adjustment, adjustment in interactions (such as socialising with Hong Kong nationals on a daily basis) and cultural adjustment. Likewise, Selmer (2006) conducted a study of 165 expatriate managers working in China from Western countries such as the US, Germany, Britain and Australia. Selmer found that the participants’ adjustment to working in a new cultural setting was positively correlated with their adjustment to interacting with the people in their host country. Similarly, Liu & Shaffer’s (2005) study of expatriate managers working in Hong Kong and China found that the extent to which the expatriates had Hong Kong/ Chinese interpersonal skills was significantly correlated with both work adjustment and inter-
action adjustment. This altogether suggests that expatriates’ work performance is related to their cultural flexibility, their adjustment to their host culture, and their interactions with local people. This is an empirically robust finding. There is also widespread evidence that adjustment to work, adjustment to social interactions, and adjustment to the environment/culture are three distinct variables (e.g. see Shimoni, Ronen & Rozimer’s, 2005, factor analysis using data from expatriates working in Israel). This means that an expatriate’s adjustment to a new workplace is not the same as adjusting to a new culture, and therefore he/ she needs to pay attention to both factors. There is evidence that some expatriates are aware of the benefits cultural adjustment. Stahl & Caligiuri (2005) found that, of 116 German expatriates working in the US and Japan, 18% of the expatriates adopted the strategy of interaction adjustment (e.g. inviting locals to visit their home), and 17% adopted the strategy of behaving in ways that save others’ face. However, the remaining percentage of expatriates that did not demonstrate cultural adaptation was still substantially large. Stahl & Caligiuri found that 25% of the expatriates adopted the strategy of intentionally violating local cultural norms and 21% adopted the strategy of negatively comparing the host culture with their own home culture. This suggests that a small but significant number of expatriates do the opposite of cultural adaptation – something which may have an unfavourable impact on the impressions that they form and the failure of their impression management attempts. This is likely, in turn, to have a negative impact on their work performance and it may harm their employers’ interests because the cultural adjustment process can be beneficial to business negotiations. Moore’s (2006) qualitative study of German expatriates working in the London branch of a German multinational bank found that the participants deployed impression management strategies that enabled them to be effective negotiators between the London branch and the head office. These strategies included
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variously showing group loyalty to the London office or to the German headquarters, playing on their London identity, or assuming an AngloGerman identity. There is also evidence suggesting that cultural adaptation enhances knowledge transfer by expatriates. Liu & Shaffer’s (2005) study of expatriate managers working in Hong Kong and China found a significant correlation between knowledge transfer performance (in terms of e.g. transferring information from the host organization to the home country or vice versa) and work performance, with this being significantly correlated with interaction adjustment. The knowledge gained through cultural adjustment by an expatriate can itself be a beneficial part of the knowledge transferred. Hocking, Brown & Harzing (2007) conducted a case study of a transnational firm and found that the learning of local knowledge by expatriates could be transferred to the home headquarters and therefore increase the latter’s global capabilities. Expatriates should thus be seen as useful fact-finders who can transfer their new cultural/ social knowledge to their home organization, which should in turn incorporate this knowledge into a formal cross-cultural training programme for other employees. What about multinational corporations? Although most impression management in workplace settings occurs at the individual level (that is to say, the actor is an individual rather than a group or organization), this is not to say that corporations cannot deploy impression management strategies. In fact, it can be argued that corporations operating in other cultures should gain knowledge about impression management strategies and use this in their public relations efforts.
Future Trends: Utilising Impression Management Knowledge in Corporate Public Relations Impression management by organizations is what is conventionally known as public relations. If
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organizational impression management is concerned with creating favourable impressions in other countries, it is known as international public relations (see Curtin & Gaither, 2007; Sriramesh & Vercic, 2001). However, corporate public relations are often concerned with that kind of organizational impression management that produces increases in, for example, product sales. In fact, as is evident with individual impression management, the goals of organizational impression management in new contexts should be more than simply marketing a product/service or increasing sales. In fact, it can be argued that – especially when a corporation is operating in a new culture – other impression management goals must necessarily be fulfilled before secondary goals such as increasing sales can be fulfilled. For example, ‘green’ (i.e. eco-friendly) values have become very popular in British culture, to such an extent that some social commentators argue that the green movement has been appropriated by mainstream society (e.g. Giddens, 2006), with increasing demand for products such as ecofriendly property (Telegraph, 2004). Many British companies now incorporate a ‘green’ message in their marketing material and websites, irrespective of whether these messages are relevant to their products or services. For example, a 2008 conference entitled ‘Green Marketing’ targeted themes such as making marketing more eco-friendly, recognising the marketing benefits of eco-friendly values, and so on, with scheduled speakers from mainstream organizations such as the Advertising Standards Authority (a regulatory body), Marks & Spencers, the BBC and British Telecom. Many companies in the UK now conform to eco-friendly values such as use of recycled paper, minimization of energy waste, and so on, integrating them into their corporate ethics. For example, HSBC, British Airways, British Gas, ITV, and many other major UK corporations coalesce with the Carbon Neutral Company, which runs a “carbon offset scheme” (Adam, 2006) that involves planting trees and creating eco-parks to compensate for the
Strategising Impression Management in Corporations
corporations’ negative impact on the environment. Many UK companies and public institutions also promote Fairtrade-certified produce and about 300 towns across the UK refer to themselves as “Fairtrade towns” (Fairtrade Foundation, 2008). Eco-friendly values have thus become so prevalent in the UK that contrary corporate behaviour is often considered a scandal and is ostracised in the media. For example, corporate executives or major politicians/ public figures using a private jet or driving so called ‘gas guzzling’ cars are often strongly criticised for having a large ‘carbon footprint’ (see e.g. BBC, 2006; Reuters, 2007). All this would mean that a new company wishing to fulfil the goal of gaining customers in the UK might first have to fulfil the goal of being viewed as an eco-responsible company. Likewise, in other cultures, there are particular important social values that new corporations need to learn about if they wish to manage the impressions that others have of them in those cultures. Therefore, firstly, organizations operating in other countries need to engage in a considerable amount of fact-finding in order to determine what their impression management goals are. Secondly, having determined their goals, corporations operating in foreign cultures, should – like individuals working in cross-cultural settings – perform the kind of impression management knowledge audit depicted in Table 2. Organizational impression management falls into the realm of public relations, and therefore it would fall upon public relations and marketing staff to seek and utilise knowledge on the appropriateness of different impression management strategies in the new culture. Therefore, such an impression management knowledge audit should establish: what a corporation’s goals are, what strategies are feasible or appropriate in a given culture, and how those strategies can be varied to accommodate successful public relations tactics used in that culture. Adapting impression management strategies to different cultural contexts is something which Coca Cola has often attempted. With regards to the
US market, Curtin & Gaither (2007) point out that: “For almost 100 years… the company [Coca Cola] had spent millions of dollars developing an image steeped in nostalgia and small town America” (pp 46), with Coke succeeding in being viewed as a product that is as American as ‘baseball or hamburgers’ (pp 47). At the same time, in India, Coca Cola adapted its public relations tactics, emphasising its commitment to the community: “…we are deeply involved in the life of the local communities in which we operate” (Coca Cola India; cited in Curtin & Gaither, 2007, pp 22). This resulted in many Indians – particularly those living close to Coca Cola factories – emphatically describing Coke as an Indian product (Curtin & Gaither, 2007). In Africa, the corporation created the Coca Cola Africa Foundation, an organization for “social investment” that addresses both “individual and collective needs” (Coca Cola website, 2008), perhaps in recognition of the likelihood that African cultures have both collectivist and individualist characteristics. Coca Cola’s African mission statement is notably different from the corporation’s Spain Foundation, which focuses on promoting fine arts amongst youths, or the corporation’s Nordic Environmental Foundation, which promotes eco-friendly projects (Coca Cola website, 2008). In Japan and China, Tian (2006) similarly argues that “… Coca Cola has been integrating local traditional cultural factors into its strategies” (pp 16) and on its China website the corporation shows its identification with Chinese culture. It can therefore be argued that Coca Cola’s public relations (or impression management) attempts involve localised cultural adaptation. Nevertheless, these attempts are sometimes undermined by other factors and Coca Cola therefore has to make a continuing effort to maintain its desired impressions. For example, Coca Cola in India has faced widespread criticisms, boycotts and demonstrations because of allegedly emitting toxic sludge (BBC News, 2003a), depleting local water sources (BBC News, 2005) and because
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coke drinks there allegedly contain pesticide pollutions (BBC News 2003b). In the UK, Coca Cola miscalculated the nature of the market for bottled water when it launched a brand of bottled purified tap water (called ‘Dasani’) that received heavy criticism for not only being ‘mere’ tap water but for also containing levels of bromate that contravened UK limits (BBC News, 2004). Dasani was subsequently withdrawn from the UK market. In Belgium, there was a temporary ban on Coca Cola drinks after some consumers complained of shivering, nausea and other symptoms and the corporation embarked on an ‘aggressive’campaign to rebuild its image (Johnson & Peppas, 2003). Therefore, Coca Cola needs to regularly monitor and update its impression management strategies because its public image is itself not static. Similarly, McDonalds recognises the need for cultural adaptation, such as by including meal variations based on local customs. For instance, McDonald’s sells falafel burgers in Egypt and Morocco, burrito breakfasts in the US, kosher meals in countries such as Israel, halal meat in countries such as Malaysia, serving coffee in china cups in Portugal, spicy chicken burgers in Singapore and so on. McDonalds has also learned to adapt itself to suit the needs that are of high importance in a given culture – such as studious behaviour by children and youths. In China and Singapore, McDonald’s has gained fame as a place where children can do their homework (Zukin & Maguire, 2004). However, there are ways in which McDonald’s can further adapt itself to suit local cultural norms. For example, Eckhardt & Houston (2002) found that Chinese participants described seating arrangements at McDonald’s restaurants as “too public” (pp 72) because of their open-plan nature, compared to the cubicle-style of many Chinese restaurants. Eckhardt & Houston report that Chinese couples on dates in McDonald’s restaurants felt more exposed and uncomfortable than they would have felt if seating arrangements were similar to those found in traditional Chinese res-
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taurants or noodle bars. In addition, McDonald’s was slow to adapt to the eco-friendly culture that has been gaining popularity in Britain and other Western countries, governing negative attitudes towards artificial ingredients in food, genetically modified produce and crops not grown organically. The bestselling film “Supersize Me” (Spurlock, 2004), which was a case-study of the effects of McDonald’s meals on health, was arguably a product of this growing cultural phenomenon. McDonald’s sales that year were affected; for example, in the UK, the companies profits fell from £83.8 million in 2003 to £23.5 million in 2004 (see Oliver, 2005). McDonald’s refuted the film’s claims but it then discontinued ‘supersize’ meal options and introduced a ‘Premium’ line in North America, parts of Europe and Australia/ New Zealand. This meant that salads and healthy options such as deli sandwiches were introduced in these parts of the world, although they are may not be financially successful. The fact that this menu continues to be offered in the West and is not available worldwide suggests that the move by McDonald’s was strategic and that it was an example of adjustment to cultural values of growing importance in the West. Furthermore, McDonald’s is often associated with the standardization of eating habits, the elimination of culinary variety and with emphasis on cheap, quick food. This has spawned regional movements such as the European/ North American Slow Food Movement (see slowfood.com), which is against the notion of fast food and supports the more traditional restaurant format. In addition to being associated with the standardization of eating habits, McDonald’s is also often associated with American culture, meaning that some regions of the world resist “McDonaldization” because they associate it with “Americanization” (Illouz & John, 2003, pp 202; see also Bryman, 2003). This has led to regular global protests (such as during the Worldwide Anti-McDonald’s Day) as well as perceptions of conflict between other national identities and consumption at McDonald’s (see
Strategising Impression Management in Corporations
e.g. Illouz & John, 2003, who discuss attitudes towards McDonald’s in Israel). Therefore, global corporations such as McDonald’s often struggle to maintain the impression that they are truly global and not merely expansions of a corporation from one nation. Some corporations seem to recognise the difficulty of attaining a truly global identity, and they capitalise on their exoticism as representatives of particular cultures, viewing this as a more achievable primary impression management goal. For example, KFC (Kentucky Fried Chicken) emphasises its roots in American cuisine, giving customers in other countries the impression that they are participating in an authentic American eating experience (see Friedman, 1999). Other corporations – rather than emphasising a global identity that downplays national differences – focus on the impression management goal of appearing diverse. For example, it can be argued that the multinational bank HSBC (Hong Kong & Shanghai Banking Corporation) has recognised the benefits of possessing an image of national diversity, and its public relations attempts often revolve around the slogan “The world’s local bank” (HSBC, 2008). Another example is provided by two members of HSBC, Gakovic & Yardley (2007), who discuss “global talent management” (pp 201), which emphasises national diversity of recruits, as the bank’s “organizational development solution” (pp 201). Nevertheless, the impression management aim of appearing global and diverse may be difficult for HSBC to fulfil because its business is unlikely to be equally distributed across all countries with a HSBC presence. As we have seen, some multinational corporations have recognised the benefits of cultural adjustment and strategic international public relations. However, such corporations are arguably in the minority. For example, in terms of advertising in other countries, many corporations use the same television commercials (albeit for dubbing voices in other languages or adding subtitles), believing that the commercials’ success will be replicated in
new countries. In fact, what corporations should do is to regard television commercials or other publicity platforms as important opportunities for impression management, and to therefore begin by performing the knowledge audit in Table 2 before creating or editing commercials to suit each cultural context. Let us consider some hypothetical examples of this in Table 3. In each example, we see how the same impression management goal can be fulfilled in different, culturally-specific ways. The examples in this table illustrate the differences between collectivist and individualist cultures, and they demonstrate ways in which a primary cultural theme (e.g. individualism or collectivism) can be reinforced even whilst trying to meet secondary impression management goals such as being viewed as efficient, polite, popular, down-to-earth, and so on. In addition, as Curtin & Gaither argue, global corporations need to recognise the potentially diverse forms that public relations could take in other countries – and to realize that these forms can be radically different from their own public relations activities at home. For example, Curtin & Gaither report that public relations in India often takes the form of dance, skits and plays; in Ghana, storytelling is often used as a public relations method; poetry is often used in Saudi Arabian public gatherings as part of public relations, and so on. At the same time, corporations need to evaluate the ethics of their chosen impression management tactics, ensuring that their cultural adaptation is not based on harmful over-generalisation (i.e. stereotyping) of their targets’ culture. The need for ethical standards also applies to impression management by individuals.
Controversies: The Ethics of Impression Management In the example provided in Table 1, if Gertrude (who turns up to work at her desk very early in the morning in order to give her supervisors the
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Table 3. Examples of how corporations can deploy impression management strategies Impressionmanagementgoal (multinational corporation)
Known strategy to fulfil goal
Culture-specific example (corporate)
Imagine if Microsoft, a software company, wants to give the impression that it offers the most efficient software.
Acclamation
In a Chinese commercial, Microsoft could claim that it’s anti-virus software enable people to collectively defend China’s computer networks.
In an American commercial, Microsoft could claim that it’s anti-virus software enable each individual subscriber to have the best defended computer.
Imagine if Phillips, an electric appliance company, wants to give the impression that its employees are conscientious.
Exemplification
In a Chinese version of its website, Phillips could depict its factory employees working over-time to ensure that all households are well equipped.
In an American version of its website, Phillips could depict its factory employees working over-time to ensure that hard-working individuals the best equipped homes.
Imagine if CNN, a cable/ satellite television channel, wants to give the impression that prototypical local people watch it.
Indirect tactic
In a broadcast to China, CNN could depict a well-known Chinese family organising a gathering to watch CNN together.
In a broadcast to USA, CNN could depict a wealthy American celebrity watching CNN and benefiting materially from doing so.
Imagine if Ford, an automobile company, wants to give the impression that it its employees are immensely polite.
Ingratiation
In a Chinese commercial, Ford could depict employees in a Ford showroom being very polite to clients whose qualities (e.g. age) are typically accorded respect.
In an American commercial, Ford could depict employees in a Ford showroom being very polite to clients whose qualities (e.g. success) are typically accorded respect.
Imagine if HSBC, a banking company sternly wants to give the impression that it offers authoritative advice.
Intimidation
During a feature on a Chinese discussion programme, community leaders could warn viewers to listen to HSBC’s advice or risk their financial future.
During a feature on an American discussion programme, a well-known entrepreneur could warn viewers to listen to HSBC’s advice or risk financial ruin.
Imagine if Emirates, an airline, wants to give the impression that it has international experts recommend it.
Self-promotion
In a press release in China, Emirates could report that travel experts gave it a star rating, and suggest that this indicates that the international community is pleased with it.
In a press release in the USA, Emirates could report that renown travel experts gave it a star rating, and suggest that this is benefits the image of travellers who use it.
Imagine if Hilton, a hotel chain, wants to give the impression that it is a member or supporter of a given cultural group.
Show group loyalty
In brochures to be distributed in China, Hilton could depict itself as a long-standing host of Chinese cultural events and a hotel chain that upholds Chinese traditional décor and cuisine.
In brochures to be distributed in the USA, Hilton could depict itself as a hotel chain that respects the individuality of guests in the USA, varying the menu and décor of rooms to suit various tastes.
Imagine if Fedex, a courier company, wants to give the impression that it is an unpretentious company.
Supplication
In a documentary to be broadcast in China, Fedex could depict its courier staff as people who make humorous, self-abasing gaffs in their attempt to deliver a package to a community organization in China.
In a documentary to be broadcast in the USA, Fedex could depict a member of its courier staff as a person who makes humorous, self-abasing gaffs in his/ her attempt to deliver a package to a prototypical American.
Collectivist culture
impression that she is conscientious) actually spends the extra time writing a blog, her impression management behaviour seems deceptive. If Samson actually thinks that his project manager’s new marketing plan is awful, but he starts saying that it is wonderful in order to ingratiate himself, this would be deceptive. The head chef Rachel,
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Individualist culture
who shouts and uses bad language at junior chefs as part of the strategy of intimidation may succeed in gaining her juniors’ respect but at a considerable cost to their mental wellbeing. If Martha erroneously believes that her articles contributed to the increase in newspaper copies sold and tells people this, it might be more beneficial to her professional
Strategising Impression Management in Corporations
ambitions if she objectively evaluates the quality of her articles instead. Therefore, strategies such as ingratiation, exemplification, acclamation, self promotion, and others, might sometimes seem to involve deception of others, self-deception, an exaggeration of the truth, the omission of the truth or harm to others’ wellbeing. James Westphal, in an interview by Capos (2008), discussed the ethical costs of impression management strategies to corporations. In particular, Westphal discussed the ethics of ingratiation, which he argued is not frowned upon and very much the norm in US corporations. Westphal argued that “Ingratiation can have adverse consequences, depending upon the company’s situation… Our research suggests that if directors are appointed on the basis of their ingratiatory behaviour, they are less likely to [question or monitor the decision made at board level].” (cited in Capos, 2008). Westphal reported that managers who lack high-level management experience are most likely to engage in ingratiation, thus gaining access to positions that they otherwise would not have qualified for. Although this may seem beneficial to both the promoted managers and those doing the promoting (whose self esteem would be boosted by ingratiation from former), Westphal pointed out that it is not beneficial to the company as a whole or its shareholders. For example, a company’s performance could suffer if it is led by someone without the appropriate level of competence. Westphal thus recommends that board recruitment is done by outsiders such as head-hunting firms, rather than through informal networks, because the most ingratiatory internal employee or the most ingratiatory external candidate known via social circles (rather than necessarily the most competent) is otherwise likely to be promoted. What about ingratiation through favours (see Table 1)? Westphal (cited in Capos, 2008, who interviewed him for an article) reported that favour-doing is quite common on the US Wall Street, with favours often being market-oriented,
such as in terms of recommending someone for a job or as a supplier. However, Westphal argued that “favour-rendering” is not bribery or fraud. Perhaps the ethics of ingratiation through doing favours depends on whether an individual’s competitors (e.g. their co-workers) have the opportunity or the capability to do similar favours. If Matt (see Table 1) volunteers to collect his department director’s favourite takeaway lunch, this does not seem unethical since his co-workers could volunteer to do the same. If Matt chose to give his department director a $50 gift voucher for Christmas, this might not be bribery since the sum is one which co-workers can afford and the occasion is one which all co-workers have the opportunity to give gifts. If, however, Matt decides to give his director $1000 – even if as a Christmas gift – then this might seem like bribery, especially if Matt is secretive about his gift and if the circumstance suggests that it is a bribe (say, if, the director is in the process of deciding who gets a large bonus or pay rise). In addition, Westphal pointed out that long-term shareholders could lose out if the favour-rendering affects their long-term investments. Therefore, some instances of impression management are ethically questionable. However, does this necessarily have to be the case: do these strategies necessarily have to be deployed in an unethical manner? In the Table 1 examples, Gertrude could spend the extra time actually working, and therefore deploy the strategy of exemplification without deceiving her supervisors. Samson could deal with his situation by using a different type of ingratiation. Rather than choosing the deceptive strategy of transforming disagreement into agreement (when in fact he strongly disagrees with his project manager’s plan), he can choose the strategy of ingratiation through flattery whilst sticking to his disagreement. Samson can therefore think of genuine compliments to relay to his project manager, relay them, and then thoughtfully explain why he disagrees with the marketing plan. Head chef Rachel could fulfil
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her impression management goal of gaining her juniors’ respect without deploying the strategy of intimidation in the way that she did. Instead, Rachel could still adapt an aloof, formal demeanour, sternly criticising the food rather than criticising a junior chef’s character, and therefore adapting the strategy of intimidation without putting her staff’s mental wellbeing in jeopardy. Likewise, rather than deceiving herself about the impact of her articles on her newspaper’s sales, Martha could solicit genuine feedback about her articles and base an impression management strategy on that feedback.
Further Research Questions Having integrated knowledge from different disciplines (e.g. applied psychology, management, human resources), it is important for this knowledge to be utilised in generating empirical research on impression management in corporate settings. Firstly, during the process of researching this chapter, the author found that most published research articles focus on one or a few of the impression management strategies presented in Table 2. A single psychometric scale measuring all of the strategies (and sub-strategies) presented in Table 2 therefore needs to be developed. Secondly, considering that a new impression management knowledge audit model has been presented in this chapter, it is important to empirically test this model, also ensuring that cross-cultural samples and samples from different types of organizations are used. Thirdly, it is argued that individuals or corporations need to regularly re-run the three steps of the audit in Table 2, based on new knowledge that they acquire, and therefore the process of impression management should be a dynamic process using the audit model as a guidance tool rather than as a prescriptive one. It is argued that employees or corporations that run this knowledge audit should be more successful at impression management than individuals or corporations who do not do so. Therefore, the third important
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further research question should investigate this hypothesis. For instance, it is predicted that expatriates who obtain relevant cross-cultural training should be more successful (in terms of impression management) in their host cultures than expatriates who do not obtain such training. Research should also explore the benefits of cross-cultural training in impression management processes within organizations with employees from different cultures, as well as exploring the interaction between organizational culture and national culture. Empirical investigations of these research questions will be of great value.
CONCLUSION Having compiled a taxonomy of impression management strategies typically used in corporate settings, this chapter explored the role of cultural knowledge on impression management. Cultural knowledge was discussed as something which serves as powerful capital in impression management and as something which concerns both the specific culture of a given organization and the surrounding societal culture. For instance, would-be expatriates wishing to deploy impression management strategies can benefit from establishing a knowledge base about their prospective host culture through attending cross-cultural training. In addition to adjusting for culture, employees or corporations need to adjust their impression management strategy to accommodate the individual characteristics of their target person(s). Therefore, an impression management knowledge audit by employees or corporations should be concerned with acquiring knowledge about not just the psychology of impression management but also cultural adaptation/ flexibility as well as individual differences. Corporations can likewise utilise the knowledge presented in this chapter to maximise their international public relations attempts. Both individual employees and corporations as a whole should consider the ethics of
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their chosen impression management tactics and realise that impression management strategies can and should be deployed ethically. One of the further research questions outlined highlighted the need for cross-cultural research testing the benefits of the presented knowledge audit model for employees or corporations using it.
Chang, K., & Lu, L. (2007). Characteristics of organizational culture, stressors and wellbeing: The case of Taiwanese organizations. Journal of Managerial Psychology, 22(6), 549–598. doi:10.1108/02683940710778431
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This work was previously published in Cultural Implications of Knowledge Sharing, Management and Transfer: Identifying Competitive Advantage, edited by Deogratias Harorimana, pp. 60-83, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 6.10
Agile Alignment of Enterprise Execution Capabilities with Strategy Daniel Worden RuleSmith Corporation, Canada
ABSTRACT Emergent strategy provides for both planned and reactive aspects of strategic planning. It also identifies that strategy as implemented will often have different characteristics than originally anticipated. Today, even traditional, non-knowledge based organizations have adopted comparatively high levels of computerization compared to a decade ago. Enterprises now rely extensively on digital systems for data handling across operational and administrative processes. This chapter DOI: 10.4018/978-1-60960-587-2.ch610
maintains that detection and reporting capabilities inherent in information technology (IT) can themselves be exploited as a strategy for managing knowledge. Using feedback loops to describe the dynamics of systems lets an organization capture and communicate intended strategy and emergent characteristics of the actual strategy along with changes in the execution environment. The role of IT as an execution capability required for both business strategy and knowledge management is examined, along with the need to more quickly align the business processes that use IT services to changes in business strategies or priorities. Advances in IT assisting in requirements discovery,
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Agile Alignment of Enterprise Execution Capabilities with Strategy
system design and development- including use cases, patterns, decision modeling, and aspectoriented software-are discussed. Techniques to capture and communicate knowledge vital for aligning organizational capabilities with emerging strategies and competing priorities are evaluated. A predicted emergent business pattern as a tool for managing the capture and communication of organizational knowledge is proposed. This includes techniques for defining strategy and decision elements as data about processes that can be used during execution to trigger notification and appropriate handling of exceptional events.
INTRODUCTION Knowledge management strategies require effective execution to be successful. Over time, information technology has become a de facto repository for organization knowledge, in the form of business rules and data integrity constraints expressed as computer programs. IT is a requirement for successful execution of a knowledge management strategy. Even while information systems have become increasingly pervasive across organizations of all sizes and types, their ability to capture and convey knowledge elements has generally been secondary to their intended utility in processing data. In many cases, these systems are deemed inflexible, expensive to enhance or worse. As much as organizations have come to rely on information technology to enable their knowledge strategies, change to the computing infrastructure, or the introduction of new systems to support knowledge management carries significant risk. Many enterprises have launched IT initiatives that have failed completely (Santa, Ferrer & Pun, 2007). Recent innovations in information technology and techniques offer valuable new ways to use information technology to collect and communi-
cate knowledge across organizational lines and functions, while reducing that risk. The Predicted-Emergent pattern captures a context and motivation for any organizational endeavor, describing both the planned for and actual events that occur. Advanced separation of concerns is used to define relevant scope for each activity. These activities include strategic planning and course correction, and progress through levels of detail down to business process definition and decision management. These in turn can be implemented as adaptive software, which establish thresholds for action and notification through operational parameters. This approach pulls the discussion of IT solution elements into earlier phases in the organizational planning process. Incorporating a predictedemergent knowledge management strategy allows the enterprise to more accurately assess events as the plan unfolds, and to communicate priorities more quickly. The net effect is faster reaction and shorter implementation times with the ability to capture significant new knowledge as it arises from organizational experience. The predicted-emergent approach to knowledge management strategy seeks to enable an agile alignment between enterprise planning and operational systems. The legacy of traditional systems has given rise to hardened silos of computing, with inflexible data structures, complex program logic, scattered business rules and standard reports designed to serve a fixed set of organizational requirements. This gap between expectations for and delivery of information system affects and is affected by knowledge management practices. Given that IT frequently fails to deliver basic business operations support, it should come as no surprise that a gap exists between implemented systems and their capabilities for the management of institutional knowledge. That there is a lack of alignment between information technology departments and enterprise strategies is not a new observation (Chan, Huff &
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Copeland, 1998). Nor is the notion that IT can and should be an integral part of realized corporate business and knowledge management strategies (Henderson & Venkatraman, 1992). Achieving the goal of pulling those systems into tighter alignment with needs for knowledge management and adaptive organizational strategies lies in the first part with those responsible for defining system requirements. If the lack of alignment between operational information systems and business strategy is the problem, a solution can be found in creating a faster, more accurate feedback loop between planning and execution. Many IT practitioners have already identified this as an area of focus for their own strategies. That community often refers to the process by the jargon term - agility. This chapter introduces several techniques that have emerged as part of research and practice of information technology and computer science. These practices have relevance to knowledge management strategies; particularly in support of capture and communication of both requirements and capabilities.
The discussion of techniques and approaches begins with the gathering of requirements to describe the problem domain. Enterprise business and knowledge management strategies are considered included in those requirements. As part of the expression of business requirements, however, several innovative architectural notions from software development will be introduced. The value of expressing the problem within the framework of how the solutions are developed will be considered. This chapter will describe the linkage of business processes with their operational context as well as how meta-data about the process can be defined, collected and acted upon as part of a dynamic loop, as shown in Figure 1. The goal is to outline a set of steps for containing business planning and process models into descriptions grouped by relevant level of detail for both business process owners and solution developers.
Strategic Feedback Every strategy admits of both assumptions and a lack of certain foreknowledge of events yet to
Figure 1. A predicted-emergent feedback loop for business strategies
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occur. Plans have within them the seeds of achievement and disappointment in similar measure. In keeping with this reality is the need to continually inform business development strategies with events as they actually unfold and the situation as actually exists. Knowledge of these things is a strategic advantage, as it allows an organization to change, refine or bolster a given plan based on how well the assumptions are validated and the ability of the organization to address unanticipated issues that arise. This combination of top-down strategy and bottom-up status reporting creates a feedback loop and represents a dynamic between the planned and the discovered. A systems dynamics model of the overall flow is shown in Figure 1. The diagram depicts the role of the knowledgebase (KB) as central to deriving predictions or making strategic assumptions as well as collecting event information to populate the knowledge base with data. Predictions are essentially known unknowns, with probabilistic values supplied for purposes of decision-making. Detected events are added to the KB as either predicted or unpredicted. Additionally, the diagram shows that there is a class of event that goes undetected and correspondingly uncollected within the knowledgebase. Unpredicted events may occur but remain undetected for some period of time. Agile alignment as a strategy emphasizes the role of event detection to improve predictions or expose areas for strategic evaluation. Ranges for probable values defined as part of predictions is a key way to ensure the pattern translates into a specification for usable systems dynamics model. By setting minimum and maximum ranges various scenarios can be simulated to determine the effect on other elements in the system.
Describing the Problem to be Solved There are few truly ‘green field’ opportunities to define business strategies, plans and projects from scratch. Generally, some version of the activity or
system is already in use. In keeping with this reality, assume that some knowledge about the systems and processes will already exist. What is needed then is a strategy for capturing this knowledge in a manner that will make it more suitable for inclusion in enterprise planning and operation. Use cases have become a commonly used mechanism to capture business requirements and describe systems behaviors. Arising from early software development methodology efforts, they are an example of the practical value IT innovators can provide to business users and management through systems tools and techniques. Clearly, use case models are not in and of themselves sufficient to define a given organizational problem, but in combination with process models, business plans and budgets, the user view of the problem can be explained this way. Use case descriptions typically incorporate step-by-step flows of user-system interaction through ‘as-is’ and ‘to-be’ versions of the organizations behavior. Use cases are a vitally important tool for the capture of knowledge management, though some care must be paid in how the use cases narratives are structured in order to optimize their applicability to knowledge management in practice. With the formulation of a use case based approach to requirements gathering, many software project members believe they are effectively capturing ‘real’ business requirements. However, too often the effort bogs down in degree of detail – either too high or too light – and in an attempt to capture every scenario imaginable. Employing use case descriptions supports the agile, iterative development process, allowing the design and development to flesh out detail as it is discovered. More important, the focus is on defining what is known and how to handle all other events – whatever they may be- as they arise. Accordingly, capturing all possible scenarios is less important than defining the foreseeable (predictable) states of a process, and identifying
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the acceptable parameters within which it may operate effectively. Once the business defines these parameterized processes, the exception handling procedures of an emergent event means that software developers can reasonably rely on coding only those cases that are explicitly specified. They can also ensure those parameters are accessible and modifiable by business users of the software rather than requiring re-coding. By pulling the definition of exception handling up into the earliest efforts of the requirements gathering, processes can be formalized, reviewed and revised as needed. Test cases that reflect exception handling can be derived concurrently with the use case effort. Programmers can then focus their efforts on automating well-defined scenarios, while throwing all others, predicted or not, into the exception handling processes defined as acceptable to the business. This offers the promise of increased quality of the delivered product (by alleviating programmers requirement to guess at how the system should behave) as well as making the system more responsive to changes in thresholds, which are administered by those closest to the systems use, specifically the business (Alexander, 2004).
A Strategic Context Use cases are a relatively low-level artifact within an enterprise knowledge system. Frequently they deal with detail at the process and function level. The motivation of the business for the project or process sponsoring the use cases will be taken as an input or an assumption. However, as a function of their ability to convey ‘as-is and ‘to-be’states, Use cases provide a vehicle to capture current capabilities (or challenges) of the current environment to planners, and also to communicate strategic goals or priorities to mid level operations resources.
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EMERGENT STRATEGY Organizational strategies may be deliberate or emergent (Mintzberg & Waters, 1985). The classic vision of the senior leader devising a brilliant plan for the way ahead is the epitome of a deliberate strategy. In contrast the emergent strategy is one that arises out of experience. It is this capture and dissemination of experience that is most relevant to knowledge management. Decision makers and business planners are a key user and constituency of knowledge management systems. They depend on the collection and communication of relevant, timely information that describes the status of the organization and changes in the environment in which it operates. That information can be aggregated into repeatable patterns that form the basis for organizational knowledge. However, this tends not to happen effectively when relied on to occur spontaneously. Part of the difficulty in creating a learning organization that adapts to its environment as changed circumstances or incorrect assumptions are encountered is the human tendency to avoid communicating ‘bad news.’ The recommended approach to defining exceptions and notification parameters as part of use cases definitions is one way to de-politicize that communication. Where intended strategy is the deliberate plan, emergent strategy is the plan as realized or implemented. Success is a function of how well and how quickly variances between the two can be identified and reconciled. The intent of this chapter is to provide specific techniques that can be used to better employ use cases and emergent strategy in knowledge management efforts. One of the techniques that support overlaying business process definition and use cases with strategies for enhancing institutional knowledge management is to separate the concerns.
Agile Alignment of Enterprise Execution Capabilities with Strategy
Advanced Separation of Concerns In software engineering, the separation of concerns is a principle that allows complexity to be restricted to a certain number of elements related by a given context or purpose (Dijkstra, 1976). The problem and solution domains represented by the business users and IT solution providers can be taken as one example of two separate concerns. Integrating those two is another concern in its own right. Concerns may be separated into level of detail, for instance where both the problem and solution definitions are being addressed within a single iteration during an agile development project, or along a chain of related processes, as part of an operational or planning exercise. The separation may also occur dynamically as a concern arises, from an audit for example or as non-compliance with a new regulation. One of the knowledge management strategies advocated in this chapter is to identify knowledge management concerns. Each of these can be rooted in current practice or systems, from which the realized strategy may emerge for validation or review. Alternately, a change in overall direction or priority may be a deliberate strategy that requires implementation to be made effective. The technique for defining specific processes to be handled by a system and raising exceptions is another example of applying the principle of separation of concerns. By doing so deliberately, the requirements express not only precisely what the process is intended to achieve, but also a mechanism for handling all exceptions that occur outside those pre-defined thresholds. These are the parameterized processes set by the business. Use cases that reflect these requirements capture the business intent and also better enable the allocation of implementation work to specialists. One resource with suitable background and knowledge to handle the active process can be assigned to requirements, design or programming as appropriate. Others may be given the task of detecting and handling the exceptions.
While business focused practitioners will not be burdened with having to understand the solution design internals, software architects will realize this promotes both agile, iterative development and also sets the stage for an aspect oriented (Kiczales, et al., 1997) solution to be developed.
Knowledge Management Aspects To this point communication has run from leadership to operational resources and back, and from business users to coders, however, knowledge management concerns are not necessarily hierarchical. In identifying separate concerns, it is also possible to intersect those concerns with an additional concern. A learning organization may identify a concern for knowledge capture and consolidation into a specified knowledgebase. Given that exception handling is its own concern, so too would this acquisition of knowledge elements. But where an exception handling process might be common to some number, or unique to a single process, knowledge acquisition will cut across a number of processes and domains. It becomes a crosscutting concern or aspect of the system. Put another way, a knowledge system may not simply exist separate and apart from an operational system. Knowledge systems can also be constructed as aspects of all other systems, with their own unique set of elements included as part of its own knowledge management concern, co-existing with the operational systems in use within the enterprise. The useful computer science innovation that applies here is AOSD, Aspect Oriented Software Development. Building on the use case definition technique described in this chapter, a knowledge management aspect could be considered to be the requirement for a KM practitioner to be notified of previously un-encountered exceptions, so they can be reviewed for severity, catalogued and handled as predicted scenarios as appropriate.
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This approach may prove less technically demanding than might be feared. Trends in software development have been leading towards an emphasis on discovery over rigidly defined specifications. This is consistent with the needs of emergent strategy, as it reflects the reality that environments change, as does knowledge of that change, and it can be used to support organizational learning. Agility in IT terms can become synonymous with enterprise adaptability, enabled by an aspect oriented knowledge management strategy.
ADVICE FOR UN-TANGLING AND UN-SCATTERING Using aspects as a fundamental approach to segregating systems concerns was intended to solve a particular problem that arises in object-oriented approaches to software development. As objects are defined as methods or operations that occur on specific data, those operations can be required on many different data sets throughout an information system. As a result, the operations become scattered across the code and the business models used to depict the processes and software solution. Additionally, certain concerns, such as exception handling, cut across many other concerns and so become tangled up with other concerns such as business logic and operational rules. Where a use case involves several systems components it can be considered to be subject to scattering, and where a component is invoked by several use cases it may be considered to be entangled. The mechanism used in AOSD to encapsulate crosscutting aspects is called ‘advice’. Advice is of particular interest in the context of knowledge management practice. As described earlier, to achieve separation of concerns in software solutions, it is a great benefit to define them as part of requirements. Use cases support this defined separation, but do not force it. By defining and naming certain functions, such as exception handling, or notification as Advice, use cases may
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simply refer to the function to be called without bogging the effort down in explaining the detailed implementation of the procedure. Emergent strategy provides a way to capture the differences between strategy and plans as implemented when compared to their original intent. Use cases provide a way to document business requirements that can be used to describe systems to implement solutions for meeting those requirements. Aspects provide a way to separate the concerns into manageable modules and to navigate both the requirements and software solutions along the path relevant to a given purpose.
RE-USE THROUGH PATTERN LANGUAGE With their 1995 book Design Patterns: Elements of Reusable Object-Oriented Software by Erich Gamma, Richard Helm, Ralph Johnson, and John Vlissides (the famous Gang of Four or GoF) translated the architectural concept of Patterns to software design. Their work was inspired by another book, that of an Architect Christopher Alexander – Towns, Buildings, Construction – A Pattern Language. Through their combined insight, design problems and aspects of their solutions can be more efficiently abstracted and communicated from one setting to another. Design patterns are by definition constituent elements of a solution. These patterns inform the construction of a software solution. The extent to which that solution addresses specific problems depends on how well the design pattern fits within the target problem domain. The solutions as built will only accidentally address the problem better than it was designed to do. As well as introducing design patterns to the software industry, the GoF went on to create the Unified Modeling Language (UML) and the Rational Unified Process (RUP) for requirements discovery and software development. Their original focus was primarily on the optimal engineering
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of software solutions. There was somewhat less emphasis on establishing the context in which the solution fits until Jacobson brought his use case emphasis with him when he joined the group in 1995. A subset of these tools and techniques are applicable to knowledge management systems, particularly some of the patterns for describing problems and solutions.
PATTERNS USAGE IN KNOWLEDGE MANAGEMENT Design patterns and pattern language have influenced the Information Technology community for more than a decade. The applicability of these concepts, approaches and tools to a knowledge management environment may be less common (Hughes, 2006). One dictionary definition of the work ‘Pattern’ is as follows: Anything used as a model or guide for something to be fashioned or made (Dictionary.com, n.d.).As an information or knowledge management system is something to be fashioned or made, it would seem to follow that patterns for the creation of effective solutions should be available. This general definition of the term has been made much more specific as applied to the creation of software solutions. However, the emphasis in this chapter is not solely on the construction of solutions, but rather on the setting of the overall and on-going context in which software solutions must fit. A pattern language for business concepts, including an enterprise architecture that encompasses its requirements and IT services, is delineated as part of the IBM Enterprise Solutions Structure (McDavid, n.d.). This approach uses patterns to describe situations where IT solutions fill a role. One benefit of this approach is apportioning of the business functions with human and computing resources are intertwined but still contained within discrete blocks. Consistent with advanced
separation of concerns, this approach segregates the functions allowing detailed design for both the problem and solution domains while containing the scope into a discrete and manageable size. The intent behind pattern language was to communicate applicable considerations from one environment to another. As such it is highly suited to adoption as part of a knowledge management strategy. This chapter advocates that pattern descriptions for software solutions be pulled into the requirements definition phase of information systems projects, through the vehicle of use case descriptions. By applying aspect-oriented labels to organizational functions within business processes described during use case development, an optimized level of modularization can be achieved. This modularization contains both requirements and systems support and lends itself to agile and iterative implementation. In turn, this agile approach supports emergent strategies for knowledge management. The key to successfully applying these patterns is defining the controlling context.
ESTABLISHING CONTEXT The purpose or goal of any given effort informs all aspects and subsequent implications arising from the endeavor. Decisions regarding priority, resource allocation, scheduling, approval or deferment are frequently the result of comparing the purpose and impact of one endeavor against another. Every initiative, product, project, campaign or event, has presumably only been launched after at least an informal cost-benefit analysis to define its operating parameters. The initiators often understand the desired outcomes but that definition can become lost to the downstream operators and managers of the tasks required to accomplish it. Additionally, the initiators are aware of the factors under which the endeavor is viable. The states of these factors may change over time.
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Knowledge management systems seek to capture and communicate these descriptors but the challenge remains to present a complete subset of data associated with the descriptors that is relevant to a given audience at the point in time they seek it. Meta-data, often summed up as data about data, includes the descriptions of factors and their states. Here the interest is in capturing those factors and states as they were when the endeavor was evaluated and determined to be viable. At the highest level, the context for an organization can be defined by its mission and boundaries which consist of resources and constraints (Wernerfelt, 1984). The predictive aspect is expressed in strategies, plans, budgets and other forms of defining direction. Environmental issues, such as regulatory compliance requirements or market conditions represent additional constraints on any viable effort. The IT definition of pattern languages for systems solutions is a necessary part but insuffi-
cient to completely describe all of the concerns an organization must address as part of its on-going existence. Similarly, there is no one modeling technique, unified or otherwise, that fully describes the environment, financial implications, business strategy, priorities and other aspects of the problem domain as used by members of any given enterprise. An overlapping, intersecting and collaborating set of concerns is depicted in Figure 2. Where IT may maintain object and data models, data dictionaries and flows, operations might be the owner of business process models. Finance views the enterprise in terms of dollars and cents, balance sheets, income statements and cash flow models while leadership often expresses its direction through narrative business plans. The artifacts generated by each of these constituents are valid within the confines of their own purposes, and frequently might be inputs, outputs or both to the other organizational members.
Figure 2. Dimensions of organizational concerns (Ossher & Tarr, n.d.)
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When attempting to create a catalog or model for knowledge of both problems and solutions across the enterprise as a whole, the difficulty of managing dynamic changes with static models arises. It is here that a pattern for depicting predictedemergent events offers assistance.
BOXING UP THE MODELS The first step in aligning the systems solution to a given organizational problem is to isolate what is known. The key consideration for relevance is defined by the endeavor under evaluation. It may be as far-reaching as reorganization or a five-year plan. Alternatively, it may be a departmental initiative. The approach to application of the predicted-emergent pattern related to knowledge management scales in either direction. As the scope of the endeavor moves towards operational and focused efforts, only the level of detail needs to change. Implementation of a new Financial System (for example) may be only mildly informed by the enterprise mission statement, but to be successful the project requires a plan that addresses the applicable constraints. The relationship of these elements is depicted in Figure 3. This simple diagram is a visual reminder that, for any initiative, both the plan and constraints must be identified. While the diagram is static, it should be noted that not all constraints are known Figure 3. Endeavor context step with predictive and emergent elements
at the time of initiation, accordingly constraints may emerge and the plan must be updated to reflect those constraints. This is a usual function of project management, but attention should be paid to how emerging constraints will be captured and communicated. At this stage, it is sufficient to ensure that for the particular endeavor, all planning artifacts and known constraints have been identified. Where knowledge management systems provide a catalog of knowledge assets to their internal users, endeavor contexts for particular projects or initiatives could be linked by name to the published plans, budgets and risk assessment documents. Such referencing of models across organizational functions can be promoted as a knowledge management specific service, providing clear value to all participants. Equally valuable is the assignment of responsibility for updating the catalog to reflect emergent constraints and potential impact on plans.
BUSINESS MOTIVATION From a Predicted/Emergent perspective, the business motivation expresses the goals of the plan and incorporates the priorities already set. Of course, business motivation can cut across a number of areas, depending on the nature of the initiative. For that reason, motivation depends on establishing the context for the endeavor. This is shown in Figure 4. In this slightly more complex depiction, the business motivation applies to a specific endeavor. As already discussed, the endeavor might be as large as the organizations existence or a much smaller, focused initiative. In either case, the predictive aspect includes a plan with specific objectives, and an emergent aspect that allows for priorities to be realigned as the constraints that apply to the endeavor become apparent as the plan unfolds.
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Figure 4. The relationship between endeavor context and business motivation
A useful methodology and notation neutral definition of business motivation has been adopted by the Object Management Group (OMG) as a standard for Business Motivation Modeling (Object Management Group, 2008).
BUSINESS PROCESSES The work of any organization is typically conducted through processes. These may be formal or informal, approved or unapproved. They may be aligned with the organizations overall plan and constraints, or they may operate independently. From a knowledge management perspective, the more clearly understood and consistently operated processes are, the better. The predictive aspects of business processes are the models developed to show them. The emergent aspects are contained in the resources using and used as part of the process. This is shown in relationship with the business motivation and endeavor context in Figure 5. The diagram now shows the relationship between the plan, its objectives and models. These are all related predictive elements for a given
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Figure 5. Business process in context
endeavor. Additionally, we can see that the constraints and priorities that affect resources within processes are all informed by the applicable context and motivation for the larger endeavor the processes support.
DECISIONS With the introduction of The Decision Model (Von Halle, et al., 2009), a compelling case has been made for the segregation of decisions and processes. Similar to the isolation of data from business logic and user interfaces in systems design, decisions are discrete elements of processes that can be reused and shared. Decisions are comprised of rule families that in turn are made up of sets of business rules. From a predicted-emergent perspective, decisions also identify thresholds at which the rules may be triggered. These are set as parameters that are modifiable over time, set by the business to
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Figure 6. Decisions related to their endeavor context, business motivation and processes
Similar to the way in which AOSD supports a reduction in tangling and scattering of software operations, the use of decision modeling allows segregation of decisions from the processes that invoke and consume them. Decisions may be combined with Advice to perform notifications, or they may themselves be invoked as a named Advice where process owners need not have visibility into the rules that makes up the decision.
SEGREGATING DECISION RESOURCES
reflect the constraints and priorities of the current state. The decision definition step is depicted in Figure 6. In this multi-dimensional block diagram, it follows that plans define objectives described in models specifying thresholds. An alternate traversal of the graph describes constraints that result in priorities affecting resources through rules. The most basic set of steps described in the figure show that every endeavor exists in its own context. The motivation for achieving specific outcomes as part of that endeavor informs the processes within the endeavors context, and that decisions taken as part of a process exist as discrete concerns.
It should be noted that some organizational decision models exist in the form of deployed application code. The expertise may not have been formalized as process models or rule diagrams. In some cases, those decisions access other data or processing resources, such as calls to external systems to validate a credit card, for example. One of the advantages of detailing decisions separately from process models is the ability to simplify process models. The decision is not represented as part of the process flow; it can be merely shown as an intrinsic part of the process. The decision becomes, in an aspect-oriented sense, a crosscutting concern. Figure 7 shows how a process diagram could contain decision points without modeling the decision itself. The black diamond inside the process indicates a named decision. Using a software tool, rather than a printed page, the decision resources details can be accessed when relevant. Since the decision might be used by any number of processes, consolidating the depiction this way reduces visual complexity in the process model and also ensures that decisions are not scattered and tangled within the process model. Additionally, decisions for notification or exception handling can be treated as advice during the requirements definition phase. Where such decisions are not well understood, the name can
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Figure 7. A Process containing a named decision (Worden, 2009)
be used as a stub or placeholder and fleshed out later during a subsequent iteration. This technique supports the treatment of knowledge management strategy as a crosscutting concern while enabling an iterative approach to defining requirements, processes and software solutions to address them.
PREDICTED EMERGENT FORCES AND RELATED PATTERNS One of the principal premises of the predicted-emergent pattern is that the quality of delivered software is a direct function of the quality of the requirements definition; too often those who don’t understand what they are building are doing so for those who don’t understand what is needed. The chunking of discrete stages of a project frequently termed ‘the waterfall approach’ to requirements definition and solution specification has long been identified as a major culprit and cause of disappointment (Royce, 1970). While Agile, iterative and spiral methodologies have been proposed as a viable alternative, they have hardly proved the cure-all solution.
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These forces – requirements to integrate computing and business operations more effectively, at less cost and support on-going changes – are not new, but neither have they been resolved. Organizations continue to face these problems regardless of the technologies, hardware or software, and the methodologies, rapid or traditional, they employ. The predicted-emergent pattern addresses these problems by beginning with what is known, and capturing new events so they can be analyzed, classified and converted into new knowledge. This is in stark contrast to a traditional approach to requirements definition, which emphasizes identification of every possible outcome before deeming the requirements ‘complete. With the strategies recommended here, the focus is on decisions, not merely process, on information not data and on usage over technology. The differences are subtle but the implications are remarkable. The predicted-emergent pattern is more a business architecture and an integration pattern than a design pattern. However, as part of the definition of how the predicted-emergent pattern is properly used, other patterns, specifically software design patterns are incorporated. In this
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way, the predicted-emergent pattern allows the linkage of problem definitions and organizational requirements to solution descriptions in the form of software design artifacts. The key to successfully achieving this integration is to focus on detection of emergent events.
DETECTION OF EMERGENT EVENTS Given that the predicted-emergent pattern is a business architecture and integration pattern, it is necessarily described at a higher level of abstraction than a design pattern, such as those put forward by the GoF. The purpose of applying the predicted-emergent technique is to set a context with a contained scope for the application of design patterns as part of a given solution. One such useful design pattern is the Observer pattern. This pattern describes how a resource may identify an interest in a particular state or states of a subject. When that states changes, the observer is notified and subsequent action may be triggered by that notification. A real world example of information as a strategic asset and where the observer pattern is applied can be found in credit history data services. Data aggregators receive notifications of events from credit issuers such as banks and retailers. These transactions report payment amounts and dates, as well as balance and query information to arrive at a credit score. For business decisions that are affected by financial considerations these services often integrate with and form part of the knowledge management systems on which an organization relies.
OBSERVER PATTERN AND THE REPORT BY EXCEPTION PRINCIPLE Within a predicted-emergent approach for knowledge systems, a best practice to be applied when using the observer pattern is to report by excep-
tion. The difference between a report periodically and report only exceptions is relatively slight, but carries significant implications when the requirements are supported by software. A real world example of a report by exception approach to an observed situation can be found when considering the subject of a credit report. As integral as credit ratings are to many transactions, studies have shown 79% of the records have errors of some kind, with 25% of them significant enough to result in a denial of a credit-based application (National Association of State PIRGs, 2004). Even with such a high percentage of error, many people and business do not actively monitor their scores and data on a periodic basis. When an application for credit is denied, however, that exception can trigger a review and correction. Clearly, the traditional approach generates a great deal of data. While it may be relevant if fluctuations of recorded credit scores are the subject of investigation, it can generally be taken to simply be a record of data of no particular relevance where the only consideration is whether the score falls below or above a certain set range. For someone with a good credit rating they may range considerably above the floor level of 720 with no effect on their status. The observer pattern as applied to credit ratings describes the secondary communication of the individuals financial transactions to a third party, in this example, the credit bureaus. As implemented the pattern requires the identification of a triggering event and the third party must be prepared to receive notifications subsequent to activation of the trigger. A report by exception would apply to organizations that decline to share all transaction data, opting instead to report only certain exceptions, such as a closed account. Whether report by exception presents a strategic opportunity to improve data integrity for credit reporting agencies is a matter for experts in that domain to determine. Instances of the observer pattern can be found in many organizations, and
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it is predictable that some of those will benefit from applying the report by exception principle.
OBSERVER PERFORMANCE AND RESOURCE CONSUMPTION The implication to systems people of trapping a value and comparing it to a range is quite different than maintaining an on-going log of values. IT considerations such as file sizes, systems performance and so on are dramatically affected. By opting for the report by exception approach, the parameters representing the acceptable values can be changed without resorting to programming alterations. This means that software so designed is more easily maintained and operated by ‘the business’ where things like the temperature values may need adjustment. Use case definitions for gathering system requirements and describing business-systems interaction have become a common practice under many methodologies. Expressing use cases using the report-by-exception technique becomes a vital component of capturing emergent events at the requirements level and lends itself particularly well to the definition of exception handling concern.
Anti-Patterns in PredictedEmergent Environments Anti-patterns can be thought of as reasonable, attractive approaches to problems that tend to yield poor solutions. Assigning more people to a project that is behind schedule is one example. New people require support to be effective and this tends to take away time available to the project members already assigned. It seems reasonable that more people will result in more work being accomplished in the same period, but overlooking the increased cost of coordination makes this an anti-pattern. The predicted-emergent approach to defining business process parameters and decision ele-
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ments such as rules, exceptions and notifications is one way to structure responses to unanticipated events. This becomes especially valuable when systems automate responses and the elapsed time between encountering the new business situation and responding is immediate. Where the predicted-emergent pattern is applied as a knowledge management strategy, there are two key anti-patterns to avoid. Ascertainment bias describes the tendency for experienced practitioners to discover only what they expect to find. An unwarranted influence describes factors that generate a disproportionate impact during the realization of a strategy. The use of a knowledge base in a predictedemergent context provides opportunities to assess and correct for either ascertainment bias or unwarranted influence. A business process or use case may elect to name a decision or call advice at a particular point in its flow. As a distinct procedure, that decision or advice can include provisions to evaluate its context, constraints, motivation or priorities. That evaluation may or may not be automated. In fact, many decision points in new processes may require human intervention before control is returned to the calling software and its execution resumed. Unwarranted influences are those that have a higher than desired impact on a business process or resource. As shown in the examples, these influences can range from course of dealings and customary practice, to abrupt price changes of inputs. It is neither necessary nor desirable to attempt to predict all influences in advance. Overlaying a predicted-emergent structure on business processes can result in specification of solutions that appropriately trap and handle ANY event that falls outside acceptable predicted ranges. Ascertainment bias refers to the tendency for investigators or analysts to find supporting correlations in data or results consistent with their expectations. Organizational anti-patterns such as GroupThink (Janis, 1972) can create ascertainment bias, where critical appraisal is not raised as a
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direct result of the group dynamic. The predictedemergent loop allows events and actual experience to notify pre-defined monitors as the existence of an anomalous occurrence. Not all ascertainment bias is a result of a failure to speak up or overlooking the obvious. It can also result from a lack of aggregation of knowledge over time.
RESULTS The Business Motivation model of the Object Management Group (OMG1), calls out initiation of any action because of internal or external influence. One pressing problem of business today is to identify acceptable or desirable behaviors as they apply to emergent situations. The key benefit of a quick turnaround in communication to senior managers of relevant new experience and efficiently returned direction is the mitigation of risk. This is an attractive consequence of good knowledge management strategies, effectively implemented and used within an organization. The application of emergent strategy, defined as separate concerns in both requirements and software solutions, accessing named decisions and notifications as explicit aspects of either manual or automated processes, taken as a whole these represent the predicted-emergent pattern for knowledge management. By beginning with what is known, and identifying suitable processes for dealing with any unknown event that arises (as opposed to trying to imagine them all), knowledge management sets the operational context for all business processes. Separation of decisions from processes yields the advantages of specialization. Decisions are not scattered and tangled in the process flows, they are called by name, and the parameters of the decisions can be changed to suit the environment of the day as it emerges. This yields the agility and responsiveness decision makers are looking for in their operations
SUMMARY As this is merely a single chapter, the treatment of emergent strategy, aspect oriented software design, use case development, the rational unified process, pattern language, and decision modeling is necessarily spare. Nevertheless, building on these cornerstone concepts provides a solid basis for an adaptive knowledge management strategy. As a discipline, knowledge management has a pivotal role in assisting practitioners when aligning operations with business goals and priorities. There are several key underpinning contributors to realizing that alignment. Emergent strategy supports the definition of organizational plans in a way that does not rely on omniscience or having all required data in advance. Knowledge management can leverage emergent strategy by encapsulating processes, data and rules into decisions for what is known, and by handling exceptional events appropriately as they arise. Business and design patterns offer a vocabulary and description of reusable practices that can be successfully applied in various settings. These patterns describe effective ways of partitioning the problem and solution domains, as well as the services that link them, into manageable pieces. Agile and adaptive development methodologies use these patterns to support discovery and allow IT to address changes in requirements in a flexible and responsive way. Use cases are an effective way to collect and express both requirements and solution design, especially where wellunderstood scenarios are spelled out in detail, and others are relegated to a separate exception handling process, whether manual or automated. The models and depictions of each concern consume, inform and extend the others. Taken as a whole, the integrated set of models represents an actual knowledgebase of an organization encompassing its operations in all their contexts. Explicit responsibility for creating and maintaining a catalog of these models is a key role for knowledge
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management practitioners and an effective way to provide value across the organization as a whole. Aspect oriented software development capabilities enable IT resources to capture and collect data relevant to an identified set of concerns, as well as to automate business operations to the optimum extent and increase productivity through appropriate specialization. The goal of this chapter was to introduce these approaches and to provide a context for evaluating knowledge acquisition and communication by better exploiting information systems resources. In a predicted-emergent sense, each of these initiatives within information and organizational management has developed from its own impetus. The constructs were predicted as academic exercises to address unexpected problems, and the modeling techniques have emerged in their current forms from actual practice and experience. By taking stock of these capabilities and using them to more fully express business plans, processes, rules and decisions, knowledge management can take an active role in creating adaptive enterprises. It can be predicted that those who do, will emerge the better for it.
REFERENCES Alexander, R. (2004). Aspect-oriented technology and software. Software Quality Journal, 12(2). doi:10.1023/B:SQJO.0000024109.11544.65 Chan, Y. E., Huff, S. L., & Copeland, D. G. (1998). Assessing realized information systems strategy. Strategic Information Systems, 6(4), 273–298. doi:10.1016/S0963-8687(97)00005-X Dictionary.com. (n.d.). Pattern. In Dictionary.com unabridged (v 1.1). Random House, Inc. Retrieved on June 11, 2007, from http://dictionary.reference. com/browse/pattern
Dijkstra, E. W. (1976). A discipline of programming. Prentice Hall. Henderson, J. C., & Venkatraman, N. (1992). Strategic alignment: A model for organizational transformation through information technology. In T.A. Kocham & M. Useem (Eds.), Transforming organizations. New York: Oxford University Press. Hughes. (2006, February). Journal of Usability, 1(2), 76-90. Janis, I. (1972). Victims of GroupThink. Houghton Mifflin. Kiczales, G., Lamping, J., Mendhekar, A., Maeda, C., Lopes, C., Loingtier, J.-M., & Irwin, J. (1997). Aspect-oriented programming. Proceedings of the European Conference on Object-Oriented Programming, 1241, 220–242. McDavid, D. W.(n.d.). A standard for business architecture. IBM Systems Journal, 38(1). Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6, 257–272. doi:10.1002/ smj.4250060306 National Association of State PIRGs. (2004). Mistakes do happen. Object Management Group. (2008). Business motivation model. OMG document number formal/2008-08-02. Standard document. Retrieved from http://www.omg.org/spec/BMM/1.0/PDF Ossher, H., & Tarr, P. (n.d.). Multi-dimensional separation of concerns and the hyperspace approach. IBM, T.J. Watson Research Center. Royce, W. K. (1970, August). In Proceedings of IEEE Wescon. Santa, R., Ferrer, M., & Pun, D. (2007). Why do enterprise information systems fail to match the reality? USA: ISRST. Von Halle, B., et al. (2009). In Auerbach (Ed.), The decision model.
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Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. doi:10.1002/smj.4250050207 Worden (2009). Making the case for the physical decision. In Auerbach (Ed.), The decision model.
ENDNOTE 1
OMG has been an international, open membership, not-for-profit computer industry consortium since 1989.
This work was previously published in Knowledge Management Strategies for Business Development, edited by Meir Russ, pp. 45-62, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 6.11
Governance of Virtual Networks: Case of Living and Virtual Laboratories Brane Semolic University of Maribor, Slovenia Jure Kovac University of Maribor, Slovenia
ABSTRACT Technological and organizational excellence is the key element for business success in a modern business environment. In contemporary business environments, companies will restore and keep their competition capability not only by optimizing their own potentials, but mainly by utilizing capability of foreign resources and their connection to complete business process in the so called network organizations. Virtual organizations are a special form of network organizations. Among virtual organizations the so called Living Laboratory takes place. This chapter presents the findings DOI: 10.4018/978-1-60960-587-2.ch611
of the research regarding the state of development and application of laser living laboratory management and governance system in Toolmakers Cluster of Slovenia.
INTRODUCTION Modern companies are permanently analyzing their business activities and the global market, and are searching for business opportunities to improve the competitive capacities of their own company. New forms of network organization of companies’ business activities are coming to the fore, which organize individual business activities in the regions that from the business viewpoint
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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seem favourable with respect to the prices of manpower, special know-how, raw materials etc. Trans-national research, development and production networks are being formed. Their formation and development is influenced by the scope of business environment development of the involved countries, regions, national and regional government rules and regulations, social and cultural conditions etc. The world is becoming a more and more intertwined network consisting of a series of different trans-national networks and specialized economic entities, working in different parts of the world. The urge for the concentration of resources resulted in the creation of network-structured integrations as one of the most appropriate solutions. One of the major features of creating network organizational structures is the integration based on rather loose and temporary association of particular resources in order to obtain the objective of competitive advantage. Virtual network organizations are a special form of network organizations based on the use of modern information and communication technologies and collaboration between different organizations that has similar research and development interests. The mission and concern of the proposed chapter is to present the concepts of the living and virtual laboratories design. Within this framework the problems and theoretical solutions will be presented: •
•
How to design governance and management model for the specific needs of living and virtual laboratories clients; How to start architecture design of living and virtual laboratories.
Described theories are partly illustrated using the case studies from Toolmakers Cluster of Slovenia.
VIRTUAL ORGANIZATION, VIRTUAL LABORATORIES AND LIVING LAB? Most of the existing studies point out that virtual organizations are a temporary consortium of partners from different organizations establishes to fulfill a value-adding task, for example a product or service to a customer (Duin, 2008, p.26). According to Rabelo and Pereira-Klen (2004) virtual organizations are temporary alliances between organizations to share skills or core competencies and resources in order to better respond to new collaboration opportunities (Loss et al., 2008, p.77). This way, virtual organizations represent cooperation between formally non-connected organizations or persons who establish vertical or horizontal links and present themselves to the customers of their products or services as a single association. Apart from the professional literature concerning virtual organizations emphasis is also given to the information and communication technology as well as to the absence of the central control functions. (Mohrman, Galbraith & Lawler III., 1998, p.77; Dessler, 2001, p. 230; Pettigrew et al., 2003, p. 8; Vahs, 2005, p. 507). As indispensable precondition for the functioning of the above mentioned organizational connectedness the authors quote timely adjusted cooperative processes, organizational development, space dispersion and use of modern communication technology to master the processes of cooperation (Rohde, Rittenbuch, & Wulf, 2001. p. 2). In the literature, the companies are often described as a network of companies (i.e. organizations – boundary-less firms or boundless organizations). These are dynamic, i.e. virtual companies, linked together at the base of the interorganizational information systems, pursuing the aim to be successful in the area of given projects. Virtual laboratories are a special form of network organizations. A virtual laboratory is an interactive online environment established so as to create and channel simulations and experiments
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in a certain science field. It is an environment designed for working in teams from different locations and creates opportunities for cooperation in research and development. One of its important tasks is also the remote access to expensive laboratory and other equipment. Virtual laboratories further include the so called living labs. The basic concept of the living lab was developed at the American MIT Institute in Boston, USA. It was first used for designing and planning urban area architecture. A living lab is an R&D methodology for identifying, validating and finding solutions to complex problems by including a real-life environment. In such an environment, product and service innovation is carried out, tested and introduced.
GOVERNANCE OF VIRTUAL ORGANIZATIONS AND LIVING LABORATORIES Recent years have seen an increased interest in corporate governance. There are several reasons for that, resulting from individual business scandals to increasingly complex environments that require close cooperation between owners and management. Corporate governance can be defined as a system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The stockholders’ role in governance is to appoint directors and auditors and to make sure that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic goals, providing the leadership to put them into effect, supervising the management of the business, and reporting to stockholders on their stewardship. The board’s actions are subject to laws, regulations, and the wishes of the stockholders in the general meeting (Bnet Business Dictionary, Mallin, 2007, p.12). The area of governance and that of management are closely connected. In the area of net-
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work organizations with special focus on virtual organizations, the connection of the processes of governance and management is even more expressive. For this purpose, we will ensue from the term governance as explained by the author Hilb, when we present the models of governance and management in a virtual organization and living laboratories. Hilb defines corporate governance as s system “by which companies are strategically directed, integratively managed and holistically controlled in an entrepreneurial and ethical way in a manner appropriate to each particular context” (Hilb, 2006, p. 9-10). Processes of governance take place at virtual connections on the level of connection and in individual associations. The complexity of governance processes demands a clear distinction and mutual adjustment. For the purpose of easier recognition and understanding of governance processes, we can divide them in: • •
Governance processes of forming interorganizational virtual connections and Governance processes of ensuring development and operations of inter-organizational virtual connections.
The key aspects of governance processes in forming inter-organizational virtual network organizations are: • •
Goals and Forms of virtual network organization.
Definition of the strategy behind virtual network organizations must stem from the organization’s strategy (Mohrman, Galbraith & Lawler III., 1998, p.79). The other set of governance processes embodies: • •
Forms of virtual network organization Assignment of the role that individual organizations assume.
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The form of virtual network organizations is closely related to the goal definition of virtual network organizations. When joining into a virtual network organization the owners and management must ask themselves the following questions: •
• • •
•
What are the primary goals, purposes, and strategy of forming a virtual network organization? What advantages and dangers does it imply to the company? What are the advantages of a virtual network as a whole? What place will our company have in a virtual network (specialist or integrating of the entire network)? What are the alternatives?
When forming a virtual network special attention must be paid to the selection of partners. The first step in this process is to know and understand the strategic goals of partners. Good knowledge and understanding of partner’s reasons for the involvement in virtual networking can spare us from future unpleasant surprises. In practice, we have cases where certain organizations are closely connected in a network for the sole reason of acquiring information on its partners. This enables them greater control, price pressure, etc. That is why the key to partner selection is to know their strategic implications for joining (Mohrman, Galbraith & Lawler III., 1998, p. 86). Having chosen the partner, the company must then select forms of virtual network organizations and reach an agreement on the role of the organizations (conclusion of a contract). The role that an organization assumes depends on the ability, purpose, and goals for joining a network. Primarily, we speak of the decision on the form of the legal status and ways of implementing an integrative role as well as a definition of the place and role of other companies in the network. Basic criteria for the selection of a coordinating role in a virtual
network are (Mohrman, Galbraith & Lawler III., 1998, p.101): • • • • • • • •
Knowledge of the entire process or the chain of added value Experience Ability to gain the necessary resources for the operation of a virtual network. Disposable resources Credibility of the organization Key factors or abilities of individual organizations Management resources with the required expertise and experience. Readiness to assume the role.
It is appropriate to stress that many times the required managerial effort for the implementation of integrative processes is underestimated (Schräder, 1996, p.83). Therefore, the selection of managers and other personnel that work in inter-organizational virtual networks is especially important. Managers, who control, organize and guide integrative processes in virtual networks must posses the following expertise and skills (Krystek, Rede & Reppegather, 1997, p.174): • • • • • • • • •
Integrative abilities Goal-oriented management control Sensitivity to various organizational cultures Expertise in the field of virtual networking Participation Ability to motivate Restriction of constructive conflict management Communicative and representative skills Controlling of information management
In addition, it is crucial that individuals that assume key positions in virtual network organizations have the following expertise and skills
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(Krystek, Rede & Reppegather, 1997, p. 178, Reiß, 2000, p. 30): • • • • • • • •
Professional and functional knowledge Communication skills Cultural adaptability Adaptable and constructive conflict management A desire to participate A need for horizontal and lateral professional and personal development Entrepreneurship Independence and a sense of responsibility
Selection of individuals that hold key positions in a virtual network reduces conflicts, which are one of the most sensitive areas of management. There are many conflicting areas in virtual networking. This is why one of the most important managerial goals is to lay the principles, means, and instruments to resolve any possible future conflicts while forming a virtual network. One must clearly set the procedures and levels of conflict solving.
MANAGERIAL PROCESSES INSIDE VIRTUAL ORGANIZATIONS AND LIVING LABORATORIES Every virtual network organization must establish a management system that assumes the coordinating role within a network. Managerial system of coordination involves management at a classical level. Without a doubt, there are differences between the implementation of managerial tasks in a classical organization and the operation of management with a coordinating role in a virtual network organization. The differences are as follows: •
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Management system for the needs of coordination within a virtual network exists for the time that the network is operational.
•
•
Management jurisdictions responsible for coordination in a virtual network are not comparable with management jurisdictions in a classical organization. Management processes for coordination purposes within a virtual network can be distributed among several institutions.
Despite the noted aspects, we must emphasize that management processes are linked to a certain form of organization that must form itself for the operational needs of a virtual network as a whole. In principle, we differentiate three forms of a management system in coordination (Mohrman, Galbraith & Lawler III., 1998, p. 88-91): • • •
One partner carries out coordinating processes There is a division of coordinating processes among partners and Self-sustaining model of coordination.
Without a doubt, the first form is most common in implementing coordinating processes. The latter, self-sustaining, is appropriate in the first stage of forming a virtual network organization. The central place at ensuring development and virtual networking belongs to strategy. Strategy is the starting point for management operations as all individual management activities derive from it. Up to a certain point strategy of a virtual network can stem from strategies of individual organizations included in a network. Figure 1 clearly shows that it is the strategy at the level of virtual networking which represents the key connection between strategies of organizations and their business strategies. The making of key strategic starting points is by no means simple. We must first look for common ground and points and then form the key strategic goals. The common strategy is guidance for management operation in a network at key tasks such as:
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Figure 1. Strategic levels in a virtual network organization (Krystek, Rede & Reppegather, 1997, p. 304)
• •
Allocation of resources within a virtual network and Evaluation of the achieved business results.
In classical companies, the role of the managers is to – among other tasks – allocate the financial, material resources and personnel abilities. One of the primary management tasks lies also in virtual network organizations. The difference is that management in virtual network organizations predominantly deals with personnel abilities, technology, self-sustainment and support to individual tasks (Schräder, 1996, p.80). One particularly sensitive area of management activity in virtual network organizations is the area of forming unified elements or organizational culture. The process of forming a virtual network organizational culture is different from that of the classical organizations. Virtual network organizations have a high degree of differentiation of organizational culture with explicit presence of individual subcultures (Krystek, Rede & Reppegather, 1997, p.159).
This implies that we cannot expect a formation of a unified virtual network organizational culture that all organizations in the network will embrace. We can speak only of common elements of organizational culture. The basis for identification and strengthening of common elements of organizational culture are the joint starting points of organizations, where unification can be achieved. In most cases, these are openness and customer orientation. Virtual network organizations form basic outlines of a common organizational culture only through joint projects, products, or services. The common elements of organizational culture can greatly contribute to achieving set goals of the network, and above all facilitate conflict resolution, which is one of the most sensitive areas of management activities. There are many conflict areas in virtual networks; therefore, the foundation of principles, means, and instruments of their resolution is one of the important tasks of management when forming a virtual network.
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HOW TO START ARCHITECTURE DESIGN OF LIVING LABORATORIES The value chain links of the organization are represented by the individual business functions which the organization needs to perform its activity. The individual business function defines the logical frame of professional tasks the organization has to perform. It relates to research, development, marketing, supply, procurement, production, sales, finances etc. The organization’s management is responsible to identify and define all business functions, which the organization needs, and to ensure their proper performance (Figure 2). The contents, organizing and organization of functioning of the individual function and related tasks must be subject of constant innovation, just like the organization’s products and related technologies.
The sole problem is not only to set forth correct contents, organization and organizing of functioning of individual business functions, but also to set forth the interconnecting of the individual function (e.g. connection between research, development, production, finances etc.). Primary and supporting business areas are distinguished. Primary business functions represent the elements of the basic business process ranging from research and development of the product to its sale on the market. On the other hand, the supporting businesses areas actually make that happen. The supporting business activities include business planning, organizing, financing, managing and supervising. In any organization two simultaneous, closely connected processes are going on (Figure 3):
Figure 2. The organization’s management is responsible to identify and define all necessary business functions (Semolic, 2004, p. 136)
Figure 3. In any organization two simultaneous, closely connected processes taking place (Semolic, 2004, p. 137)
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• •
Technical process, Entrepreneurial process.
The technical process comprises of the sequence of all tasks which have to be performed in order to make the product. The result of the technical process is the “finished product”. The entrepreneurial process makes the first process possible; its result is the sold product and realized profit or other organization’s business benefits. The first process represents the technical part, whereas the second process represents the business part of the organization’s value chain.
MATRIX OF VALUE CHAIN OF LIVING LABORATORY The value chain of the living laboratory refers to defining the interconnected specialized activities with which the organizations enter into business connections with other virtual laboratory entities taking part in completion of the product. Figure 3 illustrates the example of an organization without external business connections (Classical approach
to make a business), performing all research, development and testing activities inside an own organization, and a highly specialized organization performing only certain business activities at home, while the others are performed through outsourcing with the living laboratory organizations. Figure 4 shows the types and content of business connections between the partners of living laboratory. Also in living laboratory the following connections are distinguished: • •
primary and supporting connections.
Presentation of practical example of the links of chain of primary connections in LENS Living Laboratory: • • • • • •
development of new materials and alloys, material surface treatment, conceiving and designing, computer analyses and simulations, special testing or production services, etc.
Figure 4. Classic and outsourcing approach to the company’s value chain set-up (Semolic, 2004, p. 139)
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Figure 5. Organizations outsourcing and clustering cube (Semolic, 2004, p. 139)
The individual link of the primary value chain represents specialization of involved organizations. The value chains of primary connections between the organizations of the living laboratory are formed in accordance with the living laboratory development strategy. The support and orientation of the development of living laboratories value chains are assured by supporting value chain links, thus creating conditions for successful connecting of business companies and organizations, by orienting the value chain primary links formed by companies and organizations of the living laboratory. The supporting value chain links consist of the following business activities: • • • • • •
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living lab digital eco-system development and maintenance, living lab e-collaboration platform development and maintenance, living lab professional virtual communities social networking support, living lab governance and management systems development maintenance, living lab e-program and project management, living lab marketing etc.
In conjunction with the participating organizations, the leading companies – organizers of business networks within the living laboratory organize the business chains, hence assuring optimum value of products and services offered to the clients and their end users. The organization of Living Laboratory’s (virtual organization) Breeding Environment (ECOLEAD, 2004) represents the living laboratory management. The living laboratory management must take care of orienting, stimulating and supporting the business cooperation and connecting. Accordingly, they must provide and develop a suitable supporting value chain of specialized services, required for this purpose. The basic driving force of each work in any participating organizations of the living laboratory must be “client’s value”.
TOOL MAKING INDUSTRY CASE STUDY Tool and Die Industrial Sector Tool and Die-making workshops (Figure 14) are facing the challenges how to enhance performance of project-oriented production in multi-project and multi-organizational environment. Each customer order presents the project charter (see Figure 6) for
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Figure 6. Examples of metal products for automotive industry with example of progressive tool for production of parts from metal plates (EMO, 2002)
the project of development and construction of a unique new tool. As illustration of the size of its market we can say that automotive producer needs more that 1000 tools and dies for production of a new car. In the project of a new tool development and construction companies outsourcing capacities from different partners and creating a different modalities of production network organizations. In this context in project we developed reference business model. It provides a framework, including all relevant main business process applications. Next, the practical example of the technical and entrepreneurial value chain in tool-making industry will be presented. Tool-making industry consists of SMEs, producing special purposed (unique) machines and tools for clients from manufacturing industries (ex. automotive etc.). Elements of the technical value chain of a tool-making company: • • •
researches and development of new technical knowledge, development of new production technologies, design of tools,
• • • • • •
tool manufacturing technology development, tool manufacture, tool tests, start-up of tools, tool maintenance, tool recycling (after expiration of the tool service life).
Elements of the entrepreneurial value chain of a tool-making company: • • • • • • •
researches and development of new business knowledge, development of new business technologies, marketing and sales, supplies for production,, production, client’s taking-over of tool, after-sales activities.
The technical and entrepreneurial value chain must be coordinated and subject to constant introducing of novelties and innovative solutions which are a prerequisite for maintaining or increasing the company’s competitiveness
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What is LENS Living Lab? LENS Living Lab is organized by coordination of Slovenian Toolmakers Cluster (TCS). Laser Engineered Net Shaping (LENS) Living Laboratory (LENS Living lab) is a real-life research and operational laboratory with the focus on a LENS new technology applications development and operational use (Figure 7). The LENS Living Lab creates a base for inventing, testing, prototyping and marketing of new LENS technology applications. The major advantage of virtual organization is the creation of pools of innovative organizations and experts from different research and end user areas who are collaborating and cooperating in this virtual environment.
The LENS Living Lab core members are business partners (users, researchers, developers etc.) who have long-term interest in such cooperation and collaboration. Those organizations and individuals are from research and industrial sector. LENS living lab creates open “value space” for researchers, developers and end users who have professional interest in collaboration in this field. They can be innovators, researchers, developers or advanced users. Figure 8 shows phases in the process of a technology life cycle (TLC) and LENS Living lab areas of support. LENS Living Lab supports three major TLC phases: new design and manufacturing concepts development; testing of new developed technologies and connected “early birds” and support to phase of new technologies implementation and
Figure 7. The basic concept of LENS technology and examples of products (OPTOMEC, 2006, p.15)
Figure 8. TLC phases and LENS Living Lab areas of support (Semolic, 2009)
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its operations support. The horizontal supporting services are related to functionalities of LENS Living Lab project office and LENS Living Lab general collaboration platform (Tool East Platform). The customers of LENS Living Lab application research and operations are SMEs who are working in different industries, like tool-making and niche machines production, automotive, aeronautics, medicine etc. The participating organizations are divided in different open research groups like material scientists, mechanical engineers, laser and electronics experts, end users, ICT experts, business design developers etc. They have been involving in three operational and research frameworks as follows: • • •
Technological and Innovative Centre, LENS Living Lab and Open Laser Collaboration Platform
Governance and Management in LENS Living Lab The LENS Living Lab is an open network organization with three levels of inter-organizational governance and coordination (see Figure 9). The
first level deals with strategic business issues. At this level, the participating partners sign a longterm cooperation agreement. This agreement defines areas of cooperation and management of LENS Living Lab. The second level deals with the inter-organizational issues (joint and support operation and project management). This level is related to the coordination of agreed business activities and connected organizational processes. The third level of coordination is related to the definition of IT and telecommunication platform of cooperation. The organizational architecture of the second level which deals with the inter-organizational issues is based on the principles of open project based matrix organization (see Figure 10). One side of this matrix organization is composed by independent open international R&D groups (R&D organizations, SMEs, independent researchers and developers etc.) which represent LENS Living lab research and development capacities. Another side comprises of a list of agreed R&D programs and projects. In the cross-sections of this matrix we are identifying demanded R&D resources and creating temporary collaborative virtual project teams.
Figure 9. Levels of coordination in LENS Living Lab (Semolic & Kovac, 2008, p. 413)
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Figure 10. LENS Living lab – open project based matrix organization (Semolic, 2009)
Strategic level of LENS Living lab governance is performed by the support of strategic annual conferences, by collaboration between coordinators of open international R&D groups, by collaborative program management, by collaborative project management, by management of collaborative virtual project teams etc.
CONCLUSION If we want to develop a competitive strength of our company, it often turns out that despite using our knowledge, capacities and other resources we are still not able to reach the desired goal. In the modern business environment, the companies will establish and maintain their competitiveness not solely by optimizing their own potentials, but more often by being able to use the resources of others and by interconnecting them into an overall process of creating new value. New forms of network organization appear which organize individual business activities in the regions favorable from the business viewpoint with respect to the prices of manpower, special know-how, raw materials
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etc. Methods and forms of organizing network virtual organizations are based on modern and flexible business models. Living Laboratory represents one of many forms of virtual network organizations. The article presents some basic theories related to this subject. A Living Lab is an environment in which researchers, developers and users cooperate with the common objective of delivering a tested product, solution or service respecting users’ requirements and in a shortest time possible. We illustrated the creation of virtual organizations and living laboratories on the case study of tool and die making industry. By illustrating the governance and coordination of LENS Living lab we presented the discussed theories in praxis.
REFERENCES Dessler, G. (2001). Management. NJ: Prentice Hall, Inc. Dictionary, B. B. (n.d.). Retrieved October 10, 2008, from http://www.bnet.com
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Duin, H. (2008). Systemic strategic management for VBEs in the manufacturing sector. In L.M. Camarinba-Matos, & W. Picard (Eds.), Pervasive Collaborative Networks, IFIP TC 5 WG 5.5. Ninth Working Conference on Virtual Enterprises, Sept. 2008, Poznan, Poland. NewYork: Springer. EMO (2000). Internal project documentation. Celje: EMO Orodjarna. Hilb, M. (2006). New corporate governance. New York: Springer Verlag. Knez, M., Cedilnik, M., & Semolic, B. (2007). Logistika in poslovanje logističnih podjetij. Celje: Fakulteta za logistiko UM Krystek, U., Redel, W., & Reppegather, S. (1997). Grundzüge virtueller organisation. Wiesbaden: Gabler. Loss, L., Pereira-Klen, A. A., & Rabelo, R. J. (2008).Value creation elements in learning collaborative networked organizations. In L.M. Camarinba-Matos, & W. Picard (Eds.), Pervasive Collaborative Networks, IFIP TC 5 WG 5.5. Ninth Working Conference on Virtual Enterprises, Sept. 2008, Poznan, Poland. NewYork: Springer Mallin, C. A. (2007). Corporate governance. Oxford: Oxford University Press. Mohrman, A. S., Galbraith, J. R., & Lawler, E., III. (1998). Tomorrow’s Organization, San Francisco: Jossey-Bass. Pettigrew, A., Whittington, R., Melin, L., Runde, C. S., & Bosch, F. A. J. den, Ruigrok, W., & Numagami, T. (2003). Innovative forms of organizing, London: Sage Publications. Peyton, R. (2004). Toolmakers cluster of Slovenia, feasibility study. Los Alamos, World Tech, Inc. Rohde, M., Rittenbuch, M., & Wulf, V. (2001). Auf dem Weg zur virtuellen Organisation. Heidelberg: Physica-Verlag.
Schraeder, A. (1996). Management virtueller Unternehmungen. Frankfurt/Main: Campus Verlag. Semolic, B., & Dworatschek (2004). Project management in the new geo-economy and the power of project organization. Maribor: IPMA Expert Seminar Series, University of Maribor. Semolic, B. (2007). LENS Living Laboratory – Project documentation. Celje: INOVA Consulting; Project & Technology Management Institute, Faculty of Logistics, University of Maribor. Semolic, B. (2009). TA Platform, LENS Living Lab. Vojnik, INOVA Consulting, TCS. Semolic, B., & Kovac, J. (2008). Strategic information system of virtual organization. Pervasive Collaborative Networks. Poznan: IFIP, Springer. Vahs, D. (2005). Organisation. Stuttgart: SchafferPoeschel Verlag.
KEY TERMS AND DEFINITIONS Corporate Governance: Corporate governance can be defined as s system by which companies are strategically directed, integratively managed and holistically controlled in an entrepreneurial and ethical way in a manner appropriate to each particular context. Living Lab: A living lab is an R&D methodology for identifying, validating and finding solutions to complex problems by including a real-life environment. In such an environment, product and service innovation is carried out, tested and introduced. Network Organizations: Network organizations (i.e. organizations – boundary-less firms or boundless organizations). These are dynamic, i.e. virtual companies, linked together at the base of the inter-organizational information systems, pursuing the aim to be successful in the area of given projects.
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Virtual Laboratory: A virtual laboratory is an interactive online environment established so as to create and channel simulations and experiments in a certain science field. It is an environment designed for working in teams from different locations and creates opportunities for cooperation in research and development.
Virtual Organizations: Virtual organizations are a temporary consortium of partners from different organizations establishes to fulfill a valueadding task, for example a product or service to a customer
This work was previously published in Infonomics for Distributed Business and Decision-Making Environments: Creating Information System Ecology, edited by Malgorzata Pankowska, pp. 262-276, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector: Portuguese Evidences João J. Ferreira University of Beira Interior, Portugal Carla S. Marques University of Trás-os-Montes e Alto Douro, Portugal Cristina Fernandes University of Beira Interior, Portugal
ABSTRACT Technological innovation associated with ebusiness is seen as one of the key drivers of the knowledge economy and innovation performance and is a considerable test of a region’s or nation’s capacity to generate e-entrepreneurship and sustain competitiveness. The importance of the knowledge intensive business services (KIBS) sector to economic growth will increase signifiDOI: 10.4018/978-1-60960-587-2.ch612
cantly with the development of the knowledge economy and the rise of e-entrepreneurship. This article identifies different types of new KIBS and recognizes factors influencing their location. A conceptual research model based on the link between KIBS and location attributes is proposed and tested, and a survey was carried out in the Region Centro of Portugal to test a multidimensional approach at the location decision level. The authors’ found many different factors associated with the location of new KIBS, and their findings highlight two profiles of KIBS.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
1. INTRODUCTION The Lisbon European Council adopted, in March 2000, an economic reform programme with the aim of making the EU the most competitive and dynamic knowledge-based economy in the world by 2010. In that connection the European Council highlighted the key role of services in the economy and their potential for growth and employment. Services are the main motor of growth in the EU, accounting for 54% of GDP (Eurostat, 2002) and for 67% of those in employment. However, interest on economic information services goes back to 1980, at a time when regional development in Europe and North America was concerned with de-industrialization. Until then, those services were seen as mere subsidiaries of transforming activities. Over the last 20 years, special attention has been paid to the roles performed by those services. De-industrialization has continued, yet, some services’ sectors have shown a progressive rise (Wood, 2005). Despite growing awareness that innovation is not confined to sheer technical processes and products, some recent research on innovative activities has focused its attention only on technical innovation and, in particular, on the transforming industries sector (Becker & Dietz, 2004; Huergo & Jaumandreu, 2004; Lynskey, 2004; Nieto & Santamaria, 2005). Technological innovation associated with e-business is now broadly appreciated as one of the key drivers of positive economic change and innovation performance and gives a potentially considerable test of a region or nations capacity to generate an e-entrepreneurship process (a multistage process which is influenced by both the exogenous as well as endogenous factors) and sustain competitiveness (Ramsey et al., 2005). Particularly the importance of the Knowledge Intensive Business Services (KIBS) sector to economic growth will increase significantly with fast development of the knowledge economy and the rise of e-entrepreneurship.
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According to McCole and Ramsey (2004) e-business is the integration of Information and Communication Technologies (ICT) into business operations, which may evolve the redesign of internal processes around ICT, or the complete reinvention of an organization’s business model. Relation to the ICT is a key feature of KIBS which has been attracting a great deal of attention in the literature (Hempel, 2002; Broersma & Ark, 2007; Muller & Doloreux, 2009). In the most dynamic service industries, investments in ICT are larger than in the manufacturing sector and the available statistics concerning ICT investments show that service sectors account for the biggest – and growing-share of the total expenditures in ICT in the economy (Corrocher et al., 2009). Today ICT must be conceived broadly to encompass the information that business create and use, as well as the wide spectrum of increasingly convergent and linked technologies that process that information. Therefore, ICT can be viewed as a collective term for a wide range of software (human and social capital), hardware (information and communication technology), and and the fundamental socio-economic environment, which are linked in a systematic way by the entrepreneurs (Brandy et al., 2002; Porter & Millar, 1985). ICT have the potential to generate a steep change among KIBS and make them more competitive, innovative and generate growth. The importance of the services industry has only been acknowledged in the last decade (Gallouj & Weinstein, 1997; Tether, 2003). According to Tether et al. (2001) innovation in the service industry firms is perceived as something that occurs very slowly. Services are perceived as being incapable to innovate, adopting innovations generated by the transforming industry’s firms. Alongside Tether et al. (2001), Pavitt (1984) also believes that smaller services firms are less likely to develop R&D roles, thus becoming recipients of technology and innovation produced in other sectors.
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
Within the services industries, the rapid growth of KIBS has exposed their major role in innovation processes (Howells & Tether, 2004; Koch & Stahlecker, 2006; Muller, 2001; Toivonen, 2004). The role played by KIBS in the innovation process is affirmed, above else, by the fact that they do not have a simple performing role in the innovating activity, such as meeting demand and, more specifically, their clients’ wishes. Rather, they act as builders of “knowledge bridges”, or “innovation bridges”, between firms and science (Czarnitzki & Spielkamp, 2003; Miles et al., 1995). Nevertheless, few studies have been made on the innovative activity carried out by this sector of services (Koch & Strotmann, 2008). KIBS are services that rely deeply upon professional knowledge (Miles et al., 1994). Thus, the employment structures of firms in these sectors are heavily weighted towards scientists, engineers, and specialists of all types. Some are strongly technology-oriented, while others are much more concerned with knowledge of administrative, regulatory or social affairs. The intent of this research is to fill this gap in the literature and intends to contribute to the analysis of location factors of KIBS in the ICT sector. This study aims to examine the existence of distinct types of new KIBS, and to analyze the possible differences between them as to the factors that influence the location of new KIBS firms on ICT sector in a particular region. The article is structured as follows: next to this introduction, comes a theoretical framework of the characteristics and nature of KIBS and ICT. In the third section, theoretical approaches on KIBS’s location are developed, and the research hypotheses and the research model are proposed. In the fourth section some methodological aspects, particularly the unit of analysis (the Region Centro of Portugal), methods of data collecting, and Data analyses are presented. In the fifth section, the empirical research is developed, where the location factors are identified and the typology of KIBS obtained. In the end, the conclusions and
recommendations, with limitations and future lines of research are addressed.
2. CHARACTERISTICS AND NATURE OF KIBS AND ICT: A THEORETICAL FRAMEWORK Interest in the global diffusion of technology has been derived by arguments that it may increase knowledge diffusion through improving communication efficiency, improve political engagement (Norris, 2001), and allow developing countries to ‘leapfrog’ traditional methods of increasing productivity (Steinmueller, 2001). In this light, the striking international differences in ICT diffusion that exist today, often referred to as the Global Digital Divide, may pose a serious challenge to policymakers (Chinn & Fairlie, 2007). The rapid acceleration in the evolution of ICT and the broadening of its applications (in particular in the services sector) during the 1990s has established the nature of ICT as a generalpurpose technology. Today ICT is ubiquitous, with widespread applications; it generates new technological developments; and it has the ability to generate a stream of cost-reducing innovations, affecting in many ways the innovative behaviour and productivity performance in all sectors of the economy (Broersma & Ark, 2007). Although the enduring growth of the service sector in the advanced economies, services have long been perceived as non-innovative or technologically backward activities (Gago & Rubalcaba, 2007). It was only during the 1990s that the traditional conception of services as innovation laggards gradually changed. The earlier researches that covered the way for this shift were mainly focused on the use of technologies by services activities, especially ICT in creative rather than standard ways (Antonelli, 1998; OECD, 1996). In this picture, service innovations were inherent in the hardware components and transferred when
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implemented by service industry users (Gago & Rubalcaba, 2007). According to Gago and Rubalcaba (2007) ICT are drivers, facilitators and agents of four non-independent types of services innovation: product and process, organization, interfaces and co-production schemes, and business services and KIBS-related innovation. For others the debate on the growth of KIBS swirls around their new specializations of the business process that they run themselves and the rise of the tertiary sector in general. More and more specialized service providers will appear on the market, able to cover specific business processes for a larger number of customers. This increasing specialization will create ever longer and more complex advanced services (Corrocher et al., 2009). It is becoming increasingly obvious that both the new manufacturing processes and the new services and innovations in general find their origin more and more on KIBS (KaraÃmerlioglu & Carisson, 1999; Tomlinson & Milles, 1999). Since KIBS play a role of increasing importance in the economy, it is then desirable that KIBS are stimulated into adopting new technologies more rapidly, and creating innovative products more competitively. It requires that KIBS have the right environment to prosper, and from a skilled workforce and drive economic growth (Chinn & Fairlie, 2007; Sánchez et al., 2007). Hauknes (1999) draws our attention to a particularly significant question: what is, after all, knowledge intensity? According to him, knowledge intensity is hard to define and still harder to measure. To the extent that knowledge intensity reflects the integration with a generic or service specific science and technology base, it can be seen as a combination of knowledge embedded in new equipment, personnel, and R&D intensity. Furthermore, he argues that, another way at a micro-level may be to define it in terms of conditions for the transaction between the service provider and the service user or procurer. A simple approach to this would be to try classifying services according
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to relevant knowledge requirements of service provider and related knowledge requirements of the service procurer in a two-dimensional plot: low and high. Depending on the level of specialization in intensive knowledge on the part of the supplier, whoever requires a supplier of this type of services, will choose one type of supplier or another. In this case, knowledge intensity allows consumers to choose a service in detriment of another, taking into account its higher or lower degree of knowledge intensity. According to Broersma and Ark (2007) in relation to ICT there is a clear role for KIBS in contributing to changes in work organization (by consultants or technical engineers), introduction of standard or customized software solutions (by IT services) or the introduction of new client interfaces (marketing services). Hence the interaction between ICT and KIBS can lead to causality in dissimilar directions, but are typically focused on customization of the new technologies and further development of consequent – unique – innovations. In other words, such combinations typically concentrate in the management of interfaces between external and internal knowledge (Antonelli, 2000; Broersma & Ark, 2007). The proliferation of ICT has helped the diffusion of KIBS, because these new technologies influence the conditions of information like its tradability, which in turn affect the generation and organization of knowledge. In other words, KIBS have become a crucial part in the way firms organize and innovate their business process (Antonelli, 1998; Broersma & Ark, 2007). This has led to a new division of labour between specialists in KIBS on the one hand and the producers of manufactured goods on the other. This specialisation has been translated into a significant growth of knowledge intensive labour in modern industrialised (OECD, 2008) countries and manufacturing job creation in newly-industrialising countries. The location of High-order Producer Services (HOPS) has been extensively documented for the 1970s and 1980s when researchers turned
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
their interest to the effects of tertiarization on regional development (Coffey, 2000; Shearmur & Doloreux, 2008). Coffey (2000) stresses the growing interest in HOPS, and their important role in Western economies, producing possible spillover effects, synergies between economic sectors and labor market effects, into the spatial analysis. As service producers, their rapid growth in this specific segment of the economy has been perceptible (Coffey & Shearmur, 1997; Daniels, 1985). On the other hand, their role in the competitiveness of regions has also been observed and deserved the attention on the part of regional geographers and scientists (Beyers & Alvin, 1985; Coffey & Polèse, 1987; Drennan, 1987; Illeris, 1996). Nevertheless, there is a great deal of difficulty in finding distinct definitions for KIBS and HOPS as both expressions are used to define the services sector. In other words, business services and producer services are sectors whose clients are mainly firms and rarely individual customers. HOPS are all those services that require complex handling of symbols and transformation of information, which is often complex and atypical (Bryson et al., 2004; Daniels, 1985; Reich, 1992). In general terms, KIBS are mainly concerned with providing knowledge intensive inputs to the business processes of other organisations, including private and public sectors clients (Muller & Doloreaux, 2009). Miles et al. (1995) identified three essential characteristics of KIBS: 1. They rely heavily on professional knowledge; 2. They either are themselves primary sources of information and knowledge or they use knowledge to produce intermediate services for their clients’ production processes; 3. They are of competitive importance and supplied to business. More precisely, these authors defined KIBS as services that involved activities which are intended to result in the creation, accumulation or dissemination of knowledge. KIBS definition is
not uniform in the various existing studies (Muller & Zenker, 2001; Muller & Doloreux, 2009). According to the Standard Industry Classification (SIC), KIBS may be divided into two groups: Technological KIBS (t-KIBS); and Professional KIBS (p-KIBS). The t-KIBS are mainly related to information and communication technologies as well as technical activities (IT-related services, engineering and architecture activities, R&D consulting, etc.). The p-KIBS are traditional professional services, liable to be intensive users of new technology (business and management services, legal accounting and activities, market research, etc.). Freel (2006) concluded that t-KIBS employ higher qualified people, and that this relates to their level of innovation. In the case of p-KIBS, he noticed that the relationship between them, suppliers and clients fosters innovation. As for the transforming industries, as it is not in their interest to invest in R&D, their level of innovation is extremely low (Freel, 2006). The development of ICT advances the demand for KIBS in several ways. Along with the explosion of the amount of information, there is a growing need for highly qualified professionals who are able to provide comprehensive and customised interpretation of random data (Lundvall & Johnson, 1994). On the other hand, the development of ICT also gives new incentives to the codification of knowledge (Smedlund & Toivonen, 2007). It increases the divisibility of information, which, together with the enhanced accessibility, results in the growth of the commercial potential of information. KIBS tend to be among the chief advocates and supporters of the emerging information markets. Finally, ICT has essentially increased the opportunities to effectively combine external and internal knowledge sources. It has enabled easier interfaces and higher levels of appropriability of specific problem-solving methodologies. Through the use of these new means, KIBS can better than previously provide their clients with access to information dispersed in the society and enhance
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Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
shared learning experiences between the nodes of innovation networks (Antonelli, 1998; Smedlund & Toivonen, 2007). Figure 1 presents the main possible interrelations between knowledge intensity and High-order producer services based on a multidimensional view of KIBS and the complementarities between professional and technological knowledge intensive business service in an ICT sector. According to Wood (2005), research on regional innovation merely echoes national studies that focus primarily on regional competitiveness, as a process that is oriented and technologically pushed by innovation. According to this author, the provision of information services for innovation purposes must be acknowledged as a service that is inbuilt within a scientific and technological services division, whose adoption by firms from other sectors is vital for its own success. Sheamur and Doloreaux (2008) present two perspectives that indicate how KIBS contribute towards regional development: 1. The way KIBS interact with other local players with the aim of producing innovation and Figure 1. Characteristics and nature of KIBS
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subsequent regional development. Thus, this first perspective suggests that KIBS should be involved in the development of regions as long as synergy effects occur in the very same regions; 2. KIBS may be involved in regional development, but instead of being in the regions, they may be located elsewhere in the country, and so be involved at a distance. From these two perspectives, we are inevitably led to the question of location of KIBS. The location of these firms and their contribution to local economies have been analysed by several researchers (Coffey & Shearmur, 1997; Gong, 2001; ÓhUallachain & Reid, 1991). Their localization in the urban system, their sensitivity to the economies’ general agglomeration (Eberts & Randall, 1998; Poehling, 1999; Wernerheim & Sharpe, 2003) and their tendency to set up around spatial clusters (Coe, 1998; Keeble & Nachum, 2002), have been documented through several tools and methodologies. A large part of these studies has been motivated by interest in researching the dynamics of local economies, regional
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
development and the reason why some regions grow faster and more than others (Moyart, 2005).
3. THEORETICAL APPROACHES ON KIBS’ LOCATION E-commerce, facilitated by the Internet, is dramatically changing the manner in which buyers and sellers find and interact with each other. Electronic networks (namely, Electronic Data Interchanges) have existed for some time allowing many large companies to communicate with other large suppliers and/or customers (Hatiwanger & Jarmin, 1999). This has potentially important implications for the nature and location of businesses – particularly those involved in the distribution of goods and services – and important implications for how markets work (Brynjolfsson & Kahin, 2002). Competitive challenges faced by firms from ICT sector require that maximum effort is put on exploiting the e-business potential in supporting innovation and competitiveness. According to Capello and Spairani (2004) after two decades of study there is world-wide recognition that the impact of ICT on firms’ performance depends on various micro-behavioural elements, which have a primary role in allowing better exploitation of these technologies. These micro-behavioural elements explore concepts involved in human spatial decision making and choice behavior. Human spatial behavior can be defined as any sequence of consciously or subconsciously directed life processes that result in changes of location through time (Golledge & Stimpson, 1997). Areas that give the strongest support to ICT exploitation are special areas such as cities, and large towns in particular, characterized by high levels of human and relational capital, and other special areas defined in the literature as industrial districts or innovative milieux. In these areas, the strategic elements that support ICT adoption and use – organizational flexibility and innovative capacity – can be reinforced by the local envi-
ronment in which the firm is located (Capello & Spairani, 2004). According to Malecki et al. (2004), KIBS are essentially located in cities, as the latter are the optimum places for corporate innovation, as well as for networks leading to innovation. Sheamur and Doloreaux (2008) present a distinct viewpoint, based on their study in Canada, whereby the sample was selected from Censuses carried out in 1991 and 2001. They selected KIBS from 152 urban agglomerations and KIBS from 230 rural areas. The authors then noticed that in the beginning of the 1990s, this service providing companies were, in their large majority, based in urban areas. Roper and Love (2006) argue that still rural areas lag far behind their urban counterparts relating to KIBS creation. In this sense, classical and contemporary economic thoughts have consistently depicted urban agglomerations as the chosen location for conducting business (Marshall, 1920; Hoover, 1948; Jacobs, 1969; Krugman, 1981). Nevertheless, improvements in the transport and communication infrastructure have considerably shrunk the physical and psychological distance between rural and urban areas (Grimes, 2000; Phelps et al., 2001). Few of these insights reflect on the motives which led firms of high technology to set up in rural areas. The reason behind this lack of information lies, probably, in the small number of firms located in rural areas. Nevertheless, and due to the development of information technologies, particularly the Internet, Grimes (2000) and Ferreira et al. (2009) identified an increase in the number of firms which set up in those areas. According to Silva (2006) the spatial distribution of economic activities results from opportunities and location strategies devised in accordance with particular objectives. However, decisionmaking processes are complex and involve an important economic component, since a large part of human activities require the use and sharing of limited resources. Capello (2007) recognizes two groups of regional economic theories that look
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into the issue of economic logic, which intends to explain the location of firms: 1. Location theories: economic mechanisms that cause the distribution of activities in space; 2. Growth and regional development theories: they focus on spatial aspects of economic growth and on territorial distribution of income. On the other hand, Hayter (1997) set off to analyse the location of economic activity through three distinct approaches: 1. Neoclassical, which focuses mostly on the location theory and centres its analysis on profit maximization strategies and minimization of costs (transportation costs, human resources costs and external economies); 2. Institutional, which states that it is important to consider not just the firm’s search for an appropriate location but also the institutional milieu it is part of (clients, suppliers, commercial associations, regional systems, the government and other companies); and 3. Behavioural, which focuses on situations of uncertainty and lack of information. According to him, these three approaches have the purpose of demonstrating how complex the reasons that motivate the location of a particular economic activity are, and they allow us to analyse factors of location at a more “micro” level. Galbraith (1985) studied 98 entrepreneurs of high technology firms in Orange County, California (USA). He concluded that high-technology firms, in their location decision process operate within a framework of factors that are different from those observed in traditional industries. These conclusions are similarly shared by Arauzo and Viladecans (2006) in their study on the level of spatial concentration of new firms (in the period
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1992-1996) in the municipalities of Spanish urban areas. In fact, smaller cities appear to be preferred for the location of technology-based firms, as they offer a quieter environment, better quality of life and become highly advantaged by the presence of qualified individuals working in these industries. According to Hayter (1997) the location of many firms is explained by behavioural factors, since many entrepreneurs, when deciding on where to set up their firms, end up choosing the places where they were born. In order to identify what behavioural factors influence the locations of the KIBS, the following research hypotheses are formulated: H1a: The founder’s wish to live in this locality influences the location of KIBS. H1b: The employees’ wish to live in this locality influences the location of KIBS. H1c: Proximity to the founder’s residence influences the location of KIBS. H1d: Access to good housing conditions influences the location of KIBS. H1e: The founder’s birthplace influences the location of KIBS. H1f: Recreational and leisure opportunities influence the location of KIBS. H1g: The climate in the region influences the location of KIBS. H1h: The community’s attitude to business influences the location of KIBS. According to the neoclassical approach, the location of firms lies essentially on the power of economic forces (Hayter, 1997). According to Hayter (1997) this situation often has a perverse influence in the theories of researchers who
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
strictly defend the neoclassical approach, given that, through common sense, as well as a result of economic advantages, the entrepreneur, when choosing the location for his firm, takes into account all types of costs, thus deciding where to set up where costs are lower. According to Ouwersloot and Rietveld (2000), one of the key factors for economic development is technological innovation: the introduction of new production techniques, products or services. These researchers concluded that the factors that make firms decide to set up in a particular region depend on the type of firms. In other words, for traditional transformation firms, the industrial composition of the place where they will be based is a key factor. If the firms are service-based, what influences them most in their choice of location is physical infrastructures and knowledge. Accordingly to these previous authors, several neoclassical factors might influence on locations of firms. Therefore, the following research hypotheses are formulated:
H2b: Road infrastructures influence the location of KIBS.
resorted to 20000 new German firms specifically on the basis of their deep knowledge of research institutions. The results demonstrated that these start-up high-technology firms tend to trust science with a high degree of intensity, which made them set up near research institutions. Audrestch et al. (2005) stressed the importance of access to knowledge spillovers when new technology-based firms decide on their location. Their results revealed that new high-technology firms are influenced by factors other than regional traditional characteristics, such as the opportunity to access knowledge generated by universities. In turn, Autant-Bernard et al. (2006) analysed the determining factors in the creation of new biotechnology firms in France over the past decade (1993-1999); and demonstrated the need for the existence of a large and diversified scientific basis inside a region to enable these firms, after they were set up, to continue their activity for many years. There are also entrepreneurs who prefer to set up business near universities, research centres and governmental bodies, in order to have more adequate support to the activities they intend to develop within their firms (Hayter, 1997). Based on these arguments, several institutional factors might influence on location of KIBS. Consequently, the following research hypotheses are considered:
H2c: The cost of real estate influences the location of KIBS.
H3a: The existence of a business incubator in the region influences the location of KIBS.
H2d: The cost of land influences the location of KIBS.
H3b: Access to knowledge generated by universities, technology parks or research centres influences the location of KIBS.
H2a: Distance from the capital of the region influences the location of KIBS.
H2e: The level of economic activity of the region influences the location of KIBS. H2f: The level of specialisation of firms in the region influences the location of KIBS. Elgen et al. (2004) analysed the role which public research institutes play in capturing and attracting new technology-based firms. They
H3c: R&D, company or job creation incentives in order to locate business in this region influence the location of KIBS. H3d: Technology fairs organised regularly in the region influence the location of KIBS.
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H3e: The “role models” in the region influence the location of KIBS. In sum and according to the literature review, we present our research model (Figure 2) which intends to highlight the main factors that have influence on KIBS’ location decision.
4. METHODOLOGY 4.1- Unit of Analysis: Location of Region Centro of Portugal The Portuguese conditions have also generated the autonomous KIBS, whose relatively self-contained behaviour is somewhat unexpected for this type of firm (Fontes & Coombs, 1995). Because of the structural gaps in the Portuguese scientific technology infrastructure and industrial structure, firms will possibly continue to be launched in fields scarcely exploited in Portugal, in spite of recent entrepreneurs’ tendency to concentrate in Figure 2. Proposed research model
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fields where expertise exists locally (Fontes & Coombs, 1995). The experience of the KIBS, initiated in new fields and without close links with local sources of technological knowledge, but which were able to build alternative relationships elsewhere, can provide some learning ground for those entrepreneurs (Fontes & Coombs, 1995; Mamede et al., 2007; OECD, 2008). Today, the increased entrepreneurial activity of Portugal is evident; according to INE (2007) in 2003 the KIBS firms presented 13.76% of the total of firms and in 2006 increased to 16.72%. The number of KIBS in Portugal is still small. At the end of 2006, there were 189 400 (INE, 2007). However, dynamic behaviour of Portuguese knowledge-based firms and industries presented some distinctive features during the second half of the 1990s (Mamede et al., 2007). In particular, KIBS have grown faster, their price-cost margin has been higher, and firms within knowledge industries have lived longer than the average (Mamede et al., 2007).
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
The Region Centro is a Nomenclature of Territorial Units for Statistics (NUT) II in Portugal, it has a surface of 28.198, 70 km2 (INE, 2007), which it represents about 30.6% of the Portuguese territory and it incorporates 12 sub-regions (Baixo Vouga, Baixo Mondego, Pinhal Litoral, Pinhal Interior Norte, Dão-Lafões, Pinhal Interior Sul, Serra da Estrela, Beira Interior Norte, Beira Interior Sul, Cova da Beira, Oeste, and Médio Tejo) that contain 100 municipalities, 36 cities, and 1334 counties. With a total of 2.385.911 inhabitants in 2008 (INE, 2008), the Region Centro presents a population density of 84.3 hab/km2, below the national average value (114.3 hab/km2) and below the average value of Europe. The Region is located among two metropolis of the country: Lisbon and Oporto that exert strong forces of attraction on them. There is, however, an increasing concern with the definition of regional strategies and the infrastructures creation that supports the articulation of some urban territorial systems and its local systems of productivity with logic of complementarities in the access to the facilities and productive and social infrastructures. In the Region Centro of Portugal, we observe the presence of some favourable physical conditions (infra-structures and accessibilities) and institutional conditions (science parks and universities) which may have driven latent entrepreneurship and led to the recent increase in KIBS initiatives (Fernandes, 2008; Ferreira et al., 2009). The increased entrepreneurial activity of Region Centro of Portugal is evident, according to INE (2007) in 2003 the KIBS firms presented 10.38% of the total of firms and in 2006 increase to 13.28%. However, it is our argument that, although some changes in the institutional environment that are making the entrepreneurial decision more attractive, some institutional and behavioural barriers still remain and the process is far from being sustainable (Ferreira et al., 2009).
4.2 Data Collection The classification into these main sub-sectors is gradually taking root in the literature (Doloreux & Muller 2007; Freel 2006; Miles et al., 1995). Activities are selected according to Portuguese Classification of Economic Activities CAE1 codes, as has happened in other research that used NACE codes, which correspond to the CAE (Muller, 2001; Shearmur & Doloreaux, 2008). In rural areas of region Centro, there are 330 new KIBS created between 2003 and 2007 (INE, 2007). A questionnaire was developed from extant literature and piloted on a small group of academics and business people in the Region Centro of Portugal. The 330 questionnaires were mailed to a cross-section of owner managers of new KIBS located in rural areas in this region. Contact addresses were solicited from industry organizations and commercial data providers. Data was collected between February 2008 and April 2008 and the final response rate was 20 per cent (66 completed questionnaires). Data was analysed using conventional bivariate and multivariate techniques in SPSS 15. To sum up, Table 1 summarizes these methodological aspects.
4.3 Data Analyses To enable us to identify the location factors of KIBS in the Region Centro of Portugal, we subjected the 19 items of the questionnaire to a factorial analysis. Factorial analysis is a set of statistic techniques that aims to explain the correlation between observable variables by simplifying data by means of reducing the number of variables that are necessary to describe them. It presupposes the existence of a lesser number of non-observable variables that are subjacent to data (factors), which express the common denominator in the original variables (Maroco, 2003). This way, the main objective of using factorial analysis on data was to obtain a reduced number of factors that enable us to identify the structural relations between the
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Table 1. Methodological aspects Region
Region Centro of Portugal
Population
330 rural KIBS.
Sample unit
Rural KIBS created between 2003 and 2007.
Size of sample
66 responses (20% response rate) corresponding to 77.3% of p-KIBS and 22.7% of t- KIBS.
Respondents
Entrepreneurs – firms’ owners.
Questionnaire model
The questionnaire is formed by closed questions, using a Likert scale.
Statistical models used
Factor analysis of the main components; Mann-Whitney Test Statistics.
Data analysis
SPSS 15.0
nineteen variables that measure the importance of firm location factors. In order to use the factorial model, there must be a correlation between the variances. If those correlations are small, it is unlikely that they share common factors. Kaiser-Meyer-Olkin (KMO) and Bartlett’s sphericity test are two statistical procedures that enable us to estimate the quality of the correlations between variances, in order to conduct a factorial analysis. KMO is a type of statistic that compares zero-order correlations with partial correlations observed between variables, while the Bartlett’s sphericity test checks the hypothesis of the correlation matrix being the identity matrix, in other words, it tests if the correlations between the original variables are sufficiently high to make the factorial analysis useful when estimating common factors. In this case, recommendation based on factorial analysis is acceptable (KMO=0,684). Bartlett’s sphericity test ( 2 cGL= = 645, 987 and p-value=0.000<0.001) 171 indicates that the variables are significantly correlated. After evaluating the quality of the appropriateness of this model to the data, the actual factorial analysis was carried out. The main components’ method was used in the extraction of factors. Kaiser’s criterion was used to decide the numbers of factors to be extracted, i.e., the number of singular values above unity, which can be analysed analytically through the total variance table, and graphically through a Scree-Plot. In the components’
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matrix, coefficients with absolute values below 0,40 were eliminated. The Bartlett’s method was used to estimate the loads/weights and to interpret the factorial solution. The Varimax rotation method was used in factor extraction, in order to obtain a factorial structure in which one, and only one of the original variables is closely associated to one single factor, and loosely associated to the remaining factors (Maroco, 2003).
5. EMPIRICAL RESEARCH 5.1 Identification of KIBS’ Location Factors The factorial analysis for the 19 variables is shown in Table 2. It indicates the factorial solution for 5 factors: the weight/load of each item in the factor; the variance percentage explained by each factor; the interval consistency of each factor; the KMO value and Bartlett’s sphericity test. According to the rule of retention of factors with singular values higher than 1, five factors were retained, which explain 69% of total variability: factor 1 explains 21% of the variance; factor 2 explains 16.97% of the variance; factor 3 explains 13.16% of the variance; factor 4 explains 10.83% of the variance; and factor 5 explains 7.89% of the variance. Factorial weights with absolute value lower than 0.40 were eliminated from the matrix of components.
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
Table 2. KIBS’ location decision factors: Factorial analysis (Varimax rotation) Factor 1 Innovation and Incentives to the formation of firms
Business Incubator in the municipality /region I&D incentives, creation of firms or of jobs to locate business in the area Regular technology fairs in the area “Role” models in the area Access to knowledge generated by universities, technology parks or research centres Other physical infrastructures Company specialization in the municipality / region
Factor 2 Individual Motivations
Factor 3 Characteristics of the locality
Factor 4 Economic expansion of the region
Factor 5 Conditions of the Surrounding Milieu
,921 ,893 ,748 ,707 ,635 ,617 ,477
Founder’s wish to live in the locality Proximity to founder’s residence Founder was born in the locality Employees’ or managers’ wish to live in the locality
,900 ,866 ,807 ,719
Community’s attitude to business Access to good housing conditions Distance from the municipality’s capital
,809 ,770 ,668
Level of economic activity in the region Road infrastructures Cost of real estate
,882 ,829 ,481
Climate in the area Recreational and leisure opportunities
,763 ,560
Explained Variance (%)
21
16.97
13.16
10.83
7.89
Consistency 𝛂 Cronbach
0,836
0,849
0,707
0,648
0,336
KMO = 0,684 and Bartlett’s Sphericity Test = 645,987 (p-value= 0,000)
The creation of scores requires verification of their internal consistency, and that scales are additive. On the one hand, the Cronbach’s alpha coefficient for the 19 items was 0,638, which shows a reasonable consistency of the instrument. The analysis of the internal consistency of each factor also revealed acceptable alpha values for all the factors, with the exception of factor 5, which indicated an alpha value lower than 0.5. On the other hand, the testing statistical analysis (F =41.028 with p-value= 0.000) associated to the use of the Tukey’s additivity test allows us to reject the null hypothesis of absence of additive effect between items. Hence, we can conclude that the scales are additive, which means that each variable is linearly related to the value of the scale.
Once the factorial solution is achieved, it is necessary to interpret the factors that have been identified: factor 1 is related to the level of innovation (business incubator, proximity to universities and technology fairs), entrepreneurs that act as role models and incentives to the creation of companies. Factor 2 is associated to the company’s founder personal motives (residence preferences on the employees’ and founders’ part, residence near the place where the company is located and place of birth). Factor 3 is linked to the locality’s characteristics (attitude of the community to new entrepreneurs, housing conditions and distance from the capital of the municipality). Factor 4 refers to the possibility for economic expansion that the region can give (level of economic activity, existence of road infrastructures and price of
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land). And factor number 5 is associated to issues around the surrounding milieu (climate and leisure opportunities). The factorial analysis reveals that the previous proposed model has a slightly different when used in the Centro Region, in what concerns location factors’ aggregation. Thus, and according to the factor analysis results, our KIBS’ location research model is as follows (Figure 3):
5.2 Typology of KIBS In order to extend our knowledge of the differences regarding the level of agreement of the 19 location factors of our study, and in agreement with the two groups of professional and technological KIBS, we used the Mann-Whitney test, which is an appropriate test for this measurement scale (Likert scale, varying from 1 “no importance” to 5 “very important”). Therefore, the aim is to verify if there are differences regarding the importance of firm location factors relative to the type of KIBS: professional KIBS (p-KIBS) and technological KIBS (t-KIBS). Table 3 shows the Figure 3. KIBS’ location research model
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test statistics associated to the application of the non-parametric test in two independent samples. The analysis of Table 3 enables us to conclude that the degree of agreement associated to each original factor for the two groups of KIBS (p-KIBS and t-KIBS), are significantly distinct regarding the following location factors: Employees’ wish to live in this locality; Proximity to the founder’s residence; The founder was born in this locality; Community’s attitude to business; Distance from the capital of the municipality; Level of economic activity of the municipality/region; and Company specialization in the municipality/region, for a 5% level of significance. It was observed that the factors Road infrastructures; and Access to knowledge generated by universities, technology parks or research centres reveal differences between types of KIBS, for a level of significance of 10%. There were no significant statistical differences regarding the remaining factors. The empirical model that results from the use of factorial analysis allows us to consider 5 latent factors that represent the information contained in the 19 original variables associated to the decision
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
Table 3. Mann-Whitney Test – applied to the nineteen Location Factors Location Factors
Ch-square
g.l.
Assymp Sig.
E1- Founder’s wish to live in this locality
4,276
1
0,039
E2- Employees or managers’ wish to live in the locality
9,506
1
0,002*
E3- Proximity to the founder’s residence
6,645
1
0,010*
E4- Access to good housing conditions
2,950
1
0,086
E5- Founder born in this location
5,158
1
0,023*
E6- Recreational and leisure opportunities
1,075
1
0,300
E7- Climate in the region
,001
1
0,970
E8- Community’s attitude to business
4,817
1
0,028*
E9 - Distance to the capital of the municipality
3,951
1
0,047*
E10- Road infrastructures
3,714
1
0,054**
E11- Other physical infrastructures
,113
1
0,736
E12- Cost of land
12,345
1
0,000*
E13 Level of economic activity in the municipality /region
5,513
1
0,019*
E14- Specialization of firms in the region /region
,547
1
0,460
E15- business incubator in the municipality /region
,622
1
0,430
E16 - Access to knowledge generated by universities, technology parks or research centres
3,002
1
0,083**
E17- R&D incentives, company or job creation to set up business in the region
,929
1
0,335
E18- Regular technology fairs in the region
,135
1
0,713
E19- “Role models” in the region
,948
1
0,330
* = p < 0,05; ** = p < 0,10
to locate KIBS in the Region Centro. A score was estimated for each factor, allowing the intensity of agreement of each individual relative to that particular location factor to be measured. The analysis of the Error-bar graph (Figure 4) allows us to see that the average importance of location factors differ according to the type of KIBS. The factors innovation and incentives to the creation of companies; individual motivations; economic expansion of the region; and conditions of the surrounding milieu reveal a higher average score when it comes to professional KIBS and compared to technological KIBS. Only the factor, characteristics of the locality, appears to have a higher average influence on the location decision when it comes to technological KIBS. According to the results (Table 4), we are in a position to draw the verification of the research hypotheses:
6. CONCLUSION AND RECOMMENDATIONS In the present research, we aimed to focus on two theoretical topics, which, due to their complexity, have gained increased importance. We started by referring to the growing interest on the study of KIBS, due to their influence on innovation and regional development in ICT sector. Subsequently, we intended to know what are the reasons that make KIBS establish them in a particular region, and to verify if there are differences between them. First of all, the factors of the location decision are quite different. As a concluding remark, we can say that although KIBS characteristics are undoubtedly relevant in explaining the location factors, this research witnesses the importance of the local environment and in particular from factors of behavioural, neoclassic and institutional nature.
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Figure 4. Error-bar to the score average of the KIBS location factors
In general, and according to our model (Figure 3), there are five types of factors that have important influence over rural location decisions of KIBS of the region Centro, and they are: 1. Innovation and Incentives to company formation; 2. Personal Motivations; 3. Characteristics of the locality; 4. Economic expansion of the region; and 5. Conditions of the Surrounding Milieu. However, our results suggest that location factors depend of nature of KIBS (p-KIBS or t-KIBS). For t-KIBS only two factors had influence on location: 1. The community’s attitude to business; and 2. Distance from the capital of the region. For p-KIBS a higher number of factors (seven factors) influence the location: 1. 2. 3. 4. 5. 6.
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The employees’ wish to live in the locality; Proximity to the founder’s residence; The founder’s birthplace; Road infrastructures; The level of economic activity of the region; The level of specialisation of firms in the region; and
7. Access to knowledge generated by universities, technology parks or research centres. From these findings we can conclude that institutional factors do not influence the location of t-KIBS. In turn, the p-KIBS were influenced simultaneously by three type’s behavioural, neoclassical and institutional factors. Our results suggest that the location decisions of new KIBS are multidimensional nature, not only supply oriented but also strongly driven by demand. They typically locate in rural areas with a research environment, e. g. with public research laboratories. Overall, one should not neglect the role of pull factors for the spatial allocation of public research as well as other firms in knowledge intensive industries. They seem to influence location decisions as much as push factors such as the level of specialization of the firms and the regional level of research and science. Our results may also provide some new insights for public policies that attempt to incentive to create new KIBS. Many of these policies tend to follow local or regional approaches by offering support such as office space, consulting services, financial support and equity investment to those KIBS, e.g. in a science park or other types of incubators, or setting up their business in close cooperation with other knowledge industries.
Decision-Making for Location of New Knowledge Intensive Businesses on ICT Sector
Table 4. Results of tested hypotheses by type of KIBS Hypotheses
Type of KIBS t- KIBS
p-KIBS
Behavioural Factors H1a: The founder’s wish to live in the locality influences the location of KIBS
Not Verified
Not verified
H1b: The employees’ wish to live in the locality influences the location of KIBS
Not verified
Verified
H1c: Proximity to the founder’s residence influences the location of KIBS
Not Verified
Verified
H1d: Access to good housing conditions influences the location of KIBS
Not Verified
Not Verified
H1e: The founder’s birthplace influences the location of KIBS
Not Verified
Verified
H1f: Recreational and leisure opportunities influence the location of KIBS
Not Verified
Not Verified
H1g: The climate in the region influences the location of KIBS
Not Verified
Not Verified
H1h: The community’s attitude to business influences the location of KIBS
Verified
Not verified
Verified
Not Verified
Neoclassical Factors H2a: Distance from the capital of the region influences the location of KIBS H2b: Road infrastructures influence the location of KIBS
Not Verified
Verified
H2c: The cost of real estate influences the location of KIBS.
Not Verified
Not Verified
H2d: The Cost of land influences the location of KIBS
Not Verified
Not Verified
H2e: The level of economic activity of the region influences the location of KIBS
Not Verified
Verified
H2f: The level of specialisation of firms in the region influences the location of KIBS
Not Verified
Verified
H3a: The existence of a business incubator in the region influences the location of KIBS
Not Verified
Not Verified
H3b: Access to knowledge generated by universities, technology parks or research centres influences the location of KIBS
Not Verified
Verified
H3c: R&D, company or job creation incentives to set up business in the region influence the location of KIBS
Not Verified
Not Verified
H3d: Technology fairs regularly in the region influence the location of KIBS
Not Verified
Not Verified
H3e: The “role models” in the region influence the location of KIBS
Not Verified
Not Verified
Institutional Factors
These findings have important implications for both academics and policy-makers. Contrary to much literature, this study indicates that the location decision of KIBS in rural areas is not derived only of calculative and rational economic thinking. Some academics have tended to associate higher knowledge-based industries with greater economic rationality. What this study has found is that in the case of the surveyed new rural Portuguese KIBS, there other type of factors influencing the business locations. We are confident that the findings have improved our understanding and provided important insights of wide-ranging value to academics,
policy makers and business practitioners. From this perspective the overall purpose will be to better inform academics, policy makers and most importantly owner-managers of KIBS about the predictable and unpredictable factors associated with location’s decisions. The appearance of a knowledge-based economy depends upon among other factors, macro environment, policy framework, institutional support, and performance of entrepreneurial activities within the economy. In knowledge-based economy, which is characterized by a rapid productivity growth, the role of e-entrepreneurship (as a process of value creation involving synergies
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between ICT and new KIBS) cannot be underestimated. E-entrepreneurship means more than just technology. E-entrepreneurship deals with the application of ICT by entrepreneurs to create value from the total value chain of business by acquiring, sustaining and enhancing business competitiveness. Basically, e-entrepreneurship process is a multidimensional process which is influenced by both the exogenous as well as endogenous factors. Every study has unavoidable limitations which differ depending on deliberate or unconscious choices. In a general way, the limitations of the present study come from the following aspects: the small number of the studied population caused some limitations on the choosing and application of the some statistic techniques. Moreover, the nature of this data does not enable us to measure the effect on the KIBS of some important location factors. Although these limitations are important and must be taken into account, we are nevertheless convinced that this study will contribute to a better understanding of location factors of KIBS and it can be seen as a further step to provide to the study and development of KIBS on ICT sector and e-entrepreneurship process. In summary, further research is needed to improve our understanding of the dynamics of location of the KIBS firms. Further comparative research may be needed to determine whether other types of knowledge intensive business, such as high technology manufacturing or activities associated with creative industries offer the same results. Past studies point out the influence of behavioural factors upon the entrepreneurial decisions of rural businesses in Portugal, and future research should now attempt to identify whether this is also the case for rural KIBS firms in other parts of the world. Longitudinal studies and case studies are suggested. Future studies should explore which endogenous and exogenous factors might explain why firms decide different location factors. The replication in different service
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sectors of the proposal research model beyond the limited period retained in this research as well as the introduction of other location factors. At last, future research is needed in order to obtain answer some key questions, such as: what is contribution of location decisions for eentrepreneurship process and what are its drivers? What e-entrepreneurial opportunity does the emergence of knowledge intensive business service in a region? How different and new technologies influence the location of new businesses and the speed of e-entrepreneurship process? What role, if any, the public policies should to play to stimulate the e-entrepreneurship process?
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ENDNOTE 1
The CAE was obtained through consultation of “Boletim do Contribuinte”, Decree -Law no 381/2007, of 14 November.
This work was previously published in International Journal of E-Entrepreneurship and Innovation (IJEEI), Volume 1, Issue 1, edited by Suphan Nasir, pp. 60-82, copyright 2010 by IGI Publishing (an imprint of IGI Global). 1787
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Chapter 6.13
Executive Judgment in E-Business Strategy Valerie Baker University of Wollongong, Australia Tim Coltman University of Wollongong, Australia
INTRODUCTION One of the main strategic challenges for organizations today is to effectively manage change and stay competitive in the future. Change appears to be the only constant in contemporary business and is present in every industry and in every country (Brown & Eisenhardt, 1998). Moreover, the key area of importance, current within many organizations, is how to effectively leverage technology within such a complex and dynamic business environment (Sauer & Willcocks, 2003). The alignment or fit approach, which has its roots in contingency theory, has long been promoted DOI: 10.4018/978-1-60960-587-2.ch613
as the way to get high returns from technology investment. However, the realization of advantage from the Internet and related e-business technology investment has long been a source of frustration for corporate executives. Impressive performance returns by companies such as Dell Computers, Cisco Systems and General Electric illustrate that returns can be achieved by linking the Internet and related e-business technologies to firm strategy. These companies have shown that successful management of their IT investments can generate returns as much as 40% higher than those of their competitors (Ross & Weill, 2002). Yet, many executives view the Internet and related e-business technologies with intense frustration. They recollect investment in the great speculative
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Executive Judgment in E-Business Strategy
bubble of the 1990s and excessive expenditure on year 2000 (Y2K) compliant systems (Keen, 2002). They recall high profile examples of botched enterprise resource planning (ERP) systems that have consistently run over time and budget and report that customer-relationship management (CRM) initiatives were largely a flop (Reinartz & Chugh, 2002). Unfortunately, it is not yet clear how firms should go about capturing the potential that exists in e-business, as few normative frameworks exist to guide practitioner investment.
BACKGROUND One area of scholarly activity where consistent advances have been made regarding the determinants of firm performance is in structural contingency theory. Here, the contingency factor (i.e., environment-structure) has enabled predictions to be made in a relatively unambiguous manner (Donaldson, 1995). Applied to an e-business setting, contingency theory argues that performance increases can be expected whenever information technology is applied in an appropriate and timely way, in harmony with business, environmental and organizational conditions. Consider a typical scenario where an executive wants to make a strategic investment in information systems. They have two choices: (1) a system to support backend operations using ERP technology, and (2) a CRM support system. How do they prioritise between these competing investments? Contingency literature would argue that it depends upon the organization’s strategy and decision-making information requirements (Chandler, 1962; Child, 1972; Galbraith & Kazanjian, 1986). Manufacturing excellence strategies associated with companies like Carrefour or Ford Motor Company would get greater value from ERP systems. Customer intimacy strategies at companies like CitiBank or IBM Global Services would benefit most by customer feedback systems.
As simple as this observation may appear, the application of alignment has proven elusive. Despite 20 years of effort and investment in consulting advice, CIOs are still struggling with the same set of alignment problems. A recent survey by CIO Insight (Patterson, 2001) highlights the point that only 34% of organizations considered the link between their IT priorities and their enterprise strategy to be “strong.” While these statistics reflect the difficulties of coordinating complex organizations, they provide evidence that most managers are not using the basic tools of alignment that have been developed over several decades of research. Priem and Cycyota (2000) equate the process of alignment between IT strategies and business goals with executive judgment. The literature regarding judgment theory argues that firm success can be explained by the judgments executives make concerning the current state of the environment and the vision of the organization. In uncertain times, where market pressures and time constraints dominate the business landscape senior manager’s perceptions, skill and vision often form the basis on which strategic choices regarding IT investments are made. For example, it takes little more than a browsing of the management section of the local bookstore—blazoned with titles such as Inside the Minds: Leading CEOs—or a visit to the local news agent to pick up a recent copy of Forbes, Fortune or Business Week to recognize the importance that publishers and managers place on the philosophies and actions of even some of the least successful or most unlikely of management leaders. Perhaps more relevant is that often the appointment of “higher quality CEOs” leads to immediate stock market reactions and greater long term performance. One such example was the reappointment of Steve Jobs as CEO of Apple Computer. Jobs has been widely praised for his skill in judging the commercial potential of convergent Internet technologies and his return to the company was considered instrumental in its reversal of bad fortunes (Stevens, 1997).
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The corollary here is that judgment is an essential skill for setting the overall direction of the organization. In turbulent environments, often the context of e-business, quick trade offs need to take place, as the strategic direction of the firm enables it for the future. This being the case management discretion becomes increasingly important, as decisions are made “on the fly” with little information or understanding of the decision problem. Management play a vital role in “trading off” elements of organization control, that is, structure for better adaptation, a view supported by complexity theory (Brown & Eisenhardt, 1998). This theory views strategy as a process which constantly changes, and thus needs a type of structure or execution method that is dynamic and will allow the organization to be ready for the future. Thus, although judgment appears to be important to organizational success, scholars have largely ignored executive intentions and no empirical link between executive choices and firm outcomes has been established. Instead, strategic outcomes are presumed to be due to strategic choice (Preim & Harrison, 1994). This omission may account in some part, for why practitioners continue to pay little attention to the large amount of published work concerning the antecedents of strategy and performance. This concern provided the motivation for a special issue of the Academy of Management Journal (AMJ, 1998, p.746) that sought greater understanding of the way knowledge is transferred between academics and practitioners. The issue again surfaced in a recent issue of the Academy of Management Executive, providing evidence that practitioners still typically turn to sources of information other than academics or the scientific literature when searching for ways to improve performance (Ford, Duncan et al., 2003).
FUTURE TRENDS Clearly, we need greater understanding of the conditions which lead executives to make strategic
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choices if we are to develop research that has an impact on practitioners. Existing research into the change process and the implementation of e-business related technology is limited because it fails to measure the link between strategic choices and firm outcomes. As we have suggested, the judgments that executives make provides important insight into how IT strategic change or e-business change is approached given different situations and organization contexts. Peterson (2002) suggests that it is the processing of information and the judgments that are made by top management that leads to critical decisions being made about how firms deal with IT-related strategic change. As the business environment rapidly changes, the variance in possible outcomes ranges from failure to unparalleled success. These differences can largely be explained by the “mythical relationship between technology ecology, human nature, decision cycles, IT and the speed and veracity of their interactions” (Peterson, 2002, p.485). Executives process information about these relationships and form critical strategic judgments regarding the future direction of their organization through its e-business strategy. Managers face conditions such as dynamic markets, casual ambiguity and path dependence that make it extremely difficult to predict the outcomes of their IT strategic investments. As this illustration suggests, it is imperative that managers have in place strategies to cope with changes as they occur. Faced with external environmental changes (e.g., new rates of Internet adoption, killer mobile commerce applications, etc.), managers need to be able to adjust their strategic choices accordingly “just as water shapes itself according to the ground, an army should manage its victory in accordance with the enemy. Just as water has no constant shape, so in warfare there are no fixed rules and regulations” (Sun Tzu in Hussey, 1996, p.208) What Sun Tzu highlights is the requirement that strategies be flexible in order to manage strategic
Executive Judgment in E-Business Strategy
change. Mintzberg, Ahlstrand, and Lampel (1998) describe this as an emergent strategy, where rather than pursuing a strategy, an organization makes decisions based on the situation, effectively testing the market as they go. Thus strategic decisions regarding IT management need to be a mixture of both deliberate and emergent strategies. “Real-world strategies need to mix these in some way: to exercise control while fostering learning” (Mintzberg et al., 1998, p.11). The importance of strategic alignment between the organization and its environment becomes even more critical given recent environmental turbulence and the evolving importance of technology and e-business to competitive advantage.
Executive Judgment and Strategic Alignment Priem and Cycyota (2000) state that understanding judgments by strategic leaders is essential to determine the role of mental processes in strategy development and how these strategies and processes affect firm performance. They suggest that a number of theoretical platforms commonly found in the strategy literature provide a solid platform from which we can examine strategic judgement. The “fit” or “alignment” paradigm is perhaps one of the most pervasive in strategy. Good strategy requires at a minimum alignment with changing external conditions. In simple terms, the proposition is that there is an organizational structure that fits the level of contingency factor whether it is environmental uncertainty, organizational characteristics, technological characteristics or strategy design interdependence so that an organization in fit creates significant and positive implications for performance. This idea that fit between organization structure and contingency factor leads to superior performance has been empirically supported in both qualitative and quantitative studies (Donaldson, 1995). Given this distinguished history, it might reasonably be expected that executives would frequently make
decisions based on the principles of organization congruence (Priem, 1994). Most early theories of structural contingency focused on how the fit between bivariate variables (i.e., structure-environment alignment, strategystructure alignment or strategy-environment alignment) are associated with increased firm performance. However, information technology (IT) is becoming an important substitute for organization structure in modern organisation (Sauer & Willcocks, 2003). For example, Oracle’s ability to transform itself into an Internet-enabled business would not have been possible without an appropriate technology base. The wrong technology base would have made such an initiative a massive technological and organizational challenge because of the custom integration required. Emerging evidence indicates that structure and technology are complementary. Where structures create boundaries for management control, technology permits those boundaries to be traversed thereby enabling more complex commercial activities to be effectively integrated and managed.
EMPIRICAL INVESTIGATION OF STRATEGIC JUDGMENT The “integrative framework” developed by Lee (1989, 1991) in a series of papers regarding the management of information systems provides a suitable approach to the study of judgment. Lee’s integrative framework formally presented in his 1994 paper combines three levels of “understandings”: the subjective, the interpretive and the positivist. According to Lee, the three understandings are “far from being mutually exclusive and irreconcilable”; in fact, “they may be utilised as mutually supportive and reinforcing steps in organisational research”. Priem and Cycyota (2000) also support this view by claiming that both qualitative and quantitative studies are necessary to increase our understanding of strategic judgement.
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In the case of e-business, qualitative work can be useful in exploratory investigation that may highlight issues more formal approaches may miss. For example, case studies of the most spectacular strategic information systems initiatives Baxter Healthcare and American Airline’s SABRE indicate that these IT/e-business systems were largely accidental success stories (Clemons, 1986). However, these subjective and interpretive studies cannot test hypotheses adequately, because of the close contact needed with research subjects and the resulting small sample size. Quantitative studies provide the crucial positivist link that complements exploratory work in a way that can generate more widely generalizable insights. Notable examples, include the study of IT’s contribution to performance in the retail industry (Powell & Dent-Micallef, 1997), and the investigation of organizational antecedents to e-business adoption (Srinivasan, Lilien, & Rangaswamy, 2002). The following sections focus on measurement techniques, which can be used to examine individual judgment. These techniques can be grouped into two categories: (1) composition methods, and (2) decomposition methods (Priem & Harrison, 1994).
Composition Methods Composition methods focus on the processes that underlie individual judgments. Composition involves methods such as verbal protocol analysis, information searches and cause mapping to gather interpretive information from executives about the processes that lead them to make certain judgments. These types of techniques would be useful in identifying the variables that executives use in their strategic decision making, but which are not included in current management theory (Priem & Harrison, 1994).
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Decomposition Methods Decomposition techniques focus on the interactions that take place surrounding the judgment itself. The technique requires that the variables or judgment attributes be known a priori. The substantive nature of those variables must come from existing strategy theory (Priem & Harrison, 1994), and contingency theory provides an excellent starting point. In this case, decomposition methods are required to focus on executive choices in response to a series of decision scenarios (i.e., behavioural simulations regarding the environment, firm structure and the strategy making process). The variance in executive choice is evaluated against these factors of interest, which can be manipulated across scenarios, using conjoint or choice analysis techniques.1 Figure 1 shows the way we can manipulate the important choices outlined in structural contingency theory. Paired comparisons (or stated preferences) are collected and then used to evaluate direct and interaction effects. In this way, we reveal the direction and strength of the three factors considered central to contingency theory. For example, an executive faced with a stable environment would lean towards a planned strategy and decentralized structure according to contingency prescriptions. Respondent rankings on each path reflect the perceived utility respondents have for each combination of variables. This combination of composition and decomposition techniques enables one to test whether the prescriptions of at least one well-known theory (i.e., contingency theory) influences executive judgment. The extent to which these prescriptions are already “obvious” to, or widely known by, practising executives will shed new light on the role of judgment in IT strategy and change.
Executive Judgment in E-Business Strategy
Figure 1. Judgment evaluation survey
CONCLUSION We have outlined the importance of executive judgment to the strategic choice process and its particular relevance to the study of e-business, where environmental turbulence increases the relevance of managerial discretion. By separating the outcomes from the actual decision choice, we can begin to more fully understand how these strategic choices influence firm performance. Until now the process of strategic choice has largely been treated as a “black box” where it is assumed that measured outcomes are the result of deliberate choices. One of the reasons contingency theory has become so popular is that it provides managers with prescriptive advice regarding which configurations lead to higher performance. Further examination of executive judgments to ascertain whether executives are making decisions based on the idea of alignment or fit is required. This will help in our understanding of whether material taught by academics in business schools is actually being used by students in industry. Are executives using the ideas of alignment or fit as prescribed in theory or are they making judgments based on
other factors? The answer to this question has important implications for relevance and improving the linkage between theory and practice. Understanding the processes that occur in strategy development will lead to greater knowledge of the decisions that executives make in uncertain environments and hyper-turbulent contexts. This understanding is important if we want to develop e-business related research that is applicable to practitioners. It is this type of research that will guide executives in the strategic management of change and allow them to gain advantage from leverage their investments in e-business technology.
REFERENCES A Special Research Forum Call for Papers: Knowledge Transfer between Academics and Practitioners. (1998). Academy of Management Journal, 41(6), 746. Bharadwaj, A. (2000). A resource based perspective on information technology capability and firm performance: An empirical investigation. Management Information Systems Quarterly, 24(1), 169–196..doi:10.2307/3250983
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Brown, E., & Eisenhardt, K. M. (1998). Competing on the edge strategy as structured chaos. Boston: Harvard Business School Press. Chandler, A. (1962). Strategy and structure. Cambridge: M.I.T. Press. Child, J. (1972). Organisation structure, environment and performance. Sociology, 6, 1–21.. doi:10.1177/003803857200600101 Clemons, E. K. (1986). Information systems for sustainable competitive advantage. Information & Management, 11(3), 131–137..doi:10.1016/03787206(86)90010-8 Donaldson, L. (1995). Contingency theory. Aldershot, England: Dartmouth Publishing Company. Ford, E. W., & Duncan, J. W. (2003). Mitigating risks, visible hands, inevitable disasters, and soft variables: Management research that matters to managers. The Academy of Management Executive, 17(1), 46. Galbraith, J. R., & Kazanjian, R. K. (1986). Organizing to implement strategies of diversity and globalization: The role of matrix designs. Human Resource Management, 25(1), 37..doi:10.1002/ hrm.3930250104 Henderson, C., & Venkatraman, N. (1999). Strategic alignment: Leveraging information technology for transforming organizations. IBM Systems Journal, 38(2&3), 472–482. doi:10.1147/ SJ.1999.5387096 Hussey, D. (1996). A framework for implementation. The Implementation Challenge. New York: John Wiley & Sons. Keen, P., (2002). Getting value from IT. Sydney University, 19 August. Lee, A. S. (1989). A scientific methodology for MIS case studies. Management Information Systems Quarterly, 13(1), 33–50..doi:10.2307/248698
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Lee, A. S. (1991). Integrating positivist and interpretative approaches to organisational research. Organization Science, 2(4), 342–365.. doi:10.1287/orsc.2.4.342 Mintzberg, H. (1994). The rise and fall of strategic planning. Prentice Hall. Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998). Strategy safari: A guided tour through the wilds of strategic management. New York: The Free Press. Patterson, S. (2001). The truth about CRM, CIO Magazine, May 1st http://www.cio.com/ archive/050101/truth. content.html Peterson, J. W. (2002). Leveraging technology foresight to create temporal advantage. Technological Forecasting and Social Change, 69, 485–494. doi:.doi:10.1016/S0040-1625(02)00232-9 Powell, T. C., & Dent-Micallef, A. (1997). Information technology as competitive advantage: The role of human, business, and technology resources. Strategic Management Journal, 18(5), 375–405..doi:10.1002/ (SICI)1097-0266(199705)18:5<375::AIDSMJ876>3.0.CO;2-7 Priem, R. L. (1994). Executive judgment, organizational congruence, and firm performance. Organization Science, 5(3), 421–437..doi:10.1287/ orsc.5.3.421 Priem, R. L., & Cycyota, C. (2000). On strategic judgement. In Hitt, M., Freeman, R., & Harrison, J. (Eds.), Handbook of strategic management. Blackwell. Priem, R. L., & Harrison, D. A. (1994). Exploring strategic judgment: Methods for testing the assumptions of prescriptive contingency theories. Strategic Management Journal, 15(4), 311–324.. doi:10.1002/smj.4250150405
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Reinartz, W.J., & Chugh, P. (2002). Learning from experience: Making CRM a success at last. International Journal of Call Centre Management, April, 207-219. Ross, J. W., & Weill, P. (2002). Six decisions your IT people shouldn’t make. [PubMed]. Harvard Business Review, 80(11), 84. Sauer, C., & Willcocks, L. (2003). Establishing the business of the future. European Management Journal, 21(4), 497–508..doi:10.1016/S02632373(03)00078-1 Srinivasan, R., Lilien, G. L., & Rangaswamy, A. (2002). Technological opportunism and radical technology adoption: An application to e-business. Journal of Marketing, 66(3), 47–61..doi:10.1509/ jmkg.66.3.47.18508 Stevens, A. (1997). Deja blue. Industry Week, 246(21), 82–88. Teece, D. J., Pissano, G., & Sheun, A. (1997). Capabilities and strategic management. Strategic Management Journal, 18(7), 509–533..doi:10.1002/ (SICI)1097-0266(199708)18:7<509::AIDSMJ882>3.0.CO;2-Z
Executive Judgment: A decision that an executive makes, when they do not have a full understanding of the decision problem, based on their mental models of the environment and their vision for the organization. External Environment: Factors which are external to an organization, such as new technology or product developments, changing rates of market growth, which an organization must respond to. Fit/Alignment: Terms used to explain the relationship between IT and strategy. The IT strategy should work in synergy with the organizations strategy. These terms have their roots in the meta-theory contingency theory. Strategic Choice: The choices that executives make which impact on the strategic direction of the organization. These choices exist as the intended strategies of the organization. Strategic Decision-Making: The process of making important decisions (usually made by the top management team) to put executive choices into action by implementing strategies.
ENDNOTE 1
KEY TERMS AND DEFINITIONS Contingency Theory: A meta-theory, which argues that firm performance is defined by the environment-strategy-structure relationship, where the organization’s strategy is contingent on the external environment and the organization structure is contingent on the firm’s strategy. E-Business Technology: Any technology, which enables an organization to conduct business electronically, with the overall aim of improving firm performance.
There are a number of conjoint analysis methods, which can be used to test executive judgments. Each of the methods uses a variation of regression to decompose an executive’s judgment. The most appropriate for evaluating executive judgments is metric conjoint analysis. For example, Priem (1994) used metric conjoint analysis to examine the judgments of CEO’s in manufacturing firms. The outcome of this research was that the executives in manufacturing firms often make contingent judgments, regarding key strategy variables.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 1477-1482, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 6.14
Prioritizing Corporate R&D Capabilities:
The Intellectual Capital Perspective Yuan-Chieh Chang National Tsing Hua University, Taiwan Pei-Ju Yu Chunghua Institution for Economic Research, Taiwan Hui-Ru Chi National Changhua University of Education, Taiwan
ABSTRACT This chapter examines a comprehensive list of intellectual capital (IC)-related indicators for developing corporate R&D capabilities along the input-process-result (IPR) processes. Via factor analysis, 43 R&D related IC indicators were abstracted into 11 factors. Corporate R&D managers prioritized these IC factors by completing analytical hierarchy process (AHP) questionnaires. The results of AHP are as follows: (1) the
result phase is the pivotal of developing corporate R&D capabilities in three phases, (2) the top three weighting factors are the relational and process capitals (cost effectiveness to customers) in the result phase, followed by organizational capital (strategy fitness) in the input phase, and human capital (competency of R&D personnel) in the input phase; (3) strategy fitness in the input phase, project execution capability in the process phase; and cost effectiveness to customers in the result phase is the most crucial IC capabilities. Some discussions and conclusions were drawn.
DOI: 10.4018/978-1-60960-587-2.ch614
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Prioritizing Corporate R&D Capabilities
INTRODUCTION As Drucker (1993, p. 42) suggested, “The traditional factors of production─ land, labor, and capital─ have not disappeared. But they become secondary. Knowledge is becoming the only meaningful resource”. However, although the paradigm has shifted from manual work towards knowledge work, managerial awareness of the importance of “intangible assets” is quite low (Litschka et al., 2006). Guthrie (2000, p. 11) argued that “the limitation of the existing financial reports for capital markets and other stakeholders have led to a search for new ways to measure and report a company’s intellectual capital”, especially in the rising importance of the knowledge-based economy and information society. Intellectual capital is concerned with how better to manage and measure knowledge and other intangibles in the company (Mouritsen, 2002). Obviously, technological innovation has become the main source of competitive advantages for firms (Burgelman et al., 2004; Teece, 1987; Rothwell, 1992). It is well documented that R&D activities form the central element of technological innovation of firms (Cohen and Levinthal, 1990; Evangelista et al. 1997; Yam et al., 2004). However, the R&D processes are increasingly more expensive, costly and complex since the 1990s. How to manage corporate R&D capabilities in the intellectual capital view is a great challenge to many firms. Previous research on IC proposed its structure and candidate indicators (Edvinsson, 1997; Stewart, 1997; Sullivan, 2000; Sveiby, 1997). Carlucci, Marr, and Schiuma (2004) showed that the management of IC directly impacts business performance. Furthermore, measuring intellectual capital can be used to help formulate business strategies and provide evaluation bases for venture capitalists (Liu, 2006). Yet, managers and researchers have experienced difficulties in conducting IC measurement model which includes measuring priority among candidate IC indicators (Mouritsen, Bukh, Larsen, & Johansen, 2002).
The chapter aims to measure R&D specific IC indicators to bridge this gap. There are increasing studies to develop and evaluate weights of different dimensions and indicators of IC by AHP (analytical hierarchy process) in different firms, industries and nations (Bozbura et al., 2007; Chen, 2009; Han and Han 2004; Liu, 2009). Han and Han (2006) identified key IC dimensions and indicators that were better presented IC in the Korean mobile phone industry. Bozbura et al. (2007) identified the priority of human capital measurements by a group of IC academics and professionals in Turkey. Chen (2009) evaluated the weights of IC dimensions in the four Taiwanese high-tech firms. Finally, Liu (2009) mainly identified the importance of IC dimensions and indicators in the Taiwanese e-learning platform industry. However, few studies have empirically linked intangibles and corporate R&D capabilities. We argue that the weights of IC dimensions and indicators are R&D contextspecific. This prioritizing of R&D capabilities provides a better compass to manage intangibles more effectively in the increasingly uncertain and complicated R&D activities. The organization of this chapter is as follows. This Chapter reviews the definition and taxonomy of intellectual capital, categorizing R&D related IC indicators and proposing a R&D input-processresult framework. We explain the exercise of analytical hierarchy process. The results of AHP were shown. We compare the research results to previous literature. Finally, some managerial implications are drawn for R&D managers in firms and organizations.
BACKGROUND Definition of Intellectual Capital Teece (1986) argued that when established firms possessed some specific assets, they might prevent themselves from new entrants’ attack. He used the
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term complementary assets to illustrate factors such as specialized manufacturing capability, access to distribution channels, service network and complementary technologies. Stewart (1991, p.44) mentioned: “Every company depends increasingly on knowledge – patents, processes, management skills, technologies, information about customers and suppliers, and old-fashioned experience… added together, this knowledge is intellectual capital.” He defines IC as “the sum of everything everybody in your company knows that gives you a competitive edge in your marketplace”. Then, Stewart (1997) defined IC as “the intellectual material – knowledge, information, intellectual property, experience –that can be put to use to create wealth. Edvinsson and Sullivan (1996) defined IC as knowledge that can be converted into value. Edvinsson and Malone (1997) defined IC as: “the possession of the knowledge, applied experience, organizational technology, customer relationships and professional skills that provide a company with a competitive edge in the market.” Roos, Roos, Dragonetti and Edvinsson, (1998) claimed that IC includes all the processes and the assets which are not normally shown on a balance-sheet and all the intangible assets (trademarks, patents and brands) which modern
accounting methods consider. It includes the sum of the knowledge of its members and the practical translation of their knowledge. Bontis et al. (2000) defined IC as “elusive, but once it is discovered and exploited, it may provide an organization with a new resource-base from which to compete and win.” in 1996. McElroy (2002) proposed a major modification to Edvinsson’s model to include the addition of both social capital and the underlying notion of social innovation capital. It is found that some studies tend to treat intellectual capital equivalent to intangible assets that are not normally shown in the financial report (Roos et al., 1998; Kauffmann & Schneider, 2004). However, intellectual property is one of intellectual capital (Stewart, 1991, 1997; Roos et al., 1998). In summary, intellectual capital represents the value gap between market value between financial one. The definitions of IC are summarized in Table 1.
Corporate R&D-Related Intellectual Capital The literature review presents a great number of classification schemes for intellectual capital. Edvinsson (1997) defined IC as human capital and structural capital. Bontis (1998) categorized
Table 1. Definition of intellectual capital: A summary Scholar
Definition
Stewart (1991)
The sum of everything everybody in your company knows that gives you a competitive edge in your marketplace.
Edvinsson &Sullivan (1996)
IC as knowledge that can be converted into value.
Stewart (1997)
The intellectual material – knowledge, information, intellectual property, experience –that can be put to use to create wealth.
Edvinsson &Malone(1997)
IC is the procession of the knowledge, applied experience, organizational technology, customer relationships and professional skills that provide Skandia with a competitive edge in the market.
Roos et al. (1998)
IC includes all the processes and the assets which are not normally shown on the balance-sheet and all the intangible assets (trademarks, patents and brands) which modern accounting methods consider... it includes the sum of the knowledge of its members and the practical translation of his/ her knowledge.
Bontis (1998)
IC is the pursuit of effective use of knowledge (the finished product) as opposed to information (the raw material).
McElroy (2002)
A major modification to Edvinsson’s model which includes the addition of both social capital and the underlying notion of social innovation capital
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into three types: human capital, structural capital and customer capital. Bozbura and Beskese (2005) prefer three dimensions of intellectual capital that includes human, relational, and organizational components. However, a convergent taxonomy of IC emerged, categorizing IC into: (1) human capital, (2) structural capital including: organizational capital, innovational capital, and process capital; (3) relational capital (do Rosario Cabrita & Vaz, 2005). Before the chapter elaborated corporate R&D related IC capabilities, R&D and innovation are interchangeable throughout the chapter. Therefore, the chapter reviewed corporate R&D related intellectual capital from the literature of R&D management and innovation management. Rothwell (1992) provided seven critical factors in managing successful industrial R&D including: (1) good internal and external communication, (2) treating innovation as a corporate wide task, (3) implementing careful planning and project control, (4) strong market orientation, (5) providing good technical services to customers, (6) presence of certain key individuals as technical gatekeepers, and (7) high quality management. Burgelman et al. (2004) proposed corporate innovative capabilities can be measured from five major dimensions: (1) resource availability and allocation, (2) capabilities to understand competitor’s innovative strategy and industrial evolution, (3) capabilities to understand technological development, (4) structural and cultural context and (5) strategic management capability. Yam et al. (2004) examined technological and innovative capabilities of Chinese firms, which include: (1) learning capability, (2) R&D capability (e.g., R&D strategy, project implementation, portfolio management, and R&D expenditure), (3) resource allocation capability, (4) manufacturing capability, (5) marketing capability, (6) organizing capability, and (7) strategic planning capability. Recently, Adams et al. (2009) proposed a holistic framework to measure innovation management at the level of the firm with seven dimensions, namely: input
management, knowledge management, innovation strategy, organizational culture and structure, portfolio management, project management and commercialization. The chapter interweaves types of IC and factors influencing R&D effectiveness and innovation management (Adams et al., 2009; Burgelman et al., 2004; Chiesa et al., 1996; ERIAM, 2004; Lee et al., 1997; Rothwell, 1992; Yam et al., 2004). We elaborated these five types of IC in the R&D context in the following.
R&D Human Capital Human capital is the primary component of IC (Edvinsson & Malone, 1997; Stewart, 1997; Bontis et al., 2000) because human interaction is the critical source of intangible value in an intellectual economy (O’Donnell, 2003). Edvinsson (1997) defined human capital as the combined knowledge, skill, innovation, and ability of a company’s individual employees. It is also includes the company’s values, culture, and philosophy. Roos et al. (1998) argued that employees generate IC through their competence, their attitude and their intellectual agility. Bontis (1998) described human capital as the firm’s collective capability to extract the best solutions from the knowledge of its individuals. Unfortunately, loss of personnel can result in the loss of corporate memory and hence become a threat to the organization. Bontis et al. (2000) defined human capital as the individual knowledge stock of an organization as represented by its employees. Based on Edvinsson and Malone’s (1997) definition, human capital is combined knowledge, skill, and ability of employees. Lee and Lee (1996) identified three key HC elements influencing the R&D effectiveness of Korean firms. These three elements are: (1) degree of R&D professionalization, (2) skill of R&D personnel, and (3) adequate education and training. Moreover, the knowledge of R&D employees can be embedded in their knowledge and how know (EIRAM, 2004) and their experiences (Edvinsson and Malone, 1997).
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As Roos et al. (1998) and Edvinsson and Malone (1997) mentioned that the attitude, motivation and satisfaction of R&D employees act key elements of HC. As Bontis (1998) illuminated that the loss of employees can result in the loss of corporate memory. The chapter argues that R&D employee retention is one of key elements in HC.
R&D Organizational Capital Edvinsson (1977) regarded organizational capital that is the company’s investment in systems, tools, and operating philosophy. Organizational capital speeds the flow of knowledge through the organization, as well as out to the supply and distribution channels. It is the systemized, packed, and codified competence of the organization as well as the systems for leveraging that capability. Damanpour (1991, P. 556) defined “organizational innovation” as the adoption of innovations in organizations, that encompasses the generation, development and implementation of new ideas and behavior. Consequently, organizational capital is the organizational properties (e.g., specialization, formalization, centralization) that enhance or hinder R&D capabilities. European Industrial Research Management Association (EIRMA) (2004) concluded that R&D organizational capital can be reflective on the organizational mission, vision and leadership. Nokia claimed their company mission is to connect people. Sony has “like no other” and claims a leader in the world home entertainment business. Once a firm’s mission and vision are set, enough R&D budgeting is necessary to support the mission and vision (EIRAM, 2004) or leadership (Rothwell, 1992). However, integrating R&D strategy and business strategy is crucial to increase R&D productivity and effectiveness (Lee et al., 1996; EIRMA, 2004). Otherwise, new products will not reach the market and make profit. There are different kinds of R&D derived businesses in terms of risk, time horizon and complexity. A good strategic business portfolio can minimize risk
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and maximize profit among different businesses (EIRMA, 2004). Finally, the organizational capital can be measured by the degree of goal achievement and general management improvement (Lee at al., 1996).
R&D Innovational Capital Innovation capital refers to the renewal capability and the results of innovation in the form of protected commercial rights, intellectual property, and other intangible assets and talents used to create and rapidly bring to market new products and services (Edvinsson, 1997). Lee et al. (1996) suggested that innovation capital can be measured by: (1) R&D investment, (2) R&D facilities, and (3) expansion and diversification of research areas. ERIAM (2004) developed some innovation capital indicators that influence R&D effectiveness: (1) intellectual property management, (2) ideas management, (3) technology leadership, (4) innovativeness. Adams et al. (2009) regarded idea generation and information flows that are good measurements for managing knowledge during the innovation process.
R&D Process Capital Process capital is work processes (such as ISO 9000), technologies, and employee programs that augment and enhance the efficiency of manufacturing or the delivery of services (Edvinsson, 1997). It is the kind of practical knowledge used in continuous value creation. Chen (2009) proposed that process capital can be measured by: (1) quality of decision; (2) using IT capacity, (3) process expense and (4) IT equipment invested. In measuring R&D effectiveness for the Korean firms, Lee et al. (1997) developed four process capital indicators: (1) feasibility of R&D plans, (2) validity of selected R&D topics, (3) efforts to strictly follow plans, and (4) collaboration between R&D, manufacturing and marketing. EIRMA (2004) proposed that corporate R&D
Prioritizing Corporate R&D Capabilities
can be implemented more effectively if the firms have: (1) process intelligence, (2) project portfolio management, (3) knowledge management, and (4) cost efficiency in place. Adams et al. (2009) proposed four good indexes: tools, project efficiency, communications and collaboration to measure project management.
R&D Relational Capital The size and structure of the customer base is crucial to a firm’s future value because customer relationships are the origin of the financial flows (Edvinsson, 1997). Bonits (1998) identified customer capital as the potential an organization has due to ex-firm intangibles. These intangibles include the knowledge embedded in customers, suppliers, the government or related industry associations. Roos et al. (1998) identified relational capital as the relationships with internal and external stakeholders. The relational capital contains the relations with customers, shareholders, suppliers, rivals, the state, governmental institutions and society (Bozbura, 2004). Relational capital can be regarded as social capital that the knowledge embedded within, available through and utilized by interactions among individuals and their networks of interrelationships (Subramaniam and Youndt, 2005). Todtling et al. (2009) found that radical innovation tends to draw knowledge links with nearby universities and research institutes. However, incremental innovation seems to occur often in interactions with business partners widely. Egbetokun et al. (2009) revealed that Nigerian firms most frequently work with their customers and suppliers as their innovation partners. In summary, the relational capital is the knowledge embedded in organizational relationships with customers, suppliers, stakeholders, strategic alliance partners, universities, research institutes etc. For enhancing R&D effectiveness, EIRMA think that R&D should be managed in the stakeholder approach by including: (1) market intelligence, (2) social responsiveness and inves-
tor relationship, (3) external partnerships with customers, suppliers, universities and research institutes, (4) technical service, (5) customer satisfaction of products/services, and (6) branding. The relational capital be measured by market share and customer retention or lost (Edvinsson and Malone, 1997). Finally, Adams et al. (2009) suggested that three indexes are useful to measure innovation commercialization: market research, marketing testing, and marketing and sales.
RESEARCH FRAMEWORK AND PRIORITIZING INTELLECTUAL CAPITAL The R&D performance measurement methods described in the literature are so varied and uniquely designed for particular situations that conducting a selection process for R&D performance indicators would be a challenging task (Ellis, 1997). Chiesa et al. (1996) developed a model to audit corporate innovation capability. The process audit model includes: (1) concept generation process, (2) product development process, (3) production process, (4) technology acquisition process, (5) leadership process, (6) resource provision process, (7) systems and tools provision process. Brown and Svenson (1998) regarded R&D as a processing system that includes a number of phases that contain several subjects for the measurement of performance. The system includes contents of input, processing system, output of the processing systems, receiving systems and outcome (inputprocess-output, IPO), as well as their linkages to each other. A similar IPO concept of the measurement method, so-called Input-Process-Result (IPR) Phase (EIRMA, 2004; Lee et al., 1996) was adopted to construct the research framework of measuring R&D capabilities from the perspective of intellectual capital. The chapter adopted the IPR framework to examine R&D phase-specific. The framework can help R&D managers to develop IC along different R&D phases. Sometimes, the R&D
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Figure 1. Corporate R&D capabilities and intellectual capital: input-process-result framework. (Notes: HC: Human Capital, OC: Organizational Capital, InC: Innovational Capital; PC: Process capital, RC: Relational Capital)
intellectual capital can be overlapping between input, process, and result phases. However, based on references and expert interviews, the chapter was able to delineate the IC items in Figure 1. Based on the list of R&D IC indicators (Table 2), we further re-allocated them into: 11 indicators in the input phase, 14 indicators in the process phase and 13 items in the result phase (Figure 1). Yam et al. (2004) developed seven capabilities for auditing technological innovation capabilities in mainland China. They developed 17 items to measure R&D capability. These 17 items can be categorized into R&D input related indicators: (1) relevance of R&D plan to corporate plan, (2) R&D investment in products, (3) R&D investment in processes, (4) number of new product per year, (5) R&D personnel ratio. These R&D process related indicators include: (1) mechanisms to encourage and reward inventiveness and creativity; (2) range of functions involved in concept development and screening, (3) clear project target and management, (4) presence of crossfunctional teamwork, (5) quality and availability of product champions, (6) efficiency of R&D
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personnel communication, (7) application of advanced design tools, (8) functional integration in the innovation process, (9) technology transfer mechanisms from research to development, and (10) presence of established protocols. The R&D result related indicators include: (1) feedback from manufacturing, and (2) feedback from customers. Yam et al. (2004) mainly developed R&D process related indicators and focused on project implementation, communication, coordination and integration. However, it is difficult to measure the value of such intangible assets and intellectual capital (Marr, Gray, and Neely, 2003; Hung and Chang, 2006; Chen, 2009). Most of the previous papers related to IC only proposed indicators for evaluating IC (Liu, 2006). The indicators of IC are complex and require decision makers to consider multiple criteria and their relative importance at the same time (Bukh et al., 2001). It is, to some extent, difficult for them to consider all of the factors involved in a complex IC indicator appropriately (Han & Han, 2004). The selection of IC statement indicators is a multi-criteria decision
Prioritizing Corporate R&D Capabilities
Table 2. R&D related intellectual capital Intellectual capital
R&D capabilities
Human capital
• Degree of professionalization (Lee et al., 1996) • Skill level of R&D personnel (Lee et al., 1996; Rothwell, 1992; Adams et al., 2009) • Adequate education/training (Lee et al., 1996) • Knowledge & Know-How (EIRMA, 2004) • Employee motivation (Edvinsson & Malone, 1997) • Employee retention (Edvinsson & Malone, 1997) • Employee satisfaction (Edvinsson & Malone, 1997) • Employee experience (Edvinsson & Malone, 1997)
Organizational capital
• Degree of goal achievement (Lee et al. 1996) • Effects on general management improvement (Lee et al., 1996) • Leadership, vision, mission (EIRMA, 2004; Rothwell, 1992; Adams et al., 2009) • Budgeting (EIRMA, 2004) • Strategic Portfolio (EIRMA, 2004; Burgelman et al., 2004; Yam et al., 2004) • Business Alignment (EIRMA, 2004; Burgelman, et al., 2004)
Innovational capital
• Enough R&D investment (Lee et al., 1996; Burgelman et al., 2004; Yam et al., 2004) • Enough R&D facilities (Lee et al., 1996) • Expansion and diversification of research areas (Lee et al., 1996) • IP management (EIRMA, 2004) • Ideas management (EIRMA, 2004; Adams et al., 2009) • Technology leadership (EIRMA, 2004Burgelman et al., 2004; Yam et al., 2004) • Innovativeness (EIRMA, 2004)
Process capital
• Feasibility of R&D plans (Lee et al., 1996) • Validity of selected R&D topics (Lee et al., 1996) • Effort to strictly follow plans (Lee et al., 1996; Yam et al., 2004) • Collaboration between R&D and production/marketing (Lee et al., 1996) • Process Intelligence (EIRMA, 2004; Rothwell, 1992) • Portfolio Management (EIRMA, 2004; Adams et al., 2009) • Knowledge Management (EIRMA, 2004; Adams et al., 2009) • Cost Efficiency (EIRMA, 2004)
Relational capital
• Market intelligence (EIRMA, 2004; Burgelman et al., 2004) • Societal responsiveness (EIRMA, 2004) • External partnerships (EIRMA, 2004) • Usefulness of developed technology (EIRMA, 2004; Adams et al., 2009) • Technical service (EIRMA, 2004; Rothwell, 1992) • Customer satisfaction of products/services(EIRMA, 2004; Rothwell, 1992) • Image, brand & stock value (EIRMA, 2004) • Market share (Edvinsson & Malone, 1997) • Customer lost (Edvinsson & Malone, 1997)
problem that requires resolutions involved with various stakeholders’ interests (Bozbura, Beskese & Kahraman, 2007). Bozbura et al. (2007) identified five attributes of human capital, namely: talent, strategic integration, cultural relevance, knowledge management and leadership. There are twenty indicators were developed to measure these five attributes of human capital. By using fuzzy AHP, a group of experts ranked “creating results by using knowledge” as the most important indicator, followed by “ employees’ skills index”, “sharing and reporting knowledge”, “succession
rate of training program” and employee’s satisfaction index” in 20 indicators (Bozbura et al., 2007). Thus, Analytical Hierarchy Process (further discussed in the following part) makes the decision process more rational by taking all the data given by the managers and synthesizes them in a way that the managers might not be able to do due to the limited cognitive ability of the human mind (Calantone et al., 1999). Based on fuzzy AHP results of four Taiwanese high-tech firms’ evaluation among four dimensions of IC (human capital, customer capital,
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innovation capital and process capital), human capital was ranked the most important dimension, followed process capital, customer capital and innovation capital across four firms (Chen, 2009). Chen (2009) concludes that fuzzy AHP is a useful evaluation method for deciding what their objectives are and discover which dimensions of IC can be improved. By developing measurements of IC in the e-learning platform industry, Liu (2006) identifies five dimensions of IC (human capital, customer capital, innovation capital, service capital and structure capital) and fifteen indicators. The Liu’s (2006) IC assessment can be applied to formulate business strategy, evaluate firms by venture capitalists, and allocate resource.
METHODS Exploratory Factor Analysis According to SPSS software, the five steps of exploratory factor analysis (EFA) are as follows: First there is the Bartlett Test of Sphericity and the Kaiser-Meyer-Olkin (KMO). The Bartlett’s test of sphericity is a widely programmed statistical test of appropriateness and it should be applied prior to factor analysis. In addition, a test of the appropriateness of a matrix for factoring is the KMO measure of sampling adequacy (MSA) (Kaiser, 1970). The KMO provides a measure of the extent to which the variables belong and whether they are appropriate for factor analysis or not. Hair et al. (2009) show KMO should be at least above 0.6. The second step is the Extraction Method. Since principal factor analysis is the most widely used mathematical method for such decomposition (Gorsuch, 1983), it was chosen as the extraction method in this study. The third step is eigenvalues, although factor selection should not be based on this criterion alone. In 1960, Kaiser recommended holding the factors with eigenvalues greater than 1, and this is adopted here. Fourth is rotation. Here,
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the characteristics for which most variables with high loading on the most important factor and low loading on all other factors make the interpretation difficult; therefore, factor rotation is used to discriminate between factors (Field, 2005). There are two basic types of rotation: orthogonal and oblique. Orthogonal means the factors are assumed to be uncorrelated with one another, while oblique rotation, which is the case for this study, derives factor loadings based on the assumption that the factors are correlated. Hence, Promax, which is one of the oblique rotations, adopted as the rotation method. Fifth is the reliability test and reliability means that a scale should be consistent. Cronbach’s α is the most common measure of scale reliability, it achieves high reliability when alpha is greater than or equal to.7. In the study, forty-three indicators were collected from the literature on IC research, R&D management and innovation management. Before drafting the factor-analysis questionnaire, two R&D managers were interviewed in order to test the validity of question items. There were three parts of the factor analysis questionnaire. The first part is the basic information about the respondent; the second part is the basic company information; and the third part is the importance of IC-related capabilities along the 3-phase R&D process. All items can be rated Saaty 1~9 scale. The data collection used an on-line questionnaire tool created by Chunghwa Telecom Co., Ltd. Telecommunication Laboratories. The survey subjects are targeted at the companies from the Inc. 500 list with R&D Centers in Taiwan. Therefore, under the above constraint, there were eighty-eight candidate companies. However, instead of sampling, we inquired by email whether the top managements were willing to answer the questionnaire. Consequently, 35 respondents had shown their willingness. The results of the first questionnaire, designed for factor analysis, are presented as below. There were thirty-five respondents in total. The value of KMO in the input phase was 0.603 and the four
Prioritizing Corporate R&D Capabilities
factors can explain 74.056% of variance. The value of KMO in the process phase was 0.722 and 70.452% of variance can be explained by the three factors. The value of KMO in the result phase was 0.689 and the four factors can explain 73.732% of variance, showing the sampling adequacy (Table 3). The factor naming is referred to previous literature as well. Cronbach’s α was exploited to test the reliability. The overall reliability is 0.813, 0.899 and 0.885 respectively in the input, process, and result phases, which represent high reliability. Each factor of the reliability from 0.576 to 0.920, showing acceptable reliability.
ANALYTICAL HIERARCHY PROCESS The world is a complex system of interacting elements. Therefore, in order to deal with unstructured social, economic, and political issues, there is a need to order our priorities, to agree that one objective outweighs another in the short term, and to make tradeoffs to serve the greatest common interest (Saaty, 1995). AHP enables us to make effective decisions on complex issues by simplifying and expediting our natural decision-making processes. It also provides an effective structure for group decision making by imposing discipline on the groups’ thought processes (Saaty, 1995). In short, AHP was created by Thomas Saaty to structure complex judgments (Saaty, 1980; Saaty & Kearns, 1985). A brief description of AHP process is follows. First, a hierarchy is structured from the top-down, much like relevance trees (see Figure 2). This stage allows a complex decision to be structured into a hierarchy descending from an overall objective to various ‘criteria’, ‘sub-criteria’, and so on until the lowest level. According to Saaty (2000), a hierarchy can be constructed by creative thinking, recollection and using people’s perspectives. Second, people can judge between two items more easily than they can make composite judgments of multiple items all at once. Therefore,
AHP uses pairwise comparison among each relevant pair of items as the basic judgments. The preferences are quantified by using a nine-point scale (Saaty, 2000).Third, the stage is to synthesize the judgments within a given matrix (for local priorities) and then across matrices (global priorities). The method of calculating the eigenvalue is usually used by AHP to evaluate the vectors of priorities of parameters. The vector of priorities of the parameters in the lower level in the hierarchy is first calculated and then it progresses to get the overall priority vector. There are four methods for approximating the solution: (a) NRA (normalization of row average) method sums the elements in each row and normalize by dividing each sum by the total of all the sums. (b) NRC (normalization of the reciprocal sum of columns) method is to take the sum of the elements in each column and form the reciprocals of these sums. Then normalize by dividing each reciprocal by the sum of the reciprocals. (c) ANC (average of normalized columns) method is to divide the elements of each column by the sum of that column (i.e., normalize the column) and then add the elements in each resulting row and divide this sum by the number of elements in the row (n). This is a process of averaging over the normalized columns. (d) NGM (normalization of the geometric mean of the rows) method is to multiply the n elements in each row and take the nth root. In practice, NGM is the most common method to be applied, which is adopted in the study. λmax can be calculated as Equation 1: lmax =
' ' w' 1 w1 w 2 ( + + Λ + n ) n w1 w 2 wn
(1)
Fourth, checking that the judgments combined are reasonably consistent with each other, collections of pairwise judgments are apt to show inconsistencies. These may reflect crude scaling. Besides, raters may just be flagrantly inconsistent. AHP provides a helpful indicator to signal the
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Table 3. Denomination of each factor in IPR phase Factor
F1: Competence of R&D Personnel (Roos et al., 1997)
F2: Enough R&D Investment & Forecasting (Lee et al., 1996)
Item
Factor Loading
Intellectual agility of personnel
.850
Skill level of R&D personnel
.820
Degree of professionalization
.806
The attitude of personnel
.682
Enough R&D investment
.876
Enough R&D facilities
.861
Process intelligence
.854
F3: Strategy Fitness (Edvinsson, 1997)
Strategic portfolio
.921
Business alignment
.845
Leadership, vision, mission
.596
F4: Market intelligence (Roos et al., 1998)
Average age of employee
.851
Societal Responsiveness
.789
Market Intelligence
.645
F5: Project Execution (Edvinsson, 1997)
F6: Managing Creative People (Edvinsson, 1997)
F7: Strategic External Partnership (Roos et al., 1998)
F8: R&D yield (Edvinsson, 1997)
Effort to strictly follow plans
.878
Feasibility of R&D plans
.878
Portfolio management
.876
Collaboration between R&D and production/marketing
.862
Validity of selected R&D topics
.780
Ideas Management
.852
Expansion and diversification of research areas
.832
Motivation Index
.772
Adequate education/training
.720
Knowledge Management
.630
IP Management
.598
Budgeting
.826
Technical service
.820
External Partnerships
.732
Outside acknowledge of R&D activities ─patents and royalty
.912
Innovativeness
.871
Outside acknowledge of R&D activities ─papers
.727
Leadership
.723
Effects on general management improvement
.687
Satisfied Employee Index
.632
Degree of goal achievement
.613
Eigenvalue
% of Variance
Cronbach’s Alpha
4.323
33.252
.812
2.252
17.322
.867
1.776
13.663
.755
1.277
9.820
.699
6.343
45.307
.920
1.944
13.883
.835
1.577
11.262
.777
6.261
39.130
.870
continues on following page
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Table 3. continued Factor
Factor Loading
Item
F9: Customer Relationship management (Sveiby, 1997)
F10: Cost Effectiveness to Customers (Lee et al., 1996) F11: Accumulation of R&D personnel knowledge (EIRMA, 2004)
Image/Brand
.885
Market share
.844
Customer lost
.818
Product leader customer satisfaction
.742
Stock Value
.709
Cost efficiency
.864
Usefulness of product or technique
.768
Knowledge & know-how
.815
Employee retention
.737
Eigenvalue
% of Variance
Cronbach’s Alpha
2.964
18.527
.867
1.386
8.664
.744
1.186
7.411
.567
Figure 2. Selecting the most desirable alternative
degree of inconsistency in a matrix of judgments: Consistency Ratio (CR), defined as Equation 2: CR =
CI RI
(2)
where CI is called the consistency index and RI is the Random Index. Furthermore, Saaty (1980, 2000) provided average consistencies (RI values) of randomly generated matrices. CI for a matrix of order n is defined as Equation 3: CI =
lmax − n n −1
(3)
Saaty (1980) suggests that the acceptable value of CI should be less than or equal to 0.1. Consequently, this procedure provides an overall numerical ranking of available alternatives (Calantone et al., 1999; Forgionne et al., 2002; Tam & Tummala, 2001; Han & Han, 2004).
AHP QUESTIONNAIRE DESIGN The chapter categorized four factors in input phase, three factors in the process phase, and four factors in the result phase (Table 4). In order to weigh factors among phases, input human capital (I_HC): competence of R&D personnel, input innovation capital and process capital (I_InC+PC): enough R&D investment and forecasting, inputorganizational capital: (I_PC): strategy fitness and
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Table 4. Factor naming R&D phase Input
IC factor naming I_HC: Competences of R&D personnel I_InC+PC: Enough R&D investment & forecasting I_OC: Strategy Fitness I_RC: Market intelligence
Process
P_PC: Project Execution P_InC+HC: Managing creative people P_RC+OC: Strategic external partnership
Result
R_InC+OC: R&D yield R_RC1: Customer relationship management R_RC2+PC: Cost effectiveness to customers R_HC: Accumulation of R&D personnel knowledge
input relational capital (I_RC): market intelligence are four factors in the input phase. The reason to combine InC and PC is due to the R&D investment is based on the results of R&D forecasting. So R&D investment has to tighten with R&D forecasting as a process capital. Process capital: project execution, Innovation and human capital: managing creative people, relational and organizational capital: and strategic external partnership is three IC factors in the process phase. Finally, result innovation and organizational capital: R&D yield, result relational capital: customer relationship management, result relational and process capital: cost effectiveness to customers, and result human capital: accumu-
lation of R&D personnel knowledge is included in the result phase. AHP questionnaire was applied. However, the main challenge here was to denominate the name of each factor based on the literature. To sum up, the second questionnaire was based on the results of the first questionnaire. Based on AHP, Figure 3 shows the structure of the second questionnaire. Its goal is to determine which factor outweighs the others in the case of assessing R&D capabilities. Therefore, the objective (level 1) is to assess R&D capabilities; the criteria (level 2) are the input phase, the process phase, and the result phase; the sub-criteria (level 3) under input phase, process phase, and result phase. The first part of the questionnaire is the main content, pair-wise comparisons between factors (Saaty 1980, Saaty 1995); It includes four sections: 1) the relative importance of the input phase and there are six questions of comparing (C 24 = 6 ); 2) the relative importance of the process phase, and there are four questions for comparing ( C 23 = 4 ); 3) the relative importance of the result phase and there are six questions of comparing ( C 24 = 6 ); 4) the relative importance of the three phases and there are four questions of comparing (C 23 = 4 ). The second part is the basic information about the interviewee. The targeted companies were also from the top 500 company list especially the ones with R&D Centers. Nevertheless, instead of sampling, we inquired by email wheth-
Figure 3. Corporate R&D capabilities: The IC framework
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er the high-level managers were willing to answer the questionnaire. The twenty-five respondents were mainly CTOs, VPs, and R&D Managers in R&D centers.
respondents had stayed in the existing R&D departments for more than 5 years. The respondents are well represented by top R&D executives, and R&D working experiences.
Weight Analysis
RESULTS
At level 2 analysis, the principal eigenvalue of this matrix is λmax= 3.0032 with the consistency ratio CR=0.0028. The CR is less than 0.1 indicating a high consistent result of the AHP survey (Table 6). The results indicate the highest weight, criteria P3 “Result Phase” (0.44); followed by criteria P2: Process IC (0.30) and criteria P2: Process IC (0.26) (Table 6). The respondents give highest weight to the result IC, then input IC, and least to process capital. It implies that R&D managers emphasize most the result-oriented IC despite the R&D results are uncertain and risky in nature. At level 3 of weighting four indicators in the input phase, the principal eigenvalue of this ma-
There were twenty-five respondents in AHP survey. In term of industry, the major respondents were from computation, communication and consumer electronics, occupying 36%, followed by semiconductor (12%), and material and chemicals (12%) (Table 5). In term of position, the major respondents were in position of vice presidents of R&D (24%), R&D Managers (24%), and chief technology officers (16%). The top managers’ opinions were well represented and occupied more than 60% respondents in the AHP survey. Finally, more than 70% of respondents had more than 10 years working experience and more than 60% of Table 5. Demographics of respondents Demographics
Number
Percentage
Semi-Conductor 3C Optotronics Biopharmaceutical Material and Chemical Others
3 9 1 2 3 7
12% 36% 4% 8% 12% 28%
Total
25
100%
Chief Technology Officer(CTO) Vice President (VP) R&D Manager Project Manager Others
4 6 6 2 7
16% 24% 24% 8% 28%
Total
25
100%
Working years
0-5 year 5-10 year 10-15 year above 15 year
2 5 6 12
8% 20% 24% 48%
Total
25
100%
Tenure in this department
0-5 year 5-10 year 10-15 year above 15 year
9 12 1 3
36% 48% 4% 12%
Total
25
100%
Industry
Position
Details
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Table 6. Matrix of criteria comparison Phases P1: Input_IC
P1
P2
P3
Relative Weight
Rank
1
1.22
0.65
0.30
2
P2: Process_IC
0.82
1
0.63
0.26
3
P3: Result_IC
1.54
1.58
1
0.44
1
λmax=3.0032, CI=0.0016, RI=0.58, CR=0.0028
trix is λmax= 4.05 with the consistency ratio CR=0.0202 less than 0.1, suggesting the AHP survey result is highly consistent (Table 7). Among four IC criteria in the input phase, the relative weights are highest input-organizational capital: strategic fitness (0.43), followed by the I-RC: marketing intelligence (0.21), I-HC: competence of R&D personnel (0.18) and I-IC+PC: enough R&D investment and forecasting (0.17). The results suggest that R&D mangers should emphasize strategic integration between R&D strategy and business strategy and external marketing intelligence in planning stage of R&D activities. At level 3 of weighting 3 IC indictors in the process phase, the principal eigenvalue of this matrix is λmax= 3.0012 with the consistency
ratio CR=0.0010 less than 0.1, suggesting the AHP survey result is highly consistent (Table 8). Among three IC criteria, the relative weights are highest P-PC: project execution (0.43), followed by P-IC+HC: managing creative people (0.42) and P-RC+OC: strategic external partnership (0.15). The results suggest that R&D mangers should emphasize on project execution and managing creative people to increase R&D effectiveness in the process phase. At level 3 of weighting 4 IC indictors in the result phase, the principal eigenvalue of this matrix is λmax= 4.1529 with the consistency ratio CR=0.0010 less than 0.1, suggesting the AHP survey result is highly consistent (Table 9). Among four IC criteria, the relative weights are the high-
Table 7. Matrix of sub-criteria comparison under input phase I_HC
I_InC+PC
I_OC
I_RC
Relative Weight
Rank
1
1.41
0.32
0.88
0.18
3
I_InC+PC: Enough R&D Investment and forecasting
0.71
1
0.50
0.84
0.17
4
I_OC: Strategy fitness
3.16
2.02
1
1.93
0.43
1
I_RC: Marketing intelligence
1.14
1.19
0.52
1
0.21
2
Input I_HC: Competence of R&D personnel
λmax =4.05, CI=0.0182, RI=0.90, CR=0.0202
Table 8. Matrix of sub-criteria comparison under process phase P_PC
P_InC+HC
P_RC+OC
Relative Weight
Rank
1
0.97
2.93
0.43
1
P_InC+HC: Managing creative people
1.03
1
2.71
0.42
2
P_RC+OC: Strategic external partnership
0.34
0.37
1
0.15
3
Process P_PC: Project Execution
λmax =3.0012, CI=0.0006, RI=0.58, CR=0.0010
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Table 9. Matrix of sub-criteria comparison under result phase Result phase R_IC: R&D yield
R_IC
R_RC1
R_RC2+PC
R_HC
Relative Weight
Rank
1
1.55
0.30
0.50
0.16
4
R_RC1: Customer relationship management
0.64
1
0.63
0.85
0.18
3
R_RC2+PC: Cost effectiveness to customers
3.41
1.60
1
1.64
0.40
R_HC: Knowledge accumulation of R&D personnel
1.99
1.18
0.61
1
0.26
1 €€2
λmax =4.1529, CI=0.0510, RI=0.90, CR=0.0566
est in result-relational capital+ process capital: cost effectiveness to customers (0.40), followed by R-HC: knowledge accumulation of R&D personnel (0.26), R-RC: customer relationship management (0.18) and R-IC+OC: R&D yield. The results suggest that R&D mangers should emphasize on cost effectiveness to customers and knowledge accumulation of R&D personnel in the process phase.
Global Priority Analysis The global weight for each phase can be calculated by multiplying the relative weight of each sub-criterion with the relative weight and then summing up those values (Table 10). Under the global priority, the top five priority indicators are: R-RC2+PC: cost effectiveness to customer (0.18), followed by I-OC: strategy fitness (0.13), R-HC: knowledge accumulation of R&D Personnel (0.11), P-PC: project execution (0.11), and P-HC+PC: managing creative people (0.11). The relatively least important indicators are: strategic external partnership (0.04), enough R&D investment and forecasting (0.05) and competence of R&D personnel (0.06) among 11 factors.
DISCUSSIONS The chapter examined the weighting of 11 IC indicators in three R&D phases. The weight of each phase (level 2) interprets that the results phase (0.44) is the most principal one, followed
by the input phase (0.30); however, the process phase (0.26) is less valued. The above results are consistent with the statement by Lee et al. (1996) that although measurement methods cover different aspects of an R&D department or an organization, most attempts to assess effectiveness relied on the goal-oriented approach, which focuses on output and outcomes. In other words, it is shown that the output/results phase is an essential focus when prioritizing R&D capabilities. This is also consistent to Han & Han (2004) study that output indicators (e.g., customer capital-related indicators and corporate performance indicator) gained higher weights than the input- and process- IC indicators in reporting better intangibles of the Korean mobile phone industry. The importance of result-IC was also confirmed by Egbetokun et al. (2009) that found that “satisfying customer’s demand” and “improving product quality” were the top reasons for innovation in Nigerian firms. Moreover, it is aligned with the results of Bozbura et al. (2007) that ranked the most important output indicators, e.g., creating results by using knowledge among 20 HC-related indicators. Besides, the importance of output IC, our results also indicated that input IC has higher weights than process indicators. It is the same line with Bozbura et al. (2007) that has shown the most important HC indicators employee’s skills (input IC), followed sharing and reporting knowledge (process IC) among 20 HC related indicators in Turkey. The top five factors (level 3) of global priority are cost-effectiveness to customers (R-RC2+PC), strategy fitness (I_OC), knowledge accumulation
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Table 10. IC-related R&D capabilities: the local and global priorities Level
Indicators
Local Priority (Rank)
Global Priority (Rank)
1
1
1
Corporate R&D Capabilities
2
Input_IC
0.3009 (2)
0.3009
2
Process_IC
0.2619 (3)
0.2619
2
Result_IC
0.4373 (1)
0.4373
I_OC: Strategy fitness
0.4338 (1)
0.1305 (2)
I_RC: Marketing intelligence
0.2121 (2)
0.0638 (8)
I_HC: Competence of R&D personnel
0.1832 (3)
0.0551 (9)
I_InC+PC: Enough R&D Investment and forecasting
0.1708 (4)
0.0514 (10)
P_PC: Project Execution
0.4263 (1)
0.1116 (4)
P_InC+HC: Managing creative people
0.4231 (2)
0.1108 (5)
3
P_RC+OC: Strategic external partnership
0.1506 (3)
0.0394 (11)
3
R_RC2+PC: Cost effectiveness to customers
0.4041 (1)
0.1767 (1)
R_HC: Knowledge accumulation of R&D personnel
0.2557 (2)
0.1118 (3)
R_RC1: Customer relation management
0.1786 (3)
0.0781 (6)
R_InC+OC: R&D yield
0.1617 (4)
0.0707 (7)
3 3 3
Input_IC
3 3 3
3 3 3
Process_IC
Result_IC
of R&D personnel (R_HC), project execution (PPC), and managing creative teams (P_InC+HC). Existing studies have illuminated that the weights of IC dimensions and indicators are firm-specific (Chen, 2009), industry-specific (Han and Han, 2004, Liu, 2006); and nation-specific (Bozbura et al., 2007). However, the weighting of IC dimensions and indicators can be intra-IC dimension comparison (human capital in Bozbura et al., 2007) and cross-dimension comparison (Chen, 2009; Han and Han, 2004). The results of the chapter were hard to compare to the previous studies because the chapter adopted a R&D-specific, both cross-phase and cross-dimension comparison in nature. Complementarily, the existing studies on key success factors influencing innovation performance tended to find the casual relationships and provided a more dynamic view among these 11 IC factors (Subramaniam and Youndt, 2005; Wu et al., 2008; Yam, et al., 2004). Yam et al.’s (1994) findings of R&D investment (similar to I_InC+PC: enough R&D investment and forecasting) has the most widespread impact on the firms’ innovation,
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sales and product performance. Project portfolio management similar to I_OC: strategy fitness in the input phase has a positive impact of the firms’ innovation and product performance. Project implementation similar to P_PC: project execution has a positive impact on product performance only. Both Nahapiet and Ghoshal (1998) and Wu et al. (2008) find that dense social capital similar relational capital in the chapter plays a facilitator of creating and sharing other ICs, in turn enhances organizational advantage. Although the chapter provides the weights of IC indicators in different R&D phases, it is misunderstood to treat each R&D phase and each IC indicator independently. Good R&D capabilities must allow enhancing crossfunctional coordination and integration such as high quality production, strong market orientation and technical services (Rothwell, 1992; Cooper and Kleinschmidt, 1997).
Prioritizing Corporate R&D Capabilities
CONCLUSION In the rise of the knowledge-based economy, intellectual capital becomes the company’s most important asset. Moreover, technological innovation forms one of curial determinants for the firm’s competitive advantage. Essentially, corporate R&D capability development has increasingly faced severe challenges since R&D has become more expensive, complicated and uncertain then before. To alleviate this problem, the chapter synthesized the literatures of R&D management and intellectual capital and identified forty-three elements of corporate R&D capabilities. Via exploring factors analysis, these forty-three elements were condensed into eleven factors in a R&D input-process-output framework. Further, the chapter adopted AHP method to weigh IC factors in the IPR framework. One of major findings suggests that R&D managers regarded IC factors in the result phase are the main concern for assessing corporate R&D capabilities, followed by these factors in the input phase and the process phase (Figure 4). This indicated that the main purpose of corporate R&D capabilities is to turn creative ideas, people, and processes into useful products for customers despite lots of uncertainty and risk prevails. Secondly, the top three weighting factors are
cost effectiveness to customers, strategy fitness, and knowledge accumulation of R&D personnel among 11 IC factors. Particularly, strategy fitness places the most significant role in the input phase; project execution is the primary indicator in the process phase; cost effectiveness to customers is valued most in the result phase. We concluded that weighting of IC indicators are quite R&D phase-specific. These relative weights in different phases and different dimensions could guide the emphasis of R&D managers or evaluators while they develop/evaluate corporate R&D capabilities from intellectual capital angle. The chapter advanced weighting of IC can be R&D phase-specific. Moreover, the chapter bridged the validity gap and omission gap discussed in Adams et al. (2009). We are able to validate the IC R&D related capabilities via the AHP exercise. Moreover, we also provide some potential indicators (omission gap) to measure strategic fitness and customer cost-effectiveness. Therefore, R&D managers can have a holistic view on the IC factors in the input, process, and result phases in order to manage R&D systematically. In addition, the R&D phase-specific IC factors are able to draw right attention of R&D managers when they are situated in different R&D phases. However, it is crucial to know that these 11 IC factors work inter-dependently. Despite
Figure 4. Decomposition of IC-related R&D capabilities by phase
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Prioritizing Corporate R&D Capabilities
good R&D people and project management, a good innovative product never reached to customers without good marketing. The chapter emphasize that corporate R&D capabilities should be a cross-functional and cross-organizational (e.g., customers, suppliers and partners) in nature. Then, the relational capital itself enhances creating other human capital, process capital and innovative capital. Consequently, the future research might examine the inter-relations between these 11 factors and elaborate the dynamics of IC factors in the R&D context. The chapter mainly surveyed senior R&D managers in high-tech manufacturing companies, especially information and communication technology industry. The Taiwanese manufacturing firms mainly concentrated on development and process innovation rather than research and radical innovation. Moreover, the respondents are mainly from larger firms because most large firms are able to establish corporate R&D centers. Consequently, the results are represented from large, ICT firms who focused incremental and process R&D capabilities. The further research might include respondents from different industries (e.g., traditional or service industries) on different types of R&D activities. Future research could examine corporate R&D capabilities in the other countries to compare the differences and similarities between Taiwan and other countries. Besides, how these eleven IC factors dynamically interact with each other to generate, develop and maintain corporate R&D capabilities are still unknown. A casualty model to elaborate these interactions is encouraged to clarify the relationship between IC and technological innovation in the rise of knowledge based economy.
ACKNOWLEDGMENT The earlier version of this chapter was presented in European Conference of Intellectual Capital, INHolland University of Applied Sciences,
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Haarlem, the Netherlands, 28-29, April, 2009. The authors would like to take this opportunity for thanking the financial supports from National Science Council, Taiwan (Project No.: NSC962416-H-007-004-MY3) and National Tsing Hua University, Taiwan (Project No.: 98N-2925E1).
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KEY TERMS AND DEFINITIONS Analytical Hierarchy Process: AHP is especially suitable for complex decisions which involve the comparison of decision elements which are difficult to quantify. It is based on the assumption that when faced with a complex decision the natural human reaction is to cluster the decision elements according to their common characteristics. Corporate R&D Capabilities: The capabilities of a corporate focus on the activities performing research and development. Human Capital: The combined knowledge, skill, innovation, and ability of a company’s individual employees. It is also includes the company’s values, culture, and philosophy. Innovational Capital: This refers to the renewal capability and the results of innovation in the form of protected commercial rights, intellectual property, and other intangible assets and talents used to create and rapidly bring to market new products and services. Input-Process-Result Model: The system includes contents of input, processing system, output of the processing systems, receiving systems and outcome, as well as their linkages to each other.
Prioritizing Corporate R&D Capabilities
Intellectual Capital: The possession of the knowledge, applied experience and organizational technology can be put to use to create wealth. Organizational Capital: It is the company’s investment in systems, tools, and operating philosophy that speeds the flow of knowledge through the organization. Process Capital: This is those work processes, technologies (such as ISO 9000), and employee programs that augment and enhance the efficiency of manufacturing or the delivery of services.
Relational Capital: The relationships between internal and external stakeholders. It is the knowledge embedded in organizational relationships with customers, suppliers, stakeholders, strategic alliance partners, etc. Structural Capital: The hardware, software, databases, organizational structure, patents, trademarks, and everything else of organizational capability that supports the employees’ productivity.
This work was previously published in Intellectual Capital and Technological Innovation: Knowledge-Based Theory and Practice, edited by Pedro López Sáez, Gregorio Martín de Castro, José Emilio Navas and Miriam Delgado Verde, pp. 209-233, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 6.15
E-Business in Supply Chain Management Claudia-Maria Wagner Dublin Institute of Technology, Ireland Edward Sweeney Dublin Institute of Technology, Ireland
ABSTRACT E-business is concerned with the use of the Internet to link companies with their suppliers, customers and other trading partners. As a business concept, it has evolved significantly since its introduction in the 1990’s in parallel with the rapid rate of development of information technology (IT) during this period. Supply chain management (SCM) is fundamentally concerned with integration of activities both with and between organisations. IT plays a crucial role in SCM as a key enabler of DOI: 10.4018/978-1-60960-587-2.ch615
supply chain integration (SCI). This chapter sets out the role of e-business concepts in the context of the supply chain challenges faced by firms. It specifically explores the role of e-procurement as an example of how e-business concepts have been applied to one key SCM activity, namely purchasing and procurement. In this context, the chapter examines the nature and evolution of emarketplaces and goes on to identify key adoption drivers and benefits based on recent research. This research identifies key adoption drivers and benefits but also recognises that there are many barriers that ongoing research needs to address if the potential of e-business is to be fulfilled.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
E-Business in Supply Chain Management
INTRODUCTION In the past ten years, e-business, as an overarching business concept, has received increasing attention from academics and practitioners alike. The term ‘e-business’ was introduced by IBM in 1997. In its origins it is defined as “the transformation of key business processes through the use of Internet technologies” (IBM et al., 2000, p.1). Amor (2000) expands the definition by describing it as a secured, flexible and integrated approach in order to offer various companies values through the combination of systems and procedures and so being able to manage the core business procedures with the simplicity and penetration of Internet technology. These two definitions of e-business both refer to using the Internet to link with customers, suppliers and other associated partners. However, the term also implies the transformation of existing business processes into more efficient ones. E-business has generally been pioneered by information technology (IT) companies, where demand is constantly changing and products have very short product life cycles and short order-to-delivery times as a result. Organisations successfully engaging in e-business are able to convert data from their back-end systems into a common readable format and thus are able to share information and conduct electronic transactions with their business partners via the Internet. It also encompasses the adoption of innovative business concepts, such as dynamic pricing through auctions/reverse auctions, co-opetition via purchasing consortia and direct online sales to customers. E-Commerce can be regarded as a subset of e-business. While e-business refers to the whole spectrum of online information exchanges, e-Commerce only encompasses online transactions. The power and properties of information and communication technology (ICT) can be leveraged in several ways across functional domains, with online selling to customers constituting only a fraction of the potential possibilities engendered by e-business (Wu, Mahajan and
Balasubramanian, 2001). Companies are increasingly incorporating e-business concepts as an integral part into their strategy in order to achieve competitive advantage. In particular, vertical Business-to-Business (B2B) applications and systems have enabled companies to interact in a dynamic, innovative and real-time environment and, as such, allow superior supply network integration. This chapter describes and critically assesses developments in e-business that have impacted supply network integration strategies. It starts with a summary of supply chain management (SCM) definitions as a proper understanding of the concept of SCM is a critical component in determining appropriate e-business applications and systems. SCM is recognised as a strategic weapon, by which business operations can be streamlined and overall competitiveness enhanced. It is widely accepted that a large proportion of the total cost base of companies is tied up in the supply chain. For example, Presutti (2003) estimated that 70% of a firm’s sales revenues are spent on SC related activities. Supply chain integration (SCI) plays a critical role insofar it represents the extent to which all activities within an organisation, as well as the activities of its suppliers, customers and other supply chain members, are linked and assimilated (Narasimhan and Jayaram, 1998). The chapter goes on to explore the role of e-procurement as an example of how e-business concepts have been applied to one key SCM activity, namely purchasing and procurement. B2B e-marketplaces represent a recent innovative development, which has been hypothesised to optimise procurement processes and to add significant value in organisations’ supply chains In this context, the chapter examines the nature and evolution of e-marketplaces and goes on to identify key adoption drivers and benefits based on recent research. Based on the foregoing some future research directions are proposed and a number of key conclusions drawn.
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BACKGROUND This section sets out the background to this chapter by introducing the supply chain concept as it has evolved in recent years. It highlights the importance of the concept of integration in this context and explains how the effective management of supply chain information flows is critical in this regard. The role of e-business (as defined earlier) is then introduced as a possible means of enhancing the management of information throughout the supply chain.
The Supply Chain Management Concept A supply chain is a bidirectional flow of information, products and money between the initial suppliers and final customers through different organisations (Nurmilaakso, 2008). It can be both internal and external in its nature. In an internal context, the elements of a SC are represented by various intra-organisational functions (such as for example sales and marketing, procurement, production planning, warehouse and transport management), whereas the external supply chain further encompasses movements of material, information and funds between companies and their suppliers, customers and various business partners. Simchi-Levi et Al. (2000, p.1) define supply chain management (SCM) as “a set of approaches utilised to effectively integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimise system-wide costs while satisfying service level requirements”.Lambert et al. (1998, p.1) expand the SCM definition to include the concept of value creation by depicting SCM as “the integration of business processes from end user through original suppliers that provides products, services, and information and hence add value for customers and other stakeholders”. In brief, SCM is about breaking down the barriers both within
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and between organisations and to ultimately link them in an integrated way to allow value-add to customers starting from product design to delivery through the planning, implementation and monitoring of the various flows. Supply chains are increasingly competing with other supply chains and as such the ultimate goal of effective SCM is superior business performance. The constituent parts of a supply chain are linked together via the flow of information and therefore the proper implementation and integration of various functions via information and communication technology (ICT) is vital for a successful SCM strategy. Supply chain integration (SCI) is an important part of SCM. It aims to facilitate the flow between all organisations in a supply chain and thus positively affects operational performance (Naylor et al., 1999; Bagchi et al. 2005). In short, a key tenet of SCM relates to the need to move from fragmented supply chain architectures to configurations that are characterised by integration.
Information Flows and Supply Chain Integration The sharing of information is a critical success factor if seamless product and money flows between initial suppliers and end-consumers in the ‘macro’ (or external) supply chain, as well as in the ‘micro’ (or internal) supply chain between different intra-organisational functions, is to be achieved. An inefficiency anywhere in the chain, be it internal or external in nature, will result in the chain as a whole failing to maximise its true competitive potential. The whole chain is only as strong as its weakest link. Figure 1 exhibits a simplistic representation of a macro and micro supply chain. In the macro or external supply chain materials flow from the raw material source (n-tier supplier) through the various stages in the chain to the final consumer (n-tier customer). Money (i.e. funds) then flows back down the chain. Ideally, at every link in the supply chain value is added and profits generated.
E-Business in Supply Chain Management
Houlihan (1988) noted in the late 1980s that the supply chain is viewed as a single process, meaning that the various links in the chain need to function in as seamless a manner as possible. Akkermans et al. (2003, p.286) defines a supply chain as a “network consisting of suppliers, manufacturers, distributors, retailers and customers”. This network is supported by three pillars: a. processes, which embed a firm’s capabilities in logistics, new product development, and knowledge management; b. organisational structures, which encompass a range of relationships from total vertical integration to networked companies, performance measurement and management approaches; and, c. enabling technologies, which include process and information technologies. In a similar manner, Monczka et al. (1998, p. 78) emphasises the network paradigm by referring to the use of “a total systems perspective across multiple functions and multiple tiers of suppliers”. The reference to “multiple functions” emphasizes the internal (or micro) integration aspects of an effective supply chain. Most (manufacturing) businesses can be described in terms of five functions: buy, make, store, move and sell. Tra-
ditionally, these functions have been managed in isolation, often working at cross-purposes. SCM, and in particular SCI, means thinking beyond the established boundaries, strengthening the linkages between the functions, and finding ways for them to work together in a systematic and seamless way. A recognition that the “whole is greater than the sum of the parts” calls for more effective integration between purchasing and procurement (buy), production planning and control (make), warehouse management (store), transport management (move) and customer relationship management (sell) (see Figure 1). Optimisation of subsystems (i.e. functional departments, production sites, individual processes in a manufacturing cycle) can result in a sub-optimised total system. Lack of efficiency and/or effectiveness is often a result of the poorly designed interfaces between subsystems rather than any inherent subsystem weaknesses. The most important problem encountered in both micro and macro supply chains occurs when information about consumer demands becomes distorted on its way from the end-consumer to the initial supplier. A negative result of this information distortion is inaccurate demand forecasts and inefficient resource allocations, resulting in long lead times and high costs. Fast and accurate information sharing along all internal and external
Figure 1. Micro and macro supply chain framework
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elements within a supply chain is a prerequisite for reducing this distortion (Nurmilaasko, 2008). Trent and Monczka (1998) describe two types of integration: the first one involves the forward coordination of the physical product flow from the suppliers to the customers; the second one entails the backward coordination of the information flow from the customers to the suppliers. Nurmilaasko (2008) identifies three levels of SCI: a. manual SCI meaning human-to-human information sharing (e.g. telephone, fax, e-mails, etc.); b. semi-automated SCI meaning human-tosystem information sharing (e.g. web portals); and, c. fully automated SCI meaning system-tosystem information sharing (e.g. middleware systems).
The Role of e-Business Network technologies enabled by e-business standards have the potential to transform and integrate the functional elements of many industries. The Internet facilitates the abolition of the trade-off between richness and reach of information, which means that communication can occur at almost zero cost, without constraints on the richness of information. (see, for example: Graham et al., 2004; Evans and Wurster, 1997). Richness of information includes characteristics such as bandwidth, customisation, and interactivity. Reach is defined as the connectivity, and is the number of agents involved in exchanging information. Before the development of the Internet, to reach large numbers of people with rich information was a costly and time-consuming process and prone to errors due to manual information replication. Sweeney (2007) depicts that managing information flows in the supply chain is one of the most crucial activities in SCM as the flow of materials and money is usually initiated by information movements. Hardaker and Graham (2001) reinforce this by
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outlining that coordination in a supply chain occurs through the communication of orders, stock levels and demand feedback. Poor management of information flows essentially leads to the socalled bullwhip-effect that requires the holding of excessive levels of inventory. High demand visibility plays a strategic role in reducing inventory levels (Sweeney, 2007). Efficient and effective network-based communication structures in a supply chain have the potential to offset these effects. SCI and e-business are interrelated insofar as integrated e-business functions facilitate undistorted and accurate information sharing. In this way, optimal alignment of business functions represents the means to an effective overall SCI strategy. The next section describes the impact of e-business on the integration of supply chain configurations in more detail.
E-BUSINESS EVOLUTION AND CONCEPTS Integrated SCM has generated much interest dating back to the 1960s (e.g. Forrester 1961) because actions taken by one member in the supply chain can influence the profitability of all other members. However, the lack of ICT hindered the implementation of a more “systems-oriented” approach. Inter-organisational systems (IOS) such as electronic data interchange (EDI) have been used since the 1970s to link one or more organisations to their suppliers or customers through private value-added networks. Computer reservation systems in the airline industry were one of the pioneering applications within the domain of IOS (Monteiro and Macdonald, 1996; Pemberton et al., 2001) as with growing traffic airlines realised the need for efficient, quick, inexpensive, and accurate handling of their inventory information to communicate with travel agencies and other customers. IOS are automated information systems shared by two or more companies and differ from internal information systems by allowing informa-
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tion to be sent across organisational boundaries. However, entities within a supply chain often have different and conflicting objectives and interests and, therefore, complex interactions take place (Gregor and Johnston 2000). Riggins and Mukhopadhyay (1999) note some limitation of IOS. IOS implementation projects are intrinsically more risky than traditional internal IT projects. Companies have less control over processes due to the uncertainty of external trading partner actions. Inter organisational systems often have interdependent benefits and therefore the way in which a trading partner implements a system may affect the benefits realised by the other party. EDI, in its traditional form, is partially ineffective for allowing multiple enterprises to make use of common data and process models of the whole supply chain. It offers limited functionality and is problematic because it has not been standardised worldwide. EDI data is usually exchanged in batch fashion, which makes it complicated to handle exceptions. Process-level integration between multiple enterprises is, therefore, complex to implement because the data produced by one organisation’s EDI applications is frequently processed by dissimilar application sets in the receiving organisation. Although EDI can help to decrease transaction costs, it is rather inflexible and limited to the establishment of bilateral relationships typically for manufacturers that could afford its implementation at a relatively high cost per contact (Huber and Wagner, 2007). Companies in the supply chain are striving to increase control over their suppliers as well as to obtain up-to-date and accurate information about their business partners to enhance their supply chain competencies and agility. Traditional EDI provided only limited success in the context of SCI. The advent of more advanced ICT, most notably the Internet, offers the potential to move beyond the limited EDI transaction sets to automate the data flows across the supply chain, thus making a contribution to a more multilateral information exchange and the fostering of market-based ex-
changes in all transaction phases. Recent developments in XML programming are enabling the transformation of the supply chain into a network facilitated by Internet technologies (Richmond et al., 1998). Overall, e-business solutions in general are seeking to enhance supply chain effectiveness and efficiency through the automation of business processes. The adoption of e-business can result in benefits such as higher transparency, reduced transaction, manufacturing and other costs, reduced unmonitored corporate spending (also known as maverick or rogue purchasing) and more centralised purchasing spend and more coordinated and efficient collaborations for such projects as joint product design. E-business may also: •
•
•
Facilitate collaboration and supply chain information sharing, such as order forecasts and inventory planning; Automate requisition and purchase order creation and integrate payment processes; and, Help organisations develop plans for the more effective management of sourcing and logistics.
Electronic linkages in the supply chain can change the nature of inter-organisational relationships. However, they should ideally enable the sharing of resources and core competencies and the synchronisation of working processes between external partners in virtual network organisations. There is a wide diversity of e-business tools and services. The following sections highlight some of the aspects and tools of e-business as they impact SCM.
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THE IMAPCT OF ERP SYSTEMS ON SCM
production, logistics and marketing promotions. (Gunasekaran and Ngai, 2004, p.280)
With the change of the ICT landscape, supply chain design as opposed to supply chain coordination is becoming a core competency (Fine, 1998). At the same time, many firms have implemented company-wide systems, called enterprise resource planning (ERP) systems, which represent the logical extension of the material requirements planning (MRP) systems of the 1970s and of the manufacturing resource planning (MRP II) systems of the 1980s. Interestingly, Akkermans et al. (2003) note that the two trends seem to be evolving independently in industry, although from a managerial decision making perspective they are quite closely linked.
Akkermans et al. (2003, p.285) describe ERP as a “comprehensive transaction management system that integrates many kinds of information processing abilities and places data into a single database”. Prior to ERP, data were distributed across several separate databases and information processed through multiple disconnected information systems. Organisations typically maintained separate systems for purchasing, order management, human resources, and accounting. As illustrated in Figure 2, ERP amalgamates these intra-organisational sub-systems into a single seamless overarching system. Information system fragmentation has been identified as one of the primary causes of information delays and distortions along the supply chain (McAfee, 2002). ERP systems enhance transparency across the supply chain by increasing information velocity and thus reducing bullwhip effects. Akkermans et al. (2003) argue that ERP adoption could be associated with significant gains in supply chain effectiveness.
ERP are systems that connect different functions within an organisation, as well as an organisation’s supply chain partners (i.e. suppliers, distributors, third party logistics providers), enabling the various business partners and organisational entities to share information, such as order status, product schedules, sales records, as well as to plan Figure 2. e-business enabled ERP system
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With the rapid growth of the Internet, the business environment has changed dramatically and enterprises have become more extended in their scope. E-business has changed the definition of enterprise systems. Beyond the core intra-organisational business functions that ERP has traditionally interlinked, e-business drives and facilitates ERP systems to incorporate extra-organisational networks (Wang and Nah, 2001). The new generation of ERP fully integrates and optimises business processes in a transparent virtual internal and external network. Such systems allow realtime collaboration between supply chain partners and forward visibility by sharing large amounts of information along the supply chain. Internet technology provides the bridge between companies and their business partners to make e-business possible, while e-business makes the ERP system more transparent and outward. ERP is not limited to a single company, but may be viewed as an integrated system along the value chain of companies in the same industry, or across industries (Wang and Nah, 2001). Thus, ERP systems can be extended to incorporate additional e-Commerce and e-business operations and thereby increasing supply chain functionality (Olhanger and Selldin, 2003). ERP, by facilitating synchronous decision making, can be viewed as a key enabler of SCI (Su and Yang, 2010). Ackerman et al. (2003) identified a number of key SCM trends for which ERP provides support. These are: 1. mass customisation for products that can be configured as a combination of a number of predefined options; 2. standardisation of processes and data; and, 3. integration of globalised businesses. By assessing the impact of ERP on SCM, Su and Yang (2010) found mainly positive relationships between ERP benefits and SCM competencies. The authors demonstrated that SCM competencies in a firm’s operational and planning and control
process are positively impacted by the operational, managerial and strategic benefits of ERP (see Figure 3). A firm’s operational process is hereby referring to a firm’s competencies to facilitate order fulfillment across the supply chain by linking internal and external supply chain components. The term ‘planning and control process’ refers to the design, application, and coordination of information to enhance purchasing, manufacturing, customer order fulfillment, and resource planning. Operational benefits are defined as the benefits of ERP systems that result from automating cross-functional processes - i.e. the use of data to better plan and manage production, manpower, inventory and physical resources, and from the monitoring and control of the financial performance of products, customers, business lines and geographic areas. Managerial benefits of ERP are expected to improve the day-to-day business process, resulting in long-term benefits such as improved customer responsiveness, improved customer satisfaction, on-time delivery, and improved decision making. Strategic benefits arise from the system’s ability to support business growth, reduce the cost of maintaining legacy IT systems, and to capture the benefits derived from facilitating business learning, empowerment of staff and higher employee morale and satisfaction. IT infrastructure benefits involve business flexibility, IT cost reduction, and increased IT infrastructure capability. Organisational benefits include the support of organisational change, the facilitation of business learning, employee empowerment and the building of a common vision. The managerial and strategic benefits of ERP show the greatest impact on SCM competencies in the behavioural process. The term ‘behavioural process’ refers to the behaviour that fosters supply chain coordination and includes relationship integration. Stock et al. (2000) assert that high levels of external integration are characterized by collaborative activities with suppliers and customers, i.e. by a blurring of organisational distinctions between the logistics activities of a firm and its
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Figure 3. ERP benefits
suppliers and customers. In the study conducted by Su and Yang (2010), IT infrastructure and organisational benefits do not directly impact SCM competencies. The authors explain this finding by noting that the integrative design of ERP systems increases the complexity involved in source code modifications. Many companies significantly underestimate the effort for modification. However, Akkermans et al. (2003) identify four shortcomings in ERP: 1. lack of extended enterprise functionality; 2. limited flexibility in adapting to changes in the environment; 3. limited advanced decision support functionality; and, 4. lack of (web-enabled) modularity. The authors note that these shortcomings can be overcome by implementing and using various add-ons, such as connectivity software, processware, data warehousing tools, or supply chain
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execution systems. According to Akkermans et al. (2003) traditional ERP systems were never designed just to support SCM, particularly across multiple enterprises. Their architectural advantage of being fully integrated for one firm may become a strategic disadvantage in a dynamic business environment, where modular, open and flexible IT solutions are required.
E-PROCUREMENT AS AN E-ENABLED SUPPLY CHAIN FUNCTION One of the key links in the supply chain is supply management as it sets the foundation for other links in the chain. It is at the supply end where most of the expenditure on supply chain activities exist (Presutti, 2003). Reducing procurement costs can have a powerful effect on a firm’s finances – a 5% cut can translate into a 30% jump in profits (Kothari et al., 2005). E-procurement represents an implicit part of supply management, whereby
E-Business in Supply Chain Management
Internet technology is applied to facilitate corporate buying. It pervades each major component in the purchasing process. Within the realm of e-procurement, the concept of e-design has emerged to facilitate supplier involvement in the specification development process of a product. It facilitates reduced time-to-market cycles by overcoming the silo-effect of the traditionally sequential design activities (Presutti, 2003). The use of the Internet also facilitates e-sourcing, which is the process of finding new potential suppliers using ICT with the aim of decreasing search costs. Identifying new sources of supply increases competition during the tendering process. E-tendering is the process of sending RFx to suppliers and receiving responses electronically. The three types of RFx commonly used for sourcing are: RFI (request for information), RFP (request for proposal), and RFQ (request for quotation). RFIs typically involve a potential buyer asking a seller to provide additional information on a product or process. RFQs involve a potential buyer requesting a specific price for given items, while RFPs tend to include both a quote and a qualitative description of the work to be done (Huber and Wagner, 2007). Presutti (2003) notes that some of the earliest e-procurement solutions focused on establishing ordering routines and reducing transaction costs associated with operating resource purchasing for typically maintenance, repair and operating (MRO) supplies by automating the requisitioning to payment cycle. E-business in procurement can enable organisations to order products in online catalogues or desktop purchasing systems whereby the requisitioner’s authorisation is electronically checked. The order information can electronically pass through various checking procedures, e.g. authorisation by relevant managers or directors. Once cleared, the order can be aggregated with others to the same destination and issued electronically to the supplier. This process flow reduces operational costs, improves process efficiency, delivers greater centralised control over purchasing and may in-
crease negotiating power with suppliers through order consolidation (Huber and Wagner, 2007). Supplier evaluation and rating is a final step in the purchasing process, which requires extensive and accurate performance data. In comparison to the traditional paper-based system, e-procurement solutions provide data warehousing capabilities that capture and retrieve data to conduct effective and efficient supplier performance assessments. Organisations can also take advantage of virtual electronic purchasing consortia (EPC) to electronically conduct tasks that are necessary for the management of demand aggregation between two or more legal entities. EPC can exploit the potential of economies of scale and scope without the diseconomies of increased transaction and communication costs (Corsten and Zagler, 1999) and result in average net reductions in purchasing costs of over five per cent and a return on investment of over 70 per cent (Huber et al. 2004). EPC can deliver the required volume (especially for smaller firms) to carry out reverse auctions. An electronic reverse auction is a buyer-initiated quotation process, where purchasers post an RFQ for a product, while suppliers electronically bid against each other in a progressive way and compete in an online bidding event to achieve a sale for the requested product. Reverse auctions are based on game theory, with dynamic price applications used to streamline the RFx process. Only pre-qualified suppliers might be allowed to bid electronically for a specific demand. Reverse auctions may make a contribution to the EPC sourcing process when: • • • •
The addressed markets are fragmented; A critical mass and global sourcing expertise is needed; Standardisation of products is desired; and, Transactions costs are high.
However, implementation of reverse auctions has not been without controversy, because they can be contradictory to the long-term benefits
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associated with collaborative buyer–supplier alliances. This perceived conflict is primarily caused by the emphasis of reverse auctions on awarding business based on aggressive price competition and increased supplier transparency instead of long-term total cost of ownership (TCO) considerations (Huber and Wagner, 2007). New technology providers such as e-marketplaces can facilitate electronic procurement processes.
E-MARKETPLACES IN SUPPLY CHAIN MANAGEMENT B2B e-marketplaces represent a recent innovative development, which has been hypothesised to optimise procurement processes and to add significant value in organisations’ supply chains. This section examines the nature and evolution of e-marketplaces and goes on to identify key adoption drivers and benefits based on recent research.
E-Marketplace Definition and Evolution Laseter et al. (2001, p.1) define an e-Marketplace as a “forum that leverages the Internet to facilitate commerce among businesses including a wide range of entities — from independent or pure-play dot-coms financed by venture capital, to industry consortia backed by pooled funds, to private networks created by individual companies.” A B2B e-Marketplace is facilitated by IT, where numerous buyers and suppliers in special markets get together to seek information and to buy and sell goods and services (Bakos, 1998; Koch, 2002) at a fixed or dynamic price which is determined in accordance with the rules of the exchange (Sculley et al., 1999), with the e-Marketplace charging commissions for the products they help to move. B2B e-Marketplace functionalities are based on the Internet and thus have an advantage over traditional ERP systems in terms of the ease of communication links across geographical bound-
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aries and with external enterprises. EDI and ERP systems typically run proprietary software and therefore many firms are not totally committed to these systems because of high operating costs. An e-Marketplace by contrast is usually sponsored by a third party with non proprietary software enabling every business to use and share data at lower costs. This creates a more level playing field as small and large firms are able to participate in electronic markets (Eng, 2004). According to IBM et al. (2000), e-marketplaces built upon a shared Internet-based infrastructure can provide firms with a platform for (see Figure 4): •
•
•
•
•
Core business transactions that have the potential to automate and simplify the requisition-to-payment process online, together with procurement, customer (relationship) management, and marketing/ selling; A collaboration network for product design, supply chain planning and optimisation, as well as fulfilment processes; Transparent product information that is amassed into a universal classification and catalogue structure; A setting where sourcing, negotiations, and other trading processes such as auctions can take place online and in real time; and, An online community for publishing and exchanging industry news, information, and events.
B2B e-Marketplace capabilities can change traditional SCM processes by lowering costs and increasing speed of response to supply and demand needs. A distinct benefit is the facilitation of EPC and the associated reduction of purchasing costs through higher volume contract terms by aggregating purchasing across divisions and companies. Suppliers can increase sales channels to geographically remote locations at lower selling costs through lower inventory requirements, im-
E-Business in Supply Chain Management
Figure 4. Networked e-marketplace model
proved order accuracy, and streamlined electronic processes (IBM et al., 2000). E-marketplaces can focus vertically (operating in only one specific industry), but also focus horizontally (across various industries). Horizontal e-marketplaces are often well suited to buying indirect inputs such as MRO, which tend not to be industry specific. Vertical e-marketplaces, by contrast, are well suited to buying direct or strategic goods that are incorporated into the final product. Another classification of e-marketplaces is into open, buy-side and sell-side systems. Open e-marketplaces can be distinguished from a buy-side system insofar as it must be a neutral community not only to buyers, but also to sellers, thereby considering the interests of both purchasers and sellers. Buy-side solutions are governed by one organisation (private e-business solution) or several firms (consortia-led solution) and are set up to support the purchasing processes. A sellside solution typically comprises a supplier and
multiple buyers and is initiated by suppliers and distributors to support their sales processes. Sellside solutions can be direct ordering on supplier websites or seller-led e-marketplaces (Huber and Wagner, 2007). Baldi and Borgman (2001) also identify ‘meta’ e-marketplaces that are formed by a group of independent market providers who collaborate and exchange requests and offers by interconnecting their e-marketplaces to increase liquidity.
E-Marketplace Adoption Drivers and Benefits Recent research, undertaken in the airline industry, has examined the impact of B2B e-marketplaces on organisations” supply chains by investigating adoption drivers and performance indicators (Wagner and Smyth, 2006). The authors developed industry-specific constructs by viewing e-marketplaces as a technological innovation and
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examining the contexts in which e-marketplaces are adopted. The airline industry lends itself as a case in point for investigation as airlines have been using ICT and EDI standards to support the procurement of goods and services for more than 40 years (Neil and Purchase, 2004). Within the realm of their study, Wagner and Smyth (2006) note that firm size has a significant effect on eMarketplace adoption, whereby smaller organisations often adhere to more traditional forms of purchasing. Larger firms seem to be less subjected to knowledge and technology barriers. Other drivers or strategic stimuli for e-Marketplace adoption include the extent of strategic partnerships, the level of overall ICT sophistication and the level of Internet services used. In contrast to theoretically derived expectations, factors such as pressures from the business context, the level of resource/ information sharing, the extent of outsourcing and joint procurement integration, and the purchasing organisation centralisation / decentralisation could not be confirmed as adoption drivers. The findings further suggest that e-Marketplace use is positively related to overall satisfaction with and performance of an organisation’s procurement practices. E-marketplaces do reduce procurement related search costs. Other benefits typically occur in the facilitation of order processes, higher transparency of suppliers, reduced inventories, product price reductions and reductions in purchase order costs. In a similar manner Eng (2004) found that the most notable transactional benefit from eMarketplace participation is lower unit costs of procurement, followed by dynamic and global sourcing by being able to unload excess inventories and to source more competitively. E-marketplaces contribute to higher SCM efficiency due to reduced time between billing and payment and efficient exchange of information. The latter is also seen as the key strategic benefit of e-marketplaces, along with streamlined SCM processes resulting in increased customer satisfaction. Wagner and Smyth (2006) further note that commodities where markets are fragmented to a higher extent
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are traded on e-marketplaces to a higher extent than commodities with a rather concentrated supply base. Savings from e-Marketplace adoption, which occur more in process costs rather than product costs, tend to exceed the investment costs. However, e-Marketplace adoption does not have a direct impact on overall financial performance, but on operational effectiveness and efficiency. The findings also suggest that the adoption of emarketplaces is highly relevant to e-procurement implementation among airlines. The results also suggest that many companies in the industry still make only rudimentary use of all offered services although the overall e-Marketplace diffusion level is relatively high. Eng (2004) researched which SCM e-Marketplace functions companies use. The most popular use of the e-Marketplace is in auctions and reverse auctions (52%), followed next by processing as regards online ordering, payment, non-technical negotiations, and customer or supplier information management (47%). E-marketplaces are further used for listing products or making purchases from catalogues (35%), searching for buyers or sellers (33%), and for improved online communications and exchanges of information (25%). However, technical exchange and development (11%) is the least subscribed function. Inter-firm relationship management (14%) and collaborative project management (14%) reported a low percentage of usage. Eng’s (2004) research thus proposes that e-marketplaces are more popular for transaction-based exchange than the strategic type of exchange. In particular, the auctions facility of an e-Marketplace exhibits the most significant contribution to unit cost reduction. By comparison, the most significant contribution of e-marketplaces to streamlined supply chain operations is improved communication and information exchange. To summarise, an e-Marketplace facilitates the procurement process by using the Internet as a platform for communications. An e-Marketplace provides the basis for one–off transactions without requiring long-term commitment, or negatively
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affecting supply chain processes in a significant manner (Eng, 2004). Wagner and Smyth (2006) note, however, that there are still a number of challenges ahead for e-Marketplace implementation. These include further supplier integration, training and education of staff and the development of further e-Marketplace services, as the technology is often not yet ready to support the range of airline requirements. Overall, research indicates that industries that are information intensive derive more advantages from e-Marketplace implementation and are more likely to advance with the technology.
FUTURE RESEARCH DIRECTIONS E-business has not only to deal with technology, but also a range of important human and organisational issues. Studies of ICT-based systems in organisations consistently demonstrate that insufficient consideration of a system’s social environment and the relationships between people and technology has been a major reason why investments have often been assessed as being a failure, or only a partial success (e.g. Nathan et al. 2003).The technical and social aspects (i.e. “hard” and “soft” wiring) of e-business need to be designed and optimised concurrently. Without top management support, e-business is difficult to implement successfully. For smaller firms in particular, where resources and ICT/IOS sophistication are limited, the lack of financial resources, managerial and technological skills and system integration can inhibit e-business adoption. More adequate training and education in e-business and change management is a critical factor for the future, as companies tend to express hesitation about the use of emerging e-business technologies. Further research needs to focus on these issues. Some of the barriers to e-business adoption are related to human factors (e.g. insufficient leadership, unwillingness to cooperate, resistance to change, inertia, lack of trust, personal insecurity,
fear of losing jobs, threat of being by-passed by technology, communication problems and difficulties in aligning the processes and cultures of partner companies). Other barriers relate to structures, processes and systems (e.g. lack of resources, the plethora of different standards, lack of services provided by e-marketplaces). Many organisations have focused on a few key e-business services to date, but are not considering potential benefits across the range of services available and across the supply chain (Huber et al. 2004). Currently available e-business solutions are still some way from covering the entire spectrum of business requirements and relatively few options are readily available to support or automate complex activities. They have the potential to evolve from matchmaking or transaction support focus to knowledge and trust networks, where common workflows can enable SCM on a more widespread basis in future. However, more research is required to better understand these issues across a variety of business contexts and sectors.
CONCLUSION So far, however, we are still in the first stages of increasing the recognition of the potential of e-business. Many organisations still lack an effective ICT infrastructure, which may organise, support and facilitate the highly complex and often rapidly changing interfaces among the organisational entities and disciplines involved in business processes. It is important to note, however, that organisation embarking on an ebusiness processes. It is important to note, however, that organisation embarking on an e-business initiative have to consider a sensible alignment of technology (as an enabler) with their business strategy in order to be successful. The introduction of e-business might serve as a ‘Trogan Horse’ to enforce necessary changes in organisational structures and processes (e.g. part standardisation or use of a single coding system). E-business can
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drive new organisational forms (such as a virtual organisations), fufill certain tasks in the inter-firm context and allow firms to improve supply chain processes. Therefore, e-business has a vital role to play in integrated SCM.
Evans, P. B., & Wurster, T. S. (1997). Strategy and the new economics of information. [PubMed]. Harvard Business Review, (Sept-Oct): 69–82.
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Huber, B., & Wagner, C. (2007). E-business and Supply Chain Management. In Sweeney, E. (Ed.), Perspectives on Supply Chain Management and Logistics (pp. 265–280). Dublin: Blackhall Publishing. IBM. i2 & Ariba (2000). E-marketplaces changing the way we do businessWhitepaper published by Ariba. Retrieved 12 November 2000 from at: www.ibm-i2-ariba.com.
Narasimhan, R., & Jayaram, J. (1998). Causal linkage in supply chain management: An exploratory study of north American manufacturing firms. Decision Sciences, 29(3), 579–605.. doi:10.1111/j.1540-5915.1998.tb01355.x Nathan, M., Carpenter, G., & Roberts, S. (2003). Getting by, not getting on: Technology in UK workplaces. London: The Work Foundation and Society.
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Laseter, T., Long, B., & Capers, C. (2001). B2B Benchmark: The State of Electronic Exchange. Strategy and Competition, Fourth Quarter. McAfee, A. (2002). The impact of enterprise information technology adoption on operational performance: An empirical investigation. Production and Operations Management, 11(1), 33–53.. doi:10.1111/j.1937-5956.2002.tb00183.x
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Pemberton, J. D., Stonehouse, G. H., & Barber, C. E. (2001). Competing with CRS-generated information in the airline industry. The Journal of Strategic Information Systems, 10(1), 59–76.. doi:10.1016/S0963-8687(01)00042-7 Presutti, W. D. (2003). Supply management and e-procurement: creating value added in the supply chain. Industrial Marketing Management, 32(3), 219–226..doi:10.1016/S0019-8501(02)00265-1 Richmond, C., Power, T. & O’Sullivan, D. (1998). E-business in the Supply Chain: Creating Value in a Networked Market Place. London: Financial Times Retail and Consumer. Riggins, F. J., & Mukhopadhyay, T. (1999). Overcoming EDI adoption and implementation risks. International Journal of Electronic Commerce, 3(4), 103–123. Sculley, A. B., William, W., & Woods, A. (1999). B2B Exchanges: The Killer Application in the Business-to-Business Internet Revolution. ISI Publication. Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2000). Designing and managing the supply chain: Concepts, strategies, and cases. New York: McGraw-Hill. Stock, G. N., Greis, N. P., & Kasarda, J. D. (2000). Enterprise logistics and supply chain structure: The role of fit. Journal of Operations Management, 18(6), 531–547..doi:10.1016/S02726963(00)00035-8 Su, Y., & Yang, C. (2010). Why are enterprise resource planning systems indispensable to supply chain management? European Journal of Operational Research, 203, 81–94..doi:10.1016/j. ejor.2009.07.003 Sweeney, E. (2007). “Introduction”, In Perspectives on Supply Chain Management and Logistics – Creating Competitive Organisations in The 21st Century.Dublin: Blackhall Publishers.
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Trent, R. J., & Monczka, R. M. (1998). Purchasing and supply management: Trends and changes throughout the 1990s. International Journal of Purchasing and Materials Management, 34(4), 2–11. Wagner, C., & Smyth, A. (2006). B2B eMarketplaces in the airline industry: A tool for competition, cooperation and enhanced efficiency in a volatile business sector. Transportation Research Record, 1951, 60–68..doi:10.3141/1951-08 Wang, B., & Nah, F. (2001). ERP + e-business = a new vision for enterprise system. In Dasgupta, S. (Ed.), Managing Internet and Intranet Technologies in Organizations: Challenges and Opportunities (pp. 147–164). Hershey, PA: Idea Group Publishing. doi:10.4018/9781878289957.ch009 Wu, Y., Mahajan, V., & Balasubramanian, S. (2001). Bringing the „e“ to corporate America: An analysis of e-business adoption and its impact on firm performance. White paper, CCI Research, Mc Combs School of Business, University of Texas at Austin.
ADDITIONAL READING Choudhury, V., Hartzel, K. S., & Konsynski, B. R. (1998). Uses and consequences of electronic markets: An empirical examination into the aircraft parts industry. Management Information Systems Quarterly, 22, 471–507..doi:10.2307/249552 Emiliani, M. L. (2000). Business-to-business online auctions: Key issues on purchasing process improvement. Supply Chain Management: An International Journal, 5(4), 176–186.. doi:10.1108/13598540010347299 Hendricks, K. B., Singhal, V. R., & Stratman, J. K. (2007). The impact of enterprise systems on corporate performance: A study of ERP, SCM, and CRM system implementations. Journal of Operations Management, 25(1), 65–82..doi:10.1016/j. jom.2006.02.002
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Ho, C. J. (2007). Measuring system performance of an ERP-based supply chain. International Journal of Production Research, 45(6), 1255–1277.. doi:10.1080/00207540600635235
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Shang, S., & Seddon, P. B. (2000). A comprehensive framework for classifying the benefits of ERP systems. In: Proceedings of the Sixth Americas Conference on Information Systems, Long Beach, CA, pp. 1005–1014.
Huang, S. Y., Lin, C. W., Wong, S. L., & Tsai, M. C. (2007). The impact of ERP implementation on business performance – An integrated investigation model. International Journal of Manufacturing Technology and Management, 12(4), 342–359.. doi:10.1504/IJMTM.2007.013757
Tarantilis, C. D., Kiranoudis, C. T., & Theodorakopoulos, N. D. (2008). A Web-based ERP system for business services and supply chain management: Application to real-world process scheduling. European Journal of Operational Research, 187, 1310–1326..doi:10.1016/j.ejor.2006.09.015
Irani, Z., & Love, P. E. D. (2001). The propagation of technology management taxonomies for evaluating investments in information systems. Journal of Management Information Systems, 17(3), 161–177.
Themistocleous, M., Irani, Z., & Love, P. E. D. (2004). Evaluating the integration of supply chain information systems: A case study. European Journal of Operational Research, 159(2), 393–405.. doi:10.1016/j.ejor.2003.08.023
Laudon, J. P., & Laudon, K. C. (2006). Essentials of Business Information Systems. Upper Saddle River, NJ: Prentice-Hall. Lim, D., & Palvia, P. C. (2001). EDI in strategic supply chain: Impact on customer service. International Journal of Information Management, 21(3), 193–211..doi:10.1016/S0268-4012(01)00010-X Mabert, V. A., Soni, A., & Venkataramanan, M. A. (2003). Enterprise resource planning: Managing the implementation process. European Journal of Operational Research, 146(2), 302–314..doi:10.1016/ S0377-2217(02)00551-9
Trent, R. J., & Monczka, R. M. (1998). Purchasing and supply management: Trends and changes throughout the 1990s. International Journal of Purchasing and Materials Management, 34(4), 2–11. Zhu, K., Kraemer, K., & Xu, S. (2003). Electronic business adoption by European firms: A crosscountry assessment of the facilitators and inhibitors. European Journal of Information Systems, 12(4), 251–268..doi:10.1057/palgrave.ejis.3000475
This work was previously published in Electronic Supply Network Coordination in Intelligent and Dynamic Environments: Modeling and Implementation, edited by Iraj Mahdavi, Shima Mohebbi and Namjae Cho, pp. 24-42, copyright 2011 by Business Science Reference (an imprint of IGI Global). 1837
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Global Account Management (GAM):
Creating Companywide and Worldwide Relationships to Global Customers Svend Hollensen University of Southern Denmark, Denmark Vlad Stefan Wulff University of Southern Denmark, Denmark
ABSTRACT Global account management (GAM) has become a critical issue for many multinational corporations that compete in a fast changing global market environment. In this article, we approach GAM from a benchlearning perspective, synthesize selected literature and examine an award winning case study in order to underline the importance of multilevel relationships in strategic business-tobusiness relationships. The purpose of this study is to address various issues related to multilevel relationships in strategic partnerships (e.g. the recruitment of the global account manager and his supporting team, turf wars and compensation)
DOI: 10.4018/978-1-60960-587-2.ch616
and suggest organisational solutions based on best-practice examples.
INTRODUCTION Managing major international customers on the modern business-to-business markets has become a complex and most challenging task that goes beyond simple advertising and salesperson business relationships. International economic developments have recently caused a major power shift in favour of multinational customers, who are now more influential than ever before in relation to their suppliers (Mc Neill, 2005; Shi et al., 2005). From a supplier’s point of view, multinational companies (MNCs) have always been highly profitable but also very demanding customers.
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They often choose suppliers that understand their specific needs and offer solutions on a global basis (Parvatiyar & Gruen, 2002). The consolidation pressure in many industries has created a situation in which fewer, larger and more complex customers demand special value-adding activities (e.g. joint product development) from their key suppliers worldwide. During the past decade suppliers have witnessed a fast growing performance expectance of their major customers. The internationalisation of the markets, fast changing technologies (shorter product life cycles), economies of scale and high product development costs have become highly relevant issues for the multinational companies (MNC) (Atanasova, 2007). Various single- and multi-sourcing strategies have been developed and implemented by the majority of the MNC. In certain cases regulation, global consistency or compatibility, central specification, quality control and high margins can increase the bargaining power of a single global supplier (Yip & Bink, 2007b). Multi-sourcing is the most common reaction of multinational corporations, however once this strategy has been implemented, it can prove to be a highly challenging task to shift back to single sourcing. Major customers and their international suppliers are therefore looking for alternative and innovative solutions that have the potential to solve the challenges of the coming decades. But the current situation of major suppliers is even more challenging than it seems at first sight. In most of the industries it has proven to be impossible to defend a huge market share of a highly profitable market in the long run. On the majority of their home markets major corporations experience that strategies and organizational structures that once worked for serving clients on a local level are no longer efficient when there are 50 or 100 local companies competing against each other (Thoma & Senn, 2007). As a reaction the major suppliers started shifting resources from regional and national operations to global account management (Homburg & Pflesser, 2000), lever-
aging resources across countries, standardising products, services and processes and purchasing on a global scale (Hennessey & Jeannet, 2003). They changed their “touching point” approach on key customers and replaced the traditional salesperson by specialized selling teams coordinated by technology and communications and targeting specialized market(s) (McNeill, 2005). It has always been a challenging task for suppliers to maintain a business relationship with a major customer across an entire country. Only major suppliers can cope with the challenges of a nationwide acting customer. The ability to build and sustain a professional business relationship with customers spread across the world is what separates the good from the great. Tomorrow’s global suppliers are expected to deal with this particular challenge in a highly effective and professional way. The most efficient way to handle these issues in the long run seems to be a successful implementation of global account management (GAM). GAM programmes represent a shift in the mentality of the major international suppliers towards a more customer centric approach. Therefore they are based on a change of the relation with the customer. At the same time, the challenges faced by the customer have also significantly changed his expectations. Suppliers are suddenly confronted with a new type of customers with “unfamiliar” expectations. The following figure shows the difference between old- and the new-fashioned buyers (customers). GAM programmes are suited for almost any international strategic business partnership. However GAM programs are developed on top of existing national sales organizations, and always create higher costs. The prime candidates for GAM implementation are businesses that have comfortable profit margins, global consistent/ compatible products/services that meet complex specifications across borders. Computers, process controls and global fuelling contracts or valueadded commodities such as specialty chemicals,
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Figure 1. Old and new buyers and their view on the supply chain (adapted from Cheverton, 2006)
food ingredients and corporate banking are typical GAM products and services (Yip & Bink, 2007a). The development of these customer oriented programmes is regarded as the “new frontier in relationship marketing” (Yip & Madsen, 1996). A recent study placed it among “11 most interesting recent (from 1987 to 2000) innovations” (Birkinshaw & Mol, 2006; Yip & Bink, 2007a). Due to their complexity and high costs, only few companies have gathered sufficient experience with their implementation and even fewer have been successful. Hewlett Packard, Xerox and IBM are considered to be the pioneers of GAM although Citi Group initiated programmes similar to GAM more than twenty five years ago (Yip & Bink, 2007a). Implementing GAM programmes has been a highly challenging procedure for the pioneers because they often faced issues no one had ever dealt with before. Costs for GAM programmes came on top of all the other expenses and there was no guarantee for long term success. In addition “mistakes” proved to be extremely costly and it took a long time until the efforts paid off. The main challenge for any company that wants to implement GAM is that there are basically few rules that apply for everyone, but a lot of tough
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decisions to be made in order to reach the main goal: strategic partnership with the customer. Each major decision may have a decisive effect on the success or failure of the entire GAM programme. Planning this kind of customer approach with care is the first step to success. Despite the importance of GAM and the research efforts of the last decade, “GAM research remains in its infancy” (Thoma et al., 2006) and the results from practice are mixed (Shi et al., 2004).
The Difference Between Global Account Management and Key Account Selling In the majority of the international supplying companies, the sales team initiates key and global account programs. The main reason is that sales managers often see an opportunity of generating more revenue by focusing their efforts on the larger, international accounts. The common practice of rewarding sales teams with significant bonuses related to their revenue is one of the main reasons for their proactivity in this field. Gosselin and Bauwen identified a source of confusion between local and global account management. It relates to the impact of geography on organisational requirements. Their findings
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indicate that account management, whether implemented from a sales- or relationship-marketing perspective, significantly change when the customer’s geographic scope changes. Geographical dimensions drive complexity within companies as well as between them in the buyer/seller relationship (Gosselin & Bauwen, 2006). The role of GAM is to master a complex coordination process between multiple legal companies, product lines, services and/or system needs, in multiple geographic areas. However confusion about account management organisations often abounds when local/regional suppliers, dealing with local/regional customers, talk about account management with international/global suppliers, dealing with international/global customers (Gosselin & Bauwen, 2006). A reduction of the confusion can only be based on identifying levels of complexity in terms of: geographical scope, number of legal entities served, range of products, services or systems offered, technology used and possibility of adding (substantial) value into the customer’s value chain. The benefits of a strong GAM program can be huge (Thoma & Senn, 2007). Their successful implementation can offer a major competitive advantage and significantly increase the profitability of a multinational supplier (Yip & Bink, 2007a).
Account management was initially a consequence of a defensive sales approach of the suppliers. In many companies it still remains a practical application of either a sales management or relationship marketing approach (Gosselin & Bauwen, 2006). The following figure illustrates the driving forces and the critical success factors of account management. Recent research on driving factors of GAM implementation identifies major four categories: (1) customer driven developments on the global markets, (2) financial drivers, (3) market drivers and (4) technology drivers (Yip & Bink, 2007b). The following figure summarises the findings: Before planning the implementation of a GAM programme, a profound assessment of the major drivers that will have an impact on its performance is a critical success factor. Figure 4 illustrates the progression of a successful B2B relationship. The main goal of the development process is to enable an effective transition between the Early-GAM stage (where GAM generates little/ no return) and the Partnership-GAM stage. The award winning case-study Marriott International – Siemens (Appendix 1) illustrates a fast and lucrative development of a strategic partnership between two multinationals.
Figure 2. National/Key account versus global account needs (adapted from Hennessey and Jeannet, 2003)
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Figure 3. Driving forces of increased importance of account management (Adapted from Gosselin and Bauwen, 2006)
Developing a Successful Multilevel Customer Relationship The ultimate goal of GAM programs is to link two organisations together effectively on a global scale and with a long term perspective. Multilevel relationships increase the acceptance of GAM programmes and facilitate their integration with the organisations as well as their chances of success. The GAM development process is supposed to enable an effective transition between the Early-GAM stage (where GAM generates little/ no return) and the Partnership-GAM stage. Figure 2 illustrates the transition process: Strategic partners should operate at more than one level in the suppliers (or customer’s) organisation. It might even be an alternative of offering
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them a seat in the board of directors. But interaction at top management levels is not sufficient. Relationships between the GAM support team are equally important. Long termed strategic plans are worthless if an organization cannot deliver on them. Agreements with the customer that are not followed through and not communicated, can cause serious damage to the strategic relationship and endanger the entire GAM programme. According to Cheverton there are three categories of touch points, each with its own requirements and challenges for the global account team in charge (Cheverton, 2006): 1. Those that are a part of the influencing strategy; based on personal contacts. They require a dynamic approach to management.
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Figure 4. GAM Drivers (adapted from Yip & Bink, 2007b)
Figure 5. Global Account relational development model (Hollensen, 2007, p. 652 – Adapted from Wilson & Millman, 2003 and McDonald et al., 1997)
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Figure 6. Transition from “Bow-tie” to “Diamond” stage (Source: Hollensen, 2007, p. 653)
2. Those that form the service provision strategy, concerning regular interactions of day-to-day business with systems, processes and people. They require a management approach that focuses on stability and consistency. 3. Those invisible interactions that can not be influenced by the GAM management and require a much more subtle approach. The main concern is here to communicate to the customer what has been done.
ORGANIZATIONAL PERSPECTIVES OF GAM From an organisational point of view, we suggest the following three GAM coordination models:
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Central HQ-HQ Negotiation Model This model shows a situation where the product is standardized. The customer HQ will collect the demands from the different subsidiaries around the world. Thereafter the customer will meet with the supplier and the HQ-to-HQ negotiations will take place. In this situation the customer will typically exercise significant buying power, because the supplier will not have any international organization that can offset this buying power. For the supplier, a standardized (high) quality is the condition for being invited to the discussions with the customer HQ. Subsequently, the discussion will quickly come down to a question of the ‘right’ price. The supplier will always be under pressure to lower the price and cut costs of producing the product package (including services).
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Figure 7. The Organizational set-up in GAM (Source: Hollensen, 2007, p. 656)
IKEA, achieved through its 200 IKEA shops around the world), is an example of a customer that puts its furniture suppliers under constant pressure to reduce their prices and make their production more efficient, in order to reduce costs. Recently IKEA planned to reduce its distribution warehouse costs by 10 per cent per year. In order to achieve this goal IKEA runs weekly batch global-demand forecasts for each of its three major regions: North America, Asia and EMEA (Europe, Middle East and Africa). The fulfilment solution will balance demand forecasts with inventory levels and replenish accordingly through IKEA’s ordering system. Orders may be sent to IKEA’s suppliers weekly or daily, depending on how active they are with the retailer. IKEA suppliers are pressurized to deliver furniture to IKEA more frequently and more directly to its stores around the world. If a European subsupplier of furniture wants to be a global supplier to IKEA it must now consider establishing production and assembling factories in the other two main regions of the world: North America and Asia.
Balanced Negotiation Model In this situation the central HQ to HQ negotiation is supplemented with some decentralized and local negotiations on a country basis. Typically this will take place in the form of negotiations between the local subsidiaries of the customers and the different partners (e.g. agents) or subsidiaries of the supplier. The HQ to HQ negotiations will set the possible range of outcomes for the following negotiations on a local basis. This will allow for some degree of price differentiation across the involved countries, dependent on the degree of necessary product adaptation to local conditions. The Sauer-Danfoss (Appendix 2) is an example of a subsupplier working to this model.
Decentralized Local-Local Negotiation Model According to this model the negotiations will only take place on a local basis, partly because the supplier is often selling system solutions, which require a high degree of adaptation to the different markets (countries). This means that the HQs are disconnected from the negotiation processes. A consolidation process in the customer’s industry
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may cause this outcome. If the customer has been involved in several M&As, it will have difficulties in understanding the overall picture of the decision structures in the new merged multinational company. In such a situation the customer will tend to decentralize even important decisions to the country subsidiaries, because it has lost its overview of the whole multinational company. It can be really difficult to control and coordinate decision processes in recently merged companies. For that reason top managers will often refer the buying decisions to local decision makers in local country subsidiaries. This will give the supplier better opportunities for sub-optimization by negotiating only locally with a customer’s country-based organizations. By using this approach the supplier may be in a better relative negotiation position and may also achieve better (higher) prices in some markets by using this model. However, the supplier may have higher costs connected to fulfilling the different requirements of the customer’s local subsidiaries. Also this model requires that the supplier has an established network of subsidiaries or partners (e.g. agents) who are familiar with the product solutions of the supplier and who can offer local adapted product solutions for the customer’s subsidiaries in the different countries
Creating Companywide and Worldwide Relationships In order to facilitate multilevel companywide and worldwide interaction with global customers, we conclude that companies face three major challenges: 1. Recruiting the global account manager, 2. recruiting and empowering the global account team, 3. implementation an effective supporting infrastructure.
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Additionally three pitfalls have to be avoided: 4. turf wars, 5. top management short-termism 6. rewards and incentive issues.
RECRUITING THE GLOBAL ACCOUNT MANAGER It might be surprising that the most common mistake done by companies who plan to introduce GAM programmes is directly associated to the challenge they are most aware of. Recruiting the global account manager is one of the vital decisions of any supplier. The most common mistake is picking the “super-salesmen” (Thoma & Senn, 2007). The majority of the global account managers are recruited from the sales organization “from positions like regional sales manager, or national sales manager in small countries. But this approach is misguided, because a global account is very different from a portfolio of regional or national accounts” (Birkinshaw et al., 2001). Any designated global account manager with a sales background has to acquire a complete new set of skills in order to cope with the internal coordination of the programme, a long term oriented and highly challenging task. The alternative could be appointing executives with senior line-management experience as global account managers. These individuals have most of the required skills and the ability of giving the global account program its much-needed visibility (Birkinshaw et al., 2001). But how can multinational supplier identify the employees that have the potential of developing the business relationship with a global customer to the next level? The first goal is to identify the different roles of a global account manager. Wilson identified the following roles: boundary-spanning coordinator,
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entrepreneurial strategist, team leader/manager, politician, information broker, relationship facilitator/builder and negotiator (Wilson 1999b). It is difficult to assess the criteria of each multinational corporation without interviewing their top management in charge of the programmes. However even then it might be hard to generalize the findings. The Strategic Account Management Association (SAMA) and the Sales Research Trust (SRT) conducted an international survey of more than 200 companies to gain a better understanding of GAM processes and systems. They identified ten competencies of global account managers (in descending order of importance) that are also similar to the GAM competencies reported by PDI Incorporated, Praxair and DHL (Hennessey & Jeannet, 2003; Wilson et al., 2000): • • • • • • • • • •
Communication skills. Global team leadership and management skills. Business and financial acumen. Relationship management skills. Strategic vision and planning capabilities. Problem -solving capabilities. Cultural empathy. Selling skills, both internal and external. Industry and market knowledge of the company and the customer. Product/service knowledge.
Any company that underestimates this major challenge will have major problems implementing GAM successfully. But finding and empowering one or two candidates for the position of a global account manager isn’t enough. Global account managers are usually recruited internally, so multinational suppliers have to train and develop the skills and competencies of the future generation of (global) account managers simultaneously with the implementation of the GAM program. This is one of the major success factors of GAM.
THE GAM TEAM A strong support network is very important for a long term project like GAM. The management of a GAM programme is a highly challenging task in different countries. A successful team needs mentors head office, information systems and communication materials to broadcast activities and regular meetings with each other. GAM research suggests that the strength of the internal support system is the single best predictor of a successful global account (Sherman et al., 2003). GAM programmes include a major set of support activities like marketing and customer relations, corporate network management, special project support and internal network building. These are services that are far too expensive to spread all over the world, so that is why a central office is needed. It would be wise to locate the global account manager at this office because the team activities provide the visibility and political legitimacy that the he/she needs, to get the work done (Sherman et al., 2003).Based on their research findings, Sherman et al. have four recommendations for companies, in order to make sure that their company creates human-resources support for them. 1. Select and develop account managers based on a validated set of account manager competencies. 2. Assign account managers based on the number of account relationships to be managed rather than on the number of accounts. 3. Develop a repeatable yet flexible sales process for your account managers. 4. Create account manager compensation programs that drive long-term strategic relationship building by striking a balance between salary (75 to 85 percent) and incentive-bonus plans (15 to 25 percent) that reward the account manager for achieving strategic, relationship, and revenue goals.
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The GAM team is fully responsible for the successful development and implementation of the long-term oriented global account strategy. It has to cooperate efficiently, understand the customer’s industry, monitor global logistics and develop a strategy that makes the customer more successful. The GAM team is a group of strategic, tactical and operational advisors that are responsible for their decisions and focus their entire energy on maximizing the value delivered to the customer. This value is delivered on a global basis, but it is based on fulfilling the local market needs of the multinational customer. In order to cope with this challenge, GAM teams need to be led by outstanding global account managers and consist of the right team members. Senior management support and commitment are vital in order to activate the full potential of GAM. The interpersonal, inter-organizational and intercultural skills of a company can either contribute to or block the process (Hennessey & Jeannet, 2003)
Implementing Effective Supporting Infrastructure The goal of this challenge is to design GAMprogrammes that become part of the regular company processes. There are two important approaches to this issue: (1) the human resource approach (getting the right people in the right positions) (Harvey et al., 2003b; Birkinshaw et al., 2001) and (2) the system oriented information and processes approach (Senn & Arnold, 1999; Shi et al., 2004, 2005). However none of these research papers have dealt profoundly with the interdependence between both approaches, using different methodologies and techniques to identify design dimensions, processes and outcomes. A recent dissertation (Atanasova, 2007) addresses this research gap and analyses all relevant elements and influence factors linking them to their outcomes. GAM programmes are highly dependent on the different people and personalities in the support
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network. A member of the support team is not necessarily ranked lower in the company’s hierarchy. Headquarter support can only be granted be a board member and will insure the acceptance of GAM among the top management. In critical situations it might even enable effective and reactions, solving some issues in a non-bureaucratic way. It is important to keep in mind that a successful GAM programme demands both operational and executive support. The operational supporting network has to “provide a professional and global service to the consumer” (Yip & Bink, 2007a). In case that a company has more than one major GAM programme, a solution could be allocating central marketing resources to all Global Account managers (Yip & Bink, 2007b). In addition, placing expert teams in relevant geographical locations (e.g. SAP specialists in North America, Europe and Asia Pacific) and granting the GAM teams access to them can accordingly increase the effectively of a GAM programme. Executive support can be grounded by linking a senior executive to a Global Account. Occasional meetings with the customer’s senior executives will help deepen the business relationship with personal multilevel interconnections. These meeting can also reinforce the strategic aspect of the business relationship and enable additional efforts to reach common goals (Yip & Bink, 2007a).
Avoiding Turf Wars (Global vs. Local Sales Teams) The GAM programme is a strategic instrument that develops a complex structure on top of an existing sales organisation. Getting the necessary support form all the levels of the organisation is a major challenge. GAM is an organization-wide initiative that requires shifts of power, responsibilities and resources from the local to the global level or from individual countries to GAM units that
Global Account Management (GAM)
span boundaries (Homburg et al., 2000). Managers at various levels are confronted with trade-off decisions between local business units and global accounts. There is a major risk of conflicts between global and local sales teams while integrating the global and local sales organisations. The GAM programme is in most of the cases imposed by the top management and “country-level organisations may start defending their turf, afraid they will start loosing power to the GAM program” (Krenzel, 2008). This issue occurs especially in situations where the top management fails to develop and communicate a mutual vision with common future objectives for both local and global sales teams. A question that is very common in this context is: “Who owns the customer?” The local sales team will typically claim that they served and developed the customer for a long period of time and that they know the customer’s decision making processes best. On the other hand, the global initiative has strong top management support and their goal is to develop a strategic partnership that goes beyond sales. The solution to this dilemma is surprisingly simple: The customer belongs to the supplier and it is the management’s duty to decide the next step. The know-how of local saes teams is vital for the success of the GAM programme, especially if best-practice examples from certain markets are used as showcases for new market entries (internal benchlearning). A closely associated issue is the compensation and incentive structure. Sales employees often have a significant bonus share in their monthly wages. Recent research on GAM compensation states that no company has found a solution other than multiple rewards. Therefore Arnold et al. suggest that even if the decisions are split between global and local units, the incentive structure must be replicated at both levels as if it were a purely local responsibility (Arnold et al., 2001). However this expensive solution is tolerable only if the GAM approach is successful and the long-term strategy is the right one.
TOP MANAGEMENT SHORT-TERMISM One of the major success factors of GAM programs is obtaining chief executive support (Arnold et al., 2001; Homburg et al., 2002). Millman and Wilson state that GAM is a key strategic initiative and should therefore be overseen by senior management (Millman & Wilson, 1999). By making an unequivocal commitment to the long-term benefits of GAM, top management emphasizes global firm success as opposed to national or market-based measures. This helps managers make a trade-off and creates a global organizational mindset oriented toward the complexities of global strategy, structures and processes (Atanasova, 2007). Srivastava et al. state that marketing can only be institutionalized in organizations if it is infused in the actions of the managers who influence the work process (Srivastava et al, 1999). The most important form of top management support for GAM programmes is resource allocation and public recognition. This is vital for “overcoming potential resistance or power struggles and legitimizing the efforts of the team as a strategic undertaker” (Harvey et al., 2003b). This can affect the ability of the GAM team to act proactively while implementing the programme and team members will possibly ascribe lower importance and significance to their contributions (Atanasova, 2007). For example, when 3M began implementing action teams, senior management sponsors were crucial to their success. Empirical studies on GAM effectiveness (Workman et al., 2003) state that top management has a major influence on the motivation and the success of a GAM team. Senior managers are also of major importance to GAM programmes when they are involved in developing the relationship with the customer. A replicable and systematic approach of senior executives to the customer is a sales and profitability growth factor (Senn, 2006). Companies often implement executive sponsorship and/or top-
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to-top relationship programs that include regular management meetings in order to discuss business opportunities and set strategies (Atanasova, 2007). The lack of sustainable top management support has a significant negative effect on the GAM implantation process. It hinders internal and external collaboration, ignites turf wars and enforces sends out inconsistent signals to the customer. The best way to secure top management support is to quantify the value received from and deliver to the global account. Sherman et al. have developed the following road map of value quantification and communication for global account managers (Sherman et al., 2003): 1. Go through the lifetime global account exercise. 2. Assess the value you deliver to this account, its replacement costs and what investments you need to make in this relationship. 3. Question your profitability data and meet with the departments that have cost data in order to develop a profitability model. 4. Calculate the cost of your processes and focus on 20 percent of the processes that generate 80 percent of its costs. 5. Develop tool that quantify the value delivered to the customer. Isolate the value of products from the value of services you deliver. 6. If you have industry or customer-performance data, compare the costs of your business. You might be able to develop activities-based cost saving programmes. 7. Develop a normative performance database with your clients and determine where their costs are too high. 8. If the value is very difficult to quantify, work with your global account team on this issue. They will usually help you define that value. The top management should keep in mind that it makes little sense to start a GAM implementation process and remove resources when it gets “tough”. The resources and the long term
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commitment needed for GAM should not be underestimated.
Rewards and Incentives Structures Many top managers have serious difficulties in moving beyond revenue and profitability selection criteria. But GAM implementation is a long term oriented project. The incentives for the GAM team should not be based in the beginning on the revenue. Gosselin and Heene (2005) argue that remuneration and measurement have a major influence on the account manager’s behaviour. He has the choice between a long-term, relational perspective and a pure sales approach with a short-term, transaction orientation (Gosselin & Heene, 2005). A reward system for GAM employees should be based on individual contributions that have positive long term effect on the supplier-customer relation. If this system is well implemented, it has the potential to amplify the motivational incentives provided by top management commitment and well-designed goals and responsibilities (Atanasova, 2007). Appropriate GAM incentives involve a compensation package with a significant bonus contingent on certain long termed GAM-related objectives. According to Atanasova the size of this bonus varies considerably across industries and companies (from 20–30% of total compensation in companies such as Coca-Cola and HBC to 4–5 times the fixed salary in banking GAM teams at Citigroup). “It remains a strong determinant of willingness to communicate and collaborate on issues related to the global account, as well as of the level of conflict and proactiveness of the team” (Atanasova, 2007).
MANAGEMENT IMPLICATIONS A. Approaching key customers with a strategic business offering instead of a sales initiative
Global Account Management (GAM)
An international supplier that tries to implement GAM programmes purely as a sales initiative, maximizes the chances that only sales department will control the account. The sales team will in this case spend half of its time marketing internally functions that do not meet the needs of global accounts. Cross-functional executives need to reform the entire organization, so that solely the GAM programme is in charge of the global account. Bundling responsibility for this important B2B relationship is a fast way to optimal performance. B. Creating companywide commitment to meet (and exceed) the global client’s needs and expectations Communicating the importance and the role of the GAM programme to the entire organization is critical. Employees have to be informed how they can best serve key customers and support the GAM team. Unless all departments and all employees are committed to supporting the strategic accounts’ needs and expectations, account management will always be one customer phone call away from disappointment”(Sherman et al., 2003). If a company lacks temporary GAM-implementation commitment the management will find it very difficult to (re)gain the momentum needed to shift from an internal focus to a business strategy. C. Addressing GAM Human Resource issues in due time A multinational supplier has to solve four top management-human resource issues while developing a customer management program: (1) finding appropriate account managers, (2) Developing additional account managers, (3) assigning the account managers and (4) rewarding the account managers appropriately. These actions have to take place simultaneously in order to sustain the GAM implementation effort over a longer period.
D. Quantifying and communicating the value received from and delivered to global accounts Successful GAM programmes require solid returns on investments. The executive sponsors of the program should determine the customer’s long-term relationship asset value and its replacement cost. Additionally they should quantify the value delivered to customers. The continuous quantification and communication of value is the best way how to justify relationship investments internally and the premium price externally (Sherman et al., 2003). E. Creating relationships at multiple levels between the supplier and its global accounts Global account managers should develop and maintain strong relationships with the tactical customer employees (e.g. technicians and purchasing people). Furthermore a global account manager should fulfil these additional tasks: (1) developing deep and multilevel relationships within the account—from executives down; (2) determining the global account’s various buyer influences and (3) identifying, within the supplier’s organisation people who could best help manage relationships within the global account (Sherman et al., 2003). The establishment of a multi-level relationship should be based on ongoing parallel linkages between supplier and customer. In an ideal situation, strategic partner organisations “mirror” each other from the global account management level to the local field support level (Arnold et al., 2001). In reality this is rarely the case and turf wars (local vs. global sales teams) arise. It is one of the most challenging tasks to address these issues. Although the GAM implementation is most likely to succeed as a top-down initiative, multiple level relationships between the two organisations are a key factor for their success. A GAM implementation process is a highly challenging endeavour. It implies courage and
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caution, analytical and organisational know-how, strategic and operational top management support and a lot more. Only GAM programmes that build on multilevel relationships between their own employees and the customer’s employees have the chance of reaching the complex and most rewarding Synergetic GAM stage.
REFERENCES Arnold, D., Birkinshaw, J., & Toulan, O. (2001). Can selling be globalized? The pitfalls of global account management. California Management Review, 44(1), 8–20. Arnold, M., & Senn, C. (1999). Managing global customers – benchmarks from an international research project. Thexis, 4, 36–40. Atanasova, Y. (2007). High-Performance Global Account Management Teams: Design Dimensions, Processes and Outcomes. Dissertation of the University of St. Gallen, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG), Gutenberg AG, Schaan.
Gosselin, D., & Heene, A. (2005). Strategic implications of a competence-based management approach to account management. In R. Sanchez & J. Freiling (Eds.), Research in Competence-Based Management (Vol. 1) (pp. 177–200). A Focused Issue on The Marketing Process in Organizational Competence, Oxford, UK: Elsevier Science. Harvey, M., Novicevic, M., Hench, T., & Myers, M. (2003). Global Account Management: a supply-side managerial view. Industrial Marketing Management, 32, 563–571. doi:10.1016/S00198501(02)00280-8 Hennessey, D., & Jeannet, J. (2003), Global account management - creating value. Wiley & Sons. Hollensen, S. (2007). Global Marketing (4th ed.). Financial Times. Prentice Hall, Pearson Homburg, C., & Pflesser, C. (2000, November). A multiple layer model of market-oriented organizational culture: measurement issues and performance outcomes. JMR, Journal of Marketing Research, 37, 449–463. doi:10.1509/ jmkr.37.4.449.18786
Birkinshaw, J., Arnold, D., & Toulan, O. (2001). Global account management in multinational corporations: Theory and evidence. Journal of International Business Studies, 32(2), 231–248. doi:10.1057/palgrave.jibs.8490950
Homburg, C., Workman, J., & Jensen, O. (2000). Fundamental changes in the marketing organization: The movement toward a customer-focused organizational structure. Journal of the Academy of Marketing Science, 28(4), 459–478. doi:10.1177/0092070300284001
Biskinshaw, J., & Mol, M. (2006). How management innovations happen. MIT Sloan Management Review, 47(4), 80–88.
Krentzel, G. (2008). Obstacles and trap avoidance for successful global account management. Velocity, 10(1), 16–18.
Cheverton, P. (2006), Global Account Management – A complete action kit of tools and techniques for managing big customers in a shrinking world. Kogan Page.
McNeill, R. (2005). Go-to-Market Frontier: Global Account Management (GAM). Journal of Global Business and Technology, 1(1), 12–31.
Gosselin, D., & Bauwen, G. (2006). Strategic account management: customer value creation. Journal of Business and Industrial Marketing, 21(6), 376–385. doi:10.1108/08858620610690137
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Millman, T., & Wilson, K. (1995). From key account selling to key account management. Journal of Marketing Practice: Applied Marketing Science, 1, 9–21. doi:10.1108/EUM0000000003877
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Millman, T., & Wilson, K. (1999). Processual issues in key account management: Underpinning the customer-facing organization. Journal of Business and Industrial Marketing, 14(4), 328–337. doi:10.1108/08858629910279916 Parvatiyar, A., & Gruen, T. (2002). Global Account Management Effectiveness: A Contingency Model.unpublished research paper. Senn, C. (2006). The executive growth factor: How Siemens invigorated its customer Relationships. The Journal of Business Strategy, 27(1), 27–34. doi:10.1108/02756660610640155 Senn, C., & Thoma, A. (2007). Global Business: World wise - Attracting and managing customers isn’t the same when business goes global. Companies must be ready to adjust. The Wall Street Journal (Online), (pp. 1-7). Sherman, S., Sperry, J., & Reese, S. (2003). The Seven Keys to Managing Strategic Accounts. McGraw-Hill. Shi, L., Zou, S., & Cavusgil, S. (2004). A conceptual framework of global account management capabilities and firm performance. International Business Review, 13(5), 539–553. doi:10.1016/j. ibusrev.2004.06.001 Shi, L., Zou, S., White, C., McNally, R., & Tamer, S. (2005). Executive insights: Global Account Management Capability: Insights from Leading Suppliers. Journal of International Marketing, 13(2), 93–113. doi:10.1509/jimk.13.2.93.64858
Srivastava, R., Shervani, T., & Fahey, L. (1999). Marketing, business processes, and shareholder value: an organizationally embedded view of marketing activities and the discipline of marketing. Journal of Marketing, 63, 168–179. doi:10.2307/1252110 Thoma, A., Atanasova, Y., & Senn, C. (2006). Unleashing inter-organizational capabilities in global supplier-buyer relationships for competitive advantage. Competitive paper for the Annual Meeting of the Academy of International Business, Beijing. Wilson, K., & Millman, T. (2003). The global account manager as political entrepreneur. Industrial Marketing Management, 32, 151–158. doi:10.1016/S0019-8501(02)00229-8 Workman, J., Homburg, C., & Jensen, O. (2003). Interorganizational determinants of key account management effectiveness. Journal of the Academy of Marketing Science, 31(1), 3–21. doi:10.1177/0092070302238599 Yip, G., & Bink, A. (2007a). Managing Global Customers: An Integrated Approach. Oxford University Press, USA. Yip, G., & Bink, A. (2007b). Managing Global Accounts. Harvard Business Review, 9, 102–111. Yip, G., & Madsen, T. (1996). Global account management: The new frontier in relationship marketing. International Marketing Review, 13(3), 24–42. doi:10.1108/02651339610122982
Sperry, J. (2002). 2002 SAMA Performance Winner: Marriott international and Siemens. Focus Europe (A supplement of Velocity, the magazine of The Strategic Account Association), 2(3), 1-4
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APPENDIX A Case Study: Marriott International and Siemens (Sperry, 2002). The Strategic Account Management Association (SAMA), a unique international association, is the GAM knowledge leader and provides researchers and practitioners with high quality resources, training and networking opportunities. SAMA awarded in cooperation with S4 Consulting and the Account Management Center (AMC) the “SAMA Performance Award for Best Practices” in 2001 and 2002 to companies who showed great commitment in implementing GAM programmes with their major customers. Marriott International was the award winner in 2002 (Sperry, 2002). Their GAM programmes together with Siemens, Deloitte & Touché and Accenture indicate the huge potential of GAM for both suppliers and customers.
Background Marriott International is a leading worldwide premium class hotel chain based in Washington, DC with more than 2800 operating units in 66 counties and territories. It employs 143,000 people and its total sales in 2005 amounted to US$11.6b, of which 10% was generated by its 32 global accounts from various industries. The company operates and franchises hotels, develops and operates vacation ownership resorts, provides furnished corporate housing and operates conference centres (Marder, 2003). Marriott International initiates in 1997 an Alliance Account Program (a global account coordination centre). It focuses on accounts with more than $25 million in actual or potential lodging spent per year for Marriott. The main goal is to identify and cooperate with customers whose culture aligns with that of Marriott. Although they didn’t invent the GAM approach to selling, Marriott was the first hospitality firm to reengineer sales force models operating in other industries (benchlearning) and introduce a GAM strategy. The Alliance Account Program involves 14 Global Account Directors and more than 400 people in account management or global sales positions (McNeill, 2005). The long-term plan is to use its strong global brands, unified global and local sales teams, valueadded products and services and cross-functional support. In 2002 the Alliance Account Program was in charge 31 customers worth $800 million.
Marriott International: Siemens (2002) Siemens is a $75 billion electrical engineering and electronics firm. It is based in Munich and has a presence in 190 countries. It has 250.000 travellers a year, about 120.000 of whom are based in Germany. In 1997 Siemens takes the first step in centralizing travel management. They purchase fleet services and establish a business unit called Corporate Mobility Service (CMS). The company also maintains its country travel groups which are independent of CMS. In 1998 Iris Riemann, an experienced Marriott manager, is named alliance account director for Siemens. She offers Siemens centralized pricing and builds a German account team to support the German Siemens travel management and meeting planners. She also contacts the Siemens UK, US and Asian travel departments and appoints account teams to these markets. These teams include Alliance Account members (top management) and all the experts needed from Marriott International.
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After several meetings on the top management level, Marriott introduces electronically bookable room allocations through Siemens’ intranet and started supporting Siemens travel management departments in order to increase the acceptance of online booking. As a result Marriott becomes Siemens’ Corporate Travel Management’s “favourite hotel supplier”.
Elevating the Marriott-Siemens Relationship In 1999 Siemens Senior Vice President Karl Kilburg accepts the role as the Marriott Focused Executive (comparable to an advising global account manager with full back-up from the top management). Because Siemens is a solution vendor as well as a supplier to the hospitality industry, it became interested in Marriott as a customer. In 2000 Marriott was highly interested in installing high-speed internet its European hotels. An American company called Suite Technology Systems Network (STSN) (30% owned by Marriott) had successfully fulfilled the task in North America, but they lack a strong European presence in order to provide the same installations in Europe. After several top management meetings it becomes clear that STSN is a perfect vehicle for a joint venture with Siemens. So in May 2001 Siemens invests $15 million in STSN and buys 10% of the company. Both Siemens and Marriott executives serve on the STSN board. Siemens and STSN installs high-speed internet in all Marriott hotels in Europe. The savings for Siemens travellers resulting from using the new technology (there was an extra charge for using internet at Marriott’s) were $10 per day, which translates to about $12 million saving per year solely for German-based travellers.
The Valued Delivered to Siemens As a result of the lucrative cooperation between the two companies, Siemens reduces the average costs per traveller by $8 between 2000 and 2001. With about 220.000 room nights per year, the total annual savings were $2 millions. Using the STSN installations, Marriott is able to offer Siemens complete new packages of services targeted specially at Siemens’ travellers’ needs. The value of the joint venture with STSN is difficult to quantify, but it may provide the greatest value of all.
The Value Delivered to Marriott International The number of preferred hotels in the Siemens directory jumped from 52 (1998) to 204 (2000). The number of sold rooms to Siemens increased from 100.000 to 180.000 in the same period. The cooperation with Siemens was worth $7 million in 1998 and more than $17 million in 2001. Additionally the long-term competitive advantage of the new communications infrastructure for business travellers might prove invaluable for Marriott International.
Benchlearning from the Marriott International-Siemens Case Study Marriott International and Siemens had been business partners for a long period. The management was familiar with the decision making process of the business partner. The GAM programme was initiated proactively by Marriott. Their first step was implementing effective supporting infrastructure by found-
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ing the Alliance Account Program in 1997. As a result, the GAM initiators controlled enough supporting personnel in order to assess the global capabilities of Siemens (due diligence). Marriott recruited its global account manager in charge of Siemens with great care. Iris Reimann was already an experienced manager when she was assigned to elevate the business relationship with Siemens to the next level. Together with the GAM team she developed a tailor-made solution for Siemens in 1998. Marriott took Siemens’ attempt to centralize travel management into account and was well informed about the customer’s independent CMS business units. Additionally Marriott assessed the future importance of intranet booking correctly. So the strategic partnership proposition came up at the right time. As a result Marriott became Siemens’ Corporate Travel Management’s “favourite hotel supplier”. The follow-up deal with Suite Technology Systems Network (STSN) deal was the first result of the GAM approach. On the one hand, it granted Marriott International the first mover advantage as an early adaptor of the new technology and profits because the company owed 30% of STSN shares. On the other hand Siemens got access to key technologic know-how. This case-study shows the importance of a well timed and customer-oriented GAM approach. If it is carried out by proactive managers in cooperation with their hand-picked teams and excellent supporting infrastructure, success is no matter of chance.
Appendix B Case Study: Sauer Danfoss - Case New Holland Sauer-Danfoss is one of the world’s leading companies for the development, production and sale of hydraulic power transmission systems – primarily for use in mobile work vehicles. Sauer-Danfoss, with more than 9,500 employees worldwide and revenue of approximately USD 2.1 billion (2008), has Figure 8. The Sauer-Danfoss & CNH GAM (Source: Hollensen 2007, p. 658)
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sales, manufacturing, and engineering capabilities in Europe, the Americas and the Asia-Pacific region. Sauer-Danfoss’ key global customers (GAs) are John Deere, Case New Holland, Ingersoll-Rand, Agco and Caterpillar. One of Sauer-Danfoss’ main global accounts (OEM customers), Case New Holland (CNH) is the number one manufacturer of agricultural tractors and combines in the world and the third largest maker of construction equipment. Revenue in 2008 totalled $15 billion. Based in the United States, CNH’s network of dealers and distributors operates in over 160 countries. CNH agricultural products are sold under the Case IH, New Holland and Steyr brands. CNH construction equipment is sold under the Case, FiatAllis, Fiat Kobelco, Kobelco, New Holland and O&K brands. As a result of a merger in 1999 CNH is an example of consolidation on the OEM customer side. The consequence of this consolidation is that fewer than the ten largest OEM customers will represent more than half of Sauer-Danfoss’ potential sales over the medium to long term. There is no doubt that the price-down pressure will continue worldwide. The global business culture trend is leading towards a more professional buying process on the customer side. This development requires a new way of structuring the Sauer-Danfoss organization, and the answer is GAM. As illustrated in the figure, Sauer-Danfoss has met the requirements of CNH’s worldwide production units by forming local production locations and GAM team groups in India, China, Poland, North America, Italy, Brazil, Germany and the United Kingdom. In partnership with CNH the GAM teams try to find more cost-effective solutions, rather than simply reduce prices. Sauer-Danfoss is following CNH into low-cost manufacturing countries, such as India and China. At all of CNH’s worldwide production units there is pressure for a higher degree of outsourcing and a request for value added packages. Sauer-Danfoss tries to fulfil this requirement by supplying pre-assembled kit packages and delivering more system solutions to CNH. This work was previously published in International Journal of Customer Relationship Marketing and Management (IJCRMM), Volume 1, Issue 1, edited by Riyad Eid, pp. 28-47, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 6.17
An Overview of Executive Information Systems (EIS) Research in South Africa Udo Richard Averweg eThekwini Municipality and University of KwaZulu-Natal, South Africa
INTRODUCTION Executive information systems (EIS) are designed to serve the needs of executive users in strategic planning and decision-making. Sometimes the terms “executive information systems” and “executive support systems” are used interchangeably (Turban, McLean, & Wetherber, 1999). Definitions of EIS are varied but all identify the need DOI: 10.4018/978-1-60960-587-2.ch617
for information that support decisions about the organization. EIS can be defined as “a computerized system that provides executives with easy access to internal and external information that is relevant to their critical success factors” (Watson, Houdeshel, & Rainer, 1997). This article is organized as follows: The background to EIS implementation is given. EIS research studies undertaken in South Africa are then described. Some future EIS trends are then suggested.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
An Overview of Executive Information Systems (EIS) Research in South Africa
BACKGROUND TO EIS IMPLEMENTATION A number of possible indicators for a successful information system (IS) have been suggested in various implementation studies (see, for example, Laudon & Laudon,1998). The definition of implementation includes the concept of success or failure. Implementation is a vital step in ensuring the success of new systems. The EIS implementation process is defined as the process used to construct an EIS in an effective manner (Srivihok, 1998). Different factors have been suggested by various researchers as influencing successful EIS implementation (see, for example, Rainer & Watson, 1995). However, there is no agreement on which factors play key roles in EIS implementation. A large number of success factors have been repeatedly suggested by practitioners and researchers, even though empirical studies on the success factors are rare. EIS are high-risk application systems that are expensive to build and maintain (Strydom, 1994). For example, in October, 1997, the largest water utility in South Africa, Rand Water, took a decision to build an EIS (based on Oracle® products) and invested ZAR4.5m in revamping its IT infrastructure to support that deployment. In the case of Rand Water, the organization’s EIS eventually played a major role in providing its executives with benchmarking information helping them track Rand Water’s overall performance against a set of objective criteria.
EIS RESEARCH UNDERTAKEN IN SOUTH AFRICA A review of previously conducted EIS research at universities in South Africa is undertaken. From this collection, the nature of EIS research for each study is discussed. South African databases were searched for research literature (essays, technical reports, thesis, dissertations, etc) with the key-
words “Executive Information Systems” in the title. Nine successful “hits” were found. Those research articles are reflected in chronological publication sequence in Table 1. The nature of each of the nine EIS studies in South Africa is now briefly discussed: •
Researcher No 1: Design and Implementation of Executive Information System (EIS): DeWitt (1992) discusses critical success factors (CSFs) for EIS development and states that the type of EIS for an organization will depend on the information requirements of the organization. It should be driven by the CSFs that are unique to a particular business. From previous studies, DeWitt (1992) identifies nine CSFs for an EIS (see Table 2) and notes that there “are differences of opinion in the literature regarding the selection of the right technology” as a CSF.
This study was undertaken with sixteen large Cape Town companies from various industry sectors. The findings from Watson’s international survey (Watson, Rainer, & Koh, 1991) were compared against the local (South Africa) survey findings. The findings indicate (1) congruences between the literature search and survey findings; (2) major conflicting results between the local survey, the international survey and literature search; and (3) major problems encountered in developing EIS. •
Researchers No 2: An Assessment of the Penetration of Executive Information Systems: Twemlow et al. (1992) carried out an exploratory study that showed the extent of EIS penetration in South Africa. The sample (61 companies) was selected from the 1992 Financial Mail survey (a reputable weekly financial publication) of “top” companies in South Africa. The research instrument was designed to evalu-
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An Overview of Executive Information Systems (EIS) Research in South Africa
Table 1. Research literature (essays, thesis or dissertations) with the keywords “executive information systems” No
Researcher(s)
Publication Date
Research title
Report Type
Qualification and Institution
1
DeWitt, P.
May 1992
Design and Implementation of Executive Information Systems (EISs)
Technical Report
B Com (Honours): University of Cape Town
2
Tw e m l o w, S . Hoffmann, U. and Erlank, S.
October 1992
An Assessment of the Penetration of Executive Information Systems in South Africa
Technical Report
B Com (Honours): University of Cape Town
3
Strydom, I.
April 1994
Executive Information Systems: A Fundamental Approach
Thesis
Doctor Commercii (Informatics): University of Pretoria
4
Steer, I.J.
January 1995
The Critical Success Factors for the Implementation of Executive Information Systems in the South African environment
Dissertation
M Com: University of Witwatersrand
5
Faure, S.
June 1995
The Impact of Executive Information Systems on the User
Essay
B Com (Honours): University of Cape Town
6
Chilwane, L.
November 1995
Critical Success Factors for the Management of Executive Information Systems in Manufacturing
Research report
M Com: University of Witwatersrand
7
Khan, S.J.
February 1996
The Benefits and Capabilities of Executive Information Systems
Research report
MBA: University of Witwatersrand
8
Baillache, S.
April 1997
The Experiences Gained by Users of Executive Information Systems
Dissertation
MBA: University of Witwatersrand
December 2002
Executive Information Systems Usage: The Impact of Web-based Technologies
Dissertation
M Science: University of Natal
9
Averweg, U. R. F.
ate EIS as a significant business trend, the extent of penetration of this trend in the organization and perceived impact on the business. From these researchers’ findings, the problems experienced by companies during the implementation and use of their EIS is reflected in Table 3. Table 2. DeWitt’s (1992) nine CSFs for an EIS A committed and informed executive sponsor An EIS driver A clear link to business objectives
Twemlow et al. (1992) suggest that even though studies have been performed to determine the Table 3. Problems with Implementation and Use of EIS (Source: Adapted from Twemlow et al., 1992) Concept An EIS needs a project champion An EIS must support the cross-functional integration of information An EIS has to link to the organisation’s business strategy An EIS should be implemented using a phased approach
Carefully defined system requirements
An EIS project champion should be a steering committee rather than one person
Ensure feasibility of data availability
Resistance from the information users must be managed
An active team approach to ensure spread to additional users
An EIS must have the capability to access external information
An evolutionary development approach
Resistance from the information providers must be managed
Quick response and user friendliness
The project champion should change during the project
Managing organisational resistance
An EIS must support “drill down” facilities
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nature of executive work and their information requirements, there is still uncertainty in this area. Twemlow et al. (1992) note that “it is not surprising” that the first two out of the top four problems associated with EIS implementation were concerned with the complex and changing executive information needs. •
•
Researcher No 3: Executive Information Systems: A Fundamental Approach: Strydom’s (1994) research investigated the problems concerning EIS “from a fundamental research perspective.” Based on the results of the research an augmented EIS was proposed and referred to as a computer supported executive system (CSES). Strydom (1994) discussed the role of training in successful implementation of IS and focuses on computer supported learning for EIS. Researcher No 4: Critical Success Factors for Executive Information Systems Implementation: Steer’s (1995) study used the findings of research undertaken by Harris (1993) and others. The basis of Steer’s research “was to identify the critical success factors for the successful implementation of an Executive Information System...... where an EIS had been implemented.” Seventeen wellestablished organizations in Gauteng (a province in South Africa) that have EIS experience were targeted and surveyed. The analysis of Steer’s findings indicate 21 major concepts that were raised by interviewed respondents in relation to the CSFs for implementing EIS. The top 10 CSFs (in descending order) that were identified in this study for the successful implementation of EIS are reflected in Table 4.
Steer indicates that although “the remaining 11 concepts of the 21 discussed during the research are not the most important critical success factors
Table 4. The top ten CSFs for the successful implementation of EIS (Source: Adapted from Steer, 1995) Concept An EIS needs a project champion An EIS must support the cross-functional integration of information An EIS has to link to the organisation’s business strategy An EIS should be implemented using a phased approach An EIS project champion should be a steering committee rather than one person Resistance from the information users must be managed An EIS must have the capability to access external information Resistance from the information providers must be managed The project champion should change during the project An EIS must support “drill down” facilities
of implementing an EIS, they are still important, and should therefore be considered when implementing an EIS.” Steer (1995) labels these CSFs as “secondary” CSFs for the successful implementation of EIS. These secondary CSFs are reflected in Table 5. •
•
Researcher No 5: The Impact of Executive Information System on the User: The focus of Faure’s (1995) research was to highlight “the key features of an EIS, the benefits that can be achieved from implementing an EIS and the development methodologies that can be adopted to achieve success in the implementation of an EIS.” Researcher No 6: Critical Success Factors for the Management of Executive Information Systems in Manufacturing: The aim of Chilwane’s (1995) research was “to identify those critical issues, which when managed properly, will ensure that the system remains providing and meeting the needs of the executives. Ten interviews were conducted from business organiza-
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Table 5. Secondary CSFs for the successful implementation of EIS (Source: Adapted from Steer, 1995) Concept An EIS should be made available to everyone An EIS must have “what if” and simulation facilities Resistance from IT people must be managed An EIS must support trend analysis The user must be able to interact with and manipulate the information An EIS must support exception reporting It must be possible to track actuals against plans An organisation must develop a formalized business strategy before it embarks on an EIS project An EIS must have a good graphical user interface An EIS should be for executives only An EIS must be able to access financial information
•
tions in order (sic) identify these factors.” Table 6 reflects the CSFs for managing an operating EIS “as seen by respondents who organizations have implemented EIS” (Chilwane, 1995). Chilwane (1995) states that ensuring “that these factors are monitored will contribute to sustaining the investment an organization has made in this technology.” Researcher No 7: The Benefits and Capabilities of Executive Information Systems: The objective of Khan’s (1996) research was to identify and evaluate the organizational benefits derived from EIS and to establish which of its capabilities contribute to the realization of the benefits. Khan (1996) notes that a major problem when implementing an EIS is determining the information requirements for the system (Watson & Frolick, 1993). For these researchers a major developmental problem is determining the information to include in the system.
Khan (1996) notes that practitioners find it difficult to get executives to specify what they want and to keep abreast of executives’ changing information desires and needs. Khan’s (1996) findings identify six major benefits of EIS and five major capabilities of EIS. •
Researcher No 8: Experiences Gained from Executive Information Systems: Baillache’s (1997) research investigated the experiences gained by South African users of EIS. The results are seen as important in identifying problem areas that negatively affected the evolution of EIS in South Africa. Some 30 companies participated in this survey. Four users from each company surveyed were requested to complete a questionnaire.
The findings indicate that (1) some important capabilities had been omitted in systems; (2) users expectations of benefits were far greater than benefits delivered; (3) key CSFs did not occur during the implementation of the project; and Table 6. CSFs for the management of an operating EIS (Source: Adapted from Chilwane. 1995) Executives or users should provide regular feedback on the EIS either formally or informally Continued alignment of EIS ensures that the system remains useful to the users Continued executive involvement ensures success of the system An EIS should be flexible to accommodate the dynamic business environment As EIS spreads new requirements should be reflected in the system ISD should provide somebody who knows the business to look after the users An EIS should help individual managers to monitor their individual CSFs EIS data should always be consistent with the operational data it summarizes There should be prompt attention to user queries and requirements An EIS should be portable that is loaded on a notebook and accessed offline
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Table 7. Summary of results of CSFs implemented CSFs supported by the research
CSFs Implemented Having an executive sponsor on the project System reliability was ensured Quality data The skills of the system designers
CSFs not supported by the research
Having an operating sponsor on the project Local representation of software companies for support
New CSFs which emerged from the research
There was a clear link between the EIS and business objectives Appropriate resources were used from the information systems function Appropriate technology was used Users specified their own information requirements The first deliverable by the ITD was information that was highly valuable The EIS contained information of much value to me The EIS was implemented as quickly as possible The hardware used was reliable Pilot sites were used in the implementation
(4) the growth of the system by new users was not strongly correlated to the CSFs. Baillache’s (1997) summary of results of CSFs implemented is reflected in Table 7. •
Researcher No 9: Executive Information Systems Usage: The Impact of Webbased Technologies: The objective of Averweg’s (2002) study was inter alia to identify and rank Web-based technologies in order of their perceived future impact on EIS.
Only 6.4 percent of organizations surveyed reported that it is unlikely that the intranet will impact future EIS implementations. Almost half of organizations surveyed reported that it is unlikely that e-commerce (business-to-consumer) will impact future EIS implementations. WAP and other mobile technologies have similar unlikely future impact levels. It is striking to note that 67.7 percent of respondents indicated that it is extremely unlikely that other technologies (such
as portal) will impact future EIS implementations. There was a positive impact level trend for all Web-based technologies on future EIS implementations. The largest trend increase was the Intranet rising from 32.2 percent to 87.1 percent. Averweg (2002) suggests that this “should occur as the use of Web-based technologies in the distribution of information becomes more widespread.”
DISCUSSION OF PREVIOUS EIS RESEARCH UNDERTAKEN IN SOUTH AFRICA From Table 1, four EIS researchers (Nos 1, 4, 6 and 8) dealt with CSFs for EIS implementation. A synopsis of the results and findings indicates that there is no consistent “shopping basket” of CSFs for EIS implementation for use by South African practitioners. Like other systems, EIS are constantly changing. Khan (1996) suggests an investigation into new technologies being employed in the IT area
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and “to what extent advances in technology have influenced... EIS.” Khan’s (1996) EIS research “identified the employment of new technologies as the most important future trend of EIS.” The EIS research undertaken by Averweg (2002) serves to fill that gap. The Web serves as the foundation for new kinds of IS (Laudon & Laudon, 1998). As the Web grows in direct usage by executives, existing EIS implementation models may need to be revisited. While there is no single listing of key variables for EIS success factors (Rainer & Watson, 1995), strong human factors are nevertheless associated with EIS research. These are influenced by cultural, political and other “soft” human factors. It is therefore neither possible nor valid to generalize experiences on other continents to South Africa’s conditions. This makes relevant local studies (in South Africa) of EIS implementation and usage.
•
•
FUTURE EIS TRENDS Information Technology (IT) is more than just computer systems and it is rapidly changing and developing, especially due to the Web, altering the way in which an IS is built. With the Internet, information is no longer a scarce resource. It has changed the way in which organizations are doing business and the way in which they compete. The environment for EIS is undergoing upheaval based on the emergence of Web-based technologies. The following trends for EIS implementation are envisaged: •
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Data warehouses store data that have been extracted from the various operational databases of an organization over some years. The intrinsic design of the Web resembles that of a data warehouse bringing access to data collected and provided by a host of users outside a specific organization. The immediacy of the Web is not seen as a factor for improved decision-making since EIS
•
•
•
are rarely used by executives in emergency or critical time-modes; With the increasing amount of IT investment and substantial evidence of failures (Remenyi & Lubbe, 1998), many managers and researchers feel that IS justification and evaluation has become a key management issue. It is contended that wise judgement is needed when deciding on the selective use of IT and feel that this is particularly relevant to EIS in South Africa; There will be a significant degree of EIS diffusion to lower organizational hierarchical levels and use by these lower levels. EIS in organizations will spread to managers at various levels such as functional areas and other levels of management (Singh et al., 2002). This will be in keeping with international trends where EIS are being diffused in organizations as EIS is becoming less strictly defined to support professional decision-makers throughout the organization; Web-based technologies have enabled EIS to become available to more management levels in the organization. The Web browser has become the common interface to end-user access. While applications can now be accessed by browsers, the capabilities long associated with decision support software are still found (Averweg & Erwin, 2000). Nowadays vendors of decision support software are making their products Web-enabled; Xu et al. (2003) suggest that the internal information orientation is the main reason for dissatisfaction with EIS. In order to overcome this dissatisfaction, it is felt that greater use will be made from data from external sources (for an organization’s CSFs); and Special care will be needed when implementing EIS because of its major potential importance to an organization’s perfor-
An Overview of Executive Information Systems (EIS) Research in South Africa
mance. Failure can lead to long delays in further attempts to use such technology effectively. This information is particularly useful for IT practitioners in the planning of future EIS implementations in South Africa. An understanding of Web-based technology taxonomies is important to EIS researchers and practitioners.
CONCLUSION Organizations must “start simple, grow fast” (McKenna Group, 1999) using technologies that will enable it to build on what it has, link to legacy systems, rather than throwing away what has been achieved and developed through each new enhancement iteration. EIS will be impacted by these change catalysts as EIS become integrated with Web-based technologies not specifically designed for EIS usage. EIS is going through a major change to take advantage of Web-based technologies in order to satisfy information needs of an increasing group of users (Averweg & Roldán, 2006). Web technologies are often not just a single technical solution, rather a host of an industry specific with inter-connective capabilities that pull together people, processes and technology infrastructure. EIS is being catalyzed through a major change as technical barriers disappear.
REFERENCES Averweg, U. R. (2002). Executive Information Systems Usage: The Impact of Web-based Technologies. Master of Science dissertation, Faculty of Science & Agriculture, University of Natal, Pietermaritzburg, South Africa.
Averweg, U. R., & Roldán, J. L. (2006). Executive information system implementation in organisations in South Africa and Spain: A comparative analysis. Computer Standards & Interfaces, 28(6), 625–634. doi:10.1016/j.csi.2005.06.001 Averweg, U. R. F., & Erwin, G. J. (2000). Executive Information Systems in South Africa: A Research Synthesis for the Future. Proceedings of the South African Institute of Computer Scientists and Information Technologists Conference (SAICSIT-2000), Cape Town, South Africa, 1-3 November. Baillache, S. C. (1997). The Experiences Gained by Users of Executive Information Systems. MBA dissertation. University of Witwatersrand, Johannesburg, South Africa. Chilwane, L. (1995). The Critical Success Factors for the Management of Executive Information Systems in Manufacturing. M Com dissertation. University of Witwatersrand, Johannesburg, South Africa. DeWitt, P. (1992). Design and Implementation of Executive Information Systems (EISs). B Com (Honours). University of Cape Town, Cape Town, South Africa. Faure, S. (1995). The Impact of Executive Information Systems on the User. B Com (Honours). University of Cape Town, Cape Town, South Africa. Harris, J. (1993). Is your EIS too stupid to be useful? Chief Information Officer Journal. Khan, S. J. (1996). The Benefits and Capabilities of Executive Information Systems. MBA dissertation, University of Witwatersrand, Johannesburg, South Africa. Laudon, K. C., & Laudon, J. P. (1998). Management Information Systems. New Jersey: Prentice-Hall, Inc.
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McKenna Group. (1999). Becoming an e-business. White Paper, 30 March. Rainer, R. K., & Watson, H. J. (1995). The keys to executive information system success. Journal of Management Information Systems, 12(2), 83–98. Remenyi, D., & Lubbe, S. (1998). Some Information Systems issues in South Africa and Suggestions as to how to deal with them. Cited in S. Lubbe (Ed.), IT investment in developing countries: An assessment and practical guideline. Hershey: Idea Group Publishing. Singh, S. K., Watson, H. J., & Watson, R. T. (2002). EIS support for strategic management process. Decision Support Systems, 33, 71–85. doi:10.1016/S0167-9236(01)00129-4 Srivihok, A. (1998). Effective Management of Executive Information Systems Implementations: A Framework and a model of successful EIS implementation. PhD dissertation. Central University, Rockhampton, Australia. Steer, I. J. (1995). The Critical Success Factors for the Successful Implementation of Executive Information Systems in the South African Environment. M Com dissertation, University of Witwatersrand, Johannesburg, South Africa. Strydom, I. (1994). Executive Information Systems: A Fundamental Approach. Doctor Commercii (Informatics), University of Pretoria, Pretoria, South Africa. Turban, E., McLean, E., & Wetherbe, J. (1999). Information technology for management. New York: John Wiley & Sons, Inc. Twemlow, S., Hoffmann, U., & Erlank, S. (1992). An Assessment of the Penetration of Executive Information Systems in South Africa. B Com (Honours). University of Cape Town, Cape Town, South Africa.
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Watson, H. J., & Frolick, M. N. (1993). Determining information requirements for an executive information system. MIS Quarterly, 17(3), 255–269. doi:10.2307/249771 Watson, H. J., Houdeshel, G., & Rainer, R. K., Jr. (1997). Building executive information systems and other decision support applications. New York: John Wiley & Sons, Inc. Watson, H. J., Rainer, R. K., & Koh, C. E. (1991). Executive information systems: A framework for development and a survey of current practices. MIS Quarterly, 15(1), 13–30. doi:10.2307/249431 Xu, X. M., Lehaney, B., Clarke, S., & Duan, Y. (2003). Some UK and USA comparisons of executive information systems in practice and theory. Journal of End User Computing, 15(1), 1–19.
KEY TERMS AND DEFINITIONS Critical Success Factors (CSF): Those key areas of activity in which favorable results are absolutely necessary for a particular manager to reach his or her goals. Data Cube: In a multidimensional database, data can be viewed and analyzed from different views or perspectives, known as business decisions. These dimensions form a cube. Data Warehouse: A repository of subjectoriented historical data that is organized to be accessible in a form readily acceptable for analytical processing activities. Executives: Corporate knowledge workers responsible for corporate strategic management activities. Executive Information System: A computerized system that provides executives with easy access to internal and external information that is relevant to their critical success factors.
An Overview of Executive Information Systems (EIS) Research in South Africa
Information Systems (IS): A combination of technology, people and processes to capture, transmit, store, retrieve, manipulate and display information. Web-Based Technology: A technology that did not exist prior to the World Wide Web (“the
Web”) and utilizes core Internet and Web technologies as the platform on which the solution operates. World Wide Web (“the Web”): An information space consisting of hyperlinked documents published on the Internet.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 2964-2970, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 6.18
Managerial Succession and E-Business Anthonia Adenike Adeniji Covenant University, Nigeria
INTRODUCTION There have been several studies on managerial succession otherwise known as succession planning but greater percentage of them focused on succession planning as related to family owned small to medium sized enterprises (SME’s), government establishments, effects of succession planning on performance and profitability of a business organization, CEOs perspectives on planning for succession, family business and succession planning to mention just a few (Motwani,et al 2006,Brown 2007, Dunemann & Barreff, 2004).
DOI: 10.4018/978-1-60960-587-2.ch618
There is a dearth of research about managerial succession and e-business, in this world of globalization where organizations are clamoring for survival in the globally competitive environment therefore; this chapter will focus on why succession planning is crucial in e-business and in the global economy. To do this effectively, available literature will be explored on the key aspects of an effective succession management system, the continuum of succession processes in e-business and in the global world. Also varieties of views and notions of individuals and groups in respect of the key issues to clarify and the key question impacting the design of succession management system in organizations and the succession planning grid will be considered.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Managerial Succession and E-Business
The views of the academicians and professionals on the succession management process, obstacles to effective succession management in an e-business environment and the key recommendations for succession management to remain competitive and survive in a globally competitive environment will be traced.
BACKGROUND Succession planning in e-business is an issue of growing importance. Businesses generate a significant proportion of the economic activity in our countries, and a majority of these businesses are approaching the point where they will be transacting businesses on-line and will most likely by making serious decisions regarding their long time future.The manner in which such large number of potential business successions is managed will impact not only upon these individual businesses and society in which they operate but also upon the global economy. As a result there is wide spread interest in various aspects of business succession planning and particularly, the central question of, how to do it. However, some common themes emerge from a study of the succession management literature and the suggested models on offer.The required successor attributes needs to be identified and appropriate processes for selecting and nurturing a suitable successor determined.The timing and the manner of any handover needs to be matched to existing circumstances in the e- business environment.The roles and needs of all important participants should be acknowledged, e- business vision shared by all participants, maintaining good relationships and open communication processes is vital. Finally, the future of the incumbent in relation to the requirements of e-business must be clearly determined and managed. Succession is the plan an organization employs to fill its most vital leadership and professions positions (Huang,2001).It is the ongoing, pur-
poseful and systematic identification of qualified and appropriate successors to leadership, with a commitment to assessing, developing and investing in organizational leadership to enhance performance, development and preparedness (Kim2003; McDonald 2006).According to Michelson(2006),succession planning requires putting the right people on the business, getting the wrong people off the business and positioning the right people in the right seats.Others have argued that succession planning is simply having the right people in the right place at the right time(Conger and Fulmer,2003; Rothwell,2005).Succession planning reinforces the desired perceptions of the organization, fosters employee legitimacy, builds on the strategic plan to manage the organization through future challenges, meets the demand of the public and addresses the strength and weakness of the organization (Cohn,Khurana and Reeves 2005). Effective succession management happens when corporations adopt a talent –finding mindset and developing guideline for building a leadership pipeline among which include; focusing on development, identifying linchpin position, making it transparent and measuring progress regularly.
MAIN FOCUS OF THE ARTICLE Reasons Why Succession Planning is Important in E-Business Scholars and knowledge practitioners’ maintain that administrators are ignoring the coming leadership crisis and/or rejecting the imminence of the predicament (Green, 2000; Michelson, 2006; Ospina, 1992). Consequently, many leaders of organizations lack an exit strategy, offer little evidence of a formal transition and treat succession management as nothing more than lining up personnel for vacancies (Michelson, 2006). Four distinct areas of exploration include the development of
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a succession plan, selection and training of staff, sustainability of the program and its impact on the workforce, and measurement and evaluation of the process in practice.
Planning and Development of Succession Planning Succession planning usually begins when an organization initiates a demand forecast to determine overall future workforce needs, as well as succession analysis to predict the number of the employees to staff specific positions (Pynes, 2004). There is no “one best way” of developing, implementing or supporting a succession plan [Karaevli and Hall, 2003]. Therefore, administrators should not rely on an off-the-shelf, one-sizefits-all approach [Cohn, et al 2005]. Succession plans need not be overly complex or difficult [Berchelmann, 2005] and may employ formal versus informal tactical versus strategic [Ospina 1992] or “just-in-time” versus “integrated” methods (Young, 2005). Rothwell, (2005) and Waltuck, (2005) opined that strategic planning results in the socialization, development and advancement of potential high-performing managers.
Selection and Training Many organizations fail in succession planning because they get “lost in the tree of succession planning forest” [Dessler 2006]. The importance of the identification and development of potential leader is lost among demographic statistics and summary information resulting in a talent shortage [Dychtwald, Erickson &Morrison 2006, Gandossy & Verma, [2006]. Succession planning seeks to resolve this disconnect by creating strong talent pools prepared to become future leaders of the organization. [Dessler 2006]. Organizations globally in an e- business environment are becoming more innovative in recruiting, developing and retaining talent (Patton and Pratt, 2002). Some of the creative ideas
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implemented include the increased usage of job rotation, establishment of co- managers in critical function to ease older leader into retirement and prepare new leaders for new role, and outsourcing hard- to fill functions and diverting existing managers more strategic role [Green,2000]. In addition, organizations are offering to train their staff on job skills trend will make them relevant and better relate in the competitive global environment (Green, 2000). Thus, the organization offer resources and connections to the global world as well as provide the perfect venue to pursue learning objectives which serve as an excellent strategy for hiring and retaining top talent. (Green, 2000). This is because learning agility is needed in an e-business ever-changing, competitive, chaotic work environment where the differences in defining high-potential employees are as diverse as the organization involved (Karaevli & Hall, 2003).
Sustainability Many organizations offer ‘employment deals’ promoting self-development over managementdriven succession with an added emphasis on developing a talent pool that matches preferred competencies necessary for effective future business performance in an e-business environment (Waltuck, 2005). The main goal, whether high performances are identified or empowered is to find those employees who have a high sense of job satisfaction, encourage proactive career development and provide growth opportunities to those who are willing or able (Berchelmann, 2005; Karaevli & Hall, 2005).
Evaluation Succession plans should provide assessment and measurement over the long-term by establishing core competencies matching the strategic focus of the organization, as well as identifying any gaps that may exist (Conger & Fulmer 2003and McDade, 2004). Succession plans specifically
Managerial Succession and E-Business
examine the ability of the organization to fill vacancies and respond to the needs in the e-business environment (Conger & Fulmer, 2003) and encourages self determination (Kim, 2003). Succession planners develop a comprehensive, organizationwide, competency-focused, manager-centric career development program relying upon multiple dimensions of feedback (Kim, 2003).
Reasons Why Succession Planning is Important in E-Business 1. Rapid, radical and discontinuous change. 2. Increasingly complex challenges. 3. Greater leadership responsibility at lower levels. 4. Recruitment and retention of the best talent.
Different succession processes can be placed on a continuum ranging from relatively simplistic end bounded to relatively complex and comprehensive. At the most simplistic end of the continuum is the replacement planning. Replacement planning denotes a minimal succession approach in which successors (i.e. replacements) are identified at the top managerial levels, but there is little or no development of those successors other than ad-hoc on the job experience. The focus is on forecasting with no attention to development issues. Succession planning falls near the middle of this continuum of succession planning. It is more systematic and extensive than replaceTable 1. The continuum of succession processes in e-business Replacement planning Succession planning Succession management Identify successors. Identify successors. Identify successors. Develop successors. Develop successors. Include all organization levels. Basic Comprehensive
ment planning because it is linked with intentional development initiative targeted at successors. However, it is mainly for the top two or three management levels, like replacement planning. Succession management anchors the most comprehensive end of this continuum in that it identifies successors (replacement planning), develops them (succession planning) and it is also directed at all managerial levels. The overarching goal of succession management is to have a pool of or pipeline of prepared leaders and not just a list of prospective candidates across all organizational levels to fill vacancies in key positions when needed.
Key Questions Impacting the Design of Succession Management System The followings are the key questions impacting the design of succession management system in organizations operating in an e-business environment that is highly competitive and dynamic. • • • • • • • • •
What is a key or “corporate –critical” position? What constitutes a high potential manager? What are the common aspects of exemplary job performance? How should the organization fill key positions? What percentage of open positions should be filled from within the organization? What percentage of key positions should have at least one identified successors? How should high-potential manager be prepared for advancement? How desirable are international assignments for designated successors? How important are individual employee career goals and objectives in the succession management plan?
Continuum of succession processes. Source: Human Resource Management (8th Edition).
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Effective Succession Management Process
•
This is critical for a successful talent identification process. A climate of honesty, trust and transparency is an important factor in the systems ultimate success. The following are the features of succession management process; • •
•
•
•
High level review of the talent pipeline by the CEO and his direct reports. Review of each business function and strategic area of focusing on what new capabilities will be needed to deliver this strategy and any new corporate critical roles that will be needed. Review of top 200 leaders using the “ninebox” performance /potential grid. This is shown in Table 2; Development and discussion of succession plans for high and medium risks corporatecritical roles that exist now and are anticipated in the future. Development planning for this population.
Link the plan design to the needs and vision of the CEO, senior management team and the requirements of e-business in the global environment.
However, succession management process includes preparation, planning and development. Preparation; the goal is to understand the context. Planning; the goal is to identify positions on talents. Development; the goal is to prepare and develop talent. The key processes here are assessment, challenge, and support.
OBSTACLES TO EFFECTIVE SUCCESSION MANAGEMENT Ultimately, an investment in succession management is an investment in individual and organizational learning, but like many things, this is easier said than done. There are many potential factors that can derail succession management process.
Table 2. Potential
Performance Low
Medium
High
High
Demonstrated high potential for advancement but is not meeting current performance expectations. Needs coaching and intervention: Wrong job or wrong boss?
Demonstrated high potential and consistently meet performance expectations. Valued talent who need additional challenge, rewards, recognition or opportunity to develop.
Highest potential for senior leadership position that usually always exceeds performance expectations. Star talent who should be targeted for accelerated development opportunities
Medium
Promoting potential one level or lateral move with greater challenge but presently under -performing. Consider coaching or corrective action
Promotion potential one level or lateral move with greater challenge: presently meeting but not exceeding performance expectations. Keep things running but might need additional motivation, greater engagement or additional rewards.
Promotion potential one level or lateral move with greater scope or challenge always meets and usually exceeds expectations. Strong contributor who could have additional developmental challenges to grow and possibly improve potential.
Low
Has reached career potential and is not delivering. Counsel or terminate.
Specialized technical talent or has reached career potential but consistently meet performance expectations. Motivate and focus.
Specialized technical talent or has reached career potential but consistently exceeds performance expectations Valuable in developing others; retain and reward.
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Below is the list and brief discussion on some likely culprits: •
•
•
•
•
Event-based or episodic thinking. This implies succession planning as well as leadership development. Both of them are ongoing processes, yet the conventional thinking is that they are addressed episodically. Succession planning typically is conducted only once in a year and leadership development is treated as a series of ‘loosely coupled’ events or episodes, usually in the form of programmes. It is a mistake to try to completely de-couple development from work. No strategy for development. What is the organization philosophy of succession management and development? These are the key concerns in terms of presenting and defining the concepts and principles that will serve as the pillars of the conceptual framework for the initiative. Assuming it is solely a staff function. In most cases, the human resource function has the primary responsibility for succession management. A common mistake and typical obstacle to effective implementation is failing to engage line management from the onset. Over-embedding the initiative in a single champion. Having a champion, especially at top levels, is an important driver for success, however, if the initiative becomes too heavily associated with any one person no matter how high ranking this could lead to follow through problems if that champion derails or leaves the organization. Not connecting with strategic business imperatives.
Development for development’s sake might be a generally good thing; however it might not be helpful for long-term support. It is easy to lose
sight of what specifically needs to be developed and why. To implement a formal system with lack of fit with the organizational culture. Trying to implement a formal system with a lot of preparation and paperwork in an informal culture would likely be met with resistance, if not outright hostility introducing an informal system into a highly structured and formal organization may result in the in the initiative not being taken seriously.
RECOMMENDATION Succession management can also aid in the recruitment and retention of the talent that is needed to be competitive in the global economic and Electronic business. However, the followings are the key recommendations for succession management; • •
•
•
• •
• •
Understand the unique context of your organization. Recognize that organization have special challenges and opportunities when it comes to succession management in an E Business environment Identify key positions and the talent potentials for these potentials (Nine-Box Grid” may be helpful). Establish succession plans for key positions that identify at least one and preferable more than one potential successor. Engage in detailed developmental planning for the targeted successor populated. Use leadership competency models with caution – the future is imperfectly predicted. Avoid the basic obstacles to an effective succession management system. Work towards continuous succession management system improvement.
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FUTURE RESEARCH DIRECTIVE It had been said that effective succession planning involves more than just a replacement planning process. It also includes a comprehensive employee development system, thus, future researches should focus on development strategies for both the SME’S in their local markets and for the global competition in the international market.
CONCLUSION The chapter dwells richly on the succession planning in an e – business environment. It considers the reason why succession planning is important in the global economy, the key aspects of an effective succession management system, the continuum of succession processes in e- business, and the key questions impacting the design of succession management system. Also, the chapter looked at the succession planning grid, the obstacle to effective succession management in an e- business environment and the key recommendation for succession management were given.
REFERENCES Berchelmann, D. K. (2005). Succession Planning. Journal for Quality and Participation, 28(3), 11–12. Brown, M. C. (2007). Administrative Succession and Organizational Performance: The Succession Effect. Journal of the Social Sciences, 27(1), 1–16. Cohn, J. M., Khurana, R., & Reeves, L. (2005). Growing Talent As If Your Business Depended On It. Harvard Business Review, 83(10), 62–70. Conger, J., & Fulmer, R. (2003). Developing Your Leadership Pipeline. Harvard Business Review, 82(12), 76–84.
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Dessler, G. (2006). Human Resource Management (8th Ed.). London: Prentice Hall. Dunemann, M., & Barreff, R. (2004). Family Business and Succession Planning. Administrative Science Quarterly, 25(1), 26–40. Dychtwald, K., Erickson, T. J., & Morison, R. (2006). Workforce Crisis: How to Beat. The Coming Shortage of Skills and Talent. Boston: Harvard Business School Press. Gandossy, R. P., & Verma, N. (2006). Passing the Torch of Leadership. Journal of Leadership, 40(1), 37–47. Green, M. E. (2000). Beware and Prepare: The Government Workforce of The Future. Public Personnel Management Journal, 29(4), 435–447. Huang, R. J. (2001). Marginal Mentoring, the Effects of Type of Mentor, Quality of Relationship and Program Design on Work and Career Attitudes. Academy of Management Journal, 43, 1177–1194. Karaevli, A., & Hall, D. T. (2003). Growing Leaders for Turbulent Times. Is Succession Planning Up to The Challenge? Organizational Dynamics, 32, 62–79. doi:10.1016/S0090-2616(02)00138-9 Kim, S. (2003). Linking Employee Assessment to Succession Planning. Public Personnel Management, 32(4), 533–547. McDade, S. A. (2004). Evaluating Leadership, Development Programs, New Directions for Leadership. Development. The Leadership Quarterly, 16(3), 297–317. McDonald, R. D. (2006). Succession Planning is Mission Critical to Achieving Organizational Goals. Pawcatuck, CT: Pearson Performance Solutions. Michelson, R. (2006). Preparing Future Leaders for Tomorrow. The Police Chief, 73(6), 16–21.
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Motwani, J., Levenbury, N., Schwarz, V., & Blankson, C. (2006). Succession Planning in SMEs. International Small Business Journal, 24(5), 471–495. doi:10.1177/0266242606067270
Church, A. H. (1997). Managerial Self-Awareness in High Performing Individuals and Organizations. The Journal of Applied Psychology, 82, 281–292. doi:10.1037/0021-9010.82.2.281
Ospina, S. (1992). When Managers Don’t Plan, Consequences of Nonstrategic Public Personnel Management. Review of Public Personnel Management, 12(2), 52–67. doi:10.1177/0734371X9201200205
Cunningham, M. R., & Waker, M. D. (2006). Succession Planning is Mission Critical to Achieving Organizational Goals. Pawcatuck, CT: Pearson Performance Solutions.
Patton, W. D., & Pratt, C. (2002). Assessing the Training Needs of High. Potential Managers. Public Personnel Management, 31(4), 465–484. Pynes, J. (2004). The Implementation of Workforce and Succession in the Public Sector. Public Personnel Management, 33(4), 389–404. Rothwell, W. J. (2005). Effective Succession Planning Ensuring Leadership Continuity and Building Talent Within (3rd Ed.). New York: American Management Association. Waltuck, B. (2005). What’s the Point of Planning? Journal for Quality and Participation, 28(4), 37–40. Young, M. B. (2005). Building the Leadership Pipeline in Local State and Federal Government. Human Resource Services, 52, 561–610.
ADDITIONAL READING Cantor, P. (2005 January/February). Succession Planning: Often Requested, Rarely Delivered. Ivey Business Journal, 1-10. Cardon, M. S., & Stevens, C. E. (2004). Managing Human Resources in Small Organizations: What Do We Know? Human Resource Review, 14, 294–323.
Day, D. V. (2000). Leadership Development: A Review in Context. The Leadership Quarterly, 11, 581–613. doi:10.1016/S1048-9843(00)00061-8 Diamond, A. (2006). Finding Success Through Succession Planning. Security Management, 50(2), 36–39. Drath, W. (2001). The Deep Blue Sea: Rethinking the Source of Leadership. San Francisco, CA: Jersey-Bass. Dweck, C. S. (1986). Motivation Process Affecting Learning. The American Psychologist, 41, 1040–1048. doi:10.1037/0003-066X.41.10.1040 Fegley, S. (2006). SHRM 2006 Succession Planning Survey Report. Alexandria, VA: Society for Human Resource Management. Hannum, K. M., Martineau, J. W., & Reinelt, C. (Eds.). (2007). The Handbook of Leadership Development Evaluation, San Francisco, CA: Jossey Bass. Heifetz, R. (1994). Leadership Without Easy Answers. Cambridge, MA: Harvard University. Hollenbeck, G. P., McCall, M. W. Jr, & Silzer, R. F. (2006). Leadership Competency Models. The Leadership Quarterly, 17, 398–413. doi:10.1016/j. leaqua.2006.04.003 Ibarra, P. (2005). Succession Planning: An Idea Whose Time Has Come. Public Management Journal, 2(1), 107–117.
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Ip, B., & Jacobs, G. (2006). Business Succession Planning: A Review of the Evidence. Journal of Small Business and Enterprise Development, 13, 326–350. doi:10.1108/14626000610680235 Karaevli, A., & Hall, D. T. (2003). Growing Leaders for Turbulent Times: Is Succession Planning Up to the Challenge? Organizational Dynamics, 32, 62–79. doi:10.1016/S0090-2616(02)00138-9 Lawler, E. E., III, & Worley, C. G. (2006). Built to Change: How to Achieve Sustained Organizational Effectiveness. San Francisco, CA: Jossey-Bass. Lewis, R. E., & Heckman, R. J. (2006). Talent Management: A Critical Review. Human Resource Management Review, 16, 139–154. doi:10.1016/j. hrmr.2006.03.001
Sanders, P. (2007). Once and Again: After Son’s Death a Casino Mogul Returns to Helm. The Wall Street Journal, 16-17. Sharma, P., Jess, H., & James, J. (2003). Succession Planning as Planned Behaviour: Some Empirical Results. Family Business Review, 16(1), 1–15. doi:10.1111/j.1741-6248.2003.00001.x Van Velsor, E., & McCauley, C. D. (2004). Over View of Leadership Development. In C.D. McCauley and E. Van Velsor (Eds.), The Centre for Creative Leadership Handbook of Leadership Development (pp. 1-22). San Francisco: Jossey-Bass. Ward, S. (2007). Succession Planning. Retrieved from http://www.sbinfocanada.about.com/od/ businessplanning/g/successplanning.htm
McCall, M. W., Jr., Lombardo, M. M., & Marrison, A. M. (1988). The Lessons of Experience: How Successful Executives Develop on the Job. Lexington, MA: Lexington Books.
Weick, K. E. (1993). The Collapse of Sensemaking in Organization: The Mann Gulch Disaster. Administrative Service Quarterly, 38, 628–652. doi:10.2307/2393339
Meister, J. C. (1998). Ten Steps to Creating a Corporate University. Training & Development, 52, 38–43.
Weiss, D. S., & Molinaro, V. (2005). The Leadership Gap: Building Leadership Capacity for Competitive Advantage. New York: John Wiley and Sons.
Morrow, C. C., Jarrett, M. O., & Rupinski, M. T. (1997). An Investigation of the Effect and Economic Utility of Corporate-Wide Training. Personnel Psychology, 50, 91–119. doi:10.1111/j.1744-6570.1997.tb00902.x Peterson, D. B. (1996). Executive Coaching at Work: The Art of One-On-One Change. Consulting Psychology Journal: Practice and Research, 48, 78–86. doi:10.1037/1061-4087.48.2.78 Ragins, B. R., Cotton, J. L., & Miller, J. S. (2000). Marginal Mentoring: The Effects of Types of Mentor, Quality of Relationship and Program Design on Work and Career Attitudes. Academy of Management Journal, 43, 1177–1194. doi:10.2307/1556344
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KEY TERMS AND DEFINITIONS Competitive Environment: this is an environment where companies and nations have the opportunity to compete effectively with one another considering the regulations in the environment. E-business: this is the transacting of business on-line or on the internet. Globalization: this is the interconnectivity of business of nations all over the world. In other words, that all economies are connected to do business together where each will now gain competitive advantage over its products. Leadership Pipeline: this is having a pool of prepared leaders and not just a list of prospective
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candidates across all organizational levels to fill vacancies in key positions when needed. Linchpin Positions: these are positions between middle to senior management positions that are essential to organization’s long term health. Managerial Succession: this is the ongoing, purposeful and systematic identification of qualified and appropriate successors to leadership, with a commitment to assessing, developing and
investing in organizational leadership to enhance performance, development and preparedness. Replacement Planning: this is the minimal succession approach in which successors (i.e replacements) are identified at the top managerial levels, but there is little or no development of those successors other than ad-hoc on the job experience. Successor: this is when a person comes after and takes the place of somebody.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 560-569, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Section VII
Critical Issues
This section contains 21 chapters addressing issues such as business as a social institution, social capital theory, advancing women in the workplace through technology, management theory, digital divide, and copyright in business, to name a few. Within the chapters, the reader is presented with an in-depth analysis of the most current and relevant issues within this growing field of study. Issues, such as the current state of cultural integration of the workplace, are discussed. Crucial questions are addressed and alternatives offered, such as the divergence between the expected and realized degrees of innovation in business to business management. Rounding out this section is a look at scientific and technological revolutions, and their implications on different institutions and enterprises.
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Chapter 7.1
Sociotechnical Issues of Tele-ICU Technology Peter Hoonakker University of Wisconsin-Madison, USA Kerry McGuire University of Wisconsin-Madison, USA Pascale Carayon University of Wisconsin-Madison, USA
ABSTRACT Intensive care units (ICUs) are highly complex organizations where lives are hanging by a thread. Approximately 400,000 to 500,000 people die each year in American ICUs. The highly complex environment and large responsibilities put a burden on ICU staff including physicians and nurses. Research has shown that ICU physicians and nurses report high levels of workload and burnout that are related to lower quality of care provided to ICU patients and patient safety problems. Furthermore, there is a shortage of ICU personnel. In the past decades, the number of critical care beds has DOI: 10.4018/978-1-60960-587-2.ch701
increased while the number of hospitals offering critical care services has decreased. Telemedicine may be one solution to deal with the shortage of ICU personnel. The tele-ICU technology represents the application of telemedicine in ICUs: ICU patients are monitored remotely by physicians and nurses trained in critical care. Recent estimates show that a nurse in the tele-ICU environment can monitor as many as 50 ICU patients in different ICUs, using the most recent telemedicine technology that provides access to patient information as well as video and audio links to patient rooms. The physicians and nurses in the tele-ICU collaborate with the physicians and nurses in the ICUs in what can be considered virtual teams. We know little about how the virtual team characteristics
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affect communication and trust between the participating members of the team. Furthermore, we know little about how the technological environment of the tele-ICU may affect the physicians and nurses’ workload and possibly burnout, and how this may affect quality of care and patient safety. In this chapter we describe the ICU and tele-ICU from a sociotechnical perspective, and examine how organizational factors may affect the jobs of nurses in the tele-ICU, and possible consequences for quality of work life, quality of care and patient safety.
INTRODUCTION The delivery of health care is going through major changes, including reduction of hospital stays and increasing severity of hospitalized patients. The provision of critical care provided to patients spread over large geographical regions such as the US or Australia has become increasingly difficult because of shortage of critical care staff (in particular, physicians and nurses) and lack of access to critical care expertise. Telemedicine is seen as an answer to providing care remotely (Field 1996; Norris 2002); the tele-ICU technology is the application of telemedicine to support critical care. In this chapter, we review sociotechnical issues related to the implementation of tele-ICU technology. We first explain the challenges related to critical care and then describe the tele-ICU technology. We discuss the major sociotechnical issues related to the tele-ICU technology, i.e. communication, trust, conflict management and performance of tele-ICU nurses and physicians.
GENERAL CONTEXT OF ICUS People are living longer than ever before. The number of older Americans, people age 65 and older, is expected to double from 36 millions in 2009 to 72 million by 2030 (Administration on
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Aging, 2009). A study comparing the number of adverse events between patients under age of 65, and patients 65 and older, demonstrated that adverse events are more prevalent among the older patients (Thomas and Brennan 2000). Care of the older patient is frequently more complex because of the high number of drug orders and procedures performed, and the fact that older patients frequently do not present typical signs and symptoms of diseases (Thomas and Brennan 2000; Breslow, Rosenfeld et al. 2004). Between 1985 and 2000, the number of critical care beds has increased by 26.2% in the US, while the total number of hospitals offering critical care services has decreased by 13.7% (Halpern, Pastores et al. 2004). Due to the current shortage of ICU qualified staff, only 10 - 12% of US ICUs offer 24-hour coverage by intensivists (Pronovost, Angus et al. 2002). This statistic is worrisome as numerous studies have shown that the presence of intensivists can reduce mortality, morbidity, length of stay, resource utilization, and ICU charges (Pronovost, Angus et al. 2002; Breslow, Rosenfeld et al. 2004) as well as reduce the risk of death by 40% (Pronovost, Angus et al. 2002). Approximately 400,000 to 500,000 people die each year in ICUs (Angus, Linde-Zwirble et al. 1996). The ICU is a fast-paced, complex, high-risk, and team-oriented environment. Patients in ICUs are critically ill and receive roughly twice as many medications as non-ICU patients (Wu, Pronovost et al. 2002). A study conducted by Donchin et al. (1995) estimated that 1.7 errors occurred per patient per day in ICUs. Many of these errors appear to be system-related and therefore patient safety researchers suggest system approaches to reduce errors and improve the quality of care in ICUs (Carayon, Hundt et al. 2006).
ICU: Organizational Characteristics From an organizational theory perspective, ICUs can be considered complex organizations providing services (Hoonakker, Carayon et al.
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2008). The complexity of ICU patients requires clinicians from multiple disciplines (e.g. internal medicine, surgery, anesthesiology, radiology, nursing, pharmacy, respiratory therapy) to coordinate care. There are several causes for the complexity, including great uncertainty in the process of care, the diversity of the processes involved, and the need for quick decision-making required by urgent situations (Lamothe 1999). The team model of care and the multidisciplinary team approach to ICU care have been emphasized by the Society of Critical Care Medicine (Parillo 1995; Rainey and Shapiro 2001) and the American Association of Critical Care Nurses (Evans and Carlson 1992). Studies in the US and in Europe have described the organization of ICUs (Groeger, Strosberg et al. 1992; Vincent, Suter et al. 1997), and show large diversity of organizational arrangements of ICUs, in particular in the US (Groeger, Strosberg et al. 1992). Some studies have identified the organizational characteristics that contribute to improved ICU patient care outcomes; very few studies have examined the relationship between patient care outcomes and working conditions and work organization. Carlson et al. (1996) argue that the use of an ICU team, admission and discharge criteria, protocols and guidelines, and the principles of evidence-based medicine can improve ICU outcomes, performance and cost effectiveness. A large observational study was conducted to examine the relationship between ICU organizational characteristics and outcomes of abdominal aortic surgery (Pronovost, Jenekes et al. 1999). The absence of daily rounds by an ICU physician was correlated with a 3-fold increase in in-hospital mortality and a range of complications (i.e. cardiac arrest, septicemia, acute renal failure, and re-intubation). A study by Rapoport et al. (2000) examined the relationship between ICU organizational factors and pulmonary artery catheter use. Using data from a retrospective study of 10,217 non-operative patients, they found that the presence of a full-time ICU physician was correlated with a two-thirds
reduction in the probability of catheter use. Other studies have confirmed the patient care benefits of daily rounds by an ICU physician (Dimick, Pronovost et al. 2001), the presence of full-time critical care specialists (Brown and Sullivan 1989; Miranda 1992; Hanson, Deutschman et al. 1999), the presence of physicians trained in critical care medicine (Reynolds, Haupt et al. 1988), and intermediate care units (Dhond, Ridley et al. 1998). Knaus, Rousseau, Shortell, Zimmerman, and colleagues (Knaus, Draper et al. 1986; Shortell and Rousseau 1989; Shortell, Rousseau et al. 1991; Shortell, Zimmerman et al. 1994) have extensively studied organizational characteristics and performance of ICUs. In a study of ICUs in 13 tertiary care hospitals, Knaus et al. (1986) used a severity of disease classification system (Apache II) to identify organizational characteristics associated with better care. Coordination of care and involvement and interactions of nurses and physicians were associated with improved patient care. The methodology used in the National ICU study is described in detail in several articles (Draper, Wagner et al. 1989; Shortell and Rousseau 1989; Shortell, Rousseau et al. 1991; Shortell, Zimmerman et al. 1994). Their conceptual framework was based on the structure-process-outcome model of Donabedian (1966). Shortell et al. (1991) hypothesized that “a team-oriented, achievement oriented culture and leaders who set high standards and provide necessary support provide more open, accurate, and timely communication, effective coordination with other units, and more open collaborative problems solving approaches”. The study by Shortell et al. (1991) showed that communication and coordination in the ICU are positively associated with quality of care and negatively related with turnover intention of nurses. The literature shows that direct communication (face-to-face communication or real time communication) is the preferred mode of communication in ICUs (Moss, Xiao et al. 2002). However, due to the interruptive nature of ICUs, direct com-
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munication may contribute to communication breakdown and medical errors (Coiera, Jayasuriya et al. 2002). According to the Joint Commission (Joint Commission on Accreditation of Healthcare Organizations (JCAHO) 2007), two-thirds of the root causes of sentinel events between 1995-2005 were communication-related.
ICU: Job Demands and Stress The heavy workload of hospital nurses is a major problem for the American health care system. Nurses are experiencing high workload due to four main reasons (Carayon and Gurses 2008): (1) increased demand for nurses, (2) inadequate supply of nurses, (3) reduced staffing and increased overtime, and (4) reduction in patient length of stay. The demand for nurses is increasing as a result of population aging, and the supply of nurses is not adequate to meet the current demand: the nursing shortage is projected to grow more severe as future demand increases and nursing schools are not able to keep up with the increasing educational demand (US DHHS HRSA 2006; Kuehn 2007). When a nursing shortage occurs, the workload increases for nurses who remain on the job (Baumann, Giovannetti et al. 2001). In response to increasing health care costs since the 1990s, hospitals have reduced their nursing staff and implemented mandatory overtime policies to meet unexpectedly high demands, which significantly increased nursing workload. Increasing cost pressure forced healthcare organizations to reduce patient length of stay. As a result, hospital nurses today take care of patients who are sicker than in the past, and their work is more intensive (Aiken, Sochalski et al. 1996). A recent development in the US healthcare, i.e. the implementation of healthcare information technology (HIT), can produce numerous changes in the organization of work in health care and may cause additional stress. Workload and stress are high in ICUs (Hay and Oken 1977; Cross and Fallon 1985; Boumans and Landeweerd 1994; Goodfellow, Varnam et
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al. 1997; Le Blanc, de Jonge et al. 2001; White and Dorman 2001; Gurses, Carayon et al. 2009). The reasons are mainly the same as the reasons for the increased workload of nurses in general. In recent years, ICUs have had to deal with rapidly expanding medical technology and, subsequently, increasing job complexity; cost containment because of the rapid increase in health care costs, which has reduced the resources available to nurses in the ICU (Le Blanc, de Jonge et al. 2001). In a large cross-sectional study (N=2090) in 13 different European countries, Le Blanc et al (2001) examined the relationship between tasks of ICU nurses and their well-being as measured by burnout and job satisfaction. The different task categories were defined as: operational tasks (medical care/technical nursing activities, psychological support of patients, physical care); organizing tasks (contacts with the nurse manager, with physicians, and with colleagues from their own team); preparatory tasks (replenishing work supplies, collecting equipment); and supportive tasks (training and coaching, coordinating care). Two scoring dimensions were used: for each task ICU nurses had to indicate (1) how demanding the task was and (2) how satisfying the performance of such a task was. Results of the study show that ICU nurses experience operational tasks as most demanding, but also as most satisfying, and that organizing tasks were perceived as least demanding, but also least satisfying. The demanding aspects of operational tasks were related to burnout (Le Blanc, de Jonge et al. 2001). In summary, from an organizational perspective, ICUs are very complex organizations where coordination and communication play an important role. What happens when a technology such as the tele-ICU technology is implemented in this complex work system? The tele-ICU will have a major impact on the ICU work system; but it is also important to examine the work system of the tele-ICU. Will tele-ICUs reduce some of the coordination and communication problems, or only add to them? How are communication patterns
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between the ICU and the tele-ICU established? Do tele-ICUs help to improve quality of care and patient safety? Some of the high workload in ICUs may be reduced by using tele-ICU nurses to monitor patients in the ICU. However, what about the workload of the tele-ICU nurses? Some estimates show that tele-ICU nurses should be able to monitor as many as 50 patients in 5 ICUs at the same time. How do they handle that high cognitive workload? Do nurses in the tele-ICU suffer as much from burnout as ICU nurses?
TELEMEDICINE AND VIRTUAL TEAMS Telemedicine utilizes information and telecommunication technologies to transfer medical information for diagnosis, therapy and education (Norris 2002). Although most applications of telemedicine such as tele-surgery and tele-radiology are relatively new, earlier examples of telemedicine have existed for more than 100 years. There are four different applications of telemedicine: 1. 2. 3. 4.
Tele-consultation Tele-education Tele-monitoring Tele-surgery
Table 1. Examples of telemedicine over time Examples of telemedicine
Data
Telegraphy
1830s1920s
Telephone
1870snow
Radio
1920snow
Television
1950snow
Space technologies, e.g. satellite based communications
1960snow
Digital technologies
1990snow
Tele-consultation is used to support clinical decision-making and is the most frequent example of telemedicine. Tele-consultation can take place between two (or more) Health Care Providers (HCPs), or between the patient and one (or more) caregivers, Data can be transferred in real time, for example in video-streaming, or in “storeand-forward”. The best example of the latter is tele-radiology, i.e. the transmission of large X-ray files (Norris 2002). Tele-education occurs when learning over a distance takes place, for example during the exchange between a care provider and a medical expert. There are different forms of medical tele-education (Norris 2002): clinical education from tele-consultation; clinical education via the Internet; tele-medical courses via the Internet; and public education via the Internet. Tele-monitoring is the use of telecommunications links to gather routine or repeated data on a patient’s condition (Norris 2002). The purpose of monitoring is to decide if and when an adjustment is needed in the patient’s treatment. Tele-surgery means using tele-communication systems to guide robotic arms to carry out remote surgical procedures. Tele-surgery is still in its infancy, but significant progress has recently been made (Melvin, Needleman et al. 2002; Rawlings, Woodland et al. 2007; Müller-Stich, Reiter et al. 2009).
Description of the Tele ICU Technology In the tele-ICU, the following three applications of telemedicine are combined: tele-consultation, teleeducation, and tele-monitoring. Tele-consultation is used to give instructions to the ICU nurses and physicians about patient care. Tele-education is a result of the tele-consultation. Personnel in tele-ICUs are highly qualified: physicians who work in the tele-ICU are generally trained as intensivists and can provide supplementary care support to multiple ICUs from a remote location
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Table 2. Tele- ICU category of care responsibilities Category of Care
Responsibilities
1
Remote team is only allowed to intervene in emergencies.
2
Remote team executes daily care plan (set by on-site team) and implements all best practices.
3
Remote team provides all ICU services when there is no physician in the ICU and communicates with the attending physician for major issues.
in real time. The remote team can be comprised of multiple clinicians: board-certified intensivists, critical care nurses, clerical personnel and, in some instances, a pharmacist. Personnel in the ICU (including residents on duty in the ICU) receive instructions or guidance from the teleICU and may have the opportunity to learn new skills and knowledge. Evidently, tele-monitoring is critical to the tele-ICU model. Personnel in the tele-ICU receive patient data in real time; one of the advantages of the tele-ICU technology is that personnel in the tele-ICU, using the continuous, real-time data may be able to detect trends in patient status and can alert personnel in the ICU (Anders, Patterson et al. 2008). The Leapfrog Group for Patient Safety is a voluntary program that aims to improve the quality and safety of health care (Eikel and Delbanco 2003; Jha, Orav et al. 2008). One practiced endorsed by Leapfrog is about physician staffing in ICUs, or the use of ‘intensivists’, which has been shown to reduce the risk of patients dying in the ICU by 40% (http://www.leapfroggroup.org/home). Because of significant shortages in intensivists, this practice has led to the emergence and expansion of tele-ICUs. It is recommended that both the tele-ICU physician and tele-ICU nurse have at least five years of ICU experience. Some tele-ICU HCPs split their time between the ICU and the tele-ICU. The ICU determines the involvement of the tele-ICU by appointing each patient a category of care. Categories of care range from 1 to 3 and are additive. For example the tasks carried in category 1 also occur in categories 2 and 3. Table 2 provides a
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detailed description of the different categories of tele-ICU care. Typically, tele-ICU HCPs use a color system for rounding on patients: each patient is assigned a color of red, yellow or green. Tele-ICU HCPs round on “red” patients every hour, on “yellow” patients every two hours and “green” patients about every four hours. Patients who are labeled green are stable and may have a discharge or transfer pending. Each tele-ICU HCP works at a workstation that is commonly composed of multiple monitors, a two-way camera, microphone, and a hot phone. Clinical data captured about the ICU patient are directly streamed to the tele-ICU. Tele-ICU HCPs are dependent on information communicated over the phone or entered into the computer from the bedside to inform them on the current state of the patient. They monitor numerous clinical indicators, such as blood pressure, heart rate, ventilator settings, and oxygen saturation. Other data such as patient care plans, lab results, and X-rays are electronically sent or faxed to the tele-ICU. Most tele-ICU software uses “smart alarms” to alert the clinicians to possible significant changes in patient status.
Review of the Research on Tele-ICU Technology To date, relatively few studies have examined the impact of tele-ICUs and most of the studies have focused on clinical and financial outcomes (Rosenfeld, Dorman et al. 2000; Breslow, Rosenfeld et al. 2004; Thomas, Chu-Weininger et al. 2007; Ries 2009; Zawada, Herr et al. 2009). Few studies
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have focused on the health care providers (HCPs) working in the tele-ICU. The study by Tang et al. (2007) examined the work of tele-ICU nurses and physicians, the study by Anders et al (2007) has explored interactions between the tele-ICU and the ICUs, the study by Ries (2009) examined clinical and financial outcomes of tele-ICU implementation as well as the effect on tele-ICU personnel, and the study by Thomas et al (2007) examined teamwork and patient safety. Several studies have shown that the implementation of an ICU telemedicine program can improve clinical care outcomes (e.g., reduced length of stay, reduced mortality, reduced complications) and reduce healthcare costs (Rosenfeld, Dorman et al. 2000; Breslow, Rosenfeld et al. 2004; Zawada, Herr et al. 2009). Tang et al. (2007) conducted an observational study of tele-ICU nurses and physicians in one tele-ICU. A task analysis tool was developed and implemented on a Tablet PC; the tool allowed the collection of time data on ‘primary tasks’ (e.g., doing rounds, handling specific patients), ‘activities’ (e.g., monitoring, communicating, looking for information), information sources, interruptions and people (i.e. staff in the tele-ICU and staff in the ICU). Results show that tele-ICU physicians and nurses interact with ICU staff about 7 and 6 times per hour respectively. This study also highlighted the importance of capturing data on interruptions and sources of interruptions, as well as data on the use of various information sources; this is particularly important in the informationintensive environment of ICUs. Anders and colleagues (2007) performed 40 hours of observation of eight tele-ICU nurses and one tele-ICU physician in one tele-ICU. During periods of low workload, questions were asked to clarify specific activities. Results showed that the tele-ICU fulfills three functions: (1) anomaly response: tele-ICU nurses processed information related to alerts and alarms and contacted other staff in the tele-ICU or the ICU if they perceived the need for follow-up or action; (2) access to
specialized expertise: experienced tele-ICU nurses were observed to mentor junior ICU nurses, ICU nurses had access to expertise and experience of the tele-ICU nurses therefore augmenting their knowledge base; and (3) sense-making: tele-ICU nurses can make sense of what is happening with patients because they have access to many sources of data and have the resources (time, expertise) to synthesize the data. The research on tele-ICUs is extremely limited; in particular nursing issues related to tele-ICU have been overlooked (Cummings, Krsek et al. 2007). Only two of the published studies on tele-ICUs are relevant to these issues; both studies examined nurses in single tele-ICUs (Anders, Patterson et al. 2007; Tang, Weavind et al. 2007). Therefore, the generalizability of the studies is limited. In addition, the studies had a limited scope: one study captured data on how tele-ICU nurses and physicians spend their time; the other study described the functions of the tele-ICU. No study has explored how tele-ICU HCPs deal with multiple interactions across varied ICUs, and their quality of working life and performance.
Virtual Teams Research on virtual teams has significantly evolved in the past 10 years. Several reviews of the literature (Martins, Gilson et al. 2004; Powell, Piccoli et al. 2004; Hertel, Geister et al. 2005; Pinsonneault and Caya 2005; Cohen 2008) emphasize the various types of configuration and structure of virtual teams. Therefore, there has been a call for in-depth research on specific types of virtual team and for the need to clearly define the type of virtual team under study (Driskell, Radtke et al. 2003; Priest, Stagl et al. 2006). Virtual teams are defined as having the following characteristics: geographically dispersed, electronically dependent, dynamic, and comprising diverse members working remotely (Gibson and Cohen 2003; Gibson and Gibbs 2006; O’Leary and Cummings 2007). O’Leary and Cummings (2007)
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Table 3. Characteristics of virtual teams and tele-ICUs Characteristics of virtual teams
Characteristics of tele-ICUs
Geographic dispersion (spatial dispersion)
YES. The tele-ICU HCPs are located in a central hub, which is at a distance from the ICUs.
Temporal boundary
NO. HCPs in the tele-ICU and the ICUs work at the same time.
Relational boundary
YES. The tele-ICU and the ICUs connected to the tele-ICU may or may not belong to the same organization.
Information and communication technologies
YES. Tele-ICU HCPs use various synchronous and asynchronous information and communication technologies.
Configurational dispersion
YES. Each tele-ICU HCP works with several ICUs in different locations.
Cultural diversity
YES. Various ICUs and hospitals have different work organizations and cultures. Cultural diversity is related to configurational dispersion.
have proposed that geographic dispersion actually includes 3 dimensions: (1) spatial dispersion or the geographic distance among team members, (2) temporal dispersion or the time difference between team members, and (3) configurational dispersion or the various locations where team members are located. Table 3 lists characteristics of virtual teams and their definition for the teleICU. A virtual team consists of the interaction between tele-HCPs and ICU HCPs; therefore, the tele-HCPs have to deal with multiple virtual teams, i.e. multiple ICUs.
PSYCHOSOCIAL AND ORGANIZATIONAL IMPACT OF TELE-ICU Trust There are multiple ways to define trust (Bigley and Pearce 1998; Rousseau, Sitkin et al. 1998). One of the most commonly cited definitions comes from Mayer et al. (1995): “… the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party” (p. 712).
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Trust is the foundation of teams. Characteristics of virtual teams affect the traditional ways in which team members create trust (Handy 1995; Aubert and Kelsey 2003) (Bradley, 2001). Due to the lack of social history, context (e.g., social similarity, shared values, and expectations) and co-location, a virtual setting may impede the development of trust between virtual team members (Lewicki and Bunker 1996; Kramer 1999). Virtual teams are composed of culturally diverse members who perform interdependent tasks with a common goal. They use electronic communication technologies as a link between their geographically dispersed locations to coordinate care. Frequent face-to-face interaction between team members enables trust to be built by the sharing of norms, values, and experiences (Handy 1995; Jarvenpaa and Leidner 1999). Team relationships mature with frequency, duration, and diversity of experiences that help to confirm expectations. Trust transforms as a relationship develops (Mayer, Davis et al. 1995; Lewicki and Bunker 1996). Trust between individuals permits open communication and challenging ideas without the fear of repercussion, and also values diversity of opinions (Jarvenpaa, Knoll et al. 1998; Holton 2001; Conchie, Donald et al. 2006). Communication, group cohesion, collaboration, and conflict management are factors that may affect ICU patient care (Knaus, Draper et al. 1986; Conchie, Donald et al. 2006). A team
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that practices good teamwork can contribute to desirable patient and staff outcomes. Tele-ICU nurses continuously alternate between ICUs and need to adapt to different team members (i.e. healthcare providers in the ICUs). The virtual team literature shows that communication, and establishing trust between the virtual team members is crucial for the performance of virtual teams (Iacono and Weisband 1997; Jarvenpaa, Knoll et al. 1998; King and Majchrzak 2003; Paul and McDaniel 2004). Good communication between the tele-ICU and the ICU is extremely important to make the tele-ICU model work. The tele-ICU nurses receive real time data on the status of the patients in the ICU. However, because they are operating from a remote location they are helpless in a crisis situation when they are not able to communicate their concerns, treatment suggestions, etc., to the nurses and doctors in the ICU. In other words: the nurses and physicians in the tele-ICU have to trust the nurses and physicians in the ICU to follow their instructions. Vice versa, the physicians and nurses in the ICU have to trust the physicians and nurses in the tele-ICU to provide them with timely, precise information and instructions on what to do. However, how is trust between the ICU and the tele-ICU established? The physicians and nurses in the ICU may have never met the physicians and nurses in the tele-ICU. How is trust in these virtual teams established? Research is needed to characterize communication and trust between ICUs and tele-ICUs.
Conflicts and Performance Several studies show that virtual teams experience high levels of conflict as a result of two factors: the distance that separates them and their reliance on technology to communicate and work with one another (Hinds and Weisband 2003). Both distance and technology dependence can enhance conflicts and reduce performance in virtual teams. There are methods that can mitigate the negative effects
of distance and use of mediating technologies (Hinds and Weisband 2003). For example, by increasing the frequency and length of contacts between virtual team members, and by actually meeting the other team members in person, teams seem to be able to overcome some of the negative effects (Kraut, Fish et al. 1992). Providing more information about the context, in order for their team members to better understand the context of a specific demand, can lead to better understanding among team members (Atkins, Boyer et al. 2002). The way technologies used by virtual teams are designed and implemented has a major impact on teamwork and performance; in addition, the level of training provided to the virtual team members is also important for team effectiveness (Walther and Burgoon 1992; Hinds and Kiesler 1995; Hinds and Weisband 2003). The literature shows that the combination of working at a distance and the use information and communication technology (ICT) can have significant impact on team performance and conflict management. More research is needed to examine how the distance between the tele-ICU and the ICUs they monitor, as well as possible communication problems, caused by the technology used, may impact performance and cause possible conflicts.
CONCLUSION ICUs are highly complex organizations where lives are literally at stake. Decisions often have to be made quickly, while at the same time there may be many parties involved in the decision making process. This puts a large burden on ICU staff. Furthermore, partly due to population aging, but also because of tremendous increase in medical knowledge, techniques and technology, there has been a large increase in ICU patients in the last decades. This is occurring in an environment of shortage of ICU personnel, in particular highly trained and skilled ICU nurses and physicians (i.e. intensivists). Between 1985 and 2000, the
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number of critical care beds has increased by more than 25%, while the total number of hospitals offering critical care services has decreased by 14% (Halpern, Pastores et al. 2004). Probably as a result of the shortage in ICU personnel and increased patient demands, ICU physicians and nurses report high workload and burnout, which can lead to lower levels of quality of care and patient safety problems. The literature also shows that communication and coordination in hospitals, and in particular in ICUs, is of great importance (Shortell and Rousseau 1989; Shortell, Rousseau et al. 1991; Hoonakker, Carayon et al. 2008; Hoonakker, Carayon et al. 2008). A possible solution for dealing with the shortage of ICU personnel is telemedicine. Telemedicine uses information and communication technologies (ICT) to transfer medical information for diagnosis, therapy and education. With telemedicine, in this case the teleICU, patients in ICUs can be monitored remotely, and when help is needed, the physician and/or nurse in the tele-ICU can provide information, support and recommendations to personnel in the ICU. One of the advantages of telemedicine is the ability to detect trends in patient status that personnel in the actual might have missed: these trends may be captured by the tele-ICU staff who monitor a continuous stream of information and the software to analyze it. However, there is little literature on the impact of telemedicine, and even less literature on tele-ICUs. Personnel in a tele-ICU work in an environment that is similar to a traffic control or process control environment. We know little about the impact of ICT on physicians and nurses in the tele-ICU. Furthermore, personnel in the ICUs and the tele-ICU have to collaborate to provide the best care for ICU patients; therefore, they form virtual teams. The literature on virtual teams shows that interactions in virtual teams can be very complex (Jarvenpaa and Leidner 1998). The communication technologies used by the virtual teams speed up interaction. In a virtual organization, a person may interact with different teams frequently and
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rapidly because of electronic communication technologies. The HCPs in the tele-ICU continuously alternate between ICUs and need to adapt to different team members (i.e. healthcare providers in the ICUs) and different structures of different ICUs. As mentioned before, a tele-ICU nurse can monitor as many as 50 intensive care patients in five different ICUs and therefore belong to as many as 50 virtual teams. However, little is known about how these nurses manage their interactions with 50 virtual teams at the same time, establish adequate communication patterns, and establish and maintain trust with physicians and nurses in the ICUs and in the tele-ICU. The literature from these three domains (medical settings, and in particular ICUs and tele-ICUs; telemedicine; and virtual teams) shows that we know very little about the sociotechnical environment, work organization and quality of working life of tele-ICU nurses, and its impact on the quality and safety of care provided to ICU patients. By combining the literature of these three domains, it becomes clear that we need to learn more about the following factors: the impact of the tele-ICU technology on the work of physicians and nurses in the tele-ICU and in the ICUs, the possible high workload in tele-ICUs, communication between the tele-ICU and ICUs, and trust between the tele-ICU and the ICUs. In the past decades, we have made tremendous progress in the development of ICT and our understanding of sociotechnical and psychosocial issues of ICT (Bradley, 2006). ICT developments in health care have resulted in life saving technologies that can be operated from a distance. However, this chapter has also shown that we are still very dependent on human beings, and the interactions between human beings to take advantage of these developments. Psychosocial issues, such as establishing good communication patterns and developing trust between members of virtual teams, are key factors both in the health care domain and in virtual teams. Lack of communication and trust can result in lower quality of
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care provided to ICU patients and patient safety problems. We recently initiated a research project (http:// cqpi.engr.wisc.edu/vicu_home) to examine the sociotechnical issues of tele-ICU, in particular from the viewpoint of nurses in the tele-ICU. This study will shed light on the psychosocial issues of tele-ICU.
ACKNOWLEDGMENT This research has been made possible with a grant from the National Science Foundation (NSF 08-550: Virtual Organizations as Sociotechnical Systems (VOSS), PI: Pascale Carayon).
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Pronovost, P. J., Angus, D. C., Dorman, T., Robinson, K. A., Dremsizov, T. T., & Young, T. L. (2002). Physician staffing patterns and clinical outcomes in critically ill patients - A systematic review. Journal of the American Medical Association, 288(17), 2151–2162. doi:10.1001/ jama.288.17.2151 Pronovost, P. J., Jenekes, M. W., Dormant, T., Garrett, E., Breslow, M., & Rosenfeld, B. A. (1999). Organizational characterisitcs of intensive care units related to outcomes of abdominal aortic surgery. Journal of the American Medical Association, 281(14), 1310–1317. doi:10.1001/ jama.281.14.1310 Rainey, T. G., & Shapiro, M. J. (2001). Critical care medicine for the 21st century. Critical Care Medicine, 29(2), 436–437. doi:10.1097/00003246200102000-00040 Rapoport, J., Teres, D., Steingrub, J., Higgings, T., McGee, W., & Lemeshow, S. (2000). Patient characteristics and ICU organizational factors that influence frequency of pulmonary artery catheterization. Journal of the American Medical Association, 283(3), 259–2567. Rawlings, A., Woodland, J. H., Vegunta, R. K., & Crawford, D. L. (2007). Robotic versus laparoscopic colectomy. Surgical Endoscopy, 21(10), 1701–1708. doi:10.1007/s00464-007-9231-y
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Reynolds, H. N., Haupt, M. T., Thill-Baharozian, M. C., & Carlson, R. W. (1988). Impact of critical care pysician staffing on patients with septic shock in a university hospital medical intensive care unit. Journal of the American Medical Association, 260(23), 3446–3450. doi:10.1001/ jama.260.23.3446 Ries, M. (2009). Tele-ICU: A new paradigm in critical care. International Anesthesiology Clinics, 47(1), 153–170. doi:10.1097/ AIA.0b013e3181950078 Rosenfeld, B. A., Dorman, T., Breslow, M. J., Pronovost, P., Jenckes, M., & Zhang, N. (2000). Intensive care unit telemedicine: Alternate paradigm for providing continuous intensivist care. Critical Care Medicine, 28(12), 3925–3931. doi:10.1097/00003246-200012000-00034 Rousseau, D. M., Sitkin, S. B., Burt, R. S., & Camerer, C. (1998). Not so different after all: A cross-discipline view of trust. Academy of Management Review, 23(3), 393–404. Shortell, S. M., & Rousseau, D. M. (1989). The Organization and Management of Intensive Care Units. University of California-Berkeley. Shortell, S. M., Rousseau, D. M., Gillies, R. R., Devers, K. J., & Simons, T. L. (1991). Organizational assessment in intensive care units (ICUs): construct development, reliability, and validity of the ICU nurse-physician questionnaire. Medical Care, 29(8), 709–726. doi:10.1097/00005650199108000-00004 Shortell, S. M., Zimmerman, J. E., Rousseau, D. M., Gillies, R. R., Wagner, D. P., & Draper, E. A. (1994). The performance of intensive care units - does good management make a difference. Medical Care, 32(5), 508–525. doi:10.1097/00005650199405000-00009
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Tang, Z., Weavind, L., Mazabob, J., Thomas, E. J., Chu-Weininger, M. Y. L., & Johnson, T. R. (2007). Workflow in intensive care unit remote monitoring: A time-and-motion study. Critical Care Medicine, 35(9), 2057–2063. doi:10.1097/01. CCM.0000281516.84767.96 Thomas, E. J., & Brennan, T. A. (2000). Incidence and types of preventable adverse events in elderly patients: population based review of medical records. BMJ (Clinical Research Ed.), 320(7237), 741–744. doi:10.1136/bmj.320.7237.741 Thomas, E. J., Chu-Weininger, M. Y. L., Wueste, L., Lucke, J. F., Weavind, L., & Mazabob, J. (2007). The impact of a tele-ICU provider attitudes about teamwork and safety climate. Critical Care Medicine, 35, A145. US DHHS HRSA. (2006). Report to congress the critical care workforce: a study of the supply and demand for critical care physicians. Washington, D. C.: US Department of HHS HRSA. Vincent, J. L., Suter, P., Bihari, D., & Bruining, H. (1997). Organization of intensive care units in Europe: lessons from the EPIC study. Intensive Care Medicine, 23, 1181–1184. doi:10.1007/ s001340050479 Walther, J. B., & Burgoon, J. (1992). Relational communication in computermediated interaction. Human Communication Research, 19, 50–88. doi:10.1111/j.1468-2958.1992.tb00295.x White, M., & Dorman, S. M. (2001). Receiving social support online: implications for health education. Health Education Research, 16(6), 693–707. doi:10.1093/her/16.6.693 Wu, A. W., Pronovost, P. J., & Morlock, L. (2002). ICU incident reporting systems. Journal of Critical Care, 17(2), 86–94. doi:10.1053/jcrc.2002.35100
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Zawada, E. T. J., Herr, P., Larson, D., Fromm, R., Kapaska, D., & Erickson, D. (2009). Impact of an intensive care unit telemedicine program on a rural health care system. Postgraduate Medicine, 121(3), 160–170. doi:10.3810/pgm.2009.05.2016
This work was previously published in Information and Communication Technologies, Society and Human Beings: Theory and Framework (Festschrift in honor of Gunilla Bradley), edited by Darek Haftor and Anita Mirijamdotter, pp. 225-240, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Contributions of Social Capital Theory to HRM Marina Burakova-Lorgnier ECE-INSEEC Research Laboratory, University of Montesquieu Bordeaux 4, France
INTRODUCTION The philosophic premises of the social capital theory (SCT) number centuries of years. However, the term itself became explicit only in the second half of the 20th century. Emerged as a theoretical framework in sociology, it was soon adopted by community studies and management sciences. The concept of social capital (SC) has been criticized for recycling well-known fundamental theories and propounding a common sense truth. At the same time, more and more numerous testimonies stand for its recognition as a persuasive explanatory framework for various human resources DOI: 10.4018/978-1-60960-587-2.ch702
(HR)-related issues. The present article outlines theoretical discussions around the SCT, as well as its quantifiability and contribution to the further improvement of human resources management (HRM).
BACKGROUND The first reproach to the SCT concerns the absence of homogeneity in the definition of the principal term, which varies depending on the focus on its nature, mechanisms, or scopes and includes the wide range of phenomena from civic involvement and cooperation to institutional environment and economical networks (Adler & Kwon, 2002;
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Contributions of Social Capital Theory to HRM
Nahapiet & Ghoshal, 1998). Although embracing such complexity may look like a medley of different methodologies and levels of analysis, they all refer to the idea of the investment into social relations (Lin, 2001). This is the principal point of distinction between SC and human capital, which represents the investment in education, training, and healthcare (Becker, 2002). Understanding of the investment into social relations either as family-like ties or as situational flexibility diverges the approaches that define SC in terms of either closure or structural holes. The first commonly recognized articulation of the SCT belongs to the French sociologist Pierre Bourdieu (1986), who singled out SC along with cultural and symbolic ones. For him, SC represents resources gained from more or less reciprocal and institutionalized ties driven by social structure and socioeconomic conditions (idem). The social cohesiveness perspective was further developed by Coleman (1990) and Putnam, Leonardi, and Nanetti (1993), who employed the term “social capital” in the context of community-building processes. Thus, Coleman (1990) stresses the role of family and social organization in the development of the child’s SC. Putnam et al.’s social-capital-as-membership conception identifies individual engagement in civil society as a principal mechanism of the SC development. The shared vision on SC in this approach is such that trust and reciprocity constitute its core, and thus, aligns with the idea of strong ties as a source of SC. Henceforth, the flow of studies in the fields of democracy building and economic development processes (Bullen & Onyx, 2000; Krishna & Uphoff, 1999; Narayan & Cassidy, 2001; Stone & Hughes, 2002; Stone, Gray, & Hughes, 2003) aims at strengthening the reputation of SC as a full-scale solution for societal and organizational dysfunctions, although, such a picture is quite idealistic. The inquiry of negative manifestations of SC extends the knowledge about its nature and types. Depending on cultural context, high trust in close environment may neighbor with distrust in
state authorities (Schrader, 2004), which results in such forms of SC as Chinese guanxi and Russian blat (e.g., Michailova & Worm, 2003), corrupted networks customary for the occidental principles of business. The alternative conception, introduced by Burt (2005), translates SC into a sparse network, which provides connecting opportunities in terms of knowledge exchanges. As such, SC depends on the entrepreneur’s capacity to bridge isolated units of a network and adjust the level of knowledge exchange between them (idem). In contrast to the SC-as-closure approach, here the accent is shifted from trust- and community-related issues to the tie’s strength and network configuration. The structural holes’ theory offers a new interpretation of SC in the business context. First of all, the identification of SC with a social network is a great break-through in terms of the assessment of SC effects, which become easily quantifiable. Second, the research in this area gains a longitudinal perspective. Third, diagnosis and prognosis of the SC’s output are no more sophisticated terms, but rather accessible instruments. Thus, weak ties and structural holes are eulogized as the best friends of individual and organizational performance (Bian, 2000; Nahapiet & Ghoshal, 1998), knowledge sharing (Hansen, 1999; McLure & Faraj, 2005), and entrepreneurial success (Seibert, Kraimer, & Linden, 2001; Walker, Kogut, & Shan, 1997).
DIMENSIONS AND MEASURES OF SC A comprehensive summary of the perspectives examined would present SC as the structure of social connections and the psychological processes making them possible. The attempts to bring together and to envisage the interaction between these two approaches have resulted in imagining more complex models of SC: two-, three-, and even multidimensional, with the distinction between structural, relational, and cognitive scopes as well
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as individual, group, and institutional levels of analysis (Adler & Kwon, 2002; Grootaert & Bastelaer, 2002; Nahapiet & Ghoshal, 1998; Narayan & Cassidy, 2001; Stone & Hughes, 2002). Now as never before the concept’s completeness seems to be approachable thanks to the efforts linking together individual and collective actions in an integrated model (Oh, Labianca, & Chung, 2006). Three levels of analysis of SC refer to the figurative distinction between institutional, collective, and individual SC, although each form depends on and contributes to the development of two others. For a while, the HR perspective seemed far-away from the institutional level of analysis, which was considered as more typical to the macroeconomic research. Indeed, the aura of SC as a facilitator of social security, fair distribution, and access to economic goods goes back to communal solidarity, cooperation, and voluntary actions. However, in the light of the Fukuyama’s (2007) definition of SC as the “instantiated informal norm that promotes co-operation between two or more individuals” (p. 7), the institutional level may be extrapolated to such domains as, for example, IHRM. Group SC addresses the resources available to a group through group members’ social relationships within and outside the social structure of the group (Oh et al., 2006, p. 569). From the conceptual standpoint, the way such resources are employed corresponds to one of the social network types: hierarchical, dense, or entrepreneurial (Burt, 2005). The smart distribution of linking efforts aimed at different scopes of the group’s habitus results in the optimal degree of group effectiveness. The research on group SC delivers valuable knowledge about triggering mechanisms and factors of effective teamwork, distinguished organizational citizenship, and high group performance (Adler & Kwon, 2002; Bian, 2000; Bolino, Turnley & Bloodgood, 2002; Nahapiet & Ghoshal, 1998). At the individual level, SC determines, on the one hand, individual career success and, on the other one, psychological adaptability in changing
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work environment (Seibert et al., 2001). By contrast with group SC, it is more about sociopsychological individual ability to create, maintain, and use personal ties in a beneficial way. Individual SC is a key focus of people development, whether it concerns individual progress or HR prospecting strategies. Both tendencies, employees’ personal needs and HR training schemes (and even competency management), encounter in the point of networking strategies. Both formal and informal ways of the personal network formation appear to be profitable, although not having similar effects. Thus, participation at formal networks has greater contribution to the skill-based SC as compared to informal networking, which fosters in-group trust, reciprocity, and social support (Green & Brock, 2005; Hodson, 2005; Stone et al., 2003). The empirical application of two scopes of SC derives from the two theoretical models of SC examined here. Each of them has an indisputable value. The relational SC framework has permitted to deepen the knowledge in the areas of social entrepreneurship (Stone et al., 2003), career development (Siebert et al., 2001), and quality of employment (Sone et al., 2003). The studies in the structural perspective have demonstrated the dependency of organizational outcomes on a network structure such as promotion and individual career success (Burt, 2005; Seibert et al., 2001), influence (Brass & Burkhardt, 1992), and turnover (Krackhardt & Porter, 1996). Generally, the structural holes approach stresses the beneficial character of weak ties. Alongside this regularity, strong ties appear advantageous in some particular context like tacit knowledge transfer (Hansen, 1999), and for some particular categories of employees like protégés (Kilduff & Krackhardt, 1994), women, and newly hired (Burt, 2005). The necessity to prove its either positive or negative effects led to the elaboration of the SC scales. The major problem encountered in the beginning of this “quantification” was the use of one type of measure (most commonly, trust) to as-
Contributions of Social Capital Theory to HRM
sess the overall level of SC. Later, meta-analytical and comparative methodologies attested the fact that only multidimensional techniques could be recognized as legitimate and valid (Stone & Hughes, 2002). As a consequence, a number of multiscaled SC questionnaires were developed in community studies (Grootaert & van Bastelaer, 2002; Krishna & Uphoff, 2000; Narayan & Cassidy, 2001; Stone & Hughes, 2002; Uphoff, 2000). The elaboration of the SC measures takes into account two theoretical perspectives as well as three levels of analysis. First, it refers to the ideas of Coleman (1990) and Putnam et al. (1993) (the famous case of Italian local governments). Apart from the debatable demographic parameters (i.e., sex, ethnicity, religious identity, education, etc.) (Grootaert & Bastelaer, 2002), relational SC is principally evaluated via trust, reciprocity, and membership (illustrated in the Table 1). Each of these scales applies either to the individual, or to the collective, or to the institutional/generalized level of SC. In the light of the structural approach, SC is identified with a social network and, thus, is assessed via various traditional network measures, like centrality, density, and so forth (Everett, & Borgatti, 2005) (illustrated in the Table 1). At the individual level, such measures as network density and size are frequently applied to assess structural SC. The research on organizational SC, and especially that addressing virtual settings, takes into account network diversity (e.g., geographic, linguistic, etc.), ties’ modality, and strength important for knowledge transfer, alliance formation, and sustainable communities of practice (CoPs) (McLure & Faraj, 2005; Hansen, 1999; Kilduff & Krackhardt, 1994). On the whole, measures of structural scope of SC appear more developed and less doubtable.
HR area. Creating a nice bouquet from odd data, this concept embraces different organizational aspects beginning from a single employee to an interorganizational network and, what is more valuable, explains the transition from the purely human relations to the quality of technological innovation and economic performance. In this sense, the challenge for the empirical research is to prove or disprove the conceptual thesis about the transferability of SC into intellectual, human, and even pecuniary capitals and to detect its factors and conditions. On the one hand, the positive effect of SC needs more exact interpretations. Moving beyond the mere statement of the SC’s beneficial impact and discerning factors of the SC formation is the next step in this area. On the other hand, an accurate analysis of the cases of negative SC would help to understand the roots of this phenomenon. One of the explanations of the negative effect of SC comes from the higher propensity to crime of the highly cohesive homogenous community as compared to the bridging SC, which guarantees better diversification and, hence, better risk management of the free-riding behavior (Beyerlein & Hipp, 2005). In the organizational context, it may take form of supervisory abuse and coworker infighting (Hodson, 2005). For HRIS, especially fascinating is the theme of personal SC. The idea of mapping employees’ ties across (and why not outside?) an organization promises to advance the quality of human resource management. Not far distant is the time when social network analysis software mostly employed for the research needs will be a routine of the employee’s databases.
FUTURE TRENDS
The SCT is a complex and multilevel concept. Whether it is applied to estimate the impact of the organizational network structure on organizational performance, the level of trust and reciprocity
Thanks to its extended applicability and transverse character, the SCT fills many existing gaps in the
CONCLUSION
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Table 1. Examples of relational and structural SC measures SC measure
Context
Source
Membership
Membership in informal organizations and networks as a source of collective SC
Krishna & Uphoff (1999); Hjollund & Svendsen (2003); Grootaert & Bastelaer (2002)
Schmoozer vs. marcher strategy as a source of individual SC
Green & Brock (2005)
Cognitive generalized trust in community and trust in family and neighbors as a source of collective SC
Hjollund & Svendsen (2003) Narayan & Cassidy (2001); Stone & Hughes (2002); Grootaert & Bastelaer (2002)
Trust in institutions and in kin and friends as a source of individual SC
Stone & Hughes (2002)
Generalized reciprocity among community, reciprocity among kin and friends as a source of individual SC
Krishna & Uphoff (1999) Stone & Hughes (2002)
Degree of assistance to a household in the situation of force-major and individuals’ civic actions as a source of sustainable collective SC
Krishna & Uphoff (1999) Hjollund & Svendsen (2003) Grootaert & Bastelaer (2002)
Psychological sense of community as a source of generalized SC
Lochner et al. (1999)
Norms of altruistic behavior; rules of shared participation as a source of collective SC
Krishna & Uphoff (1999)
Informal, institutional, & generalized norms as a source of individual SC
Stone & Hughes (2002)
Community competence as a source of collective SC
Lochner et al. (1999)
Network size as a source of individual SC
Burt (2005)
Ties with business, bureaucratic-based services and at the community level, associations as a source of individual SC
Reimer (2002)
Ties with institutions and contacts at the informal level as a source of individual SC
Stone & Hughes (2002)
Trust
Reciprocity solidarity/cooperation
Norms & sanctions
Network size
Network diversity
Educational and linguistic diversity for individual SC not supported
Stone & Hughes (2002)
Ethnic and religious diversity as a source of collective SC
Grootaert & Bastelaer (2002)
Structural holes
Correlation between structural holes and individual SC
Burt (2005); Siebert et al. (2001)
Ties, their quality & modality
CEO’s horizontal, vertical, and informal ties as a source of the firm’s SC
Bian (2000)
Weak ties within a network and contacts at higher levels and in other functions as a source of individual social capital and career success
Burt (2005) Siebert et al. (2001) Green & Brock (2005)
Strong ties as a source of individual SC for protégés, women and newly hired
Kilduff & Krackhardt (1994) Burt (2005)
Density of networks in the workplace as a source of individual SC
Burt (2005)
Network density
Network closure -cohesion
1900
Density of a friends & family network as a source of individual SC
Stone & Hughes (2002)
Density of institutions as a source of collective SC
Grootaert & Bastelaer (2002)
Internal network closure as a source of group SC
Burt (2005)
Neighborhood cohesion and collective efficacy as a source of collective SC
Lochner et al. (1999)
Collective action as a source of collective SC
Grootaert & Bastelaer (2002)
Contributions of Social Capital Theory to HRM
on knowledge sharing, or the strength of one’s personal ties to the access to a top management position, HR researchers and practitioners are to be aware of the fact that it addresses many other concepts and phenomena in social sciences. Due to this peculiarity, one should be particularly cautious while measuring SC and its effects. As regards the variety of interpretations the SCT offers, they permit not only to discuss the matters of power and ties’ benefits, but furthermore to move to the level of political discourses in the world of business.
Brass, D. J., & Burkhardt, M. E. (1992). Centrality and power in organizations. In N. Nohria & R. Eccles (Eds.), Networks and organizations: Structure, form, and action (pp. 191-215). Boston: Harvard Business School Press. Bullen, P., & Onyx, J. (2000). Measuring social capital in five communities in NSW. The Journal of Applied Behavioral Science, 36(1), 23–42. doi:10.1177/0021886300361002 Burt, R. S. (2005). Brokerage and closure: An introduction to social capital. Oxford University Press.
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Coleman, J. S. (1990). Foundations of social theory. Cambridge, MA: Harvard University Press.
Adler, P. S., & Kwon, S.-W. (2002). Social capital: Prospects for a new concept. Academy of Management Review, 27(1), 17–40. doi:10.2307/4134367
Fukuyama, F. (2001). Social capital, civil society and development. Third World Quarterly, 22(1), 7–20. doi:10.1080/713701144
Becker, G. S. (2002). Human capital. The concise encyclopedia of economics. Retrieved October 15, 2007, from http://www.econlib.org/
Green, M. C., & Brock, T. C. (2005). Organizational membership versus informal interaction: Contributions to skills and perceptions that build social capital. Political Psychology, 26(1), 1–24. doi:10.1111/j.1467-9221.2005.00407.x
Beyerlein, K., & Hipp, J. R. (2005). Social capital, too much of a good thing? Social Forces, 84(2), 995–1013. doi:10.1353/sof.2006.0004 Bian, Y. (2000). Social capital of the firm and its impact on performance: A social network analysis (research paper). Hong Kong University of Science and Technology. Bolino, M. C., Turnley, W. H., & Bloodgood, J. M. (2002). Citizenship behavior and the creation of social capital in organization. Academy of Management Review, 27(4), 505–522. doi:10.2307/4134400 Bourdieu, P. (1986). The (three) forms of capital. In J. G. Richardson (Ed.), Handbook of theory and research in the sociology of education (pp. 241-258). New York/London: Greenwood Press.
Grootaert, K., & van Bastelaer, T. (2002). Understanding and measuring social capital: A synthesis of findings and recommendations from the social capital initiative (World Bank research paper). Washington, D.C.: World Bank. Hansen, M. T. (1999). The search-transfer problem: The role of weak ties in sharing knowledge across organization subunits. Administrative Science Quarterly, 44, 82–111. doi:10.2307/2667032 Hjøllund, L., & Svendsen, G. T. (2003) Social capital: A standard method of measurement. In H. Flap & B. Völker (Eds.), Creation and returns of social capital. London: Routledge. Hodson, R. (2005). Management behavior as social capital: A systematic analysis of organizational ethnographies. British Journal of Industrial Relations, 43(1), 41–65. doi:10.1111/j.14678543.2005.00344.x 1901
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Kilduff, M., & Krackhardt, D. (1994). Bringing the individual back in: A structural analysis of the internal market for reputation in organizations. Academy of Management Journal, 37, 87–108. doi:10.2307/256771 Krishna, A., & Uphoff, N. (1999). Mapping and measuring social capital: A conceptual and empirical study of collective action for conserving and developing watersheds in Rajasthan, India (Social Capital Initiative Paper No. 13). Washington, D.C.: The World Bank. Lin, N. (2001). Social capital: A theory of social structure and action. New York: Cambridge University Press. Lochner, K., Kawachi, I., & Kennedy, B. P. (1999). Social capital: A guide to its measurement. Health & Place, 5(4), 259–270. doi:10.1016/S13538292(99)00016-7 McLure Wasko, M., & Faraj, S. (2005). Why should I share? Examining social capital and knowledge contribution in electronic networks of practice. Management Information Systems Quarterly, 29(1), 35–57. Michailova, S., & Worm, V. (2003). Personal networking in Russia and China. European Management Journal, 21(4), 509–519. doi:10.1016/ S0263-2373(03)00077-X Nahapiet, J., & Ghoshal, S. (1998). Social Capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2), 242–266. doi:10.2307/259373 Narayan, D., & Cassidy, M. F. (2001). A dimensional approach to measuring social capital: Development and validation of a social capital inventory. Current Sociology, 49(2), 59–102. doi:10.1177/0011392101049002006 Oh, H., Labianca, G., & Chung, M.-H. (2006). A multi-level model of group social capital. Academy of Management Review, 31(3), 569–582.
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Putnam, R., Leonardi, R., & Nanetti, R. (1993). Making democracy work: Civic traditions in modern Italy. Princeton University Press. Schrader, H. (2004). Social capital and social transformation in Russia. Journal for East European Management Studies, 4, 391–410. Seibert, S. E., Kraimer, M. L., & Linden, R. C. (2001). A social capital theory of individual career success. Academy of Management Journal, 44(2), 219–237. doi:10.2307/3069452 Stone, W., Gray, M., & Hughes, J. (2003). Social capital at work: How family, friends and civic ties relate to labor market outcomes (Research Paper No. 31). Australian Institute of Family Studies. Stone, W., & Hughes, J. (2002). Social capital: Empirical meaning and measurement validity (Research Paper No. 27). Australian Institute of Family Studies. Walker, G., Kogut, B., & Shan, W. (1997). Social capital, structural holes and the formation of an industry network. Organization Science, 8(2), 109–125. doi:10.1287/orsc.8.2.109
KEY TERMS AND DEFINITIONS Network (Social): Unity of human entities (individuals or groups of individuals) that is characterized by certain structure, modality, and strength of ties. As a representation of collective/group SC it provides opportunities for SC modeling. Network Constraint: Degree of network concentration in redundant contacts that varies within three dimensions: size, density, and hierarchy. For example, high constraint is characteristic to dense or hierarchical networks. According to the relational approach, high network constraint is a source of SC. Network Tie: Relation between two network entities that varies in modality (positive vs. nega-
Contributions of Social Capital Theory to HRM
tive), strength (strong vs. weak), and frequency (frequent vs. rare). Reciprocity: Willingness and readiness for an affective and/or behavioral response to the purposeful action of a partner. May be positive and negative, and sometimes is defined as a behavioral manifestation of trust. Social Capital: Structure, content, and mechanisms of social relations; may have positive and negative outcomes. It explains the nature of social entrepreneurship and nonpecuniary mechanisms of performance, career development, and organizational sustainability.
Structural Holes: Disconnections between network entities leave a positive meaning in terms of knowledge diversity and a negative one in terms of knowledge exchange. According to the structural approach, they are a source of SC. Trust: Willingness to rely on another party, an accepted vulnerability under risk conditions. As a component of SC, it plays the crucial role in fostering knowledge and resource sharing. It compensates risk and its perception in the situation of mediated communication.
This work was previously published in Encyclopedia of Human Resources Information Systems: Challenges in e-HRM, edited by Teresa Torres-Coronas and Mario Arias-Oliva, pp. 203-209, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Social Capital and Third Places through the Internet: Lessons from a Disadvantaged Swedish Community Duncan Timms University of Stirling, Scotland Sara Ferlander Södertörn University, Sweden
ABSTRACT Although Sweden is generally considered to be at the forefront of the ICT revolution and to have high levels of social capital – interpersonal trust and participation – there remain areas and populations which are relatively disadvantaged. In this chapter we examine a number of efforts which have attempted to make use of ICT to enhance social capital in a Stockholm suburb which has DOI: 10.4018/978-1-60960-587-2.ch703
been stigmatised in the press and which contains relatively high proportions of immigrants, single parents and the unemployed, all groups which are relatively excluded. An initial effort, based on the installation of a local community network, largely failed. A second effort, based on a locally-run Internet Café was more successful, with the café operating as a Third Place, both online and offline, bridging many of the divisions characterising the community. Despite its success in encouraging participation, trust and community identity, the IT-Café could not be sustained following the end
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of project funding and a change in personnel. The factors accompanying the success and failure of the Swedish undertakings provide lessons for other efforts to use ICTs in attempts to enhance social inclusion and community.
INTRODUCTION Social capital, defined in terms of the density and nature of social participation, the degree of trust and the sense of community identity, has become a pivotal concept in both social theory and social policy (see for example Bourdieu, 1985; Coleman, 1988; Putnam, 1993, 2000; Field, 2003; Halpern, 2005). An important facilitator of social capital in local communities has been the existence of ‘third places’, informal public meeting spaces, apart from work and home, which provide the setting for informal public life. According to Oldenburg (1989, p.16): The third place is a generic designation for a great variety of public spaces that host the regular, voluntary, informal, and happily anticipated gatherings of individuals beyond the realms of home and work. In a celebration of the “great good places at the heart of our communities”, Oldenburg (2001, p.2) writes about the contribution of third places to informal collective effort: Essential to informal collective effort is the habit of association, and essential to informal association are places where people may gather freely and frequently and with relative ease. Effective third places provide arenas for the creation of both bonding and bridging forms of social capital (Putnam, 2000), providing opportunities for people to bond with others similar to themselves, while at the same time facilitating the development of bridging relationships with
others who are different. Bonding relationships, sometimes associated with kinship ties, give rise to strong feelings of identity and are often multi-stranded. Bridging relationships are more likely to be single-stranded; Granovetter (1973, 1982) refers to such ties as being “weak”, but as implying the existence of “thin impersonal trust with strangers” Both forms of relationship are likely to be sparse in communities which combine diversity with disadvantage and their relative absence is associated with other indicators of low social capital such as a lack of trust and low community identity. Developments in Western urban society, including developments in communications technologies, the segregation of workplace and home, changes in the nature and allocation of roles between the genders and the generations and the economics of leisure, have led to a perceived decline in the number of physical locations which can serve as third places, especially in suburban areas. Public houses, coffee bars, community centres, corner shops and other sites which served as third places up to and including the middle decades of the twentieth century, find themselves under increasing pressure to meet commercial and other targets, which limit their potential to offer public places where people can drop in and meet with others on an informal basis. The decline in the number of third places reduces the opportunity for social encounters outside home and work and leads to an impoverishment of social capital. Without casual regular encounters it is very difficult for all the other steps in community building to take place: discussion, organisation, action. (Advomatic, 2008) In this view third places are a casualty of the “balkanisation” of society. The impact is likely to be especially deleterious to social capital in communities marked by heterogeneity and scarce resources, reducing the chances of strangers
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meeting each other in non-threatening situations and threatening both bonding and bridging relationships.
THE INTERNET, THIRD PLACES AND SOCIAL CAPITAL The question posed by the Internet and other forms of social computing, which emphasise interactivity rather than passivity, is whether they can provide a new virtual space for informal social participation which can fulfil the roles previously played by physical third places. Dystopians suggest that rather than socialising in public, families have withdrawn to the privacy of their homes, passively watching television or sitting in front of a computer screen at the expense of engaging in “real” relationships. Supporters of the role of social computing in social inclusion believe that the facility of connecting with people and organisations free from the constraints of space and time heralds a new foundation for social capital, providing new arenas for developing the ties, shared trust and common identity which provide the foundation of social cohesion (e.g. Katz and Rice, 2002, chap.14). According to Wellman (1996, p.352): Computer-supported social networks sustain strong, intermediate, and weak ties that provide information and social support in both specialized and broadly based relationships… Computermediated communication accelerates the ways in which people operate at the centers of partial, personal communities, switching rapidly and frequently between groups of ties. From this perspective, chat rooms and other social networking sites provide online third places in which people can drop-in and socialise in ways which are analogous to those characteristic of physical third places. In his work on “virtual communities”, Rheingold (2000) suggests that contacts made online can provide the basis for enduring
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relationships in both virtual and real worlds. A long-running series of studies in Blacksburg Electronic Village in Virginia (Kavanaugh et al., 2000, 2005) indicate a strong and reciprocal relationship between community involvement offline and use of the Internet for communication with a variety of formal and informal groups. The potential benefits of interactive ICT may be especially pronounced in culturally diverse communities which lack physical locations where people from divergent groups can gather together in a non-threatening environment. A European Commission Worksop on ICT, Social Capital and Cultural Diversity comments: In the context of cultural diversity, social computing could act as an enabler for social inclusion in many ways. When IEM [Immigrants and Ethnic Minorities] arrive in host countries, they are faced with various challenges, varying from finding housing, establishing careers and searching for social support, at a point when they have just changed their social networks. Social computing applications provide new forms of social networking and knowledge sharing. Their potential in building and transforming social networks across space and time enable users to expand their social networks and the resources that emerge from these networks, hence their potential to raise social capital. They also allow a great deal of free expression and interaction amongst users, irrespective of their background. This might be an effective way of enabling and supporting social and economic integration. (Cachia et al., 2007: p.2) Empirical studies suggest that there is a complex interplay between ICT and other forms of social interaction. Use of the Internet tends to complement other forms of communication, rather than supplanting them, and ICT can serve as either a positive or negative influence on social capital, depending on the way and context in which it is used (for an extended analysis see Pigg and Crank,
Social Capital and Third Places through the Internet
2004). In communities which already possess high social capital, the Internet provides a further arena for third place activity. It is less clear what the effect will be in less-advantaged communities characterised by cultural diversity, a general lack of trust and a poor sense of community identity. Research reported here, which concentrates on two projects which were introduced in a deliberate effort to employ ICT to overcome perceived low social capital in a marginalised Swedish community, helps to address the issue.
THE SWEDISH CONTEXT Sweden is often cited as being at the vanguard of the Information Society. Most Swedish households have access to the Internet at home and more than three-quarters (79%) of Swedes used the Internet in 2004 (Statistics Sweden, 2004). The extent of use makes the position of those who do not use the Internet all the more disadvantaged. Castells (2001, p. 277) has pointed to the danger of digital exclusion in circumstances where most people are connected: In a global economy, and in a network society where most things that matter are dependent on these Internet-based networks, to be switched off is to be sentenced to marginality… Despite the widespread diffusion of ICT in Sweden across geographical divisions, educational and income levels, gender and age groups, there remain considerable variations in both access and usage, with those occupying more vulnerable social and economic positions or living in marginalised communities being at a heightened risk of exclusion (ITPS, 2003; Statistics Sweden, 2004; Ferlander & Timms, 2006). The Nordicom Internet Barometer for 2002 records that 88 per cent of those aged 25-44 years had access to a PC at a home, compared with only 34 per cent of those aged 65-79 years. Daily use of the Internet varied
between 43 per cent among those aged 25-44 years and 8 per cent among those aged over 65 years. Similar distinctions are found by educational and workforce category and by household size. Ten per cent of those classified as “pensioners” made use of the Internet on an “average” day compared with 26 per cent of those classified as unemployed and 57 per cent of those classified as being in higher service occupations. Eleven per cent of those with an elementary level of education (less than nine years) made use of the Internet on a daily basis, compared with 35 per cent of those who had completed upper secondary education and 49 per cent of those with a three-year university qualification. No data exists on variations in access and usage among ethnic groups, but it may be assumed that the differences between Swedish-born and lower status migrant groups will be of a similar order of magnitude to those generated by the other sociodemographic factors.
THE CASE STUDIES The research reported here is located in a multicultural suburban area of Stockholm, Skarpnäck, about ten kilometres from the city centre. The area was developed in the mid-1980s, with houses arranged in apartment blocks around central carfree courts and has a population of around 8600. In comparison with the rest of Stockholm, the area contains relatively many people belonging to disadvantaged categories, such as single parents, households with low levels of income and residents with a foreign background – categories generally considered to be at higher risk of both social and digital exclusion. In 1998, 28 per cent of the residents had a foreign background (foreign citizens born abroad or in Sweden or foreign-born Swedish citizens), compared with a figure of 18 per cent in Stockholm as a whole, and a similar proportion of all households with children were headed by single parents. In 1999, the median income was 178,000 SEK (cf. 205,200 SEK in
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the rest of Stockholm) (USK, 2000; Ferlander, 2003). There is a high degree of mobility, with many residents being newcomers. The majority of houses are rented from public housing companies. The area has been stigmatised in the media, where it has been described as having ‘high levels of social problems and criminality’. An article in the main Stockholm newspaper Dagens Nyheter (Bengtsson,1999 p.3) was almost apocalyptic: Skarpnäck was to be the new suburb where one had learnt from mistakes from older suburban areas. However,... Skarpnäck is the vision that crashed. The social problems are immense and people are fleeing the area. Still, Skarpnäck is probably only at the beginning of its descent... Today criminality is also a big problem. Of all suburbs Skarpnäck had the highest number of reported crimes per inhabitant in 1996-1997... Nowhere else is the gap between Swedes and foreign citizens as big as it is in Skarpnäck. According to data from the Swedish Research and Statistics Office (Ivarsson, 1997), many residents share the negative perception of the area held by outsiders, expressing dissatisfaction with safety and order, complaining about features like graffiti, vandalism, theft, burglary and violence and bemoaning the lack of local facilities. Surveys of residents conducted in 1999 found a low level of social capital in the area (Ferlander, 2003; Ferlander and Timms, 2007). Respondents reported little local participation or informal support, had few contacts outside the area, exhibited high levels of distrust, perceived considerable tension between ethnic groups and generations, and expressed significantly lower levels of local identity than found in other areas of Stockholm. Skarpnäck was the site of two projects specifically designed to utilise ICT in an attempt to enhance social capital: a Local Net and a publiclyfunded IT-Café.
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LOCAL NETS AND IT-CAFÉS The two ICT initiatives examined are both examples of what Loader et al (2000, p.81) have termed community informatics: Community Informatics is an approach which offers the opportunity to connect cyber-space to community-place: to investigate how ICTs can be geographically embedded and developed by community groups themselves to support networks of people... Local Nets, or Community Networks (Schuler, 1996), are computer networks located in geographically based communities and characterised by a focus on local issues. Their basic goal can be described as the provision of a third place online, which can enhance social capital offline (Blanchard, 2004; Davies, 2004). Digital inclusion and community building are typically stated as explicit goals (Ferlander, 2003). In a wide-ranging review of the community networking movement, Schuler (1996) concludes that Local Nets can serve a variety of important roles in enhancing local social capital, strengthening organizations, providing local information and developing civic bonds. When successful, Local Nets can operate as (virtual) third places, having a playful, convivial atmosphere, where conversation is [a] main activity. They are accessible and accommodating to different people, feel like a ‘home away from home’, where there are neither guests nor hosts, simply regular users who share the space and engage with one another as and when they choose.(Schuler, 1996) The biggest differences between Local Nets and IT-Cafés lie in the way they provide access and the scope of the content they make available.. Both aim to make access as easy and inexpensive as possible, but, whereas Local Nets characteristically provide private access in subscribers’ homes,
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IT-Cafés provide access in an informal public setting, combining IT provision with informal social space. IT-Cafés take a variety of forms (see Liff and Laegran, 2003), ranging from purely commercial undertakings, in which Internet access is an adjunct to a regular café, to centres run by local authorities or voluntary agencies. These latter are frequently presented as means to overcome problems of digital exclusion and to contribute to community development. A variety of names has been used to describe such centres, for example grass-roots Telecentres, telecottages, local access centres, infocentres or community technology centres. An overview of grass-roots telecentres is provided in the web pages of telecentre.org (Telecentre 2009). All local access centres offer access to the Internet and other forms of ICT, but differ in their specific orientation and mode of operation. IT-Cafés emphasise the combination of ICT provision with an informal physical setting in which people are encouraged to relate offline as well as online. This distinguishes them from other access centres, such as those often found in libraries or schools, in which the emphasis is on training and informal face-to-face interaction may actively be discouraged. Local Nets have as their core local pages, providing information and contacts relating to the local area; they may be organised as Intranets, with restricted access to sites outside the confines of the local community. IT-Cafés, on the other hand, provide computer and Internet access which may have few or no geographical constraints. In contrast to Local Nets, where the sharing of space is virtual rather than physical, IT-Cafés exist in a geographically-defined location and participation includes face-to-face interaction. Both Local Nets and IT-Cafés have been presented as means of tackling low social capital in disadvantaged communities, but the volume of research on their impact remains sparse. The need for more robust empirical research on local computer initiatives has been noted by several
writers (e.g. Loader & Keeble, 2004; Ferlander & Timms, 2006; Gaved et al., 2006). The relationship between Local Nets and patterns of informal association has been widely discussed, but subject to relatively little empirical research (Prell, 2003). Even less academic attention has been paid to IT-Cafés (Wakeford, 2003). This chapter aims to examine how a Local Net and a public IT-Café in a disadvantaged area of Stockholm have influenced social capital as indexed by informal and formal association, trust, social cohesion and local identity, and the extent to which they have provided new locations for the development of third places. The projects took place sequentially, but differences in their impact suggest a number of lessons for other efforts to use ICTs in the process of community building. Field research took place between 1998 and 2003 and included a number of questionnaire surveys, focus groups and a series of interviews (for details of the research procedures see Ferlander, 2003).
THE LOCAL NET Skarpnet, owned by the main housing company in Skarpnäck, was one of the first local nets to be established in Sweden and its launch in August 1998 was the object of considerable attention in the media, with positive reports on TV, radio and in some newspapers. Tenants interviewed at the inception of the project were enthusiastic about the potential benefits for social cohesion in Skarpnäck and for its effect on the reputation of the area (Ferlander, 2003). The promotional literature accompanying the launch of the service stated that the overall goal of Skarpnet was to increase social inclusion, especially that of disadvantaged groups, such as immigrants, the unemployed and single-parent families. The language used is redolent of the desire to use the local net as a way of developing a third place online which would lead to greater social cohesion
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offline. As expressed by the Skarpnet manager (a senior officer at the housing company):
the housing company. It should be in the residents’ interest. (Personal interview)
In Skarpnäck, there are many neighbours who meet on the stairs without talking to each other. The aim with the project is to get people engaged with one another, getting to know each other as a way of creating integration. (Personal interview)1
To help meet the goal of community involvement a representative ‘reference group’ was established. The reference group was scheduled to hold regular meetings. Among those represented in the group were the local council, the local community centre, the police, various voluntary associations, including the sports club, the ‘crime prevention’ group and the tenants’ association, and three tenants (including one who was visually disabled). The meetings turned out to be not as regular as had been hoped. Two volunteer enthusiasts living in the area were appointed as ‘ambassadors’ to help create an interest in ICT, provide assistance to novice users and recruit new members to Skarpnet. The goal was to appoint an ambassador in each apartment block, but in the event only two were appointed. In the first stage of the project 234 households were offered a free home connection to the local network by the housing company. These households were chosen as test areas or pilots. In the event only one-fifth of these (46 households) took up the offer and were connected to the Local Net. For households which did not possess a computer with Internet capabilities, around half at the time of the Project’s launch, the alternative was offered of renting a low cost Net Computer (NC). The network infrastructure was provided by a 2 Mbps Telia cable, which already existed in the area. The Project aimed to make access to Skarpnet as cheap as possible. Despite this, financial constraints meant that charges had to be imposed: the price for surfing on Skarpnet was initially fixed at 395 SEK (c. £35) per month, with an additional price of 20 öre per minute online. It was soon realised that these prices were too high, but reductions were late in coming. The aim was connect all tenants of the housing company, 1200 households in the area, and then to extend the Local Net to the remaining 3,400 households in Skarpnäck. The company tried to
Skarpnet had ambitious and explicit goals relating to the enhancement of social capital in Skarpnäck. The Project aimed to improve the reputation of the area, making it more attractive to potential residents and promoting local pride, encouraging those already in the area to stay. It was planned that Skarpnet would provide access to useful information about the community and the services which were available. The interactive facilities of the Net were to be exploited in a variety of ways, for example by offering booking services and chat-lines with local politicians. Other services that the Project Manager planned to provide included distance education programmes, a web journal and an online newspaper.
THE INAUGURATION AND DEMISE OF SKARPNET Skarpnet went online in August 1998. Day-to-day responsibility for Skarpnet rested with a single enthusiast, a manager in the housing company. Several organisations and funding bodies, including the city council, initially expressed interest in Skarpnet, but failed to provide any funding. It was recognised that the creation of a successful Local Net required the participation of all groups in the area. The need to involve residents in the running of Skarpnet was recognised by the Manager: As a housing company we should definitely not run a Local Net. It is not our role in society. It may be too much directed towards the interest of
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persuade the other housing agencies to join the Project. At first, there was considerable interest, but the interest cooled with time and the other agencies eventually signed a networking contract with a different operator offering ADSL broadband, a technology that came later and was cheaper. Access to Skarpnet was controlled through passwords. Postings were monitored, enabling the Manager to keep track of people’s pattern of usage and the content of their messages. A number of rules were laid down, including prohibitions on postings judged to be racist or pornographic. In addition, and more controversially, given the number of foreign-born migrants and other ethnic minorities in the area, users had to write in Swedish. By the end of 1999, 16 months after its inception, only one-sixth of those eligible, about 200 households, had signed up to the Local Net. Usage statistics are not available, but interview data suggest that few people made more than occasional visits to the site and little of the promised content was made available. Few local agencies supplied up-to-date information and the promised interactive facilities were largely dormant. According to one interviewee (Magnus, 58): I don’t visit Skarpnet very often … There’s nothing there... You can’t even get into the ICA [the main local food store]. One of the ambassadors (Anders, 48) noted that, to be successful, Skarpnet has to include more content. It cannot only include fault reports to the housing company. It has to be something attractive so that people feel involved in it. For example on the Internet you can go to AltaVista and search for a word and get 3000 or 30000 hits … and spend hours online, but not on Skarpnet. It’s like being in a small flat, you walk round it pretty fast. Far from the vibrant social space described by Schuler (1996) - an online third place, where
people drop in to enjoy “a playful, convivial atmosphere, where conversation is [a] main activity” - Skarpnet remained a barren and formal space. Thomas (31) was pessimistic about its future: I want to meet people [on the Net], but there is nobody there. How many actually visit the local site? I think the most important thing to do is to advertise it more, [along the lines of]: ‘Everyone who has a computer should visit the site, where you can chat, exchange ideas and adverts!’ Then there would be some life, but a site without content is utterly worthless, especially since not even half the residents are connected. The risk is that it will die if not put up properly. The initial enthusiasm and general optimism expressed by the residents of Skarpnäck about the Local Net proved to be misplaced. Problems arose in terms of finance and management and in relation to the technology. It had been intended to help finance the Project through commercial adverts, but no companies paid for advertisements, which made it even more difficult to involve others or to attract new users. In addition to the lack of partners and financial difficulties, several technological problems affected Skarpnet. The Internet provider was not able to maintain the promised standards, resulting in irritation among users, especially novices. The booking system for the laundry rooms did not work properly, most of the other forms of booking never materialised and the promised NCs were delayed. Near the end of the Project, in order to include as many users as possible, the restriction on access to the Local Net, which required a specific password, was lifted and the Intranet-based Local Net was replaced by more general Internet access, with the Local Net being available to all free of charge. By then, however, it was too late. According to the Manager, speaking with hindsight in 2000:
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Today we should never have started with an internal Intranet, but that was the only possible solution at the time. Today when there is a fixed cost and one can surf as much as one likes, the idea falls totally. When you work with the Internet there is no need of an Intranet and you can include anyone regardless of what system they use. (Personal interview) As result of the slow take-up and the other problems, it was decided to close Skarpnet at the end of 1999. Although Skarpnet itself disappeared as a separate project, the interest and enthusiasm it had aroused resulted in a further development. Phoenix-like, an IT-Café, supported by the local council, emerged from the remnants of the Local Net.
THE IT-CAFÉ The IT-Café was officially opened in April 2000, following a campaign by local residents, including several who had been involved in Skarpnet, complaining about the lack of local meetingplaces and services. The Café was opened and sponsored by a combination of the local council, the two main housing associations in Skarpnäck and an Internet provider. It was located in the local community centre, the Culture House, situated on the main avenue which runs through the centre of Skarpnäck, within easy walking distance of the underground station connecting the suburb with the city centre. The Culture House contained a number of other facilities, including a library, cinema, play area and meeting rooms. In a survey of Stockholm residents’ views of public services, conducted in 1997, the Culture House emerged as one of the most highly regarded community facilities in Skarpnäck (Ivarsson, 1997). The full-time staff of the Café consisted of a single person, the CaféManager, a network technician who lived in the area, had been one of the users of Skarpnet, and
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had a background in community work. The Café was open daily from Monday to Friday and on one evening a week. Visitors to the Café were offered access to computers and the Internet, with, if needed, IT-support and help from the manager. The Café also offered several computer courses for its visitors, including ones specially designed for elderly users and another for Spanish speakers. The Café was easily accessible by wheel chair users and had a well-used coffee area, where visitors were encouraged to chat and hold meetings. The IT-Café offered subsidised access to computers and to the Internet. The prices were relatively low: 10 SEK (£ 0.80) for half an hour, 20 SEK (£ 1.60) for an hour and 100 SEK (£8) for a monthly membership card, which gave unlimited access during the opening hours of the Café (with a maximum of one hour if the Café was full). The equipment available to all users consisted of 13 computers, two printers (one colour and one black and white), a scanner, a fax, a digital camera and a computer projector. All the computers had Internet access and were loaded with basic productivity tools.
THE IT-CAFÉ AS A THIRD PLACE The stated aims of the IT-Café were similar to those of Skarpnet. Both digital and social inclusion were stated as goals and the Café aimed to provide a welcoming environment, combining ICT training with the encouragement of social contacts, especially among migrants and across generations. As stated on the home page, the intention was: To increase knowledge about the new media and to create a place where people, old and young and from different nationalities, can meet and in that way increase communication between people in the area. (Home page, accessed 2000)
Social Capital and Third Places through the Internet
The Café made a determined effort to attract groups that might otherwise be excluded from the Information Society, such as elderly people and people with a foreign background. An 81-year old interviewee explained: The Café approached us pensioners because we are a group that doesn’t work and who need to learn about computers. There was great interest from the whole of Skarpnäck and beyond. I took part in two courses and learnt a lot. The Café appears to have been especially successful in attracting pensioners. More than a quarter, 28 per cent, of the Café users who replied to a survey of visitors, were aged over 65 years and older, compared to none among the users of Skarpnet and 11 per cent in the population of Skarpnäck as a whole. Visitors to the Café included significant numbers of single parents and the unemployed. A wide variety of mother languages was represented including Danish, Estonian, Finnish, Indonesian, Italian, Norwegian, Persian, Polish, Romany, Russian, Serbo-Croat, Turkish and Urdu. A Spanish-speaking group met weekly in the Café. Eva (48) commented on the diversity of Café visitors: “Every time I have been here it has been very mixed.” Katitzi (26) described ways in which the Café operated as an archetypal third place, encouraging bridging relationships across groups: I have got in touch with many people in the Café. If you sit here you naturally talk to other people – different people: immigrants, Swedes, youngsters... If you make a joke everyone laughs... It’s a kind of meeting-place for everyone. Not just a youth club or something only for the mentally ill. This is something for everyone. Jurgita (47) noted that People socialise in the Café. I’ve seen that. And my children have met other children here.
Greta (81) stressed ways in which the Café helped to break down barriers between the generations: Today the girl next to me has helped me. We became friends. They are so ‘sweet’, these young people! Observing cross-group interactions, the Café Manager noted I feel quite touched when I see a youngster helping an elderly person or when an immigrant asks straight out in the room about the spelling of a word. These things happen here in the IT-Café, and I definitely think that the Café integrates people in Skarpnäck. The Café was instrumental in developing both bridging and bonding relationships and provided a third place combining online and offline interaction. When asked whether visits to the Café had led to any new relationships, bridging differences, more than two-fifths of visitors stated that they had developed friendly contacts with people different from themselves in terms of age or nationality (43 per cent), 38 per cent reported new relationships across the gender divide and 18 per cent said they had made friends with people with different interests to themselves. Similar proportions mentioned that they had made bonding contacts with people they had not met before, but who were similar to themselves in terms of age (47 per cent), interests (38 per cent), nationality (18 per cent) or gender (18 per cent). Several users commented that the experience of working alongside others in the Café had increased their general level of trust and confidence in others in Skarpnäck. Birgitta (59) addressed the issue specifically: You get a feeling that people who come here are pretty decent... It is not the same feeling when you go down in the underground in the city. Then another feeling appears. When you come in here,
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without thinking about it, you take it for granted that the people are pretty decent. This may increase general trust in the area. Many users explicitly appreciated the combination of face-to-face meetings and access to the Internet which the Café provided. Some specifically contrasted the social setting provided in the Café with the experience of going online at home. Margareta (68), a pensioner living on her own, was explicit: I don’t want the Internet at home because then I would be stuck at home. And I don’t want that. It’s so easy to come here and it is also so nice. Similar sentiments were expressed by a younger visitor (Lucia, 22): If you just sit in front of the computer at home, you may have difficulties in face-to-face contacts and become isolated. Birgitta (59) noted: It may well be that people who come here are a bit lonelier than the average… I sometimes come here for that reason, since I work on my own I spend a lot of time at home on my own writing. Then I may as well go to the Café to print etc. and at the same time meet some people. I think the IT-Café can replace something for lonely people who find it difficult to get in contact with other people. Here you can get out and get contacts on the Internet via the computer. When you come here you don’t feel totally lonely. There are other people here in the Café as well as people to chat with on the Internet. Visitors made contact both online and offline. Immigrants used the Web to read papers from their homelands and to email friends and relatives. Lucia (22) noted that “Thanks to email I can keep in touch with my family in Italy”. Jurgitta (47)
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found people online (in the USA) who shared her interest in pit-bull terriers. Julio (24) and Ricardo (22) used the Internet to chat with girls “from all over the world” as well as maintaining contact with girlfriends elsewhere in Sweden. Maria (31), a single parent, used the web to contact others in a similar position: Through reading all the emails it was easy to find someone I felt a little bit extra for. I got in touch with a couple of mothers who had had similar experiences as me. They replied and I kept in regular contact with one of them. Being able to find someone like that is fantastic! Katitzi pointed out You can talk about everything between heaven and earth with people on the Internet... I think the Internet leads to the creation of different interest groups and if you join those kinds of groups, for example about music or other things, you can find people with similar interests. And perhaps meet with them face-to-face. Considerable pride was expressed in the fact that Skarpnäck was the home of a local IT facility. Katitzi observed: I think it was a super idea. Skarpnäck needs an IT-Café instead of cutting every-thing important here. A computer is something everyone needs just now....It just struck me: I hope they don’t close this place too! Then it would really be so bloody dead here! … I think Skarpnäck becomes more attractive. It’s a cool thing! When I heard there was something new I thought ‘WOW – they have come up with a great idea!’ First, everyone likes computers in some way. If you haven’t tried them you will do it anyway since it is there all the time. Second, it simply attracts people. It really does! It looks good for Skarpnäck’s appearance. If you compare with Kärrtorp and Björkhagen [neighbouring suburbs], there is nothing. As such,
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people come from the whole of the Green Line [the underground line connecting Skarpnäck with the city centre], so, of course, it looks good.
THE IMPACT OF THE LOCAL NET AND THE IT-CAFÉ ON SOCIAL CAPITAL In view of the limited take up of Skarpnet, it is not surprising that it appears to have had little if any impact on social capital in the area. Even among the few people who registered for the service there is no indication of their having developed more contacts in the area, being more trusting of people in general or of public officials, or believing they had much in common with their neighbours. The only positive result was in terms of the use of the Local Net as a way of exploring the Internet, echoing the concern expressed by Doheny-Farina (1996) that Local Nets might come to resemble a “dying mid-town shopping centre”. The IT-Café was much more successful as a tool for enhancing social capital, certainly as far as its visitors were concerned. In contrast to non-visitors, Café visitors had more friends, were more trusting of others in general and public officials in particular, were less likely to perceive tensions between ethnic groups or the generations and had a much more positive image of Skarpnäck (Ferlander and Timms, 2006). The Café succeeded in developing bonding links between groups of similar individuals and bridging links across divisions, both within Skarpnäck itself and across the wider society. In each case the contacts were both online and offline. The IT-Café is a close fit to Oldenburg’s description of third places: spaces where people meet together, without deep commitment, in a friendly, semi-structured and non-frightening environment. The informality of the Café was a major factor in its success, distinguishing it from other public access points, such as those provided in libraries and schools, which are more likely to stress
bureaucratic procedures, may be perceived as intimidating and have an instrumental orientation. The literature on community development (e.g. Gilchrist, 2004) stresses the role which open and welcoming third places such as the IT-Café can play in fostering social relations among otherwise divergent groups, providing places “where people meet each other regularly, exchange pleasantries and eventually begin to form low-intensity but potentially helpful relationships” (p. 94). Effective third places provide the basis for the development of the well-connected community... based on flexible, self-reliant networks that contain, or have links to, a ‘sufficient diversity’ of skills, knowledge, interests and resources for the formation of any number of possible groups and collective initiatives. (Gilchrist, 2004, p. 94) In communities characterised by heterogeneity and social divisions, such as Skarpnäck, third places are spaces where social capital can be maximised. They provide a neutral space where people from different backgrounds can meet, in the process exploring both the things which bond them together and those which bridge differences. The IT- Café facilitated such ties both online and offline.
REASONS FOR SUCCESS AND FAILURE According to Rao (2001), successful community networking initiatives must be integrative, participatory and sustainable, build upon local knowledge bases, serve educational functions and support local decision-making in a context of global networking. Unfortunately Skarpnet failed to meet any of these criteria. The design of the Project included the development of a local steering group but this did not materialise and the management of Skarpnet was left in the
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hands of a single housing officer. The insistence on Swedish as the language for postings deterred many residents from non-Swedish backgrounds. The failure of the local authority and commercial organisations to provide financial support meant that the Project rapidly became a non-sustainable charge on the housing company. As users noted, little local information was provided and the facility to take part in online discussion forums was largely still-born. The site effectively failed as a social space. Similarly, nothing seems to have come from the plans to use the Local Net for the provision of educational materials. Only a year or so after its inauguration Skarpnet, had become little more than a gateway to the Internet. Good intentions and public enthusiasm were not able to compensate for the lack of involvement and lack of content which eventuated in the demise of Skarpnet. The failure of Skarpnet to act as a site for local community participation is in sharp contrast to the success of the local net in “Netville”, a middle-class suburb of Toronto, described by Hampton and Wellman (2002, 2003). In Netville take-up was extensive and the local net led to an increase in social participation and civic involvement. Similar findings are reported for Blacksburg Electronic Village (Kavanaugh, Cohill & Patterson, 2000). In contrast to Skarpnäck, both Netville and Blacksburg were characterised by high social capital before the installation of the community network, adding to the hypothesis that the successful use of a local net to enhance local participation may demand that social capital is high before the introduction of the technology. Where users are relatively isolated, untrusting and uninvolved, the provision of a local net, by itself, may not be sufficient to enhance social capital. Indeed it may actually be deleterious, exaggerating differences between those who are confident users and those who for one reason or another find themselves excluded. The IT-Café in Skarpnäck satisfied all the criteria for the success of community networking
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initiatives outlined by Rao and added to these the combination of online and face-to-face interaction in a friendly and supportive environment. It functioned both as a physical third place and as a facilitator of online participation. The role of the Manager and the location of the Café in a wellused Community Centre were pivotal to success. As Berry, Harris and Jones pointed out in 2002 (p.1), describing the development of successful IT access centres: Access centres function best as part of wider generic community resources that attract local people for a range of activities....Where they are part of generic community resources, access centres fulfil fundamental social roles that contribute to government objectives on community cohesion, social capital, and community capacity building. They reach parts that other agencies cannot reach, and seen in this context they justify public funding. Such funding would need to reflect recognition of their role as community sector resources rather than as centres of formal learning. The Café Manager served an important brokerage role. By specifically targeting groups of the population who were otherwise at risk of both digital and social exclusion – for example, pensioners and members of minority language groups – he was able to extend the appeal of the Café. Through a stress on informality and peerassistance he was able to ensure that the Café operated as an archetypal third place at the heart of the community. People were able to drop in, use the Internet and chat, both online and offline. Even if they were not involved in immediate faceto-face interaction - though they often were – the fact that they could share the environment provided a basis for the development of mutual respect and trust. In the process they developed both bonding and bridging social capital. Immigrants were able to bond with others in their country of origin and to use the Internet to get up-to-date information and views about their homeland. At the same
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time, they were also able to develop bridging links with other members of the Skarpnäck community whom they met in the Café and to use the Internet to access other resources. Pensioners chatted with each other, online and offline, but also related to young people. Unemployed people used the Net to search for jobs, but also discovered other interests they shared. Single parents used the Web to share experiences and to make contact with others in similar circumstances, some within Skarpnäck, others elsewhere. The IT- Café operated as a third place in both physical space and, to a lesser extent, in cyberspace. It offered an informal public space where people from differing backgrounds met together in a safe and supportive context and jointly explored the opportunities offered online. It typified the communal place “which people use for specific purposes, but where they will also encounter on an equal basis people with different needs and lifestyles” (Gilchrist, 2004, p.93. Emphasis in original). Those who used the IT-Café were more trusting, had more friends and had a heightened sense of community identity than non-users. The development of bridging and bonding ties both offline and online across and among the diverse ethnic and generational groups who used the Café was a significant contribution to social capital.
THE PROBLEM OF SUSTAINABILITY: AFTER THE IT-CAFÉ Despite the apparent success of the IT-Café as a popular third place, its survival was not guaranteed. In common with many similar projects, it was dependent on the commitment of its Manager and the availability of public funds. Neither of these proved sustainable. It has long been characteristic of community development projects that they operate on relatively short-term financial and managerial arrangements. The IT-Café was no exception, with funding generally being provided on a year-by-year basis.
Obtaining funds depended, to a large extent, on the ability of the Manager to negotiate support from local politicians. These negotiations became increasingly difficult as the years progressed and funding was constantly under threat. The “project mentality” meant that an increasing amount of effort had to be devoted to securing next year’s funding, rather than expanding the services available. In the light of this, it was not surprising that the Manager decided to leave the Café in 2004, some four years after its opening and two years after the field study reported previously. Commenting on a community IT centre in south-west England, Liff and Steward (2001, p.341) note that the networking required to ensure support from funding bodies was often sustained at high personal cost to the individuals concerned in terms of hours of work and/or low levels of pay and yet can be shown to be vital to the centre’s successful operation. Following the resignation of the original Manager, a new Manager, from outside the area and with a background in teaching and audio-visual production, rather than community work, was appointed to run the Café. A number of changes were instituted in the operation of the Café. These involved closer integration with the other activities taking place in the Culture House and a concentration on audio-visual activities. The new centre, renamed as the Mediaroom (‘Medierummet’), was open on a more restricted basis than the old Café – three afternoons a week rather than daily. Its website invited residents in Skarpnäck to ‘Come and make films, surf, study or why not email local politicians?’ Usage statistics are not available, but it appears that there was a considerable change in the nature of the visitors to the centre, with pensioners largely dropping out and being replaced by children and young people, mainly interested in playing games and generally ‘hanging-out’. There is little evidence of any concerted attempt
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to widen the clientèle of the Centre, perhaps trying to re-engage the pensioner and foreign-born users who had been attracted to the IT-Café in its earlier guise. Resources were not forthcoming to enable the centre to update its equipment or to introduce new training programmes. In these circumstances, it is little surprise that the Mediaroom lost its local authority support. Financial aid was withdrawn in 2008 and at the end of November that year the Mediaroom was closed. The web page for the facility contains a simple announcement that it is closed and refers visitors to local libraries and to unspecified Internet Cafés elsewhere in Stockholm.
CONCLUSION: LESSONS FROM SKARPNÄCK Despite the enthusiasm and good intentions of its proponents, the Local Net in Skarpnäck was essentially still-born. Its failure to attract local users and local content meant that it failed to provide an online third place and it had little or no effect on social capital. The technology adopted, designed to be user-friendly, failed to deliver and users found it difficult to get support. Insufficient attention was paid to attracting relevant local material and Skarpnet effectively became a portal to the worldwide web rather than a facility to be used by and for the local community. Few people bothered to log into the system, further reducing its attractiveness. The policy of insisting that all messages be in Swedish disenfranchised many residents in what is a multi-ethnic community. Paradoxically, what had been intended as a vehicle for enhancing a feeling of commonality and community identity had the effect of emphasising differences. The centralization of management and the lack of community involvement in the running of the local net contributed to the belief that it was a creature of the housing association, rather than something which belonged to the community. Good intentions, high expectations and
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the provision of ICT are not sufficient in and of themselves to guarantee their use for community building. If it is to help in the enhancement of social capital, a local net must be rooted in the community, cheap and easy to use by everyone, present relevant information and services, and encourage local participation. The IT-Café addressed many of the weaknesses which plagued the earlier initiative. It used standard technology and had assistance on hand for those who were unfamiliar with its use. Training was available, designed to meet varying needs, and peer-support was encouraged. For four years, between 2000 and 2004, the Café provided a third place in the centre of the community. As a physical meeting place, it offered a neutral and supportive environment in which a variety of different groups, who otherwise had little contact with each other, came together, practised new skills and developed new relationships. Membership was socially inclusive and the Café was conveniently located and accessible. Users included a regular core, the atmosphere was friendly and support was available enabling people to develop their skills. The Manager acted as the facilitator of both online and offline interaction and succeeded in appealing to a wide cross-section of the community, spanning age, gender and ethnic divisions. Stress was placed on the use of ICT to connect with others and users reported a variety of ways in which they had developed bonding relationships with people sharing similar backgrounds or interests both within the local area and on a world-wide basis. Bridging relationships, crossing ethnic, generational and political divides were also developed..Within the group of users new friendships came into being between Swedish-born and foreign residents and between pensioners and youngsters. The Web was used to seek out information relating to job opportunities, health issues and a range of cultural matters. The Café provided a fertile ground for the development of enhanced social capital and those who used it reported significantly higher levels of participation and trust than non-users.
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The apparent success of the IT-Café as a tool for enhancing social capital was not sufficient for it to make the transition from project to core-funding status or to raise other sources of support which would guarantee its continuation. To be sustainable, local facilities need to be firmly embedded in their community, attract support across political divides and have a financially-viable budget. The transition from IT-Café to Mediaroom weakened these supports. Rather than being perceived as a third place for the whole community, the Centre came to be seen as an expensive facility for groups of people, mainly youngsters, who could be catered for in other ways. In an era of public economies the demise of the Centre became all but inevitable. In his editorial introduction to a special issue of the Journal of Community Informatics devoted to the topic of sustainability Gurstein (2005, p.3) points out that the challenge is to make the uses of ICTs in communities so transparent in their implementation and so compelling in their application that the issue of sustainability in effect disappears. To attract public funding ICT initiatives must be seen as providing a general community service. However, if the facility is seen as only providing a service to specific individual users, then the model of sustainability must necessarily be one of identifying individual revenue sources (fees for service) and immediately puts the facility into the context of market driven mechanisms. (Gurstein, 2001, p. 279) Whether based on ICT or other forms of communication, interventions designed to enhance social capital must be owned by the communities involved and have secure funding. Although the IT-Café was well-regarded by the residents of Skarpnäck it was not able to sustain support across political parties. A commercial model, relying on user fees and financial contributions
from businesses was not considered feasible or desirable. Instead reliance was placed on obtaining a succession of short-term grants from local government agencies. This approach imposes a heavy burden on project managers, diverting attention from service provision to the chase for finance. It seems inevitable that the chase will eventually fail. To be self-sustaining local centres need to mobilise a variety of resources, utilising the time and energy of local volunteers and attracting financial contributions from users as well as service providers. These contributions are difficult to mobilise in disenfranchised communities and require an additional set of brokerage activities on the part of managers. The evidence from Skarpnäck is that ICT can be an effective tool in community building, but the provision of access by itself is not sufficient. In communities which already possess high levels of social capital, local nets can provide a valuable local facility, providing an online third place which encourages participation and facilitates social action both within and out-with the local community. In communities with a lower level of social capital, in which a sense of local community is weak, more is required. The provision of a physical location, where people can meet together on “neutral” ground in a friendly and supportive environment, is likely to be particularly important in areas where divisions and mistrust are high and people have low confidence in their abilities. What is on offer, online and offline, must be seen to be relevant and responsive to local concerns. To be successful in community-building, ICT initiatives need to be rooted in the community, able to mobilise financial and other forms of support and be perceived as being significant local assets. Successful community ICT initiatives have a reciprocal relationship with social capital (Simpson, 2005). They need to address bonding and bridging relationships within and out-with the local area and to provide third places in which members can come together. ICT provides a useful set of tools for community building, but it is the
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way in which they are used and the social context in which they are embedded which are of prime importance.
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Gurstein, M. (2001). Community Informatics, Community Networks and Strategies for Flexible Networking. In Keeble, L., & Loader, B. (Eds.), Community Informatics: Shaping Computermediated Social Relations. London: Routledge. Gurstein, M. (2005). Editorial: Sustainability of Community ICTs and its Future. Journal of Community Informatics, 1(2). Retrieved July 3, 2009 from http://ci-journal.net/index.php/ ciej/artcile/ view/230/186 Halpern, D. (2005). Social Capital. Cambridge: Polity Press. Hampton, K. (2003). Grieving for a Lost Network: Collective action in a wired suburb. The Information Society, 19(5), 1-13. Retrieved July 3, 2009 from http://www.mysocialnetwork.net/ downloads/mobilization-final.pdf Hampton, K., & Wellman, B. (2003). Neighboring in Netville: How the Internet supports Community and Social Capital in a Wired Suburb. City and Community, 2, 277-311. Retrieved July 3, 2009 from http://www.chass.utoronto.ca/~wellman/ publications/.../neighboring/ neighboring_netville.pdf ITPS, Swedish Institute for Growth Policy Studies. (2003). A Learning ICT Policy for Growth and Welfare, ITPS’s final report on its assignment of evaluating the Swedish ICT policy. Stockholm: Elanders Gotab. Ivarsson, J.-I. (1990). Medborgarinflytande i Stockholm. Levnadsförhållanden och medborgaraktiviteter i sex stadsdelar. [Stockholm: USK.]. Utredningsrapport, 1990, 4. Ivarsson, J.-I. (1993). Stadsdelsnämndsförsöken i Stockholm – invånarnas reaktioner och synpunkter. [Stockholm: USK.]. Utredningsrapport, 1993, 3.
Ivarsson, J.-I. (1997). Så tycker brukarna om servicen i stadsdelen. [Stockholm: USK.]. Utredningsrapport, 1997, 3. Ivarsson, J.-I. (2000). Servicen i stadsdelen 1999 – så tycker brukarna, jen ämförelse med 1996. [Stockholm: USK.]. Utredningsrapport, 2000, 1. July 3, 2009, from http://www.isoc.org/oti/articles/0201/rao2.html Katz, J. E., & Rice, R. E. (2002). Social Consequences of Internet Use. Cambridge, MA: The MIT Press. Kavanaugh, A., Carroll, J. M., Rosson, M. B., Zin, T. T., & Reese, D. D. (2005). Community Networks: Where Offline Communities Meet Online. Journal of Computer-Mediated Communication, 10(4). Retrieved July 3, 2009, from http://jcmc. indiana.edu/ vol10/issue4/kavanaugh.html Kavanaugh, A., Cohill, A., & Patterson, S. (2000). The use and impact of the Blacksburg Electronic Village. In Cohill, A., & Kavanaugh, A. (Eds.), Community Networks: Lessons from Blacksburg. Norwood, MA: Artech House. Liff, S., Fred, S., & Watts, P. (1998). Cybercafés and Telecottages: Increasing public access to computers and the Internet. Survey report, Virtual Society? Programme, Economic and Social Research Council, United Kingdom. Retrieved July 3, 2009 from http://virtualsociety.sbs.ox.ac. uk/ text/reports/access.htm Liff, S., & Laegran, A. S. (2003). Cybercafés: Debating the Meaning and Significance of Internet Access in a Café Environment. New Media & Society, 5, 307–312. doi:10.1177/14614448030053001 Liff, S., & Steward, F. (2001). Communities and community e-gateways: Networking for social inclusion. In Keeble, L., & Loader, B. D. (Eds.), Community Informatics: Shaping ComputerMediated Social Relations. London: Routledge.
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ENDNOTE 1.
All interviews were conducted by Sara Ferlander. The majority were in Swedish.
Translations are by the researchers. All names of interviewees and other informants have been changed. All those quoted have given permission.
This work was previously published in ICTs and Sustainable Solutions for the Digital Divide: Theory and Perspectives, edited by Jacques Steyn and Graeme Johanson, pp. 199-217, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.4
Cross-Cultural Challenges for Information Resources Management Wai K. Law University of Guam, Guam
INTRODUCTION Western organizations have led the globalization of business operations, especially in the deployment of multi-domestic strategy. The decentralized organizational control and customized operations support the fast penetration of huge global markets. Western management theory considers information the lifeblood of organization. The sharing of information lubricates the interlocking divisions within the organization, promoting the effective achievement of organizational goals with exterDOI: 10.4018/978-1-60960-587-2.ch704
nal business partners. However, in many regions of the world, information represents power, and managers often try to accumulate as much of it as they can while denying access to others (Oz, 2002). For others, the disclosure of information is considered a threat to the span of management control (Rocheleau, 1999). In some cases, administrators could be more interested in the scale of the information system and its associated budget, than the capability and functionality of the system (Kalpic & Boyd, 2000). These are examples of conflicting cultural values in a cross-cultural environment. The introduction of Western management approaches conflicts with regional administrative
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styles, diminishing the effectiveness of information systems (Raman & Watson, 1997; Shea & Lewis, 1996). Sensitivity to cultural differences has been recognized as an important factor in the successful global deployment of information systems. Minor information management issues potentially resolvable through improved communication in the west often manifest as major challenges in a cross-cultural environment.
BACKGROUND The literature provided thorough coverage on designs, development, and implementation of computer-based information systems (CBIS). Numerous studies examined various systemssolutions for organization needs (McLeod, 1998; O’Brien, 2002). However, the projected value of information technology has been formulated based on a rough assessment of the possibilities without full appreciation of the limitations due to resistance to organizational and social changes (Osterman, 1991). Increasingly, management realized that massive deployment of information systems on a global basis, even with prudent management of the systems, has not been producing the desirable outcomes of value generation. Recent studies revealed the significant influence of cultures toward the success of transferring information technology beyond the Western world. National culture, organization culture, and MIS culture induced influence over the successful development and management of information resources (Hofstede, 1980; Raman & Watson, 1997). Shea and Lewis (1996) suggested the desirability of placing close attention to user absorptive rate in the transfer of new technology into a different cultural environment. It became apparent that adaptation of information system designs to new cultural environments was insufficient to guarantee successful implementation. User selection of technological features, driven by cultural preferences, could be a key factor for designing infor-
mation systems in multi-cultural environments. Other studies reported the numerous obstacles of developing CBIS under various cultural settings, even with highly motivated leaders to support the deployment of information systems (Al-AbdulGader, 1999; Raman & Watson, 1997). The information system function must enhance user effectiveness and efficiency in utilizing the information to improve value delivery for the organization. New challenges emerged as nontechnical issues clouded the measurement of information system performance. A typical information system would be designed to provide information to users with common needs. Good data reports should contain all the required information with accurate representation of events. The reports needed to be generated in a timely fashion and in a format usable by the users (McLeod, 1998). However, individual users tended to value information systems for providing custom reports to meet individual needs in specific circumstances (Heeks, 1999). Inconsistent expectations in a cross-cultural environment crippled the effective management of information resources. Cultures carried different interpretations for timeliness, completeness, and relevancy of information. Makeshift management decision generated new dynamics in several ways. In the spirit of promoting free information exchange, the department that owned the information system became obligated to provide information to others (Oz, 2002). However, the new responsibility seldom came with additional resources. The information owners became reluctant to supply information; doing so would take away resource from other regular tasks (Davenport, 1997). Some managers shifted the data reporting responsibilities to other divisions, creating a bureaucratic nightmare for the users. Some ignored data requests, and others manipulated the data flows with respect to organizational politics (Oz, 2002; Rocheleau, 1999). Those working in the public sector faced the challenge of maintaining a delicate balance as they attempted to fulfill their responsibilities for
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both confidentiality and access to data (Duncan, 1999; Osterman, 1991). The problems would be more severe under a relationship-based culture where favors could not be declined. Cultural backgrounds shaped the preferential information system model. In some cultures, managers would be intuitive, and feelings based, and have vague expectation for the performance of the information system. There would be more emphasis on group harmony and saving face than actual problem solving (Bjerke, 1999). Others would be more interested in meeting obligations, ignoring the source and validity of the reports. The controlling manager seeked a complex and broad information system providing qualitative data (Kluckhohn & Strodtbeck, 1961; Lane & DiStefano, 1992; Shea & Lewis, 1996). All these personality extremes co-exist in a cross-cultural setting, making it more challenging to design systems than a single culture environment. The perceived value of information resources became less predictable in cross-cultural environments.
CROSS-CULTURAL IRM CHALLENGES The rapid expansion of Western influence on a global basis created an environment under the crosscurrents of Western corporate culture and regional cultures. In recent years, Western organizations have invested heavily in information technology (IT), turning it into an important tool, especially for the rapid expansion of business operations to global locations. Many organizations were surprised by the turbulence associated with the global deployment of information technology. Management encountered new challenges as national workers joined the global team in serving customers from diversified cultural backgrounds. The national workers tended to hold on to their traditions, diluting the penetration of Western influence in the workplaces. The predominating regional workforce challenged Western corporate
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culture through their deep-rooted traditions and work habits. For example, a massive absenteeism could be expected on festival days, even without approved leaves or holidays. Timely arrival at a meeting could be accepted as up to several hours after the scheduled time. Mandated reports could be excused without penalty, and the uttermost concern to preserve group harmony over efficiency. Sometimes, this meant ignoring facts to restore stability and group harmony. Periodic acquisition of technology would be celebrated even without the appropriate infrastructure support, preventing the proper usage of the technology. Cross-cultural IRM issues emerged as significant challenges in cross-cultural environments.
Challenge 1: Information Resources Perception Challenges Even as IT is transforming the world, a majority of the world’s population still has limited understanding of information as a resource. The concepts of information resources escape the mind of even seasoned managers in the Western world. Potential cultural myopia requires great efforts to communicate the principles of information resources management.
Perception Challenge 1: Cultural Acceptance of IRM Practices In a cultural environment that lacks appreciation for information resources, management must champion data planning and skillfully align the information support needs throughout the organization. In cultures where gesture is more important than details, systematic failure to collect information would be accepted and forgiven. Information systems applications are often limited to payroll and accounting (Kalpic & Boyd, 2000). In some cases, the lack of adequate information is the key to assure continuing financial support, and the scale of the information system acquisition
Cross-Cultural Challenges for Information Resources Management
could be more important than the functionality. Organizations are unprepared to collect and store data to support meaningful decision support applications. A common pitfall is the underutilization of expensive information systems.
familiar tasks by deferring to workers with little technical background. Unmotivated managers neglect data quality and resist data distribution. Administrator turnovers cause discontinuity in data resources development.
Perception Challenge 2: Information Resources Considered as Capital Expenditure
Perception Challenge 4: Information as a Freely Available Resource
Funding is a necessary but insufficient condition for information resource development. The lack of proper organizational infrastructure dooms information system projects. Deficiency in organizational data is often related to the lack of capital spending in IT resources. This perception underestimates the requirements for system analysis, data architecture development, data security and distribution, maintenance, technical support, and user training. Lack of organizational readiness stalls the deployment of information systems. Inflated expectation and uncoordinated usage of data services nullifies the value of the information systems. Erratic funding pattern destroys development projects, making it extremely difficult to retain technical personnel. Poor maintenance damages equipment and threatens data integrity. Cultural managers eager to modernize without fully understanding the implications of information resources management eventually abandon their support for information resources.
Perception Challenge 3: Information Resources Development by Delegation Information resources development without central coordination creates confusion and depresses the perceived value of information resources. Management seeking an easy fix to the organizational data problem mandates data compilation by the functional divisions. Besides undermining information resources as a critical organizational asset, divisional managers tend to avoid the un-
The true value of information emerges from its effective distribution to end users. Information distribution is an expensive service. Information resources can be compared to utility services such as water, the value of which relies on reliable and effective distribution with assured quality and sufficient supply. Often neglected is the accountability of the value contribution of information system, beyond periodic technical improvements. There is a need for benchmark studies to identify cost performance, as well as the critical roles of information resources within the organization.
Challenge 2: IT Transfer Challenges The design objectives of information systems must expand from efficiency orientation to adaptive accommodation of cultural habits. It becomes desirable to allow and track dynamic modification of data processing procedures according to shifting organizational and cultural influences. While a primary design objective of information systems is to facilitate efficient transaction processing, often the affected human system is slow to accept the implicit MIS culture embedded in the system design. Western cultures emphasize timeliness and accuracy, which are less important to other cultures (Kaufman-Scarborough & Lindquist, 1999; Straub, Loch, & Hill, 2001). For example, it often takes months to update databases from paper documents. Some users rely on the information system for information, while others insist on paper documents only. Hence circulation of multiple versions of reports is common
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Cross-Cultural Challenges for Information Resources Management
depending on the sources of the reports. Parallel operations to accommodate parallel cultures generate organizational conflicts. Influential users and administrative interventions threaten the integrity of information systems. The full potential of information systems is suppressed in preference for cultural norms, and only system features that do not threaten cultural practices would be allowed to remain. Some local cultures put more emphasis on protecting family members than performance appraisal. The value of information is not as much for improving decision making, but to endorse group position, to preserve relationship, and to avoid embarrassment.
Challenge 3: Data Resources Management Challenges Western culture encourages innovation, creativity, and the sharing of ideas and information. The same may not hold true under many cultures that adopt a historical perspective and value social stability to changes. Information resources could be jealously guarded in these cultures, and data distribution restricted.
Practical Challenge 1 There is a need for the clear definitions of data ownership and responsibilities for data acquisition, data quality control, and data distribution. This is especially challenging in cultural environments where the political attributes of information interfere with the communicative value of information. In many Eastern cultures, credible information is deferred to leaders and elders with power and status. Political relationships dictate the availability of information and the accessibility to organizational data. This is in contrary to the basic assumptions of CBIS that promote the free exchange of information (Osterman, 1991; Oz, 2002; Rocheleau, 1999). The bureaucratic procedures for the approval of data usage defeat the designed roles of the information system.
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Fully developed database supports very limited applications. The lack of explicit system objectives coupled with the practice of delegating data management responsibility to the lowest level unskilled workers creates data integrity problems. For example, withholding information to gain and maintain power is acceptable among many Asian cultures. Openness would be considered a sign of weakness. It would be critical to formally establish the credibility, relevancy, and accessibility of data resources.
Practical Challenge 2 Management must meticulously plan data acquisition, data preparation, data distribution, and data usage, and fully understand the required organizational incentive and associated costs for maintaining information flow within the organization. This is especially important in cultural environments where data-driven decision-making is a new practice. An uncoordinated approach to information resources management creates fragmented entities to process information for narrow applications. The fad of data-driven decision-making created a mad race for data reports using every available political connection. The result would be a great assortment of data reports with massive details. Inconsistency occurred among data reports depending on the data processing methods and storage formats. For example, a report from an off-line, static database in a remote office could be given equal credibility as a report generated from a current database from the data center. In a cross-cultural environment, influential individuals would compete to justify the merit of their reports from their cultural perspectives. The heated debates along with discrepancies among the reports frustrate the end users and lead to distrust toward the information systems for the inability to produce usable information reports. Regretfully, the information systems are seldom seriously designed for decision support.
Cross-Cultural Challenges for Information Resources Management
Practical Challenge 3 Management must take leadership in establishing precise, formal data definitions, and communicate them to all potential data users, and those assigned roles in data distribution. This is especially important where mastery of languages, cultural predisposition, level of information literacy, and social attitude could strongly influence the group dynamic of data usage. Technology evolution increasingly places information systems under the direct control of end users. However, end users often lack the technical expertise, and few are committed to the development of information resources. Events and samples are confused with statistics. Relaxed practices in standards and data definitions create issues in data validity and data quality. Potential information is lost when processed data replaces the raw data, while ignoring the time sensitivity of dynamic data. Time series data are deleted to preserve storage space. The information system is often blamed for the unfortunate chaos. For instance, technology facilitates individual users to maintain multiple copies of a database. Top management, unwilling to escalate cultural tension, ignored the potential seriousness of the data integrity issue. Improper database management practices yield different outcomes for identical requests for information from the different versions of the database. The absence of a single standard triggers disputes on the interpretation of data definitions according to the language understanding of the end users, while the actual data definition used by the data center to maintain the database is being rejected!
Challenge 4: Knowledge Sharing Challenges Different cultures adopt different views toward knowledge, even among Western societies. Some cultures treat knowledge as an individual asset, a tradable resource. Intellectual property and usage rights become the main concern in knowledge shar-
ing. Other cultures claim ownership of knowledge by the society and deny individual ownership of knowledge. A major concern would be censorship and control of information flow. Some cultures consider access to knowledge a privilege, given to individuals with the proper social ranks, while other cultures desire the widest distribution of knowledge to every member of the society. Information systems can be a threat to one society while high valued in another. Some cultures support openness, and others are conservative. Thus the emphasis could be on communication support in one society, while on preservation of traditions in another (Forstenlechner, 2005). Potential value clashes emerge in a cross-cultural setting when an individual raised in one social environment manages knowledge under a different social expectation. Knowledge sharing challenges are also expected with partnerships between organizations from different cultural background (Ford & Chan, 2003).
Challenge 5: Information Resources Accountability Challenges As information resources emerge from a supportive role to become strategic assets, their management must also mature from the simple control measures for supplies. A greater challenge is to safeguard certain information resources as critical assets to be accessible only by trusted individuals.
Accountability Challenge 1 The increased complexity and frequency of usage of information reports is in reality a severe drain in budgetary resources, and management needs to develop a mechanism to track data usage and adjust resources appropriately. This could be more challenging under cultural environments that lack sophistication in information processing. Modern management practices seeked opportunities to replace physical resources with information. When management failed to adjust budgets
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Cross-Cultural Challenges for Information Resources Management
to support the information services, those affected would try every means to discontinue information services. On the other hand, uncontrolled access encouraged abuse, wasting valuable resources. Ethics, disciplined usage, and an understanding of information value supported the information practices in Western society. The problems would be crippling in cultures with different appreciation for information under different ethical standards. A local culture of generosity would insist on the free distribution of fully colored documents. Another practice has been the circulation of printed copies of e-mail to avoid offending anyone. These practices quickly deplete the budget for supplies.
Accountability Challenge 2 Management must take an active role in controlling the flow of organizational data, both within the organization and to the external environment. Management should consider endorsement of an official organizational data set to ensure consistency rather than leaving official data reports to random actions. This is especially important in cultural settings where it is impractical to correct public statements of social leaders regardless of facts. In cultures where subordinates would not question the positions of leaders, information systems must implicitly support the decisions and public statements of the leaders (Gannon, 2001). In one example, officials of a local organization proposed an expensive marketing campaign pointing to decline in demand in the primary market. However, published data actually attributed the demand decline to the collapse of an emerging market. It would be an embarrassment to point out the omission, and the wrath of the society could be on those who allowed the facts to be publicized.
Accountability Challenge 3 Management must carefully orchestrate the deployment of information resources, with expected
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outcomes and supports. Strategic deployment rather than equal access should improve the value contribution of information resources. While is it culturally sensitive to provide equal access to information resources, it is much more challenging to expect performance improvement with the availability of information resources. Management needs to carefully link value contribution to the deployment of information resources.
FUTURE TRENDS The historical development of information systems has followed the model of a rational manager, with emphasis on openness, clear structure, innovative practices, and logical thinking. In regions where traditions and relationships resisted changes, information system designers must consider the needs of emotional decision-makers, with heavy emphasis on the concern to maintain social and cultural stability. Some cultures demand tight control of information flow, while other cultures are very casual about the absolute data quality. Some organizations integrate information systems as organizational backbone; others preferred to separate information in isolated pockets. Some prefer a simple information system, while others invest in a sophisticated intelligence system. Information systems for cross-cultural environments must deliver value to users with diversified backgrounds. Comparative study on information system features valued across cultural settings should improve the value delivery of the information system function.
CONCLUSION Despite rapid technological development, information resource management is still a relatively new concept. Data reports preparation is often a laborious activity, and accepted practices and administrative preferences still drive decision-
Cross-Cultural Challenges for Information Resources Management
making. Organizations that anticipate increasing exposure to multi-cultural environments should allow longer time for organizational adjustment to technical development. Information systems originally developed as productivity tools for data processing, and report generation must undergo radical design evaluation to meet the diversified user expectations and information skills. Information resource managers must also carefully consider data ownership and data distribution issues. Cultural preferences and information values should be carefully considered in the justification of information services. Information system objectives should be clearly distinguished from information system capabilities, especially with different cultural interpretation of information value. Top management should play an active role in defining organizational data flow, with implementation of appropriate incentives. Special attention should be given to precise data definition, especially with a workforce with a different training background under different cultural and language settings. Lastly, it is critical to emphasize strict standards for data quality, due to differences in expectations for the information system performance.
REFERENCES Al-Abdul-Gader, A. H. (1999). Managing computer based information systems in developing countries: A cultural perspective. Hershey, PA: Idea Group Publishing. Bjerke, B. (1999). Business leadership and culture: National management styles in the global economy. Cheltenham, UK: Edward Elgar. Davenport, T. (1997). Information ecology: Mastering the information and knowledge environment. New York: Oxford University Press.
Duncan, G. T. (1999). Managing information privacy and information access in the public sector. In G. D. Garson (Ed.), Information technology and computer applications in public administration: Issues and trends (pp. 99-117). Hershey, PA: Idea Group Publishing. Ford, D. P., & Chan, Y. E. (2003). Knowledge sharing in a multi-cultural setting: A case study. Knowledge Management Research & Practice, 1(1), 11–27. doi:10.1057/palgrave.kmrp.8499999 Forstenlechner, I. (2005). The impact of national culture on KM metrics. KM Review, 8(3), 10. Gannon, M. J. (2001). Understanding global cultures: Metaphorical journeys through 23 nations. Thousand Oaks, CA: Sage Publications. Heeks, R. (1999). Management information systems in the public sector. In G. D. Garson, (Ed.), Information technology and computer applications in public administration: Issues and trends (pp. 157-173). Hershey, PA: Idea Group Publishing. Hofstede, G. (1980). Culture’s consequences: International differences in work-related values. Beverly Hills, CA: Sage. Kalpic, D., & Boyd, E. (2000). The politics of IRM: Lessons from Communism. In M. KhosrowPour (Ed.), IT management in the 21st century (pp. 72-73). Hershey, PA: Idea Group Publishing. Kaufman-Scarborough, C., & Lindquist, J. D. (1999). Time management and polychronicity. Journal of Managerial Psychology, 14(3/4), 288–312. doi:10.1108/02683949910263819 Kluckhohn, F. R., & Strodtbeck, F. L. (1961). Variations in value orientations. New York: Row, Peterson and Company. Lane, H., & DiStefano, J. (1992). International organizational behavior. Boston: PWS-Kent.
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McLeod, R. M., Jr. (1998). Management information systems. Upper Saddle River, NJ: Prentice Hall. O’Brien, J. A. (2002). Management information systems: Managing information technology in the e-business enterprise. New York: McGraw-Hill. Osterman, P. (1991). Impact of IT on jobs and skills. In M. S. Scott Morton (Ed.), The corporation of the 1990s: Information technology and organizational transformation (pp. 220-243). New York: Oxford University Press. Oz, E. (2002). Management information systems. Boston: Course Technology. Raman, K. S., & Watson, R. T. (1997). National culture, information systems, and organizational implications. In P. C. Deans & K. R. Karwan (Eds.), Global information systems and technology: Focus on the organization and its functional areas (pp. 493-513). Hershey, PA: Idea Group Publishing. Rocheleau, B. (1999). The political dimensions of information systems in public administration. In G. D. Garson (Ed.), Information technology and computer applications in public administration: Issues and trends (pp. 23-40). Hershey, PA: Idea Group Publishing. Shea, T., & Lewis, D. (1996). The influence of national culture on management practices and information use in developing countries. In E. Szewczak & M. Khosrow-Pour (Eds.), The human side of information technology management (pp. 254-273). Hershey, PA: Idea Group Publishing. Straub, D., Loch, K., & Hill, C. (2001). Transfer of information technology to developing countries: A test of cultural influence modeling in the Arab world. Journal of Global Information Management, 9(4), 6–28.
KEY TERMS AND DEFINITIONSS Cross-Cultural IRM: The special information resources management practices needed with the coexistence of more than one cultural influence in different segments of a society, or the simultaneous adoption of different cultural practices at work, social event, and family life. Cultural Habit: Accepted behaviors within a group of people, sharing some common backgrounds, such as language, family heritage, education, living, and socializing environment. Data Definition: An elaborate statement of the representation of each piece of data, its source, storage method, and intended usage. Data Resources Management: The acquisition, organization, protection, maintenance, and selective distribution of organizational data. Data-Planning: The projection of expected future need for data, with specifications on data sources, data collection and storage, data processing and presentation, data distribution, and data security. Information Resources: Resources required to produce information, including hardware, software, technical support, users, facilities, data systems, and data. Information Resources Accountability: The activities related to tracking information resources usages, evaluation of information resources value contribution, and the monitoring of access to critical information resources. IT Transfer: The introduction of an information communication technology to a new region of the world. Knowledge Sharing: The activities relating to the exchange of meaningful information, along with interpretations and potential applications of the information.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 840-846, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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1
Index
A academic management portal 1283 Accreditation Board for Engineering and Technology (ABET) 531, 532, 547 acquiring bank 701, 702, 716, 717 action plan 995, 997, 1006, 1015, 1016 Active Server Pages (ASP) 693 activity based costing 1644, 1650, 1658 ad-hoc system 623, 625 Administration-to-Administration (A2A) 258 Administration-to-Business (A2B) 258 Administration-to-Consumer (A2C) 258 advanced engineering firms 2239 Amazon 2246, 2255 ambient intelligence (AmI) 194, 202, 205 ambiguity 2010, 2011 Americans with Disabilities Act (ADA) 2116, 2117, 2118, 2126, 2131 analytic hierarchy process (AHP) 345-348, 356, 359, 370, 1796, 1797, 1803-1810, 1813-1818 applicant tracking systems 970, 974 application-to-application (A2A) 2245 ARCON reference model 254, 265 aspect oriented software 1732, 1747 assessment design 531 assistance system 569, 570 Association of Southeast Asian Nations (ASEAN) 2145, 2146, 2147, 2153, 2155 astrobiology 1203, 1209, 1214, 1215 Australian Quarantine Inspection Service (AQIS) 1961, 1964, 1967, 1968, 1973, 1977 authentication 2420, 2428, 2430, 2431 Automated Teller Machine (ATM) 1057, 1058, 1060 automotive industry 254, 256, 257, 258, 262, 263
autonomous organizations 888, 889 availability of maintenance 1156
B B2B development 206, 207, 222 B2B maturity 207, 223 B2B-collaborations 374 balanced scorecard (BSC) 549, 550, 567, 611-618, 1281-1287 bank performance 511, 1055, 1058, 1059, 1068 banking and exchange firms 1071 Beatles 2162, 2163 Beginning-of-Life (BOL) 258 Beginning-of-Life (BOL) phase 258 betweenness centrality 654, 656, 659 big five model 2101 binary regression 1023 blogs 2203, 2208, 2215, 2217, 2218, 2221, 2224, 2228 bottom-up 295, 296, 297, 298, 303, 307 breeding environment 254, 255 brick-and-mortar 1291, 1295, 1297 brick-and-mortar 229, 230, 236 brick-and-mortar organization 1297 British Standards Institute (BSI) 2106 broadcast 2004, 2007, 2010, 2012 bulletin boards 642 business analytics (BA) 150-181 business communication 1337 business information systems 742 Business Intelligence (BI) 1933-1938, 1942-1945, 2393, 2394, 2407 business management 374, 398 business model (BM) 195-205, 499-511 business operator 1585
Volume I pp. 1-642; Volume II pp. 643-1288; Volume III pp. 1289-1932; Volume IV pp. 1933-2562
Index
business pattern 1732, 1733 business performance 1339, 1340, 1342, 1344, 1347 business process (BP) 194, 202, 205 business process diagram 888, 899 business process engineer (BPE) 2179, 2276-2278, 2288-2291, 2297, 2393 Business Process Execution Language (BPEL) 2245 business process management (BPM) 205 business process modelling 888, 889, 890, 893, 901 business process redesign 888 business scenarios 672 business skilling 1978, 1982, 1983, 1984 business system 2333 Business Systems Engineering (BSE) 2277, 2295, 2297 business value 229-239, 243-245, 248 business value 28, 34, 35, 36, 37, 38 Business-2-Customer (B2C) 1176, 1179 Business-to-Administration (B2A) 258 Business-to-Business (B2B) 2, 206-223, 226, 258, 470, 483, 516, 527, 528, 552, 566, 782-788, 791-795, 799-807, 1172, 1176, 1339-1349, 1548, 1821, 1830, 1831, 1834-1839, 2245, 2246, 2255 business-to-business (B2B) e-strategy 1347 Business-to-Consumer (B2C) 258, 470, 482, 485, 512, 513, 516, 525, 661, 662, 666, 1339-1344, 1347, 1548-1550, 1557, 2245, 2249 business-to-consumer (B2C) e-strategy 1347 business-to-consumer insurance 912 Business-to-Employee (B2E) 1339, 1340, 1341, 1343, 1344, 1347, 1548, 1549, 1550, 1551, 1552, 1554, 1555, 1556, 1557, 1558, 1559, 1560 business-to-employee (B2E) e-strategy 1347
C career choice 2101 career satisfaction 2092, 2096, 2101 catastrophe communications network 623, 625 causal loop diagram (CLD) 2049, 2051, 2053, 2054, 2055, 2056, 2057 centric culture 1523 Chief Information Officers (CIO) 296, 298, 299, 303, 308, 310 Chief Technology Officer (CTO) 69 Chinese business etiquette 2554 Chinese society 2554, 2557, 2558, 2560, 2561 Chulalongkorn University, Thailand 2512, 2513, 2517, 2521, 2522 Citizens Advisory Board (CAB) 69
2
City of Charles Sturt (CCS) 1969, 1970, 1971, 1972 Classification and Regression Trees (CART) 2361, 2364, 2369, 2375, 2378 click and rush 2011 click-and-brick 229, 230, 231 click-and-mortar banks 505, 511 Closed User Group (CUG) 2334 closed-loop supply chain 359, 370, 371 closeness centrality 654, 660 cognitive mapping 593, 596, 601, 608 cognitive processes 1158, 1159, 1168 Collaborative Enterprise Architecture (CEA) , 294, 295, 296, 298, 303, 308 Collaborative Innovation Networks (COINs) 2402 Collaborative Interest Networks (CINs) 2402 Collaborative Knowledge Networks (CKN) 2402 collaborative learning environments 1985 Collaborative Learning Networks (CLNs) 2402 collaborative networked organisation 254 collaborative networks 254, 255, 262 collaborative science 1215 collaborative synergy 1350-1362, 1366-1369, 1374 collaborative technologies 28, 29, 30, 32, 33, 34 collaborative working environment 1311, 1337 collaboratory 1215 collection facilities 357, 358, 359, 364, 365, 366, 367, 368 Combination Export Manager (CEM) 4 command center logistics 718, 722, 723, 725, 726, 727, 728, 729, 730 committee standards 106, 119 Common Object Request Broker Architecture (CORBA) 2245 communication 1879, 1880-1883, 1886-1894 communication system operations and management 1337 Communities of Practice (CoP) 418, 427-432, 777780, 1206, 1215, 2116, 2119-2124, 2134 community building 1904, 1905, 1908, 1909, 1918, 1919 Community Innovation Survey (CIS) 1604 comparative study 183, 184, 187, 190 competence level 1394 competence management 625 competency gaps 403, 406, 407, 411, 414 competitive advantage 28-38, 56, 58, 62-64, 2525, 2526, 2530, 2536, 2547 competitive economy 1459 competitive environment 1868, 1869, 1876 competitive intelligence (CI) 1934 Complex Adaptive Systems (CAS) 2192, 2193, 2199
Index
complex systems 1879 complexity theory 2180, 2183, 2192, 2193 component architecture 748 computer science (CS) 1991, 1992, 1993, 1994, 1995, 1997 computer supported cooperative work (CSCW) 663, 2074, 2083, 2084 computer-mediated interaction 662, 663, 664, 665, 666, 667, 669 computers and society 1904 Computers System Policy Project (CSPP) 2145, 2147, 2153 conceptual framework 1951 conceptual model 386, 402 Confucian societies 2555, 2558 Confucianism 2555, 2556, 2557, 2560, 2562 confusion 2011, 2012 Connections Markup Language (cnXML) 673 conservation of information (COI) 67, 70, 77 consistency of maintenance 1151, 1156 consumer generated content 1571, 1572, 1575 consumer information 1570, 1571, 1572, 1573, 1574, 1575 consumer space 2, 3 Consumer-to-Administration (C2A) 258 Consumer-to-Business (C2B) 258 Consumer-to-Consumer (C2C) 257, 470 Context 1933, 1940 context awareness 194, 205 contingency theory 32, 34, 35, 36, 38, 1788, 1789, 1792, 1793, 1795 contingent work 1300, 1301, 1302, 1303, 1304, 1305 continuing education 2512, 2513, 2515, 2516 continuity plan 621, 623, 625 Control Account Plans (CAP) 1591, 1596, 1597 copyright law 2158, 2160, 2166, 2169 Cordless Telephony System (CTS) 2375 corporate culture 978 corporate governance 1752, 1763 corporate knowledge 1536 corporate R&D capabilities 1796, 1797, 1813, 1814, 1818 Corporate Social Responsibility (CSR) 2332, 2336, 2341, 2346 corporate socialization 930, 939, 940, 941, 943, 946 costumer focus 1046 credit card processor 699, 702, 703, 705, 706, 712, 713, 716, 717 crisis management 623, 626 crisis response 718, 719, 726, 727, 728 crisis response logistics 718, 719
crisis response plan 622, 626 critical infrastructure 718, 723, 726, 729 critical research 1997 Critical Success Factor (CSF) 206-208, 211-214, 222, 223, 468, 470, 481, 1109, 1110, 11131115, 1124, 1128, 1129, 1132, 1859-1866 cross organizational issues 750 Cross-Cultural IRM 1926, 1932 cross-cultural psychology 1707 cross-cultural study 1509 cross-cultural training 1707, 1708, 1717, 1718, 1719, 1720, 1726 cross-impact analysis 254, 265, 266, 267 cultural diversity 1510, 1520, 1521 Cultural Habit 1932 cultural ignorance 2015 cultural knowledge 1707, 1716, 1717, 1718, 1726 Cultural Simulation Modeler (CSM) 1933, 1934, 1937, 1938, 1939, 1940, 1941, 1942, 1943, 1944, 1945 culture of collaboration 1206, 1207, 1208, 1209, 1216 Current Population Survey (CPS) 2118 curricula vitae (CV) 974, 975 customer decision process 1573, 1575 Customer Relationship Management (CRM) 258, 1120, 1121, 1127, 1130, 1132, 1179, 2246, 2393, 2394, 2407 customer service life cycle 55 Customer Service Life Cycle (CSLC) 811, 814, 815, 818 customer-to-customer (C2C) 661 Customization 2259 cyber security 406 cybercafé 642, 1177 cyber-criminal 699, 707, 708, 710, 714, 715, 716 cyberfeminists 1994 cyberinfrastructure 1204, 1206, 1208, 1213, 1214, 1216 cybernetics 2183, 2192, 2200
D data cube 1866 Data Definition 1932 Data Encryption Standard (DES) 781 data envelopment analysis 1094, 1098, 1106, 1107 data mart 818 data mining 692-698, 809-819, 2239 Data Resources Management 1928, 1932 data security 1413, 1425, 1429 data tampering 778, 781
3
Index
Data Universal Numbering System (DUNS) 784, 790 data warehouse(ing) 615-618, 812, 818-821, 957965, 1282-1287, 1864, 1866 database management 2206 Data-Planning 1932 de facto standards 106, 109 decision making 626 decision making support system (DMSS) 549-563 decision sciences (DS) 150-153, 157-177, 2045, 2046, 2059 decision support systems (DSS) 957, 964 decision-making planning 344 decision-making procedures 344 declarative knowledge 2303, 2307 degree of innovativeness 1607, 1610, 1611, 1612, 1614 demand centers 358 demand theory 83, 84, 85, 103 democratic country 1044, 1045 Department of Energy (DOE) 69 design assessment 529, 530, 531, 533, 534, 535, 536, 537, 539, 540, 542, 543, 544, 545, 546, 547, 548 Design of Information Infrastructure Systems for Manufacturing (DIISM) 2229 design pattern 664, 666, 669 design research 530, 531, 547, 548 developing countries 206, 207, 208, 209, 210, 211, 213, 215, 216, 217, 219, 220, 222, 223, 224, 225, 226 development application integration (DAI) 2231, 2232 diagnostic measure 618 diffusion of innovation (DOI) 977, 978, 979, 980, 1136, 1137 Digital and Knowledge Divide 2381, 2382, 2383, 2396 Digital City of Trikala 294, 295, 296, 297, 304, 308 digital divide 638, 639, 642, 1904, 2102-2120, 21232134, 2381, 2397 digital economy 1978, 1979, 1981, 1982, 1983, 1984, 1985, 1986 digital gap 2103, 2107 digital literacy 1376 digital marketplaces 470 digital media 2157, 2158, 2160, 2161, 2166 digital networks 2458 Digital Rights Management (DRM) 2159, 2169, 2171 digital spaces 468
4
digital subscriber line (DSL) 2355, 2356, 2357, 2358 directive management 1458, 1464, 1470 disability divide 2112, 2114, 2115, 2128 distance education 2512, 2513, 2515, 2516, 2517, 2519, 2520, 2521, 2522, 2523 Distributed Component Object Model (DCOM) 2245 distributed leadership 1688, 1690, 1691 distributed programming 748 distribution channel strategy 511 Document Type Definition (DTD) 782, 783, 784, 785, 786, 791, 792, 795, 800 domain knowledge 1445, 1446, 1447, 1448, 1449, 1450, 1453 domain semantics 379, 385, 402 dot-com boom 2204 double hermeneutic 2044, 2053, 2054 dynamic ad-hoc collaboration 1318, 1337 dynamic capability 29, 30, 38 dynamic deployment 1150, 1153, 1156 dynamic e-business workflows 1337 dynamic knowledge 1494, 1496, 1497, 1499, 1504, 1505 dynamic maintenance 1149, 1150, 1151, 1152, 1154, 1155, 1156 dynamic service integration 1337
E Earned Value Analysis (EVA) 1588, 1591, 1599 Earned Value Management (EVM) 1588, 1591, 1592, 1600, 1601 Eastern Standard Time (EST) 693 E-business balanced scorecard based model (EBBSC) 550, 567 e-business competence 1071 e-business correlation 651 e-business management 549 e-Business Management Section (eBMS) 1375, 1376, 1377, 1380, 1385, 1386, 1387, 1391, 1392, 1395, 2381, 2385, 2386, 2398, 2399, 2405, 2406, 2407, 2408, 2409, 2410, 2411, 2412, 2413, 2414, 2416, 2418 e-Business Model (e-BM) 47, 205, 499, 500, 501, 502, 504, 506, 508, 509, 511 e-business practitioners 1964 e-business strategy 468, 471, 2332, 2335, 2342 e-business technology 1788, 1793, 1795 e-collaboration 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 2230, 2236, 2240, 2261 e-commerce business success (ECBS) 230, 231, 234, 235, 236, 238, 239, 240, 241, 242, 244, 252
Index
e-commerce merchants 699, 700, 701, 705, 713, 715 economic competitiveness 842, 848, 850, 851, 857, 858 economic growth 1134, 1135 Economic Incentive and Institutional Regime (EIR) 2384 economic performance 1899 economic progress 1981 economic value added (EVA) 58, 1094 Economist Intelligence Unit (EIU) 2334, 2335 egotistic behaviour 1397, 1400 e-government 2103, 2110, 2111 e-health 2103 e-initiatives 2102, 2103 e-leadership 1688, 1689, 1690, 1692, 1695, 1696, 1701 eLearning , 1984, 1985, 1986 electronic authorisation 1968 Electronic banking (e-banking) 1055, 1057, 1059, 1067 electronic business (e-business) 28, 56-64, 192-198, 201-205, 254-258, 267-270, 373, 379, 393, 394, 402, 513, 514, 525, 549, 562-566, 691, 1055-1068, 1178-1196, 1200, 1290-1297, 1338, 1339, 1344-1348, 1633, 1634, 1643, 1961-1964, 1967, 1973, 1979, 2019-2022, 2028-2030, 2102, 2103, 2106-2110, 21352161, 2173, 2202-2204, 2209, 2212-2218, 2223, 2226-2228, 2244-2246, 2250-2255 Electronic Business using eXtensible Markup Language (ebXML) 673 electronic collaboration 1202, 1204, 1205, 1207, 1214, 1216 electronic collaboration 669 electronic commerce (e-commerce) 56, 691-695, 699-701, 704, 705, 711-716, 1338, 1339, 1345-1348, 2019-2030, 2137, 2138, 21412147, 2151, 2154-2260, 2273 Electronic Commerce and Telework Trends (ECATT) 1585 Electronic Data Interchange (EDI) 645, 650, 783, 799, 805, 1179, 1180, 1184, 1189, 1197, 1199 Electronic Document and Records Management Systems (EDRMS) 1968, 1969, 1970, 1971, 1972, 1973, 1976 Electronic human resource management (e-HRM) 635, 642, 1633, 1634, 1635, 1636, 1637, 1638, 1639, 1640, 1641, 1642, 1643 Electronic Human Resource Management Systems (EHRMS) 1634, 1637, 1639, 1643
electronic insurance 911, 912, 913, 914, 915, 916, 917, 921, 922, 923, 924, 925, 926, 927, 928 electronic market place (e-marketplace) 470 electronic mentoring (e-mentoring) 627, 628, 629, 630, 631, 632, 633, 634 electronic service 911, 912, 913, 914, 916, 917, 921, 924, 925 electronic strategy (e-strategy) 1338, 1339, 1340, 1341, 1342, 1343, 1344, 1348, 1349 electronically collaborate (e-collaborate) 2299, 2300 electrostatic attraction (EA) 2179, 2180, 2186, 2188, 2190, 2192, 2193 e-library 1394 e-logistics 643, 644, 645, 647, 648, 649, 650 e-mail bankruptcy 2010 e-management portal 1283, 1284, 1287 e-marketing 2019, 2021 emergency management 718, 723 emergency response organizational model 620, 626 emergent business pattern 1732, 1733 emergent strategy 1732, 1736, 1738, 1747 emotional labor 735, 737, 740 employee assistance programs (EAPs) 2070 employee engagement 1094, 1099 employers for work-life balance (EfWLB) 733 end to end (E2E) 644, 647 End-of-Life (EOL) 258 End-of-Life (EOL) phase 258 Enterprise 2.0 , 2202, 2203, 2209, 2214, 2217, 2220, 2221, 2222, 2223, 2224, 2225, 2226, 2227, 2228 Enterprise Application Integration (EAI) 1123, 1124, 1127, 1128, 1132, 2231, 2239, 2394 Enterprise Architecture (EA) 294-300, 303-312, 315317, 320, 324, 325, 328, 329, 332, 335-340 Enterprise Requirements Planning (ERP) 647, 949, 2276, 2285, 2291, 2393, 2394, 2396, 2407 Enterprise Requirements Planning systems 647 environmental shock 2525, 2527, 2530-2532, 25362546 e-partnership 1291, 1292, 1294, 1295, 1297 e-procurement 2261 e-readiness 2135, 2137, 2143-2155 e-recruitment 635, 636, 637, 639, 642 eSourcing Capability Model (eSCM) 1615-1632 e-supply chain 1297 EU policies 995 evolutionary diffusion theory (EDT) 1961, 1963, 1964, 1965, 1966, 1968, 1972, 1973 exception handling 1732, 1736, 1737, 1738, 1743, 1746, 1747
5
Index
executive information systems (EIS) 1858, 1859, 1860, 1861, 1862, 1863, 1864, 1865, 1866 executive judgment 1789, 1792, 1793, 1795 explicit knowledge 1157, 1158, 1162, 1166, 1167, 1168, 1249, 1256, 1258, 1259, 1260 explicit organizational knowledge 1476 extended product 254, 257 eXtensible Markup Language (XML) 671-673, 681, 686, 690, 782-808 external environment 1795 external recruitment 968, 969, 970, 971, 972, 974 extract transform and load (ETL) processing 1284, 1287 extraction, transportation, transformation, and loading (ETL) 957, 958, 965, 1284, 1287
F Facebook 2247, 2248, 2252 face-to-face interactions 629, 631 face-to-face mentoring 629 family-work interference (FWI) 733, 736, 740 fast forward 2011, 2012 Federal Emergency Relief Agency (FEMA) 621, 622, 625 Federal Enterprise Architecture (FEA) 295, 298, 303, 308, 309, 315-318, 321-328, 339, 342 feminist research 1994, 1997 Fibre to the Home (FTTH) 2355, 2357, 2358 financial firms 1178, 1179, 1180-1187, 1193-1196 financial flexibility 1299, 1305 financial focus 1046 financial services industry (FSI) 1179, 1180, 1181, 1183, 1195 flagship building 1957 flaming 2011, 2012 flexible working 736, 737, 738, 740 Food Standards Australia New Zealand (FSANZ) 1967 franchisee 48-55, 810-819 franchisee learning process 819 franchisee life cycle 48, 52, 55, 810, 811, 816, 819 franchisee relationship management 812, 819 franchisor 48-55, 810-819 franchisor learning process 819 franchisor relationship management 819 Frequency Division Multiple Access (FDMA) 2375 full-time home-based worker 1585 function deployment 1023, 1024, 1039, 1041, 1042 function points analysis 1094 functional flexibility 1299, 1301, 1302, 1305, 1605, 1614
6
fuzzy cognitive mapping 593, 596, 608 fuzzy ratings 357, 358, 364, 369 fuzzy set theory 358, 359, 360, 364 fuzzy TOPSIS 357, 358, 359, 366, 369, 370
G gap analysis 1732 genetic algorithm 692, 696 geospatial position 67 Ghoshal’s thesis 2050 global 1992, 1994, 1995, 1996 Global account management (GAM) 1838-1857 global account manager 1838, 1846, 1847, 1851, 1853, 1855, 1856 Global Business Intelligence 1933 Global Competitive Intelligence 1933 Global Diffusion of the Internet (GDI) 2145, 2147 Global Digital Divide , 2102, 2103, 2104, 2105, 2110 global issues , 2060 global knowledge-based organization (GKB-MNC) 2457, 2461, 2462 Global reach 2258 Global System for Mobile communications (GSM) 2360, 2361, 2369-2371, 2374-2378 Global Trade Identification Number (GTIN) 784, 790, 791, 792, 795 global virtual teams (GVTs) 1688-1703 gloomy vision 2044-2054, 2057, 2058 goal programming (GP) 345, 346, 349, 351, 355 go-to-market strategy 2, 3 Government-to-Citizen 470 graphic design 984, 986, 987, 988, 989, 990, 991, 992, 993, 994 graphic design skill sets 984 graphic design SMEs 984, 986, 987, 992, 993 graphical user interfaces (GUIs) 978 Great Arab Free Trade Area (GAFTA) 2387 Greenwich Mean Time (GMT) 693 Grid computing 1396, 1397, 1405 grid container 1150, 1156 Grid technology 1397, 1398, 1404, 1406 gross domestic product (GDP) 2136 groupware systems 663, 669 Guanxi 2554, 2555, 2556, 2557, 2558, 2559, 2560, 2561, 2562
H haiku 1249, 1252-1266 harmful address disclosure 2010
Index
hastily formed networks 626 health center personnel 2512, 2513 health insurance 912 Health, Safety and Environment Management System (HSE-MS) 1440 Hexagonal Model 2333 High Definition Internet Protocol Television (HDIPTV) 2356 higher education 529, 530, 531, 545, 547, 548 higher education institutions (HEI) 611, 612, 1286, 1287 Hilbert Space (HS) 68 Holland’s Vocational Theory 2087, 2101 home-based entrepreneur 1585 home-based worker 1581, 1585 homogenous workforce 1508 horizontal dynamics 107 House of Quality (HOQ) 1024, 1025, 1026, 1027, 1030, 1031, 1032, 1033, 1034, 1035, 1036, 1037 HR intranet 2073, 2074, 2078, 2079, 2080, 2081, 2082, 2085 HRM practices 1603, 1604, 1606, 1607, 1608, 1610, 1611, 1612, 1614 human capital 1376, 1377, 1380, 1386-1392, 16151620, 1625, 1628-1632, 1796-1799, 1803, 1804, 1807, 1808, 1812-1815, 1818 human resource (HR) 611-616, 976-982, 1896-1901 human resource information systems (HRIS) 619626, 967-975, 1637, 1642, 1643 human resource management (HRM) 620, 626, 635, 641, 642, 948-955, 967-975, 1603-1614, 1633-1643, 1896, 1903, 2060-2067, 2070 Human Resource Management System (HRMS) 1637, 1639, 1643 Human Resources Line of Business (HR LOB) 311, 312, 315-343 Human Rights and Equal Opportunity Commission (HREOC) 1980 human-computer interaction (HCI) 1951 Hyper Text Transfer Protocol (HTTP) 692, 694 hypercompetitive environments 288
I implicit knowledge 1249 impression management 1707-1731 impression management strategies 1707-1727 independent contractor 1585 individual knowledge 420, 421 industrialized world 2434
information communication technology (ICT) 150, 173-175, 295-299, 304-306, 310, 404-406, 414, 510, 511, 1171-1179, 1195, 1578, 1581, 1585, 1643, 1662-1664, 1669, 1765-1771, 1780-1785, 1949, 1958, 1979, 1984-1986, 1990, 2037, 2102-2116, 2119, 2121, 21252127, 2130, 2133-2138, 2142-2154, 2332, 2380-2389, 2393-2397 information component 41, 45 information component of products 41, 45 Information density 2259 Information Management (IM) 595, 609, 610 Information Management (IM) Strategy 595 information processing 865, 881 Information Resources 1924, 1926, 1927, 1929, 1932 Information Resources Accountability 1929, 1932 information sharing 1570, 1571, 1573, 1574, 1575 information system (IS) 150-153, 156-165, 168-177, 271-273, 279, 284, 285, 593-610, 967-974, 1445-1450, 1453-1456, 1643, 1858-1867, 1961-1964, 1973, 1996-1998 Information Systems (IS) Strategy 594, 595 information systems careers 2101 information technology (IT) 150, 152, 156-159, 162, 167, 170, 171, 180, 229-240, 243-252, 271283, 286-293, 313, 318, 328, 330, 339-342, 593-601, 606-610, 620-622, 625, 1438-1443, 1633-1643, 1732-1734, 1748, 1820, 1821, 1825-1830, 1834, 1835, 1996, 1997, 20632065, 2276, 2280, 2285-2293, 2297 Information Technology (IT) Strategy 594, 595 Information Technology Association of America (ITAA) 1440 Information Value Chain (IVC) 1121, 1132 informational transaction costs 107 information-knowledge 419 innovational capital 1799, 1818 innovative output 1603, 1604, 1605, 1606, 1607, 1608, 1610, 1611, 1612, 1614 innovative productivity 1610, 1611, 1614 Innovative Technology Uptake (ITU) 1962, 1963, 1964, 1966 input-process-result (IPR) 1796, 1797, 1801, 1802, 1806, 1813 input-process-result model 1818 instant messaging services 2113 intangible capital 183 intellectual capital (IC) 183-191, 1046, 1047, 10511054, 1376, 1796-1803, 1813-1819, 24332437, 2440-2451, 2457-2468
7
Index
intellectual capital management (ICM) 2400 intellectual capital statements 183, 190 intellectual goods 2161, 2168, 2169, 2170, 2172, 2173, 2176 intellectual property (IP) 1293, 1295, 1297 intellectual property rights 2037 intelligent collaboration 2239 Intelligent Manufacturing Systems 2229, 2240 intelligent system 103, 104 intensive care units (ICUs) 1879, 1880, 1881, 1882, 1883, 1884, 1885, 1886, 1887, 1888, 1894 Interaction-by-Doing 569, 570, 573, 574, 575, 578, 583, 589 Interaction-by-Movement 573 interactive learning 272 Interactivity 2258, 2264 intercultural knowledge 1536, 1540, 1541, 1542, 1543, 1544 intercultural knowledge transfer 1536, 1540, 1541, 1542, 1543, 1544 intercultural workforce 2060, 2061 internal audit 888, 889, 890, 892, 897, 898, 899, 900, 901, 902, 903 internal control 888, 889, 890, 892, 900, 902 internal recruitment 968, 969, 970, 971, 972, 974 International Business Division (IBD) 2338 International Data Corporation (IDC) 1179 International Master in e-Business Management (IMeBM) 1375, 1376, 1383, 1384, 1385, 1390 International Organization of Standardization (ISO) 106, 107, 117, 118, 119 international public relations 1707, 1708, 1720, 1723, 1726 internationalization strategies 1231 Internet banking 1057, 1060 internet business solutions (IBS) 1218, 1226, 1227 Internet café 638, 642 internet markets 470 Internet Protocol (IP) 1170, 1177, 2028, 2352-2358 Internet revolution 627 internet security 1071, 1074, 1075, 1077, 1078 Internet Service Providers (ISPs) 673, 674 inter-organizational activities 888 interorganizational network 1899 inter-organizational supply chain 888, 892, 893 inter-organizational systems availability (IOrSA) 230, 231, 232, 236, 237, 238, 239, 240, 241, 242, 243, 244, 245, 252 inter-organizational view 434, 435
8
interpretive research 1997 intra-business networks 1548 In-Vehicle Monitoring Systems (IVMS) 1439, 1441, 1442 Iran 2433, 2434, 2435, 2436, 2437, 2438, 2439, 2440, 2441, 2442, 2443, 2444, 2445, 2446, 2447, 2448, 2449, 2452, 2453 IS development 594 iSchools 2064, 2071 issuing bank 699, 701, 703, 709, 713, 714, 717 IT alignment to organizational strategies (ITOrS) 230, 231, 232, 236, 237, 238, 239, 241, 242, 243, 244, 252 IT business value 231, 232, 234, 235, 236 IT resources 2104 IT Transfer 1927, 1932 iterative development 1267, 1270 iTunes 2206
J Java 2245, 2246, 2255 Java Server Pages (JSP) 693 Jordanian banking sector 1055, 1058
K kaizen 1158, 1164, 1168 Key Performance Indicators (KPI) 2361, 2362, 2364, 2365, 2368, 2373, 2374, 2378 KM processes 2035 knowledge acquisition 135-137, 140-144, 1447 knowledge aspects 1732 Knowledge Assessment Methodology (KAM) 2384 knowledge creation 929-940, 943-946, 1250, 1253, 1260-1266, 1522 Knowledge Discovery in Databases (KDD) 23622370, 2375-2378 knowledge domain 1386, 1394 knowledge economy 1765, 1766 Knowledge Economy Index (KEI) 2384 knowledge exchange 1250, 1258, 1262, 1265 knowledge generation 863, 866, 874, 877-880, 1475, 1478, 1490 knowledge governance 418-427 knowledge intensive business 1765, 1770, 1782, 1785-1787 knowledge intensive business services (KIBS) 17651787 knowledge iterative supply network (KISN) 2457, 2464, 2465
Index
knowledge management (KM) 183-187, 190, 286293, 418-422, 425, 430-433, 446, 467, 674, 718, 719, 727-731, 820-833, 836, 865, 874, 880, 929-947, 962, 965, 1447, 1449, 14541457, 1475-1480, 1490-1496, 1504, 1507, 2034-2043, 2390-2394, 2458, 2464, 2467, 2468 knowledge management platform (KM platform) 820-832 knowledge management strategy 1732, 1733, 1738, 1739, 1744-1747 knowledge management system (KMS) 626, 2400, 2458, 2464 knowledge network(ing) 1476, 1490, 1494, 1496, 1504, 1505 knowledge production activity 2038 knowledge sharing 1350-1362, 1365-1369, 1929, 1932, 2239 knowledge society 820 knowledge transfer 820, 823, 825, 830-832, 929, 930, 935, 939-943, 947, 1536, 1539-1544 Knowledge Value Chain (KVC) 1115, 1121, 1122, 1128, 1132 knowledge work 1095, 1096, 1097, 1098, 1107 knowledge work productivity 1096, 1097, 1098 knowledge worker 1094, 1095, 1098, 1104, 1106, 1107 knowledge worker productivity 1094, 1095, 1098, 1104, 1106, 1107 knowledge worker productivity assessment 1094, 1104 knowledge-based economy 43, 46 knowledge-based system 1732 knowledge-based theory 1447 knowledge-based view (KBV) 28, 29, 434-437, 442, 821, 824, 832
L labor flexibility 1305, 1607, 1614 ladder of investment 2356, 2357 leadership assessment 1675, 1681, 1682, 1685, 1686 leadership model 1458 leadership pipeline 1869, 1876 leadership training 1675, 1681 lean manufacturing 41, 43, 46 lean production 1158, 1168 learning at the workplace programs , 2512, 2513, 2517 learning community 124, 125, 132, 133, 134 learning curve 1096
learning experience 1375, 1379, 1385, 1386, 1388, 1394 learning MNC (LMNC) 2457, 2462, 2463 learning objective 1395, learning process 48, 49, 55 legacy system 742, 743, 744, 745, 747, 748 lifecycle costing 1644, 1645, 1646 lifelong learning 406 linchpin positions 1877 linguistic data 357, 358, 369 living lab 1750, 1752, 1758, 1760, 1763 local area networks (LANs) 978 location independence 1958 locational flexibility 1299, 1300, 1303, 1305 log data 691, 692, 693, 694, 698 logistic binary regression 1023
M machine learning 692, 694 management information system (MIS) 286, 291, 293, 611-618, 958, 1281-1288 management portal 618 management practice 2044 management process 1281, 1282, 1283, 1284, 1286, 1287, 1288 management sciences (MS) 2045, 2046, 2059, management strategies 1707-1727 management theory 435, 2044, 2049, 2177, 21802186, 2190-2196 managerial succession 1868, 1877 manufacturer’s export agent (MEA) 4 manufacturing execution systems (MES) 2239 market demands 1662 market development 984 market entry strategy 2 market portfolios 1231, 1234, 1238, 1240-1245 masquerade 2011, 2013 m-commerce 2244, 2249, 2256 media richness 1688, 1691, 1702 media richness theory 1563, 1565, 1566, 1567, 1568, 1569 Medium Enterprises (MEs) 644, 647 memory knowledge 2303, 2304, 2305, 2306 mentee 628, 629, 630, 631, 634 merchant account 700, 702, 703, 704, 705, 717 merger and acquisition (M&A) 69 meta-competency efficacy 1978 metaverse 122, 123, 124, 134 middle management 2085 Middle-of-Life (MOL) 258
9
Index
Middlle East, business investment in 2434 misidentification 2011, 2013 Mobile banking 1057 mobile employees 1958 Mobile Sports Companion (MSC) 1267-1269, 12731278 mobile technology 406, 734-740 mobile training 1267, 1277 mobile work 1948, 1958 mobile workers 1562, 1563, 1565, 1566, 1567, 1569 mobile working 733, 735, 737, 738, 740 moonlighter 1585 Motivation Application Measurement Support (MAMS) 2135, 2137, 2148-2152 multi-agent systems (MAS) 86, 88, 96, 104, 2473, 2475, 2481, 2483 multi-criteria decision-making (MCDM) 344-355 multicultural innovation 1023 multicultural organization 1509, 1511-1520 multicultural society 1510 Multidisciplinary Design and Optimization (MDO) 2394 Multidisciplinary Integrated Modelling (MIM) 2394 multi-entity supply chain 1179 multilevel relationships 1838, 1851, 1852 multimedia knowledge objects 1395 Multimedia Learning Modules (MLM) 2391 multinational communities 1523 multinational corporations (MNC) 929-945, 1839, 2433, 2434, 2439-2442, 2447-2451, 24572463, 2467, 2468, 2554 multi-tier architecture 744, 748 municipal waste 2474
N national policies 995 National Science Foundation (NSF) 530, 547 NetCorps Jordan Project 1994, 1997 Network Constraint 1902 network organizations 1750-1755, 1759, 1762, 1763 Network Tie 1902 new product development (NPD) 1023-1042, 22982321 Next Generation Networks (NGN) 2353, 2355, 2357, 2358 non-governmental organizations (NGOs) 2039, 2042 nonverbal communication 1707, 1708, 1712 Nordic Mobile Telephone (NMT) 2370 n-tier architecture 748 numerical flexibility 1299-1305, 1605, 1614
10
O object-oriented programming 748 occasional homeworker 1585 occupational identity 735, 740 Office of Management and Budget (OMB) 312-318, 325-330, 335, 340-342 Office of Personnel Management (OPM) 311, 312, 315, 321-326, 329-335, 341-343 Omission 2011, 2013 Online Analytical Processing: (OLAP) 959, 960, 965, 966 online banking 503, 511 online brokering 500 online community 1904 online CV management 975 online exchanges 470 online recruitment 636, 639, 641 online relationships 1904 online syndicate 1297 online systems efficiency (OnSE) 230-233, 236-245, 252 online systems quality and effectiveness (OnSQE) 230, 231, 234-244, 252 ontology engineering 375, 379, 389, 395, 396, 401 ontology matching 375, 379, 384, 385, 390, 393, 402 Open Source movement 2038 operations research /management science (ORMS) 2045, 2046 opportunism 2525, 2526, 2527, 2528, 2530, 2539, 2541, 2544, 2545, 2546 Organization of Economic Co-operation and Development (OECD) 296, 309 organizational barriers 1134, 1135 organizational capital 1796, 1799, 1800, 1807-1810, 1815, 1819 organizational change 1044, 1045, 1049, 1051, 1948, 1958 organizational culture 1508-1512, 1515, 1522, 1707, 1711-1717, 1726, 1727 organizational identity 1948, 1949, 1952, 1955, 1958 organizational knowledge 864-866, 869, 870, 874, 880, 883, 1249-1254, 1258-1262, 1265, 1476, 1481, 1490 organizational leadership 1675, 1678, 1682, 1686 organizational leadership assessment 1675, 1682, 1686 organizational learning (OL) 32, 33, 38, 821-824, 832, 837, 863-866, 869, 870, 878, 881, 884, 966, 1044, 1048-1053, 1249-1252, 1259-1262, 1265
Index
organizational life 1509 organizational memory 820, 822, 830 organizational metacognition 1494-1497, 1502-1505 organizational technology 1445-1450, 1453, 1454 organizational technology learning 1445-1450, 1453, 1454 organizational theory 1509-1513, 1517-1521 Original Equipment Manufacturers (OEM) 256, 257, 260-263 outsourcing 1615-1617, 1622, 1624, 1628, 16301632, 2494, 2503
P pair matching 630, 634 participating/directive management 1458 Partner Interface Processes (PIP) 783-806 part-time home-based worker 1585 password life cycles 2420 password policy 2420-2429 password policy life cycles 2420 passwords, simple 2420, 2425 patient safety 1879, 1880, 1883, 1885, 1888, 1889, 1890 pattern discovery 692, 694, 698 pattern language 662, 663, 664, 665, 667, 669 pedagogy 131, 134 peer mentoring 634 People Capability Maturity Model (People-CMM) 1615-1630, 1632 Performance Management (PM) 1606, 1614-1628, 1644, 1648, 1658 performance measurement 1588, 1589, 1591, 1600, 1601 performance-based earned value (PBEV) 1600 Personal Digital Assistant (PDA) 1564, 1567, 1569 personal identification number (PIN) 2420, 2422, 2429, 2431 personal style inventory (PSI) 2090, 2101 personality traits broad and narrow 2101 person-environment fit 2101 personnel performance management 1632 personnel productivity assessment 1094, 1095, 1106 pervasive computing 192-194, 198-201, 205 phone banking 1057 piggybacking 2 planning strategy 344 Point of Interest (POI) 257 policy analysis 750-753, 757, 758, 768, 769, 774, 775 policy framework 750, 774 policy management 750-753, 761, 762, 768-775
political theory 2180 politico-administrative regimes 843 positivist research 1998 power flaunting 2013 predicted emergent business pattern 1732, 1733 pricing 2025 Probability Density Function (PDF) 2374 Problem Based Learning (PBL) 1378-1381, 1395 procedural knowledge 2303 process capital 1799, 1800, 1804, 1807-1811, 1814, 1819 process focus 1046 product development 1023, 1039, 1040, 1041, 1042 Product Lifecycle Data Management (PDM) 2394 product life-cycles 106 productivity assessment 1094, 1095, 1098-1100, 1104-1107 product-service bundle 1267, 1269, 1273 product-service packages 1267, 1268 profitability 56, 57, 58, 60, 61, 62, 63 project management 2391, 2392, 1644, 1645, 1649, 1655-1658 protégé 628, 632, 634 Public Land Mobile Network (PLMN) 2370, 2373, 2375 pure player banks 511
Q quality function 1023, 1039, 1041 quality function deployment (QFD) 1023-1041 quality management system 1440 quality of care 1879-1883, 1888 quality of manageability (QoM) 1156 Quality of Service (QoS) 487, 489, 495, 496, 23602362, 2368-2375, 2378
R Radio Frequency Identification (RFID) 645, 647, 650 reciprocal determinism 2044, 2057 recommender system 1576 recovery facilities 357, 358, 359 recruiting portals 642 recruitment and selection 1607, 1614 recurrent interactions 2085 relational capital 1799, 1801, 1808, 1811-1814, 1819 relational character 1957 relational e-strategy 1339-1344, 1348 relationship management 49, 50, 51, 55 relative advantage 978, 983
11
Index
Remote Method Invocation (RMI) 2245 replacement planning 1871, 1874, 1877 request based virtual organizations (RBVO) 2473, 2475, 2479-2485, 2488, 2489, 2492 research and development (R&D) 106, 111, 117 resource-based view (RBV) 28, 29, 37, 38, 57, 58, 821, 824, 832, 833, 836 return on assets (ROA) 58, 59, 60, 61 return on equity (ROE) 58 return on investment (ROI) 122, 134 reverse logistics 644, 650 risk assessment 888, 889, 892, 893, 897-902 risk management 888-891, 901-903, 2493, 2494, 2507-2511 Rivest, Shamir, and Adelmaen (RSA) 781 RosettaNet 782-808 RosettaNet Implementation Framework (RNIF) 783785, 794-801
S Savannah River Site (SRS) 69 search engine optimization (SEO) 468-482 SECI process 2308, 2316 secure data management 1337 Secure Sockets Layer (SSL) 704, 706, 717 Security Assertion Markup Language (SAML) 2246 security management 750, 751 Self-Organizing Map (SOM) 2361, 2364, 2365, 2369, 2375, 2378, 2379 Semantic Competence Pull 403, 406, 407, 410-415 semantic integration 373, 375, 383, 384 semantic interoperability 378, 379, 384, 393, 396, 402 semantic model referencing 373, 375, 379, 389, 390, 394, 402 sensor networks 750, 771, 772 servant leadership 1675-1687 service computing 83-85, 95, 104 service dependency 1149-1156 service gateway 699, 717 service intelligence 83, 84, 85, 98 Service Level Agreements (SLA) 1616, 1619, 1621, 1624, 1627 service oriented architecture (SOA) 782, 786, 787, 793, 801, 802, 2473, 2475, 2480-2484, 24892492 service science 83, 84, 85, 98, 104 shared service centers (SSCs) 312, 315, 316, 322, 326, 328, 330, 331, 332, 333, 334, 335, 336, 337, 338, 340
12
shareware 2158, 2171 Simple Object Access Protocol (SOAP) 2245, 2256 situated activities 2085 skill enhancement 2513 skill gap analysis 1395 skimming 708, 715, 717 Slow Associated Control CHannel (SACCH) 2375 Small and Medium Enterprises (SME) 468-473, 481-486, 644, 984-987, 991-994, 1109-1116, 1124-1130, 1133, 1170-1177, 1217-1228, 1475-1492, 1868, 1979, 1989, 1990, 21352156, 2231-2233, 2473-2492 Small Office-Home Office (SOHO) 644, 1585 social capital (SC) 1376, 1386-1392, 1896-1910, 1915-1919 social capital theory (SCT) 1896-1901 social cohesion 1906, 1909 social connections 1897 social inclusion 1905, 1906, 1909, 1912, 1921 social knowledge 420 social media 1570-1576 social network 651-660, 1906, 2117, 2118 Social Network Analysis (SNA) 2392, 2400, 2401, 2418 Social Network Scorecard (SNS) 2398, 2399, 2403, 2409, 2417 social network theory 651, 652, 659 social networking sites 660 social perception 1707 social science 2179, 2184 social support 1906 social systems 2180, 2181 social tagging 1570, 1571, 1572, 1576 socialist state 1044, 1045 social-psychological harmonic oscillator (SPHO) 67, 69, 70 societal level 1044 societal transience 1044, 1045, 1051 Society for Human Resource Management (SHRM) 2061, 2062, 2071 Society of Competitive Intelligence Professionals (SCIP) 1935 socio-economic indicators, macro-level 2433, 2449 sociometry 658, 660 socio-technical design 660 socio-technical pattern 669 socio-technical system 664, 669 software as a service (SaaS) 488, 2205, 2224, 2225, 2228, 2246 software development 1588-1591, 1596, 1601, 1602 software engineering 742, 1644, 1645, 1660
Index
Software Engineering Institute (SEI) 1617, 1630, 1632 Software Engineering Process Management (SEPM) 1589 software program 1643 spatial frequency 67 spatial knowledge 135-145, 149 spatial knowledge acquisition (SKA) 135-144 Stand-alone Dedicated Control CHannel (SDCCH) 2374, 2375 Standard Deviation (SD) 2340, 2349 standards change 105-117, 120 storage area network (SAN) 2389 strategic alliance 434, 435-437, 440-443, 661 strategic business-to-business relationships 1838 strategic choice 1790, 1793, 1795 strategic decision-making 1795 strategic development 844, 862 strategic e-business management 549 strategic experimentation 287-293 strategic information system planning (SISP) 271274, 593-600, 603, 606-609 strategic management 287-293, 419, 612, 615-821, 824, 834-836 strategic network 46 strategic partnerships 1838 strategic planning 254-256, 260-267, 286-289, 344, 347, 353, 354, 358, 370, 529, 530, 533, 537-539, 542-544, 547, 691, 742, 1283, 1284, 1288 strategic scaffolding 842, 843 strategy development 842 strategy map 613, 618 structural capital 1046, 1376, 1386, 1388, 1390, 1798, 1799, 1819 Structural Holes 1903 structuration theory 1415 structurational perspective on technology 2085 subject matter experts (SME) 2285, 2286, 2287 Sub-Saharan Africa (SSA) 1170-1177 superior performance 56, 62 Supplier Relationship Management (SRM) 2393, 2394 supply chain 888-893, 898-909, 2493, 2494, 24972502, 2507-2511 supply chain collaboration 1179 supply chain integration (SCI) 1820-1827, 1834, 1835 Supply Chain Management (SCM) 258, 271, 278, 283, 1127, 1130-1133, 1820-1836, 2393, 2394, 2407, 2511
supply chain risk management 2493, 2511, supply chain risk mitigation 2493, 2510 supply chains, action learning in 2493 supply network integration 1821 supply-chain planning 344-349, 353, 355 supply-chain planning strategy 344 supply-chain resources 344 supply-chain system 344 surface acting 735, 740 symbology 1564, 1569 systems thinking 2058, 2059
T tacit knowledge 864, 865, 870, 1161, 1168, 1249, 1250, 1253, 1258-1262, 1265, 1476, 1478, 1481, 1482, 1488, 2298-2312, 2315-2320, 2324, 2325, 2329, 2330, 2457-2472 talent management 2060, 2061, 2062, 2065, 2066, 2068, 2071 team expertise 1588, 1590, 1600 tech wreck 643 Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) 357, 358, 359, 362, 366, 367, 369, 370 technological innovation adoption 1055, 1063 technological knowledge 1604, 1607, 1609 Technology Acceptance Model (TAM) 720, 1136, 1137, 1146, 1147, 1148, 1217-1222, 1225, 1226, 1227 technology as a technical artifact 2085 technology as a technology-in-practice 2085 technology integration 288, 291, 293 technology learning 1445, 1446, 1447, 1448, 1449, 1450, 1453, 1454, 1456 Technology-Organization-Environment (TOE) 57, 1055, 1058, 1061-1064, 1178-1182, 1195, 1196 Technology-Organization-Environment (TOE) framework 1055, 1178, 1181, 1182, 1195 tecso model 650 Telecommunications Management Network (TMN) 2370, 2371, 2379 telecommuting 1562, 1569, 1577, 1585 tele-ICU 1879-1889, 1894, 1895 telemedicine 1879, 1880, 1883, 1884, 1888, 1890, 1894, 1895 telework 777-781, 1299-1305 teleworker 777-781 teleworking 40, 46, 733-735, 740, 1584, 1585 temporary network 39, 40, 43, 46 Thailand, rural 2512-2517, 2520-2524
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Index
Theory of Reasoned Action (TRA) 1136 Third Party Logistic Providers (3PL) 644, 648 Time Division Multiple Access (TDMA) 2375, 2377 To Complete Performance Index (TCPI) 1592 top-down 294, 295, 297, 298 top-down procedure 294, 295 Total Quality Management (TQM) 2178, 2179, 2194, 2196 tourism destination 447, 448, 454, 458, 459, 465 tourism experience 447, 449 traditional mentoring (t-mentoring) 628, 629, 632, 634 transformational leadership 1350-1371, 1374 trap doors 781 trialability 978, 983 trial-and-error learning 289, 293 triangulation technique 934, 947 trust, perception of 2554
U ubiquitous computing 193, 194, 202, 203, 205 Ubiquity 2258 Unified Modeling Language (UML) 784 Uniform Resource Locator (URL) 692, 693, 697 Universal Description, Discovery, and Integration (UDDI) 2245, 2256 Universal Mobile Telecommunications System (UMTS) 2361, 2370, 2377, 2379 Universal standards 2258 urban development 844, 845, 846, 848, 849, 851, 852, 857, 858 urban planning 842, 849, 852, 855, 860 user names 2420 user-centered design (UCD) 669, 2085
V value management 1588, 1591, 1600, 1601, 1602 value networking 1522, 1523, 1524, 1532 variable cost 46 variable cost virtual corporation 46 variable geometry structure 46 variation analysis 1644, 1647 Verein Deutscher Ingenieure (VDI) 1268, 1280 vertical dynamics 108, 111 vertical integration 2257, 2268 virtual communities 651, 654, 658 virtual company 1664 virtual corporation 39-46, 255, 436, 443 virtual corporation as temporary network 46 virtual corporation that manufactures virtual products 46
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virtual engineering 2236, 2240 virtual enterprise 255, 259, 888-890, 893, 899-902, 905 virtual enterprise network 888-890, 893, 899-901, 905 Virtual Environment (VE) 135-145, 148, 149 virtual factories 255 virtual firms 1664 virtual interaction 1088 virtual knowledge 447 virtual laboratory 1751, 1757, 1764 virtual marketplace 470 virtual multinational communities 1523 Virtual Organisation (VO) 254-256, 260-264, 267, 434-436, 440-445, 660, 888. 1216, 1290-1297, 1337, 1397, 1404, 1406, 1494-1496, 15011506, 1562, 1563, 1567-1569, 1662-1673, 1688, 1689, 1700, 1703, 1750, 1751, 1752, 1762, 1764 virtual private network (VPN) 2114 virtual process chains 2239 virtual product 46 virtual store 470 virtual team 1023, 1202, 1205, 1214-1216, 13961412, 1663, 1688-1691, 1701-1704, 1879, 1883-1892 virtual value chain 1121, 1127, 1131, 1132 virtual work 1413-1416, 1419, 1420, 1423, 14291431, 1436 virtual work behaviors 1415 virtual work policies 1415, 1420, 1430 virtual world 121-134 virtue approach 2023 VO Breeding Environment (VBE) 254-256, 260-267 vocational choice-information systems 2101 vocational interests 2101 voice over Internet protocol (VoIP) 2113, 2353, 2354, 2355, 2356
W waste disposal 2473, 2487, 2488 waste management 2473-2475, 2478 waste management requirements 2473, 2475 waste products 2473, 2474 Web 2.0 661-663, 668, 2202-2209, 2213-2228, 2244-2248, 2253-2256 web access log 692, 694, 697 web agent log 697 web bots 693 web design 468, 472, 473, 476 web error log 697
Index
web forensic framework 692 Web learning 1375, 1385, 2391, 2392 web log 691-698 web log acquisition 692, 697 web log analysis 692-697 web log data 691, 693, 694, 698 web log pattern discovery 698 web log preprocessing and cleansing 698 web logging 693 Web mining 691, 1395 Web ontology language 782, 786, 788, 792 web presence 691, 692, 695, 696, 698 web referrer log 698 web server 692, 693, 694, 697, 698 web server log data 698 web service architecture 84, 85, 86, 88, 91, 99, 104 web service demand chain 90, 103 web service discovery 95, 97, 98, 104 Web Service Lifecycle (WSLC) 83, 84, 85, 86, 88, 92, 93, 94, 95, 96, 98, 104 web services 83-104, 487-498, 672, 675-686, 689, 690 web services definition language 748 Web Services Description Language (WSDL) 2245, 2256 web site optimization 692 web usability 468, 469, 473
web usage data 692 web usage mining 692, 698 web-based systems 549 web-based technology 1348, 1867, 2029 Western society 2554, 2555, 2557, 2558, 2559, 2560, 2561, 2562 wikis 2203, 2208, 2217, 2218, 2221, 2224, 2228 wireless market 1231 wireless market portfolios 1231 wireless networks 406 work behaviors 1415 Work Breakdown Structure (WBS) 1591 work policies 1415, 1420, 1430 work/life balance 732, 733, 736, 737, 738, 740, 2060, 2061, 2069, 2070 Work-family interference (WFI) 733, 734, 735, 736, 738, 740 work-family policies 1415, 1434 work-life policies 1305 workplace safety 1438, 1439, 1440, 1441, 1442, 1443 World Trade Organisation (WTO) 2138 World Wide Web (www) 1087, 1089, 1092 World Wide Web Consortium (W3C) 106, 117
X XML Schema Definition (XSD) 783, 786, 800
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Chapter 7.5
The Role of Culture in Business Intelligence Jore Park IndaSea, Inc., USA Wylci Fables IndaSea, Inc., USA Kevin R. Parker Idaho State University, USA Philip S. Nitse Idaho State University, USA
ABSTRACT Global business intelligence will struggle to live up to its potential if it fails to take into account, and accurately interpret, cultural differences. This paper supports this assertion by considering the concept of culture, explaining its importance in the business intelligence process, especially in foreign markets, and demonstrating that attention to culture is currently inadequate in most international business intelligence efforts. Without a tool capable of modeling social interaction in DOI: 10.4018/978-1-60960-587-2.ch705
disparate cultures, BI efforts will under perform when extended to the global arena. The Cultural Simulation Modeler is examined as a means of enhancing essential cultural awareness. The core components of the modeler are explained, as are the limitations of automated information gathering and analysis systems.
INTRODUCTION Enhanced technology, travel, communications, and economic globalization contribute to making the world seem as if it is becoming smaller.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Role of Culture in Business Intelligence
As a result, events manifest at a faster pace and are affected by a wider variety of circumstances and conditions. One aspect of internationalization is that organizations now deal with a variety of national and regional cultures. Organizations often think they understand the cultures with which they interact, but they frequently fail to grasp the subtle nuances and resulting consequences of foreign cultures. Culture has a very deep and implicit influence on behavior whether managers are aware of it or not (Bensoussan & Densham, 2004). Cultural differences affect planning, problem detection, situation awareness, uncertainty management, and decision making. Cultural differences in cognition and in world view can seriously impede expansion into foreign markets (Klein, Pongonis, & Klein, 2002) and companies often fail in their ventures into these markets due to serious errors and misjudgments concerning the social, cultural, and political environment (Tian & Tobar, 2004). Another aspect of our changing world is that organizations must be constantly aware not only of cultural issues, but of all factors in their operating environment that might present threats or opportunities. Organizations that fail to monitor their environment to determine the conditions under which they must operate court disaster (Mitroff, 1985). Identification of key economic, social, and technological issues that affect the organization, its life cycle stages, and their relevance to each other helps managers allocate attention and resources to them. One tool through which this is accomplished is business intelligence gathering and analysis. Business intelligence gathering and analysis is a fundamental step in the chain of perceptions and actions that permit an organization to adapt to its environment. Organizational adaptation, survival, and competence in the face of increasingly discontinuous environmental change require access to timely and accurate information, as well as tools to constantly monitor, analyze, and interpret that information (Malhotra, 1998).
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Cultural bias is a real phenomenon and must be considered in intelligence gathering and analysis. Note that this applies not only to business intelligence but also to intelligence gathered on behalf of governments. Hence, the Cultural Simulation Modeler (CSM) was developed by IndaSea, Inc. under the auspices of the United States Defense Threat Reduction Agency as a terrorism threat assessment tool. The CSM is a software system that monitors multicultural interaction in order to anticipate threats and opportunities as they emerge from complex situations (IndaSea, 2004). The premise for the system is that increased understanding can be obtained by viewing a situation from multiple, culturally specific, empathetic points of view (Fables & Park, 2005). When academics were consulted to independently assess the tool they immediately recognized that the tool had the potential to be applied equally well to business intelligence gathering. Hence, the goal of this paper is to first make the case for the inclusion of cultural considerations in the gathering and analysis of business intelligence, then to present a discussion of the design of the CSM and how it operates, and finally to consider the limitations of automated information gathering and analysis systems.
BUSINESS INTELLIGENCE The terms business intelligence (BI), competitive intelligence (CI), market intelligence, and even environmental scanning are often used interchangeably (Bouthillier & Jin, 2006). However, while some may consider it overly punctilious, many make a distinction between BI and CI (Fleisher, 2003). In keeping with that differentiation, we will use the term business intelligence. According to Frates and Sharp (2005) BI reflects a broader strategic orientation and use for information than does the more narrow definition of CI. Competitive intelligence is often limited to competitor intel-
The Role of Culture in Business Intelligence
ligence, focusing on identifying, monitoring, and understanding specific current competitors, whereas BI targets any information in the business universe that affects a firm’s ability to compete. This broader perspective targets developments beyond the current competitors and the immediate industry to anticipate significant marketplace changes that affect both a given industry and a particular competitive market arena. Therefore BI is becoming an accepted means of gathering and analyzing information for use in developing global strategies. Organizations use the BI process to gather information, to add value to it through analysis, and to report the findings to managers to solve a wide variety of problems or satisfy requests for information. BI projects range from competitive information about competitors or customers to information on mergers and acquisitions or recruiting. The types of information needed to answer these requests may include financial information, demographics, biographies, economic indicators, news articles, and customer and competitor information. Some types of information are easily gathered, while others require greater amounts of time and money to obtain. According to the Society of Competitive Intelligence Professionals (SCIP), using publicly available information will satisfy most analysts’ needs. The open sources of this data include research findings, reference sources, marketing information, discussion information, legal information, and U.S. Freedom of Information Act information. This information may be free via sources like the library or the Internet, or it may require the payment of a fee to access information from a wide variety of data sources such as Hoover’s Company Data Bank, Standards & Poor’s, or NewsEdge (Breeding, 2000). Once the information is secured, it must be analyzed and proper reports must be generated and disseminated to the appropriate individuals within the organization.
THE IMPORTANCE OF CULTURE IN BI Hofstede (2001) defines culture as “the collective programming of the mind that distinguishes one group or category of people from another.” This mental programming begins at home at a very early age and is then reinforced by the educational system as well as throughout adulthood via various organizations and social institutions. Therefore culture is shared among, influences, and is shaped by members of a group, community, institution, and the environment (Chandler, 2005). The implication of this research for global BI efforts is that these mental programs drive the different values held by people from different cultures. Cross-cultural work in technological disciplines “remains in its infancy” because of a lack of agreement about the meaning and definition of the underlying construct culture (Straub, Loch, Evaristo, Karahanna, & Strite, 2002). The very term, when used in conjunction with organizations, can refer to the organization’s culture or the culture of the environment within which the organization operates. Hofstede’s (1980, 2001) pioneering work examines the culture of an organization operating across various national and regional cultures. His book is one of the top 100 cited sources in the Social Science Citation Index, and his conclusions on global cultural heterogeneity have been validated via rigorous statistical analysis and verified by many crosscultural studies conducted by others (Knip, 2006). Hofstede’s (1980, 2001) central thesis focuses on the uniqueness of each national culture. His research of global cultural heterogeneity across the countries of the world “identifies five main dimensions along which dominant value systems in more than 50 countries can be ordered, and that affect human thinking, feeling, and acting as well as organizations and institutions, in predictable ways” (Hofstede, 2001).
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The Role of Culture in Business Intelligence
Hofstede’s (1980) dimensions represent the basic elements of common structure in the cultural systems of the countries, providing a framework not only for analyzing national culture, but also for considering the effects of cultural differences on management and organization (Pheng & Yuquan, 2002). This framework is especially useful for understanding people’s conceptions of an organization, the mechanisms that are considered appropriate in controlling and coordinating the activities within it, and the roles and relations of its members (Hoecklin, 1995). In other words, Hofstede’s dimensions enable a company to determine how to best structure its organizations located in various cultures throughout the world, allowing the organization to adapt its organizational structure and incentive systems so that it is consistent with the country of origin’s cultural dimensions (Van Ness, Seifert, Franko, & Buff, 2005). Although highly acclaimed, Hofstede’s work is also widely criticized. Many critics assert that Hofstede presents an overly simplistic dimensional conceptualization of culture, uses an original sample derived from a single multinational corporation (IBM), ignores the existence of substantial within-country cultural heterogeneity, uses invalid measures, and overlooks the fact that culture changes over time rather than being static as suggested by the dimensions (Dickson, Den Hartog, & Mitchelson, 2003). Further, he fails to account for factors such as religious orientation (Van Ness et al., 2005). Since business intelligence is focused on the cultural aspects of an organization’s external environment rather than its internal environment, Hofstede’s dimensions have limited relevance to this study.
Culture and BI The majority of international BI practitioners currently neglect the need for a clear understanding of the differences in cross-national boundary perspectives as well as in cross-cultural perspectives (Tian
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& Tobar, 2004), and as a result of this inattention to the pervasive impact of culture many global BI programs fail to realize their full potential (Knip, 2006). If managers assume that others interpret and react as they do, manage uncertainty as they do, and think about real and hypothetical issues as they do, there can be unanticipated problems (Klein et al., 2002). Such ethnocentrism lies at the root of inattention to cultural diversity and often afflicts the transition from a domestic BI program to a global BI program (Knip, 2006). Prescott and Gibbons (1993) identify five issues that can impede international BI efforts: • •
•
• •
The types, timeliness, accuracy, and motives for data collection can vary by culture. The ethical standards for acquiring information vary from country to country, as do the attitudes toward the individuals performing the collection. The technologies used in the production, storage, movement, analysis, and timing of information may vary dramatically across countries. Language barriers can impede both the collection and analysis of information. Culture-specific idiosyncrasies must be taken into consideration.
Gathering and Analysis As corporations increasingly operate across national borders to enter foreign markets, BI professionals must gather data about and analyze the competitive environment in different cultures (Elizondo & Glitman, 2002). Ignorance of cultural factors can negatively impact both aspects of business intelligence. Global BI gathering is much more complicated than on a domestic level (Feiler, 1999). Even geographically close countries can be characterized by huge differences in information sources, language, and culture (Elizondo & Glitman, 2002).
The Role of Culture in Business Intelligence
Cultural awareness enables the global BI function to recognize and pick up the ambient signals while they are still leading indicators (Knip, 2006). Regardless of the availability of information or how information is gathered, analysis is required before actual intelligence is revealed. It is important to understand that the analysis of information does not occur in a vacuum, but must take place in the proper context. Without context the resulting intelligence is meaningless. If analysts do not understand cultural information in terms of country-of-origin, ethnic basis, or religious basis, they may very easily misinterpret the data and how and why the players make their decisions. Such misinterpretations can impair the effectiveness of strategic decisions. Without cultural awareness, analysts can easily draw incorrect strategic inferences (Knip, 2006), because BI investigators unaware of cultural factors may inadvertently impose their cultural bias or make culturally based assumptions (Tian & Tobar, 2004). Leveraging cultural influencers creates insight to intended consumers’ most basic thoughts and planning processes. Awareness of behavior systems allows analysts to be more in tune with the target market and better able to prepare for the next opportunity. This broader cultural perspective will likely expose threats and opportunities in global markets that may have otherwise gone unrecognized or misunderstood (Knip, 2006). Thus, sensitivity to cultural variables allows BI professionals to develop a more robust understanding of the competitive environment and can deepen the analytical content and the effectiveness of the intelligence delivered. In summary, research indicates that in today’s highly competitive global business environment BI requires cross-cultural sensitivities to compete effectively (Tian & Tobar, 2004). When BI takes into account the cultural perspective, a global BI manager is better able to overcome cultural influences.
A CULTURAL SIMULATION MODELER The goal of the Cultural Simulation Modeler (CSM) is to gather and interpret information from different perspectives, points of view, and/ or cultures. From that interpretation the modeler displays the vast amounts of complex data and interactions in a usable manner (Patil, Perry, & Hamon, 2005). The core of the CSM is the “cultural construct,” the filter through which data sources are processed and a perspective from which they are understood (Resnyansky, 2007). The cultural construct is built using content from primary source documents and subject matter experts to provide contextual information to an issue or situation (Patil et al., 2005). Rather than using a static filter based on a snap-shot in time, the cultural construct is dynamic, receiving regular updates as new information becomes available. This makes the CSM better able to spot changes more quickly, allowing a quicker reaction on the part of decision makers. Further, instead of trying to eliminate bias in the interpretation of information (e.g., a news article), the CSM attempts to capitalize on the inclusion of numerous points of view, or perspectives, in the cultural construct to produce a multi-dimensional view of a situation or circumstance. This approach allows the CSM to identify threats, opportunities, and when different group’s perspectives change or align with one another. Additionally it enables the identification of gaps in information required to adequately assess a situation (Patil et al., 2005). Unanticipated or asymmetrical threats are normally detectable too late to put counter measures into place. However, awareness of cultural issues makes it possible for analysts to take into account how people of different cultures feel, think, and act so that they can more quickly identify threats or opportunities. As noted earlier, a dynamic information aggregator is better able to recognize environmental changes more quickly. This gives
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The Role of Culture in Business Intelligence
decision makers the opportunity to react more quickly as well, leading to agile decision making that can allow an organization to react before their competition. Continuous updates make it possible for live situational behaviors and time patterns to be quickly modeled and factored into the analysis.
Design The design goal was to develop a system capable of uncovering meaning in such a way that it encourages the widest possible view to encompass both a range of cultural perspectives and an understanding of the direction of short, medium, and long trends in the relationships between cultures. Certain assumptions influenced the design of the CSM. First, a very inclusive approach to information gathering is needed to build a body of data that reflects the wide and diverse range of ideas and opinions present in a culture. An inclusive body of data is needed to aid in understanding a complex, interwoven, conflicted, and biased society. Second, different individuals, groups, and cultures will perceive events in characteristic and sometimes unique ways. How these entities perceive events can be understood with the help of a system that provides a view of the entity’s behavior in context over time. Third, the system requires a specialized data schema that is specifically designed to support cultural perceptions. To gain cultural perspective on world events, at least three elements are required: (1) an understanding of history and enduring cultural data; (2) knowledge of the immediate cultural context influencing unfolding events; and (3) the ability to appraise the current state of a situation of interest. The system must handle the juxtaposition of these three elements and enable visualization of complex sets of information in ways that promote human understanding. Figure 1 shows the overall application design. The CSM attempts to integrate disparate units of data into a synthesized whole, with a goal of obtaining the widest possible perspective on on-
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going situations, including opposing ideas. There are three categories of inputs that are filtered through the cultural construct. First, the CSM can be wired into Factiva (Dow Jones and Reuters) and/or other global data feeds, as well as a wide variety of Internet resources, in order to process a wide range of news and other data items about a particular region of interest (category 1) as well as about current situations and their contexts in that region (category 2). In addition, historic data about the culture is also provided to the cultural construct (category 3). As the process captures and preserves knowledge, it is imperative to keep that information in a cultural context. The cultural construct is discussed in detail in the next section, but it is a knowledge acquisition and contextual memory method used to “filter” the system inputs via autonomous data handlers, pattern matching, and other information filtering approaches. Specific cultural constructs are incorporated to support structural, relational, and situational questions from a BI perspective. The output of the system consists of integrated reports with visualization of live situational behaviors and time patterns that can be analyzed by subject matter experts and cultural analysts, i.e., someone trained in some aspect of human behavior and able to structure that information. Specialized tools are provided to help organize, search, analyze, and visualize the output. In the act of producing an assessment, an analyst may be required to engage all of the above tools at some point in the work flow. The system is designed to provide data subsets for consideration, structured to reflect developments in the real world with the diverse cultural perspectives of the stakeholders in the situation under study.
The Cultural Construct The CSM provides methods for structuring the flow of information in order to promote inclusion of cultural context. The structure built into the CSM to handle the flow is called a cultural
The Role of Culture in Business Intelligence
Figure 1. CSM application design
construct. It builds heavily on the concepts of Actor, Situation, and points of view from symbolic interactionism. The idea of a cultural construct itself was borrowed from the fields of visual arts and computer animation (Resnyansky, 2007). Two concepts from those fields, Actor perception and emotional state, explain why a subjective perspective is needed in order to better understand a situation, society, etc. The concepts of objective and subjective views are shaped by perceptive psychology. Whereas a subjective view is formed from the point of view of a single individual (a perspective that is unique and can be made from a particular point/distance only), an objective view is a view shared by most observers. For example, a group of people looking at a structure from a long distance will share a similar view. However, if they approach the structure each individual will have a different view because it is physically impossible for multiple individuals to occupy the same space. The concept of perception helps to shape goals and behaviors, and is closely linked to the concepts of context and culture (Resnyansky, 2007). The cultural construct is comprised of the catalog of ideas and behaviors exhibited by all Actors in the system. It includes past, present, and possible future behaviors, and strives to be culturally inclusive in the widest sense. A constructivist method is used for building the cultural construct,
whereby elements are added accompanied by a reference to the point of view they express, as well as other contextual information, on an element-byelement basis. Building the construct is an openended process in that elements are continuously added as new information is found as the result of information gathering. The cultural construct is developed on the basis of information provided by experts, informal conversations with people, and so on. It requires a cultural (anthropological, sociological, etc.) study of a region aimed at developing a current conceptual model of the processes taking place in that society. One difficulty is the selection of relevant cultural knowledge and its systematization within a particular theoretical framework. This task requires deep cultural insights (an understanding of the target culture at almost the same level at which this culture is understood by its members) as well as an analytical deconstruction of the authentic cultural meanings in order to ‘train’ the software and to ‘understand’ the target culture. (Resnyansky, 2007). A typical unit for a construct element would be a phrase that expresses a single idea. The phrases usually imply that they are spoken from a particular point of view, and are in most cases attributed to a particular Actor, although they can be subjective, ambiguous, or neutral in tone. In
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The Role of Culture in Business Intelligence
the CSM, the use of the Actor point of view is the cornerstone of the cultural construct. Providing a range of points of view for the analyst making the assessment is a key step to establishing a basis for understanding a Situation.
Importance of the SocioCultural Context The actions of an individual or group cannot be understood apart from the socio-cultural context within which the individual or group identifies him/her/itself, which in the CSM is maintained by the Actor point of view. The individual or group may identify with multiple socio-cultural contexts, and the Actor may have multiple points of view. Recall that an Actor is defined as a subset of the cultural construct representing a particular entity, and can be a person, group, concept, or culture, particularly as it relates to a social Situation. Some examples of Actors are the region’s people, any regional political organizations or movements, regional governments, and perhaps the local military. Each Actor’s cultural point of view is represented in the model. The cultural point of view includes how each Actor sees, defines, and responds to a situation; in essence it is how they perceive and interact with the world (Park & Fables, 2006). The contribution of social science to the development of cultural constructs for specific regions/ cultures can be twofold (Resnyansky, 2007). First, the social scientist can provide subject matter expertise in the area of culturally-specific meanings, world views, and values. This kind of expertise is needed in order to identify the key cultural concepts and symbols shaping a culture’s members’ interpretation of the reality and, to some extent, governing their activities and actions. Second, the social scientist can draw upon structural and systemic analyses of a particular society in order to develop a framework showing how cultural concepts and symbols relate to socioeconomic and political contexts, and in order to understand
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the relative relevance of particular concepts and symbols in different contexts. This analysis needs to take into account sociological studies of cultures and societies and an analysis of religion and ideology as cultural systems. It also needs to be informed by semiotic, anthropological, and psychological studies of cultural concepts and symbols (Resnyansky, 2007). Understanding the socio-cultural context with a constructivist lens requires an understanding of how one’s socio-cultural context is created. According to sociological theory, the sociocultural context has two characteristics: “objective facticity” and “subjective meaning” (Berger & Luckmann, 1966). The relationship between the two characteristics is at the crux of sociological theory, and is the theoretical underpinning for a process of analyzing the phenomenon, including knowledge, actions, individuals, or groups that arise from specific socio-cultural contexts in a meaningful way. Sociological theory posits a dialectical relationship between the individual and the socio-cultural context. First, the socio-cultural context is a product of human beings, second, the socio-cultural context is real in an objective sense, and third, human beings are, in large part, a product of their socio-cultural context. Understanding this dialectical relationship is the first step to understanding how “subjective meaning” becomes part of the objective reality of the sociocultural context. Human beings act upon and are acted upon by their socio-cultural contexts. This concept, known as the Great Sociological Paradox, emphasizes the importance of understanding not only how an Actor behaves, but also how that behavior is influenced by the Situation, and how the Actors themselves also influence what form a Situation takes. This holistic approach to analysis can provide a greater depth of understanding of a given situation of interest. Given the need for a holistic approach to analysis of a Situation, the inclusion of multiple socio-cultural contexts, i.e., for multiple individuals, groups, and countries, is at the core of the CSM
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cultural construct. Conflicting points of view are incorporated into the cultural construct since a complete body of ideas and opinions is required in order that a situation be seen in enough width and depth that a degree of understanding of the current state is achieved. The CSM also provides a fractionation of a situation into the associated points of view as a means to organize and evaluate the completeness of coverage of relevant issues and stakeholders. The Actor point of view is the unit of sociocultural context in the CSM and the cultural construct is the aggregate of overlapping points of view in the system at any given time. As noted earlier, the formation of the construct is a dynamic process engaged in by human operators, who add elements organized into Actor points of view in response to perceived situations arising in the real world, and who incorporate new Actors when they are needed. The cultural construct constantly evolves in response to the external environment. At all times, however, it functions to produce assessments of the current state as reflected in the data feeds and as a collaborative memory for the CSM modelers and analysts.
Scales for the Model The structuring of a point of view is influenced by a human perception-based metaphor borrowed from the visual arts – depth of field – whereby elements in the construct are perceived to exist in a plastic space gradating from the self to the view of a distant horizon. This depth of field can be structured in ten scales, where Scale 1 is closest to the Actor; in fact it is inside the Actor, and contains the most concrete and fastest changing information. The other end of the spectrum, Scale 10, is furthest away and most abstract, and comprises very slowly changing ideas. Elements added to the construct are initialized by the cultural modeler with one of the ten scales. Elements in the construct that are assigned the same scale are considered to have certain parity in the depth of
field no matter which Actor point of view they reference. The progression in scales, from far to near, can be expressed in the following terms: (10) universal, (9) religions, beliefs and values, (8) institutions, countries and geography, (7) trends and processes, (6) groups and resources (5) individuals and roles, (4) influences and memory (3) actions, (2) emotions, (1) current state of awareness. Emphasizing one or a subset of scales when performing an assessment will cause the output to be presented in different ways. Understanding issues at the policy scale, a Scale 7 idea, requires a different emphasis than understanding the way people of different cultures get dressed, a Scale 6 idea. The former refers to the institutional-level activities of countries, while the latter refers to individual and group actions. If a gradation of ideas in the construct can be established that encompasses ideas at all levels, a deeper understanding of context will be achieved, and the more versatile the system will be at providing assessments of various types. The process of building a cultural construct, therefore, includes the attempt to achieve coverage of culturally relevant ideas in a range of scales and across a range of points of view. Generally, however, all scales cannot be represented equally due to limitations imposed by the type of assessment the model is addressing and the resources available to the study.
OUTPUT OF THE CSM The first tier of analytical tools tracks waveforms of concepts and phrases in order to identify hot spots and anomalous behavior. The second tier uses the construct to look at cultural specifics and particular points of view of the Actors involved. All Actors in the news plus additional Actors deemed worthy for inclusion by the operators are processed. It is understood that what is good for one Actor can be bad for another. This means that truth is relative and that the perception of events
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is of great importance when determining meaning from human behavior. The third tier looks at the particulars of a Situation in a particular cultural context in order to analyze specific actions and behavior in context. Situations can be extremely detailed and can work in related groups to cover a topic from many angles. Live data, particularly news, will often highlight a Situation of interest but show gaps in the source data. Historic data can be added to the dataset at any time; this enhances and does not disturb the process. Some of the data visualization tools are still under development or refinement and the system has never been applied to BI, but the general output of the CSM prototype with regard to threat assessment is thoroughly explained in Park and Fables (2006), subtitled “Output of the CSM.” In this paper the developers explain the application of the CSM to Indonesia, particularly Aceh. Aceh is a special territory of Indonesia, and the Acehnese are ethnically separate from the rest of Indonesia. They have fought against foreign dominance almost continually since 1849. The CSM presents these and many other issues from multiple points of view, such as the Acehnese people, the Indonesian government, the Indonesian military, the Free Aceh Movement, international radical Muslims and Jihadists, and various nongovernmental organizations. They explain that in their example the construct for Indonesia showed a high degree of interrelatedness between the government, the military, politics, and business, resulting in a specialized cultural construct based on that inter-relatedness. The initial waveforms and pair correlations were analyzed with particular attention paid to known periods of instability for both current and past events. This allowed the capture of additional vocabulary and Actors that were active in and around periods of instability. Short term (two to ten day) spikes in waveforms in advance of a number of bombings were highlighted, leading the operators to fill in some related data gaps. These additional events were processed to see if the correspond-
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ing waveform peaks were consistent. They were, bringing to a total of six the number of bombings that were preceded by Indonesian court actions. This non-obvious association can then be set up to trigger an alert when the precursor waveform hits a threshold. Given the consistency of the indicator this situation was flagged for further study. The next step would involve identifying an appropriate model to further the analysis, selecting and shaping the data to fit that specification, and passing it shaped data. The system develops as one of its outputs a concept map that illustrates the relationship of the U.S., the Indonesian government, the Indonesian military, Exxon Mobil, and the Acehnese people, highlighting related items and behavior sequences, and recognizing patterns that, when encountered in the past, have led to certain outcomes and can be logically expected to lead to similar outcomes if they occur again. The CSM map is too large to reproduce here, but it can be viewed in Park and Fables (2006). Situation analyses and advanced data visualizations are also produced by the system. Silverman, Bharathy, and Kim (2009) also discuss the output of the CSM.
LIMITATIONS AND ADDITIONAL CONSIDERATIONS Why is a tool like the CSM even needed? The most obvious and intuitive method of obtaining cultural information is to simply to ask subject matter experts (SMEs) to provide this information in a specified format for the regions of interest. Information can be gathered directly from the best available country experts, tapping their expertise by means of a survey questionnaire or by conducting open-ended interviews (Silverman et al., 2009). Silverman et al. (2009) point out three main difficulties associated with using subject matter experts to gather cultural information. First, conducting interviews with experts in either form – expert survey or open-ended interview – requires
The Role of Culture in Business Intelligence
significant financial and human resources. This method of collecting information can be costly. Obtaining SME expertise for a regional assessment may be prohibitively complicated and expensive. Second, subject matter experts, by definition of being subject matter experts and by virtue of being human and therefore fallible, may sometimes provide biased and, sometimes, even blatantly incorrect information (Tetlock, 2005). To limit this bias, multiple SMEs should be consulted on any particular country or topic. More importantly, being a country expert does not mean that one has complete and comprehensive knowledge; a country expert cannot know everything there is to know about a country. Third, finding subject matter experts for a particular country or region of interest may by itself pose a significant challenge. While social scientists, historians, and area studies scholars with specific country expertise are not in short supply, their expertise is not evenly distributed around the globe. Certain parts of the world and certain countries are accorded disproportionate attention, while others are relatively neglected. As a consequence, while at first this most direct route of gathering cultural information from experts looks easy and straightforward, it is also beset with difficulties. That said, the purpose of the CSM technology is not to replace human analysts, but rather to facilitate the human analyst in finding meaning in the vast, chaotic sea of information available daily in the media. A tool like the CSM can assist in the aggregation and analysis of information, and may in fact become a necessity. The complexity of the relations between various ideas and Actors is too great to be thoroughly understood by looking at an isolated set of indicators over a period of time. Whereas it was possible up to a decade ago for humans to handle the information load with analog methods, it is becoming increasingly difficult to proceed without machine assistance for a number of reasons. First, the view of the current state must be refreshed constantly because in today’s world the meaning of information is plastic and subject
to an evolving interpretation. In fact, information can be interpreted, reinterpreted, and acted upon with each daily circle of news from around the globe. Second, the volume of information generated daily has grown exponentially. In the area of cultural assessment, the need to keep pace is especially significant given that having an understanding of current state is the readiness phase for anticipation, projection, or prediction. Without this understanding, a firm ground upon which to build models and simulations for application to threat assessment cannot be established. While the CSM was initially intended to serve as a terrorism threat assessment tool, it has recently been made commercially available, with the system being marketed as custom business intelligence software. Depending on the client’s needs, a subset of the CSM can be customized for the project. Once customized for the field of use and the client, support is by contract, typically relying heavily on IndaSea’s expertise initially and then migrating to the client as required and needed. The CSM is a stand-alone solution that is a separate source of business intelligence. The system uses patented autonomous data handlers to establish a true modular data flow system operational on multiple levels. New function modules are regularly added, which are then arranged in a visual data flow manner to achieve the desired processing structure. Interfaces, data handling and processing and even data structures are handled in the same modular fashion. The system is open in that many data sources can be utilized via an evolving set of APIs. An API, or Application Programming Interface, provides a standard way for a program to accomplish a task, usually retrieving or modifying data. For example, a Twitter API was recently added so that real-time marketing campaign feedback could be included. So although the CSM can be classified as a standalone solution, the ability to rapidly configure a customized set of CSM modules per project or per client make provides considerable flexibility.
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The ethical implications of using a system such as the CSM are the same as those associated with any information gathering and/or analysis tool designed to assist management in their decision making. No tool should be totally relied upon to produce an acceptable decision on any matter. Tools are designed to facilitate appropriate analysis of data in order to provide useful intelligence to allow managers to make decisions. The responsibility lies with management to insure that the output from the tool is used appropriately to make ethical decisions. That said, however, ethics was a primary design consideration. The system is designed to take into consideration as many points of view as possible in order to mitigate bias by including all versions of perceptual reality available. Large amounts of data are examined to identify patterns. Ultimately, however, the decision makers would be responsible for proper inclusions of all relevant variables, and the appropriate points of view. The CSM and similar systems are not without their flaws. There are several challenges of varying degrees of difficulty that confront such systems as discussed in Silverman et al. (2009). 1. Both database and newsfeed coverage can be suspect. Any given country may or may not have an open, free press, so the viewpoints available and even the veracity of what is published may be called into question. Where there is a free press, one must be sure that all views across the political spectrum are captured and appropriately tagged. 2. Another challenge lies in building the cultural construct that captures the model parameters. The main impediment lies in building a truly comprehensive and accurate catalog of concepts for the system to use in extracting information from the exponentially growing quantity of available data sources. 3. The system’s error rates must be tested. This implies assembling a test corpus in addition
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to a training data set where all the ground truth is known. One can then measure precision and recall rates and determine if the tool is doing a credible job. 4. A remaining issue is how to weigh all the evidence collected to assess its reliability, and transform it into actual parameter estimates. Such challenges are faced by any information gathering tool, and oftentimes success can only be measured over time.
FUTURE RESEARCH A future study will examine more closely the complexities of trying to incorporate cultural sensitivity into the BI process, taking into account issues such as cross-factor interactions. This complexity can increase exponentially by an order of magnitude in a diverse, global BI analysis situation in comparison to one being played out in a more homogenous domestic cultural situation. In addition, while it has been posited that the CSM can prove useful to BI efforts, it was, in truth, developed for threat assessment and not as a BI tool. As a result, its relevance to BI must be systematically assessed.
CONCLUSION The purpose of this paper is not to convince the reader that the CSM is the solution to all global BI problems, but rather to point out the importance of considering cultural issues both in the information gathering and information analysis phases. The CSM, however, has proven to use an intriguing approach to cultural awareness. If such approaches are of use to governments in increasing awareness of terrorist threats arising from specific cultures, it seems that such cultural awareness should be equally important in BI.
The Role of Culture in Business Intelligence
For example, the CSM’s output with respect to Indonesia points out possible conflicts of interest between the reform of the Indonesian military and the interests of Exxon Mobil, whose subsidiary operates the largest gas field in the world in Aceh and utilized the Indonesian Military to guard a natural gas field. Such facts are pertinent and in fact critical when an organization is operating in international markets. Such facts may or may not be noticed by subject matter experts, but the availability of a tool like the CSM can facilitate human experts in both the gathering and the analysis of cultural considerations. BI can benefit from a tool that monitors social interaction on a global basis. The capability to rapidly discern patterns and trends is essential, and an automated synthesis of live and historical information expedites such efforts and helps reveal the best paths forward for analysts, planners, and decision makers.
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This work was previously published in International Journal of Business Intelligence Research (IJBIR), Volume 1, Issue 3, edited by Richard T. Herschel and Olivera Marjanovic, pp. 1-14, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 7.6
Contested Terrain:
Place, Work and Organizational Identities John Willy Bakke Telenor Research and Innovation, Norway Tom Erik Julsrud Telenor Research and Innovation, Norway
ABSTRACT Workplaces are key loci for expressing and studying organizational identity, even in distributed work. In organization studies, there is a growing recognition of the importance of spatial processes, and workplace design has become an instrument for organizational change. This chapter explores organizational identity through a change process where the office layout was redesigned to strengthen organizational identity and increase productivity. The study shows that identity processes get shaped by the material environment and
by technologies enabling distributed and mobile work. It also shows that previous events frame the interpretation of current processes. The chapter is based on a qualitative and quantitative study of the national branch of an international oil company.
INTRODUCTION [T]he physical setting is not a naked container for organizational action […], but a context that selectively solicits – and hence, so to speak, ‘cultivates’ – all our senses - Gagliardi (1996, p. 565)
DOI: 10.4018/978-1-60960-587-2.ch706
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Contested Terrain
The goal of this chapter is to strengthen the understanding of workplaces as key loci for expressing and studying organizational processes, even in distributed and “location-independent” work. A starting point for this chapter is the observation that there has been a change of focus in organization studies, where place has strengthened its explanatory role in discourses of organizational processes during the past decade. The interest in organizational space and place is expressed in the growing interest in workplace design as a source for understanding and shaping organizational processes, and the incorporation of spatiality and corporeality in social science studies (cf. Benko & Strohmayer, 1997; Bourdieu, 2000). The╯argument is substantiated through a qualitative and quantitative study of╯the╯national branch of an international oil company. This case study explored identity processes where workplace design and technologies entered the discourses on organizational identity and other organizational processes. The interest in space planning and placemaking is a practical concern in enterprises, of which the growing number of handbooks and consultancy offers is an indication (cf. Duffy, 1997). The case company informing this chapter was about to go through a process of workplace restructuring when the authors were contacted in order to make a study. Through the case study, it turned out that in addition to the current changes, a previous restructuring made more than 10 years ago was still seen as an important event in the corporate history, and an issue for discussions about organizational identity. This interest in place, space, and spatiality may be seen as a puzzle, since it emerged in the aftermath of the “digital revolution,” where information and communication technologies (ICT) were seen to supersede a number of traditional social categories, promising an annihilation of the role of locality and distance, whereby a frictionfree society will be achieved. This perspective is expressed in a series of titles in popular writing,
such as The death of distance, The weightless economy, and The digital nomad (Cairncross, 1997; Coyle, 1998; Makimoto & Manners, 1997), and is also found in the emergent literature on the networked society (cf. Castells, 1996). In the area of workplace studies, one can find similar expressions: In a pioneering study of teleworking, it was argued that: “The office – the site where information is generated, processed and exchanged – has ceased to have any fixed geographical boundaries. It exists only as a network – the ‘elusive office’ has arrived” (Huws, Korte, & Robinson, 1990: 220). Nevertheless, companies are still interested in architecture and space solutions, and workplace policies seem to uphold the importance of “coming to work” in a literal sense, although workplace practices have become more complex than the choice between the main office and the home-based workplace, as depicted in the early telework studies. This development makes it even more important to address the role of place for mobile, flexible, and “location-independent” work.
SPACE AND ORGANIZATIONAL PROCESSES The growing interest in space and spatiality has been termed a “spatial turn” in the social sciences (cf. Benko & Strohmayer, 1997). This spatial turn represents a reaction to a dominant orientation in the social sciences, where “the social” is interpreted in immaterial terms: [M]ost of the research and analysis published in the arena of organizational theories and management studies describe the following, somewhat bizarre phenomenon: as soon as the human person crosses virtual or physical threshold of an organization, s/he is purged of corporeality, so only his or her mind remains (Strati, 1999, p. 3).
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Organizations as Spatial and Material Systems Space and spatiality, as well as the closely related concepts materiality and corporeality, do not have a well-established position in sociology and organization studies. Instead, these concepts have been relegated to neighbouring fields, in the ever more-fragmented social sciences. In sociology and organization studies, there has been a methodological abstraction from spatiality and materiality that have been seen as accidental qualities of social systems. In the field of organization studies, the process of abstraction, or “de-materialization,” has been part of an elaborate strategy of establishing organization studies as a distinctive and influential field (cf. Bakke, 2005; Røvik, 1998). This is seen explicitly in the works of Chester Barnard, an influential author in the establishment of organization studies. He developed the very concept of “organization” through an abstraction from the physical: The term “organization” is reserved for “that part of the cooperative system from which physical environment has been abstracted” (Barnard, 1968: 67). Barnard also argued for a “de-personalization” of organization studies: “[I] f persons are to be included within the concept of ‘organization’, its general significance will be quite limited” (Barnard, 1968: 72). The emergent field of organization studies chose to describe organizations in terms of status, power, and (formal) communications channels (also known as organizational charts); or of recruitment, rewards, and promotions. The recent advent of postmodern studies may be seen to continue this dematerialized approach to organization studies through the weight on narratives, interpretations, and sensemaking; all approaches where the material and spatial are neglected or (at best) tacitly implied. Spatiality and materiality have a central position within human geography and urban studies, where it is argued that place is a “meaningful
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location” (Cresswell, 2004: 7), and where there is a core interest in the spatial ordering of social processes: “The ordering of space in buildings is really about the ordering of relations between people” (Hillier & Hanson, 1984: 2). Insights from geography, architecture, and urban studies have (re-)entered the field of organization studies, and of social theory in general, where location, distance, and spatial configurations enter the vocabulary. Similarly, insights are drawn from studies of the corporeality of organization members, acknowledging the importance of the “human embodiment as a multidimensional medium for the constitution of society” (Shilling, 2005: 24, italics in original). Corporeality can be seen as a main approach encompassing quite diverse themes, such as the gendering of organizational processes, disciplinary processes, emotion work, and studies of face work, and the presentation of self in organizations (cf. Alvesson & Billing, 1997; Goffman, 1971). A spatial understanding of organizations is also able to give a richer understanding of organizational processes, processes that, to a large extent, deploy spatial metaphors, such as organizational boundaries, front stage and back stage, globalisation, positioning, and “moving up the corporate ladder” to get a “corner office.” For instance, the discussion of organizational boundaries can draw insights from urban studies, where the notion of “place” has been given a meaning beyond just a designated set of square kilometres; place has been described through the activities of members, acting, and enacting over larger territories in “networks of social relations and understandings, […] where a large proportion of those relations, experiences and understandings are constructed on a far larger scale than what we happen to define for that moment as the place itself” (Massey, 1997: 322), a perspective that is equally fruitful for understanding organizations. There is a growing number of contributions trying to address the spatiality and materiality of organizations, acknowledging that organizational
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activities are located in space and place, and including the impact of architecture, technologies, and other artefacts. Gagliardi argues that artefacts “make materially possible, help, hinder, or even prescribe organizational action,” and they “influence our perception of reality, to the point of subtly shaping beliefs, norms, and cultural values” (1996, p. 568, italics in original). Technology studies have also been influential, although in an ambiguous way, for reassessing the role of spatiality and materiality in organizations. As indicated in the beginning of the chapter, there is a widespread assumption that communication technologies will make distance and location irrelevant, whereas detailed studies of work processes clearly demonstrate that technology, as an integral part of the organizational functioning, is situated in an organizational context, is structuring interaction, and is giving selective access to services (Graham & Marvin, 2001; Luff & Heath, 2000). An influential, synthetic perspective on the role of the “physical structures in the organization” is developed by Mary Jo Hatch (1997), who has developed a conceptual framework identifying geography, layout, and design as three main dimensions of physical structures, where these dimensions are seen to influence key aspects of organizational functioning, such as communication, interaction, and status (cf. Figure 1). This conceptual framework is a fruitful starting point for an elaboration of how the concepts shall be defined, for studies exploring the mechanisms connecting the concepts, and for an identification of areas not well elaborated by the model. The framework developed by Hatch is challenged by the phenomena of distributed and technology-augmented work, modes of work that contest any logical, clear-cut distinction between location, layout, and design. Hence, there is a need to incorporate technologies into this framework, and the ability of technologies for interconnecting places. One analytical approach for elaborating the mechanisms whereby the “physical structures in
the organization” are relevant for organization processes is through the concept of affordances, a concept introduced by the psychologist J. J. Gibson in a study of visual perception, where he argued that “[t]he affordances of the environment are what it offers to an animal, what it provides or furnishes, either for good or ill” (1979, p. 127, italics in original). The concept has been brought to popularity in studies of design, humancomputer interaction (HCI), and organization studies (cf. Gaver, 1991; Norman, 1989; Sellen & Harper, 2001). Gaver deploys the term as a way of “focussing on the strengths and weaknesses of technologies with respect to the possibilities they offer the people that might use them” (1991: 79). According to Gaver, “[a]n affordance of an object […] refers to attributes of both the object and the actor. This makes the concept a powerful one for thinking about technologies because it focuses on the interaction between technologies and the people who will use them” (1991: 79-80), thereby representing a way of avoiding technological and architectural determinism. Similarly, Gibson’s “ecological” focus on the “complementarity of the animal and the environment” (ibid.) serves as Figure 1. Physical structures in the organization (Adapted from Hatch, 1997)
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a criticism of the ideas of technology as neutral instruments, and architecture as neutral containers for activities. The concept of affordances introduces a unifying perspective on how characteristics of technologies and the physical environment together can provide an environment for working. This has motivated the establishment of a framework, encompassing technologies as well as architecture and other artefacts, describing workplaces as hybrid infrastructures for work (Bakke & Yttri, 2003), drawing on studies identifying an infrastructure as being a common base for diverse activities, without determining them (quite similar to the discussion of affordances); being embedded into other structures; and being transparent and taken-for-granted; while becoming visible upon breakdown (cf. Star & Ruhleder 2001). The notion of infrastructures for work represents a selective focus on the work-related characteristics of the material environment. In spite of the increased interest in the materiality, spatiality, and corporeality of organizations in the last decade (cf Gagliardi, 1996; Hassard, Holliday, & Willmott, 2000; Strati, 1999), Pfeffer’s comment that “[t]he effects of physical design on social behavior remain relatively unexplored in the organizations literature and in related social sciences”, still seems valid (Pfeffer, 1997, p. 198).
Workplaces and Organizational Identities Organizational identity has emerged as an important theme in recent studies of work. Together with related concepts, such as trust, social capital, and organisational culture, organizational identity is assumed to play an important role for the development of knowledge in modern organisations, thereby establishing ties to the fields of knowledge management, and workplace loyalty. One reason for the interest in organizational identities is the increasing flexibility and mobil-
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ity in working life, and the quest for something stable in all the changes, although flexibility and change have also been seen as arguments against an essentialist understanding of identity: The meaning of identity (...) refers to both persons and things. Both have lost their solidity in modern society, their definiteness and continuity. The world constructed of durable objects has been replaced with disposable products designed for immediate obsolescence. In such a world identities can be adopted and discarded like a costume (Bauman, 1997, p. 88). Instead of seeing organizational identity as part of the unchangeable in organizations, organizational identity can be seen as a self-reflective process going on in organizations that are “… formed by a process of ordered inter-organizational comparison and reflections upon them over time” (Albert & Whetten, 2004, p. 98). This position refers to what has been called a relational view on identity (with references to Mead, 1934 and Goffman, 1971), seeing identity as a product of ongoing social and symbolic interaction. The physical environment of the workplace is, to a large extent, involved in the ongoing process of identity construction. This is seen through corporate expressions of architecture and design, (internal) workplace design, and artefacts, as well as the employees’ actions, such as territorial behaviour and workplace personalization (see Gagliardi, 1990; Jones, 1996).
A CASE STUDY OF PLACE, WORK, AND ORGANIZATIONAL IDENTITIES Place and organizational identities were explored through a case study in one branch office of an international company in the petroleum sector. The background for the case study was that the authors were invited to follow a process of
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workplace reorganization, primarily to explore job satisfaction with the new environment, where the issue of workplace identities soon became the focal centre of the study. The case study organization is the Norwegian sales and marketing department of a large European (actually international) company in the petroleum sector. Our study of the branch office was conducted in 2003-2004, and was initiated since the company had planned to change the physical working environment, and wanted an outsider’s view on the change process.
The Case Study Methodology The methodological approach chosen was to conduct semistructured group interviews with managers and employees respectively. The group interviews were conducted in two instances: before and after the changes of the workplace, covering a time span of 9-10 months. In total, six managers and eight employees were interviewed, although not all of them were present in both group interviews. We also conducted a survey of employees and managers within the department, providing information about daily use, and general satisfaction with the new office solution. In addition to the interviews and the survey, we conducted observations within one zone within the branch office, being the primary workplace for ca 25 people; we had a number of informal conversations; we also had the pleasure of participating in a marketing event. Through the combination of approaches, we performed a methodological triangulation in the study of the department, with an ethnomethodological perspective (cf. Alvesson & Sköldberg, 2000) as the primary approach. Throughout the study, we tried to capture and understand how people talked about the new workplace, but also what the workplace meant to them, and how it was included in their everyday actions and behaviour.
Workplace Changes We were invited to study one set of workplace changes to take place in the end of 2003. The changes involved the sales and marketing department, one out of several collocated departments. The entire unit of the case company rented two floors in a shared office building, with the sales and marketing department located on one floor (ca. 55 persons), with other organizational units on both floors. During the interviews, it proved difficult to get even a simple description of their current workplace without invoking numerous references to a previous change process, more than a decade ago, when the entire unit had moved to the current site. Narrations of this first move were still present in the office discourses; hence, there is a need to give a brief description of events from the early 1990s. At that time, the several hundred employees moved from a downtown landmark building with a clear corporate profile, into an anonymous, shared office building in a less central part of the city. This move also involved the change from individual offices into open-plan offices for the majority of the employees. This first move and accompanying changes were motivated by the need for cost reduction, as the company suffered from the then low oil prices. The current change involved a series of physical changes, although the overall design of large, open-plan offices remained unchanged. The most visible change was the establishment of an informal meeting place with a coffee machine, newspapers, and resting chairs for informal meetings, socializing, and informal communication. Further, a large meeting room was established. All the employees had a locker and shelves for their belongings. There had been attempts to establish a clear-desk policy for nonterritorial working, but eventually most of the employees had individual desks that were personalized with professional and personal artefacts. The menu of workplaces
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also included “booths” for phone conversations, and a number of smaller rooms for meetings and project work. The employees had developed a set of “house rules,” emphasizing peace and quiet in the work zones, and low ring tones on the mobile phone, among other issues. At our first visit, when they were planning the change process, the house rules had a prominent place at the entrance of the zone; at the second visit, we found the house rules tucked away under a staircase. An implication of the establishment of the new, informal meeting place was that the work areas had to be condensed. Another part of the new design was the reshuffling of employees’ primary location, in order to get tight “neighbourhoods” with close colleagues, and proximity to printer rooms and other facilities. For some of the employees, this represented a major change of office environment, since they were relocated from smaller, sometimes personal offices, into larger open-plan solutions. Some of the sales people were in a somewhat special situation, since they were expected to be out of the office most of the working day. Hence, it was assumed they did not need a fixed workplace. In the plans for the new workplace, there had been a pool of places for the salespeople, but these places had instead been allocated to those present. As it turned out, the salespeople developed the habit of using their home as their primary work base (aided by technology prepared for home-based work and mobile working), although they could reserve a project room or “borrow a workplace” from colleagues not present (as they expressed it), while at the department. A children’s “workplace” was created, allowing parents to bring their children to work if, for instance, school was closed. A final physical instalment was an internal staircase between the two storeys of the unit, to facilitate access between the different departments within the unit. An “environmental gardener” was also appointed, with the responsibility of keeping the workplace
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neat and tidy, and to provide fruit, flowers, and newspapers to their colleagues. The employees were clustered in two major groups; one group that used most of their time on customer-related work on the telephone, handling incoming calls from business customers; the other working as a mobile customer support-team, visiting customers at their sites. Thus, a particular segment of the employees were spending much of their time outside the building as “mobile workers.” The department managers also spent time outside the building, mostly in meetings at other locations, or at customers’ sites. A survey of the managers’ and employees’ work practices showed that they spent most of their time doing individual work tasks, supplemented with informal and formal meetings (see Figure 2). The majority proved to be satisfied with the new workplace. About 75% of the managers and employees said the new office functioned well for them in their daily work, whereas a minority was not satisfied; 15% said that they were somewhat dissatisfied, and 6% were highly dissatisfied with how the new workplace affected their work. The main reasons for the negative judgments were noise and visual distractions.
Motivations for the Change Process The transformation process was initiated and managed by the human resources team, and the managers at the marketing department with a degree of employee participation. The interviews showed a multitude of motivations for the transformation process, relating to the expected new ways of working, to expected impacts on workplace culture and symbolism, and to facilities management issues, such as number of square meters per employee.
Globalization and Flexibility During the interviews, the strategic reasons behind the transformations and, in particular, the problem of being integrated in larger organizational
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Figure 2. Mean use of time for department managers, employees, and temporary employees
units, were emphasized. One main driving force for the workplace changes was a change in the organizational form of the entire company: Until now, each country had been a separate, and fairly self-administered unit, whereas after the change, there were instead cross-national units. This implied that executives and employees in the different functional units would be distributed, and dispersed all over Europe: The “command lines” would criss-cross the continent, instead of following national borders, as they were used to. This led to the wish to establish measures to maintain organizational identity in this process of globalization. As one manager said: “We used to be one department. Now everyone reports to different European managers. […] The workplace change was a reaction to these developments. We want to act as a [unified] team even though we report to different managers”. From the management’s point of view, there was an expressed wish of enacting a dynamic organization, in terms of flexibility, as well as ability and willingness to change: “We need to have an organization that is used to change, and
that accepts that the world is not static”. Another manager commented on the on-going process of re-organizations: “Instead of having people complaining about the re-organizations, we have had an positive change process related to this [the workplace redesign]”, and the less courteous comment: “People are now so used to changes, they no longer complain.”
Interaction … and Control A main instrument for achieving the global, flexible organization was the change of the physical layout of the workplace. The open-plan solution was seen to facilitate interaction and in-group learning, and to promote a sense of identity and belonging to the workplace and to the company. The reshuffling of the employees’ workstations, to achieve closer proximity with the employees with whom one was working most closely, was seen as a major step towards this goal. The employees reported that the rearrangement had made it even easier to contact others, and that the workplace was a very social one. 1955
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One manager said: “Even if the noise stresses others, there is a natural learning process. You hear what’s going on and that’s an advantage”. This is corroborated by our observations, where we frequently could see and hear interactions related to professional and personal issues. We also observed the ease of inviting colleagues to a spot outside the informal meeting place for a cigarette, a cup of coffee, and a chat. There could, however, be too much interaction, both among colleagues, of which some said it was “too social here,” and between employees and managers, as expressed by one employee: “I could sometimes wish that the managers had offices.” The meeting place itself was not that much deployed, even some nine months after the change was completed. The coffee machine was frequently used, and newspapers were browsed, but few used the meeting place for informal conversations and meetings.
Culture and Symbolism Any office encompasses an abundance of cultural expressions and symbolism. Although the building of the case study company was an anonymous, shared office building (where it could be difficult to find the right entrance); once inside, the company’s imprint was found almost everywhere: we found a large number of corporate symbolic artefacts, from oil barrels to ballpoint pens, with the company logo imprinted, posters from advertisement campaigns, and copies of corporate publications. These expressions were, to a certain extent, aimed at visitors, in particular, those in the entrance area. One manager commented that the changes had made the workplace more presentable: “There has been a transformation from a production facility into a proper office.” The majority of changes were, however, primarily in the employees’ zones. These changes were accompanied by instances of decoration and personalization of the workplace. There was also an active arts and culture
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programme, with invitations to go to theatres and to art exhibits. Also in terms of workplace symbolism, the move, more than 10 years ago from a highly profiled building downtown, was still an active frame of interpretation for the current changes. This was perpetuated by the fact that one competing company happened to be located in a signature building vis-à-vis. This made the anonymity of the company within a shared office building even harder to accept. The two most visible innovations in the workplace change project, the informal meeting place and the stairs connecting employees in the two levels in the building, may of course be seen in functional terms, but the low usage rates, and the high level of associated or ascribed meanings, make the symbolism of these artefacts very powerful. For the day-to-day activities, the sales personnel in need of a temporary place read the territorial practice of personalizing the desks by leaving personal and professional items, and even having nametags on what might have been nonterritorial offices, as signs of exclusion. We were also told about a number of ad hoc events, some of a social character some aimed at the public as well as present and future customers. As one example of the latter, we were invited to a promotion campaign, where the company sought public visibility through a boat race, promoting the company’s petroleum products, as well as showing presence and coolness.
The Transformation Process The current transformation process invoked a series of physical changes of the workplace, and that was the reason we were invited. The motivation for these changes was on the organizational side, due to the stronger integration into the international working of the company, where the Norwegian unit in the entire company was replaced by Norwegian nodes in an international organizational network,
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and the acknowledged need for the company to be more responsive to market fluctuations. There was a degree of employee participation in the change processes, as changes were introduced through a series of workshops where different issues were discussed, such as the distribution of desks, the size of the different office areas, types of furniture, and so forth. During the interviews, it was interesting to learn that the managers’ and employees’ perspectives differed to a large extent, related both to the process, and to the resulting solution. One manager said: “There has been a broad involvement of the employees in the process where we decided what this workplace should look like. There has been no dictate”, whereas one employee said: “I have heard that those who disagreed strongly […] were squeezed out of the groups […]. Those who work in the service center have not been heard, and [they] are the ones who have to take the tough consequences.” In a harsh comment, another employee added: “The whole process has been a solo-play by the managers. The groups [for participation] have only been a spectacle or a cover-up”. Although the majority of answers were well between these extremes, and both employers and employees clearly saw positive and negative aspects of the process and the resulting solution, there were also several tensions between their perspectives and understanding of what had happened. Clearly, the meaning of the new workplace was, to a large degree, open for discussions and (re)negotiations.
DISCUSSION AND IMPLICATIONS The case study clearly demonstrates that the corporate building, interior design, and organizational artefacts were central loci for organizational processes, even for this node in a multinational, networked organization, with a certain degree of mobile and location-independent work. To a large degree, processes shaping and changing
organizational identification and organizational storytelling centred on the physical workplace. Materiality and physical structure did, however, get new implications when challenged by new distributed, mobile, and location-independent forms of work. Technologies for distributed work did by no means annihilate the meanings of space and distance; instead, both technologies for distributed work and the range of available workplaces (with a centrality of the open-plan workplaces, in both literal and symbolic senses) did bring the multitude of choices on the agenda. The change process, being embedded in both a company-internal context, and a national context involving experiences from other companies, did demonstrate that choices were possible, making “office design” and “office work” even less a neutral, taken-for-granted fact, but a result of priorities, norms, and choices. Thereby, workplace design became one additional arena for office politics, and for renewed discussions and interpretations of what a “workplace” means and implies in both functional and symbolic terms. It is interesting to observe the relational character of the perception and interpretation of the material organization. Comparisons with “relevant others,” in particular, the neighbouring competitor, as well as previous history (both organizational and individual) proved influential. In particular, the process of moving from a large, centrally located “flagship building” (with cellular offices) to the current, more discreet location with openplan offices, was still an active frame of reference for both managers and employees, more than 10 years later. This episode also demonstrates that not only the immediate presence, and associated qualities of material artefacts, are of importance; also, the remembrance and perceived absence of artefacts, such as the previous building and its cellular offices. The current transformation was interpreted through the previous change process: Where the previous process, to a large extent, was centred on the physical workplace, the current one focussed
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on the organizational side. The apparently more modest physical reorganization of the workplace, materialized through the office redesign and the recognition of mobile work within and outside the organization, did have the implication of being part of an organizational change; hence, the physical transformation was not purely physical, it had connotations to the organizational changes as well. The case study demonstrates how organizational processes, in casu the workplace changes, are grounded in storytelling, rhetoric, and symbolic aspects, where the somewhat different perspectives of the managers and the employees emphasized different aspects of the process. There is a need to incorporate technologies into the discourses on organizational identity, since technologies change the range of possibilities for action, interaction, and cooperation, thereby challenging the immediate conception of space and place, as seen through the most mobile employees and their troublesome allocation to a workplace (or rather, workplaces). It is also seen in the changed integration into the European organization. Here technologies help enact tensions between the local and the global/European. These tensions fit, by the way, well with the perspective from urban geography introduced previously, where place is seen as a relational term where “a large proportion of those relations, experiences and understandings are constructed on a far larger scale than what we happen to define for that moment as the place itself” (Massey, 1997: 322). – There is more than one answer to what is “within” and “outside” an organization. Based on the case studies, it seem reasonable to say that dematerialization and location independence for corporations, vis-à-vis customers, does not imply location independence for corporations vis-à-vis their employees, neither is there an insurmountable tension between materiality and narrativity, since narrativity and sensemaking are anchored in material environments. According to Gieryn, buildings stabilize social life, although
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imperfectly: “Buildings don’t just sit there imposing themselves. They are forever objects of (re) interpretation, narration and representation – and meanings or stories are sometimes more pliable than the walls and floors they depict. We deconstruct buildings materially and semiotically, all the time” (Gieryn, 2002: 35). At the beginning of the chapter, a puzzle was presented by asking about the motivation for the interest in place, space, and spatiality in a time when information and communication technologies (ICT) were seen to supersede a number of traditional social categories, promising an annihilation of the role of locality and distance. One counterargument against the alleged dematerialization of society is that there is still a need for accommodating employees, wherever they are, and that collocation of activities may be efficient for certain activities and operations. It is tempting to argue that with the facilitation by information and communication technologies to perform almost every activity from any chosen location, the activities that are not so easily de-located, the activities that, to a large extent, are supported by collocation may become the scarce resource for which physical planning must accommodate.
ACKNOWLEDGMENT The research was supported in part by the Research Council of Norway as a part of the I-TEMA project, and by the Nordic Innovation Center as part of the DEKAR-project. We are grateful for the employees and managers in our case study that generously shared their experiences with us.
REFERENCES Albert, S., & Whetten, D. A. (2004). Organizational identity. In M. J. Hatch & M. Schultz (Eds.), Organizational identity: A reader (pp. 89-118). Oxford: Oxford University Press.
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Alvesson, M., & Billing, Y. D. (1997). Understanding gender and organizations. London: Sage. Alvesson, M., & Sköldberg, K. (2000). Reflexive methodology. London: Sage. Bakke, J. W. (2005). The materiality of sensemaking. Paper presented at the 21st EGOS Colloquium, Berlin, June 30 – July 2, 2005. Bakke, J. W., & Yttri, B. (2003). Hybrid infrastructures for knowledge work. In Proceedings from the 4th International Space Syntax Symposium, London. Barnard, C. (1968). The function of the executive. Cambridge: Harvard University Press. Bauman, Z. (1997). Postmodernity and its discontents. Cambridge: Polity Press. Benko, G., & Strohmayer, U. (1997). Space and social theory: Interpreting modernity and postmodernity. London: Blackwell. Bourdieu, P. (2000). Pascalian meditations. Stanford: Stanford University Press. Cairncross, F. (1997). The death of distance: How the communications revolution will change our lives. Boston: Harvard Business School Press. Castells, M. (1996). The rise of the network society. Oxford: Blackwell. Coyle, D. (1998). The weightless world. Cambridge: MIT Press. Cresswell, T. (2004). Place. Oxford: Blackwell. Duffy, F. (1997). The new office. London: Conran Octopus. Gagliardi, P. (Ed.). (1990). Symbols and artifacts: Views of the corporate landscape. Berlin: Walter de Gruyter. Gagliardi, P. (1996). Exploring the aesthetic side of organizational life. In S. R. Clegg, C. Hardy, & W. R. Nord (Eds.): Handbook of organization studies (pp. 565-580). London: Sage.
Gaver, W. W. (1991). Technology affordances. In Proceedings of CHI’91 (pp. 79-84). New York: ACM. Gibson, J. J. (1979). The ecological approach to visual perception. Boston: Houghton Mifflin. Gieryn, T. F. (2002). What buildings do. Theory and Society, 31(1), 35–74. doi:10.1023/A:1014404201290 Goffman, E. (1971). The presentation of self in everyday life. Harmondsworth: Penguin. Graham, S., & Marvin, S. (2001). Splintering urbanism. London: Routledge. Hassard, J., Holliday, R., & Willmott, H. (Eds.). (2000). Body and organization. London: Sage. Hatch, M. J. (1997). Organization theory. Oxford: Oxford University Press. Hillier, B., & Hanson, J. (1984). The social logic of space. Cambridge: Cambridge University Press. Huws, U., Korte, W. B., & Robinson, S. (1990). The elusive office. Chichester: John Wiley & Sons. Jones, M. O. (1996). Studying organizational symbolism. Thousand Oaks, CA: Sage. Keith, M., & Pile, S. (Eds.). (1993). Place and the politics of identity. London: Routledge. Luff, P., & Heath, C. (2000). Workplace studies. Cambridge: Cambridge University Press. Makimoto, T., & Manners, D. (1997). Digital nomad. Chichester: John Wiley and Sons Ltd. Massey, D. (1997). A global sense of place. In T. Barnes & D. Gregory (Eds.), Reading Human Geography (pp. 315-323). London: Arnold. Mead, G. H. (1934). Mind, self and society. Chicago: University of Chicago Press. Norman, D. (1989). The design of everyday things. New York: Doubleday.
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Pfeffer, J. (1997). New directions for organization theory. New York: Oxford University Press. Røvik, K. A. (1998). Moderne organisasjoner. Bergen: Fagbokforlaget. Sellen, A. J., & Harper, R. H. R. (2001). The myth of the paperless office. Cambridge: The MIT Press. Shilling, C. (2005). The body in culture, technology & society. London: Sage.
Star, S. L., & Ruhleder, K. (2001). Steps toward an ecology of infrastructure: Design and access for large information spaces. In J. Yates & J. van Maanen (Eds.), Information technology and organizational transformation (pp. 305-345). Thousand Oaks: Sage. Strati, A. (1999). Organisation and aesthetics. London: Sage.
This work was previously published in Exploration of Space, Technology, and Spatiality: Interdisciplinary Perspectives, edited by Phil Turner, Susan Turner and Elisabeth Davenport, pp. 41-53, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.7
Evolutionary Diffusion Theory Linda Wilkins RMIT University, Australia Paula Swatman University of South Australia, Australia Duncan Holt RAYTHEON, Australia
ABSTRACT Improved understanding of issues affecting uptake of innovative technology is important for the further development of e-business and its integration into mainstream business activities. An explanatory theory that can provide a more effective instrument for determining acceptance levels should therefore be of interest to IS practitioners and researchers alike. The authors aimed to establish whether evolutionary diffusion theory (EDT) could offer such an instrument, developing a set of axioms derived from the EDT literature and applying these to an in-depth review of two e-business implementations: a G2B document delivery system introduced by the Australian DOI: 10.4018/978-1-60960-587-2.ch707
Quarantine Inspection Service (AQIS) across a number of industry sectors; and an enterprise-wide system implementation in a local government instrumentality. The authors found EDT offered remarkable explanatory depth, applicable not only to analysing uptake of complex, multi-user technologies in organisational settings but to any e-business investigation requiring a system-wide perspective.
INTRODUCTION A variety of theoretical frameworks and approaches have been used to study Information Systems (IS) diffusion processes (see, for example, Holbrook and Salazar, 2004; Baskerville and Pries-Heje, 2001; Edquist, 1997). Investigations
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of a number of these theories and models of Innovative Technology Uptake (ITU) have found that each has only a narrow perspective which tends to capture ‘just one part of the story’ and only highlights particular areas of interest. No single theory appears uniquely able to explain the circumstances of any particular case (Jones and Myers, 2001 p.1018). Despite these limitations, influences on uptake and diffusion of IT innovations are of perennial interest to IS researchers. Those attempting to make progress in identifying key issues affecting uptake have had to grapple with the limited explanatory power of recognised diffusion theories over some four decades. The most commonly cited diffusion theory in the IS literature is Rogers’ Classical Diffusion of Innovation (DoI) theory, first published in 1961 (Clarke 1999). Rogers originally focused attention on the shape of the diffusion curve, describing innovation as a process that moves through an initial phase of generating variety in technology, to selecting across that variety to produce patterns of change resulting in feedback from the selection process, to the development of further variation (Rogers, 1995). As a pioneering contribution to conceptualising adoption and diffusion, Classical DoI theory appears to have maintained its iconic status over time and continues to be cited in the IS literature, despite the fact that interest in innovation studies has moved on from the shape of the diffusion curve to a focus on articulating underlying dynamic mechanisms (Lissoni and Metcalfe, 1994; Nelson, 2002). The innovation ‘journey’ now appears to be more readily understood as a non-linear dynamic system, far less predictable and stable than staged models based on Classical DoI theory represented it to be (see for example Van de Ven et al., 1999). The static orientation of Classical DoI theory, its focus on individual firms and a ‘single innovation’ perspective has diminished its relevance to the IS field and to the development of online technologies in particular.
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The limited explanatory power of Classical DoI theory is well documented in the literature (see, for example, Downes and Mohr, 1976; Moore and Benbasat, 1991; Damsgaard and Lyytinen, 1996; Galliers and Swan, 1999; Clarke, 2002). Seminal work in the IS field (for example: Orlikowski and Hofman, 1997; Boudreau and Robey, 1999; Reich and Benbasat, 2000) has also clearly established a need for analytical theory in this field which: •
•
• •
Aligns more closely with the way beliefs, attitudes and understanding of plans and structures are known to influence organisational decision-making Can articulate underlying dynamic mechanisms intrinsic to adoption and diffusion processes Addresses how complex and networked technologies diffuse Acknowledges the uncertainty and surprises that mark the ITU process
The IS field needs a unified theory to identify key influences on uptake of innovative technology that is: appropriate to reviewing open-ended and customisable innovations associated with uptake of e-business technologies; takes into account issues of discontinuing practice or slowing uptake of inappropriate technologies; acknowledges the active role users can play in the innovation process; and allows for changes in an innovation during the adoption and implementation process. Such a theory must also be readily applicable in organisational settings featuring the adoption of complex, multi-user technologies – where the majority of potential applications of diffusion of innovation now occur. An analytical instrument which appears well suited to these requirements is Evolutionary Diffusion Theory. In this chapter, we begin by exploring the origins and principles underpinning Evolutionary Diffusion Theory, before turning to examine its explanatory strengths. We will make close reference to two case studies that illustrate the relevance
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of EDT to the field of Information Systems (IS) and, in particular, to the explanation of innovative technology uptake.
EVOLUTIONARY DIFFUSION THEORY (EDT) The limitations of standard theoretical approaches to analysis of the influences on ITU in the field of Information Systems research have been increased by the fragmentation and minimal ‘diffusion’ of diffusion research itself. The lack of awareness which the various diffusion research traditions have of one another’s work has hindered researchers in their attempts to grasp and frame the ITU problem (Rogers, 1995 p.38). Such communication gaps across the disciplines help to explain why Evolutionary Diffusion Theory does not feature among the analytical instruments referred to in the mainstream IS diffusion literature.
Evolutionary Diffusion Theory: Development and Evolution Evolutionary Diffusion Theory (EDT) emerged from Evolutionary Economics, a discipline which describes economic phenomena and deals, in particular, with situations of change, open systems and innovation processes (Nelson 1995). As a discipline it has had a major impact on more recent studies of firms, industries, and technical change. The idea of technological advance as an evolutionary process has been developed by scholars operating independently in a variety of different disciplines. These disciplines include, but are not confined to: sociology (Constant, 1980; Bijker, 1995); technological history (Rosenberg, 1969; Mokyr, 1996); and economic modelling (Nelson and Winter, 1982; Saviotti, 1996; Metcalfe, 1994). Evolutionary Economics—and Evolutionary Diffusion Theory (EDT) in particular—are relatively recent developments, with the bulk of the
EDT literature having been published only since the early 1980’s. The Nelson-Winter classic evolutionary model of technological change (1982) pioneered a relatively simple conceptual model of Evolutionary Economics which was crucial to the development of Evolutionary Diffusion Theory. The model played a prominent role in defining a paradigm for further research into the conditions which determine industrial concentrations, dynamic competition in alternative technological regimes and the relationship between innovators and imitators (Andersen, 1996). The model demonstrated the possibility of collating a wide diversity of elements and integrating them into an evolutionary process which could then be applied to understanding the uptake of innovative technology. Key elements include: the processes of transmission; variety creation; and selection (Nelson and Winter, 1982, Chs. 4-5). Nelson and Winter’s classic evolutionary model of technological change (1982) was followed by several overviews of Evolutionary Economics (see, for example, key publications by Dosi et al, 1988; Saviotti and Metcalfe, 1991; Dosi and Nelson, 1994; Andersen, 1994; Nelson, 1995). These contributions to the Evolutionary Economics literature share a concept of innovation as a process that moves through an initial phase of generating variety in technology, to selecting across that variety to produce patterns of change resulting in feedback from the selection process, to the development of further variation under continual injections of novelty (Dopfer, 2001). Researchers within this paradigm now apply their attention to enduring issues in innovation studies; and to finding reasons for unexplained outcomes from technology adoption and diffusion. Instead of the more traditional application of DoI theory to an individual firm, EDT reviews the impact of diffusion theory when applied to the more complex environment of a market (Lissoni and Metcalfe, 1994). Placing theory in a market context raises questions of particular interest to
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e-business practitioners, such as why all potential users do not immediately adopt innovations which appear to be advantageous compared to existing technology (instead, some firms as potential users adopt later or not at all); and why some agents who can be identified by their spatial location always adopt later than others (Lissoni and Metcalfe, 1994, pp.106, 127). Table 1 sets out features of EDT frequently cited in the literature and selected for their clear relevance and application to IS research on issues affecting uptake of innovative technology. We have now outlined the origins and background of Evolutionary Diffusion Theory and provided a synthesis of its key features. The following section of this chapter attends to the explanatory strength of EDT. We will show that EDT is particularly well suited to analysing issues affecting uptake of innovative technology in the e-business context.
Evolutionary Diffusion Theory: Explanatory Strength Evolutionary Diffusion Theory offers the IS researcher a basis for reviewing innovative technology uptake (Kowol and Kueppers, 2003; Lambooy and Boschma, 2001; Norgren and Hauknes, 1999; Amin, 1998; Lissoni and Metcalfe, 1994; Saviotti and Metcalfe, 1991) which includes:
• • • • • •
A focus on unexplained outcomes An emphasis on gradualism of internal adoption A concern with development and diffusion of new variety in market environments Acceptance of input from a variety of disciplines Acceptance of human intervention in technology outcomes A clearly defined role for policy makers fostering innovative technology uptake
EDT provides an analytical instrument to examine issues in the uptake of innovative technology in specific cases. The first of two case studies analysed in this chapter features the introduction of EXDOC, an innovative online technology. EXDOC was implemented by the Australian government agency AQIS (Australian Quarantine and Inspection Service) to support the needs of food producers across a number of sectors for access to export documentation. These producers subsequently became the EXDOC community and the population of the case study. Once key features of EDT had been synthesised from the literature and their explanatory strength for the IS/e-commerce context established, it became a matter of deciding how best to apply EDT as the instrument to analyse ITU issues within the case study. The second case study used EDT to
Table 1. Features of evolutionary diffusion theory Evolutionary Diffusion Theory Explains the innovation process as non-linear and rarely predictable Explains innovation and diffusion in market environments Presents the policy maker’s role as one of stimulating the building of innovative infrastructure cooperatively with local institutions Accepts the possibility of human intervention in the process of technology development Describes the natural trajectory of an unpredictable original selection where the outcome is not always the best one Stresses the gradualism of internal adoption Defines a clear role for Government as a policy maker coordinating institutions in innovative systems and seeking solutions which are context specific and sensitive to local path dependencies Presents adoption of single innovations as part of a greater process of change impacting on organisations and their culture
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review the implementation of an enterprisewide electronic records management solution for a local government authority – an instance of this theoretical approach’s relevance to individual organisational analysis, despite its published focus on market-wide innovation. Four axioms derived from the literature of Evolutionary Diffusion Theory provided the required analytical instrument. Key features of each of the four EDT axioms is described in detail in the following section of this chapter.
An EDT-Based Axiomatic Model According to the EDT literature, key features of Innovation Diffusion Theory are: the rejection of optimisation or the feasibility of determining one ‘best’ policy; a focus on systems and markets rather than individual firms; the acceptance of human agency in technology development; and the role of government as policy maker. These features are described and explained in some detail as the basis of the four EDT axioms which formed the analytical instrument used to examine the case study data. Elements related to each of the
four axioms were then drawn from the EXDOC case study. Figure 1 sets out the four axioms derived from Evolutionary Diffusion theory. The elements describe the features associated with each axiom which are pertinent to understanding influences on the uptake of innovative technology. Rejection of Optimisation: Innovation Diffusion theory rejects the idea of optimisation or implementing one ‘best’ policy at both macro and micro levels. At the macro level, rejection of the possibilities of optimising is one of the strongest points of differentiation in the conceptualisations that have emerged from Evolutionary Economics (Metcalfe, 1994). ‘If one wants a model in which it is presumed that the actors fully understand the context... then the formidable challenge facing the ‘rational’ models let alone a supposedly ‘rational’ actor is what it means to ‘fully understand’ the context, whenever the latter depends in some complex, non linear ways on the distribution of micro decisions and on chance and is always full of surprises’ (Dosi and Nelson 1994, pp.163-164). Instead of optimisation, the Evolutionary Diffusion model presents the idea that a diversity of
Figure 1. Axioms and constituent elements of evolutionary diffusion theory
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policies is necessary to allow for a variety of development paths (Amin, 1998). Economists argue that path dependency1 means that systemic technological and innovative capabilities can only be enhanced by openness of competition, lowering barriers to innovative entry; and nurturing interactive learning as a source of innovation (McKelvey, 1997). Evolutionary Diffusion Theory also rejects the assumptions that: individual firms behave optimally at the micro level; that adoption is a one-off decision; and that uptake of new technology is more or less instantaneous. Innovation processes are described instead as: multi-referential; nonlinear; depending on various framing conditions; and rarely predictable (Kowol and Kueppers, 2003). Once diffusion is viewed as a selection process it becomes evident there is no guarantee that more optimistic or better-informed firms will adopt earlier. Successful innovations represent the outcome of multiple and contingent variables and do not always have to be the best ones (Saviotti and Metcalfe, 1991). Models based on Evolutionary Diffusion Theory stress the gradualism of internal adoption between firms and over time. ‘Firms called ‘adopters’ at a given time actually differ in the extent of their commitment to the new technology... some of them may subsequently reverse their adoption decision’ (Lissoni and Metcalfe, 1994, p.108). Market Focus: Evolutionary Diffusion Theory is primarily concerned with the development and diffusion of new variety or innovation in an economic system. Evolutionary models serve to extend traditional DoI theory from studies of individual firms to explaining the impact and effects of innovation and patterns of diffusion in the more complex environment of a market (Lissoni and Metcalfe, 1994). A focus on firms alone misses the contributions and investments of a wider population of stakeholders into relevant knowledge development. The literature of Evolutionary Diffusion acknowledges the need to encompass these additional sources of information
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in explaining the diffusion process and thus shifts attention to the aggregate behaviour of a sample of firms, without necessarily relying on explicit modelling of a single firm’s decision processes (Nelson and Winter, 1982; Nelson, 1995). Human Intervention in Economic Processes: Implicit in Evolutionary Diffusion Theory is the assumption that there is a possibility of intervening in the process of technology development; and that the selection of a theory can influence the design of policy. Evolutionary Economics accepts the possibility of human intervention in economic processes where ‘users are not exclusively selectors but also involved in the shaping of innovations’ (Tushman and Rosenkopf, 1992). Once the soft components of technology innovation are recognised, actors must be understood as capable of consciously attempting to change their environment (Nelson, 1995). Evolutionary models draw on a number of reference disciplines to expand the definition of technology to include organisational and cultural elements as well as human artefacts such as machinery and materials. (Lissoni and Metcalfe, 1994. Government as Policy Maker: The role policy intervention can play and the institutional pressure government can exert to stimulate ITU have been explored by Lissoni and Metcalfe (1994). More recently, the application of EDT to understanding the role of government as policy maker has been extended in work by Lambooy and Boschma (2001) who emphasise the need for ITU solutions to be context-specific and sensitive to local path dependencies. At a regional level, government can use policy measures to stimulate technological and innovative capabilities and minimise adjustment problems. Clearly, there is no limit to the number of areas to which Evolutionary Diffusion Theory can be applied. It would not be possible, however, to discuss all—or even a sizable sub-set—within the constraints of a single chapter. We have therefore limited our examples of EDT applications to two
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case studies of public sector implementations of e-business technologies.
CASE STUDY ONE: IMPLEMENTATION OF A G2B DOCUMENTATION SYSTEM (EXDOC) The Australian Quarantine and Inspection Service (AQIS) developed EXDOC2 to support the preparation of food export documentation by Australian primary producers, who require a health and/or phytosanitary export certificate from AQIS. Health Certificates generated by AQIS are the official means by which the Australian Government certifies to an importing country that a product meets that country’s import standards and regulations. The Phytosanitary Certificate is a type of Health documentation testifying to the health status of the certified product. AQIS procedures ensure products meet Australian legislative and importing country standards and requirements; and EXDOC is an integral part of these procedures, providing greater certainty in certification through the standardisation of documentation and the consequently enhanced integrity of Australia’s
certification systems. The type of product and the destination determine which (if any) certificates are required. In December 2002, the move to harmonisation of regulatory systems and standards gained impetus when. Food Standards Australia New Zealand (FSANZ) assumed responsibility for standards setting in the primary production sector in Australia, so establishing for the first time a single standards-setting body for the whole of the food chain. The system operated by AQIS has been in production since August 1992. Originally designed for Meat exports, it was then redeveloped for use by non-meat commodities and, by April 2000, had been made available for exports from the Dairy, Fish, Grain and Horticulture sectors. Key events in the development of EXDOC by AQIS are set out in Table 2. The original version of EXDOC had been developed by 1990. EXDOC relied on open EDI systems at the data communication, application system and document translation levels, in line with the latest trends at the time. Internal AQIS systems and processes had to be redesigned around electronic trading and a number of organisational changes were identified – such as the need
Table 2. Key events in the AQIS Development of EXDOC3 EXDOC Development Date
Description of Activity
1990 July:
Development of original EXDOC by AQIS (end date)
1991 Jan:
AQIS Reforms: Commercialisation of Services
1992 August:
EXDOC in production
1997 March:
Development work starts on new EXDOC and extra commodities
1997
The Nairn Report: 109 recommendations on improving quarantine – ‘a shared responsibility’
1998 July:
MEAT EXDOC implementation begins
1998 Nov:
DAIRY EXDOC implementation begins
1999 Nov:
FISH EXDOC implementation begins
2000 April:
GRAIN EXDOC & HORTICULTURE EXDOC begin
2002 March:
Minter Ellison Post-Meat Implementation Review reports
2003 June:
WOOL EXDOC & SKINS & HIDES EXDOC begins
(source: N.Scott, EXDOC administrator AQIS, October 2004).
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to replace the physical signature of an authorised veterinarian with an electronic authorisation – which necessitated process redesign at a number of levels, including that of Human Resources. In spite of significant problems, the phased implementation of EXDOC survived and developed over time. This AQIS-led project stimulated uptake of new technology, supporting improved food industry supply chain management within and across food sectors and increasing Australian competitiveness on world markets. The case study also revealed that coordination of innovative technology implementations was strongly affected by existing industry culture. Hence it appears that policy maker interventions are most successful where there is a real and recognised need for policy change A cross-disciplinary review of the literature enabled the authors to synthesise key features of EDT, develop four axioms and then apply them to case study analysis. Table 3 sets out four EDT axioms with their associated elements in order to present a theoretical basis for analysing the AQIS case study data from the EXDOC implementation. Analysis of the EXDOC case study confirmed that it was impossible to predict a single ‘optimal’ policy development path. No single solution or ‘magic bullet’ emerged for groups of firms tar-
geted for uptake of innovative technology in the AQIS implementation. Uptake and diffusion of innovative technology in the food industry sectors took unpredictable and non-linear paths. A wholeof-market perspective, however, served to explain the apparently confused and confusing patterns of uptake which occurred during EXDOC’s phased implementation. A holistic view of contributions to knowledge development and consideration of the role government can play as policy maker contributed to the conclusion that rapid dissemination of innovative G2B technology in the Australian food sector depends on compatibility with existing commercial practice, cooperation with local institutions and accommodation of key stakeholders
CASE STUDY TWO: IMPLEMENTATION OF AN ENTERPRISE WIDE DOCUMENT AND RECORDS MANAGEMENT SYSTEM (EDRMS) In our second case study we move from a cross sectoral document delivery application implemented at Australian federal government level, to a review of an enterprisewide system selected
Table 3. Applying EDT Axioms to the AQIS EXDOC implementation Evolutionary Diffusion Theory
Explanatory Contribution to Case Analysis
Rejection of Optimisation
No predictable pattern of uptake. Unexpected and lengthy delays delay diffusion across sectors after initial swift uptake and industry support Unpredictable (and costly) processes that frequently occur throughout the implementation
Innovation and diffusion from a whole-ofmarket perspective
Gradualism of internal adoption within firms in a sector Differing rates of uptake across sectors Impact of external conditions on sectoral responses
Holistic View of Contributions to Knowledge Development
Importance of ensuring consistency and compliance with international standards across sectors Need to improve supply chain management across sectors in a globalised environment
Government as policy maker
Plays key role in: Coordinating stakeholder institutions within innovation system Seeking an acceptable business solution to ensure diffusion across sectors Intervening with context specific solutions sensitive to local path dependencies
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and implemented by a single public sector entity at local government level in South Australia. An Electronic Document and Records Management Systems (EDRMS) implementation with fully scanned records is a type of technology change that affects all users in an organisation, taking them from a manual, self-managed style of work to an organisational systems approach with limited personal customisation. The acceptance required of users is several orders of magnitude greater than in an update of an existing computer-based system, which represents changing “like for like” and hence does not truly test technology acceptance. Corporate governance requirements and growing pressures for legislative compliance have stimulated national and global uptake of content management systems that can mirror internal corporate approval processes, store information and retrieve it in an accurate and timely manner (Government Exchange, 2004). These external pressures, together with the availability of funding and support for systems underpinning open and accountable government, have resulted in local government instrumentalities becoming fertile ground for full EDRMS implementations.
The Selection and Implementation of an EDRMS, City of Charles Sturt, South Australia Local government in Australia consists of 629 Councils and 100 community governments. In South Australia, 68 councils employ around 10,000 people. One of the largest of these councils, covering approximately 10% of metropolitan Adelaide, the state capital, is the City of Charles Sturt (http://www.charlessturt.sa.gov.au/). The City of Charles Sturt (CCS) employs just over 400 full time equivalent staff in 10 business portfolios or departments. Council employs seven Records staff members to register over 300,000 records per annum. In 2002, the process of replacing the Council’s paper records system began with a series of staff
workshops designed to examine the issues for staff in moving from paper to electronic documentation. They found that the paper system limited the ability of staff to track and share documentation and the speed at which information could travel through the organisation. The increasing volume and usage of email correspondence in recent times added to these problems. The discussion from this series of workshops culminated in the creation of a Records Management Strategic Directions document that clearly established the need for an Electronic Document and Records Management System (EDRMS). The selection project began with establishing and charging a project team with the responsibility ‘to replace the records section of the GEAC TCS and other localized manual and indexed systems used for the same purpose’. The initial document set out six objectives: replacement of the system within a set budget limit, set time frame for implementing the replacement system, work process and efficiency gains, minimized need for new or different hardware and operating systems within the organisation, minimized changeover effects on running the business and ensuring the new system was implemented consistently with the Records Management Strategy. At this stage the size and budget of the project still had to be determined. In October 2002 the request for tender was advertised; the decision was based on knowledge that the project was now very likely to move forward. A full proposal for the EDRMS was put together in November 2002. Final approval was given by Council in June 2003. Following tender evaluation and demonstrations, TRIM—a product from Tower Software—emerged as the CCS preferred product. By June 2003 the CEO at Council had signed contracts for the purchase of the product. The EDRMS project team was keenly aware that communication about the project needed planning – otherwise there was likely to be significant resistance from staff when it came to training. Clearly, electronic record-keeping would require a
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changed understanding of records administration: staff members had to be able to relate the changes to their individual work requirements. Effective communication of these changes was important to project outcomes. Integrating a review of recordskeeping with other required topics subsequently led to the vendor’s half day training program being extended to a full day. Around two thirds of the CCS workforce (280 staff members) were involved with the selected EDRMS solution: TRIM. However, unless the EDRMS was fully and formally integrated into business processes, it was likely no one would use the system. The implementation team consequently decided to institute an analysis of all council business processes that touched records. Business process analysis would serve to assist the integration process and also help to identify flagship projects for each area. These flagship projects would champion the benefits of uptake and so accelerate adoption and compliance. Undertaking analysis of well over 100 business processes required the involvement of many additional staff apart from the members of the three teams. The process accelerated the integration of records with each team’s activities, but also ensured that significant communication about the project took place not only within, but across teams. Moving from paper to TRIM required a number of technology decisions. Containers for records had to be put in the EDRMS. Finding and choosing the containers required considerable fine-tuning. In August 2003, design of the container structures was undertaken by interviewing all business units and ascertaining their needs. Although timeconsuming it was important to consult with staff regarding the types of files being used for classification purposes. This process led to the creation of a draft list of containers and the record types that they would hold. The list was distributed to and revised in conjunction with business units in an iterative process. Workflows in the EDRMS constitute a benefit above and beyond core records management. All
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business units would use TRIM. The workflow development process was designed to develop the EDRMS as a system people wanted - not just one they had to use. The aim was to achieve business process gain so business and records would come to be viewed as one process - not two. All new technology and systems needed to be designed around the EDRMS. Otherwise there was a real risk that new information silos would form. The documentation of business process workflows at CCS began by identifying each business unit and process. An early iteration of this process found some 191 business processes. Each process was then ranked for its suitability for conversion to electronic work flows on TRIM. Ranking was undertaken according to the suitability of workflows to the TRIM system as well as by its priority as assessed by the relevant business unit. Each of the documented workflows was developed over multiple iterations. Whilst feasibility of conversion to TRIM was ultimately an executive decision, there was considerable consultation with staff prior to the final decisions. As part of this exercise interest in specific processes for conversion within individual business units was recorded and ranked. The consultation process proved to be a valuable resource as the rankings were of great assistance to management when it came to selecting ‘champions’ to promote uptake within a number of CCS business units. Some 10 to 15 of the 191 processes identified as candidates for conversion were then implemented at start-up. A key challenge facing user acceptance testing early in the development process is the difficulty of conveying to users what a proposed system will consist of in a realistic way. It is at this point that people form general perceptions of a system’s usefulness – perceptions that are strongly linked to usage intentions. Hence, introductory training, particularly its perceived relevance and integration with business processes, can have a strong impact on usage intentions (Laeven T, 2005). These intentions are significantly correlated with future acceptance of the system (Davis, Bagozzi
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and Warshaw, 1989 p.1000). It was vital to ensure that staff understood the meaning of a Record and related procedures once the EDRMS went live. The decision was therefore made to extend the mandatory training for all CCS computer users from the proposed half day to a whole day to cover Records Management procedures. Ten staff members were trained each day over a 7.5 week period. Continuing steady growth in registration of Council records clearly indicates that processing staff at all levels of the organisation appreciate the benefits of the implementation for finding, searching and viewing documents (Figure 2). Familiarity with the EDRMS at CCS increased staff confidence in using electronic records systems and other software – skills that are increasingly valued in the job market. All records have now been on the TRIM system since 8th March 2004. Staff members understand the system and feel secure. Low compliance remains a problem in certain areas; for example decisions to ‘TRIM’ (add to records) and the time required entering each item are difficult to resolve in the case of email The success of systems integration at CCS, achieved for a project budget of $150,000, has been a notable feature of the EDRMS implementation. Transactional integration at CCS has meant that all systems integrate information. Although not part of the original project, the Document Assembly process within TRIM is now widely
used for internal forms and document templates. Most importantly, the integration between TRIM, Proclaim One and GIS means that all of these systems can now be viewed at desk level. The EDRMS replaced a paper-based system that represented a mainstay for staff members’ day-to-day operations and one which had been established over many years. For some employees the fact that there is a new baseline for ‘business as normal’ continues to be a demanding concept. For any organisation in the public or private sector, new systems integration ultimately means finding ways to maintain the impetus for cultural change (Gregory 2005; Laeven 2005; Maguire 2005; Kotter and Cohen 2002). The successful outcome of EDRMS uptake in this local government instrumentality has been attributed to a number of factors including: • •
•
• •
The vital role played by senior executive support especially that of the CEO The culture of open communication\supportive of staff involvement and risk-taking throughout the project. A clear understanding by key players of the benefits of the project and their energy in pursuing outcomes The emphasis on consultation from the earliest days of the project The pressure for uptake from fellow employees.
Figure 2. Year on year registrations 2006 – 2007 (City of Charles Sturt, South Australia)
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Since the initial introduction of TRIM as the EDRMS at the City of Charles Sturt, development has continued in the areas of integration to other systems, complementary smaller software applications to address business issues, work-flow of business records and many other advances associated with the technology. Continual building on the base system clearly demonstrates to staff within CCS that the EDRMS is a core technology and assists them in being more productive. Closely coupled to these on-going advances is sensitivity to the fact that the organisation as a whole must continue to perceive that there is benefit gained for the work that is required to maintain a full EDRMS. In Table 4 we set out the four axioms we developed from EDT and apply them to this second case study. The four axioms with their associated elements (see Table 1) were applied to analysing
our findings from this EDRMS implemented by a local council in South Australia. Table 6 indicates how closely the four axioms could be applied to our single organisation case study analysis. Understanding the EDT axiom, Rejection of Optimisation provided real insight into how a technology implementation unfolds. It addresses many of the factors that an organisation must deal with when facing technological change such as understanding how choices are made between systems and even whether to choose a system at all. Management appreciation of the importance of the axiom A Holistic View of Contributions to Knowledge underpinned the successful integration of the EDRMS in every aspect of Council business. The new system was deliberately built into every aspect of business undertaken at the City of Charles Sturt, with productivity linked to its success at every opportunity.
Table 4. Application of EDT Axioms to the EDRMS case study Evolutionary Diffusion Theory
Explanatory Contribution to Case Analysis
Rejection of Optimisation
Attention to discontinuing ineffective practice & slowing uptake of inappropriate technologies via initial staff workshops Decision to articulate dynamic mechanisms underlying uptake of innovation by instituting Business process analysis & documentation of business process work flows Recognition that an organisational decision to adopt does not automatically translate into individual or group acceptance without resistance results in use of monthly usage reports by work sectors to stimulate uptake across organisation Recognition that subjective norms can be shaped by influence. Hence EDRMS uptake and usage are strongly supported and encouraged by CEO and senior management
Innovation and diffusion from a whole-ofmarket perspective
N/A
Holistic View of Contributions to Knowledge Development
System wide perspective by management underpins successful integration of EDRMS as indicated by: Extra training for all staff to ensure understanding of meaning of a record and so encourage user acceptance of the new system Documentation of all business process workflows to encourage identification of business and records as one process and so avoid information silos Continual building on the base system to indicate that the EDRMS is a core technology assisting staff become more productive
Government as policy maker
Plays key role in: Recognition that subjective norms can be shaped by influences such as pressures for legislative compliance and corporate governance requirements Coordinating stakeholder institutions within innovation system by making funding available Seeking an acceptable business solution and intervening with context specific solutions sensitive to local path dependencies to ensure diffusion across sectors by providing support for systems underpinning open and accountable government
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The EDT axiom, Government as policy maker also proved highly applicable to the implementation. In many instances, Australian local government has been a leader in implementing EDRMS due in no small part to factors closely associated with government acting in the role of policy maker by exerting pressures for legislative compliance, via corporate governance requirements and the availability of funding for uptake of EDRMS. These three EDT axioms have provided excellent indicators to the project manager and a clear explanation of why the organisation chose a particular path. Only one of the four EDT axioms - Innovation and diffusion from a wholeof-market perspective - was not applicable to our second case study.
CONCLUSION IS implementation studies lack a widely accepted theoretical framework to satisfactorily explain how complex and networked technologies diffuse in practice. The two detailed case studies described in this chapter applied EDT to analyse how a technology implementation unfolds. We investigated how choices were made between systems or even whether to choose a system at all. EDT provided reliable indicators and an explanation of why the organisation chose a particular path. Three of our EDT axioms Rejection of Optimisation, A Holistic View of Contributions to Knowledge and Government as Policy Maker offered particularly useful tools for analysing key aspects of both implementations (see Table 6). The only EDT axiom which did not fully apply to our second case study was Innovation and Diffusion from a Whole-Of-Market Perspective. EDT axioms thus proved useful for analyses at both sectoral and organisational levels: they were only marginally less applicable as an analytical tool for investigating a single enterprise wide system implementation. When applied to the AQIS implementation in our first case study, the broader
IS investigative approach of Evolutionary Diffusion Theory effectively explained the impact(s) of diffusion in the more complex environment of a market, in a way the more restricted alternative diffusion of innovation theories could not match. Our second case study featured uptake of an enterprise-wide EDRMS solution by a local government entity. Here, EDT provided real assistance in explaining how a single – but complex – organisation can manage a major change in its understanding of activities and sources of information. Our chapter, therefore, provides not only an introduction to Evolutionary Diffusion Theory, but also sets out how EDT can be effectively applied to explain influences on uptake of innovation in an Information Systems environment. EDT offers an explanatory basis for many of the complex and interrelated issues that apply to instances of e-business uptake in ways which are not matched by either Classical DoI theory, or by the networkbased extensions to that approach. We believe that EDT and the axioms we derived from the theory, together offer a richness of analytic approach and a powerful explanatory capability rendering it particularly appropriate to discussing the diffusion of information technology. Since the majority of real world e-business implementations are cross sectoral, confirmation of the validity of EDT for such applications presents exciting possibilities for improved understanding of issues affecting acceptance levels of new technologies in the IS field.
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Jones, N., & Myers, M. D. (2001). Assessing three theories of information systems innovation: An interpretive case study of a funds management company. In Proceedings of the Pacific Asia Conference on Information Systems, Seoul, Korea (pp. 1005-1019). Kotter, J. P., & Cohen, D. S. (2002). The heart of change: Real-life stories of how people change their organizations. Boston: Harvard Business School Press. Kowol, U., & Küppers, U. (2003). Innovation networks: A new approach to innovation dynamics. In M. van Geenhuizen, D. V. Gibson, & M. V. Heitor (Eds.), Regional development and conditions for innovation in the network society. Lafayette, IN: Purdue University Press. Kwon, T. H., & Zmud, R. W. (1987). Unifying the fragmented models of information systems implementations. In J. R. Boland & R. Hirschheim (Eds.), Critical issues in information systems research (pp. 227-252). New York: John Wiley. Laeven, T. (2005). Competencies – the asset that counts most: On developing human talents as a prerequisite for successful EDRM changes. In C. Hare & J. McLeod (Eds.), Managing electronic records (pp. 129-148). UK: Facet Publishing. Lambooy, J. G., & Boschma, R. A. (2001). Evolutionary economics and regional policy. The Annals of Regional Science, 35, 113–131. doi:10.1007/ s001680000033 Lissoni, F., & Metcalfe, J. S. (1994). Diffusion of innovation ancient and modern: A review of the main themes. In M. Dodgson & R. Rothwell (Eds.), Handbook of industrial innovation (pp. 106-144). Cheltenham, UK: Edward Elgar Publishing Limited. Maguire, R. (2005). Lessons learned from implementing an electronic records management system. Records Management Journal, 15(3), 150–157. doi:10.1108/09565690510632337
Markus, M. L., & Robey, D. (1988). Information technology and organizational change: Causal structure in theory and research. Management Science, 34(5), 583–598. doi:10.1287/mnsc.34.5.583 McKelvey, M. (1997). Using evolutionary theory to define systems of innovation. In C. Edquist (Ed.), Systems of innovation—technologies, institutions and organizations (pp. 200-222). London: Pinter/Cassell Publishers. Metcalfe, J. S. (1994). The economics of evolution and the economics of technology policy. The Economic Journal, 104, 931–944. doi:10.2307/2234988 Mokyr, J. (1996). Evolution and technological change: A new metaphor for economic history? In R. Fox (Ed.), Technological change (pp. 63-83). London: Harwood Publishers. Moore, G. C., & Benbasat, I. (1991). Development of an instrument to measure the perceptions of adopting an information technology innovation. Information Systems Research, 2, 192–222. doi:10.1287/isre.2.3.192 Nelson, R. R. (1995). Recent evolutionary theorizing about economic change. Journal of Economic Literature, 33, 48–90. Nelson, R. R. (2002). Bringing institutions into evolutionary growth theory. Journal of Evolutionary Economics, 12(1/2), 17–29. doi:10.1007/ s00191-002-0108-x Nelson, R. R., & Winter, S. G. (1982). An evolutionary theory of economic change. Cambridge, MA: Belknap Press. Norgren, L., & Hauknes, J. (1999). Economic rationales of government involvement in innovation and the supply of innovation-related service. Oslo, Norway: Rise Project, European Commission.
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Orlikowski, W. J., & Hofman, J. D. (1997). An improvisational model for change management: The case of groupware technologies. Sloan Management Review, 38(2), 11–21. Reich, B. H., & Benbasat, I. (2000). Factors that influence the social dimension of alignment between business and information technology objectives. MIS Quarterly, 24(1), 81–113. doi:10.2307/3250980 Rogers, E. M. (1995). The diffusion of innovation (4th ed.). New York: The Free Press. Rosenberg, N. (1969). The direction of technological change: Inducement mechanisms and focusing devices. In N. Rosenberg (Ed.), Economic development and cultural change (Vol. 18, No. 1, Part 1) (pp. 1-24). Chicago: The University of Chicago Press. Saviotti, P. P. (1996). Systems theory and technological change. Futures, (Dec): 773–785. Saviotti, P. P., & Metcalfe, J. S. (1991). Evolutionary theories of economic and technological change: Present status and future prospects. Reading, UK: Harwood Academic Publishers. Van de Ven, A. H., Polley, D. E., Garud, R., & Venkatraman, S. (1999). The innovation journey. New York: Oxford University Press. Wilkins, L., Castleman, T., & Swatman, P. M. C. (2001). Organisational factors in the diffusion of an industry standard. Electronic Markets, 11(4), 222–230. doi:10.1080/101967801753405490 Wilkins, L., Holt, D., Swatman, P. M. C., & Chan, E. S. K. (2007, June 4-6). Implementing information management strategically: An Australian EDRMS case study. In Proceedings of the 20th Bled International E-Commerce Conference, Bled, Slovenia.
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Wilkins, L., Swatman, P. M. C., & Castleman, T. (2000, June 19-21). Electronic commerce as innovation – a framework for interpretive analysis. In Proceedings of the 13th Bled International Electronic Commerce Conference, Bled, Slovenia (pp. 150-121). Wilkins, L., Swatman, P. M. C., & Castleman, T. (2002). Government sponsored virtual communities and the incentives for buy-in. International Journal of Electronic Commerce, 7(1), 121–134. Wilkins, L., Swatman, P. M. C., & Castleman, T. (2003). Electronic markets and service delivery: Requisite competencies for virtual environments. In Proceedings of the 11th European Conference on Information Systems ECIS 2003, Milan, Italy (pp. 1-13).
KEY TERMS AND DEFINITIONS Axioms: An axiom is any starting assumption from which other statements are logically derived. An axiom can be a sentence, a proposition, a statement or a rule that forms the basis of a formal system. Corporate Governance: The system/process by which the directors & officers of an organization are required to carry out & discharge their legal, moral & regulatory accountabilities & responsibilities. Electronic Document and Records Management System: An EDRMS aims to enable businesses to manage documents throughout the life cycle of those documents, from creation to destruction. Evolutionary Diffusion Theory: A classic evolutionary model of technological change first developed by Nelson and Winter (1982). The model demonstrates the possibility of collating a wide diversity of elements (including the processes of transmission; variety creation and selection) and integrates them into a process which can
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then be applied to understanding the uptake of innovative technology. Market Focus: The development and diffusion of new variety or innovation in an economic system. Rejection of Optimisation: Evolutionary Diffusion Theory rejects the assumptions that: individual firms behave optimally at the micro level and stress the gradualism of internal adoption of innovative technology between firms and over time. Successful innovations are rarely predictable and represent the outcome of multiple and contingent variables and do not always have to be the best ones. Rogers’ Classical Diffusion of Innovation Theory: Rogers focused attention on the shape of the diffusion curve, describing innovation as a process that moves through an initial phase of generating variety in technology, to selecting across that variety to produce patterns of change resulting in feedback from the selection process, to the development of further variation.
ENDNOTES 1
Path dependence is a key concept of Evolutionary Economics, usually explained in
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association with an industrial process e.g. the QWERTY keyboard. It describes the natural trajectory of an unpredictable original selection where, although many outcomes are possible, under increasing returns the process becomes focused on a particular path (Arthur 1994; Nelson and Winter 1982). Path dependence suggests that it is often costly to change technologies in production processes. When the costs of change are large, it is possible that firms will continue to use sub-optimal technologies. A simple overview of the EXDOC system can be accessed at the AFFA website link, under AQIS publications (see http://www. affa.gov.au/content/publications.cfm). This description of the EXDOC system draws on the following sources: an earlier case study of AQIS and EXDOC as part of a major research project on EDI systems integration (Swatman, 1993); the Minter Ellison 2002 Report; and information provided by the EXDOC administrator Mr N Scott 2002/4. Aspects of the EXDOC case study have already been reported in the proceedings of BLED 2000, ECIS 2000, ECIS 2003; and in IJEC 2002 and EM 2001 journal articles.
This work was previously published in Handbook of Research on Contemporary Theoretical Models in Information Systems, edited by Yogesh K. Dwivedi, Banita Lal, Michael D. Williams, Scott L. Schneberger and Michael Wade, pp. 212-228, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.8
Advancing Women in the Digital Economy: eLearning Opportunities for Meta-Competency Skilling Patrice Braun University of Ballarat, Australia
ABSTRACT In view of the fact that women are playing an increasingly important role in the global economy, this chapter examines business skilling in the digital economy for women in general and womenled small businesses in Australia, in particular. With employability and entrepreneurial capacity of women increasing, so too is their need for a comprehensive skill set is increasing. It is proposed that business courses currently offered do
not necessarily consider their target audience or include new economy considerations. This chapter discusses the need for meta-competencies that will allow women in both developed and emerging economies to operate more effectively in a changing work environment and an increasingly digital business environment. For meta-competency efficacy, it is further proposed that evidence-based learning models, gender-sensitive approaches to business learning, and collaborative uses of technology underpin content and (e-)business learning designs.
DOI: 10.4018/978-1-60960-587-2.ch708
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Advancing Women in the Digital Economy
INTRODUCTION The rise of globalisation, technological innovation, diffusion of information via the Internet, and related changes in business models and values, entrepreneurs everywhere are taking advantage of changing work environments and increased business opportunities. Today, with an economy enabled and driven by connectivity, a fundamental shift in business models is occurring whereby information, knowledge and relationships underpin competitive advantage (Pfeffer & Sutton, 2000). Globalisation and deregulated markets have created a flat world (Friedman, 2006), which provides companies of all sizes – including small and medium size enterprises (SMEs) – an opportunity to participate in the market economy. Thus, the digital economy has the potential to become an increasingly level playing field. Information and communication technologies (ICT), and especially the Internet, allow knowledge to spread quickly, making it available to/by anyone with computer access and a telephone connection. As part of this phenomenon, women are becoming increasingly important in the global marketplace, not just as workers, but also as consumers, entrepreneurs, managers and investors. Indeed, women are now considered the most powerful engine of global growth. As reported widely in the popular press, women have contributed more to global GDP growth than have either new technology or the new giants, China and India (The Economist, 2006). The explosive growth of ICT in every aspect of society offers a unique opportunity to engage more women in the active workforce of both developed and emerging economies. New technologies lower the costs of information access and facilitate communication across geographic distance, allowing for more flexible working arrangements for those located far from metropolitan centres. In particular for women living in regional and rural areas, whose work patterns are frequently characterised by pluriactivity (Ross & McCartney, 2005), connectivity and new technologies can
offer important flexibility in terms of both the times and the places where work is carried out. ICT is also a primary enabling factor for business and e-business. In Australia, small business operators have increased by 6.5 per cent since 1995 and more women are involved in operating these businesses than ever before (Australian Bureau of Statistics, 2004). Despite these opportunities, ICT, web-enabled business or e-business are still poorly understood by Australia’s SMEs and the current landscape is characterised by low uptake of e-business by women (Braun, 2005). Although female-led enterprise use of computers is strong, women take less advantage of mobile business opportunities, as well as of the productivity and speed advantages offered by broadband (Australian Government, 2006). To prepare for the increasingly important role women are expected to play in the economy and to stay ahead of the rapidly changing technology environment it is imperative to understand, facilitate and manage women’s increasing role in the digital economy.
BACKGROUND Women are fast becoming a more prominent and crucial part of business and the workforce, yet women are vastly under-utilised as an effective resource in terms of time spent in paid employment as well as career development in most economies, including Australia. Although women now make up the majority (52.3%) of the overall Australian workforce, this reflects the large numbers of parttime positions held by women, who represent only 35% of the fulltime workforce. A mere 12% of executive management positions and only 8.7% of board positions in Australian listed companies are occupied by women (EOWA, 2006). With the role of women in society having changed historically, and indeed, further changing over time with employability of women increasing, so too, is the need to facilitate women’s role
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Figure 1. Small businesses in Australia; source: ABS (2004)
in the economy. Many business operators now take account of employees’ other responsibilities through the provision of flexible work conditions. This is particularly important for women, many of whom care for children, an elderly family member or a person with disability (Australian Government, 2007). “…the provisions most commonly offered are those most likely to be used: telephone access for family reasons, flexible annual leave, flexible start/finish time and part-time work” (Australian Government, 2007, p.7). Striking a balance between work and family has become one of the biggest challenges of the 21st Century for families, employers and governments, according to the recently released report It’s About Time by the Human Rights and Equal Opportunity Commission (HREOC, 2007). However, flexibility in work conditions is not yet a pervasive business culture, with flexibility provisions more likely to be offered in businesses whose workforce are predominantly women (Australian Government, 2007, Executive summary). While flexibility is pivotal, skills and education are central to employment opportunities and women’s productivity. The importance of skilling and empowering women to take a more productive role in the workforce is the essence of Womenom-
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ics (The Economist, 2006), defined as the science of understanding and utilising women’s skills and talents more effectively in today’s economy. The European Union (2002, p.3) reinforces this view through its attention to promoting female entrepreneurship. Traditionally, the study of female entrepreneurship has been motivated by gender equality issues. Female entrepreneurs were assumed to experience gender-related discrimination and more difficulties than their male counterparts did in starting up and running a business (Verheul, 2005). Today research and policy are increasingly fuelled by the idea that female entrepreneurs are important Figure 2. Women in the Australian workforce; source: EOWA (2006)
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for economic progress. Even when issues such as barriers and obstacles to female entrepreneurs are raised in the gender and entrepreneurship debate, this is usually done from the perspective that female entrepreneurs are an untapped resource and have potential to contribute to a country’s economic performance (Ahl, 2002). Indeed, although gender equality is one of the arguments underlying the support for female entrepreneurs within the European Union, the argument that female entrepreneurs (have the potential to) contribute to economic performance continues to play a role here. In the report Good practices in the promotion of Female entrepreneurship (European Commission, 2002, p.3) it is argued that women face a number of gender-specific barriers to starting up and running a business that have to be tackled as women are considered “a latent source of economic growth and new jobs and should be encouraged”. Hence, the main argument for encouraging women’s entrepreneurship is that female entrepreneurs are an “engine of economic growth” (Ahl 2002, p.125). The basis for this argument is the acknowledgement that entrepreneurship (in general) is important for economic performance. At the individual level, entrepreneurship is considered an important way for women in developed and emerging economies to become financially secure or independent and to combine work and household responsibilities. Self-employment may also provide a way for women to escape barriers to higher levels within organisations, i.e., the so-called ‘glass ceiling’ (Still, 2006). As the contemporary economy is characterised by an ever-increasing demand for quality in its broadest sense, it is of vital importance that the best-qualified people are selected for (available) jobs, independent of their sex. In this way, the process of emancipation becomes an important driver of economic progress. This may give the impression that womenled business and entrepreneurship is flourishing considering women’s contribution to global GDP
(The Economist, 2006). However, we are yet to achieve trends predicted almost a decade ago (Brush & Hisrich, 1999) such as considerable growth in the number of working women and female entrepreneurship activity; and an increase in “feminised” markets. This raises questions on how women’s contributions to their economies can best be harnessed and what skills women need to develop to their full potential in the digital economy.
DIGITAL ECONOMY SKILLING Central to addressing business skills for women is the concept of career development for women. The concept of career development has changed over time to reflect a constantly changing world of work in which career development and lifelong learning is closely interrelated (Malone, 2004). Lifelong learning refers to ongoing learning that is ideally delivered in a systemic approach across a country and aims to provide an initial education and training process which becomes the foundation for future learning during adulthood (McMahon et al, 2006). There is widespread agreement in the literature that individuals need to become proactive life/career managers who evolve through lifelong learning and adaptation to change. In the knowledge economy, the notion of purposeful lifelong learning with the aim of improving knowledge, skills and competence has become widely accepted as pivotal to successful life/career management and business innovation in the 21st Century (Commission of the European Communities, 2000; McMahon et al, 2006). Lifelong learning for career development is necessary to provide members of the workforce with a comprehensive set of so-called “metacompetencies”, which comprise skills that are not specific to an occupation but transferable across multiple facets of life and work (McMahon et al, 2006). The latter authors describe the combination of life/career management and employability skills
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as essential to enabling individuals to work and live successfully in contemporary Australia. Life/ career management skills include such skills as the ability to respond to change, identifying life, career and learning opportunities that enable a satisfactory lifestyle. Employability skills include technology skills, problem solving, initiative and enterprise skills, teamwork, learning and selfmanagement skills, and communication skills. Effective communication includes competencies such as collaboration, interpersonal skills and interactive communication (Commonwealth, 2006). A key aspect of the meta-capabilities framework is the need to underpin workforce development with a balance between wealth creation and wellbeing (Nicholson & Nairns, 2006). There are distinct crossovers between metacompetencies and digital economy skills with the latter including skills such as understanding the use of technology and new business models, interactive communication and social networking (Malone, 2004; Tapscott & Williams, 2006). Competencies such as initiative and enterprise skills can broadly be summarised as entrepreneurial traits and the link between entrepreneurship and economic growth is well documented (Carree & Thurik, 2003). Gender-conscious entrepreneurship skilling has, however, received much less attention (Headlam-Wells, 2004). There is ample evidence in the literature that female and male entrepreneurs possess different business profiles: they start and run businesses in different sectors, develop different products, pursue different goals and structure their businesses and business processes in a different fashion (Brush, 1992; Green et al., 2003). Yet, since the majority of entrepreneurs are male, perspectives based on masculine experiences have dominated the small business skilling arena (Stanger, 2004). Genderfriendly development recognises that women play a central role in economic development processes in addition to their family and community roles and that understanding the unique characteristics and motivations of females is therefore central to
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(emerging) economic development and innovation (Ross & McCartney, 2005; Rees, 2000). Communication is another key competence in the global communications era and central to all work women undertake in business either as entrepreneurs or corporate leaders. Yet the acceptance of women’s communication styles in business may be another hidden obstacle in the path of advancing women’s potential in today’s economy. Research evidence suggests that gender communication impacts on the workplace (Barrett, 2004). The less aggressive and assertive linguistic style associated with females is, for example, highly valued in Asian business circles, but there continues to be a lack of acceptance of women as managers and leaders in the still predominantly male-dominated Australian business culture (Still, 2006). These socio-cultural conditions have resulted in maintaining women entrepreneurs’ economic vulnerability (Green et al, 2003). While women exporters may not experience gender-related barriers to international trade, important is the fact that perceptions influence decision-making. For example, if a woman business owner thought that she might experience gender-related barriers in export, she might not seek international expansion or if she perceived that her firm was thought to be ‘less credible’ than one owed by a male, she could forgo an international bid (ACOA, 2003). The latter implies that the playing field is still far from level and that women would benefit from increasing their understanding of their potential in the marketplace. What is perhaps most significant, as documented in the leadership change literature, is that women are seen as having many of the negotiation and communication attributes seen as necessary in the future (Nicholson & Nairn, 2006). Hence, with exposure to appropriate skilling and networks, they seemingly have the basis for full participation as leaders in the digital economy. To date, limited attention has been paid to coordinate and evaluate interventions designed to support the career development of professional and managerial women
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(Headlam-Wells, 2004). Nor have cultural issues pertaining to lack of women’s advancement in leadership positions been addressed. In advancing women in the digital economy, it is imperative to recognise that differences in women’s business management and communication styles provide a rich source of talent that can be tapped for economic development, innovation and leadership. These aspects need to be explored by incorporating gender-specific business and communication strategies in business skilling design and tracking resulting business practices for their contribution to economic growth and innovation.
LEARNING NEEDS AND STYLES An Australian study conducted by over a decade ago found that in general the sources of assistance for small business owners used by women and their training assistance were not significantly different from men (Roffey et al, 1996). Nor did training and assistance needs vary significantly between women starting a business and women operating a business. Desired assistance for women (and men) included financial management, marketing and confidence building in the earlier stages of business activity. Obstacles that were specific to women business proprietors related to their limited prior work experience and less relevant education. Thus, it was suggested that it would be useful to plan for diversity of needs and knowledge in business training amongst the target population. Exposure to successful female role models and peers was also seen as important in breaking down isolation and self-esteem barriers. Aforementioned assistance needs for women small business owners have recently been confirmed by Still and Walker (2006) and a decade on, the Roffey et al (1996) findings remain relevant, with two additional factors contributing to the lack of progress for women pertaining to business training, namely lack of flexibility (in work and training) and the failure to mentor promising
women candidates to further develop their talents (Nairn & Nicholson, 2006). In concentrating on obstacles to training and assistance specifically for women, Stanger (2004) identified a range of other issues, including course availability and lack of suitable content, especially content that addresses gendered business interests and the (digital) business stage, with much of the business training directed at start-up and early development. Content is an important part of the learning equation, but cannot be separated from learning styles, the characteristic ways that students obtain, store, and retrieve information. Currently, many of these facets of learning are not considered in business skilling. Evidence suggests that women and men differ in their ways of knowing (Belenky, Clinchy, Goldberger & Tarule, 1997). Women demonstrate a preference for connected, socially-based knowledge with cooperative, less individualistic and competitive means of learning. Women’s ‘reality’ is characterised by connectedness, relationships, and an integrated perspective (Brush, 1992). By contrast, men are oriented toward individualistic and competitive learning environments although evidence does verify that men tend to be more comfortable with collaborative team assignments than women (Belenky, Clinchy, Ocker & Yaverbaum (2001). Many factors pertaining to learning styles are complex and not strictly gender-related, but women’s use of learning resources suggests that women business owners are ‘information gatherers’ with women business owners more likely than men business owners to seek advice from a variety of sources before making decisions (Lundstrom, 2000). Thus, women are more likely to be selfeducation-oriented, and they attend more informal seminars offered by small-business centres or agencies. This propensity for learning makes sense considering that over 70% of women who go into business have never done so before and more women than men start a business in sectors where they have no track record (www.Everywoman.co.uk). The propensity for learning can
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also be interpreted in other ways. It is possible that women lack confidence in their abilities, so may feel the need to validate their skills and knowledge by attending training sessions and seminars confidence, or perhaps they are just very honest in assessing their skills (Brush, 1992). There is a recognised gender gap in users’ information behaviour in relation to the Internet. The gender gap can be seen in different communication, information and recreation patterns. The longitudinal study of Pew Internet and American Life Project shows that women appreciate especially the communicative features of the Internet, but also admit information overload. By contrast, men are more likely to use online transactions, get information, play games and use entertainment (Steinerová & Šušol, 2007). Studies have found significant differences in the impact of gender on the adoption and use of the Internet among male and female entrepreneurs (Braun & Van Beveren, 2005). Women-led businesses are leading in the use of computers, indicating that they have gained ICT skills, but lagging in the uptake of more complex enabling technologies for eBusiness (Commonwealth 2006). Prima facie, web-enable learning or eLearning has elements such as individual, self-paced learning that would go against aforementioned views of women’s preferred learning styles. However, as a European study – which looked at gender differences of students studying their courses online over a three-year period – reflects, online courses favour women and older students as they seem to be more motivated, better at communicating online, and at scheduling their learning. In contrast, the male students and younger participants need the discipline that classroom sessions provide (Von Prummer, 2000). This study would indicate that women are prime candidates to pursue and be successful at online courses with a preference for ‘just in time’ and self-guided informal learning. It also indicates that eLearning would be well suited to women in business with their propensities to actively pursue business training, sources of in-
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formation and supportive, social learning environments. While women may favour learning online because of its flexibility and because it suits their style of information gathering, mitigating factors that may inhibit women’s eLearning success and may influence whether they actually complete a course, relate to other responsibilities that women undertake within the family and wider community, and the assumption that women have control over their time (Von Prummer, 2000). It must also be kept in mind that eLearning environments are only as good as the technology and informationhandling skills of its students. Familiarisation with computer-mediated technologies to access information and learning is, in itself, an important digital economy competency, as increased socialisation and knowledge sharing via online environments is changing the way businesses innovate and create competitive advantage (Tapscott & Williams 2006). Online skilling also provides the context and the potential for ‘learning networks’ to emerge. In learning networks, a variety of actors are brought together to ‘learn to learn’ together (Pumphrey and Slater, 2002). Communities of practice fit women‘s learning style and by entering into interactive learning, mentoring and interaction processes, women in business can benefit from learning environments that give them access to content, social contact and information flows (Braun, 2007).
CONCLUSION Women are becoming increasingly important in the global marketplace, not just as consumers and investors, but also in the workforce as knowledge workers, entrepreneurs and managers. Women have many of the attributes that are imperative in today’s economy. In view of the fact that women are playing an increasingly important role in the global economy, this chapter has examined business skilling in the digital economy for women in general and
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women-led small businesses in Australia in particular. The chapter has shown that a lack of attention has been paid to increasing women’s abilities to participate fully in and increase their contribution to their economies. Business skilling for today’s economy requires comprehensive digital and strategic skills required for participation in a knowledge society. This issue needs to be addressed for both men and women, but with employability and entrepreneurial capacity of women increasing, it is important to recognise women’s need for a comprehensive skill set. The chapter discussed the need to provide women with meta-competencies to allow women in both developed and emerging economies to operate more effectively in a changing work environment and an increasingly digital business environment. In today’s business climate, women require meta-competencies that range from technology skills to problem solving, initiative and enterprise skills, to teamwork, learning and self-management as well as communication and digital economy skills such as understanding the use of technology, new business models, interactive communication and social networking. Participation in business is a lifelong learning experience, which ideally serves to contribute to economic development as well as to personal fulfilment and social advancement. Addressing both life and career skills will enable women to respond to career and learning opportunities in combination with a satisfactory lifestyle. Many women have family commitments and relatively limited leisure time, resulting in women preferring self-guided and learner-managed modes of learning. Time-pressed women tend to be very focused when seeking information or performing learning tasks. Women favour collaborative learning environments and value guided learning influenced by their ongoing needs, rather than a commitment to gaining a qualification or completing a formal course. In this respect, women can be viewed as having a pragmatic and evidencebased approach to learning, in that they prefer
tried and tested techniques that are relevant to their problems. In advancing business training, the goal of policy makers and training organisations should be towards the creation of a workforce of lifelong learners, with learning environments that are tailored to (women’s) learning styles, business training and work-life balance needs.
FUTURE RESEARCH DIRECTIONS The traditional role of non-participation by women in business has long been challenged and women now play a central role in economic development and growth. To increase women’s participation in the workforce and mirror the participation of men, it is imperative to build women’s capacity to fully participate in the Digital Economy. Women are likely to benefit from acquiring Digital Economy competencies, as a comprehensive skill set has the potential to reduce isolation and enhance women’s entrepreneurship and leadership skills. Both eLearning and eBusiness have enormous potential for women in business, but this potential has yet to be realised. There is ample evidence that the interest in and demand for eLearning will grow in line with the increasing capacity of women to use and communicate via ICT. There is also ample evidence that women will require business acumen to be able to participate fully in the knowledge economy and advance their careers. Women are ideally suited to the collaborative philosophy of the semantic web, the evolving extension of the World Wide Web into Web 2.0/3.0 technologies that have collaboration at their core (Wikipedia, 2008). Yet, the majority of online business resources currently available to women barely embrace the social networking activities that Web 2.0/3.0 technologies have to offer. In designing digital economy skilling, it is essential to address both content and delivery issues and examine collaborative business training opportunities for diverse groups of women. For effective meta-competency skilling, it is proposed that
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evidence-based learning models, gender-sensitive approaches to business and collaborative enabling technologies underpin content and (e)business learning designs. In terms of online learning, this would translate into giving learners access to resources and materials that are inclusive, reflect diverse experiences, provide access to both male and female role models, and use good practice examples regardless of gender. In fostering women’s capabilities, action learning methodologies will enable skilling approaches that are congruent with digital economy training needs of women as well as with emerging electronic communication and networking processes.
Barrett, M. (2004). Should they learn to interrupt? Workplace communication strategies Australian women managers forecast as effective. Women in Management Review, 19(8), 391–403. doi:10.1108/09649420410570207
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ADDITIONAL READING
Carter, S., Anderson, S., & Shaw, E. (2001). Women’s Business Ownership: A Review of the Academic, Popular and Internet Literature Report to the Small Business Service Retrieved October 28, 2007 from www.Small Business Service.org.uk
ANTA. (2001). Report: Rural and Remote Learners (RO18RS) Access and Equity in Online Learning. Australian Flexible Learning Framework. Retrieved 28 August, 2007 from http:// flexiblelearning.net.au Australian Bureau of Statistics. (2004). Characteristics of Small Business (Cat. No. 8127.0), ABS, Canberra.
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Lundvall, B. A., & Archibugi, D. (2001). The New Economy Context. In D. Archibugi & B. A. Lundvall (Eds.), The Globalizing Learning Economy (pp. 1-17). Oxford: Oxford University Press Milgram, D. (2007). Gender Differences in Learning Style Specific to Science, Math, Engineering and Technology (SMET). National Institute for Women in Trades, Technology & Science. Retrieved July 30, 2007 from www.ezinearticles. com/?Gender-Differences-In-Learning-StyleSpecific-To-Science,-Technology,-Engineering/ Moseley, D., Elliott, J., Gregson, M., & Higgins, S. (2005). Thinking skills frameworks for use in education and training. British Educational Research Journal, 31(3), 81–104. doi:10.1080/01411920500082219 Ocker, R., & Yaverbaum, G. (2001). Collaborative learning environments: exploring student attitudes and satisfaction in face-to-face and asynchronous computer conferencing settings. Journal of Interactive Learning Research, 12, 427–448. Pumphrey, J., & Slater, J. (2002). An Assessment of Generic Skills Needs. Nottingham: DfES. Roffey, B., Stanger, A., Forsaith, D., McInnes, E., Petrone, F., Symes, C., & Xydias, M. (1996). Women in Small Business: A Review of Research, Cat. No. 96 0542 8, Australian Government Publishing Service, Canberra.
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Ross, H., & McCartney, F. (2005). Reframing Issues in Rural Development: Women’s Insights into Sustainability and their Implications for Government. In R. Eversole & J. Martin (Eds.), Participation and Governance in Regional Development (pp. 211-227), Burlington, VT: Ashgate Publishing Company Rural Industry Working Group (2001). Skill Needs for the Rural Industry. Canberra: DETYA. Sefton-Green, J. (2003). Informal Learning: substance or style? Teaching Education, 14(1), 37–51. doi:10.1080/10476210309391 Shade, L. (2002). Gender and Community in the Social Construction of the Internet. New York, Oxford: Peter Lang. Still, L., & Timms, W. (1997). Women and Small Business in Australia: barriers to growth. Canberra: Office of Status of Women, Department of the Prime Minister and Cabinet. Turban, E., McLean, E., & Wetherbe, J. (2004). Information Technology for Management: Transforming Organizations in the Digital Economy, New York: John Wiley& Sons. Verheul, I., & Thurik, A. R. (2001). Start-up capital: Does gender matter? Small Business Economics, 16(4), 329–345. doi:10.1023/A:1011178629240
Wenger, E. (1998). Communities of Practice: Learning, Meaning and Identity. Cambridge: Cambridge University Press.
KEY TERMS AND DEFINITIONS Connectivity: The ability to link to the Internet via a computer. E-Business: The processes and tools that allow an organisation to use Internet-based technologies and infrastructure, both internally and externally. Entrepreneur: A person who operates a new enterprise or venture and assumes some accountability for the associated risks. ICT: Information and communication technologies. The technology and tools used to transfer information and speed up communication processes. Meta-Competencies: Skills not specific to an occupation but transferable across multiple facets of life and work. SMEs: Small and medium size enterprises. Refers to enterprises with a specific number of staff. A small size enterprise generally refers to firms with less than 20 employees. Web-Enabled: Computer-based activities that are supported by Internet technologies.
Victoria, M. (2007). Would Your Business Benefit from a Second Life? Accessed online: www.mmv. vic.gov.au/VirtualWorlds.
This work was previously published in Risk Assessment and Management in Pervasive Computing: Operational, Legal, Ethical, and Financial Perspectives, edited by Varuna Godara, pp. 298-310, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.9
Interventions and Solutions in Gender and IT Amy B. Woszczynski Kennesaw State University, USA Janette Moody The Citadel, USA
INTRODUCTION The role of women in technology-related fields began with promising contributions from pioneers like Grace Hopper. In recent years, women have moved away from information technology (IT) fields, and the number of women selecting IT majors in universities continues to decline. Likewise, the number of women employed in the IT workforce remains low and declining. Researchers have recognized the problem and have investigated the many reasons for low participation of women in IT-related fields. ReDOI: 10.4018/978-1-60960-587-2.ch709
searchers have proposed various interventions to fill the pipeline and retain women in computing. In this chapter, we provide an overview of the current state of women in IT. We focus on girls and women at various life stages, from early education to the IT workplace. We also provide a discussion of the various methods and appropriate interventions that may be employed to encourage women to become empowered users of technology worldwide. We use a broad definition of IT, which includes computer science (CS), computer engineering, information systems (IS), information technology (IT), and related professional fields. By examining research from multiple technology-related fields,
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we gain a clearer picture of the many ways that women may participate in IT. Recent research on gender and IT has used an interdisciplinary approach, which has greatly expanded our potential for understanding why women decide not to pursue IT-related fields and how to implement appropriate interventions. Researchers from topics as diverse as IS, psychology, social sciences, education, and feminism, have taken a distinctive approach to understanding why women are not better represented in the IT workplace. We believe this broad, interdisciplinary approach has great potential to understand motivations for women pursuing IT-related careers. As Trauth & Niederman (2006, p. 8) said, “… the IT profession is challenged with meeting the demand to enlarge the IT workforce by recruiting and retaining personnel from historically underrepresented groups.” This chapter looks at women in IT, shedding light on one historically underrepresented group.
BACKGROUND Previous literature on women in IT has focused on education and the IT workforce. More recent research pursuits have focused on feminism as a lens through which to view gender and IT. The following sections discuss these areas.
Primary and Secondary Education To increase the pipeline of women pursuing ITrelated majors in universities, we must reach girls at a young age. Many factors, both structural and social, influence career choices of both genders, as seen in Adya & Kaiser’s (2005) model. Generally speaking, social influences come from role models and influences by family members, peers, and the media; whereas structural influences are found in the support provided by educational institutions. One ubiquitous and early influence on a young girl’s perceptions of computers comes through the
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mass media and its gendered implications, as reported by Gannon (2007). For example, magazines that appeal to teenage girls, including those with global editions for other cultures, consistently fail to portray women in professional careers using technology (Adya & Kaiser, 2005), but, rather, focus on beauty, fashion, and relationship items. Even as young women expand their readings and increase their exposure to home computing magazines, they will find images of women as novices when dealing with technology, in contrast to technologically competent and powerful males (Johnson & Lynch, 2006). Although there has been little advice regarding how to counteract the media influences, researchers have made multiple suggestions on how to modify structural influences, one of which is the use of single-sex schools. However, a recent study showed that girls in single-sex schools did no better than their counterparts in coeducation schools in deciding to major in CS (Olivieri, 2005). Olivieri proposes that the lack of computer knowledge and understanding are more common reasons that girls do not choose to major in CS rather than the presence of mostly men in IT courses. Some researchers have advocated exposing girls to programming as early as possible to increase their comfort and skill in developing simple programs on their own, believing this exposure will give girls an edge when they take the first programming course in college. However, Katz, Allbritton, Aronis, Wilson & Soffa (2006) note that girls who develop programming skills in high school may do so at the expense of advanced math skills. Clearly, that outcome is not satisfactory since math skills are highly correlated with success in CS.
Post-Secondary Education Student perceptions of IT are “moderately gendered with a greater emphasis on masculine traits and abilities” (Joshi & Schmidt, 2006, p. 38). Students pursuing university degrees often do
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not understand IT-related fields and the diversity of career opportunities available. In fact, when college students are asked to draw a computer scientist, they usually draw a geeky, smart person, often with glasses, eating junk food and invariably male (Martin, 2004). Moreover, stereotypes associated with CS tend to be associated with IT in general, at least until undergraduate students are exposed to IT careers in introductory college courses. At that time, students begin to see the diversity in IT and how CS is uniquely different from IS (Joshi & Schmidt, 2006). Most studies show that there are few significant differences for the variables of gender, persistence in IT-related courses, and achievement (Ilias & Kordaki, 2006). However, Katz, et al. (2006) showed that men who earned a grade below “B” in an early CS course were more likely to persist in CS than were their female counterparts. Perhaps average performing males have higher levels of self-confidence and believe they can succeed in subsequent courses as compared to their female colleagues. Interestingly, Ilias & Kordaki (2006) found that female graduate computer engineering students in Greece completed their studies faster than their male counterparts. Researchers have recommended that university professors use care when integrating group projects and online learning tools into the classroom. Wolfe & Alexander (2005) showed that when coeducational project teams form, a single male often emerges as the resident computer expert. Then women do not learn how to effectively use technology tools, and men receive great credit for being the technical expert, thus perpetuating the myth of the masculine-dominated IT field. Moreover, when professors use technology tools in male-female classes, they should ensure that online tools allow equal participation by all students (Huynh & Schuldt, 2005). Research has also shown that another factor affecting the retention of IT students is the type of assignments given in CS classes. For example, female students prefer to work on real-world ap-
plications, while males prefer to work on game problems. Yet, current textbooks continue to provide a large percentage of math problems (Wilson, 2006).
The IT Workforce For those females who successfully persist to complete an IT degree, other challenges await them in the professional world. One of the major issues affecting women’s job satisfaction is workfamily life balance (Gallivan, 2004). Most women realize that IT careers require them to constantly re-train and learn new technologies. Much of the dissatisfaction with work-family life balance may be explained in how companies approach professional development opportunities. For example, in a company that paid for employees to undertake training on company time, women had lower levels of stress, as compared to women at a company that expected employees to undertake professional development on their own time (Gallivan, 2004). Since women are typically the primary caregivers for children and older parents, the work-family life balance issue may be more important to them than their male counterparts. Another important issue related to work-family life balance is flexibility in scheduling. Armstrong, Riemenschneider, Allen & Reid (2007) found that women were concerned about the lack of consistency and equality in corporate policies regarding flexible work schedules. As the primary caregivers, women may need more flexible scheduling options than their male counterparts. As Tapia (2006, p. 94) notes, companies should develop organizational policies that are “sensitive, especially with regard to training and professional career development of a diverse IT staff.” Ironically, while medium and large corporations may not have been able to accommodate the work-family life balance requirements of women, women entrepreneurs have excelled in using IT to set up their own companies, thereby customizing how technology can help balance home and work
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needs. Computers and the Internet have enabled female small business owners to become independent and highly effective in developing new ways to meet market demands (Martin & Wright, 2005). Clearly the passive and novice role of women with respect to computers as portrayed in computer advertisements (Johnson, Rowna & Lynch, 2006) is not indicative of reality.
Global Issues For issues related to IT education and the IT workforce, research needs to include a global perspective. There may be differences in groups not because of gender, but because of culture (Sagi, Carayannis, Dasgupta, & Thomas, 2004). When attempting to fill the pipeline and ultimately populate the IT workforce with women and other underrepresented groups, careful consideration of cultural and local contexts must be understood for successful development of interventions. For example, the NetCorps Jordan Project, an IT training project in Jordan, found that culture, context, and gender all play a significant role in who gets to do what with IT (Wheeler, 2005). These types of considerations may be particularly relevant in Middle Eastern and other countries where women do not typically work outside the home and usually have very traditional roles based on cultural contexts. In this case, offering IT training in primary and secondary schools has to be considered in the context of relevant social norms for the country in question. Much of the research on women in IT, however, has focused on a narrow view that considers mostly United States women. We cannot design interventions to help women break the IT glass ceiling without understanding the global environment. We may need to develop training programs based on the particular culture and country situation. Understanding issues such as country infrastructure, availability of the Internet, and women’s roles in society, is important to make an impact on the number of women who enter
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the IT workforce. Wheeler (2005) suggests using local people for IT training as a way to overcome cultural/country issues. Unlike the United States, some countries may not have a gendered impression of IT. For example, women in Malaysia, who often outnumber men in undergraduate and graduate programs in CS, did not perceive IT as a masculine field (Othman & Latih, 2006). Of particular note, the universities studied employed a substantial number of women faculty in CS, with women in prominent positions such as Dean or Department Chair. Clearly, the success of women in IT-related programs in Malaysia demonstrates the importance of female mentors.
Feminist Research on Women in IT Of interest to researchers is the recent emergence of feminist study as it relates to gender and IT. This research stream shifts the lens through which the topic of women and IT is viewed. As recounted by Trauth & Howcroft (2006), it is important to add the critical research approach to the well-entrenched positivist and interpretive research approaches of the past. Positivist research looks at the gender issue in order to quantify the dichotomy of the genders so that management can harness all of the firm’s resources with the goal of “optimizing efficiency and enhancing corporate effectiveness.” (p. 274). Interpretive research on gender issues looks at the why of these differences, investigating social influences and national cultures as they relate to gender identities. Such research has been seen as simply documenting the influences rather than confronting them for the purpose of change. In contrast to these two approaches, critical feminist research looks at and challenges the social and political power relations that create gender inequality. Liberal feminist study looks to IT to put women on equal footing with their male counterparts (Rosser, 2005). Cyberfeminists note women’s approximately equal use of the Internet as compared to their male counterparts, which coupled with
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women’s lower interests in and development of hardware, illustrate a female’s desire to remain connected (Rosser, 2005). Therefore, women may choose different types of career paths in IT, but they need to know about the diversity of options available to them in IT. As Miller (2005, p. 164) notes, “Integrating feminist models with traditional models may produce a computer science or cognitive science that reflects not only experiences associated with males but all the experiences associated with females.” We believe this recent and emerging approach to studying women in IT shows promise for improving the understanding of women’s motivations for pursuing IT-related degrees and the design of possible interventions to increase representation of women in IT.
INTERVENTIONS AND SOLUTIONS One basic impediment to increasing the number of persons pursuing an IT career is the pernicious stereotype of the work itself and those entering it. Thus, we characterize the field of IT itself as having a diversity problem. Many women believe that IT is associated with masculine traits, epitomized by the geeky male without a social life who works 24 hours a day while sitting in front of a computer. That homogenous view of IT does not allow women to see the various career options for IT fields. We must design interventions to encourage girls to enter the IT pipeline, mentor women in universities to persist in IT, and support women as they move through life stages in the IT workplace. We also must consider context, culture, and global issues when trying to better understand women and IT. Specifically, the following interventions can increase the number of women in IT globally: •
Educate people about the nature of IT and the variety of career choices available. Start these programs early, reaching girls in primary and secondary school programs.
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Teach teamwork explicitly in the university classroom environment (Wolfe & Alexander, 2005) to avoid a division of labor that allows men to dominate the technology portion of projects. Allow time for professional development to better balance personal and career-related needs of women in IT. Encourage the use of flexible scheduling in the IT workplace to balance work-family life. Develop organizational policies and professional codes of ethics in organizations that encourage professional career development of a diverse IT staff. Doing so should help prevent the hostile work environments that emerged from the dot-com era when young white men developed new companies consisting of a homogenous staff (Tapia, 2006). Increase the use of mentoring to encourage women to enter and persist in the IT pipeline. These mentoring endeavors should also extend into the IT workplace (Othman & Latih, 2006). On a global scale, educate men on how women can use IT to develop culturally appropriate businesses or to manage the home. The use of same-sex trainers may make it easier for women to participate in training programs in other countries. Consider the many faces of women in the IT profession (Trauth, 2002) and provide research that avoids characterizing all women as the same. Research needs to be expanded beyond its traditional focus on white, middle class, college educated women who are very different from other women.
FUTURE TRENDS We see the future of research on women in IT as having an interdisciplinary approach, including perspectives from CS, information sciences, social
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sciences, women’s studies, feminism, psychology, and education. We believe this interdisciplinary approach will allow us to better understand women and IT. We see future research as considering multiple interacting variables in addition to gender. Adya & Kaiser (2005) have provided a comprehensive and testable model of factors that influence female career choices as an excellent starting point for this research. By focusing on the many faces of women at various life stages, we will be able to provide a richer discussion of how to increase the number of women in the pipeline and who persist in IT careers.
CONCLUSION The decreasing number of girls and women participating in IT education and employment continues to be a concern. Today’s global economy presents opportunities and challenges for women in their choices of careers. This chapter has presented highlights of recent research into the causes of this decline and suggested interventions to reverse it. Clearly, the research and interventions must continue to adapt to the changing landscape of the IT field, and cross-cultural knowledge must be shared to provide a complete understanding. The future for women in IT looks brighter, broader, and more global.
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Gallivan, M. J. (2004). Examining IT professionals’ adaptation to technological change: The influence of gender and personal attributes. The Data Base for Advances in Information Systems, 35(3), 28–49. Gannon, S. (2007). Laptops and lipsticks: feminizing technology. Learning, Media and Technology, 32(1), 53–67. doi:10.1080/17439880601141260 Huynh, M. Q., Lee, J. N., & Schuldt, B. A. (2005). The insiders’ perspectives: A focus group study on gender issues in a computer-supported collaborative learning environment. Journal of Information Technology Education, 4, 237–255. Ilias, A., & Kordaki, M. (2006). Undergraduate studies in computer science and engineering: Gender issues. Inroads –. SIGCSE Bulletin, 38(2), 81–85. doi:10.1145/1138403.1138439 Johnson, N., Rowna, L., & Lynch, J. (2006). Constructions of gender in computer magazine advertisements: confronting the literature. Studies in Media & Information Literacy Education, 6(1), 1–11. doi:10.3138/sim.6.1.003 Joshi, K. D., & Schmidt, N. L. (2006). Is the information systems profession gendered? Characterization of IS professional and IS career. The Data Base for Advances in Information Systems, 37(4), 26–41. Katz, S., Allbritton, D., Aronis, J., Wilson, C., & Soffa, M. L. (2006). Gender, achievement, and persistence in an undergraduate computer science program. The Data Base for Advances in Information Systems, 37(4), 42–57. Martin, C. D. (2004). Draw a computer scientist. Inroads. SIGCSE Bulletin, 36(4), 11–12. doi:10.1145/1041624.1041628
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Martin, L., & Wright, L. T. (2005). No gender in cyberspace? Empowering entrepreneurship and innovation in female-run ICT small firms. International Journal of Entrepreneurial Behaviour & Research, 11(2), 162–178. doi:10.1108/13552550510590563 Miller, P. H. (2005). Gender and information technology: perspectives from human cognitive development. Frontiers, 26(1), 148–167. doi:10.1353/fro.2005.0007 Olivieri, L. M. (2005). High school environments and girls’ interest in computer science. Inroads, the SIGCSE Bulletin, 37 (2), 85-88. Othman, M., & Latih, R. (2006). Women in computer science: No shortage here! Communications of the ACM, 49(3), 111–114. doi:10.1145/1118178.1118185 Rosser, S. V. (2005). Through the lenses of feminist theory: Focus on women and information technology. Frontiers, 26(1), 1–23. doi:10.1353/ fro.2005.0015 Sagi, J., Carayannis, E., Dasgupta, S., & Thomas, G. (2004). ICT and business in the New Economy: Globalization and attitudes towards eCommerce. Journal of Global Information Management, 12(3), 44–64. Tapia, A. H. (2006). Hostile work environment. com: Increasing participation of underrepresented groups, lessons learned from the dot-com era. The Data Base for Advances in Information Systems, 37(4), 79–98. Trauth, E. M. (2002). Odd girl out: The individual differences perspective on women in the IT profession. Information Technology & People, 15(2), 98–117. doi:10.1108/09593840210430552 Trauth, E. M., & Howcroft, D. (2006). Critical empirical research in IS: an example of gender and the IT workforce. Information Technology & People, 19(3), 272–292. doi:10.1108/09593840610689859
Trauth, E. M., & Niederman, F. (2006). Special issue on achieving diversity in the IT workforce: Issues & interventions. The Data Base for Advances in Information Systems, 37(4), 8. Wheeler, D. L. (2005). Gender sensitivity and the drive for IT: Lessons from the NetCorps Jordan Project. The Economist, 8, 131–142. Wilson, B. C. (2006). Gender differences in types of assignments preferred: implications for computer science instruction. Journal of Educational Computing Research, 34(3), 245–255. doi:10.2190/7FLU-VKJL-86RM-5RQG Wolfe, J., & Alexander, K. P. (2005). The computer expert in mixed-gender collaborative writing groups. Journal of Business and Technical Communication, 19(2), 135–170. doi:10.1177/1050651904272978
KEY TERMS AND DEFINITIONS Computer Science: More traditional IT curriculum whose focus is technical and theoretical concepts rather than applied. Critical Research: Methodological research perspective that approaches a research question with a stated point of view. Feminist Research: Large body of research that seeks the “ideal of emancipation” of women (Trauth & Howcroft, 2006, p.273), including their relationship to technology. Interpretive Research: Methodological research perspective that attempts to describe, from a neutral perspective, the factors observed in exploring the research question under consideration. Information Systems: Curriculum which integrates technical skills and knowledge with applied business and organizational knowledge. Information Technology: Term that encompasses a range of professional positions requiring at least a baccalaureate degree in CS, IS, or closely related majors.
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Positivist Research: Methodological perspective extensively used by physical scientists and some social scientists that considers the researcher separate from the research object(s); best documented through quantitative analysis.
This work was previously published in Encyclopedia of Information Science and Technology, Second Edition, edited by Mehdi Khosrow-Pour, pp. 2216-2220, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.10
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace Fernando A. A. Lagraña Webster University Geneva, Switzerland & Grenoble École de Management, France
ABSTRACT E-mail has become the most popular communication tool in the professional environment. Electronic communications, because of their specific nature, raise a number of ethical issues: e-mail communications are distance, asynchronous, textbased, and interactive computer-mediated communications and allow for storage, retrieval, broadcast and manipulation of messages. These specificities give rise to misunderstanding, misconduct in the DOI: 10.4018/978-1-60960-587-2.ch710
absence of the interlocutors, information and mail overload, as well as privacy infringement and misuse of shared computing resources. Inexperience explains some users’ unethical behavior. Other forms of unethical behavior find their roots in corporate culture, internal competition and management styles. E-businesses, as early adopters of information and communication technologies, are being particularly exposed to such behaviors, since they rely heavily on electronic communications. They should therefore assess their internal situation and develop and enforce e-mail policies accordingly.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
INTRODUCTION The digitization of information and communication technologies (ICTs), the world-wide extension of ICT-based networks, services and applications, and in particular of the Internet and of the World Wide Web, have paved the road and made possible the correlated development of e-business. The web and the Internet have also changed the way we communicate and interrelate, both in our private sphere and in the office. During the past decade, according to a survey conducted by Dimension Data, electronic mail (email) has become the most popular communication tool in the professional environment, outpacing fixed and mobile telephony. 96% of the researched organizations declared that they offered access to e-mail in the workplace to their employees, 91% to a conventional fixed-line telephone line, and 86% to a professional mobile phone. On the user side, 99% of employees declared they were using e-mail professionally, against 80% for fixed-line telephony and 76% for mobile phone use (Dimension Data, 2007). Because of the specific nature of e-businesses, as early adopters of ICTs as the underlying infrastructure and tools supporting their business models, the trend towards a heavier usage of computer-mediated communications (CMC) and in particular e-mail is particularly visible in the e-commerce and online industry. There is little doubt that electronic communications, and in particular e-mail, have introduced a paradigm shift in management, organizational and working methods, as well as in business performance, as they have in the economy in general. While ICTs have dramatically improved businessto-business (B2B) or business-to-consumers (B2C) communications, they have also significantly impacted our day-to-day personal and professional lives. In particular, many organizations and their employees seem to have been overwhelmed by a number of issues arising from the usage of electronic communications in the professional environment.
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The adoption of technologies is not morally neutral, and the emergence of the new electronic communication systems has come along with, or has favored, new attitudes and behaviors, giving rise to new ethical concerns. Previous research on ethical issues in e-business mainly addresses the relation of e-businesses to their external environment. Issues such as data mining and profiling, customer and business-critical information protection and privacy, intellectual property rights in a digital economy, or advertizing and spamming, to name but a few, are well covered in the existing literature (Danna & Gandy, 2002; Davenport & Harris 2007; Palmer, 2005; Roman, 2007; Stead & Gilbert, 2001). However, most of the issues explored relate to B2B or B2C relations, or to e-businesses within their strategic, regulatory and legal environments. In this chapter, we should take a slightly different perspective as we shall observe business entities from the inside. Considering that business ethics and ethical behavior find their roots within the internal corporate culture and practice, this chapter focuses on the ethical issues that arise from the usage of electronic communications in the workplace, and specifically upon the use of e-mail. Ethical issues are not specific to e-business per se. However, e-businesses have specific characteristics, in particular because their model relies heavily on electronic communications, which make them more sensitive to some ethical issues, and in particular to some unethical behaviors. Focusing on interpersonal communication within organizations, this chapter will look at these issues from three different perspectives, e.g. from the managerial, employee, and interpersonal points of view. The managerial perspective addresses issues such as employee monitoring, private usage of company resources, as well as the implementation of favorable working environments and of pertinent internal policies. The employee perspective encompasses issues such as privacy, autonomy, and mail overload. Finally, the interpersonal perspective covers issues such as the role of e-mail in professional communications, mutual respect (in
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
a team or competitive environment), and misunderstanding in communications. A section of this chapter is also dedicated to the review, definition and description of the most common, although questionable on-line behaviors. The various behaviors described are also put in context of theory. In particular, three specific avenues are explored: modernity and communication with the “absent other”, the right of privacy, and information overload. In this chapter, we will consider e-mail within the theory of modernity (Giddens, 1990), and in particular how the specific characteristics of e-mail regarding space (distance) and time (asynchrony) develop a new form of communication between persons who are neither in the same location nor communicate at the same time. We will also address one of the most challenging managerial issues regarding e-mail, which is the balance between the right to privacy of the employees and the need to monitor the usage of employers’ ICT resources. And we will also tackle the issue of mail and information overload and of its consequences on performance. While exploring these theoretical considerations, the aim of this chapter is nevertheless to provide a practitioner perspective, since ultimately ethics should address behavior and not merely theory. Therefore, the last part of the chapter goes back to practice and provides some guidelines on how to address the various ethical issues arising from the usage of electronic communications in the workplace and on how to foster more ethical behavior, from a managerial, employee and interpersonal perspective.
BACKGROUND Ethics in Practice: Electronic Communications What do ethics, and business ethics, mean in terms of electronic communications? This section presents some general principles of ethics,
as well as the specific elements regarding ICTs in general and electronic communications in the workplace in particular. The purpose of ethics is to provide tools to help discern what people should do and how they should behave or, in a simplified – and possibly simplistic – way, what is good and what is bad behavior. As such, theoretical or fundamental ethics are the playing ground for philosophers and theologians and indeed, ethical theory finds its origins in various religious and philosophical views. Ethics deals with behavior, e.g. with action rather than thoughts or feelings. This is specifically relevant in the business environment. Ethics is a practice rather than a science or an epistemology. Ethics is not a science since its ultimate purpose is not to solely to develop knowledge (it is about virtues or virtuous behavior). Ethics is not simply an epistemology, which would consider each virtue as a science (by example the science of justice) and aim only at developing knowledge about these virtues (Aristotle, 1994). And ethics deals with actual behavior: as one may feel like acting in a certain way, one may also analyze the ethical “quality” of such behavior, and then decide to act in a one way or another. Only the eventual action will be considered from an ethical perspective, e.g. the action is considered from an ethical perspective rather than the thoughts, feelings or opinions. Action or behavior must be voluntary. An action taken under constraint is not subject to ethical evaluation. Furthermore, as Aristotle points out in his Eudemian Ethics, “what he [a man] does in and by ignorance, he does it involuntarily” (Chapter 9, 3). We will see later in this chapter that many e-mail users behave improperly because they do not understand the tool properly, and in such cases it is important to determine whether their action is voluntary or not. Even if their action is involuntary due to ignorance, however, we must also determine if their lack of knowledge is the result of their own negligence.
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Ethics is about how we treat each other and how we treat common resources. Demonstrating mutual respect, empathy, trying to understand each other and be understood, ensuring a proper working environment is considered ethical behavior. Getting one’s right part of shared resources (such as Internet bandwidth) rather than overusing such resources because they are provided for free, is also considered ethical behavior (Hardin, 1968; Huberman & Lukose, 1997). Ethics varies with culture (including philosophy and religion). What is acceptable behavior in one culture might be unethical or illegal in another. Legal behavior is a behavior respecting the laws in force in a specific jurisdiction (typically a national or regional territory where the behavior actually occurs). Ethical behavior is a behavior respecting the moral rules shared by a specific community (culture, philosophy, religion, nation, etc.) In our collective societies, where laws are devised to protect the common good and the smooth functioning of the communities, what is illegal is generally considered as unethical (Aristotle, 2008). On the other hand, the opposite is not directly true. We should review some examples later in this chapter, such as employee monitoring by example, which is legal, but considered by many as being unethical (Miller and Weckert, 2000). Ethics also needs to take into account what can (technically) possibly be done or not, since some behaviors depend upon technological development. It is therefore useful to understand the technical setting before addressing the correlated ethical issues (Langford, 1996). Ethics evolve with technology and in particular, since the development and usage of ICTs, new ethics issues have appeared.
What is E-Mail? The Webster’s New World College Dictionary defines electronic mail, usually abbreviated as e-mail, as a communication system used to send messages between computers or terminals con-
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nected via telecommunication networks, and in particular the Internet. E-mail(s) also refers to the messages sent through such communication systems. To e-mail refers also to the action of sending such messages.
E-Mail Structure The Internet Engineering Task Force (IETF) is the main standardization body defining the technical characteristics of the Internet. IETF standards are called RFCs (Requests for Comment) since they are produced through an open consultation process to which any expert can contribute. In its standard-setting capacity, the IETF has defined the structure of e-mail messages in RFC 5322 (IETF, 2008). E-mail messages consist of an envelope and contents, as described as follows. E-Mail Envelope The envelope contains the information needed to transmit and deliver the message. On the sender side, the envelope includes the address of the recipient(s) (Destination Address Field), which can be nominative or in the form of a distribution list. The recipients can be either primary (direct) recipients (their address will appear in the “To:” field), or secondary recipients and receive a “carbon copy” of the message (an analogy to typewritten correspondence) and their address will be listed in the “Cc:” field. The sender may also decide to send the message without disclosing the addresses of some of the recipients: this is the purpose of the “Bcc:” field. Recipients whose addresses are listed in this field will receive a “blind carbon copy” i.e. they will receive the message without the other recipients of the message knowing it. The envelope also includes the “Subject:” field, which allows the sender to inform the recipients about the subject (purpose) of the message (Example: “Subject: Trip to Biarritz”). Most e-mail user agents (the software programs used to man-
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
age e-mail) keep the subject field of incoming messages when the recipient either replies to them or forwards them to other addressees. An indication is added before the original subject in the “Subject” field, indicating that the message is a reply (Example: “Subject: Re: Trip to Biarritz”) or is forwarded (Example: “Subject: Fwd: Trip to Biarritz”). Finally, the envelope also contains the e-mail address of the sender (Originator Address Field). When the sender uses several e-mail accounts this specifically allows the sender to indicate which one of her addresses the recipients should use when replying to the message. Once the message is sent, the e-mail agent will automatically add a date and time stamp to the envelope of the outgoing message. This element will appear in the envelope of the message on the recipient side, in addition to the ones included by the sender, and with the exception of the addresses of users receiving a blind carbon copy of the message. E-Mail Body (Content) The body of the message contains the message to be transmitted to the addressees. Originally, e-mail systems only permitted the transmission of text messages. Since these early days, e-mail technology has considerably evolved and now allows users to send any type of material – documents, pictures, videos, audio files, web pages, etc. in the form of attachments or embedded in the body of the message, according to their format and nature. When the recipient of a message replies to it, or forwards it to other recipients, most e-mail agents offer the possibility to include the original message in the body of the new message to be created, in addition to the inclusion of the “Re:” and “Fwd:” elements in the subject field. Generally, e-mail agents offer the possibility to select the parameters identifying the original message (font, color, side line, indent, etc.) and differentiating it from the elements added at the later stage by the next redactor.
Why Such Details about the Nature of E-Mail? Langford (1996) considers that “what is ethically appropriate must reflect what is technically possible”. As for most electronic documents, both the envelope and the body can be electronically manipulated and altered. Practice shows that this opportunity is used (and abused) and that all of the elements of e-mail messages are subject to unethical behaviors. These behaviors can take the form of misquotes, modifications of dates, of recipient lists, and other types of alterations (forgery). The knowledge of the technical characteristics of e-mail systems hence provides the basis for the analysis of their usage.
E-Mail Specific Characteristics Communications via e-mail are characterized by a number of specific properties, which differentiate them from more traditional forms of professional communications such as typewritten correspondence – office memoranda and the like, traditional post or telephone conversations (Garton & Wellman, 1993; Akrich, Méadel & Paravel, 2000) or emerging forms of near realtime communications such as instant messaging and short-message systems.
Comparing E-Mail to Traditional Communication Media Asynchrony E-mail communications are asynchronous. This means that there is no need for the sender and the recipient to be using their e-mail systems simultaneously, contrary to telephone communications (with the exception of answering machines and more recently voicemail). E-mail systems are based on store-and-retrieve technologies. When a message is sent and reaches its destination, it is stored in a mail server, where the recipient can retrieve it at any time through a mail agent. This characteristic makes e-mail resemble the traditional typewritten and postal correspondence.
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E-mail asynchrony gives the false impression that e-mail users can read and manage their messages at the time they freely choose. While this might be true in theory, practice shows that asynchrony may be a cause of mail overload. Since most e-mail systems offer remote access through the Internet, asynchrony also contributes to blurring the barriers between home and office time. Interactivity and Instantaneity E-mail systems allow near real-time interactive communications, in particular within the immediate (company-wide) professional environment. Modern businesses, and in particular e-businesses, are organized around an underlying broadband high-speed telecommunication infrastructure which allows quasi-instantaneous transmission and reception of e-mail messages (at least textonly messages). This instantaneity of e-mail communications can be used for interactive, conversation-like communications, organized in “threads”. Instantaneity of e-mail makes e-mail communication similar to face-to-face communications, at least in terms of chronology. This explains why some users consider e-mail as short-lived, or transitory. However, once written and sent, e-mail messages are stored, archived and can be retrieved, re-used, as well as forwarded with practically no limit in time. Broadcast and Narrowcast The envelope of the e-mail message allows for several Destination Address Fields, giving the sender the possibility to define addressees at will. Messages can be sent to individual addresses (narrowcast), or to distribution lists, mail exploders (generic addresses which forward received mails automatically), and newsgroups, etc. (broadcast). This makes it possible to send or forward any message to a virtually unlimited number of recipients, as long as their e-mail addresses are available to the originator.
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This raises the ethical concern of privacy, or more precisely the issue of private communication. When sending a message to a single recipient, a user may genuinely consider being engaged in a private conversation. However, it frequently happens that such “private” e-mail messages, sent “for your eyes only” are broadcast to a wider audience, voluntarily or not. Similar cases also occur when the “Reply to all” feature of e-mail messaging is used improperly. Storage Since e-mail systems are based on store-andretrieve technology, storage of e-mail messages is an integral part of e-mail services, as it is ensured and guaranteed even before recipients open the messages they receive. Compared to traditional communications systems, such as typewritten correspondence and telephony, e-mail systems offer safe and easy-to-use storage facilities to their users. Further, because of the electronic nature of e-mail, indexing, sorting and retrieving e-mail messages is far more efficient, fast and reliable. In the professional environment, the storage and archiving of e-mail servers are provided and controlled by the employer, generally through the corporate information system service. This raises the ethical issue of privacy infringement by individuals having privileged access to employee correspondence, either for managerial or technical reasons. Text-Based Despite the fact that new developments allow the inclusion in e-mail messages of any type documents, including audio, still and moving pictures (video) attachments, e-mail is and remains essentially a text-based medium. This raises the issue of user articulation, and their ability to get their message across properly in a written form of communication, in order to avoid misunderstanding or emotion escalation. This is particularly true in multicultural environ-
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
ments, when backgrounds, languages or levels of education vary among users. Why Elaborate on these Technical Characteristics? In the mid 1990s, the specific characteristics of e-mail were considered, with good reason, a considerable technological advance and even a paradigm shift in computer-mediated communications, which was making McLuhan’s metaphor of the global village a reality (McLuhan, 1962). A number of economies engaged in vast development programs of the then called information highways. E-mail was coined as the “killer” application, while traditional mail was labeled “snail” mail. With its apparent user-friendliness and its low cost, e-mail was considered to be the solution for modern communications. However, as we shall analyze later in this chapter, the specific characteristics of e-mail, its differences, as well as sometimes its similarities with other communication media, are exposing e-mail users to a number of drawbacks and harmful experiences. Still, before exploring these aspects, further development is needed regarding the specific challenges facing e-mail as an interpersonal communication tool.
E-Mail Communications: The Challenges The Main Challenge of Communications: Misunderstanding In 1872, the widely applauded French writer Gustave Flaubert – famous for his novel Madame Bovary, wrote in a letter to an unknown female friend of his: We are all in a desert. Nobody understands anybody (“Nous sommes tous dans un désert. Personne ne comprend personne.”). However, the feeling of loneliness and of unavoidable misunderstanding is not limited to romantic writers and desperate artists looking for
a friendly soul. Rather than being an exception, misunderstanding in communications, and in particular in telecommunications (etymologically “distance communications”), is the common rule (Karsenty, 2008). Definitions and Causes Humphrey-Jones (1986) defines misunderstanding as the failure of an attempt of communication which occurs because what the speaker wants to express differs from what the listener believes has been expressed (mentioned in House, Kasper & Ross (2003)). For Weigand (1999), misunderstanding is a kind of understanding which deviates partially or totally from what the speaker wanted to communicate. This is a real challenge in the professional environment, since communication occupies a central place at work (Karsenty & Lacoste, 2004). Organizations should therefore pay particular attention to misunderstandings and their consequences and should do their best to avoid them. Studies in workplace communication ergonomics have identified three main causes for misunderstanding (Falzon, 1989): a. The absence of a properly operational communication channel, b. The absence of a common vocabulary, and c. An exclusive information context. Firstly, misunderstanding may occur if the communication channel doesn’t offer the proper level of quality of service and doesn’t preserve the integrity of the message across the system boundary. In such instances, the syntax of the message is not preserved (Carlile, 2002). While this is obviously a challenge for e-mail communications, we should assume that e-businesses are supported by proper communication systems, where the information is carried over the networks and the communication channels without physical alteration.
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Secondly, more challenging and frequent are instances when the recipient doesn’t understand the semantics of the message, its intended meaning. According to Karsenty, this happens in the majority of communications (Karsenty, 2008). For example, there is general agreement on the fact that intercultural communication might generate misunderstanding (Bennett, 1998), in particular when cultural differences include the usage of different languages. Different communication styles, linked to different cultures, may also generate difficulties (House, 2003), as may differences in competence areas or in levels of competence (Enquist & Makrygiannis, 1998). Thirdly, an exclusive information context may occur when the sender and the recipient are in different functional units, or at different levels of responsibility, or simply don’t have access to the same sources of information. These instances may occur when some individuals decide to retain information, when managerial policy segregates the access to certain information according to the position in the company, or when the corporate cultural is such that there is a clear separation among different units or departments (production and marketing, administration and design, etc.) (Peyrelong & Accart, 2002; Sproull & Kiesler, 1986). Typical examples are communications where some participants don’t have access to sensitive information that a company is not willing to disseminate. In addition to these causes of misunderstanding, Karsenty (2008) has identified a number of situations which facilitate misunderstanding, including: a. Distance communications, when the interlocutors don’t share the same visual perception of the physical environment. b. Asynchronous communications, which reduce the possibilities of direct interactions to control mutual understanding. These include
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all business communications using paper or electronic media. c. Communications between individuals with different areas and/or levels of competence. d. Man-machine communications. As e-mail communications combine these four characteristics, the probability of misunderstanding when using this channel is high. Mutual comprehension is the first step towards mutual respect. By offering a favorable ground to misunderstanding, e-mail communications may constitute a barrier to a proper dialogue, and hinder the establishment of a climate of confidence and mutual respect. Therefore, users of electronic communications must be particularly vigilant to ensure that their messages come properly across, and are not misunderstood or misinterpreted. Furthermore, e-mail recipients must ensure that they carefully read and properly understand the messages they receive. Rogers and Kinget (1966) consider that the best attitude to establish the proper communication climate, is the one of empathetic communication, where each interlocutor makes all possible efforts to ensure that he understands the other properly, and that the messages received are interpreted as positively as possible.
Three Specific Challenges of Computer-Mediated Communications Among the various challenges facing organizations using computer-mediated communications, this chapter explores three specific avenues. The first section explores how e-mail illustrates the theory of modernity developed by Anthony Giddens (1990) and what lessons can be learned from this theory and applied to electronic communications. The second section explores a typical issue of e-mail, mail overload. The third section elaborates on an issue of high ethical interest, the right to privacy.
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
Modernity and Communication with the Absent Other A characteristic of distance asynchronous communications such as e-mail is the absence, both in time and space, of the interlocutor. In other words, when one redacts an e-mail message, the recipient of the message is neither physically present (absence in space), nor reading the message while the redactor is drafting it (absence in time). Giddens (1990) considers this situation as the essence of modernity. Modernity is characterized by a separation of time and space, and by the further separation of space from place, where place should be understood in geographical and physical terms, while space should be approached in functional and environmental terms. This separation is perfectly reflected in the nature of e-mail. E-mail communications “foster relations between ‘absent others’, locally distant from any given situation of face-to-face communication” (p. 18). Modern organizations need to adapt themselves to this new societal paradigm, and have to renew their forms of coordination and cooperation, not only because they operate in multiple sites and locations, but also because in single campuses, they manage an increasing number of employees who act as ‘absent others’ linked by electronic communications systems. In modern societies, the separation of space and place and the communication with the absent other, rather than being an exception, becomes common behavior. A notable consequence is that face-to-face communications, particularly in the workplace, are replaced by computer-mediated communications, such as e-mail (SarbaughThompson & Feldman, 1998), and that the overall volume of all forms of communication decreases. Therefore, co-workers communicate less, and do so through communication channels that expose them to a higher level of misunderstanding. Communicating with absent others by e-mail does not only increase the risk of misunderstanding. It also affects the quality of the interpersonal communication. E-mail communications are
essentially text-based. This makes this medium less “rich” than other forms of communication (Carnevale & Probst, 1997). A major drawback is the lack of non-verbal cues, which makes it very difficult to communicate emotions (Byron, 2008). In face-to-face communications, the interlocutors use body language such as head nodding, eye contact, smile, or any types of gestures or corporal attitudes to provide elements of information in addition to the verbal message. This is also partially true in phone conversations, where speed, intonation, pauses can transmit emotions and meta-information. However, this is not possible in e-mail. This difficulty may lead to conflict escalation (Friedman & Currall, 2003) because of the instantaneity and interactivity of e-mail, technical characteristics which didn’t exist at the time of postal or typewritten communication, which were much slower communication channels (See Table 1). Sproull & Kiesler note that e-mail does also provide weak social context cues, and that people focus more on themselves than on others when drafting messages, thus making empathic communication less probable. Further, as we become less aware of our audience, we become secure in our anonymity and less bound by social norms Table 1. Specific properties of e-mail compared to traditional communication media Medium
E-mail
Mail
Phone
Asynchrony
Yes
Yes
Noa)
Instantaneity
High
No
Highest
Interactivity
High
Low
Highest
Broadcast
Yes
Yes (Mailing)
Low (Teleconference)
Electronic
Manual
Recording
Manipulation
Natural
Possible
No
Text-based
Yes
Yes
No
Properties
Storage
a)
With the exception of answering machines and voicemail.
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(Lea & Spears, 1991). For example, employees have a tendency to be less formal and respectful to their supervisors when they communicate by e-mail, compared to face-to-face conversations. These characteristics may affect mutual respect as well as the way coworkers – both employees and employers – treat each other, in the professional context, a common concern in business ethics research. Ethical behavior encompasses making efforts to be understood by the recipients of one’s messages and considering positively the messages one receives. This also implies mutual respect, even when the interlocutor is an “absent other”. Mail Overload In January 2008, a Canadian government ministry sent out a directive to its employees urging them to relax and not to use their Blackberry® at night or on weekends and holidays, and asking them to implement a Blackberry® “blackout” from 7 p.m. to 7 a.m. In the memorandum sent to all staff of the department, Deputy Minister Richard Fadden wrote: “Work/life quality is a priority for me and this organization because achieving it benefits us both as individuals and as a department.” (Fadden, 2008) In April 2007, venture capitalist Fred Wilson declared a 21st century kind of bankruptcy. He declared on his blog: “I am so far behind on e-mail that I am declaring bankruptcy. If you’ve sent me an e-mail… you might want to send it again. I am starting over.” These real-life examples illustrate some possible measures against a growing phenomenon: mail overload. The number of e-mail messages is one factor cited by many people as a cause of professional overload (Edmunds & Morris, 2000). E-mail becomes a potential stressor in itself, in addition to being a stress conduit (Taylor, Fieldman & Altman, 2008), because of the amount of effort that an employee must deploy to reduce superfluous information to a manageable level (Dawley & Anthony, 2003), and because overload goes generally is accompanied by a perception of ur-
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gency (Isaac, Campoy & Kalika, 2007). The more a user has to dig into an unmanageable number of e-mail messages, the higher the urgency, the more difficult it is to act in a reflexive, reasoned way, the higher the stress. There is no virtuous cycle here, and Taylor, Fieldman & Altman show that an unbalanced use of e-mail may have an adverse impact upon well-being, stress and productivity. As illustrated by the case of the Canadian government ministry, one response to mail overload is to deal with e-mail messages from home during the weekend, a way of doing called “weekend catchup”. This is facilitated by the ubiquity of ICTs. Nowadays, nothing is easier than connecting to the office environment from home and doing some work on-line. Since late 2006, PricewaterhouseCoopers employees logging on to work e-mail on Saturdays and Sundays have been greeted with a pop-up window that says: “It’s the weekend. Help reduce weekend e-mail overload for both you and your colleagues by working off-line.” The alert adds that workers who want to get a head start on writing messages should hold off sending them until Monday unless urgent. “By sending an e-mail,” says Human Resources Communications Director Geneviève Girault, “you’re encouraging… people to respond.” (McGregor, 2008). These various examples drawn from practice demonstrate a particular phenomenon: e-mail overload is generally not generated by spam, e.g. unsolicited e-mail messages from external sources. Its origins are to be found inside the organization. Most of these messages come from colleagues, supervisors, etc. In an analogy with the concept of “friendly fire”, we should call this concept “friendly spam”: friendly spam originators are coworkers rather than external correspondents. Unethical behavior may come from a lack of expertise in the use of technology. In that sense, not providing appropriate e-mail training or not investing in one’s ability to use e-mail properly can also be considered as unethical behavior, by not respecting the principle of precaution to avoid harmful consequences of one’s poor performance.
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
The Right to Privacy Ethical concerns about privacy are relatively recent in the history of ethical theory. This concept could probably not appear in the founding texts on ethics of the Greek philosophers such as Aristotle or the stoics, at the time when the philosophical theoria was cosmos-centric rather than human- or individual-centric (Ferry, 2006). It could however have been present during the 18th century in the work of the humanists and founding fathers of the modern philosophy such as Jean-Jacques Rousseau. Surprisingly, it wasn’t, and this issue was first explored in the second part of the 19th century (Warren & Brandeis, 1890), when the right “to be let alone” was eventually recognized, discussed, and protected. Since then the right to privacy has become a major moral right. Miller and Weckert (2000) consider that there is a fundamental moral obligation to respect the individual’s right to privacy. Concerns regarding privacy protection and infringement have grown with the development of ICTs, and the fact that technology advances facilitate new unethical behaviors (Loch, Conger & Oz, 1998), by the ability to collect personal data and private information. Moor (1990) defines privacy as the fact that “an individual has privacy if and only if information related to this individual is protected from intrusion, observation and surveillance by others.” (Moor, 1990, p.76) On-line businesses are early adopters and articulate users of electronic communications. During the last two decades, the technology in use has gradually moved from telephony to on-line communication systems, and in particular e-mail, for internal and external communications, and thus for daily activities of employees. This has been accompanied by a change in the “philosophy of privacy”. While telephone and postal systems favor the individual right to privacy through the secret of correspondence, company rights tend to prevail in e-mail systems, and limitations to individuals’ privacy are common. Since ICTs provide new tools for employers to monitor employees’
computer and e-mail usage, the ethical challenge is high. How can the willingness to monitor employees’ performance and activity – through the monitoring of their computer and e-mail usage – be balanced with the individual’s right to privacy? From a managerial perspective, one should have a close look into the matter. Nussbaum and DuRivage (1986) note that computer monitoring increases worker stress, reduces job satisfaction, and ultimately goes against the management goal of increased productivity. Langford (1996) argues that the Internet was created and developed around a paradigm of freedom and that Internet users are resisting external control. Therefore, while managers have a legitimate right to monitor work, they shouldn’t be allowed to monitor workers. Miller and Weckert (2000) conclude: “employing people does not confer the right to monitor their private conversations, whether those conversations be in person or via e-mail”.
A Managerial Perspective: Internet as a Shared Resource While on the one hand employees may raise concerns regarding their legitimate right to privacy, on the other hand employers may have parallel concerns regarding the usage of company resources for private purposes. According to a recent study (Monster, 2009), more than half of the European employees send personal e-mail or surf the Internet during working hours. While it is almost impossible to avoid private usage of computer resources in the workplace, employees must be aware of the limitations set up by their employers. The most efficient way of doing so is to develop and enforce an appropriate policy (Womack, L., Braswell, D. E., & Harmon, W. K., 2004), clearly indicating the objectives of the employers in developing such policy, generally to protect company resources, data, and image. Improper behaviors should be explicitly designated, such as the access, storage and dis-
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Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
semination of material that is inappropriate or illegal, by example:
personal attitude or a corporate culture. Finally, we propose several types of possible solutions.
a. language, messages, or other material that are fraudulent, obscene, abusive, derogatory, or inflammatory, b. material that is pornographic or sexually explicit, c. material promoting sexual exploitation, discrimination, racism, hate, or violence, d. information concerning gambling, drugs or weapons, e. material which violates copyright or intellectual property rights.
Definitions & Descriptions
A balance must be struck the company’s interests and the rights of its employees. Again, ethical behavior is tempered behavior, with the right mix of rights and obligations.
COMMON UNETHICAL BEHAVIORS IN E-MAIL USAGE In the previous section, we considered general challenges facing e-mail communications: abuse of shared resources, misunderstanding, mail overload, privacy infringement, or usage of company resources for private matters. In this section, we provide an analysis of the most common unethical behaviors found in e-mail practice, based on a review of literature, general and business press, as well as on the analysis of the author’s own experience in the field of ICTs. A variety of unethical behaviors identified by practice are presented, including a short definition, description and/or comment. Table 2 intends to categorize these behaviors in relation to the e-mail challenges described in the previous section, and introduces the issue of mutual respect. We then discuss whether these behaviors are unethical or not, if they are intentional or denote an inexperience in the usage of e-mail, and if they denote a
2010
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[Harmful] Address Disclosure: Harmful Address Disclosure occurs when someone discloses someone else’s e-mail address for harmful purpose, by example by subscribing the address owner to an on-line newsletter or to an advertisement site, with a view to have him/her receiving spam, and eventually making his/her mailbox unmanageable. Ambiguity: Ambiguity occurs when the sender of a message has intentionally drafted it ambiguously, with a view to create delays, to cause confusion, or to mislead the message recipient(s). Generally, a sender of such a message would later claim that the message was crystal clear. [E-mail] Bankruptcy: Bankruptcy occurs when someone is submerged underneath an endless pile of e-mail messages in the inbox and considers that the only way out is to declare e-mail bankruptcy, e.g. to delete all messages from the inbox and (preferably) to inform all message senders of what has occurred. Informing the senders of the deleted messages is considered a form of respect. Broadcast: Broadcast occurs when someone sends a message to too many addressees, including those who might have only a marginal interest in the content of the email. This creates overload, demonstrates poor self-confidence and lack of respect towards the recipients. Broadcast is a cause of friendly spam. “CC”: The CC: (or BCC:) lists of recipients are dangerous tools. Some senders use these lists to exercise pressure on, or discredit the recipients through undue broadcast or indirect power flaunting (the most
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
Table 2. Categorizing e-mail unethical behaviors according to their potential organizational impact Misusing Shared Common Resources
Misusing Mail for Emotional Discussions
Generating E-mail overload
Lacking Mutual Respect
Generating Time Pressure
Creating Misunderstanding
2
2
1
Address Disclosure
1
Ambiguity
2
Bankruptcy
1
2
1
2
Broadcast
a)
1
CC:
2
1
Click & Rush
2
1
1
Confusion
2
1
2
Debate
1
1
Denial
1
2
Delay
1
2
1
Fast Forward 1
Flaming
2
1
Forgery
1
Gossip
1
Grammar
2
1
1
2
Humor Infection
1
2
Indifference
1
Interpretation
2
Masquerade
1
Misidentification
1
Misquote
1
Omission
1 2
Power Flaunting Reply (to All) Sarcasm
2
1 2
1 1
2
2 1
Sent (by Mistake)
1
Silence
1
Thank You Mails
1
Weekend Catch-Up
1
2
2
b)
Bankruptcy is a consequence, rather than a cause of e-mail overload. Weekend Catch-Up is both a consequence and a cause of e-mail overload. 1: Primary (high) impact 2: Secondary (lower) impact
a)
b)
common application in that case being to copy the recipient’s direct supervisor). In most cultures, this behavior is considered as a lack of maturity, professionalism and
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self-confidence. It is also considered to be offensive. Click and Rush: Click and Rush occurs when the author of message rushes (physi-
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Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
•
•
•
•
2012
cally) to the office of the intended recipient immediately after having clicked on the “Send” button, or immediately calls the intended recipient, “to check if [the recipient] has received the message”, possibly to discuss it. This behavior denotes a certain (possibly cultural) attitude towards time, and specifically the fact that the originator of the message doesn’t consider e-mail as an asynchronous communication channel. This behavior creates disruptions in the recipient’s agenda, overload, and might be perceived as a lack of respect. Confusion: Confusion occurs when the recipient of a message voluntarily pretends not to understand the content or substance of a received message, when he/she actually does. This behavior is in essence comparable to denial. It may generate overload and put time pressure on the originator of the message who would have to draft the message again or find another communication channel to get understood. Debate: Debate occurs when correspondents start an e-mail discussion and pursue it for too long. E-mail is a poor communication channel for debating, in particular when issues are complex, emotional (see Flaming), or when correspondents don’t know each other well. Denial (of receipt): Denial occurs when the recipient of an e-mail message wrongly and intentionally claims that he or she has not received the message. The recipient may then claim by example that he/she couldn’t complete an action or an instruction because he/she was not aware of the message. [Message] Delay: Delay occurs when the sender of a message intentionally delays delivering a message in order to deprive its intended recipient with time-critical information, with a view to have the recipient loose an opportunity, face, or credit. The
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sender generally claims afterwards that the recipient was indeed properly informed, that the delay might have occurred because of a server breakdown, or for any other reason out of his/her control. Fast Forward: Fast Forward occurs when the participant to a thread (a series of messages on the same topic), forwards the whole content of a message (including the historical elements of the discussion still visible at the bottom of the message), to a third party, e.g. a recipient who was not involved in the thread. This action can be intentional or by mistake, but may generate embarrassing situation, when someone should for example be informed of the result of a discussion, but not of its content. Flaming: Flaming is the act of posting or sending offensive (angry, insulting) messages. Such messages are called “flames”. They generally appear in discussion forums. They may nevertheless appear when people use e-mail for debates. Forgery: Forgery occurs when someone voluntary modifies the meta-information of a message before forwarding it, by modifying the date, time, author, subject, routing, list of recipients of the message, with the purpose to abuse the recipient(s). This highly unethical behavior denotes generally a potential conflict within the organization. Gossip: We all know what gossip is about. While gossip can’t probably be avoided around a coffee machine, it should never be transmitted in writing by e-mail. And in particular, gossip shouldn’t be broadcast. Grammar: Should grammar be included in the list of ethical issues? If the purpose of e-mail is to communicate properly, we may agree. Poor grammar may create misunderstanding. In certain cultures, it might also be consider as a lack of respect to the recipient(s), in particular for those who
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
•
•
•
•
•
•
consider that e-mail is really a written form of communication. Humor: Humor is a difficult issue. How would someone consider that humor is unethical? Pierre Desproges, a famous French humorist, once said: “One can laugh about anything, but not with everyone”. One culture’s humor might be offending to another culture. One individual’s humor might be offensive to many others. Infection: Infection occurs when a message contains viruses. Checking regularly for viruses is not only good for one’s computer; this is also a sign of respect for one’s correspondents. Indifference: Indifference is a new form of power flaunting, which has appeared with the introduction of electronic communications. Indifference takes the form of “cold”, emotionless messages, that employees receive providing them with carrier-critical information, including transfer(s) and termination. In traditional management such information would only have been transmitted in person. Interpretation: Interpretation of e-mail messages is probably the most important and the most difficult task in electronic communications and often leads to misunderstanding. A proper (ethical) behavior would be to interpret e-mail messages as positively as possible. Masquerade: Masquerade occurs when someone uses another’s e-mail account, without permission, to send messages, for the purpose of deceiving the recipient(s) by pretending to be the owner of the account. In some countries, masquerade is illegal, as a form of identity theft. Misidentification: Misidentification occurs when someone intentionally provides a wrong address to a correspondent, to avoid (or slow down) further communication with this correspondent.
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•
•
•
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Misquote: Misquote occurs when the recipient of a message alters and uses part of it, without clearly indicating the modifications (deletions, replacements, adjunctions), with a view to transform the original message of the sender for whatever reason (by example to use the result for one’s own credit or to discredit the sender of the original message). Modifications in messages should be clearly indicated by using ellipsis […] or keywords such as <snip>, or short clarifications. [Abusive] Omission: Omission occurs when the sender of an e-mail message intentionally omits someone from the list of recipients. This frequently happens in competitive environments, when missioncritical information is shared among mission stakeholders, and someone intentionally excludes one (or several) of them. Power Flaunting: Power flaunting occurs when the sender of message reminds overtly the recipient(s) that he or she has organizational power that he/she might exercise (on all or some of them). In most organizational cultures, this behavior hurts, in several cultures, it is considered as offending and unethical. Reply (to All): Reply to all is probably used under time pressure as a way to act fast and easily. It is justified in some cases but unnecessary in most communications. Using it with parsimony is a sign of respect to (potential) recipients and avoids increasing inboxes (and servers) overload. Sarcasm: Sarcasm is usually obvious in face-to-face or co-presence conversation, because the interlocutors are able to provide emotional signals through verbal (voice tone) and body language. E-mail is a poor communication channel when nonverbal cues are needed to interpret the substantial message.
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Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
•
•
•
•
Sent (by Mistake): This occurs when someone sends an embarrassing message to a number of recipients, with a view to cause harm to someone (generally a colleague of same or lower rank), and then pretends that this happened by accident (an excuse that few will consider true…) This happens quite often indeed with the “Forward” button, rather than with the “Send” one, thus reinforcing the fact that one should think twice before sending a message. Checking the content of all messages to be sent and the list of recipients is a must. Silence: Silence occurs when someone deliberately doesn’t answer to someone else’s communications (e.g. e-mail), with a view to give offence, or simply to ignore the (justified) requests from the other person. The offence is even worse when the individual who didn’t answer to the messages later claims that he/she actually did reply. Thank You: Thank You e-mail messages are generally sent to all incoming message recipients, and have generally the same effects as reply to all. Unfortunately, a number of e-mail users still consider necessary to send such messages, thus adding to overload. Weekend Catch up: Using weekends to catch up on the week e-mail overload has become usual business practice for many employees (and managers). Some organizations are nevertheless making attempts to discourage such behavior.
Table 2 provides an overview of the various unethical behaviors described in this section and of their potential consequences. a. Misusing shared common resources: refers to an abuse of the available resources, such
2014
b.
c.
d.
e.
f.
as bandwidth, memory, or the network and the infrastructure in general. Misusing e-mail (for emotional resources): denotes a poor usage of a communication channel for communications that should be run over another medium or face-to-face. Generating mail overload: multiplying inappropriately the volume of e-mail, thus creating e-mail and information overload. Lacking mutual respect: misbehaving through the usage of e-mail, thus demonstrating a lack of respect towards the others. Generating time pressure: voluntary or accidental behavior putting too much pressure on the mail recipients by misusing this channel. Creating misunderstanding: all types of behaviors that can lead to misunderstanding.
Unethical Behavior or Inexperience? As noted by Langford, misuse of e-mail can be explained by inexperience. Originally, e-mail was not developed for the general public and few users take Netiquette or e-mail ethics lessons before clicking the “send” button. As previously noted, behavior is typically only viewed as unethical if it is voluntary. Therefore, one might argue that most behaviors listed in the previous section are a result of poor training, or poor understanding of computer-mediated communications. While this might be true for personal communications and the general public, this is no longer acceptable in the professional environment. Business management must ensure that appropriate training is provided to their staff, and their employees must make all efforts to acquire proper knowledge. By not doing so, both managers and employees expose themselves to unethical behaviors. Inexperience: within the list of behaviors described in the previous sections, broadcast, cc:, click and rush, debate, reply to all, and thank you mails denote a lack of understanding of the
Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
nature of e-mail as a communication channel and the inexperience of the user. Cultural Ignorance: Behaviors described as ambiguity, grammar, gossip, humor, interpretation, or sarcasm can be particularly disturbing in multicultural environments and denote the inexperience of the user as well. Harmful Voluntary Behavior: Actions such as address disclosure, delay, forgery, masquerade, misquote, sent by mistake, denote tense relationships in the working environment. These might the result from the management style, of corporate policies such as internal competition, and must be addressed by management: are corporate cultures fostering unethical behavior? Managerial Aggressive E-mail Usage: Attitudes such as power flaunting, omission or sarcasm are generally the result of management style and corporate culture. They may affect staff morale, motivation and performance, and must be addressed properly. Interpersonal Aggressive E-mail Usage: Behaviors such as angry discussions, lengthy debates, and flaming between peers and colleagues can be resolved at the direct supervisor level. Common sense and management authority generally suffice to stop escalation. Overload: Finally, management should take careful action regarding the risks of mail overload and of its impact on staff performance, staff morale, as well as on home/work balance. The above-mentioned behaviors, actions or situations might be addressed by a combination of technical training and of management guidelines. For example, on-site technical training or e-learning modules could help employees use e-mail more efficiently and avoid behaviors resulting from senders’ inexperience. Internal policies should aim at addressing behaviors and attitudes such harmful or aggressive e-mail usage by indicating clearly what is acceptable and more specifically what is considered unacceptable behavior in the organization. Also, in organizations where some staff may have privileged access to private, con-
fidential and or business-critical data (such as IT personnel), policies must be developed to ensure no misuse of this date, by example through the development of codes of conduct. Multicultural organizations should foster interpersonal communications and develop an internal culture of mutual respect and of cultural awareness. Finally, managerial guidelines should address issues such as work/life balance and help avoiding mail overload.
FUTURE RESEARCH DIRECTIONS This paper is essentially based on existing literature, available information about core business practices, and industry experience. It develops several hypotheses regarding the links between unethical behaviors and e-mail specific characteristics. It doesn’t provide broad empirical and quantitative evidence of these hypotheses. Future research may concentrate in getting appropriate quantitative data. This paper focuses on entities having a thorough knowledge and practice of electronic communications, in particular e-mail. Future research may also address other types of entities, followers rather than early adopters, which are not so familiar with ICTs, and may present other business and staff profiles. Future research should also tackle business segments more sensitive to misunderstanding in communications, for instance in the legal or diplomatic field.
CONCLUSION Electronic communications have provided new tools to support and develop e-businesses. These communication channels also raise new ethical challenges. Companies who will address these challenges properly will get the trust and respect of their stakeholders – customers, employees, managers and owners, as well as the general public and policy makers. Their brand and reputation will be
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Ethical Issues Arising from the Usage of Electronic Communications in the Workplace
reinforced, a must in e-business, where viral and customer-lead marketing is commonplace. They will also gain a competitive advantage, with enhanced staff morale, dedication and productivity. Ethics find its roots at the top: managing by example, carefully assessing the internal communication scheme, developing and enforcing proper e-mail policies, are steps that modern ebusinesses must engage in, if they want to achieve their corporate responsibility goals as well as their commercial objectives.
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Stead, B. A., & Gilbert, J. (2001). Ethical Issues in Electronic Commerce. Journal of Business Ethics, 34, 75–85. doi:10.1023/A:1012266020988
This work was previously published in Ethical Issues in E-Business: Models and Frameworks, edited by Daniel E. Palmer, pp. 200-219, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 7.11
Ethics in E-Marketing: A Marketing Mix Perspective Erkan Özdemir Uludag University, Turkey
ABSTRACT Some of the ethical issues experienced in traditional marketing practices are encountered in those of e-marketing as well. However, e-marketing practices raise specific new and different ethical issues as well. For instance, new forms of dynamic pricing, spam email advertising, and the use of tracking cookies for commercial purposes have all raised ethical issues. These issues can be examined from the perspective of such components of the traditional marketing mix as product, price, place and promotion, which are under the control of marketing executives. As such, an awareness DOI: 10.4018/978-1-60960-587-2.ch711
of the ethical issues in e-marketing under the control of marketing executives is central to the realization of an ethical climate in e-businesses. The aim of this chapter is to present a critical analysis of ethical issues in e-commerce in relation to the marketing mix. The topics discussed within this framework will be enlightening for the ethical decision making process and practices of e-marketing.
INTRODUCTION As use of the Internet becomes more widespread, businesses are taking advantage of this media to reach prospective customers and offer them prod-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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ucts and services. While some businesses conduct part of their activities on the Internet, others carry out nearly all of their business transactions over the Internet. Therefore, e-marketing currently constitutes a significant part of marketing activities of businesses (Krishnamurthy, 2006). Indeed, it is no longer a choice, but in fact has become a necessity for businesses to engage in e-commerce. The Internet now represents a market place that exists in tandem with more traditional markets. This alternative shopping environment is drawing many businesses onto the online world and, as such, the competition on the Internet is inevitably increasing (Kim & Kim, 2004). However along with new opportunities for commerce, the Internet, as a new business environment, also brings along new opportunities for unethical behavior. Further, the global aspect of the internet makes it difficult to implement legal codes, since e-commerce spans national jurisdictions. As such, it becomes all the more important for businesses to establish ethical codes on issues and to train their employees in ethical decision making. Ethical issues typically discussed in relation to in e-business include information security, privacy, and intellectual property (Caudill & Murphy, 2000; Foxman & Kilcoyne, 1993; Franzak et al., 2001; Kelly & Rowland, 2000; Maury & Kleiner, 2002; Milne, 2000; Rodin, 2001; and Stead & Gilbert, 2001). In addition to these commonly discussed topics, the competitive nature of e-business also raises a number of ethical issues specific to marketing. Indeed, the business function in which unethical practices are most likely to be recurrent in e-businesses is that of marketing. Marketing, the most important outward looking department of businesses, unlike the other business functions, mediates between consumers, shareholders, suppliers and other stakeholders. This external role of marketing and stakeholder pressures cause unethical practices to emerge more in marketing (Chonko, 1995). Therefore, the managers most likely to face ethical dilemmas are those involved in marketing. The same is true in the context of
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e-businesses as well. It is because businesses that transfer their own practices onto the internet have chances to reach more online consumers that intense competition continues to be the case in the medium of internet as well. Factors such as the features unique to e-commerce, the intense competition on internet, the insufficiency of the regulations regarding the internet, information security, and privacy also contribute to the rise of the ethical dilemmas of e-marketing executives who take on the role of customer representatives within the business. Marketers can only build mutual valuable relationships with their customers through the process of confidence-based cooperation. E-businesses that create and nurture trust may make it more likely for online customers to visit their web sites again (Dayal et al., 1999). Some of the studies done on this subject also justify this particular suggestion. For instance, in their study, Roman and Cuestas (2008) found that in comparison to traditional shopping, when online consumers perceived higher risks, they were less willing to do online purchasing. Another interesting result in their study is related to the fact that the experienced internet users were better at distinguishing “ethical” web sites in comparison to inexperienced ones. In another study, Roman (2007) found that security, privacy, non-deception and fulfillment/ reliability were the powerful predictors of satisfaction and trust of online consumers. Therefore, the establishment of trust is essential to successful e-businesses. The aim of this chapter is to examine the ethical issues encountered by e-marketers in e-businesses with regards to the elements of the marketing mix and to offer some solutions and suggestions to these ethical issues in e-marketing. In order to realize this aim, the nature of ethics, e-marketing ethics, stakeholder relations, and ethical theories are reviewed first. Then, the ethical issues in emarketing are discussed in terms of the elements of the marketing mix. Finally, in the concluding
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section, some suggestions regarding how to deal with ethical issues in e-marketing are offered.
BACKGROUND: ETHICS AND E-MARKETING, STAKEHOLDERS, AND ETHICAL THEORIES Ethics and E-Marketing The aim of marketing in business is to appeal to the wants and needs of potential customers in promoting the products of a business. In order to realize this aim, the e-marketing executives, first of all choose their target markets, and then plan the marketing mix consisting of product, price, place and promotion. The marketing mix can be defined as the set of controllable marketing variables that consists of the blend of these four strategy elements meeting the wants and needs of the target market (Boone & Kurtz, 1995; Kotler & Armstrong, 1991). The marketing mix, one of the basic concepts of modern marketing, was for the first time defined as the four Ps by Jerome McCarthy (1964). During the same period of time, Borden (1964) designated twelve elements of marketing mix consisting of sub-mixes within each P. The marketing mix classification made by McCarthy is still pertinent today despite many advances in marketing thought and conceptualization (Yudelson, 1999). Simplicity of use and understanding has helped this classification be widely used and appreciated by executives and academicians (Dominici, 2009). In addition to the fact that marketing mix is a useful classification in study and analysis, the combination of the variables has a significant impact on the level of success of the marketing function. In the years during which the marketing mix was first created, physical products, physical distribution and mass communication were dominant. However, the dynamics of the medium of ebusiness today has also affected the elements of the traditional marketing mix. For instance, the online
sales potential of various product categories has emerged, and the issues of online brand management and brand loyalty have gained importance. Regarding the issue of pricing as the issues of price transparency and price adjustment become more important, it has become a must for the price expectation and value perceptions in the online market to be learnt. The fact that the structure of intermediaries has changed in the issue of distribution has turned out to be one of the most important dilemmas faced by e-businesses. E-commerce has caused a reduction in intermediaries. One of the most important effects of e-commerce has turned out to be the promotional element of the marketing mix. Online advertisements and communication especially have become outstanding element of e-marketing activities (Kımıloğlu, 2004). Due to the impact of e-commerce on the elements of marketing mix and the features unique to online environment, many additions have been made to the elements of marketing mix by various authors, existing terms have been replaced by different names, or different marketing mix elements have been established. For instance, in his study, Robins (2000) introduced the benefits of buying online from the buyers’ perspective as 8I (Inexpensive, Interactive, Involving, Information-rich, Instantaneous, Intimate, Individual and Intelligent) and presented this 8I as the new personal, electronic marketing mix. Kalyanam and McIntyre (2002) presented the elements of marketing mix three-dimensionally and developed a different e-marketing mix model in the form of 4P+P2 (Personalization and Privacy) + C2 (Customer Service and Community) + S3 (Site, Security, Sales and promotions). Constantinides (2002), on the other hand, proposed a different model of web marketing mix in the form of 4S (Scope, Site, Synergy, and System). Harridge-March (2004) examined electronic marketing by using the 7P model (in addition to 4P, process, physical evidence and people were added) and stated that he proposed an important structure to the executives for the assessment of e-marketing operationalization of
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this framework. Chen (2006), on the other hand, discussed the e-marketing mix as 8P (the other Ps added to the existing 4P: Personalization, Payment, Precision, and Push and pull). As is clearly seen, no single comprehensive e-marketing mix has been successfully created to replace the traditional marketing mix. Considering the existing state of affairs today, as noted by Dominici (2009), the basic structure of 4P still constitutes the core of operative decisions with some extension and adjustment. The traditional marketing mix is composed of the variables controlled by the marketers. Therefore, the decisions and practices of marketers regarding the elements of marketing mix may illustrate the ethical issues likely to emerge in the online environment. In this study, the e-marketing mix is examined in accordance with the traditional 4P classification. At this stage, it will be beneficial to explicate such concepts as business ethics and marketing ethics in the assessment of ethical issues in e-marketing. Ethics can be defined as an “inquiry into the nature and grounds of morality where morality means moral judgments, standards, and rules of conduct” (Tsalikis & Fritzsche, 1989, p. 696). Business ethics, as an area of applied ethics, can thus be described as the totality of the ethical principles and rules determining which business practices are morally acceptable and which are not (Schoell et al., 1993). Marketing ethics, as a sub-field of business ethics, concerns the application of ethical evaluations to marketing decisions (Smith, 1993) or as the application of ethical codes or systems in the field of marketing (Gaski, 1999). Marketing executives are often faced with decisions that give rise to ethical dilemmas that can be related to the elements of the marketing mix of product, price, place and promotion (Rallapalli et al., 2000). As businesses move more of their efforts to the Internet, the implementation of e-marketing applications enhance the ethical issues faced by marketing executives. This is because of the unique technological environment of e-commerce. In order to understand better
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the ethical approach that will be adopted toward marketing practices here, we must first consider the various stakeholders that are involved in marketing endeavors.
Stakeholders The marketing decisions of marketing executives are affected by many internal and external people, groups and organizations with different wants and needs. Therefore, it is very important to know the stakeholders and their influences in assessing whether marketing decisions are ethical. Stakeholder approach postulates that those who have an interest in or are affected by a business have a stake in its decisions. In the context of emarketing, the stakeholders include the organization itself, customers, rivals, the government, and, cyber society more generally (Caudill & Murphy, 2000). According to marketing executives, the most important stakeholders are the customers of a company (Vitell et al., 2000). It is important to remember the customers are primary since they make the purchase of the products and services offered by the company and therefore allow them to stay in business (Schlegelmilch, 1998). According to Maury and Kleiner (2002), ethically questionable practices of businesses can directly affect the consumers, other businesses (such as competitors) and investors. The wants and needs of each stakeholder vary. For instance, consumers want their rights of privacy not to be exploited and expect trust in business transactions (Caudill & Murphy, 2000). Likewise, groups such as the suppliers that have business ties with the businesses and investors are entitled to rights such as those to information security and confidentiality. Paying attention to the rights of all stakeholders can also be useful in terms of enhancing trust in businesses. The fact that trust is placed in the centre of the strategies of e-businesses in the online environment has an important role in customer loyalty for e-businesses (Urban et al., 2000). The ethical environment of the business
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is also affected by the attitude and practices of the business staff (Fudge & Schlacter, 1999). For instance, the cognitive morality development of marketing executives and employees will have an important role to play in shaping up the ethical aspect of the decisions to be made. The ethical issues traditionally found in marketing emerge as a result of the relationship of the marketing executives with the parties in the exchange process. The failure of the parties concerned to fulfill the duties and responsibilities lead to the emergence of ethical issue (Lund, 2000). Similarly, the failure of the parties concerned to fulfill the duties and responsibilities during the emarketing process also lead to ethical conflicts. In this respect, being aware of the duties and responsibilities of the stakeholders and fulfilling them will minimize the emergence of ethical issues. For instance, marketers with the responsibility of meeting pre-determined sales quotas may resort to such unethical e-marketing tactics as spamming, creating difficult-to-close pop-ups windows, and misinforming customers with deceiving online advertisements. Similarly, confidential personal information of the customers may be misused in efforts to increase business. Therefore, fulfilling the responsibility towards the customers naturally raises important ethical questions.
Ethical Theories As marketing practices can affect the well being of a number of different stakeholders, marketing ethics should provide marketing executives with guidance in resolving moral quandaries. Ultimately, the goal of moral theory is to provide pragmatic guidance. In making marketing decisions, marketing executives will, consciously and unconsciously, make use of and apply different ethical standards. Ethical theories are designed to provide guidance on the use of these standards, and have traditionally been divided into teleological and deontological types of theories. Deontological approaches to ethical theory stress the intentions
underlying behavior, rather than the results of a behavior (Ferrell & Gresham, 1985). Teleological approaches, on the other hand, focus on the final effects of human actions and maintain that it is the outcomes of behavior that determines whether a behavior is ethical or not (Hair & Clark, 2007). In other words, it is clearly observed that while the key issue in deontological approaches is the intrinsic righteousness of a behavior, the key issue in teleological approaches, on the other hand, is the amount of good or bad represented in the consequences of the behaviors (Hunt & Vitel, 1986). Marketing executives with a deontological approach consider the perceived ethical problem and perceived alternatives according to the deontological approach to eventually reach ethical judgments based on the perceived intrinsic qualities of the actions. Marketing executives with a teleological approach, on the other hand, consider the perceived ethical problem and perceived alternatives by focusing on the outcomes. Therefore, the ethical judgments of teleological marketers will be made in accordance with the consequences of the behavior and action. In focusing on different aspects of the actions, both approaches can be useful in considering the ethics of marketing practices. Marketers may also use virtue theory, an important element of ethical thinking, as an approach aimed at coping with ethical problems. “An ethics of virtue assumes that being human entails living in community and developing certain virtues or skills required for a humane life with others. By trial and error, human reason arrives at certain core virtue for community living – such character traits as honesty, truthfulness, compassion, loyalty, and justice” (Williams & Murphy, 1990, p.23). The difference of this approach from the other two approaches is seen in the evaluation of whether this behavior is ethical. While the deontological approach focuses on intentions underlying behavior, and the teleological approach focuses on the results of a behavior, the virtue approach emphasizes the character of the moral agent. The
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decisions and practices of e-marketers regarding marketing mix may emanate from this approach as well. Therefore, in the rest of the study, this approach will also be considered as the foundation in the explication of ethical considerations towards marketing mix.
ETHICAL ISSUES IN E-MARKETING FROM THE PERSPECTIVE OF THE MARKETING MIX Clearly, the Internet helps businesses overcome the limitations arising from differences of time and space (Herschel & Andrews, 1997). When compared to more traditional business mediums, increased flexibility in creating information, interactive technologies, and the combination of modalities of television, print, and radio in a single medium represents some of the technological advantages offered in e-commerce (Cook & Coupey, 1998). However, many consumers are still suspicious about the functional mechanisms of electronic commerce; its process, effects, as well as the quality of many of the products offered online. The most important reason that online consumers have to be reluctant about online shopping is the lack of trust, which is very widespread amongst both businesses and consumers on the web. Lack of trust is a long term barrier preventing consumers from making comprehensive use of the e-business potential (Kraeuter, 2002; Hoffman et al., 1999). For instance, Hoffman et al. (1999) found that almost the 95% of the consumers refused to provide their personal details to commercial web sites. The consumers either withheld their personal information or provided incorrect information. The ethical issues likely to be encountered by e-marketers in the practice of e-marketing arise from the elements of the traditional marketing mix of product, price, placement and promotion. By examining the ethical elements of each of these traditional aspects of the marketing mix, we can gain a clearer understanding of the nature of the
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ethical issues involved in e-marketing. A failure to be sensitive to the ethical issues involved in any of the elements of the marketing mix may have an impact upon all marketing efforts. Given the necessity of trust in e-commerce, such failures will not only be unethical, but will also lead to unsustainable business practices in the long run. Thus, marketing executives need to be particularly sensitive to the ethical components of the marketing mix in e-commerce, if their businesses are to be successful in the long term.
Ethical Issues of Product Many of the ethical issues encountered by marketers in traditional marketing are also found in e-marketing. In considering the introduction of new products while the basic variable focused on during product development is the economical one, ethical issues arise as well. When such issues are ignored faulty or unsafe products may be put on the market and these products may eventually bring damage to consumers (Morgan, 1993). It is commonly observed that engineering problems, for instance, can raise ethical issues related to product safety (Meel & Saat, 2002). The same sorts of problems related to the offering of unsafe products may also be true for products offered on the internet. Indeed, because of the international scope of the internet and the lack of uniform legal regulations for internet commerce, ethical issues may arise more easily. The problems often seen in traditional marketing such as deceptive information on product labels (Chonko, 1995), environmental problems introduced through product use and disposal (Menezes, 1993), and the failure to fulfill guarantee conditions regarding products are also common ethical issue likely to be encountered in e-marketing. Other problems related to the product variable as a result of internet marketing include advertising and selling tobacco, alcohol, bullet, stun guns, pornography, online gambling and prescription-only pharmaceutical products on the internet. The lack
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of regulations regarding the internet, the ease of internet access in general and the ability of children to access the internet cause all these problems to emerge. Therefore, concerns can be raised over many types of products with socially suspicious value sold on the internet. For instance, there are 4.2 million pornographic websites (12% of total websites) in the world. Likewise, 2.5 billion (8% of total emails) pornographic emails are sent daily, 1.5 billion (35% of all downloads) monthly pornographic downloads (peer-to-peer) are made, and $4.9 billion worth of internet pornography sales occur annually (Internet Pornography Statistics). Many people monitor internet use for children because it allows easy access to pornography, enables sales of products aimed at children, and encourages gambling (Rao & Quester). The ethical issues are particularly important in the case of children, who may lack the ability to properly evaluate and foresee the risks of such problematic internet products. Sites designed specifically for children, even when they do not involve pornography or more blatantly objectionable material, can also raise ethical issues. Inappropriate site content and terminology, information gathering, sharing practices and marketing practices are the main areas of ethical issues (Austin & Reed, 1999).
Ethical Issues in Pricing Pricing is one of the most difficult matters to analyze from an ethical point of view. Ideally, we might think that the price of the product or service should be equal or proportional to the benefit provided by it to consumers (Kehoe, 1985). The ethical issues related to pricing in textbooks on marketing ethics typically include non-price price increases, misleading price reduction, price advertisements which can be misleading or considered as deceitful, price-fixing practices that affect the structure of competition, predatory pricing which aims to gain monopolistic positions, discriminatory pricing, pricing applications of products according to the products’ unit or quantity basis, and the practice
of misleading pricing methods (Chonko, 1995). While some of these issues comprising areas of ethical issues in traditional marketing are true of e-marketing practices as well, some others are not used in e-marketing. For instance, fixed prices are often not used for sales on the internet. Instead, many marketers use techniques of real-time pricing such as online auctioning and dynamic pricing. Price adjustments, enabled by sophisticated software are made online in real time based on demand and product inventory level. As a result of this, businesses may offer different prices for the products/services sold on the internet. However, in that case, different consumers may have to pay different prices for the same product or service. This, consequently, constitutes a degree of discrimination on the mere basis of internet accessibility. Internet pricing also has the potential of determining real-time individual prices. Actually, all these new internet pricing techniques raise concerns of privacy and other ethical issues (Rao & Quester, 2006). One of the greatest benefits of the internet for consumers is that it allows them to be able to compare the prices of products or services based on their own criteria. Internet sites such as pricegrabber.com, shopping.com, price.com, and kelkoo. com are designed to provide price comparisons and make the job of price comparison all the more easier for consumers, giving consumers the chance to purchase the most appropriate product for the most reasonable price. However, according to Rao & Quester (2006), this price transparency constitutes downward price pressure on other retailers. In fact, this downward price pressure taken together with general profit pressures may force businesses to be inclined to other unethical practices in e-commerce.
Ethical Issues of Place The internet is a type of electronic medium enabling the electronic distribution of products/ services. The increasing competitive pressures
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brought about through e-commerce are forcing companies to seek out multiple channels of distribution (Rao & Quester, 2006). The ethical issues in traditional marketing related to place arise due to the power relationship in the channels and due to the fact that the businesses with this power use it to force intermediaries in the channel to carry out unethical practices (Laczniak & Murphy, 1993). For instance, a manufacturing business that does not comply with the required standards of products, but is that is more powerful in comparison to the retailers in the channel, may force the retailing businesses to exercise the practice of these unethical activities. This causes these unethical practices to spread throughout the distribution channel. However, as an important channel between the producers and the consumers, the internet alters traditional power relationships, providing for some mitigation against the ability of companies to force intermediaries to engage in unethical behavior. Nevertheless, new forms of ethical issues can confront e-marketers once again. For instance, direct selling of products by producers through the establishment of company web sites can lead to the elimination of intermediaries (retailers, wholesalers, outside sales reps) and thus have a serious economic impact on traditional business partners. In this regard, some businesses sell their products/services online, thus directly competing with their own intermediaries, jeopardizing the viability of those intermediaries businesses. This raises ethical issues of loyalty and the obligations of businesses toward their long term intermediaries (Stead & Gilbert, 2001). The internet is fast developing as a key player in the relationship between producers and consumers and is commonly used as an important medium in the supply chain (Chaudhury et al., 2001). However, as seen, the use of the internet as an efficient channel of distribution enhances the problems of parallel imports causing harm to the authorized distributors and causing diversion of goods from the legal supply chains. Not surprisingly perhaps, the cost of the products of grey market being sold
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on the internet now reaches into the billions of dollars (Rao & Quester, 2006).
Ethical Issues in Promotion New information technologies can offer opportunities to marketers in areas such as improved market segmentation and target marketing. At the same time, marketing executives are faced with potential ethical dilemmas resulting from the potential invasion of consumer privacy made possible with these technological practices (Foxman & Kilcoyne, 1993). In fact, the ethical issues here involve both technological and personal aspects. While the technical problems are related to the technological potentials of the process, personal problems are related to the behavior of individuals in relation to these technologies. For instance, inappropriate distribution of information by an individual, or inappropriate responses to information, are examples of personal actions (Langford, 1996). The most popular commercial use of web sites is for advertising their businesses and/or products and services. The primary aim of businesses in setting up their own web sites generally is to advertise the products and services they offer (Chaudhury et al., 2001). For instance, in a study in which they examined the web-based strategies of the Top 100 U.S. Retailers, Griffith and Krampf (1998) found that most of the retailers used their web sites for advertising, public relations and customer service access. Advertising has an important social role and also has high degree visibility and pervasiveness. Therefore, the number of those people reached and affected by the advertisements is quite high. For these reasons, advertising is the subject of criticism and controversy (Ergin & Ozdemir, 2007). The short-term thinking of marketing executives can lead businesses towards short term advertising campaigns and planning that has the potential to push them towards unethical forms of promotion. The marketing executives in busi-
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nesses in which short-term thinking is dominant focus on making short-term profits. This, on the other hand, causes marketers to implement aggressive actions such as pop-ups, deceiving banners, hyperlinks and other forms of intrusive mechanisms which impinge on personal privacy. This danger may prevent the businesses from adopting a proactive ethical attitude towards the consumers within their e-marketing strategies (Gauzente & Ranchhod, 2001). Marketers are less limited, by regulation or cost, in online advertising products with potentially negative effects than traditional marketers. Besides, the internet is not a typical broadcast medium like radio and television, since the audience interacts with the medium and they can decide the amount of time of exposure that they want to the web site content. Therefore, the time-based restrictions of the traditional medium are not true for the internet. This causes advertising-related problems to emerge. For instance, while we see restrictions of alcohol and tobacco in terms of where and when they are advertised offline, it is not obvious whether these products are restricted in online advertising (Rao & Quester, 2006). While new ethical issues in promotion are raised in e-commerce, most of the unethical cases in traditional advertising mediums are encountered in the internet medium as well. For instance, Hyman et al. (1994) stated 33 issues that they determined in relation to advertising ethics and indicated in order of importance. In the top three of these issues were the use of advertising deception, advertising to children, and cigarette and tobacco advertising. Alcohol advertisements, negative political advertisements and sexual stereotyping in advertisement constitute other significant ethical issues. These issues related to advertising ethics are also true for the online advertising as well. The ethical evaluation of marketing practices in e-marketing will include treating issues such as deceptive practices against vulnerable consumers, children and the elderly, the marketing of defective products, and the invasion of consumer
privacy. Certainly, empirical studies done on the subject of e-marketing suggest that such concerns are warranted (Mattsson & Rendtorff, 2006). For instance, Rao and Quester (2006) studied the consumer’s opinion of ethical priorities amongst 190 sophomore commerce students and at the end of the study they ranked the e-marketing ethical issues according to their means. Consequently, they found that in 5 of the first 10 statements out of 36 statements of the e-marketing ethical issues, children were targeted with e-marketing practices. These five ethical issues targeting children include using sexual content and nudity on websites accessible to children to increase website traffic, collecting consumer information from children independently, using violence on websites accessible to children to increase website traffic, including links with unfiltered websites that children may access, offering incentives such as free games to children for providing personal information. This result demonstrates that the use of e-marketing practices targeting children creates a serious concern for consumers. The growth in children’s access to the internet today has led to the emergence of thousands of child-oriented web sites. Consequently, the interest in ethical issues on this subject has also increased. As a matter of fact, most of the web sites targeting children are heavily laden with commercial promotions. Although some web sites do not specifically target children, they are easily accessed by children. This eventually causes children to be exposed to advertising for many products that children do not use, and which could be inappropriate for them. For instance, Nairn and Dew (2007) found in their study that three quarters of the online advertisements they observed were banner advertisements, and that the majority of the products advertised were targeted for a general audience. Although technology offers the convenience of shopping without physically leaving the comfort of one’s home through the internet, it also has less desirable results such as the reduction of individual privacy and the decrease of trust in business (Peace
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et al., 2002). It is because e-businesses gather information initially for promotional purposes and information that will help in marketing decisions and their applications that they may also impinge upon the privacy rights of users. The issue of privacy is also crucial for data mining, in which information is gathered in an attempt to better understand consumers’ preferences and analyze them for future marketing purposes (Olson, 2008). All of this data provides businesses with opportunities to advertise their products and sell them on the internet in innovative ways (Milne, 2000). In e-marketing, different techniques are used to collect information about consumers and those who visit the web site of businesses. These techniques may lead to the invasion of the right of privacy and thus to ethical issues in e-marketing. Some of these uses of information include the gathering of descriptive personal information such as name of the customer, his/her address, or credit card number which the customer gives voluntarily while making a purchase on the web site of the firm. This information can also be used for promotional purposes related to the consumer in the future. A second issue concerns the self-divulgence of information in order to access web sites. Accordingly, some web sites require their visitors to register to their web sites in order to have access to their web sites. Likewise, user surveys and online contest are other tools used to collect descriptive personal information. Third, free merchandise given out by companies is often used as another way of information gathering. Fourth, e-businesses compile anonymous profiles of data based on visiting consumers. This information can consist of the operating systems, country of origin, Internet Protocol (IP) addresses and the internet providers of users (Kelly & Rowland, 2000). Fifth, companies make use of cookies to track data. Cookies are small data structures used by the web sites or servers to store and retrieve information on the user’s side of the internet connection. They are sent by the host web site or server and
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reside in the personal computer of the user (Charters, 2002). Each time the user visits a web site, the web site can open the cookie. This process is also known as “profiling” or “data-mining” (Stead & Gilbert, 2001). For instance, when consumers register to a web site, a “cookie” is registered on their PC and this cookie enables the seller to monitor the purchases of the consumer as well as the web sites they visit (Laczniak & Murphy, 2006). Today the web sites of some businesses ask for permission in order to able to send cookies and make a pledge that consumers’ personal information will be kept confidential and that they will use the cookie to enhance the speed of access (Franzak et al., 2001). In addition, many businesses, in an attempt to enhance the trust of consumers in web sites using cookies, only allow first party cookies (the ones put in by the web site visited) and put limitations on those cookies placed by an outside firm (Laczniak & Murphy, 2006). Finally, monitoring online news groups and chat rooms is also another method of information gathering used by businesses in e-commerce (Kelly & Rowland, 2000). One of the least satisfying dimensions of the development of the e-commerce environment is the use of spam advertising. Spam e-mail consists of the use of unsolicited mass e-mailings to consumer e-mail accounts for advertising purposes. The most irritating form of spam includes advertisements for easy (high cost) financing, gambling sites, pornographic material and diet supplements (Laczniak & Murphy, 2006). The concerns caused by spam e-mail can include the overloading of consumer e-mail accounts, the use of false e-mail identities, the inclusion of inappropriate mail content, and the use of misleading enticements and fraud (Rao & Quester, 2006). In the worst case, sending spam e-mail can be used as an offensive or retaliatory move to shut down the PC or the server the spam is sent to or interfering with the business of companies or other entities targeted. In some cases, such attacks a lead to the loss of
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crucial information of the targeted user (Franzak et al., 2001). Another ethical issue regarding e-commerce promotions is the use of pop-up advertising. When an internet user accesses a web site, pop-ups are separate windows that appear automatically in the browser of an internet user. These pop-ups that are generally used for promotion purposes that allow the users to access other web sites by clicking the appearing windows. Although pop-ups are usually easy to close, some of the intrinsic problems of pop-ups arise due to the non-availability of the function of closing down the window, recurrent appearance of those windows and their ability to lock up the screen of the PC (Palmer, 2005). Aggressive actions such as pop-ups, deceptive banners, hyperlinks and other mechanisms seen in some e-businesses also constitute other ethical issues in e-marketing (Gauzente & Ranchhod, 2001). Finally, the use of ethically controversial subjects such as sex, nudity and racist language in advertising messages in order to attract attention and interest are used in e-marketing activities as well.
CONCLUSION Marketers can easily adopt the new technologies offered in e-commerce since they enable efficiency of exchange, enhance productivity, cost less and offer great conveniences. However, the new technologies may involve some ethically questionable practices and can have unintended negative effects. Moreover, since technology, as pointed out by Palmer (2005), alters the nature of the kind of relationship between businesses and consumers, marketing executives need to pay particular attention to these possibilities and their ethical implications before adopting such technological transformations. It is simply because ethics is crucial to establish and maintain a long term relationship with consumers that businesses should beware of engaging in potentially
problematic practices in e-commerce. Therefore, in order for a commercial web site to be able to function successfully from an ethical point of view, e-marketers should be able to understand how the ethical perceptions of the consumers are shaped (Roman & Cuestas, 2008). Paying close attention to the ethical use of web-based technologies will constitute a differentiating power for businesses (Gauzente & Ranchhod, 2001). In fact, what lies at the roots of this power is trust. Trust forms the essence of ethical relationships. Therefore, e-businesses should establish a relationship based on trust both with the consumers and employees and should further develop it (Peace et al., 2002). However, as pointed out by Bush et al. (2000), lack of regulation on the internet may cause frequent ethical abuses. In addition, as noted by Camenisch (1991), the tension between the difficulties of economic life in today’s competitive markets and ethics affects many executives and businesses. In order to be able to overcome these difficulties, it is an important duty of marketing administration to develop a culture encouraging ethical behavior and preventing unethical behavior (Hunt & Parraga, 1993). In this respect, the creation of an ethical climate should be an essential aspect of e-businesses. It is possible to define the ethical climate of a business in terms of the business’s typical practices and procedures. Written ethics policies or codes of conduct, ethics training programs, and the installation of an ethics officer or ombudsperson to assist employees in resolving ethical dilemmas constitute the manifestations of a positive ethical climate. In addition, in order to improve the ethical conduct of e-businesses, consumer welfare should be focused upon, accountability should be emphasized, and the effect(s) of decisions on other relevant stakeholders should be analyzed well. In an attempt to achieve this, the effects of the decisions to be made not only on the investors and top executives, but also on all stakeholders, including consumers, employees, lenders, communities, governments and competitors should
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be considered as well. Adopting participation in decision making, paying more attention to the legal arrangements and analyzing the ethical issues within a larger perspective are other significant practices to be implemented in developing an ethical climate (Sama & Shoaf, 2002). All these endeavors should be realized while taking into account the dynamics unique to e-marketing, and should be tracked to ensure personal and organizational development. As pointed out by Bartlett and Preston (2000), by establishing a positive ethical stance, businesses can obtain such benefits as higher sales through the development of a positive public image, increased employee commitment for the firms’ objectives, higher job satisfaction, and increased efficiencies through developing internal and external relationships. In this chapter, the ethical issues in e-marketing were examined with regards to the elements of marketing mix for professionals working in ebusinesses and particularly in the e-marketing departments of e-businesses, as well as for academic researchers interested in these issues. This study aimed to contribute to the ethical e-marketing decision making process of professionals working in the field of e-marketing by making them, and others, more informed of the ethical aspects of emarketing and by placing those issues within the traditional understanding of marketing represented by the notion of the marketing mix.
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Schlegelmilch, B. B. (1998). Marketing ethics: An international perspective. London: International Thomson Business Press. This work was previously published in Ethical Issues in E-Business: Models and Frameworks, edited by Daniel E. Palmer, pp. 105-119, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 7.12
Accountability and Ethics in Knowledge Management Frank Land London School of Economics, UK Urooj Amjad London School of Economics, UK Sevasti-Melissa Nolas London School of Economics, UK
In science, knowledge is an unmixed good; in ethics and politics it is bad as well as good John Gray (2003)
ABSTRACT The purpose of this chapter is to argue the case that the study of Knowledge Management should embrace considerations of ethics and accountability. Knowledge Management—a relatively new discipline—is often seen as a necessary but benign component of any modern business organization. This chapter suggests that underlying DOI: 10.4018/978-1-60960-587-2.ch712
modern notions of knowledge management are the far older practices comprising the management of knowledge prevalent in most spheres of human activity. Many of these are political in nature, and distort and manipulate knowledge to achieve ends which may include criminal activity and fraud, but often merely serve to further the aims of organizational actors. The discipline called Knowledge Management has much to learn from the ancient art of the management of knowledge.
INTRODUCTION The purpose of this discussion paper is to make the case for integrating ethics and with it accountabil-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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ity into research about Knowledge Management (KM). Ethics refers to the motives and methods for KM processes, and their impact on individuals, on organizations, and on society. Ethical issues are also relevant to the researcher studying KM, where the subject being researched and the way the research is conducted can raise ethical issues. The interaction of actors, processes, and technology in all aspects of KM from research to design, and actual use can raise a wide range of ethical dilemmas. KM has been described by a range of commentators as comprising of practices used by organisations to identify, create, represent, store, distribute and share information. It has been an established discipline since 1995 with a body of university courses and both professional and academic journals dedicated to it. Knowledge Management programs are typically tied to organisational objectives such as improving performance, competitive advantage, innovation, transfer of lessons learned, and the general development of collaborative practices. Motivation and behaviour related to KM initiatives are necessarily embedded in power relations. Such power relations play a role in the design, implementation, use and research into KM systems, and assumptions, motivation and dilemmas, sometimes explicit, but more often tacit, may affect behaviour. At the same time, the widespread public discussion around the relationship between business organizations and ‘social responsibility’ is a relatively recent phenomenon though it has now develpoed an extensive literature, for example (Gray & Owen, 1996). The discussion has been a useful one for reminding business organizations, and government at times, of their position, relationship, and responsibility to a social world beyond their corporate boundaries. In doing so discussions about accountability have highlighted the ethical responsibilities associated with KM systems, processes and research. In our chapter we draw attention to the distinction between the subject matter of Knowledge Management and
the much older topic, not specifically articulated within the IS discipline, of the Management of Knowledge. The latter is much more concerned with the manipulation (and often distortion) of knowledge to obtain desired outcomes (Land et al, 2004). The chapter draws on examples where the design, implementation, and use of KM systems and processes have, sometimes deliberately, overlooked questions of accountability – what we have called the dark side of knowledge management (Land et al 2005a,b). Examples are provided from both the business and public sector. The first part of the chapter establishes why an ethics dimension is necessary in KM theory and practice; and the second part identifies questions on how an ethics dimension could be integrated with current KM research and practice.
WHY KM RESEARCH AND PRACTICE NEEDS AN ACCOUNTABILITY DIMENSION, ACCOUNTABILITY, AND ETHICS Ethics relates to codes of conduct regarded by a community as ‘right’ and ‘good’. They may be based on notions of morality or values. They may be faith based, determined by rules of proper conduct laid down by some higher authority. As such, we note the conflicts that can arise where values clash or rules differ. Ethical principles are rarely the subject of absolute standards. Nevertheless, conforming to ethical standards does require some consensus at least within defined communities such as those represented by professional associations. Some communities consider ethics sufficiently important to subject their activities to scrutiny by an ethics committee, which may operate on a mandatory basis with legal sanctions against those who flout its rulings. Others work on the basis of voluntary agreement. The medical profession has led the way in being subjected
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to mandatory ethical audits as well as voluntary agreements. In this context it is of interest to note that codes of conduct, which might be defined as ethical, can also apply to communities of practice outside the normal establishment. The notion of ‘honour’, which helps to sustain an organization such as the Mafia, with its strict adherence to Omerta (silence), is an example of the manifestation of a darker code of ethical conduct. Such extreme examples illustrate that ethical principles are rarely absolute; instead they are both relative and contextually bound, arising as they do out of particular situations and circumstances. In the following section we distinguish between various situations in which issues of ethics and accountability surface in relation to KM and the Management of Knowledge. However, we do not claim to provide a complete or comprehensive classification. Instead, the situations noted are put forward as an indication of the range of issues which the IS and KM communities need to address. For the purposes of discussion we have chosen to highlight the ethical issues according to four dimensions. The first dimension relates to issues around intentionality in Knowledge Management practices, the second relates to the design and implementation of knowledge based systems, the third dimension relates to issues related to intellectual property rights and the final dimension relates to knowledge production activities using research as an illustrative example.
Intentionality in Knowledge Management Practices It has been suggested that beyond the rhetoric advocating the value and efficacy of KM practices and systems there is a hidden agenda (Bryant 2005). Bryant suggests that the drive to introduce such systems includes an underlying but rarely explicit motivation – to increase the power of the organization over the knowledge worker. By capturing what the knowledge worker knows in
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knowledge stores such as data warehouses, the knowledge worker becomes less valuable and can even be dispensed with. Indeed is the hidden agenda, behind the importance attached to making tacit knowledge explicit in the KM literature (for example, Nonaka, 1998), related to the attempt to extract maximum value from the knowledge worker, in such a way that he/she becomes more vulnerable to downsizing? Bryant suggests that KM practices like BPR, for example, are merely a euphemism for downsizing. It is easy to dismiss this as mere conspiracy theory, but the prevalence of spin, propaganda and PR in the modern world of business as well as politics, suggests it needs to be taken seriously. Indeed, organizational and political studies emphasize the instrumental use of knowledge. For example, Sussman and her colleagues (Sussman et al, 2002) define the organization as a “political system, a network of interdependent members using power, influence, and political manoeuvring to achieve their goals.” Politics can be defined as an intentional social influence process in which behaviour is strategically designed to maximize short term or long term interests and the management and manipulation of knowledge and information provide one of the principal means to achieve this. This raises a range of ethical issues related to the behaviour of private corporations and public administrations.
The Design and Implementation of KM Systems What are the ethical responsibilities of those who design and implement KM systems which themselves might create situations which may be regarded as unethical? Do we need an ethics committee, as is widespread in adjudicating the appropriateness of medical practice, to evaluate proposals involving design and implementation of innovative systems in the IS arena? As Hosein (2005) points out in his case study of data mining for DARPA—the Total Information Awareness
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Program12, subsequently renamed the Terrorist Information Awareness Program—the ethical issues regarding data mining were not raised by the IS or KM communities, indeed quite the opposite. Some of the designers, members of the IS community, took pride in the power of the systems. Instead, criticism has come from sources outside the ICT community – in this case from students of policy making. It is they, who in pointing out the ethical problems, have managed to get the systems, described in the example below, suspended. The object was to design and implement a data mining system which could be used to gather and correlate data about the activities of citizens, engaged, for example in activities themselves lawful, such as attending peaceful protest marches. The data mining techniques were designed to collate data from a number of sources to create profiles of groups of citizens, identifying them a potentially constituting a threat even though the majority of those participating were wholly innocent of creating such a threat. Further, the information was to be made available for selling on to third parties without the knowledge of the citizens concerned and where its use could offend against notions—or even legislation—regarding human rights.
team, for personal gain. But the issues are broader than those of individuals and often relate to the balance between the rights of the corporation to limit access to knowledge as against the rights of society to share in that knowledge for the benefit of society as a whole. One example highlighting the relativistic notions underlying ethical issues is the debate stemming from the unravelling of the Human Genome (Ferry and Sulston, 2003). A team, directed by Francis Collins, and working under the auspices of the US Government (the Department of Energy and the National Institute of Health), held that the intellectual property rights for the human gene sequence belonged to the organization sponsoring the research, and as such their methods and results could and should be patented. Indeed the mission statement from the US Government suggested:
Intellectual Property Rights
Another team working in Cambridge, led by John Sulston (Ferry and Sulston, 2003), held that the human genome belonged to all humanity and the outcomes of its elucidation should be available to all and should not be exploited solely by sectional interests. The project,
The Management of Knowledge and Intellectual Property Rights are firmly linked. What type of knowledge can be shared, and who has ownership of knowledge as a valued asset, is frequently determined by the laws and norms related to Intellectual Property Rights (Baskerville and Dulopovici, 2006b). As such, questions around ethical behaviour face both the employer and employees. Employers may unfairly exploit the knowledge of employees without providing them with due rewards for pooling the knowledge they have contributed. Conversely, an employee may face ethical dilemmas by withholding or distorting knowledge attributable to the employer or the
An important feature of the project was the federal government’s long-standing dedication to the transfer of technology to the private sector. By licensing technologies to private companies and awarding grants for innovative research, the project catalyzed the multibillion-dollar U.S. biotechnology industry and fostered the development of new medical applications.3
…worked so well because the community held an ethos of sharing from the beginning. We gave all our results to others as soon as we had them. From sharing, discovery is accelerated in the community. Research is hastened when people share results freely 4. Despite their differences in the research ethos, the two teams collaborated and in the end agreed
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to make their joint findings available to all. The example demonstrates that well meaning people can operate with different value systems each of which raise ethical issues. At the same time it highlights the dilemma facing the various actors when value systems conflict with examples of principal actors changing sides. However, as Kyle Jensen and Fiona Murray of MIT recently reported, 20% of the known human genome has, in the USA, been patented mainly by private biotechnology and pharmaceutical companies (Guardian, 14th October, 2005, page 11). Empirical research, (Murray and Stern, 2005) indicated that the use of patents in biomedical research had had an impact on reducing the amount of communication between complementary research projects. Nevertheless the debate between those who regard the maintenance of intellectual property rights as a condition for research and discovery, and those who favour an open stance as encouraging discovery as well as following ethical principles, rages on. Conversely, the Open Source movement, in which individuals contribute their skills and knowledge to a co-operative project, has turned older notions of intellectual property right on their head. The Open Source movement raises a number of ethical issues including the problem of distribution of rewards when partners of the venture contribute to knowledge. For example, the construction of a new encyclopaedia represents a KM activity. One such project, the creation of the Internet located Wikipedia, based on open source principles, invites individuals to contribute their knowledge to the evolution of Wikipedia. Contributors receive no reward. Wikipedia is available free to anyone who has access to the internet. Wikipedia follows none of the normal rules of KM and the question of intellectual property rights is ignored. Articles are not reviewed. But all users are entitled to make corrections. However, the venture raises its own ethical issues. The development of Wikipedia provides an opportunity for special interest groups
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to add their own special slant to entries and for other special interest groups in opposition to these to attempt to ban Wikipedia. Thus one group has appealed to GOOGLE to remove Wikipedia from its listings. Nevertheless, the two examples, the Human Genome project and Wikipedia, represent what is perhaps a new ethical stance for the KM community. Knowledge sharing—a key aspect of KM —is also related to the principles enshrined in the notion of intellectual property rights which set a limit, defined in legal terms, with whom knowledge may be shared and under what conditions. Research as a Knowledge Production Activity Ethical issues exist in all steps of the research process. Research can be defined as a knowledge production activity involving the researcher making decisions about design, collection, storage, distribution, and sharing of knowledge. Included in the list are the protection of new knowledge from access by unauthorised persons or organizations and the notion of intellectual property rights. Aside from the ethical issues typically associated with research (e.g. anonymity, confidentiality, non-attribution), the special case of action research brings additional ethical dilemmas to the forefront. In research such as action research, which involves the researcher intervening in the activities of the organization being studied, what are the obligations of the researcher to make clear the possible consequences of the intervention on individuals and the organization? Should, for example, the researcher take the role of whistle blower in cases where the researcher comes across dubious or illegal practices? Or should the research take a more distanced approach and just describe the situation? In IS research the action research example, and the ethics it raises, becomes relevant when thinking about the discipline in its more applied form, and in particular in case of collaboration between academia and industry. According to Hosein (2005), IS researchers, in particular those whose research is closely tied to the design and
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implementation of systems, have been slow in flagging ethical issues. Certain issues remain taboo subjects – in part because research funding and collaboration depends on the good will of sponsors whose sponsorship maybe conditional on arriving at findings not inimical to the interests of the sponsor. The condition is rarely made explicit but is nevertheless recognised by the researcher or by the researcher’s employer. In other words, it appears that the IS researcher being preoccupied with the ‘management’ perspective and the ‘managing’ of information and knowledge for the benefit of the organization, and with the impact of the research on their own careers, researchers may ‘forget’ to worry about any of the broader issues. Knowledge management as an inter-disciplinary field of research also provides examples that help to illustrate ethical issues and dilemmas, citation being the case in point. Citing references is itself an act of knowledge management and needs to be carried out in an ethical manner – that is it is the duty of the researcher to cite adverse as well as supportive references. But providing a comprehensive reference list can be burdensome and in particular where multidisciplinary research is involved. Perhaps, the role of the referee in peer reviewed research needs to include the explicit obligation to ensure ethical frontiers are not transgressed and the Journals evaluation form needs to include an ethical rating.
ORGANISATIONAL PROCESSES AND ACCOUNTABLE KNOWLEDGE MANAGEMENT KM systems provide an opportunity to manipulate and control knowledge in all phases from the discovery and collection of knowledge, to its storage and distribution (Alter 2006). Knowledge can be created, omitted or withheld, suppressed, amplified or exaggerated, diminished or distorted. Thompson refers to knowledge derived from such activities as counter knowledge (Thompson,
2008). Such activities may arise by accident or mischance (perhaps a virus attack), but often the manipulation is instrumental. Two examples illustrate such manipulations of knowledge in two different contexts: private sector and civil society. Enron, for example, had a reputation amongst its employees of sharing knowledge for the benefit both of the organization and its employees (Cruver 2003). At the same time the senior management of the company was engaged in a massive fraud engineered with the help of the management of knowledge on a vast scale. In its final stages this involved the destruction of information, and hence knowledge, about the affairs of Enron, by means of shredders abetted by the company’s auditors. Enron is a high profile example but there are many similar examples where knowledge is manipulated to achieve what turn out to be fraudulent and criminal outcomes. In the real world practices involving knowledge manipulation are widespread even if they do not break the boundaries of criminal laws on the scale of Enron. With regard to accountability in civil society organizations, Ebrahim (2003) argues that nongovernmental organizations (NGOs) must consider how information flows from the local level NGO, up to the level of the international funding agencies. The manipulation of knowledge when it travels from a poorly resourced NGO in India, for example, is motivated by the need for survival. The way budgets are validated is itself a political process used for determining priorities. Ebrahim notes the need for accountability from international level agencies, down to the local level NGOs as a way of ensuring proper, ethical, conduct.
KNOWLEDGE MANAGEMENT ORIGINS To provide answers to the many issues raised there is a need to draw on a very wide range of sources coming from many disciplines. Baskerville and Dulipovici (2006a) suggest that a number of dis-
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Accountability and Ethics in Knowledge Management
ciplines contributed to our current notions of KM. Table 1 reproduced from their paper summarises these sources. But there are other sources and ideas which current thinking about KM has tended to neglect, but which throw a somewhat different light on some of the issues and in particular the ethical issues. Examples drawn from outside the realm of IS or KM, include the notion that the management of knowledge relies on communicative actions. McLuhan (1964) warned us that modern methods of communications are used to distort the truth, while Habermas’ (1987) Theory of Communicative Action provides us with valuable insights relevant to the issues raised in this paper, in particular how the way we use language in part determines responses and behaviour.
KNOWLEDGE MANAGEMENT AND MANAGEMENT OF KNOWLEDGE The Management of Knowledge provides a rich context in which to expand and re-evaluate our ideas around KM systems and processes, beginning with organizational politics. There has been a certain amount of discussion in the KM literature of the part played by politics in organizational be-
haviour, drawing on the literature of organizational politics and pointing to the political and ethical issues related to KM (Pettigrew 1973; Mintzberg 1983; Wilson 1995; Pfeffer 1997; Sussman et al 2002). Nevertheless, the discussion of these issues has not been more than marginal. The link that seems to us to be missing, is the one between ‘knowledge management’ and the ‘management of knowledge’. Newer forms of KM are part of the older, what may be termed, Management of Knowledge and must be reviewed and evaluated in that context. By examining KM in the context of the broader Management of Knowledge, as viewed (but not so named) by a range of authors (Schulze 1999; Grover and Davenport 2001; Earl 2001; Wilson 2002, Lowell and Claudia, 2005, Land et al, 2005a), the ethical issues become clearer. Knowledge Management as discussed in the IS literature is young—approximately 15-20 years old. The Management of Knowledge however is older and encompasses a wide range of practices which are widely known and have been discussed over the centuries by philosophers, theologians, educationalists, criminologists, among many others (see also, Land et al, 2004; Land, et al, 2005a; Land, et al, 2005b). Much of the published writing on KM systems and practices is guided by expectation that such
Table 1. Disciplines contributing to current notions of KM
Theoretical Foundation
Key Knowledge Management Concepts Drawn from This Foundation
Applied Purpose in Knowledge Management
Developed Knowledge Management Concepts
Information Economics
Intellectual Capital
Rationale
Knowledge Economy
Strategic Information Systems
Core Competencies
Rationale
Dumbsizing, Knowledge Alliances
Organizational Culture
Tacit and Articulated Knowledge
Process Definition
Knowledge Culture
Organizational Structure
Goal-seeking Organizations
Process Definition
Knowledge Organizations
Organizational Behaviour
Creativity, Innovation, Organizational Learning, Organizational Memory
Process Definition
Knowledge Creation, Knowledge codification
Artificial Intelligence
Knowledge-base Systems
Process Definition
Knowledge Infrastructure
Quality Management
Risk value Benchmarking
Evaluation
Qualitative Frameworks
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systems and practices are naturally benign and necessarily designed, implemented and used with the improvement of the condition of mankind in mind. However, this is only half the story and we find that many other KM type practices, perhaps the most discussed in existing literature and perhaps more often related to the Management of Knowledge rather than KM per se, have more malign objectives or are, at the least, self serving and do not result in the desired or planned improvements. Examples include the use of propaganda and spin in politics (see Colonel Kenneth Allard, Strategy Expert, reported in the Guardian Newspaper, 8th January, 2004, for a good example); the imposition of censorship in relation to religious dogma, the construction of national curricula in education which have xenophobic or racial overtones; the use of the ‘need to know’ principle in industrial management practices such as Taylorism whereby the individual worker on an assembly line is only provided with that minimum knowledge enabling a fragmented task to be carried out; the use of less than truthful advertising and PR in marketing; and the manipulation of knowledge for criminal activities including corporate fraud. The list of examples is long. Ethical issues relating to this older form of the management of knowledge have been articulated and much discussed. The new discipline of KM, too, has to concern itself with the ethical issues which human behaviour inevitably gives rise to.
CONCLUSION The chapter identified issues and questions that establish an agenda for further debate and research that may contribute to a wider understanding and hence improvement in ethical conduct and its concomitant requirement for accountability. The sort of ethical questions that we can begin to ask around knowledge management systems and processes include:
1. What ethical issues such as discrimination, and domination, arise from the interaction of sponsors, designers, implementers and users? 2. How is accountability built into all aspects of KM from research to practice? And can we devise systems of accountability in ways which do not stifle initiative, entrepreneurship and innovation? 3. Who promulgates ethical standards and acts as their enforcer? 4. How are disputes involving contested value systems and ethical standards resolved? 5. All new systems have unintended consequences. Some of these may themselves raise ethical questions. How do we respond to these? 6. How do we ensure transparency and uncover the hidden agendas? The above questions are relevant to both researchers and practitioners of KM systems.
REFERENCES Alter, S. (2006) Goals and tactics on the dark side of knowledge management. HICSS 39 Conference Proceedings. Baskerville, R., & Dulopovici, A. (January 4-7, 2006b). The ethics of knowledge transfers and conversions: Property or privacy rights? In Proceedings of the Thirty Ninth Annual Hawaii International Conference on System Sciences. Computer Society Press. Baskerville, R., & Dulopovici, A. (in press). The Theoretical foundations of knowledge management. Journal of Knowledge Management Research and Directions.
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Bryant, A. (January 4-7, 2006). Knowledge management: The ethics of the Agora or the mechanisms of the market? In Proceedings of the Thirty Ninth Annual Hawaii International Conference on System Sciences. Computer Society Press.
Land, F., Nolas, S. M., & Amjad, U. (2005b). Theoretical and practical aspects of knowledge management: broadening the view. In D. Schwartz (ed.), Encyclopedia of knowledge management (pp. 855-861). Hershey, PA: Idea Group Reference.
Cruver, B. (2003). Enron: Anatomy of greed. London: Arrows Books.
Lowell, B., & Claudia, J. (2005). The 21st-century organization. McKinsey Quarterly, 3, 24–33.
Earl, M. (2001). Knowledge management strategies: Toward a Taxonomy. Journal of Management Information Systems, 18(1), 215–233.
McLuhan, M. (1964). Understanding media. Mentor: New York.
Ebrahim, A. (2003). NGOs and organisational change. UK: Cambridge University Press. Gray, R., & Owen, D. (1996). Accounting & accountability: changes and challenges in corporate social and environmental reporting. Prentice Hall. Grover, V., & Davenport, T. H. (2001). General perspectives on knowledge management: Fostering a research agenda. Journal of Management Inquiry, 18(1), 5–21. Habermas, J. (1987). The theory of communicative action, lifeworld and system: A critique of functionalist reason, Vol II. UK: Cambridge University Press. Hosein, I. (2005). Researching the ethics of knowledge management: The case of data-mining. Manuscript submitted for publication. Land, F., Amjad, U., & Nolas, S. M. (2004). Knowledge management: The darker side of KM. In Proceedings of ETHICOMP Conference, Syros, Greece. Retrieved from http://csrc.lse.ac.uk/WP/ PDF/wp136.pdf Land, F., Amjad, U., & Nolas, S. M. (2005a). Introducing knowledge management as both desirable and undesirable processes. In D. Schwartz (ed.), Encyclopedia of knowledge management (pp. 403-409). Hershey, PA: Idea Group Reference.
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McLuhan, M., & Fiore, Q. (1967). The medium is the message. Bantam: New York. Mintzberg, H. (1983). Power in and Around Organisations. Englewood Cliffs, NJ: Prentice-Hall. Murray, F., & Stern, S. (2005). Do Formal Intellectual property Rights hinder the Free Flow of scientific Knowledge? An Empirical Test of the Anti-Commons Hypothesis Paper presented at the NBER Academic Science and Entrepreneurship Conference. Nonaka, I. (1998). The knowledge creating company. Harvard Business School Press: Boston Pettigrew, A. (1973). The politics of organizational decision-making. London: Tavistock. Pfeffer, J. (1997). New Directions for organisation theory: Problems and Prospects. New York: Oxford University Press. Schultze, U. (1999). Investigating the contradictions in knowledge management. In T. J. Larsen, L. Levine, & J. I. De Gross (Eds.), Information Systems: Current Issues and Future Changes (pp. 155-174). Laxenberg, Austria: IFIP. Sulston, J., & Ferry, G. (2003). The common thread: A story of science, politics, ethics, and the human genome. Joseph Henry Press. Sussman, L., Adams, A. J., & Raho, L. E. (2002). Organizational politics: Tactics, channel, and hierarchical roles. Journal of Business Ethics, 40, 313–329. doi:10.1023/A:1020807700478
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Thompson, D. (2008), Counterknowledge: How we have surrendered to conspiracy theories, quack medicines, rouge science and fake history. Atlantic Books: London Wilson, P. A. (1995). The effects of politics and power on the organizational commitment of federal executives. Journal of Management, 21(1), 101–118. doi:10.1016/0149-2063(95)90036-5
ENDNOTES 1
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http://en.wikipedia.org/wiki/Information_ Awareness_Office http://epic.org/privacy/profiling/tia/ (see: http://www.ornl.gov/sci/techresources/ Human_Genome/home.shtml) (see: http://www.sanger.ac.uk/Info/ Press/2002/021007.shtml)
Wilson, T.D. (2002). The nonsense of knowledge management. Information Research, 8(1).
This work was previously published in Knowledge Management, Organizational Memory and Transfer Behavior: Global Approaches and Advancements, edited by Murray E. Jennex, pp. 109-118, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.13
Management Theory:
A Systems Perspective on Understanding Management Practice and Management Behavior John Davies Victoria University of Wellington, New Zealand
ABSTRACT This paper develops a systems perspective on the interdependent relationships between management academics, management theory and management practice. The author re-examines issues raised by Ghoshal, not only about how the uncritical acceptance of an ideologically based gloomy vision of human nature has led to “bad management theories... destroying good management practices”, but also how practice can impact the development of theory. The approach DOI: 10.4018/978-1-60960-587-2.ch713
provides an opportunity to reinterpret and reveal the systemic nature of related feedback and learning processes labelled as the double hermeneutic by Giddens (1987) and as reciprocal determinism by Bandura (1978), to draw a parallel with the role of theory in the decision sciences. This paper provides a constructive illustration of the use of the systems representational tools of system dynamics to develop a systems perspective on these matters to identify the underpinning systemic structure that gives rise to Ghoshal’s views. Finally, the author identifies a means of addressing issues of concern to management theorists, analysts, and practitioners.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Management Theory
INTRODUCTION The Gloomy Vision and the Decision Sciences Those working within the domain of the decision or management sciences (DS or MS), or operations research (OR), often find themselves confronted by a double-headed gloomy vision. Not only do management books paint a gloomy picture of the problem-solving and decision-making abilities of managers and organisational decision makers (Simon, 1987), highlighting the decision traps faced by managers (Russo & Schoemaker, 1989) and the common failings of managers (Gasss, 1989; Nutt, 2002), but also that a gloomy vision of human nature pervades, whereby managers and others are viewed as untrustworthy and selfcentred (Ghoshal, 1996, 2005). The former lack of abilities include, for example, weaknesses in the appreciation, analysis, assessment and action phases of problem intervention -a failure to appropriately frame decision problems or problem situations; a failure in direction setting – that is, to determine inclusive, acceptable strategic goals and values; a tendency to jump in and act precipitously; a failure to understand or accommodate stakeholder influences and needs; a tendency to towards overconfidence and to overestimate one’s predictive ability, sphere of influence or influence on past successes and future outcomes; a failure to learn from prior actions; a failure to recognize or address ethical dilemmas or the importance of ethical values; etc (Russo & Schoemaker, 1989; Senge, 1992; Bazerman, 1996; Nutt, 2002). Some consequences are what many perceive to be the predominance of a fire-fighting mentality, and the preponderant, often unquestioning, use of management theory that has taken on the guise of managerial fad and fashion, such as quality circles, JIT, BPR, Six Sigma etc. - with managers having the expectation that use of these tools or processes, even in isolation, will help address their wider problems and deliver riches.
However, no matter what theory may be providing guidance, managers may have framed their problems inappropriately, made inappropriate assumptions, tackled the wrong problems, attacked problems at the wrong levels, or just addressed them in poor fashion. Problems poorly addressed create more problems and take longer to fix in the long-term. Senge (1990, 1992) describes this common behaviour in his Fixes that Fail and Shifting the Burden archetypes. In the former, Fixes that Fail, an inappropriate fix might work in the short term but make the problem worse in the long term. In the Shifting the Burden archetype, the quick fix not only makes the problem worse in the long term, but also undermines the effectiveness of any other alternative fix that could be used. In all of these situations, several features usually stand out. They include the lack of an overall perspective, the systems or holistic view (Maani & Cavana, 2000; Sterman, 1996); and a related inability to think about inter-relationships and connectivity between parts of the system and its external environment, the wider stakeholder community, their values and views, about the wider systemic consequences over time, that is, within and without the system. More specifically, the lack of a systems view may include the related inability to think about the time-related, dynamic nature of cause-effect relations and about feedback over time, where effect(s) may be delayed, and where there may be no single cause, but where the “cause” may be the complex of emergent effect(s) of other inter-relationships. The whole, then, is more than the sum of the parts; it is the consequence of the connectivity of the parts. Other features that stand out include behaviour of seeming irrationality, and behaviour suggesting lack of awareness of the values and perspectives of others. In essence, these are features suggesting that some formal processes may be needed. It is the Decision Sciences (DS), the System Sciences and Operations Research /Management Science (ORMS), the latter adopting the phrase, ‘The Science of Better,’ which have attempted to
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Management Theory
provide the structured and scientific approach to solving business problems. However, despite its origins as a problem-focused multi-disciplinary activity employing top scientists to attack operational problems, what is now known as hard ORMS has become very focused on techniques. In the US, not only are these techniques almost exclusively quantitative in nature, but most modern-day ORMS textbooks concentrate on mathematical techniques and mathematical modelling in its various forms. Additionally, the emphasis on mathematics is well recognised and even reinforced by the publication regimes of the top American OR/MS journals, which restrict their scope to those papers containing mathematically rigorous treatment (Simchi-Levi, 2009). However, ORMS tools and techniques have predominantly contributed to the analysis and assessment phases of the problem intervention process, rather than the problem appreciation or what we may call problem identification/definition/structuring phase. Indeed, many DS and ORMS writers have commented on the tendency to solve the wrong problem, e.g., Gass (1989), Zeleny (1981), Rosenhead (1989), and Mabin and Gibson (1998). In addition, the debate that raged in ORMS circles in the 70s, led by Ackoff (1977, 1978, 1979), was largely due to this concern that ORMS’ obsession with mathematical modelling had led the OR profession astray. Their concerns, essentially, related to matters of problem definition – rather than merely problem solution – and have been shared by the developers of the various Soft OR methods, also known as Problem Structuring Methods (PSMs) (see Rosenhead, 1989, 2009). Soft OR is suited to messy situations, where the first issue is not knowing what the problem ‘is’; where the ‘problem’ cannot be clearly defined before the intervention; where different stakeholders hold contrasting perspectives on what factors are relevant, and what objectives might be desirable an so on. So rather than tackling supposedly objective problems of forecasting, allocation, or production, what has been recognised is the
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need to deal with problem identification, system design, partial commitment under uncertainty, issues of cooperation and conflict etc. In particular, soft OR or PSMs require one to surface, critique and address often implicit assumptions about the problem, the problem situation, problem owners and others embedded within, affecting or affected by the problem (For applications of PSMs, see Vidal, 2004). As such, soft OR methods have been designed and developed to grapple with wicked problems or messes by seeking to gain understanding of what would be desirable and appropriate goals of the organisational system and sub-systems, and by seeking a broader, often predominantly qualitative, understanding of the problem domain and the wider system within which it resides. Soft OR or PSMs aim to structure complexity of content and represent it in a transparent manner; to be deployed in a facilitated group environment; to develop model structure interactively; to incorporate tools to encourage participation and generate commitment to action. However, they do so in a manner that bears the scrutiny of rigour expected of any science-based approach. Virtually none of these attributes of soft OR apply to traditional ORMS approaches, the latter being increasingly known as hard OR (Rosenhead, 2009, p. S10). Nevertheless, hard ORMS tools and methods have much to offer in addressing complexities relating to scale, time and computation. They have much to offer when the problem is well-defined and when goals, local or global, are known, understood and accepted by stakeholders with common perspectives; when desired outcomes can be guaranteed by action; when the successful accommodation of multiple objectives is unambiguous; and objectives can be quantified. Even when these conditions are not met, the sophistication of analysis and the scale of computer power can generate a sense of false security especially where the relationships of local goals to systems goals are not understood or accounted for - or when local goals surface as
Management Theory
“numerical” or binding constraints in the hard mathematical formulations – and do so without questioning. Indeed, even when problems are not well-defined, assumptions are made to make the problem tractable or amenable to mathematical formulation, often without sufficient questioning of the appropriateness of such assumptions. In the shadow of the finance crisis that surfaced towards the end of the new millennium’s first decade, Shreve (2009) has commented that “the art of model building is to choose assumptions so that the model is unencumbered by less relevant considerations in order to illuminate more important phenomena” and that nevertheless, a good model is one that “provides insight and a guide to action”. In the shadow of the finance crisis, we also note again the very different assumptions encompassed in the gloomy vision of human nature, of human frailties and failings. In doing so, we make two distinctions – the first being the distinction between the process of model building, problem representation or structuring led by the analyst or problem-solving group, and the model as an intermediate outcome that provides a base for further analysis, reflection and insight. The second distinction manifests as criticism that analysts focus more on the model than the problem, that they confuse cause and effect, that they fail to replicate reality, or even that they report what the client wants to hear (Banks & Gibson, 2009) – that they fail to question the often inappropriate assumptions that they make about the problem situations and its constituents. It is not surprising then that we often face the confounding issues of whether the problemsolving process, methodology or theory has failed the analysts, or whether the analysts have failed the process. It is related phenomena – whether theory, based on inappropriate assumptions and premises, has led to bad practice, or whether managerial practice has led to a reinforcement of inappropriate assumptions - that we begin to explore in the following section, before offering
a systems perspective that seeks to synthesise the views of Ghoshal and others who have articulated the gloomy vision and its consequences.
The Gloomy Vision, Governance and Management Here, we set the gloomy vision and its relationship to governance and management, in the broader context of change and the narrower context of the finance crisis. The characterisation of the first decade of the new millennium as a time of business, financial, economic and political turmoil, has refocused attention on the importance of leadership and governance in the corporate world, and in public sector, governmental and political institutions. Over the last thirty years, a growing, almost obsessive interest in corporate governance has been catalyzed by considerable media attention given not only to poor company performance, corporate and managerial failure, but also to inappropriate accounting/audit practices, excessive remuneration and parachute packages for senior managers and executive directors, insider trading, pension fund mismanagement, fraudulent behavior etc. However, whilst such events or episodes of poor or inappropriate behavior are not just recent phenomena (Kay et al., 1995), the locus of concern about such behaviour has changed. For example, whilst much of the early scrutiny and concerns can be attributed to the advent of harsher economic conditions that drew to the surface manifestations of underlying corporate frailty, weaknesses or excesses, latterly, the concerns can also be attributed to the wider systemic impact of perceived unethical behavior amongst managers, directors and politicians, and of poor managerial and governance practices, on business, the banking system and on national and global economies. Whilst ill-advised or inappropriate behaviour may have been exaggerated by the media, media attention, in turn, has been heightened by corporate
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and political scandals, by the failure of the banking system, and by the financial crisis and associated recessionary effects, stakeholders have responded to such events and concerns about management, leadership and governance in different ways, at different times. For example, the extent to which issues of ethical and managerial behavior, and governance, have pervaded society, over time, is exemplified by the behavior of organizations in the voluntary or non-profit sector (Carver, 1999; Davies, 2001), whose perceptions of the role and importance of governance has mirrored the movement for reform of corporate governance in the UK described by Tricker (1984), Charkham (1993, 1994, 1999) and Cadbury (1992, 1998, 1999), some two decades ago. However, and to attribute significance to these early initiatives, we note that use of corporate governance as a term, perhaps surprisingly, did not emerge until the seventies (Kay et al., 1995, p. 84). Even then during its early life, its usage and meaning had taken different forms described as “pre-theoretical” with consequent related impact on the nature, design and expectations of governance systems (Jessop, 1998, p. 29). We discern, therefore, in an interesting comparison to governance issues arising in the voluntary or non-profit sector, that there is considerable irony in the manner that Hampel (1998) chose to contrast the perspective of his reforming work in the UK with that of Cadbury (1992) and Greenbury (1995) (whose work impacted greatly on governance reforms in the UK and US – and which influenced the development of the Sarbanes-Oxley legislation in the US). For example, Hampel suggested that whilst the approach and guidelines of others (like Cadbury and Greenbury) ‘concentrated largely on the prevention of abuse’, responding to ‘things which were perceived to have gone wrong’, by contrast, his work, which initially appeared as the combined UK code on corporate governance (Parkinson & Kelly, 1999), was equally concerned with the articulation of principles of corporate
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governance that would make a positive contribution to organizational life, rather than just promote compliance and/or to avoid harm. Similarly, whilst many governments, worldwide, have sought to develop and impose regulatory frameworks that limit inappropriate managerial and governance practices, fraud etc., there is also evidence that the private, public and non-profit sectors have sought to develop self-regulatory frameworks to promote best practice and ethical behavior in the execution of their governance functions (Carver, 1997; Davies, 1997, 1999, 2001). We may presume that it is such a dichotomy of “do good” / “avoid harm”, value-based or prescription-based approaches and thinking about governance, moral governance and the nature of ethical and moral behavior that Ghoshal (2005) sought to bring to the attention of academe, some three years before the failings and failure of the banking system emerged in the UK and US. However, it may be suggested that such failings and failures are as much concerned with the moral bankruptcy that may have underpinned unethical individual and corporate behavior, as they are concerned with a failure in the processes, protocols or frameworks of governance and moral governance. On the latter matter, we make reference to the views of Professor Sir David Tweedie about the potential failings of prescriptive approaches with respect to their consequential impact on individual behavior. Tweedie, for example, had argued for change to the rule-based approach to accounting standards of the US accounting system, which, he claimed, had “emerged as a response to the litigious nature of American business”. He reasoned that “this (rule-based) culture allows companies and their auditors to feel they have done their jobs as long as they can tick off boxes to say that they have complied with certain rules” (Treanor, 2002, p. 26) - a “tick-box mentality” that can effectively disavow the exercise of individual or collective moral responsibility.
Management Theory
Developing Alternative Perspectives on Management Theory These latter issues now provide a broader context or platform for a consideration of the views offered by Ghoshal (1999, 2005) that the activities of business schools and academics have unwittingly contributed to individual, managerial and organizational behaviors that have generated unacceptable or unwanted outcomes – fraud, bankruptcy etc. He has also suggested, with some irony, that the attention paid to so called “corporate scandals” has created “a frenzy of activities in business schools around the world” leading to courses on business ethics, corporate social responsibility and more broadly, corporate governance. In particular, he has contended that bad theory has variously and adversely impacted management practice, destroyed good practice or led to bad practice. Indeed, the scenario described by Ghoshal is one which is replete with, or redolent of, moral hazard, in the sense that deliberate and well-meaning actions of managerial actors may have unintentional, unwitting, unanticipated or unwanted consequences... in as much as those employees, say, at whom their actions/practices are directed, may, within their own environment, observe and perceive those actions/practices in unintended ways, assess their valence and efficacy in unanticipated ways, and perhaps respond in unwanted ways. It would not be a surprise, in such circumstances, that managers may interpret employees’ responses as perverse, or that employees consider managerial actions as perverse, and re-act accordingly, continually reshaping the workplace or business environment in reciprocal fashion. There is, thus, an implicit link between Ghoshal’s views and Bandura’s notions (1978, p. 345) of the importance of reciprocal interactions and reciprocal determinism in seeking to understand social and organizational learning processes and how reciprocal or mutually dependant relationships unfold. Invoking Bandura’s
conceptialisation of reciprocal determinism, we may recognize that managerial or employee behavior is not just influenced by the actions of others or by an unchanging or unyielding environment, but that the “environment is partly of a person’s own making” – both cognitively, as the individual perceives it, and behaviorally, as the individual “physically” influences it. So understanding the often seemingly random but systemic nature of the “continuous interaction between behavioral, cognitive and environment influences” which Bandura refers to as reciprocal determinism, becomes a prerequisite for deciding appropriate managerial action. In addition, we note the layered, embedded or nested nature of relationships and interactions, that individual or organizational behavior at one level may not only have impact on behavior at other levels or beyond the immediate environment, but also that the wider environment, industry or sector norms can impact individual behavior. These observations then give rise to the notion that Ghoshal’s thesis may be appropriately explored with the concepts and frameworks of systems thinking. To provide a platform for this exploration, the following section will provide a parsimonious but sufficient overview of Ghoshal’s thesis that uncritical acceptance of an ideologically-based gloomy vision of human nature (Hirschman, 1970) has led to “bad management theories...destroying good management practices”. In the subsequent section, we provide a constructive illustration of how the events and relationships embedded in Ghoshal’s arguments can be portrayed and reinterpreted using the systems representational tool of system dynamics (SD) known as a causal loop diagram (CLD). A concluding section will then provide comment on how the CLD facilitates the development of an alternative perspective generating useful insights about the gloomy vision scenario, beyond any particular context, and especially about its isomorphic mapping or resemblance to the common systemic structure
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known as the Fix that Fails systems archetype (Senge, 1990, 1994, 1999). The final section will also offer comment on how analysts may recognise, describe and communicate the potential moral hazards or unintended consequences of any “quick fix”; to seek to identify leverage points for beneficial intervention; and then to comment on how management educators might respond to the challenges of the gloomy vision.
GHOSHAL’S THESIS: BAD THEORY DESTROYING GOOD PRACTICE Whilst many academics have lamented the seeming lack of impact of management research and management theory on management practice (Porter & McKibbin, 1988; Mintzberg & Gosling, 2002; Pfeffer & Fong, 2002), Ghoshal (2005, p. 76) has expressed a different view, that, in many respects, it may have had too much impact. In particular, he has argued that “academic research related to business and management has had some very significant and negative influences on management practice” – and that these influences can be attributed to what he describes as ideologically based idea-sets and assumptions that have implicitly set the agenda for much of management research, and in some cases, and influenced the development of bad management theory. Ghoshal’s contention is that such influences thus influence the development of management theory, and can not just be attributed to what is regarded as management theory, per se. Figure 1 provides a schematic representation of Ghoshal’s narrative, arguments and concerns relating to the development of theory and its impact on management practice. We note that with respect to the development of theory, he emphasises the need for vigilance in relation to unsound, unfounded or untested ideologically-inspired ideas and rhetoric that infuse research; the unwitting negative assumptions, about unmotivated, self-interested individuals, that comprise an often tacit or non-
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articulated ideological base - which is, the gloomy vision of Hirschman (1970); the unquestioned underpinning ontological and epistemological assumptions associated with the use of scientific method. We also note the need for vigilance with respect to the presumption of rigour and comprehensiveness of the “scientific” models employed in management research – the latter contributing to what von Hayek (1974, 1989) refers to as the pretence of knowledge - a pretense (US spelling) that he suggests is less likely to attract critique from a deferential audience. Ghoshal has argued that it is the unwitting and/ or uncritical adoption or rejection of ideologically-based ideas – possibly taking form as a mutually reinforcing influencing set – that will inevitably shape theory, research, and managers’ perception of the world, their weltanschaaung, their paradigm – “legitimizing some actions and behaviour, delegitimizing others.” These views are considered to parallel those of Bandura (1978, p. 344; 1986) about how conceptions of human nature have underpinned different psychological theories, for example, not just delimiting research to “selected processes”, but also how such conceptions are shaped by research or Bandura states “shaped, in turn, by findings of paradigms embodying the particular view.” Ghoshal has also emphasised how the drive to causal determinism and the replication of what constitutes scientific method in the natural and social sciences, often excludes or requires the exclusion of human nature or moral value. He suggests that such a process will then likely contribute to not only what he terms as partial and incomplete analysis, contribute not only to von Hayek’s pretence of knowledge, but also to the continuing de facto “denial of any ethical or moral considerations in our prescriptions for management practice.” He further suggests that when such partial analysis is combined with assumptions that are predominantly negative about people, and combined with the denial of human intentionality, it may lead to what he terms “excessive truth
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Figure 1. Ghoshal’s view of the process of bad theories destroying good practice (adapted from Ghoshal, 2005)
claims” about research findings, about theory, its comprehensiveness, its applicability etc – fuelled by and fuelling the pretense. However, where such truth claims appear to reinforce the assumptions that underpinned theory in the first instance, and where such assumptions lead to the truth claims about theory, we observe an example of what we might variously describe as the phenomenon of the self-fulfilling prophecy of Gergen (1973), the double hermeneutic process of Giddens (1987), or of the reciprocal determinism of Bandura (1978). It is this double hermeneutic process in relation to theory and practice that concerns Ghoshal and Bandura. Indeed, in as much as theoryunderpinned-by-inappropriate-or-negative-assumptions-about-people informs and shapes management practice, and then that practice shapes individual behaviors that conform to those negative assumptions, then we may have created a mutually reinforcing set of reciprocal relationships that perpetuate the negative assumptions about people. Ghoshal (2005) stresses that we should be vigilant about how such hermeneutic or
mutually reinforcing learning processes arise and how they unfold. In the following section, we use a case example, provided by Ghoshal, involving hermeneutic processes arising from the gloomy vision, and then seek to illustrate the nature and value of a systems perspective by representing those processes using the CLD systems representational tool of systems dynamics.
ILLUSTRATIVE CASE: AGENCY THEORY, MANAGERIAL PRACTICE Ghoshal (2005, 1996) has previously chosen to illustrate his views and concerns by reference to the role and impact of agency theory (Williamson, 1975) on the development of processes of governance, and managerial and employee behavior. In addition, as a means of illustrating how an ideology-based gloomy vision and its negative assumptions may have impacted on theory, Ghoshal (2005) has made reference to what he refers to as the ideologically-inspired rhetoric or negative 2051
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assumptions that have come to be embodied in agency theory (Williamson, 1975). In particular, he suggests that such assumptions imply that “managers cannot be trusted to do their jobs”, “managers are self-centred” and that managers are capable of “opportunistic behaviour.” Ghoshal sees such a view as embodied in an ideology of liberalism, which he says, is “essentially grounded in a set of pessimistic assumptions about both individuals and institutions”, and which, in turn, lead to the notion of organizations needing to prevent “bad people from doing harm to others”, and needing to ameliorate the “the social costs arising from human imperfections.” In brief, as a consequence of such negative assumptions, organizations and individuals perceive a role and duty to avoid harm, rather than enabling people to do well. Such a view also accords with Hirschman’s description (1970) of the gloomy vision. However, Ghoshal claims that such negative assumptions may not only unwittingly influence how managers think about management, in general, or governance, in particular, but also influence research agendas, influence management practice and prescription, and impact on organizational and individual behavior. As a consequence, Ghoshal says managers become oriented to prevent opportunists “from benefiting at the cost of others”, and do so by being highly prescriptive, maintaining high levels of supervision, monitoring and control, and with accompanying rewards and punishments. Initially, such managerial practices and behaviors may appear to generate the intended and predicted consequences – and such practices will be re-justified, their rationale being reinforced. However, as Ghoshal and Moran (1996) have noted, over time, instead of controlling and reducing inappropriate employee behaviors, such managerial action may even exaggerate, and/or exacerbate such behaviors, re-creating Strickland’s “dilemma of the supervisor” (1958), and also reflecting Checkland’s (1999, p. 239) view that the problem solver’s perceptions and attitudes are an integral part of the problem situation “and
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of learning one’s way towards a solution.”. The basis of such a dilemma is that the very existence of such managerial controls not only feeds managerial perceptions that employees can not be trusted and that such controls are needed, but also feeds employees’ perceptions that they are neither trusted nor trustworthy. Indeed, as Ghoshal (2005) argues, “surveillance that is perceived as controlling threatens people’s sense of autonomy... decreases their intrinsic motivation... damages self perception...... eroding attitudes” and leads to a behavioral shift from “voluntary cooperation to perfunctory compliance” – a state that reinforces managerial negative views of employees being untrustworthy and unmotivated, that spawns further managerial controls, that diminishes employees’ sense of trust in managers and sense of self worth, and that undermines motivation, employee performance etc. (Enzle & Anderson, 1993). The relationships so described by Ghoshal are manifest of fundamental notions of systems and systems thinking. The latter relationships provide examples of what systems thinkers describe as feedback relationships, and which we shall portray in schematic form in the following section as feedback loops. In addition, Ghoshal (2005) refers to these latter outcomes or states as an example of a “pathologically spiraling relationship” presumably spiraling out of control. However, whilst these outcomes are what systems thinkers describe and regard as the emergent properties of a system and its embedded systemic relationships and processes, he describes them as manifest of the nature of a self fulfilling prophesy or double hermeneutic process. In systems terms, we would describe such outcomes as the consequences of a reinforcing feedback loop interacting in an erstwhile unanticipated way to generate emergent properties that, in this case, would be described as a vicious reinforcing cycle of events. The next section seeks to demonstrate this and offers a constructive illustration of a systems representation of how bad theory contributes to the supervisor’s dilemma, seeking to develop insights about the
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systemic structure underpinning the dilemma, and about how the dilemma may be addressed. Before doing so, we first provide a brief overview of how we may construct a systems representation of such relationships and reciprocal interactions.
A Causal Loop Diagram (CLD) Representation of the TheoryPractice Double Hermeneutic We begin by offering a simplified CLD representation of the theory-practice relationship described by Ghoshal (2005) as a double hermeneutic process (see Figure 2a and Figure 2b). Before we provide a narrative to explain the relationships, we define our variables as being related to management practice and management theory. Note that CLD convention requires entities to be described in neutral mode. Positive (+ve S) and Negative (–ve O) annotations then allow CauseFigure 2. Ghoshal’s double hermeneutic represented as a CLD
Effect (C-E) relationships to be described in the context of starting or changing conditions. The +ve S annotation indicates that the more we do the action at the tail of the arrow, the more the effect at the head of the arrow. For example, the more we have X, the more Y is needed. Additionally, the less we do the action at the tail of the arrow, the less the effect at the head of the arrow – ie the variables move in the Same direction for a Positive (+ve S) C-E relationship. By contrast, a Negative (–ve O) annotation indicates that the more we do something, the less the effect. For example, the more we do X, the less we do Y. Similarly, the less we do X, the more we do Y - ie the variables move in the Opposite direction for a Negative (-ve O) C-E relationship. A double bar across an arc signals that the relationship or the outcome of a relationship may be subject to delay. In this case, Figure 2a can be interpreted loosely as the more we believe in a management theory, the more that theory will inform and influence management practice. Then, the more we engage in management practice informed-by-theory, the greater the belief we have in that management theory. We would describe these relationships as constituting a virtuous reinforcing loop or cycle. As a corollary, the less we believe in a management theory, the less we make use of the management practice informed-by-theory, the less commitment we have to that theory – which constitutes a vicious reinforcing cycle. It may be noted that the parsimonious presentation of the CLD in Figure 2a requires a more comprehensive explanatory narrative, drawing attention to the importance of labelling the variables to ensure that the diagrammatic representation is more easily understood. In Figure 2b, we illustrate some minor but effective modification to the labelling, so that the variables are: acceptance of theory based-on-practice, and the use of practice based-on theory. Thus, in Figure 2b, our interpretation would be that the greater the acceptance of theory
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based-on-practice, the greater the use of practice based-on theory. Similarly, the greater the use of practice based-on theory, the greater the commitment to acceptance of theory based-on-practice. We may note that the reciprocal relationship as expressed would get stronger and stronger, that is be reinforced over time – and so our causal loop of reciprocal causes and influences would be labelled as a virtuous reinforcing loop.
A SYSTEMS PERSPECTIVE OF THE GLOOMY VISION, THE DOUBLE HERMENEUTIC AND THE FIXES THAT FAIL ARCHETYPE We now offer a CLD systems representation (see Figure 3) of Ghoshal’s and Hirschman’s (1970) gloomy vision scenario, depicted above in narrative form. In developing the CLD, we draw attention to, and illustrate two main sets of relationships that exist, and that take the form of causal loops. The top inner loop in Figure 3 is annotated as “B” – denoting a balancing loop, whilst the outer
loops are annotated as “R” – denoting reinforcing loops. It is the dynamic interaction of these loops, over the short and long terms, which give rise to what we may regard as the emergent properties of the system which manifest as the supervisor’s dilemma of Strickland (1958). Whilst the CLD appears a seemingly simple or parsimonious representation of the problem, we note that it captures the considerable complexity implicit in the prior narrative. For example, whilst Loop B shows that managerial controls may bring about intended results and compliance in the short term, such controlling behaviour will likely lead to the unintended consequence, or moral hazard of perverse behavior or perfunctory compliance, in the longer term (Loops R1, R2, R3). Our CLD thus shares characteristics with the common systemic structure identified as the Fixes that Fail (FtF) systems archetype described by Senge (1990, 1994, 1999). The essence of the FtF archetype is that the quick fix to the problem or problem symptom may bring about the desired results in the short term, but will make the problem worse in the longer term.
Figure 3. CLD representation of Ghoshal’s gloomy vision
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We illustrate the balancing mechanism inherent in Loop B, by first assuming that there is a strong managerial belief/perception of self-interested, opportunistic employee behavior, and then provide the following explanatory narrative: the stronger the managerial belief/perception of self-interested, opportunistic employee behavior, the greater will be the managerial belief in employee untrustworthiness, leading to a heightened managerial requirement to monitor, control opportunistic behavior, which, in turn, induces greater managerial use of surveillance, reward and punishment systems, and a greater alignment of employee goals to organizational goals, thus reducing the strength of the managerial belief/perception of self-interested, opportunistic employee behavior that we started with. We note the parallel between the bolded adjectival terms of the narrative and the annotated symbols indicating positive or negative relative relationships in the CLD. We should also note (without further explanation being given) that Loop B has just one negative link – an odd number of links giving rise to balancing loops. We may also observe constructively from this latter narrative that the nature of a balancing loop is that it represents how a target variable may be kept on track, or brought into line, by corrective action. By contrast, and as will be demonstrated below, the nature of a reinforcing loop is that it represents the causal relationships or systemic structure that bring about continued growth or decline in a variable of interest. Somewhat paradoxically, as indicated briefly earlier, a reinforcing loop may not only represent what we regard as a virtuous growth cycle or loop, but also what we regard as a vicious cycle. As such, it gives us useful insight about how virtuous cycles might become or be transformed into vicious cycles and vice versa, and especially about the inherent dangers of complacent or laissez-faire responses to the “good times” associated with virtuous reinforcing cycles and loops. In this case, from our narration and analysis of the CLD, we gain insights about how management may choose to
respond to what we identify as the vicious cycles of R1, R2 and R3, and to self-awareness of how their own managerial beliefs become increasingly entrenched and negative. For example, and for our narration of Loop R1, we note that if we first assume that there is a strong managerial belief/perception of selfinterested, opportunistic employee behavior,...... it will lead to lead to a heightened managerial requirement to monitor, control opportunistic behavior, strengthening the employee perception of not being trusted, driving down employee intrinsic motivation, increasing perfunctory compliance rather than cooperation by employees, which further strengthens the already strong but negative managerial belief/perception of self-interested, opportunistic employee behavior, with which we started the narration – meaning that we have an example of a reinforcing loop R1 – a vicious cycle of increasingly negative managerial beliefs and assumptions about employees, a vicious cycle of controlling managerial action which seeks employee compliance in the fulfilment of duties, and a vicious cycle of perverse employee behavior! Loops R2 and R3 can be narrated and interpreted in a similar manner. As an aside, it may be noted that the outermost Loop R3 has only positive links or relationships, making R3 an overtly reinforcing loop, but that Loops R1 and R2 have two (an even number) negative links, also making them vicious reinforcing loop. Whilst an even number or zero number of negative links will constitute a reinforcing loop, as seen here, by contrast, an odd number of negative links is characteristic of a balancing loop.
DISCUSSION AND CONCLUSION In this paper, we have examined matters relating to the development of theory, the assumptions that underpin such development, the impact of theory on practice, and how practice, in turn, may impact theory. We have demonstrated how, what
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Bandura refers to as reciprocal determinism, and what Giddens refers to as the double hermeneutic process, can be reinterpreted using the notions of systems thinking and systems representational tools, such as the CLD, to generate insights about the systemic structure underpinning the process. We note, in particular, that the CLD representation reveals the systemic structure associated with the supervisor’s dilemma, and emerging from the gloomy vision, as being akin to the Fixes that Fail system archetype described by Senge (1990, 1994, 1999). We have shown that managerial behavior of a “controlling” nature, albeit fostered by negative imagery, may generate expected beneficial consequences in the short term (characterized as a balancing loop B in Figure 3), but would then lead to employee behaviors that fuel and strengthen negative imagery in the long term (characterized as reinforcing loops R1, R2 and R3). That is, the “quick fix” makes the problem worse in the long term. Indeed, our illustrative use of how these relationships can be conceptualised as reinforcing feedback loops, provide considerable insights about how the initial ideologically-based negative assumptions about people underpin bad theory, lead to poor management practice, encourage inappropriate or perverse employee behavior, thus continually feeding the negative imagery of people etc. One beneficial outcome of our illustrative analysis is that we are able to recognize the opportunity, and perhaps necessity, to find a means of turning the vicious reinforcing loops or cycles R1, R2 and R3, into virtuous cycles, or to turn them into balancing loops, in order to prevent the negative assumptions and beliefs feeding bad theory and practice, and to prevent bad practice generating the employee responses that would strengthen those same assumptions. We do no more at this stage than suggesting that some targets for managerial intervention, or leverage points, are readily observable from the CLD, perhaps much more observable than would be the case if the
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problem was wholly represented as narrative. For example, we may seek to ensure that the perceived threat to autonomy is reduced or removed, or that employee perception of not being trusted should be assuaged, or that alternative means tapping into and boosting employee intrinsic motivation should be explored. If any of these variables could be moved in the “right” direction, then the vicious cycles would become virtuous reinforcing cycles. We suggest that the clarity obtained from this conceptualisation as a CLD can be readily used to depict the nature of the several related double hermeneutic processes, or the several examples of reciprocal determinism, embedded in the balancing and reinforcing loops, and playing out over different time scales. The balancing loop B in Figure 3 acts to explain the hermeneutic process by which managers strengthen their beliefs and commitment to managerial action because of successes in modifying individual employee behavior in the short term. However, the reinforcing loops R provide insight about how beliefs and negative assumptions about employees also become stronger or reinforced over time, increasing managerial commitment to their theory-of-choice and consequential actions, but, instead, because of failure to modify employee behavior in the longer term! As such, the CLD systems representation surfaces important insights central to Ghoshal’s thesis about how negative assumptions impact theory that impacts practice, and, in particular, how negative or inappropriate assumptions may give rise to inappropriate or bad theories that adversely impact or destroy good practice. Ghoshal (2005) has also addressed other matters that arise from the related issue of beliefs or assumptions not being made explicit, or perhaps being deliberately or unwittingly excluded from consideration. It is worth restating his argument that, on occasions, a lack of critical awareness of the underpinning beliefs or philosophical assumptions of “theory” compounds with a failure to appropriately critique research methodology and research findings, not only to leave any over-
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stated or excessive truth claims and underpinning assumptions uncontested, but also to continue the de facto exclusion from management theory of what may be other meaningful assumptions, ideas and values, for example, ethical and moral values. Such matters will be considered in a further paper. In this paper, we have sought to address a subset of issues raised by Ghoshal and others (1996, 1999, 2005) about the nature of a variety of reciprocal relationships between management theory and practice, and their impact on individual and organizational behaviour. We suggest that a deeper understanding of such issues is made possible by developing a systems perspective of such relationships, aided by use of an appropriate systems representational tool – in this case, the CLD of systems dynamics. With our constructive illustrative examination of Ghoshal’s version of the gloomy vision, we have been able to capture and convey insights of a complex of intertwined and mutually interdependent relationships; to develop insights about appropriate leverage points to target strategic intervention; and to suggest an agenda and role for management educators. We suggest that at one level, the agenda behoves management educators to confront and contest the ideological roots of premises, beliefs, assumptions about people, their motives and intents, especially where such beliefs would otherwise form an undisputed basis for the development of management theory, in general, and Ghoshal’s bad theory, in particular. At another level, it behoves management educators to understand how such premises, beliefs, assumptions etc may influence theory, and how in turn those assumptions through theory may inappropriately influence management practice, and in some cases, destroy good practice. Finally, it behoves management educators to suggest how practice may be improved. In particular, and in this case, we acknowledge how the development of a systems perspective, has not only facilitated the identification of the vicious cycles embedded in Ghoshal’s self-fulfilling prophesies and double
hermeneutic processes, but also how they may be broken or reversed.
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This work was previously published in International Journal of Strategic Decision Sciences (IJSDS), Volume 1, Issue 3, edited by Madjid Tavana, pp. 33-48, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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Chapter 7.14
Global Issues in Human Resource Management and Their Significance to Information Organizations and Information Professionals Gail Munde East Carolina University, USA
ABSTRACT This chapter examines global challenges identified in contemporary human resource management literature, and discusses selected challenges as they relate to information organizations and information professionals. The challenges include skills shortages, talent management, shifting demographics, work/life balance, and managing intergenerational and intercultural work groups. DOI: 10.4018/978-1-60960-587-2.ch714
Approaches to these challenges are discussed as reported in the literature of human resource management, library management, and information technology, as well as those suggested by the author. The chapter may be of interest to employers, managers and supervisors of information professionals; emerging, entry-level and senior information professionals at all career levels and in all types of information organizations; human resource managers in all types of information organizations.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Global Issues in Human Resource Management and Their Significance to Information Organizations
INTRODUCTION As a discipline, human resource management (HRM) has a lot to offer, both in theory and practice, to information professionals and the organizations they support. Although major thought in HRM is developed largely in and for corporate settings, the principles and practices have import for non-corporate organizations such as public libraries, academic libraries, libraries within government agencies, and many special libraries of all types. Examining information organizations from an external HRM perspective affords the evaluation of trends and issues and to identify the themes most relevant to information professionals, their workplaces and their larger organizations. This chapter discusses global challenges identified within the HRM literature as they relate to information organizations. The challenges include skills shortages, talent management, shifting demographics, improving work/life balance, and managing an intergenerational and intercultural workforce.
Critical Issues in Human Resource Management In alternate years, the Society for Human Resource Management (SHRM) reports global trends based on forecasts developed by 13 expert panels, each of which reports its consensus on one aspect of HRM. The most recent report, the Workplace Trends List for 2007-2008 (2007) emphasized the following key themes: globalization and immigration, demographic change and its impact on diversity and labor availability, increasing health care costs, skills shortages and increased emphasis on talent management, the influence of new technologies (especially social networking), and a greater reliance on metrics to assess human capital and the effectiveness of human resource departments. SHRM also surveys its membership directly, identifies and ranks critical issues, and publishes a related report, the most recent of which
is the SHRM Workplace Forecast for 2008-2009 (2008). In contrast to the SHRM Trends List, economic issues received greater attention, and were highly ranked as issues, certainly reflecting the global economic downturn of 2008. The ten Forecast challenges in order of importance were: • • •
• • • • • • •
Continuing high cost of health care in United States Large numbers of baby boomers (19451964) retiring at around the same time Threat of increased health care/medical costs on the economic competitiveness of the United States Aging population Growing need to develop retention strategies for current and future workforce Federal health care legislation Preparing organizations for an older workforce and the next wave of retirement Threat of recession in United States or globally Labor shortages at all skill levels Demographic shifts leading to a shortage of high-skilled workers (p. 6)
Yet a third report, Creating People Advantage released by the Boston Consulting Group and the World Federation of Personnel Management Associations (2008), echoes similar themes, noting: In the near future, companies will face eight particularly critical HRM challenges that fall into three strategic categories: •
•
Developing and Retaining the Best Employees. The first category consists of the challenges of managing talent, improving leadership development, and managing work/life balance. Anticipating Change. The second category encompasses managing demographics, managing change and cultural transformation, and managing globalization.
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•
Enabling the Organization. The third category consists of becoming a learning organization and transforming HRM into a strategic partner.” (p. 4)
HRM Trends of Greatest Concern in Information Organizations Most libraries or information centers are located within larger organizational or institutional structures and are not in control of their own salary and benefit programs, e.g., contracting for health insurance and retirement programs, determining furlough or general pay reduction schemes, establishing cost-of-living and performance pay increases. However, the library is still expected to change along with the parent organization and respond effectively to whatever HRM policies are adopted to cope with a recessionary economy. In short, library and information professionals usually do not make HRM decisions that involve continuing employment costs and have little control over health care costs, federal health care legislation and the general economic competitiveness of the United States. However, the library has immediate control over the “people” or “soft” aspects of employment that account for much of an individual’s productivity and contribute to organizational success— recruitment, selection and retention; leadership and expertise development, and job satisfaction. These functions constitute the library’s effective HRM span of control, and library leadership has great influence on them. A number of the global trends identified earlier relate directly to factors within the library’s span of control. Expected retirement trends and continuing technological change will raise the issue of general skills shortages, both for traditional and new or emerging skill sets. This will make retaining talent or “high potential” staff members even more important if skill shortages continue. Offering opportunities to high potentials for developing leadership and/or expertise
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early in their employment is one of the essential techniques of talent management. Because of demographic and economic trends, the workplace is expected to become more intercultural and more intergenerational and this pluralism will require greater knowledge, understanding and sensitivity. As a result of these demographic, economic and generational changes, the ability to establish a realistic balance between work and life will become a major determinant of job satisfaction. This chapter discusses the challenges further, and in detail specific to libraries and information organizations.
General Skills Shortages Most HRM forecasts predict retirements will continue despite the economic downturn, although age at retirement may increase slightly. The expected “baby boom” wave of retirements is the basis of the general skills shortage prediction, although the demand for research-level scientists in the hard sciences, technology, engineering, and math has been affected by decreased supply in addition to anticipated losses from retirement. The skills shortages concern indirectly relates to another high-concern issue, the increasing costs of health insurance and health care. SHRM Workplace Forecast identified the top three challenges as the continuing high cost of health care in the United States, the large number of baby boomers all retiring during a relatively short span, and the threat of increased health care/medical costs to the global economic competitiveness of the United States. These challenges all turn on the impending demographic shift caused by an aging workforce. The Employee Benefit Research Institute (EBRI) publishes an annual Retirement Confidence Survey®. The 2008 survey found that overall retirement confidence, the percentage of workers who were very confident about having enough money for a comfortable retirement, experienced the biggest one-year drop (9%) in the 18-year history of the survey. (p.1) Given recent
Global Issues in Human Resource Management and Their Significance to Information Organizations
declines in consumer confidence, worries about health costs, a devastated economy and shrinking job market, and the decline in home values, it is only reasonable to expect those in good health might delay retirement. For many recently-retired persons, and those who are presently considering retirement, health insurance and health care influence retirement confidence. EBRI (2008) further reports: “Workers continue to try to push back their expected retirement age, often with the intention of improving their current financial situation or to increase their financial security in retirement. The typical worker expects to retire at age 65, and 20% of workers plan to push on into their 70s.” (p. 5) In general, there will be shortages of skilled employees, but predicting exactly when the shortages will begin, how long they will last, and what jobs will be affected, is impossible. Shortages are often a local or regional phenomenon and may not reflect gross national indicators, but thinking through the general HRM framework allows managers and individuals in information organizations to estimate the scope of the effect and to do some individual interpretation based on the factors most relevant to their situations.
Skills Shortages in the Information and Library Professions Are there shortages, and will there be shortages of information technology (IT) and library professionals? In both fields, prediction and debate have been ongoing for at least ten years, and certainly the 2008 economic downturn will continue to moderate earlier predictions of workforce supply and demand. Information Week featured a point/counterpoint debate on the credibility of claims about workforce and skills shortages. Hira (2008) argued that despite a 40% drop in the number of US undergraduate computer science majors during 2001-2006, there was no real shortage. He noted that wages were holding steady with only modest growth beyond inflation, and that college
enrollments had bottomed out and stabilized. He blames the “train wreck of 2002-2004,” or the “dot com bust” with introducing such a high degree of risk and uncertainty into IT careers that it became unattractive to potential students. Compounding the supply problem, many senior workers laid off during the train wreck years never returned to IT. Hira also suggested that it might benefit large IT companies to promote an impression of shortages in order to soften the blow of large-scale outsourcing to other countries; the real goal being to access cheaper labor rather than to fill shortages. He was also suspicious of industry’s motivation for supporting an increase in the number of H-1B visas, which would increase the number of guest workers in the United States. He suggested that companies who argued for increases to prevent foreign outsourcing actually wanted to use guest IT workers to suppress salaries in the US. In short, his opinion was that there was no shortage of skilled IT professionals, and no immediate risk of shortages. Luftman (2008) countered that not only was the skills shortage real, but it would only get worse, given the 70 million baby boomers exiting the work force in the next 15-30 years. He cited facts familiar to educators about math and science education in the United States, e.g., only 13% of graduate degrees are awarded in the sciences, most middle school teachers are not certified to teach math, and about one-third of high school students drop out. All true, but not shocking to most educators and librarians involved in education, and hardly trends of recent vintage. Perhaps some of the difference between Luftman’s and Hira’s opinions arises from Luftman’s longer and more historic perspective. Luftman’s timeline began with the “space race” years of US dominance in science and technology, and continued beyond the retirement of the very youngest baby boomers. He looked at long-term peaks and valleys, while Hira looked at the immediate past. Information organizations, especially within small companies and public institutions, are largely unable to plan
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their workforces as far out as the large global IT companies, and may be better advised to rely more upon the “no immediate shortage” prediction than Luftman’s predicted “skills famine.” Within the IT profession in general, specific skills are more desirable in the current environment, and these “hot” skills may offer hints about the direction retraining and professional development for existing staff in information organizations should take. Reporting in Computerworld, Hoffman (2008) enumerated the nine “hottest skills” for 2009. The top skill in both 2008 and 2009 was identified as “SAP.” SAP stands for Systems, Applications and Products, also called “enterprise software.” These applications aim to solve organization-wide or functional problems common across organization type, e.g., managing and producing accounting and financial information, human resource information, customer service/management systems, etc. Library equivalents might include various information search and retrieval systems for large databases, online catalogs, image or media storage systems, and digital repositories. Other 2009 hot skills for which strong need was expected, along with a rough library equivalent in parenthesis, included help desk/technical support (telephone and online reference or technical assistance provided 7/24), project management (digitization projects, implementing new systems or software versions), network convergence (portal building), and business intelligence (management information systems for assessment, evidence-based planning, and accreditation of educational institutions). Designing and using Web 2.0 applications was seventh “hottest skill” in the Computerworld forecast, and one that appears to be of high interest to information organizations serving young populations. Where do information professionals learn these skills? The identity crisis in library education may be resolving itself and the evidence is the “iSchools” Caucus (2009). The iSchools are 21 library education programs interested in the relationship between information, people and
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technology. This is characterized by a commitment to learning and understanding the role of information in human endeavors. The iSchools take it as a given that expertise in all forms of information is required for progress in science, business, education and culture. This expertise must include understanding of the uses and users of information, as well as information technologies and their applications. Certainly the iSchools movement in library education has produced graduates eager to apply technology in the service of libraries, but libraries have not been entirely prepared to embrace them. Often, traditional department names and job titles do not describe the role or purpose for which these new professionals were trained. Perhaps they should be considered something more like internal technology “consultants” and be involved in activities that we usually think of as administrative or managerial – in planning and strategy, internal research, marketing and assessment—as well as specific duties like database management, web design, and user instruction. It is interesting to note that as undergraduate enrollments in computer science have declined, graduate enrollments in library education programs have increased. Does this mean the emphasis on information technology in iSchools attracted at least some who had considered and rejected computer science? We may be at the point that it is time to stop predicting a shortage of librarians and use the workforce already prepared by iSchools and more traditional library educational programs. A shrinking market for librarians and information professionals could be an opportunity for the two roles to merge. If there can be school library media specialists, why could there not be library information specialists? Stanley Wilder (1995) did the profession a great service by identifying a coming shortage of academic librarians. Based on all the demographic indicators, it was a timely and accurate prediction. Wilder has revised his position since, and given
Global Issues in Human Resource Management and Their Significance to Information Organizations
the events of the last 14 years, this is only natural. Wilder (2009) now asks: What would delayed retirement mean to academic librarianship? The first to go would be the projections of the age profile of U.S. ARL librarians developed in conjunction with my two reports for ARL, which would become obsolete should retirement behavior change significantly. Next, it should be said that delayed retirements would not affect all librarians equally. For example, ARL directors may have already begun to delay: in 2000, 2% were 65 and over, jumping to 9% in 2005. In functional areas of the academic library, catalogers were not far behind at 7% but the impact is negligible on IT professionals, the youngest job category in the ARL data. …I have been saying that the anticipated shortage of librarians is unlikely, but a bad economy with delayed retirements would make it harder still to imagine generalized labor shortages in our profession. We are far more likely to see large applicant pools chasing a reduced number of openings. His comments introduced a string of blog postings from academic librarians, both employed and unemployed. Many noted that delayed retirements were not the only factor making jobs scarce—hiring freezes and losing vacant permanent positions altogether were compounding the difficulty of finding that first professional position. A 2008 post on the Law Librarian Blog invited discussion on the question, “Do senior librarians have a moral obligation to retire?” The consensus was a resounding belief that newcomers had no entitlement to jobs, but the secondary theme was strong resentment of incompetence and “deadwood” at any age. If recruitment for open positions is less difficult because of the overproduction of graduates, and fewer permanent positions are being retained, then staff rosters stabilize and talent management becomes a more pressing challenge than skills shortages.
Talent Management Talent management is the art of retaining and developing the best employees, who are often called the “high potentials.” The Conference Board defines talent as “individuals who have the capability to make a significant difference to the current and future performance of the company.” (2004, p. 3) Talent goes beyond simple competence and skill to include an employee’s long-term potential for contributing to the organization. Talent management was first applied at the managerial and leadership levels, but has since been involved at all levels of the organization. The hallmark abilities of high potentials are problem solving, motivating and influencing others, and generating innovation. Key attributes of high potentials include strong work habits, the ability to get along with others, and the desire for continuous learning. Some companies who depend upon innovation to stay in business hire for these abilities rather than for knowledge, skills and experience. Their competitive edge is based on capturing talent and then determining how best to deploy it within the organization. Libby Sartain, former HRM leader at Yahoo!, predicted: “In the future, HR won’t respond to requests from line managers to find a particular type of applicant. Instead, and especially as talent becomes more scarce, HR will scout out great talent, hire them and find a job for them within the company.” (Davis & Mirza, 2008) This is rarely possible in a culture typical of non-profit information organizations and unionized workplaces, which carefully draw pay steps or career bands and set expectations for predictable, measured advancement. Other than in some corporate settings, libraries probably do not have yet what HRM literature calls a “talent mindset,” which is a fundamental belief in talent as a construct, coupled with viewing the organization not as a group of individual employees, but as a general pool of capabilities that can be identified, inventoried and developed. However, such an
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organic perspective may be better received during budgetary recessions. During these periods, staffing changes can be extreme, and innovative responses are more likely to be permitted. To be blunt, one of the few times creativity appears to be encouraged in public sector institutional HRM is during difficult economic times. The important tasks of talent management are two: Optimizing the entry experience of new staff members, and developing the skills of existing staff members. Markgren, Dickinson et al. (2007) surveyed 464 new and early career librarians to explore the prevalence of what they called the “five-year itch,” or “when a librarian purposefully switches jobs or roles at least once within his or her first five years as a professional.” (p. 71) They found that 28% of the librarians who had worked less than one year had already changed jobs; by the third year, 59%, and by the fifth year, 81%. “Job change” included lateral moves, promotions or role changes, noting that “Overwhelmingly, new librarians move to new jobs or roles with different institutions.” (p. 73) Half of the respondents had considered leaving the professional altogether. Questionnaire comments revealed such dissatisfactions as lack of support for professional development and of opportunities to be mentored, rigidly defined work roles without latitude for exploration or innovation, perceived lack of professional respect from senior peers, and negative attitudes toward collaboration or change. Newhouse and Spisak (2004) documented many of the same complaints among public librarians who had been working one year or less. The authors summarized the difference between the attitudes of new librarians and more experienced ones as “They will not accept the traditionalist nature of librarianship. They are unhappy with the way libraries are run and operated. They dislike the lack of openness to new ideas and new colleagues, the low pay they are forced to endure, and the true shortage of jobs.” (p. 45) Poor retention rates are expensive and disruptive to service organization. They leak talent out
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of the organization, and alarmingly, out of the profession in general. The accepted rule of thumb is that recruitment and initial orientation/training of a new professional employee costs about 150% of the annual salary of the position. Even if not a direct cash loss, it is certainly an opportunity cost to be avoided when possible. The combination of generations in the workplace, a cohort of senior workers delaying retirement alongside a cohort of junior workers eager to blaze new trails, probably accounts for some of the work disenchantment of both groups. How can information organizations retain the “high potentials” and motivate maximum performance among mid- and late-career members? Addressing the needs of new professionals reported anecdotally by the earlier studies would suggest that they feel somewhat abandoned by leadership after a brief time on the job. Regular, periodic contact with leaders should be maintained during the first year through face-to-face meetings. If the organization is large enough, new employees should be encouraged to meet together at work or socially, which will encourage affiliation with individuals, as well as with the larger organization. Professional development opportunities personally selected by new employees should be supported with a minimum of paid time off, and partial or full reimbursement for registration or tuition. Most performance reward systems offer regular pay increases doled out each year, and do not emphasize the first five years of employment. Higher percentage increases during this period might encourage new employees to stay longer— long enough to move up in the organization. Lateral moves during the first five years should never be considered losses. In fact, they help prepare early-career employees for later vertical moves. Temporary or “stretch” assignments should also be considered professional development opportunities and cost little to nothing. Rather than ignore the ambition of high potentials, leadership should consciously help them plan their futures within the organization and the profession.
Global Issues in Human Resource Management and Their Significance to Information Organizations
Mid-career and retirement-age employees can suffer from boredom and might appreciate opportunities for temporary assignments or lateral moves also, but the expectations must be clear and specific. They should have equal access to professional development or retraining programs, and since they often represent middle and higher management, they should receive training in intergenerational leadership. Mentoring and reverse mentoring (when new employees help senior career employees develop technology or other new skill sets) can be effective. Just as organizations should help prepare their high potentials for future careers, they should help career-mature employees ensure their last years in the workplace are as productive as possible. Many wish to transition to retirement after their careers instead of moving directly from full-time work to full retirement. This accounts for the success of early and phased retirement programs, part-time work (immediately before, and even after retirement), and seasonal appointments (working full-time, but for fewer than 12 months a year). The Pension Protection Act of 2006 made such arrangements easier for employees with defined benefit retirement plans by easing IRS regulations on pension benefits paid to retirees continuing to work. Prior to the Act, organizations were not allowed to pay retirement benefits from these plans before termination of employment. The Act allows payment of benefits to in-service workers age 62 or older, making it practical to live on a combination of retirement benefits and reduced salary.
Shifting Demographics and the Intergenerational/ Intercultural Workforce The workforce in general, and in information organizations, is becoming more intergenerational and intercultural, and this trend is likely to continue. Different generations value different benefits and rewards. Older employees typically place higher value on employer stability and job security,
health coverage, and retirement benefits. Younger, entry-level employees tend to place higher value on flexible scheduling, meaningful and creative work, good professional development opportunities, and paid time off. (The Segal Company, 2008) However, despite the service orientation that career mature professionals often expect of newer professionals, compensation may be more important to attracting and retaining newer workers. Frequently single with one income, and with less savings and more debt (school loans), new professionals need to earn realistic starting salaries. (Markgren, Dickinson et al., 2007) Of course, these are generalizations based on age, but there are some consistent generational differences that merit HRM consideration. Conflict between age cohorts can surface if there is a perception of unfair treatment or that one group receives an “automatic” privilege, such as longevity pay or increased vacation leave for senior staff, or “better” professional development and training opportunities for junior staff. Even when employment benefits are based on years of service rather than chronological age, the two are often simultaneous conditions. Younger workers can become frustrated if they believe their own advancement is slowed because older workers are hanging on to higher-level, better-paying positions, especially if the perception is that incumbents are outdated, stagnant, or sluggish performers. It is possible for younger workers to develop “technology egos” and overestimate the value of their skill sets. This can be especially dangerous thinking because specific technology applications are notoriously frail and short-lived. The age of a person or his/her educational preparation and career maturity are not reliable indicators of interest and adeptness with technology. However, having grown up with advanced technology as an integral part of life, e.g., cell phones and texting, the Internet, Facebook, etc. does tend to establish an early comfort level and self-confidence about learning and re-learning the uses of technology. It is equally possible that senior workers might
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react to junior workers’ expertise with technology as a threat, and respond by hoarding whatever is thought to be their strong suit, e.g., finance, administration, policy development. This strategy is equally dangerous for the organization. Expertise and intelligence critical to the organization should never be confined to a single person or held by a small group. No one works forever and no one lives forever. The best approach to talent management is to propagate as many competencies as widely as possible throughout the organization. The best way to encourage a perception of fairness is to be fair—to establish policies and practices that are age-blind, but also consider the needs of individuals at various career points. AARP (2007) published a white paper that enumerated some best practices for managing an intergenerational workforce, which included: • •
•
• • • •
Training managers to lead multigenerational teams Training staff on generational communication styles, values, and workplace motivators and de-motivators Developing life-cycle employment and benefits programs that suit various age groups Creating work/life and wellness programs of all types Offering continuous professional development opportunities for all Conducting an ergonomic needs analysis for all employees Studying the generational composition of the workforce and using it to guide HR strategies, and for comparison with the organization’s customer base (p. 21-24)
In addition to becoming intergenerational, the workforce is expected to become intercultural as immigration and globalization continue to increase. This also has implications for language and communication, EEO compliance, and policymaking. In smaller workplaces, it may mean
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respecting individual customs or manner of dress, making sure employees have time off for spiritual or religious events, and checking more often to verify that communications were understood correctly, but it also means understanding the complex nature of our own cultural expectations for workplace behavior. Grove and Hallowell (2002), an interculturalist and an anthropologist, developed a highly-adaptable cultural values perspective about the meaning of “professional” behavior. Beyond defining professional as a type or status of work to be performed, it also refers to the set of personal behaviors we consider appropriate and even admirable in work situations. This set of behaviors is so complex that it requires striking an expert balance between sets of contrasting values. Grove and Hallowell called them the “seven balancing acts” of professional behavior in the United States. Restated briefly, they are: •
•
•
•
•
•
Individualistic yet restrained. The ability to maintain one’s intellectual independence and individual modes of expression without becoming offensive, annoying or “out of line.” Egalitarian yet respectful. The ability to recognize when it is appropriate to defer to someone in a higher position, and when it is appropriate to interact informally with that person. Assertive yet sensitive. The ability to be assertive, but not cross the line to aggression or behaving abrasively. Accurate yet tactful. The ability to wield facts or business information effectively, but in ways that do not damage others, shame them, or cause them to lose face. Punctual yet patient. The ability to respect the others’ time and schedules, but to be understanding when they are unable to respect yours due to their burden of work. Warm yet cool. The ability to maintain a relaxed and rational impression and even
Global Issues in Human Resource Management and Their Significance to Information Organizations
•
convey interpersonal warmth when upset, surprised or angry. Optimal yet practical. The ability to aspire to perfection but settle for timely and beneficial results.
Perhaps many cultures have the same “balancing acts,” but with different acceptable balance points. Simply being aware of the cultural expertise required to negotiate such intricacies may help immigrant and international employees and their US co-workers better understand the difficulty of working outside the “home” culture.
Work/Life Balance Although no longer a “feminized” profession, the majority of information professionals are still women, who at different points in their careers may have greater need to balance work with their “real” lives. Satisfaction with work, for men as well as women, includes equitable pay and the opportunity for advancement, but also the ability to balance career with children and/or aging parents. Library workplaces are still predominantly populated by women, who often assume major roles as caregivers for children or parents, and more often use Family Medical Leave Act (FMLA) benefits for childbirth or adoption than do men, despite the benefit being available equally to male employees. The lack of universal preschool and increasing commute times in urban areas do not make the problems any easier for women and families (Katz, 2007). Libraries, like many other organizations, have also become increasingly staffed by an intergenerational workforce, and the life challenges faced by different age groups vary. For younger workers, not just women, paid time off and flexibility in scheduling are higher contributing factors to job satisfaction than older workers, who tend to place higher value on health benefits than leave benefits (The Segal Company, 2008). So, there can be two age cohorts within the same library, and even within the same work
group, who need and want flexibility in terms of reporting, albeit for different reasons. In addition to more flexible work hours, the literal concept of “workplace” as a bricks and mortar office is changing. Brian Schipper, senior vice president of human resources at Cisco Systems believes that “workers, especially young workers, are revising the term work/life balance to mean ‘working whenever, wherever.’ If work can be done from a home office, PDA, cell phone or web cam, “why be physically present?” (Davis and Mirza). Care should be taken to ensure that flexible work arrangements apply to all functional units, e.g., front and back of the house. Discrepancies can arise from the essential duties of public service positions, i.e., being available to serve during a set of ever-expanding hours, but does not excuse the library from optimizing flexible scheduling for public service staffs, or from enforcing core work times for technical service staffs. To do otherwise could support an argument that treatment is disparate if it happens to coincide with membership in protected groups, e.g., race, gender, disability, age, etc., or between lower-paid and higher-paid workers. In addition to improving general morale, paying attention to work/life balance issues for all employees is good for the user base. When staff are unhappy, this can be transmitted to users as disrespect for the library or co-workers, distracted or discourteous treatment, or simply bad service. The umbrella organization or library system may have implemented work/life balance programs already, but less often has promoted them before the point of immediate need. Library staff may not recognize them as tools to balance work and life, or may think of them as programs only for those extremely affected by critical health challenges. In fact, they are benefits designed to attract, retain and avoid the termination of employees. The most familiar ones include paid sick and vacation leave, leave for child or school functions, flextime, compressed work weeks, e.g., working four ten-hour days, intermittent or tempo-
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rary work-from-home arrangements for stranded caregivers, wellness programs, shared or donated leave banks, bonus pay or partial retirement credit for unused sick leave, and employee assistance programs (EAPs). EAPs can be powerful, but are frequently underutilized because they attempt to provide assistance with problems that have been stigmatized (substance abuse, family violence, chronic depression) and problems that are difficult for a person to admit and for the supervisor to broach in conversation. FMLA leave can be used multiple times by eligible employees if necessary, and can “bridge” an employee through childbirth or adoption, difficult medical treatment, or severe illness for self or immediate family members. Whatever the generational or cultural makeup of a specific group of employees, offering work/ life balance programs becomes the “human face” of the organization, and can be expected to become more important in the future as supplemental compensation.
SUMMARY AND CONCLUSION Global trends in HRM make it clear that organizations of all types face new challenges in retraining, retention and development of employees. Each trend has special implications for library and information organizations and their personnel. By their very nature, information organizations should be flexible, adapt well to change, and welcome new ideas and new ways of doing business. Information organizations can position themselves to take advantage of the global trends in HRM, for each trend offers an opportunity to enrich the workforce. The first step to address the challenges discussed in this chapter would be to interpret them in a specific work group and environment. A good start would be drawing a generational chart of the current workforce. Taking note of the knowledge, skills and capacities of each age/experience cohort should reveal future needs for retraining and for
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redeploying people or positions. It may reveal overdevelopment in some skill areas, gaps in others, and give some indication of the potential need for succession planning. It may suggest directions for reshaping current HRM strategies such as work/life balance programs, reward systems and performance evaluation to better fit the group’s needs. It would also be useful to broaden the range of staff development opportunities beyond advanced technical training to include “soft skills,” e.g., interpersonal communication, the principles of intergenerational and intercultural understanding, and making sure employees were aware of benefit programs already available within the organization. Depending on the composition of the workforce and the level of tension or outright conflict, such training may be well worth the cost. The final suggestion is for all information professionals at every level of the organization-the human resource discussed so casually in this chapter: Your greatest assets are your flexibility, your creativity, and your willingness to experiment. These should be applied vigorously to the workplace challenges of the future.
REFERENCES AARP. (2007). Leading a multigenerational workforce. Washington, DC: AARP. Retrieved from http://assets.aarp.org/www.aarp.org_/ articles/money/employers/leading_multigenerational_workforce.pdf Boston Consulting Group and the World Federation of Personnel Management Associations. (2008). Creating people advantage: How to address HR challenges worldwide through 2015, Executive Summary. Retrieved from http://www. bcg.com/impact_expertise/publications/publication_list.jsp?pubID=2638
Global Issues in Human Resource Management and Their Significance to Information Organizations
Davis, N., & Miraza, B. (2008, September 26). Thought leaders focus on finding, keeping talent. HR News. Retrieved from http://shrm.org/ hrnews_PUBLISHED/articlesCMS_026727.asp Employee Benefit Research Institute. (2008). The 2008 retirement confidence survey (Issue Brief No. 316). Retrieved from http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3903 Grove, C., & Hallowell, W. (2002). The seven balancing acts of professional behavior in the United States: A cultural values perspective. Retrieved from http://www.grovewell.com/pubusa-professional.html Hira, R. (2008, January 14). No, the tech skills shortage doesn’t exist. Information Week. Retrieved from http://www.informationweek.com/ news/management/outsourcing/showArticle. jhtml?articleID=205601556 Hoffman, T. (2008, December 30). The 9 hottest skills for ’09. Computerworld. Retrieved from http://www.computerworld.com/action/article.do ?command=viewArticleBasic&articleId=330106 Katz, M. (2007). Saying ‘Yes’ to success: Creating the engaged employee. Women in Business, 58(6), 26–29. Law Librarian Blog. (2008, July 24). Do senior librarians have a moral obligation to retire? Messages posted at http://lawprofessors.typepad.com/ law_librarian_blog/2008/07/do-senior-facul.html Luftman, J. (2008, January 14) Yes, the tech skills shortage is real. Information Week. Retrieved from http://www.informationweek. com/news/management/training/showArticle. jhtml?articleID=205601557 Markgren, S., Dickinson, T., Leonard, A., & Vassilliadis, K. (2007). The five-year itch: Are libraries losing their most valuable resources? Library Administration and Management, 21(2), 70–76.
Newhouse, R., & Spisak, A. (2004). Fixing the first job. Library Journal, 129(13), 44–46. Society for Human Resource Management. (2007). The 2007-2008 workplace trends list. Retrieved from http://www.shrm.org/trends/ Society for Human Resource Management. (2008, June). SHRM workplace forecast for 2008-2009. Alexandria, VA: Society for Human Resource Management. The Conference Board. (2004). Integrated and integrative talent management, Executive summary (Report R-1345-04-ES). New York: The Conference Board. The iSchools Caucus. (2009). The power to transform lives. Retrieved from http://www. ischools.org/ The Segal Company. (2008). The public sector rewards of work study. Retrieved from http://www.segalco.com/publications/ surveysandstudies/2008PSROWage.pdf Wilder, S. (1995). The age demographic of academic librarians: A profession apart. Washington, DC: Association of Research Libraries. Wilder, S. (2009, January 5). Still waiting for those old librarians to retire [Msg 1]. Message posted to http://acrlog.org/2009/01/05/still-waiting-forthose-old-librarians-to-retire/
ADDITIONAL READING Armour, S. (2005, November 6). Gen Y: They’ve arrived at work with a new attitude. USA Today. Berger, L. A., & Berger, D. R. (2004). The talent management handbook: Creating organizational excellence by identifying, developing and promoting your best people. New York: McGraw-Hill.
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Eyster, L., Johnson, R. W., & Toder, E. (2008). Current strategies to employ and retain older workers [Final report to the Department of Labor]. Washington, DC: The Urban Institute. Retrieved from http://www.urban.org/publications/411626. html Hill, A., & Johnson, J. (2008). Stephen Abram on the new generation of librarians. Texas Library Journal, 84(3), 118–120. McCauley, C., & Wakenfield, M. (2006). Talent management in the 21st century: Help your company find, develop and keep its strongest workers. Journal for Quality and Participation, 29(4), 4–7.
Mullan, E. (2008). The generational divide: World of work survey encourages collaboration. EContent, 31(9), 16-17. http://www.econtentmag.com/ Schachter, D. (2008). Managing your talent will ease the looming rush to retirement. Information Outlook, 12 (4), 40-41. http://www.sla.org/pubs/ serial/io/index.shtml Singer, P., & Goodrich, J. (2006). Retaining and motivating high-performing employees. Public Libraries, 45(1), 58–63.
This work was previously published in Recruitment, Development, and Retention of Information Professionals: Trends in Human Resources and Knowledge Management, edited by Elisabeth Pankl, Danielle Theiss-White and Mary C. Bushing, pp. 157-169, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development of Human Resource Intranet Use? Karine Guiderdoni-Jourdain Université de la Méditerranee, France Ewan Oiry Université de la Méditerranee, France
ABSTRACT In organizations, researchers as well as professionals have generally observed insufficient use of computer technologies when compared to their expected outcomes before their implementation (Bowers, 1995). Reiterating in detail Orlikowski’s theoretical propositions, the authors try to impart a clear theoretical status and to identify how DOI: 10.4018/978-1-60960-587-2.ch715
transformation of the « artifact » can eventually transform uses. Using a longitudinal case study describing uses of a HR Intranet in an aeronautical firm, the authors want to show that: computer technology conception integrating user’s needs, which scientific literature usually calls « user centered » conception, allows use development. However, data gathered in the interviews allows stating that this kind of conception achieved to develop uses only because it was in a strong interaction with corporate policy.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
INTRODUCTION In organizations, researchers as well as professionals have generally observed insufficient use of computer technologies when compared to their expected outcomes before their implementation (Bowers, 1995). This phenomenon can be explained through the characteristics of the individuals using them: some have a negative perception of technology, others fear the consequences on their own activity or on their influence within the organization (Markus, 1983; Marakas, & Hornik, 1996). Even if these criteria must not be minimized, the scope of this phenomenon constrains researchers to identify complimentary explanations. In this reflection, the conceptual framework proposed by Wanda Orlikowski (2000) emerges as being clearly fundamental. This author offers a coherent and structured conceptual framework that allows analysis of the reasons that conduct an actor to develop a particular use « style » for a specific technology. She especially insists on creative user capacities by showing that uses of a given technology can be very different. Reiterating in detail her theoretical propositions, our article develops her work on two points. First, even though her theory allows for it, Orlikowski does not develop concrete examples showing how use evolves. We propose an example. Then, by highlighting user’s creativity, she seems to minimize the influence of the graphic interface (what is seen on the screen) in the uses. By naming it « artifact »—a term, which comes from Orlikowski (Orlikowski, 2000)—our article tries to impart a clear theoretical status and to identify how transformation of the « artifact » can eventually transform uses. Using a longitudinal case study describing uses of a HR Intranet in an aeronautical firm, this exploratory research allows us to see that computer technology conception integrating user’s needs, which scientific literature usually calls « user centered » conception, (Beyer& Holzblatt, 1998),
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allows use development. But data gathered in the interviews allows stating that this kind of conception achieved to develop uses only because it was in a strong interaction with corporate policy. After a literature review centered on Orlikowski paper (2000), we will present our research design then detail main results of our exploratory research.
COMPUTER TECHNOLOGY USE LITERATURE REVIEW In the computer technology research field the question of use occupies a paradoxical position. This question seems to have always been at the heart of conceptors preoccupations and still, literature offers few theories allowing to understand and to anticipate development of use in concrete company situations. On this level, Orlikowski’s contribution (2000) is particularly motivating. After presenting it in detail we will continue by developing two areas that she explored less: technology use evolution and the role of the graphic interface (artifact) within this evolution.
Concrete Use are Relatively Absent in Research Analysis In the area of computer technology research, the question of use occupies a paradoxical status. On one hand, the question has been the object of diversified and in-depth investigations. For example, the « Human Computer Interaction » (HCI) approach has focused on use since its goal is to improve the « usability» of technologies (Ruta, 2005). That is to say ergonomical technologies that demand minimal user learning in order to be used. In a more cooperative development logic, the Computer Supported Cooperative Work (CSCW) approach has also focused on use of IT solutions (Greif, 1988). But, even if those literatures have placed the uses at the very centre of their reflection, they talk finally very little of «real» uses for their technolo-
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
gies. Indeed, the uses analyzed are more often those of the designers themselves—who test their tools in an attempt to improve them—or those of specific users, often placed outside their classical work conditions, put in the specific position of «testers» of a technology. Indeed, if scientific works and prototypes proliferate in those communities, the successful implantations of software remain rarer (Grudin, 1988; Markus & Connolly, 1990; Olson & Teasley, 1996). This fact makes the analysis of uses more delicate since it is known that the users positioned in a role of «co-designers» do not have the same behaviour as the «real» users and these test situations (even reconstructed or within the context of an experiment) are rather different to real use situations (Bardini & Horvath, 1995; Woolgar, 1991).
A New IT Structuration Perspective: Beyond Appropriation Towards Enactment According to these considerations, we would like to focus on the major contribution of Orlikowski (2000). This author is one of the first to question and to place companies’ employees’ practices in the center of her reflexion as well as offering a theoretical framework to analyze them. By revisiting the theory of structuration proposed by Giddens (1984) Orlikowski aims at branching out distinctively from the “social constructivism” approach (Mac Kenzie & Wajcman, 1985; Bijker & Alii, 1987; Woolgar, 1991; Bijker & Law, 1992). According to her, in this approach researchers focus too much on technology conception methods. That led them to overestimate the role of conceptors. In particular, those works lay on a hypothesis which she felt unfounded: inventors could integrate a framework so structured into technology that users had only two choices, either adopt or reject it.. Orlikowski criticizes this hypothesis. She shows that a same technology can be used in ex-
tremely different ways. This furnishes the proof that technology does not embody structure.In her IT structuration perspective, Orlikowski affirms that the concept of appropriation is too limited because its position is related to the structure that was embodied into the technology by the conceptors. So, for this author, in relation to a specific technology, users demonstrate a much greater creativity than “social constructivists” admit. That shows two things: •
•
Firstly, it is impossible to say that a technology is « stabilized », it can, however, be said that a technology is « stabilized-fornow » (Schryer, 1993) ; Secondly, the user’s creativity is not in relation to the structure but in relation to numerous factors, which must be identified.
To accentuate these two elements, Orlikowski suggests replacing the term appropriation by « enactment », which she takes from Weick (1969), in order to designate the real use that actors make of a specific technology. This conceptual shift allows Orlikowski to take distance with the « social constructivism » approach. However, she needs to propose a corresponding theory. The main question is to identify the factors, that explain why the enactment happens the way it does is needed. Orlikowski considers that when technology is used in recurrent social interactions, it corresponds to a « technology-in-practice »: an intangible shape, which intervenes in ongoing practices, through facilities, norms and interpretive schemes. Each type of « technology-in-practice » therefore shapes specific facilities, norms, and interpretive schemes which in turn transform the “technologyin-practice” that individuals enact. Orlikowski (2000), considers “technologyin-practice” as structure she can then mobilize the theoretical framework of structuration to analyze it.
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The structure « technology-in-practice » is in itself influenced by the other structures in the organization (hierarchy relations, remuneration/ incentive system, etc.) All these structures and the interactions between structures are instantiated in recurrent social practice that employees maintain with the other members of the organization, And the structures contribute in formalizing the facilities, norms, and interpretive schemes that shape their social interactions… Therefore a detailed analysis of the different structures can explain a specific « technology-inpractice » that exists in the social environment of a individual and can be analyzed concretely through the facilities, norms and interpretive schemes by which the structures are instantiated in practice. This IT structuration perspective developed by Orlikowski lead us to ask two questions: the first one concerns enactment transformation and the second one focuses on the role of the artifact in this transformation.
What Kind of Evolution for This Enactment? In her article, Orlikowski (2000) clearly suggests continuing “the development of concepts that address the role of emergence and improvisation in technology” (p.411). Her propositions allow a better analysis of how improvisation can emerge. She also takes into consideration the fact that uses not only emerge: “users always have the potential to change their habits of use” (p.411). She even lists factors explaining the transformations: a change in the technology such as “deliberately modifying the properties of technology and thus how users interact with it” (p.411), a change due to experience (“users become more knowledgeable about using their technology” (p.412), or a change in their activity “they have changed jobs and now need to use technology differently”(p.412). These changes can be deliberate as well as be produced by inadvertence. Because « technology-
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in-practice » is a structure, Orlikowski (2000) even adds that a change in structure will « change the facilities, norms and interpretive schemes used in their use of the technology » (p.412). The case studies presented in this article are limited, however, they show how use emerges. It seems interesting to us to extend Orlikowski’s reflexion by presenting a case study that describes how uses are transformed and not only how they emerge. Over and above this first result, analysis will allow us to go more into depth in understanding certain use transformation mechanisms, which are merely evoked in Orlikowski’s paper.
What Exact Theoretical Status for the “Technology as Artifact”? It seems that the very strong innovative side of Orlikowski’s article (2000) has widened the gap between pre-existing literature and her own position. Particularly, it seems that her desire to show that users enact use that were not embodied into technology by their conceptors has led her to under estimate their role in technology construction. More exactly, her article is ambiguous on this point. Firstly, she clearly states that conceptors Figure 1. Enactment of technology-in-practice Orlikowski (Orlikowski, 2000, p.410)
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
do not embody structure into the technology they produce (Orlikowski, 2000, p.406) but later, she nevertheless, gives them certain recognition when she writes, « when people use a technology, they draw on the properties comprising the technological artifact—those provided by its constituent materiality, those inscribed by the designers, and those added on by users through previous interactions… » (p.410). She even conceptualizes this dimension when she states that technology has two aspects: « technology-in-practice » and « technology as artifact » (p.408). It still seems that she uses this difference to show that technology uses cannot be limited to analysis of its technological characteristics alone (p.409) and they must, necessarily, be linked to the actor’s « technologies-in-practice ». This distinction allows for a true analytical breakthrough but there seems to be a crucial question still unanswered. Uses cannot be deduct from « technology as artifact » but it remains to be decided: Does « technology as artifact » play a role in enactment or not? Particularly, within the scope of our article, we will show how artifact transformation can be considered as a factor allowing for an enactment transformation. On this question, Orlikowski’s arguments leave us thinking that she accords a very limited role, almost null, to « technology as artifact » in use development. In her case studies she never actually makes a direct link between evolving enactment and « technology as artifact ». On the other hand, she links them systematically, to different forms of « technology-in practice ». As we have highlighted above, she has somewhat acknowledged the role of conceptor embodied technology characteristics. Citing some of her earlier work (Orlikowski and Gash, 1994), she also mentions that training and communication related to technology’s functions could help develop uses. Finally, even if she does not mobilize them directly in her reflexion, her case studies start with a presentation of Lotus notes technical functions (Orlikowski, 2000, table 1, p.414). In her article, technology as artifact
seems necessary in understanding enactment but it is not directly implicated in the analysis. An aim of our article is to offer several precisions on the status technology artifact could have in enactment analysis as drawn up by Orlikowski.
RESEARCH DESIGN After describing how our research offers to extend Orlikowski’s reflexion, we will present our methodology and detail our main results.
Technology as Artifact, User Centered Conception and Corporate Strategy We have observed above that certain ambiguities in Orlikowski’s presentation could be explained by the fact that she must position herself in relation to a dominant approach, that of “social constructivism”. It seems to us that the ambiguities may also come from the way Orlikowski distributes the roles between conceptors and technology end-users. In fact, even if the text is not perfectly clear on this point, the reader could get the feeling that on one side there are technology conceptors and on the other people who use it. So, theoretical references exist which allow us to affirm that conception and use do not make-up two distinct phases in the technology life cycle and it is therefore, unjustified to oppose them (Akrich, 1998). Based on this observation, more and more research conclude that a new type of « user centered » conception is necessary. Conceptors must take into consideration use when they create a new version to increase « user friendliness », responsiveness and therefore, user satisfaction. « User centered » conception first emerged in the Human Computer Interaction (HCI) community where conceptors goal is to create a more coherent link between a « new » tool and pre-existing user habits (Norman, 1988). Participative conception is a supplementary step in the intention to integrate
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users in the conception process from the very start (Darses, 2004). In fact, with this method, designers actually integrate users into conceptors teams (Cardon, 1997), instead of « representing » their needs through questionnaire statistics, situational work cases, films of user activities or use scenarios, etc. (Pascal, 2007). In this case, the users goal is to diagnose the problems encountered during use and to analyze videos of themselves using the prototype, etc. with the help of the researcher. Designers then, try to conceive a new prototype version that incorporates these remarks and reduces challenges encountered (Brun-Cottan & Wall, 1995). Keeping in line with Orlikowski’s approach, this type of conception could first avoid the main designer’s errors. But, then, it could help us to give a more active role to artifact in use development. To analyze this situation completely it seems important to us, to stay in a strict « structurationist » framework, that is to clearly state that this « user centered » conception can favorize certain uses but that it can not lead users from a limited to a strategic use by itself, for example. To understand the role that this type of conception could eventually play in use transformation it seems essential to resituate it in relation to corporate structure and in relation to the dominant management style. In fact, a reproach that can be made to this type of conception is to be too focused on the user. To develop technology use, conception must be based on more than just what the users want. For it, artifact modifications must answer user wishes as well as organizational strategic orientations. A use that represents a strong user demand but would be strictly opposite a firm’s strategic aim seems generally unlikely to emerge. (Detchessahart & Journé, 2007). Some authors have already highlighted the importance of Top management’s implication on uses (Deltour, 2004). Bhattacherjee (1998) underlines « organizational sponsoring » as being a major facilitator in corporate IT introduction. He explains it as management’s effort
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to promote resource allocation and technology as added value within the organization. Using the case study below, we will attempt to test the hypothesis, that a user-centered conception allows technology enactment transformation, when it is embedded into global corporate strategy.
Research Methodology The research presented here is exploratory. Phenomena we will study are poorly known. Their boundaries and logics are uncertain. Therefore, the single case study seems to be the most adequate research method (Yin, 1994). Among data we collected in different firms1, uses of an HR intranet in an aeronautical firm (called Aero) seem the most appropriate to develop insight. After presenting the firm and its intranet (2.2.1), we will describe the population we have selected for analysis (2.2.2).
Aero and its HR Intranet Aero belongs to an international group in the Aeronautical and Space sector. In Europe, Aero has more than 12,000 employees. It is leader in High Tech apparatus construction. The group’s activities occupy the complete supplier to customer process and range from R&D right through to specific hands-on training sessions for end users, including manufacturing (from raw materials), assembly lines, sales, delivery, after sales service, etc. In 2000, a HR decision is taken to improve the management - employee communication policy. One of the actions was to develop a HR intranet offering access to all the employees from the firm’s web site. Guiderdoni studied the use and social dynamics of this intranet from within the firm’s communication department for four years from 2001 to 2005. Two distinct phases can be identified in the intranet implementation. From 2000 to 2003, HR communication and information strategy is developed. Aero’s HR director decides to grant the means and the tools necessary to manage and
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
to control the diffusion and the quality of HR information. He creates an internal communication department under HR direction and implements simultaneous person-to-person actions as well as creating the “Corporate Intranet” (Kalika, Guillou & Laval, 2002) a HR intranet accessible to all the employees and offering, due to large diffusion, general HR information. From 2003, a new HR director reinforces the HR communication and information strategy. This translates into reinforcing the HR intranet team in quantity and in technical competencies. The “Corporate Intranet” then migrates towards a “Specialized HR Intranet” (Kalika, Guilloux & Laval, 2002) offering much more targeted HR information. The aim of this article is to understand how and why the intranet was transformed this way and if that transformation affects the way certain employees use the tool.
Sample Population Description To analyze use transformation, longitudinal research was necessary (King, Keohane & Verba, 1994). Data collection took place between 2001 and 2005. During this whole period, we used data triangulation and saturation (Miles & Huberman, 1994) by mobilizing different research methods: documentary analysis (in particular corporate archives), semi-directive interviews and participating HR intranet project observation. We also administered two opinion surveys on the use of this intranet. The first phase of interviews took place in 2001. Three employee groups were identified: department managers or equivalent, level 1 (a department has about 200 people), sub-department managers or equivalent, level 2 (management of about 50 people) and team leaders, level 3 (management of about 10 people). 53 semi-structured interviews were conducted. The second phase of interviews took place in 2005 and there were 13 interviews. Only actors who were identified during the first phase as having specific uses (positive or negative) were targeted,
the objective was to verify if the uses had been transformed. With regard to this study, we have benefited by the use of coding techniques and derived 9 code labels from the interview tapes and have spread the data between these different themes. Throughout the coding analysis stage, the author made a number of changes to the list of codes; the coding stage was a interactive process through which patterns from the interviews emerged (Miles & Huberman, 1994). Initially, first-level coding was carried out as a data reduction technique summarising large segments of data, and finally pattern coding was employed as a way of identifying core themes across the interviews (Miles & Huberman, 1994). The above sample shows that data on use was gathered all the way up the hierarchy. Nevertheless, in this article, we cannot present all our results. We have chosen to focus on one actor, the one for whom the eventual transformation of use best allows to complete Orlikowski’s (2000) thought: the Assembly Line Manager. In 2001, we identified this actor’s dominant intranet use as a « limited use ». We identified the « facilities », the « norms » and the « interpretive schemes » he used to enact this “technology-inpractice” in his daily activity. We interviewed 4 Assembly Line Managers again in 2005 and analyzed the case of those with whom the HR intranet use was transformed. We were then able to identify their new « facilities », « norms » and « interpretive schemes » but we especially asked them to explain the reasons for this transformation. Their account shows that the 2001 opinion survey allowed user demands to emerge. On this basis, conceptors of Intranet developed a second version better adapted to user expectations (« user centered » conception phenomenon). But that data highlight the fact that this conception mode is not solely responsible for strongly increasing intranet use. In fact, users underlined several times that this new HR intranet conception is pertinent because it allows a major corporate strategic axe to be implemented. Top management
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demands department chiefs to become real « managers » (this goes beyond intranet, itself). It seems, therefore, that it is the efficient combination of « user centered » conception and general corporate strategy, which allowed use transformation for certain Assembly Line Managers.
RESULTS After positioning the Assembly Line Managers in the organization, we’ll use Orlikowski’s concepts (2000) to describe the way they used the HR intranet in 2001. After replace use within the overall corporate policy, we will describe how certain uses were recuperated by conceptors and integrated into the new 2003 Intranet version. Finally we will detail Assembly Line Manager’s uses of the new 2005 HR Intranet.
Assembly Line Managers, « Very Managers », Less « Corporate » HR Intranet Users The Assembly Line Manager’s survey conducts us to enter a different world: the world of production, precisely industrial workshops and manufacturing lines (airplanes, helicopters, etc.). In « his » world, « his » workshop, the line manager is « master ». Corporate management has little hold on this world. The line manager is generally a charismatic leader, a man of action with a strong personality, respected for his integrity, an excellent technician with a human dimension capable of making « fair » decisions. Nevertheless, he is under the pressure of high production rates. Respecting final assembly dates push him to be very demanding (overtime, Sundays, etc.) of the different teams he manages. The work rhythm is so intense that the border between private and professional life is often over stepped. This leader must be extremely close to his « guys » in order to achieve objectives.
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« We are also top management’s representatives in the shop, so it’s our job to maintain a positive social atmosphere, that means we have to be on the field constantly, so the guys are happy to come to work every day. It’s also a sensitive position, because you must be attentive: if a worker is not right or upset, you have to go and see him quickly. Talking with him, you understand that his child is sick or his wife left him … so, that’s when you have to take the time and support him. You have to maintain direct contact ». (William) He is considered as the guarantor of team spirit that can be found in the sectors used to working with permanent urgencies2. This leader manages an average of more than 200 workers. Generally he works his way up through the ranks. Because of that, he usually holds the technicity of the product close to his heart. How does this type of person consider the HR intranet? He spontaneously states: « I feel more at home in the workshop than behind a computer » (William). In 2001, the survey results are therefore not very surprising: use of the HR intranet is rare or inexistent. The tool is seen as « a waste of time » because « we can get the information elsewhere » (Jean). Orlikowski’s concepts of (facilities, norms et interpretive schemes) allow to better describe this « limited use ». By limiting facilities analysis to the sole HR intranet artifact, we can observe it is of a « corporate » type: the same space is accessible to all the employees, whatever their hierarchy level. The HR information is very general. It cannot satisfy specific demands of line managers (bonus management, salary increases, etc.). Concerning behavioral « norms », production rate pressure makes them favorize face to face or telephone communication systematically (William, Jean, Jesus). This behavior is also possible in the HR field because there is a decentralized HR manager in each workshop. The line manager has quick contact (which corresponds to his work rhythm) with that person on a targeted subject (corresponds
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
to his needs). The HR intranet is, therefore, rarely used because it is contrary to these exchange modes. Finally, in terms of interpretive schemes, a computer is associated to secretarial tasks by these actors. We can see here a supplementary reason for limited use of the intranet by this population. Using Orlikowski’s (2000) conceptual schema shown in Figure 2, we can describe the line manager’s « limited uses ».
A « User Centered » HR Intranet Re-Conception Coherent with Global Corporate Strategy The team in charge of the HR intranet requested that 53 interviews to be administered to collect users opinions. Criticisms listed below are potential improvements for second version conception of the system. In fact, it can be deducted that if managers found information on the intranet corresponding to their real needs and that if they found strategic information that they could not find « elsewhere » their use could increase. During these interviews, they also added an element that we had not yet evocated: they would like to find
Figure 2. Assembly line bosses use HR intranet in 2001
more tools to manage team member’s competencies, careers, etc. These wishes expressed by the users were globally taken into account by the conceptors of the second version. In the latest version there is no longer a global platform for all the employees. There are now three distinct and independent portals: one for employees, one for managers and one dedicated to Human resources. The first platform is still open to all employees and continues to contain general HR information. On the other hand, the second platform, reserved for managers, answers the questions expressed by line managers directly. This space contains the HR tools they requested, specific and adapted HR information and strategic information they should not be able to obtain through other channels (telephone, informal discussions, etc.), informations about corporate projects, strategic evolution, etc. Reporting of regular round table discussions between the CEO and a few managers can also be found here. This information offers a strategic dimension that the first version did absolutely not have. As we mentioned above, it’s possible to consider that in 2003 the firm evolved from a « corporate » HR intranet to a « specialized HR intranet » in order to satisfy user expectations. The intranet artifact reforming seems to have been positive because several line managers we interviewed in 2005 stated they used intranet more at that time than they had before. They did, however, systematically link their increased use of the system to a global transformation of general corporate policy. In fact, in 2003 a whole new team of general managers (CEO, HRD, etc.) moved into the firm. The line managers, along with all the others, received at that time, an order to change their management styles. Communication around management was « omni-present in the firm, they lay it on us in every meeting that we have » (Gilles). Even if certain managers can criticize the new management’s latest trend, most of them are not chocked by the obvious will for change. In fact, the firm’s management had not
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waited for 2003 to start evolving and finally, the arrival of a new team is often perceived as intensifying existing and relatively legitimate policies. The precisions on this context are important because they allow to gain perspective about, on one hand, uses developed by certain people, use that stays unchanged for the majority and hence, the interest but the limits of « user centered » conception. Indeed, the line managers, who use intranet more in the second version, do so undoubtedly, because the « user centered » conception bred an artifact more in line with their expectations but especially because the new approach led to a specific intranet that helped them to play their new role in a privileged fashion such as in information transmission. This role is now expected of them from their direct hierarchy as well as top management. They do not consider intranet, in and of itself, but as a tool allowing them to embody the role they want and the role that management wants them to take on. Everyone does not, however, follow this logic because some of the line managers met in 2005 did not accept to take on the above-mentioned role. Despite reaffirmed corporate policy and « user centered » conception as a means, we observe that a significant number of managers have maintained their traditional role as leaders preferring face-toface relations rather than computerized tools even if they are specific and strategic.
Certain Uses Have Been Deeply Transformed With the New HR Intranet To specify the new use characteristics of some of the line managers, we suggest using Orlikowski’s (2000) analysis grid again. In 2001, most uses were limited. In 2005, some of them have a more intensive use that can be qualified as « utilitarian ». Concerning « facilities », these line managers say they now read and use top management’s information tools on strategic communication. They also use certain HR team management tools
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that were put on line such as absence management workflow charts. In terms of behavioral norms, the face-to-face relationships are still privileged as one manager declared “I participated in [a round table discussion with the CEO]. I found it good because it allowed me to ask direct questions. Direct communication is the best kind of communication.” (Jean) However, some leaders evolve in relation to this point and, in fact, find themselves more in phase with supports offered on the intranet, as another manager states: « what’s new is the way top management initiated change … We aren’t passive anymore but active… Concerning intranet, the novelty is that it’s a reference for us… We have never used the manager’s platform as much. It’s a credible system, more user friendly. » (Jesus) In coherence with these new norms, interpretive schemes have also evolved. Even if some managers continue to say, “in production, a good manager is in his workshop most of the time”, a manager who uses the intranet states, “Communication has really evolved… I’m in corporate training, the intranet is really interesting, we can find references to management books, I received a Powerpoint presentation about global corporate strategic orientations and major priorities. The document was reproduced down to the lowest level. For me, I’m in perfect coherence with my company’s, [as well as, the group it belongs to] strategic objectives” (Jean). We are far from the idea that “computers are for secretaries…” (William). Orlikowski’s (2000) concepts allow a synthesis of HR intranet uses by « utilitarian » line mangers using the schema shown in Figure 3.
CONCLUSION The literature review showed that we have few elements on use of IT developed in firms. Orlikowski’s (2000) work seems to be the first
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
Figure 3. Assembly line bosses use HR intranet in 2005
This exploratory research seems to develop a concrete example of how use can be transformed (and not only emerge as Orlikowski’s case studies demonstrate) but also the role that technology artifact can play in the development of use.
REFERENCES Akrich, M. (1998). Users and Players of Innovation. Education permanente, 134, 79-89. Bardini, T., & Horvath, A.T. (1995). The social construction of personal computer use. Journal of communication, 45(3), summer, 40-65.
to offer a real theoretical frame to analyze and understand it. Based on this author’s concepts, we have analyzed HR intranet use by line managers in an important aeronautical firm. The voluntary managers barely used the system because it was in profound contradiction with dominant structures of their activity: very strong time constraints, preference for face-to-face communication and charismatic based authority. Even though use was extremely low, the survey, which aimed at identifying the reasons for the low engagement, allowed the intranet management team to develop a second version that partially satisfied expectations, that is to say, it offered HR tools and “hot” HR informations on major projects and corporate strategy. During the second phase interviews, certain actors clearly certified that the « user-centered » HR intranet conception allowed them to develop their own uses but they added that because the IT system was coherent with global corporate strategy (all the tools, and not only the HR intranet, were used to promote the new managerial vision) it played such an important role in use development.
Beyer, H., & Holzblatt, K. (1998). Contextual Design: Defining Customer-Centred Systems. New York: Morgan Kaufmann. Bhattacherjee, A. (1998). Management of emerging technologies experiences and lessons learned at US West. Information & Management, 33(5), 263–272. doi:10.1016/S0378-7206(98)00034-2 Bijker, W. B., & Law, J. (Eds.). (1992). Shaping Technology/Building Society: studies in sociotechnical change. Cambridge/MA, London: MIT Press. Bijker, W. E. (1987). The social construction of Bakelite: Toward a Theory of Invention. In W. E. Bijker, T. Hughes, & T. Pinch (Eds.), The Social Construction of Technological Systems: New Directions in the Sociolo.gy and History of Technology. Cambridge MA/London: MIT Press. Bowers, J. (1995). Making it work. A field study of a CSCW Network. The Information Society, 11, 189–207. Brun-Cottan, F., & Wall, P. (1995). Using video to re-present the user. Communications of the ACM, 38(5), 61–71. doi:10.1145/203356.203368 Cardon, D. (1997). Social sciences and machines for cooperation. Reseaux, (85): 11–52.
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Darses, F. (2004). Psychological Processes of Collective Problem Resolution Conception: Contribution to Ergonomic Psychology. Unpublished HDR in Ergonomic Psychology, University of Paris V, France. Deltour, F. (2004). Satisfaction, acceptation, impacts: A Multi dimensional and Contextualized Analysis of Individual Intranet Assessment. Unpublished doctoral dissertation, University of Paris IX, France. DeSanctis, G., & Poole, S. (1994). Capturing the complexity in advanced technology use: Adaptive structuration theory. Organization Science, 5(2), 121–147. doi:10.1287/orsc.5.2.121 Detchessahar M., & Journé B. (2007). Une approche narrative des outils de gestion. Revue française de gestion, 174, 77-92.
MacKenzie, D., & Wajcman, J. (Eds.). (1985). The Social Shaping of Technology: How the Refrigerator Got Its Hum. Milton Keynes: Open University Press. Marakas, G. M., & Hornik, S. (1996). Passive resistance misuse: Overt support and covert recalcitrance in IS implementation. European Journal of Information Systems, 5(3), 208–219. doi:10.1057/ejis.1996.26 Markus, M. L. (1983). Power, politics and MIS implementation. Communications of the ACM, 26(6), 430–444. doi:10.1145/358141.358148 Markus, M. L., & Connoly, T. (1990). Why CSCW applications fail. Problems in the adoption of interdependent work tools. [Los Angeles.]. Proceedings of the CSCW, 90, 7–10.
Giddens, A. (1984). The Constitution of Society. Berkeley, California: University of Canada Press.
Miles, M. B., & Huberman, A. M. (1994). Analysis for qualitative data: collection of new methods. Bruxelles: De Boeck University.
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Norman, D. (1988). The Psychology of Everyday Things. New-York: Basic Books.
Grudin, J. (1988). Why CSCW applications fail. Problems in the design and evaluation of organizational interfaces. [New-York: ACM/Sigchi and Sigois.]. Proceedings of the CSCW, 88, 85–93.
Olson, T. K., & Teasley, S. (1996). Groupware in the wild. Lessons learned from a year of virtual collocation. [Boston: ACM Press.]. Proceedings of the CSCW, 96, 362–369.
Guiderdoni, K. (2006). Assessment of an HR intranet through middle managers’ positions and uses: how to manage the plurality of this group in the beginning of an e-HR conception. Proceeding of the 1st European Academic Workshop on E-HRM, University of Twente, The Netherlands.
Orlikowski, W. (2000). Using technology and constituting structures: a practice lens for studying technology in organizations. Organization Science, 11(4), 404–428. doi:10.1287/ orsc.11.4.404.14600
King, G., Keohane, R. O., & Verba, S. (1994). Designing Social Inquiry. Princeton, Princeton University Press. Laval, F., Guilloux, V., & Kalika, M. (2002). HR Intranets: Firms’ Practices and Problematics In F. Laval, V. Guilloux, M. Kalika, & M. Matmati (Eds.), E-GRH: Revolution or Evolution? Manage the Challenge of IT Integration in the HR Function (pp. 63-90). Paris: Editions Liaisons. 2084
Orlikowski, W., & Gash, D. C. (1994). Technological frames: Making sense of information technology in organizations. ACM Transactions on Information Systems, 2(2), 143–169. Orlikowski, W., & Robey, D. (1991). Information technology and the structuring of organizations. Information Systems Research, 2, 143–169. doi:10.1287/isre.2.2.143
Does User Centered Design, Coherent with Global Corporate Strategy, Encourage Development?
Pascal, A. (2006). Conception of an IT Solution to Favorize Innovative Project Emergence: Approach by Use. The KMP Experience. Unpublished doctoral dissertation, University of Nice-Sophia Antipolis, France. Pascal, A., & Thomas, C. (2007). Role of boundary objects in the coevolution of design and use: the KMP experimentation. Proceedings of 23rd EGOS Colloquium. Vienna July 5—7. Ruta, C. D. (2005). The application of change management theory to the HR portal implementation in subsidiaries of multinational corporations. Human Resource Management, 44(1), 35–53. doi:10.1002/hrm.20039 Schryer, C. F. (1993). Records as Genre. Written Communication, 10, 200–234. doi:10.1177/0741088393010002003 Strohmeier, S. (2006). Coping with contradictory consequences of e-HRM, Proceedings of the 1st academic workshop on e-HRM research, University of Twente, The Netherlands. Weick, K. E. (1969). The social Psychology of Organizing. Reading, MA: Addison Wesly. Whisler, T. L. (1970). The impact of computers on organisations. New York: Praeger. Woolgar, S. (1991). Configuring the user The case of usability trials. In J. Law, (Ed.), A sociology of monsters. Essays on power, technology and domination (pp. 58-99). London: Routledge. Yin, R. K. (1994). Case Study Research: Design and Methods. London: Sage.
KEY TERMS AND DEFINITIONS HR Intranet: Intranet is a network based on TCP/IP protocol, which can be linked to Internet. HR intranet is the part of this tool dedicated to
on-line services offered by the Human Resources department. Middle Management: The category of population characterizes by its specific position between the Board of Management and the staff. This population is one of the most important HR clients to satisfy, because they are considered as a key factor in the company’s transformation through managerial style and discourse. Strategy: Global mid-term orientation of an organization supposed to give it a strong advantage compared to other firms in the market. Structurational Perspective on Technology: Wanda Orlikowski (2000) proposes to mobilize the structurational theory (Giddens, 1984) to explain why users develop different uses of a common technology. She distinguishes two aspects in a technology: Technology as a Technical Artifact: “which has been constructed with particular materials and inscribed with developers’ assumptions and knowledge about the world at a point in time” (Thomas, Pascal, 2007), Technology as a Technology-In-Practice: “which refers to the specific structure routinely enacted by individuals as they use the artifact in recurrent ways in their everyday situated activities” (Thomas, Pascal, 2007). Those recurrent interactions and those “situated activities” are different by themselves but: more than that, they are “situated in the structural properties of social systems. Thus, in interacting with a technology, users mobilize many structurals, those borne by the technology itself, and those deriving from different contexts (group, community, organization, company, etc.) in which their uses are developed.” (Thomas, Pascal, 2007). In this perspective, those different interactions and those different structurals explain the diversity of uses of a common technology. User-Centered Design (UCD): User-centered design is a project approach that puts the needs, wants and limitations of intended users of a technology at the centre of each stage of its design and
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development. It does this by talking directly to the user at key points in the project to make sure the technology will deliver upon their requirements. In this project approach, such testings are neces-
sary because it is considered as impossible for the designers to anticipate how real users interact with the technology they propose.
This work was previously published in Handbook of Research on E-Transformation and Human Resources Management Technologies: Organizational Outcomes and Challenges, edited by Tanya Bondarouk, Huub Ruel, Karine Guiderdoni-Jourdain and Ewan Oiry, pp. 78-91, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.16
Holland’s Vocational Theory and Personality Traits of Information Technology Professionals John W. Lounsbury University of Tennessee, Knoxville & eCareerFit.Com, USA R. Scott Studham Oak Ridge National Laboratory, USA Robert P. Steel University of Michigan-Dearborn, USA Lucy W. Gibson eCareerFit.com & Resource Associates, USA Adam W. Drost eCareerFit.com, USA
ABSTRACT Drawing on Holland’s (1985, 1996) vocational theory and based on a sample of 9,011 IT professionals, two research questions were investigated. On what personality traits do IT professionals DOI: 10.4018/978-1-60960-587-2.ch716
differ from other occupations and which of these are also related to their career satisfaction? Five traits met both these criteria—Emotional Resilience, Openness, Tough-Mindedness, and Customer Service—for which IT professionals had higher scores, and conscientiousness, for which they had lower scores. IT career satisfaction was
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Holland’s Vocational Theory and Personality Traits of Information Technology Professionals
also positively related to E xtraversion, Agreeableness/Teamwork, Assertiveness, Optimism, Tough-Mindedness, Work Drive, and Visionary Style. Results are discussed in terms of the fit of these traits with IT work and the value of these insights for personnel-management functions like selection, training, professional development, and career planning.
PERSONALITY TRAITS AND CAREER SATISFACTION OF INFORMATION TECHNOLOGY PROFESSIONALS The purpose of this chapter is to apply Holland’s (1985; 1996) vocational theory to the occupational field of Information Technology (IT) using a large, empirical sample of IT professionals. Original findings are presented on key personality traits of IT professionals and implications of these results are discussed. John L. Holland is, arguably, one of the most eminent and influential vocational theorists of our time. He is famous for his psychological theory of careers, including career choice, vocational preference, and a taxonomy of personality types for occupations. Holland’s vocational theory has several main premises. First, people can be characterized by their resemblance to basic personality attributes. In his view, the key personality attributes are what he terms “types” which have historically been assessed as vocational interests (Holland, 1985). However, as will be explained below, accumulating evidence convincingly shows that personality traits may be effectively substituted for vocational interests in explications of the main tenets of Holland’s theory. The six main vocational interest themes in Holland’s model are: Realistic, Investigative, Artistic, Social, Enterprising, and Conventional (The Career Key, 2008). Another major premise of Holland’s vocational theory is that jobs, occupations, and work environments can also be
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viewed in terms of their resemblance to these basic personality types. The final major premise of Holland’s theory is that the correspondence or fit between persons and work environments on these personality types leads to important vocational outcomes, including satisfaction, tenure, and performance. Holland summarized the essence of his vocational theory as follows: Studies show that people flourish in their work environment when there is a good fit between their personality type and the characteristics of the environment. Lack of congruence between personality and environment leads to dissatisfaction, unstable career paths, and lowered performance. (Holland, 1996, p. 397). There are two logical corollaries of Holland’s fit model which have been generally verified by subsequent research and are germane to the present study. 1) There are differences in average scores on personality characteristics associated with occupations which help determine fit; and 2) higher scores on these personality characteristics are related to higher levels of satisfaction. Thus, for example, under the Holland model artists tend to have higher mean scores on the Artistic vocational interest scale and higher artistic scores are associated with greater job satisfaction of artists (Holland, 1985; 1996). Making a similar extension of Holland’s taxonomy to the IT professions, computer programmers and IT workers have typically (e.g., O*NET, 2008) been considered as exemplifying three of the Holland dimensions—Investigative, Realistic, and Conventional--reflecting, respectively, the profession’s scientific-research orientation, its emphasis on practical concerns including working with machinery and equipment, and its penchant for working in a structured, office setting. Although research has been conducted on a variety of topics related to psychological characteristics and the functioning of IT workers—including work values (Prasad, Enns, & Ferratt, 2007),
Holland’s Vocational Theory and Personality Traits of Information Technology Professionals
best management practices (Major, Davis, Germano, Fletcher, Sanchez-Hucles, & Mann, 2007), precursors of voluntary turnover (Rouse, 2001), self-efficacy and well-being (Beas & Salanova, 2006), anomie (Shankar, 2007), burnout (Hetland, Sandal, & Johnsen, 2007), and work-nonwork conflict (Messersmith, 2007)—research on the vocational interests of IT workers is much more limited. The few extant studies in this literature mainly focus on topics like programmer gender differences (Rosenbloom, Ash, Dupont, & Coder, 2008), IT vocational interests and job satisfaction (Perry, 1967), and the distinctive vocational interests of IT workers compared to other occupations (Perry & Cannon, 1968). For instance, using a sample of 1378 computer programmers, Perry and Cannon (1968) showed that, compared with other occupations, male programmers had greater interest in problem solving, mathematics, and mechanical pursuits and less interest in people. An alternative approach to the study of careers and occupations involves the use of personality traits (which are relatively enduring characteristics of individuals that are relatively consistent over time and across situations). In recent years a broad-based consensus has emerged that all normal personality traits can be parsimoniously described by five traits, termed the Big Five model of personality (Agreeableness, Conscientiousness, Emotional Stability, Extraversion, and Openness) (De Raad, 2000). The Big Five personality traits have been replicated across a wide range of settings (e.g., De Raad, 2000), and they have been validated against many different criteria, including job performance (Salgado, 1997), job satisfaction (Judge, Heller, & Mount, 2002), career success (Judge, Higgins, Thoresen, & Barrick, 1999), life satisfaction (DeNeve & Cooper, 1998), and academic performance (Lounsbury, Sundstrom, Loveland, & Gibson, 2003). More recently, some researchers have argued that the Big Five taxonomy is too broad and that more narrow-scope personality constructs may augment their ability to predict behavior. These
arguments have received verification in work and academic domains (e.g., Lounsbury, Sundstrom et al., 2003; Paunonen & Ashton, 2001). As a case in point, Lounsbury, Loveland, Sundstrom, Gibson, Drost, and Hamrick (2003), found that six narrow traits (Assertiveness, Customer Service Orientation, Optimism, Image Management, Intrinsic Motivation, and Work Drive) were positively related to career satisfaction for individuals in various occupational fields. There has been some work attempting to logically map personality traits onto various occupational classes (see, for example, O*NET, 2008), but an empirically-validated personality trait profile for IT professionals has not, as yet, been developed. Using judgments provided by subject matter experts, O*NET links the following personality traits to computer programmers: attention to detail, dependability, initiative, achievement, flexibility, independence, integrity, persistence, and cooperation. However, there is currently no empirical evidence showing that any of these traits reliably differentiate IT professionals from members of other occupational groups, nor is there evidence that possession of these traits by IT professionals results in enhanced career satisfaction. Returning to the goals of the present study, the following research questions were examined: RQ1: On which personality traits do IT professionals differ from other occupations? This research question is based directly on Holland’s vocational theory. Scores on traits important for an occupation should differ in magnitude from scores on the same traits obtained from other occupations. The personality traits assessed were the Big Five personality traits and a set of narrow-scope traits studied previously by Lounsbury, Loveland et al. (2003). RQ2: Which personality traits are related to career satisfaction for IT professionals? This question is also derived from Holland’s vocational theory, which indicates that salient traits for an
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occupation will be related to satisfaction with that occupation. Under Holland’s vocational theory, personality traits that differentiate IT professionals from other occupational groups and relate to career satisfaction provide a theoretical perspective for understanding the psychological makeup of IT professionals. This knowledge may also assist organizational decision makers performing such functions as career planning, selection, counseling, and succession planning for IT professionals. It may also help to inform interventions designed to optimize person-environment fit for IT professionals. The following sections describe the methodology and results of this study, followed by a discussion of the meaning of the results, both in terms of theoretical and practical implications.
Method Overview Data for this study were extracted from an archival database generated by eCareerfit.com, an organization which offers online, personality-based career assessments to companies for transition services, outplacement, career development, succession planning, coaching, mentoring, and leadership development. Data were collected over the period March of 2003 to January of 2008.
Participants The sample was comprised of a total of 9011 IT professionals employed in a large number of different jobs with many different companies in the United States. Respondents provided their job titles which resulted in the following breakdown: Analyst—4%, Application Developer—2%, Computer Programmer—7%, Computer Analyst--6%, Computer Engineer—5%, Database Administrator—3%, Developer—2%, IT—7%,
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IT Consultant—1%, IT project manager—2%, IT manager 3%, LAN Administrator—1%, Network Administrator-1%, Network Engineer—1%, Oracle DBA—1%, Programmer—3%, Programmer Analyst 6%, Project Manager—5%, SAP— Consultant—1%, Senior Analyst—2%, Software Analyst—1%, Software Engineer—5%, Solutions Consultant—1%, Systems Administrator—4%, Systems Analyst 4%, Tech. Support—2%, Test Engineer—1%, UNIX System Administrator—1%, and Web Developer—2%. All told, the database included over 2,000 unique job titles. Of the total sample, 69% were male and 31% were female. Participation rates by age group were as follows: under 30—8%; 30-39—31%; 40-49—36%, 50 and over—25%. Race/ethnic data were not available. Respondents came from many different industries and organizational sectors, including technology services (33%), financial services (11%), telecommunications (11%), manufacturing (7%), professional services (5%), printing (3%), communications (3%), retail (3%), health care (2%), consumer products (2%), science and technology (1%), non-profit organizations and charities (1%), entertainment (1%), automotive (1%), airlines (1%), education (1%), and “other” (14%).
Personality Factors The personality instrument used in the current study was the Resource Associates’ Personal Style Inventory (PSI), a work-based personality measure comprising the Big Five as well as narrow personality traits. The PSI has been used in a variety of organizational settings, mainly for career development and pre-employment screening purposes, for which there is extensive evidence of criterion-related and construct validity (Lounsbury, Gibson, & Hamrick, 2004; Lounsbury, Gibson, Sundstrom, Wilburn, & Loveland, 2003; Lounsbury, Loveland, et al., 2003; Lounsbury, Park, Sundstrom, Williamson, & Pemberton, 2004; Williamson, Pemberton, & Lounsbury, 2005). All of the PSI items had five-point response scales
Holland’s Vocational Theory and Personality Traits of Information Technology Professionals
with bipolar verbal anchors. Following is a sample item from the Optimism scale. A brief description of each of the personality and managerial style measures used in the present study are presented below along with the number of items in each scale and the coefficient alpha for the total sample. For each scale, an average score was obtained by taking the mean of the scores on the individual items, so that the minimum possible score in each case was 1.0 and the maximum possible score was 5.0.
Big Five Personality Traits •
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•
•
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Agreeableness/Teamwork—propensity for working as part of a team and functioning cooperatively on work group efforts (6 items; coefficient alpha =.82). Conscientiousness—dependability, reliability, trustworthiness, and inclination to adhere to company norms, rules, and values (8 items; coefficient alpha =.75). Emotional Resilience—overall level of adjustment and emotional resilience in the face of job stress and pressure (6 items; Coefficient alpha =.85). Extraversion—tendency to be sociable, outgoing, gregarious, expressive, warmhearted, and talkative (7 items; coefficient alpha =.84). Openness—receptivity/openness to change, innovation, novel experience, and new learning (9 items; coefficient alpha =.79).
•
•
•
•
•
•
Narrow Personality Traits •
Assertiveness—a person’s disposition to speak up on matters of importance, expressing ideas and opinions confidently, defending personal beliefs, seizing the initiative, and exerting influence in a forthright, but not aggressive, manner (8 items; coefficient alpha =.81).
•
Customer Service Orientation —striving to provide highly responsive, personalized, quality service to (internal and external) customers; putting the customer first; and trying to make the customer satisfied, even if it means going above and beyond the normal job description or policy (7 items; coefficient alpha =.71). Intrinsic Motivation—a disposition to be motivated by intrinsic work factors, such as challenge, meaning, autonomy, variety and significance (6 items; coefficient alpha =.84). Image Management—reflects a person’s disposition to monitor, observe, regulate, and control the self–presentation and image s/he projects during interactions with other people (6 items; coefficient alpha =.80). Optimism—having an upbeat, hopeful outlook concerning situations, people, prospects, and the future, even in the face of difficulty and adversity; a tendency to minimize problems and persist in the face of setbacks (8 items; coefficient alpha =.88). Tough-Mindedness—appraising information, drawing conclusions, and making decisions based on logic, facts, and data rather than feelings, values and intuition; disposition to be analytical, realistic, objective, and unsentimental (7 items; coefficient alpha =.79). Visionary Style—focusing on long-term planning, strategy, and envisioning future possibilities and contingencies (8 items; coefficient alpha =.84). Work Drive—disposition to work for long hours (including overtime) and an irregular schedule; investing high levels of time and energy into job and career, and being motivated to extend oneself, if necessary, to finish projects, meet deadlines, be pro-
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ductive, and achieve job success (8 items; coefficient alpha =.82).
Career Satisfaction A five-item scale was used to measure career satisfaction (Lounsbury, Moffitt, Gibson, Drost, & Stevenson, 2007), with items tapping satisfaction with career progress and trajectory, career advancement, future career prospects, and career as a whole. Career satisfaction items were framed on a five-point response scale with verbally opposing anchors at each end (e.g., “I am very satisfied with the way my career has progressed so far” versus “I am very dissatisfied with the way my career has progressed so far”. Coefficient alpha for the career satisfaction scale =.82. The career satisfaction measure was added three years ago to the inventory on which the database was derived; thus, the sample size for statistics involving career satisfaction was smaller (n = 1059) than the sample size for the personality traits.
RESULTS Our first research question focused on personality factor differences between IT professionals and individuals in other occupations. For these analyses we used a one-sample t test to compare the mean scores of IT professionals against normative statistics derived from over 200,000 individuals representing all non-IT occupations in the database collected over the course of an eight year period. The mean scores for the IT professionals are presented in Figure 1 grouped by whether they were found to be significantly higher, lower, or undifferentiated from the normative mean scores. Compared to all other occupations, IT professionals had significantly higher mean scores on five personality traits—Customer Service Orientation, Tough-Mindedness, Intrinsic Motivation, Openness, and Emotional Resilience. The mean scores were below norm for three traits—Conscientiousness, Visionary Style, and Image Management.
Figure 1. Mean scores on personality traits for IT professionals grouped by comparisons to all other occupations
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The mean scores for IT professionals were not significantly different from the norm group on five traits— Optimism, Agreeableness/Teamwork, Assertiveness, Extraversion, and Work Drive. The second research question examined the relationships between career satisfaction and the personality traits of IT professionals. Pearson correlation coefficients were computed to examine relationships between career satisfaction and the study’s personality measures. Results are displayed in Figure 2. Career satisfaction was positively and significantly related to all of the Big Five traits—with correlations ranging from r =.46 (p <.01) for Emotional Resilience to r =.12 (p <.01) for Conscientiousness. Career satisfaction was significantly related to all but two (Image Management and Intrinsic Motivation) of eight narrow-scope traits, with correlations ranging from r =.38 (p <.01) for Optimism to r =.05 (p >.05) for Visionary Style.
DISCUSSION Using Holland’s (1985, 1996) theory of vocational choice as a conceptual point-of-departure, we attempted to determine whether scores on Big Five and narrow-scope personality traits could differentiate IT professionals from other occupational groups. We also assessed whether these traits were related to the career satisfaction of IT professionals. Based on the results of over 9,000 IT employees in a wide variety of job titles from a broad range of organizations, five traits met both of these criteria. Specifically, IT workers had above-norm average scores on four traits which were also positively related to career satisfaction—Emotional Resilience, Tough-Mindedness, Openness, and Customer Service Orientation. They had below-norm scores on Conscientiousness, which was also positively related to career satisfaction.
Considering each of these traits individually, we consider first those traits which met two criteria drawn from Holland’s vocational theory: (1) mean scores which were significantly different (either higher or lower) from the norm for all occupations and (2) significant correlations with career satisfaction. First, Emotional Resilience was higher among IT professionals than other occupations and was the trait most highly correlated with career satisfaction in our sample. One possible explanation for the importance of Emotional Resilience is that high levels of stress are inherent in many IT jobs (Jepson, 2004). Individuals who work in IT often face schedule pressure, demands from multiple constituencies in their employing organizations, and, typically, an “impossible workload” (Savvas, 2004). Similarly, as noted by Major, Davis, Germano, Fletcher, Sanchez-Hucles, and Mann (2007), IT workers experience numerous sources of stress that are universal across occupations and work environments. As consumer electronics continue to exponentially mature, non-IT employees are pressuring IT employees to improve enterprise services at a similar rate. Figure 2. Correlations of personality traits with career satisfaction
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Meanwhile information assurance and computer security place IT staff in the situation of having to limit the use of consumer technology. These two countervailing forces (consumer electronics and enterprise security) often place IT staff in the difficult situation of having to limit the desired pace of change in the non-IT lines of business. IT professionals with higher levels of Emotional Resilience are better able to handle the chronic stress associated with their work. As Weinberg (1972) concludes in his landmark book on The Psychology of Computer Programming “… we can probably say with assurance that someone without the ability to tolerate stressful situations for a period of a week or more is not good programmer material-given the realities of programming work today.” The importance of Emotional Resilience is likely to increase in the future for IT professionals given current trends toward consumer electronics, greater outsourcing of work, limitations caused by enterprise IT security, increased competition from programmers in other countries, and continual technological innovation (for a review of extrajob factors influencing the career environment, see Storey, 2000). Openness was also higher for IT professionals in our sample, and it was positively correlated with career satisfaction. Higher levels of Openness enable individuals to adapt to change and facilitate personal discovery, new learning, and professional development. The field of IT is continually changing due to new technology and innovations in software, information systems, and arrangements for integrating IT with other organizational units and functions. IT staff need to be nimble and flexible. Technology launches in the last 2-3 years have doubled the complexity when compared against all prior technology combined. IT staff that enjoy openly learning and sharing information flourish in this type of environment. IT staff often drive the business adoption of collaboration technologies such as instant messenger and virtual web meetings. Most enterprises are constantly assessing
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the need to retrain or replace the IT workforce. The IT workers that openly stay abreast of new technologies and openly share them with their peers tend to flourish. In fact, the Association of Information Technology Professionals (AITP) lists the following conduct standards for all members: In recognition of my obligation to management I shall: keep my personal knowledge up- to-date and insure that proper expertise is available when needed. (AITP, 2006, para. 2). In recognition of my obligation to my employer I shall: make every effort to ensure that I have the most current knowledge and that the proper expertise is available when needed. (AITP, 2006, para. 5). The IT field should continue to expand and become more differentiated with respect to areas of specialization and expertise. Thus, Openness will continue to be critical to the success and psychological well-being of IT professionals. In fact, it is difficult to imagine an IT employee who is closed to new ideas and resists change being effective in any IT job or deriving satisfaction from this work. Two other traits were also of higher magnitude and were positively correlated with career satisfaction for IT professionals—Tough-Mindedness and Customer Service Orientation. Qualities like tough-mindedness have often been seen as an important qualification for working in the IT profession. For example, Exforsys (2008) states that “the first trait which computer programmers should possess is an analytical mind” and CareerOverview.Com (2008) avers that “the most qualified applicants for programming jobs will have analytical and logical thinking skills…”. Also, the Myers-Briggs Thinking dimension (which involves using a logical thinking style and basing decisions on facts and data rather than feelings) has been described as characteristic of computer programmers, systems analysts and
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computer specialists (BSM Consulting, 2008). In addition, “being logical and factual” has been associated with computer programmers (careerpath. com, 2008). Given the relatively limitless options in technology and the rapid pace of change, IT staff need to be willing to make a decision and stick with it. Their decisions need to be grounded in a rigorous analysis of integration with other information systems, but reviews must be done quickly. IT staff need to be tough-minded enough to stick with a grounded decision. The results for Customer Service Orientation are consistent with studies showing a positive relationship between the career satisfaction of IT employees and the IT service orientation (Jiang, Klein, & Ballou, 2001). Most IT departments in organizations have service level agreements to provide timely, quality service to internal customers. Then, too, more effective IT performance has been found to have a positive impact on the satisfaction of external customers within the company (Karimi, Somers, & Gupta, 2001). The importance of customer service for IT workers is at the cornerstone of their drive to expand services to additional internal customer groups (e.g. marketing and sales departments) and integrate IT with other organizational functions (Lee, Trauth, & Farwell, 1995). This customer service drive to standardize IT services often results in cost savings as services become consistent across the enterprise. If the IT organization can align with external facing lines of business (sales, marketing, etc), the IT staff’s alignment with Customer Service Orientation can be used to directly benefit the business by supporting technologies such as new marketing and service activities increases, such as personalized marketing, self-service sales, podcasts, instant product presentation, real-time customer intelligence. (Gogan, 1998). One personality trait which was positively related to career satisfaction but for which IT professionals had, on average, below-norm scores was Conscientiousness. The latter result is not surprising given the generally unstructured nature
of IT work and the freedom and discretion IT professionals have in how they solve problems and perform their work (see O*NET, 2008). The current findings of below-norm Conscientiousness for IT professionals are consistent with results from a recent investigation by Ash, Rosenbloom, Coder, and Dupont (2008). They found that non-IT professionals had higher Conscientiousness scores than IT professionals. Similarly, a study by Mastor and Ismael (2004) observed slightly below-norm Conscientiousness scores for IT majors. Interestingly, however, Witt and Burke (2008) found that Conscientiousness is positively related to the job performance of IT professionals. Considered as a whole, the above findings for Conscientiousness and IT work are complex and do not lend themselves to simple interpretations. While higher levels of Conscientiousness may be desirable from the standpoint of career satisfaction and the job performance of IT professionals, IT professionals generally score lower on Conscientiousness than individuals in other occupations. This may be to due to a self-selection bias in that individuals lower on Conscientiousness gravitate toward IT work for any number of reasons. Like all of the Big Five traits, Conscientousness is a broadband construct. It subsumes personal qualities like attention to detail and quality consciousness in the same way that it embraces qualities like conformity and rule-boundedness. The conformity and rule-boundedness aspects of Conscientousness may be incongruent with the noncomformist, unconventional personalities often attracted to IT work. Such individuals prefer more informal and less structured work environments, relaxed dress codes and personal appearance requirements, greater discretion and less standardization in how the work is accomplished; and, in some cases, more schedule freedom. From the organization’s standpoint, based on the above results, it would be desirable to recruit and hire IT candidates with higher levels of Conscientiousness and to emphasize Conscientiousness-enhancing training and development programs (such as time manage-
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ment, safety and security issues, and organizational citizenship). Two other traits on which IT professionals had below-norm scores, but which were not significantly related to career satisfaction were Visionary Style and Image Management. The former finding is understandable given that IT work, with its emphasis on details and many small, interlocking steps in task completion, typically involves the opposite of visionary thinking style. As summarized by Walling (2008): I have never, ever, ever seen a great software developer who does not have amazing attention to detail. As for a relative under-emphasis on Image Management, very little IT work requires careful monitoring of one’s own image and trying to project a smooth, polished, self-presentation in interpersonal settings. As an anonymous blogger put it, “in my experience, computer programmers don’t care that much about being popular or good looking—they are skilled craftsmen with a solid work ethic” (Half Sigma, 2008). Although each was positively related to career satisfaction, there were no significant differences in mean scores between IT and other occupations on five traits: Assertiveness, Extraversion, Optimism, Agreeableness/Teamwork, and Work Drive. Regarding the importance of Assertiveness, while it might not be listed in most inventories of key attributes of IT employees, Schneider (2002) lists it as one of the key personality attributes for IT consultants, noting that “you need to be assertive…You need to make sure people don’t walk over you. You also need to be able to stick up for yourself without coming across as too aggressive.” Similarly, Weinberg (1972) contends that a critical personality trait for programmers is “…assertiveness, or force of character. A programmer’s job is to get things done, and getting things done sometimes requires moving around obstacles, jumping over them, or simply knocking
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them down.” The field of Information Technology changes at such an incredible rate that staff who find themselves without the ability to drive a solution quickly find themselves lacking current skills and unable to perform effectively. Optimism is another trait which is unlikely to appear in any IT job description. However, it is the second most highly correlated trait with career satisfaction for IT professionals. This is similar to Lounsbury, Loveland, et al.’s (2003) finding that Optimism was one of the top two correlates of Career Satisfaction for occupations in general. The importance of Optimism for IT work may be due to the benefits for problemsolving associated with having a positive mindset and persisting toward solutions despite setbacks, and the attendant satisfaction that comes from successful task completion. Nearly all important IT work is fraught with difficulties and challenges for which an optimistic frame of mind would be an advantage (cf. Seligman, 1990). Perhaps that is why Walling (2008) concludes that in the case of software development, “…all great developers are optimistic…”. In many cases software programmers must embark on programming efforts without a complete understanding of how the programming will be done. For Optimistic IT staff, this can be an exciting time that contributes to career satisfaction. As for the importance of Work Drive, having a strong work ethic is frequently listed as a requisite factor for success in computer programming or other types of IT work (e.g., Liberty, 1999). Given the multiple, continual demands placed on IT workers and the often high-stakes nature of successful IT project completion, it makes sense to argue that those with high levels of Work Drive may be better suited for such work. They would also be more likely than their less hard-working peers to receive the organizational rewards and recognition that, over the long term, leads to higher levels of career satisfaction. The field of information technology changes so frequently that most IT staff have a healthy sense of “Retool”,
Holland’s Vocational Theory and Personality Traits of Information Technology Professionals
“Retrain” or “Replace”. Those with a consistent Work Drive tend to provide value to the organization by constantly retraining themselves with little effort from management. IT work is widely regarded as being mainly the domain of introverts with two-thirds of computer professionals estimated as being introverted, (e.g., Institute for Management Excellence, 2006). However, in the present study there were no significant differences between our sample of IT professionals and other occupations as a whole on this dimension. Moreover, the average IT-worker score represented about an equal emphasis on Introversion and Extraversion. Also, Extraversion was positively correlated with IT career satisfaction in the present study. How can such observations be reconciled? The answer may be that Extraversion leads to more satisfying experiences over the course of a career, perhaps because it results in more acquaintanceships and friendships, greater personal communication with coworkers and bosses, or even a more positive reception by others at work. Such dynamics would produce a positive correlation between Extraversion and career satisfaction. Regardless, the present results should be considered by those individuals engaged in career planning, vocational development, job counseling, and others who help individuals choose an occupation and might be inclined to not recommend IT for extraverts. From the standpoint of career satisfaction, one would encourage more extraverted individuals to go into IT work. On the other hand, the current findings are consistent with recommendations that interpersonal skills and communication should be emphasized in IT professional training and development (Lee et al., 1995). In addition, since Extraversion is related to higher levels of career satisfaction, organizations may want to consider offering IT employees more opportunities to socialize, fraternize, and interact with other employees through, for example, company-sponsored luncheons, picnics, recreation programs, outings, and other activities that promote extraversion-related behaviors.
Regarding teamwork, in the present sample IT professionals did not differ from other occupations, which is at variance with the traditional view of IT employees working independently (cf. U. S. Dept. of Labor, 1991). Teamwork was, however, positively correlated with career satisfaction in the current study. One reason for this is that IT departments usually have to coordinate and collaborate with other organizational units to achieve successful information systems. IT professionals are increasingly involved in cross-organizational teaming, and internal IT teaming has become more the norm with the advent of team-based or agile programming (Beck 1999). As noted by Schneider (2002) in his research on factors contributing to the success of IT projects, “… teamworking and motivation are more important than technical competence or formal training.” Additionally, Major et al. (2007) list as best practices for managing IT employees using teams for general problem-solving, knowledge-sharing, and peer learning. In terms of practical implications, based on the present results, individuals who are more teamwork-oriented would be more likely to enjoy careers in IT. However, the Occupational Information Network (O*NET), which is one of the premiere sources of occupational planning information, lists the opposite of Teamwork— Independence—as a key Work Style and Work Value for IT occupations (O*NET, 2008). Further research is needed to clarify which of these attributes is more important for successful and satisfying IT careers. As previously noted, an empirically-based personality profile of IT professionals has yet to be developed. The current study is an important first step in that direction. Holland’s theoretical framework characterizes IT professionals as having mainly investigative, realistic, and conventional interests. While consistent with Holland’s vocational theory, the current study goes beyond such interest-based depictions by showing that, compared to other occupations, IT professionals are more: tough-minded and analytic, more open
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to new experiences and learning, emotionally resilient, customer-oriented, and intrinsically motivated. They are also less: conscientious, concerned with image management, and less visionary in their thinking style. Moreover, we found higher magnitude and positive correlations with career satisfaction for the traits of Emotional Resilience, Optimism, Assertiveness, Work Drive, Extraversion, and Openness. In summary, the Holland vocational theory is very germane for the field of IT and there appear to be multiple personality pathways to career satisfaction for IT professionals.
REFERENCES Ash, R. A., Rosenbloom, J. L., Coder, L., & Dupont, B. (2008). Gender differences and similarities in personality characteristics for information technology professionals. Retrieved June 16, 2008, from http://www.ipsr.ku.edu/~ipsr/ITWorkforce/ pubs/GenderDifferences.shtml Association of Information Technology Professionals. (2008). Standard of conduct. Retrieved October 8, 2008, from http://www.aitp.org/organization/about/conduct/conduct.jsp Beas, M. I., & Salanova, M. (2006). Self-efficacy beliefs, computer training and psychological well-being among information and communication technology workers. Computers in Human Behavior, 22(6), 1043–1058. doi:10.1016/j. chb.2004.03.027 Beck, K. (1999). Extreme programming explained: Embrace change. Boston: Addison -Wesley. CareerOverview. Com. (2008). Computer programming careers, jobs, and training. Retrieved June 16, 2008, from http://www.careeroverview. com/computer-programming-careers.html
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CareerPath. Com. (2008). Does your personality hold the key to the perfect job? Retrieved June 16, 2008, from http://www.careerpath.com/ advice/194357-does-your-personality-hold-keyto-the-perfect-job Consulting, B. S. M. (2008). Careers for INTJ personality types. Retrieved June 16, 2008, from http://www.personalitypage.com/INTJ_car.html De Raad, B. (2000). The big five personality factors (the psycholexical approach to personality). Seattle, WA: Hogrefe & Huber. DeNeve, K. M., & Cooper, H. (1998). The happy personality: A meta-analysis of 137 personality traits and subjective well-being. Psychological Bulletin, 95, 542–575. Exforsys Inc. (2008). The role of a computer programmer. Retrieved June 16, 2008, from http:// www.exforsys.com/career-center/career-tracks/ the-role-of-a-computer-programmer.html Gogan, K. (1998). Build customer satisfaction using real-time intelligence. Marketing News, 32(11), 13. Half Sigma. (2008). Not enough women majoring in computer science? Retrieved June 16, 2008,from http://www.halfsigma.com/2007/04/ not_enough_wome.html Hetland, H., Sandal, G. M., & Johnsen, T. B. (2007). Burnout in the information technology sector: Does leadership matter? European Journal of Work and Organizational Psychology, 16(1), 58–75. doi:10.1080/13594320601084558 Holland, J. L. (1985). Making vocational choices: A theory of vocational personalities and work environments. Odessa, FL: Psychological Assessment Resources. Holland, J. L. (1996). Exploring careers with a typology: What we have learned and some new directions. The American Psychologist, 51(4), 397–406. doi:10.1037/0003-066X.51.4.397
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Institute for Management Excellence. (2006). Differences between “computer” folks and the general population. Retrieved April 14, 2006, from http://www.itstime.com/jul2003.htm Jepson, K. (2004). Stress and IT. Credit Union Journal, 14. Jiang, J. J., Klein, G., & Ballou, J. L. (2001). The joint impact of internal and external career anchors on entry-level IS career satisfaction. Information & Management, 39(1), 31–39. doi:10.1016/ S0378-7206(01)00077-5 Judge, T. A., Heller, D., & Mount, M. K. (2002). Five-factor model of personality and job satisfaction: A meta-analysis. The Journal of Applied Psychology, 87(3), 530–541. doi:10.1037/00219010.87.3.530 Judge, T. A., Higgins, C. A., Thoresen, C. J., & Barrick, M. R. (1999). The big five personality traits, general mental ability, and career success across the life span. Personnel Psychology, 52(3), 621–652. doi:10.1111/j.1744-6570.1999. tb00174.x Karimi, J., Somers, T. M., & Gupta, Y. P. (2001). Impact of information technology management practices on customer service. Journal of Information Management. Systems, 17(4), 125–158. Koscho, G. R. (2003). President’s message. Information Executive, 7(2), 1. Lee, D. M. S., Trauth, E. M., & Farwell, D. (1995). Critical skills and knowledge requirements of IS professionals: A joint academic industry investigation. MIS Quarterly, 19(3), 313–340. doi:10.2307/249598 Liberty, J. (1999). The complete idiot’s guide to a career in computer programming. Indianapolis, IN: Que Press. Lounsbury, J. W., Gibson, L. W., & Hamrick, F. L. (2004). The development of a personological measure of work drive. Journal of Business and Psychology, 18(4), 347–371.
Lounsbury, J. W., Gibson, L. W., Sundstrom, E., Wilburn, D., & Loveland, J. (2003). An empirical investigation of the proposition that “school is work”. A comparison of personality-performance correlations in school and work settings. Journal of Education and Work, 17(1), 119–131. doi:10.1080/1363908042000174228 Lounsbury, J. W., Loveland, J. M., Sundstrom, E. D., Gibson, L. W., Drost, A. W., & Hamrick, F. L. (2003). An investigation of personality traits in relation to career satisfaction. Journal of Career Assessment, 11, 287–307. doi:10.1177/1069072703254501 Lounsbury, J. W., Moffitt, L., Gibson, L. W., Drost, A. W., & Stevenson, M. W. (2007). An investigation of personality traits in relation to the job and career satisfaction of information technology professionals. Journal of Information Technology, 22, 174–183. doi:10.1057/palgrave.jit.2000094 Lounsbury, J. W., Park, S. H., Sundstrom, E., Williamson, J., & Pemberton, A. (2004). Personality, career satisfaction, and life satisfaction: Test of a directional model. Journal of Career Assessment, 12, 395–406. doi:10.1177/1069072704266658 Lounsbury, J. W., Sundstrom, E., Loveland, J. M., & Gibson, L. W. (2003). Intelligence, “big five” personality traits, and work drive as predictors of course grade. Personality and Individual Differences, 35, 1231–1239. doi:10.1016/S01918869(02)00330-6 Major, D. A., Davis, D. D., Germano, L. M., Fletcher, T. D., Sanchez-Hucles, J., & Mann, J. (2007). Managing human resources in information technology: Best practices of high-performing supervisors. Human Resource Management, 46(3), 411–427. doi:10.1002/hrm.20171 Mastor, K. A., & Ismael, A. H. (2004). Personality and cognitive style differences among matriculation engineering and information technology students. World Transactions on Engineering and Technology Education, 3(1), 101–105.
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Messersmith, J. (2007). Managing work-life conflict among information technology workers. Human Resource Management, 46(3), 429–451. doi:10.1002/hrm.20172 O*NET. (2008). Occupational information network. O*NET online. Retrieved January 20, 2006, from http://online.onetcenter.org/ Paunonen, S. V., & Ashton, M. C. (2001). Big five factors and facets and the prediction of behavior. Journal of Personality and Social Psychology, 81(3), 524–539. doi:10.1037/0022-3514.81.3.524 Perry, D. K. (1967). Vocational interests and success of computer programmers. Personnel Psychology, 20(4), 517–524. doi:10.1111/j.1744-6570.1967. tb02447.x Perry, D. K., & Cannon, W. M. (1968). Vocational interests of female computer programmers. The Journal of Applied Psychology, 52(1), 31–35. doi:10.1037/h0025351 Prasad, J., Enns, H. G., & Ferratt, T. W. (2007). One size does not fit all: Managing IT employees’ employment arrangements. Human Resource Management, 46(3), 349–372. doi:10.1002/ hrm.20168 Rosenbloom, J. L., Ash, R. A., Dupont, B., & Coder, L. (2008). Why are there so few women in information technology? Assessing the role of personality in career choices. Journal of Economic Psychology, 29(4), 543–554. doi:10.1016/j. joep.2007.09.005 Rouse, P. D. (2001). Voluntary turnover related to information technology professionals: A review of rational and instinctual models. The International Journal of Organizational Analysis, 9(3), 281–290. doi:10.1108/eb028937 Salgado, J. F. (1997). The five factor model of personality and job performance in the European Community. The Journal of Applied Psychology, 82(1), 607–620. doi:10.1037/0021-9010.82.1.30
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Savvas, A.(2004). Work stress at record high. Computer Weekly, 4. Schneider, K. (2002). Non-technical factors are key to ensuring project success. Computer Weekly. Seligman, M. E. P. (1990). Learned optimism. New York: Pocket Books. Shankar, D. R. (2007). Anomie among information technology employees. Journal of Indian Psychology, 25(1-2), 101–107. Storey, J. A. (2000). ‘Fracture lines’ in the career environment. In A. Collin & R. A. Young (Eds.), The future of career. UK: Cambridge University. The Career Key. (2008). Holland’s six personality types. Retrieved Jun 10, 2008, from http:// www.careerkey.org/asp/your_personality/hollands_6_personalitys.asp United States Department of Labor Employment and Training Administration. (1991). Dictionary of occupational titles. Indianapolis, IN: JIST Works. Walling, R. (2008). Personality traits of the best software developers. Retrieved June 16, 2008, from http://www.softwarebyrob.com/2006/08/20/ personality-traits-of-the-best-software-developers/ Weinberg, G. M. (1972). Critical personality traits. In The psychology of computer programming. Retrieved June 16, 2008 from, http://www.dorsethouse.com/features/excerpts/expsych8.html Williamson, J. W., Pemberton, A. E., & Lounsbury, J. W. (2005). An investigation of career and job satisfaction in relation to personality traits of information professionals. The Library Quarterly, 75(2), 122–141. doi:10.1086/431330 Witt, L. A., & Burke, L. A. (2008). Using cognitive ability and personality to select informationtechnology professionals. In M. Mahmood (Ed.), Advanced topics in end user computing, Volume 2 (pp. 1-17). Hershey, PA: Idea Group Publishing.
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KEY TERMS AND DEFINITIONS Big Five Model: An extensively researched, conceptual model of normal personality proposing five basic traits—Openness, Conscientiousness, Extraversion, Agreeableness, and Emotional Stability—that characterize individual differences in personality. Also known as the Five-Factor Model. Career Choice: Process of choosing a career path which can involve choices regarding education and training for a given career. Career Satisfaction: Overall feelings of accomplishment and fulfillment a person has regarding his or her career as a whole, which can represent 80,000-100,000 hours of work for the typical American. Holland’s Vocational Theory: John L. Holland’s basic vocational theory contends that people flourish in jobs and careers in which there is a good fit between their personality and characteristics of the work environment. Better fit leads to higher levels of satisfaction, productivity, and longevity. Information Systems Careers: Careers in the information systems or information technology professions Personal Style Inventory (PSI): A normal personality inventory developed by Resource
Associates that measures broad and narrow traits which have been contextualized for work as well as academic settings. Personality Traits Broad and Narrow: Broad personality traits, such as Extraversion and Conscientiousness, are global constructs representing relatively enduring characteristics of individuals consistent over time and across situations. Narrow personality traits, such as Optimism or Toughmindedness, are more conceptually specific constructs, often components of broad traits, that are consistent over time and across situations. Person-Environment Fit: Degree of correspondence between a person and his or her environment, usually viewed as the alignment between the personality of the individual and the demands of an environment, as in person-job fit. Vocational Choice-Information Systems: Process of choosing information systems as a career. Vocational Interests: Characteristic likes or dislikes a person has regarding different occupations or types of work, usually conceptualized as a small set of basic dimensions, such as Holland’s six-fold taxonomy of Realistic, Investigative, Artistic, Social, Enterprising, and Conventional vocational interests.
This work was previously published in Handbook of Research on Contemporary Theoretical Models in Information Systems, edited by Yogesh K. Dwivedi, Banita Lal, Michael D. Williams, Scott L. Schneberger and Michael Wade, pp. 529-543, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.17
Do Insecure Systems Increase Global Digital Divide? Jawed Siddiqi Sheffield Hallam University, UK Ja’far Alqatawna Sheffield Hallam University, UK Mohammad Hjouj Btoush Sheffield Hallam University, UK
ABSTRACT This chapter surveys the issues concerning the digital divide facing developing nations. The authors assert that “insecurity” and the “digital divide” are highly dependent on each other and as insecurity increases so does the digital divide. Therefore, the authors propose to extend the concept of the digital divide to include information security features by putting forward a new model or paradigm of security that is multi-faceted and is able to assist in bridging the digital divide gap. They argue that a lack of attention to security reduces the access to and use of resources with which to attack the digital divide. In particular, for e-business, the authors conclude that in developing
countries having security issues at the forefront would encourage engagement with e-initiatives, or restrain it if there is an absence of security.
INTRODUCTION Without doubt information and communication technologies (ICTs) continue to change the world to varying degrees from one place to another, depending on a number of technological and socio-economical factors such as: physical access to technology, education, geographical locations, language and gender (Warschauer, 2002; Chen & Wellman, 2003; Nahon, 2006). As a result of these factors the rates of adopting ICTs are different between countries. Accordingly, this creates a
DOI: 10.4018/978-1-60960-587-2.ch717
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Do Insecure Systems Increase Global Digital Divide?
disparity between communities, or a gap commonly known as Global Digital Divide. The term digital divide is claimed to have been first used a decade ago by US Department of Commerce’s National Telecommunication and Information Administration (NITA, 1999). Since then, the term has been extensively discussed by scholars and politicians in order to propose strategies and recommendation for bridging the digital gap and helping nations to fully benefit from ICT diffusion. Different types of inequalities which contribute to increasing the digital divide have been discussed in the literature (van Dijk, 2006). However, we believe that information and communication systems security aspects, which in our opinion can no longer be add-on features, are often overlooked. Moreover, they come as an afterthought when researchers and politicians talk about ICT adoption, and the issues of global digital divide. In this chapter, we argue that a new type of inequality is emerging because many companies are increasingly off shoring and outsourcing part of their businesses to many developing nations resulting in an increasing number of e-business transactions, which are conducted across the borders. Hence, inequality is related to aspects of information security that are rarely addressed in the digital divide literature. We assert, therefore, that a lack of security can negatively affect national initiatives and strategies that are attempting to bridge the digital gap. Consequently, this absence of security would increase the chance that a country stays longer on the wrong side of the global digital divide.
EXPLORING THE DIGITAL DIVIDE IN DEVELOPING NATIONS In order to bridge the digital divide gap and exploit the claimed benefits of ICT, many developing nations have started a number of ICT projects that are usually referred to as e-initiatives. For instance,
PC@ every home, e-Health and e-Government are some examples of e-initiatives in Jordan (MoICT, 2006). Other Arab states have launched e-initiatives to bridge the gap, create technology awareness and emphasise the importance of personal computer penetration for their people (Soumitra, 2003). According to Samer (2008), the problem with many of these countries is the lack of strong ICT foundation which leads them to follow short term plans and ad-hoc approaches, which are not based on a well defined and long term comprehensive ICT strategy. As a result, these initiatives provide relatively small achievements compared to their initial intended goals. In addition, there is a clear lack of awareness of ICT security issues in these countries’ ICT strategies. Introducing ICT in developing nations means that governmental, financial and personal information is being processed, stored and exchanged over ICT networks. Moreover, the governments of these nations have the obligation and/or the responsibility to provide their people with all the essentials of education, awareness, technology and legislations required for secure ICT environment. Unfortunately, many studies reveal that ICT security is becoming an even lower priority and in some cases ignored completely (Tanburn et al., 2001; Bakari, et al., 2005). We argue in the next section that the reason behind this is a lack of focus on ICT security in the digital divide literature and therefore making ICT strategies for bridging the digital gap security-unconscious. As a result leading to a new unanticipated aspect of the global digital divide, and moreover, this absence of security further increases the global digital divide. Many studies have explored the digital divide from different perspectives. In the nineties, the traditional focus was mainly on infrastructural access (Nahon, 2006). Accordingly, the term “digital divide” has been defined as the inability of citizens to have equal access to online services, either because they do not have the technical means, or
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the necessary knowledge and expertise (Muller & Horner, 2004). More commonly, it is defined as the gap between the ‘technology haves’ and ‘technology have-nots’ (Sipior & Ward, 2005). This distinction can be recognised at four levels: individual, organizational, national and international; the latter has been referred to as “Global Digital Divide”. In earlier works, the term focused on the digital divide issue from one perspective: that is of the physical access to computer related technologies. Even as the term has evolved to include internet access, its physical perspective has not changed. Therefore, for example, the definition from US NITA considers the digital divide as a term coined for the disparity between the “haves” and the “have-nots” in the technology revolution (NITA, 2000) - this consideration clearly emphasises the physical access perspective. Recently, the discourse about the digital divide has become multifaceted, and other factors are considered to affect the emergence of the digital divide. Warschauer (2002) argues for redefining the digital divide concept, as not solely marked by physical access to computers and connectivity, but also by considering access to the additional resources that would allow people to use technology, such as content, language, education, literacy, or community and social resources. Realizing the narrow focus of traditional definitions, interested researchers modify the term to include capability and skills for effective use of ICT. For example, Boris and Schlüter (2007: 1) define the digital divide as: Empirical concept that refers to new form of social inequality, regarding the access and/or use of ICT and/or skills of using ICT (especially internet) at various level of society. This shift towards including different factors in studying the digital divide beyond the accessibility offers a social perspective that puts users/people at the heart of the debate. For example, Chen & Wellman, (2003) contend that there are multiple
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digital divides, not even one; hence, they have pointed out that socio-economic status, gender, life stage, and geographic location significantly affect people’s access to and use of the Internet. Other studies refer to factors such as language; time online, skills, ethnicity, and frequency of use (Nahon, 2006). Furthermore, from a developing versus developed nations’ perspective, the global digital divide points to great cross-national differences in IT resources and capabilities. These IT resources are concentrated in the hands of a few western, affluent countries, whereas the rest of the world lags behind them (Drori & Jang, 2003). However, following what has become a well-established argument by Rogers (1995): that diffusion of innovations in general follows complex patterns shaped not only by the technical side of the innovation itself, but also by the economic, political, and sociological context in which it occurs, the parameters that affect the global digital divide need to account for trends of politics, economy, culture, and security. Some studies offer an in-depth investigation of the influence of political, economic, and social factors in creating and sharpening the global digital divide. Drori & Jang (2003) argue that despite the economic and political nature of the justifications for IT connections, it is primarily the connectedness with global society and local cultural changes—expressed by education and science penetration—that serves as the critical antecedents for any change in the global digital divide. Their findings were based on empirical analysis of data collected over time, and according to them, economic openness and democracy have no effect on global digital divide, whereas, permeation of IT into the whole society is the key to bridging the global digital divide. However, we would argue that social and cultural changes, especially in developing countries, are closely linked to political will and economic development. Thus, we would contend that it does not make sense to refer to the global digital
Do Insecure Systems Increase Global Digital Divide?
divide simply as “a product of networking into a global society” (Drori & Jang, 2003: 144) that is detached from political and economic national characteristics. Reinforcing our viewpoint, a study by Guillén & Suárez (2005) contends that many of the cross-national differences in Internet use that exist today are likely to remain in place because they are the result of the fundamental economic, political and social gap that separates the advanced from the less developed countries, which to a certain degree is due to unequal power relations, as indicated by dependency and world-system status. Moreover, they argue that the Internet will not be the quick technological fix that will render disadvantaged countries and firms competitive, nor will it be the factor that helps spread the cause of democracy around the world. Currently rich, competitive, high-status countries and firms, and industrialised countries, are likely to benefit the most from the new medium at the current time. Although these studies provide a solid foundation to understand, and in many cases, to assist in bridging the digital divide, they, nevertheless, come up short when investigating what might drive people’s decision to use or not to use the Internet, or what might be the political and social roots and consequences of such decisions and their impact on increasing the global digital divide. From our perspective, a reason worthy of consideration is security, precisely that such studies seldom address the secure use of technology and the necessary skills and knowledge to securely deploy and use ICT. Hence, this absence becomes one of the major reasons for the strategic focus of our research, of which we are providing a preliminary report in this chapter. Moreover, to the best of our knowledge, no study up to date has linked security to the global digital divide. From the above discussion it is clear that those traditional digital divide perspectives, which do not incorporate security, are inclined to increase the risk that nations will not fully benefit from the digital revolution, besides, these perspectives would hamper nations’ endeavor to overcome the
digital divide; consequently, rendering them unable to compete in the global information economy. Adoption of this security unconscious view will lead these nations to invest heavily in providing their citizens with physical ICT infrastructures without paying much attention to securing these infrastructures and providing a trustworthy electronic environment. This has many implications for the economies of these less-developed nations internally and across the borders. One can argue that considering factors such as ICT skills, knowledge and education implies the necessity for having in place security practices to use and mange ICT, but, in fact, this is misleading and most of the time security aspects are overlooked, come as an afterthought or perceived from purely technical dimension (Alqatawna et al., 2008a). Therefore, we argue that the definition of the global digital divide should be extended to incorporate security and focus on the effective and secure use of ICT. This will ensure that security is integrated into the national ICT strategy of these nations and not be overlooked or be an afterthought. From our perspective, effective incorporation of security in the national e-Strategy should not be perceived from a single technical point of view but from a multiplicity of views that incorporate: legal, organizational, and social aspects (Alqatawna et al., 2008b). In this way we will provide a comprehensive solution for the global digital divide, otherwise, we will solve part of the problem leaving many important issues such as security until the end; this means additional time, effort, and cost that reduces the likelihood for these nations to succeed in a digital environment.
SECURITY AS A MECHANISM FOR DECREASING DIGITAL DIVIDE In a recent evaluation of the digital divide research van Dijk (2006) identifies ten potential inequalities and categorises them into five types (see table
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Table 1. Possible types of inequality that digital divide may refer to (van Dijk, 2006) Technological
• Technological opportunities
Immaterial
• Life chance • Freedom
Material
• Capital(economic, social, culture) • Recourse
Social
• Position • Power • Participation
Educational
• Capabilities • Skills
1). According to this study, all these inequalities can be observed in the digital divide literature. However, the technological opportunities are still the most popular because the physical access to ICTs is getting most of the attention. More than at any other time, the issue of information receives more attention at the national and international levels especially when ICT has become an integral part of business, finance, government, and social communication. Consequently, many countries have started to take significant steps towards secure ICT environments. For example, OECD has encouraged its member states to introduce security as an integral part of the daily routine of individuals, businesses and governments in their use of ICTs and conduct of online activities (OECD, 2002). OECD has proposed many guidelines to cultivate an information security culture in its member states. Hence, security management and security standards for managing and evaluating security practices in organisations have been developed. For instance, the BS7799 standard which has been developed by the British Standards Institute (BSI) later became an international standard (ISO/IEC 27001:2005); a well-known standard for establishing, implementing, operating, monitoring, reviewing, maintaining and improving an Information security management system (ISO, 2005). These changes, which are intended to increase ICT se-
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curity in developed countries, are not limited to security technical and management solutions, but extend to reforming the legal frameworks to support security. Therefore, privacy act, data protection laws, cybercrime laws and many other regulations have been enacted to support security. An Additional fundamental aspect of these security changes is the security awareness programmes at various levels of the society. On the other side of the security divide, there are many countries, which lag behind with respect to ICT security and, therefore, are detrimentally affected by the potential benefits of deploying ICTs in these countries. E-business is an exemplar ICT application that is everywhere transcending national boundaries. It is claimed that e-business creates great opportunities to increase income and trade flow in the developing counties (Rao, 2001). Therefore, we will use it as an example to discuss the security divide issue. There is a notable increase in utilising ICT and e-business adoption in many developing and emerging countries (Al-Jaghoub & Westrup, 2003; Gregorio et al., 2005). This appears to encourage many researchers to pay more attention to this phenomenon and to investigate many related issues in an attempt to help these countries to successfully deploy e-Business and benefit from the experience of the early adopters of e-business in developed countries. Information security and its implications on e-business in the context of these countries were among the major issues that researchers highlighted. Two key reasons as to why people in developing countries are reluctant to engage in e-Business transaction are the lack of trust in online transitions and inadequate privacy policies (Shalhoub, 2006). Consequently, people in these countries are being excluded from receiving the claimed advantages of e-Business. Many developed world companies are off-shoring part of their business to developing countries and relying heavily on their ICT infrastructure to communicate with customers and provide services. However, e-business security seems to be overlooked. A recent report reveals that India,
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the world’s primary locus of IT outsourcing, is lacking a basic information security practices (CIO, 2006). Other unsettling results from (VeriSign, 2004) show that the largest percentages of fraudulent transactions are coming from developing countries such as Indonesia, Nigeria and Pakistan. In contrast, Middle East countries such as UAE and Jordan enacted electronic transaction laws in order to regulate e-business and protect customers’ rights. However, these laws do not have any regulation regarding cyber crimes or privacy (Shalhoub, 2006; MoICT, 2006). Other researches argue that developing countries are lacking secure communication infrastructure and trusted certificate authorities, which have a direct effect on e-business security and the willingness of foreign parties to transact online with businesses in developing countries (Aljifri et al., 2003). To this extent, it is clear that this lack of security can lead to different levels of exclusion: individual, business or even nationwide participation in the global economy. We can conclude that “insecurity” and the “digital divide” are highly dependent on each other. As insecurity increases so, does the digital divide; leading to exclusion at various level of society from fully benefiting from the ICT revolution? Therefore, we propose to extend the concept of the digital divide to include information security features. In this way, we can ensure that security will not be overlooked in any ICT initiative that is intended to bridge the digital divide gap. Moreover, we contend that making ICT secure will increase the trust at all levels: individual, organizational, national and international, and, therefore, contribute directly to the development and increase participation of both developed, and more pertinently in the context of this chapter developing nations in the digital economy. In the next section, we put forward a new model or paradigm of security that is multifaceted, and which is able to assist in bridging the digital divide gap.
THE WAY FORWARD Having argued for the importance of security issues to the digital divide literature and discussed the consequences of its absence, this section will discuss how information security can be integrated at all levels – individual, organisational and national – in order to provide a trustworthy digital environment, which, we argue, can enhance developing countries’ initiatives to bridge the digital gap. The complexity of today ICT environments makes traditional security approaches and ad hoc security solutions insufficient to thwart the increasing numbers of security breaches. These approaches, which perceive security from one dimension – usually the technical one -, are unable to provide adequate security level for current complex digital environments. The large number of security breaches that we see every day provides evidence that encourages us to rethink and investigate other approaches that perceive security as an integrated part of business and hence, follow a holistic way for understanding and solving the security problem (Alqatawna et al., 2008a). Security is a complex area, and understanding the security problem is not an easy task. It is not enough to address only technical requirements (Confidentiality, Integrity, Availability…etc) in order to increase the security bar. ICT environments have interconnecting and interacting components (people, software, hardware, procedures and data) and should be looked upon as information systems with a technological infrastructure, and an organisational framework; rather than a purely technological infrastructure (Sokratis at al., 2005). A comprehensive and interdisciplinary definition for information security emphasises both technology and strong coordination with social systems, such as that suggested by Tsujii (2004: 9), who defines information security as: the dynamic process for establishing an integrated and complete system of social fundamentals
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designed to form, without infringing freedom broadened by IT (information technology), and with closer linkage and coordination among technologies, administration and management techniques, legal and social systems and information morals in order to make compatible improved usability and efficiency and enhanced security, protected privacy and minimized surveillance, or monitoring, over people The previous definition may represent the ultimate goal of information security and give a picture for the ideal e-society. However, this might be impossible since there is a still trade-off between security and usability, and between privacy and protection. Nevertheless, the definition clearly specifies the different dimensions that influence security and it emphasises that these dimensions should be addressed in an interdisciplinary and holistic way. In a previous research paper (Alqatawna et al., 2008b); the Informatics Research Group at Sheffield Hallam University, UK presented a framework of inquiry which is intended to be applicable for any e-Business environment. It is part of ongoing project to construct a conceptual framework, which facilitates holistic understanding of e-Business security and how it can be an integral part of an e-Business environment. We believe this framework can be generalized to provide a tool for ensuring that security will be properly addressed in any ICT initiative; whether it is at individual, organisational or national level. The idea of the framework is to use the ‘’stakeholders’’ concept, which represents all the interested parties in the digital environment. This digital environment has been presented as interrelated conceptual dimensions (Technical, Social, Organisational, Legal and Trust). A brief overview of this framework follows. Government, citizens/customers, private sector e-business organizations, business partners and technology vendors are key players in the digital environment. They have different roles and goals,
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and together they play an important part in success of ICT diffusion in the country. For studying security requirements from a holistic perspective, we recommend the use of the stakeholder model proposed. The model will represent all the interested parties, which can benefit and therefore determine the interrelated dimensions that affect security. These dimensions will be the building blocks for any approach to holistically integrating security with any ICT initiative. Understanding the nature of each dimension and how it affects the other dimensions is a key factor for creating secure and trustworthy digital environment: •
•
•
The Technical Dimension: This dimension focuses on securing the physical and the technological infrastructure that are needed by the country to participate securely in the digital environment. Thus, this dimension is concerned with issue such as: securing communication links, Cryptography and Public Key Infrastructure (PKI), as well as Authentication, Authorisation and Accounting methods. The Social Dimension: Customers, system administrators, accountants, helpdesk personnel and outsource-contactors are the heart of any security systems. Many human factors such as habits, culture and norms can potentially make people the weakest link in the security chain. Many security attacks have been committed successfully not because of the technical vulnerabilities, but because of the human errors and omissions. Education and security awareness in the society are important for successful secure ICT adoption. The Organisational Dimension: This is responsible for developing secure environments that support and enforce the technical solutions in place. This can be done by a set of policies, procedures, guidance and engagement from people at all the organisation levels, from the top management
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•
•
down to the employees. Our future study will investigate requirements such as: security management standards, top management participation, employees’ involvement, training and awareness and other organisational requirements. The Legal Dimension: With evolution of ICT and wide spread use of Internet, the so-called “cyber crimes” have increased. Activities such as identity theft, credit cards fraud, phishing, child pornography, intellectual property infringements… etc, become more and more popular despite the wide use of the physical guards. Unfortunately, in many jurisdiction realms especially in developing countries the role of law against many cyber crimes is still inadequate. From a business perspective, law has an important proactive role in terms of regulation and contracts, which are important for online, as well as offline businesses. Several e-business activities such as e-contracting, e-auction and e-invoicing in developing countries should be regulated from a legal perspective. Trust Dimension: Lack of trust in technology is one of the main reasons why many people are reluctant to engage in activities or transactions over ICT networks. Therefore, understanding this dimension and its relation with the previous dimensions is very important if we look for a comprehensive solution for the security problem.
CONCLUSION The security of any electronic environment is a crucial issue that should receive significant attention from the very beginning of any ICT initiative. With internet evolution and globalization, new forms of concerns have started to emerge, one of which is security. We have argued that it is a
major concern that could widen the digital divide largely, especially when people become reluctant to engage in any transactions online due to the fear of any breaches of their security and privacy. Redefining the digital divide to include security concerns would help to highlight an unconscious aspect of the digital divide that goes beyond the physical aspects. Moreover, by incorporating these security concerns in the digital divide term we hope to be able to address a very important barrier that keeps many people, organisations and countries from using ICT initiatives worldwide. In conclusion, a lack of attention to security in developing countries reduces the access to and use of resources with which to attack the digital divide, specifically it can lead to a lack of trust and confidence among local potential adopters of ICT and e-Business practice. Moreover, to paraphrase what one referee perceptively pointed out that the effect of poor security environments could mean that not only off-shore activities and inward investors are kept in their separate and secure systems, but that would also result in less transfer of skills and resources for local use; and thereby potentially re-creating the digital divide further within a country seeking to overcome it.
REFERENCES Al-Jaghoub, S., & Westrup, C. (2003). Jordan and ICT-led development: towards a competition state? Information Technology & People, 16(1), 93–110. doi:10.1108/09593840310463032 Aljifri, H., Pons, A., & Collins, D. (2003). Global e-commerce: a framework for understanding and overcoming the trust barrier. Information Management & Computer Security, 11(3), 130–138. doi:10.1108/09685220310480417 Alqatawna, J., Siddiqi, J., Akhgar, B., & Hjouj Btoush, M. (2008a). Towards Holistic Approaches to Secure e-Business: A Critical Review. In Proceedings of EEE’08, Las Vegas, USA.
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Alqatawna, J., Siddiqi, J., Akhgar, B., & Hjouj Btoush, M. (2008b). A Holistic Framework for Secure e-Business. In Proceedings of EEE’08, Las Vegas, USA. Bakari, J. K. (2005). Towards a Holistic Approach for Managing ICT Security in Developing Countries: A Case Study of Tanzania. Retrieved May 15, 2008, from http://dsv.su.se/en/seclab/pages/ pdf-files/05-011.pdf Boris, K., & Schlüter, E. (2007). ‘ Reconsidered: A Country- and Individual-Level Typology of digital inequality in 26 European Countries. In Quantitative Methods in the Social Sciences (QMSS). Prague: Digital Divide. Chen, W., & Wellman, B. (2003). Charting and bridging digital divides: Comparing SocioEconomic, Gender, Life Stage and Rural-Urban Internet Access and Use in Eight Countries. AMD Global Consumer Advisory Board (GSAB). Retrieved May 15, 2008, from http://www.amd. com/usen/assets/content_type/DownloadableAssets/FINAL_REPORT_CHARTING_DIGI_DIVIDES.pdf CIO. (2006). The State of Information Security. CIO Magazine and PricewaterhouseCoopers. Retrieved May 15, 2008, from http://www.pwc. com/extweb/pwcpublications.nsf/docid/3929AC 0E90BDB001852571ED0071630B Drori, G. S., & Jang, Y. S. (2003). The Global Digital Divide: A Sociological Assessment of Trends and Causes. Social Science Computer Review, 21(2), 144–161. doi:10.1177/0894439303021002002 Gregorio, D. D., Kassicieh, S. K., & De Gouvea Neto, R. (2005). Drivers of E-business activity in developed and emerging markets. Engineering Management. IEEE Transactions, 52(2), 155–166.
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Guillén, M. F., & Suárez, S. L. (2005). Explaining the Global Digital Divide: Economic, Political and Sociological Drivers of Cross-National Internet Use. The University of North Carolina Press Social Forces, 84(2), 671–708. ISO. (2005). ISO/IEC 27001. Information technology - Security techniques - Information security management systems - Requirements. Retrieved May 25, 2008, from http://www.iso.org/iso/catalogue_detail?csnumber=42103 Katsikas, S. K., Lopez, J., & Pernul, G. (2005). Trust, Privacy and Security in E-business: Requirements and Solutions. In Proceedings of the 10th Panhellenic Conference on Informatics (PCI’2005), Volos, Greece, November 2005 (pp. 548-558). MoICT. (2006). E-Initiative Database. Ministry of Information and Communications Technology (MoICT). Retrieved April 12, 2008 from http:// www.moict.gov.jo/MoICT/MoICT_Initiative. aspx MOICT. (2006). The e-Readiness Assessment of the Hashemite Kingdom of Jordan 2006. Ministry of Information and Communication technology (MoICT). Mullen, H., & Horner, D. S. (2004). Ethical Problems for e-Government: An Evaluative Framework. Electronic. Journal of E-Government, 2(3), 187–196. Nahon, K. B. (2006). Gaps and Bits: Conceptualizing Measurements for Digital Divide/s. The Information Society, 22(5), 269–278. doi:10.1080/01972240600903953 National Telecommunications and Information Administration (NTIA). (1999). Falling through the Net: defining the digital divide. Retrieved May 25, 2008, from http://www.ntia.doc.gov/ntiahome/ fttn00/contents00.html
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National Telecommunications and Information Administration (NTIA). (2000). Falling through the Net II: toward digital inclusion. Retrieved May 25, 2008, from http://www.ntia.doc.gov/ ntiahome/fttn00/contents00.html OECD. (2002). Guidelines for the Security of Information Systems and Networks: Towards a Culture of Security. Retrieved May 25, 2008, from http://www.oecd.org/dataoecd/16/22/15582260. pdf Rao, T. P. (2001). E-Commerce and Digital Divide: Impact on Consumers. Paper Presented at the Regional Meeting for the Asia-Pacific: New Dimensions of Consumer Protection in the Era of Globalization, Goa, India. Rogers, E. M. (1995). Diffusion of Innovations. New York: Free Press. Sachs, J. (2000, June 24). A New Map of the World. Economist Magazine, 81-83. Shalhoub, Z. (2006). Trust, Privacy, and Security in Electronic Business: The Case of the GCC countries. Information Management & Computer Security, 14(3), 270–283. doi:10.1108/09685220610670413 Sipior, J. C., & Ward, B. T. (2005). Bridging the Digital Divide for e-Government inclusion: A United States Case Study. Electronic. Journal of E-Government, 3(3), 137–146.
Soumitra, D. (2003). ICT challenges for the Arab world. In The Global Information Technology Report 2003-2004: Towards an Equitable Information Society (Global Information Technology Report). World Economic Forum. Retrieved June 25, 2008, from http://www.mafhoum.com/ press7/218T42.pdf Tanburn, J., & Singh, A. D. (2001). ICTs and Enterprises in Developing Countries: Hype or Opportunity? Paper No. 17, International Labour Office, Geneva. Retrieved June 5, 2008 from http:// www.ilo.org/dyn/empent/docs/F1089912836/ WP17-2001.pdf Tsujii, S. (2004). Paradigm of Information Security as Interdisciplinary Comprehensive Science. In Third International Conference on Cyberworlds (CW’04), 2004 (pp. 9-20). van Dijk, J. (2006). Digital divide research, achievements and shortcomings. Poetics, 34(45), 221–235. doi:10.1016/j.poetic.2006.05.004 VeriSign. (2004). Internet Security Intelligence Briefing, 2(2). Retrieved May 28, 2008, from http://www.verisign.com/static/017574.pdf Warschauer, M. (2002). Reconceptualizing the Digital Divide. First Monday, 7(7). Retrieved May 22, 2008, from http://www.firstmonday.dk/ issues/issue7_7/warschauer/#author
This work was previously published in E-Strategies for Technological Diffusion and Adoption: National ICT Approaches for Socioeconomic Development, edited by Sherif Kamel, pp. 234-243, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.18
Teleworking and the “Disability Divide” John C. Bricout University of Central Florida, USA Paul M.A. Baker Georgia Institute of Technology, USA Andrew C. Ward University of Minnesota, USA Nathan W. Moon Georgia Institute of Technology, USA
ABSTRACT Much of the discourse on the digital divide focuses on issues of information disparity and accessibility, frequently in socioeconomic terms. This perspective overlooks an important aspect of the digital divide, the lack of access and missed opportunities faced by persons with disabilities, referred to here as the “disability divide.” Barriers to access and knowledgeable use of information and communication technology (ICT) represent more than simple exclusion from information to encompass social segregation and devaluation. At its most insidious, barriers to ICTs limit full community engagement in employment activities. This chapter examines the ramification of the impact of DOI: 10.4018/978-1-60960-587-2.ch718
digital divide on the nature of employment and participation in the workplace, using ICT to conduct telework, and explores challenges to social policy with respect to ‘reasonable’ accommodations. In the absence of practices, structures, and policies targeting the distributive work environment, telework is much less likely to close the digital divide for persons with a disability. This suggests the need to explore and develop potential policy options to close the disability divide.
INTRODUCTION The digital divide is a broad concept whose basic assumptions are contested (Barzilai-Nahon, 2006; Hall, 2003; James, 2005; James, 2008; Vehovar,
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Teleworking and the “Disability Divide”
Sicherl, Husing, & Dolnicar, 2006). The concept finds its origins in media and government reports dating back to the mid-1990s, entering scholarly discourse a few years later, and quickly building momentum since then, with 440 papers in the ISI Web of Science at the beginning of 2006 (Vehovar et al., 2006), and 975 publications identified (by topic) in the ISI Web of Knowledge in the latter part of 2008 (ISI, 2008). At its most basic level, the digital divide has been defined in terms of the gap in information and communication technology (ICT) use. Although ICTs are inclusive of a broad range of technologies, including computers, videoconferencing, intranets, and mobile telephones, ICTs are most commonly used synonymously with the Internet, which provides the infrastructure for most ICT devices and applications (BayoMoriones & Lera-Lopez, 2007; Hull, 2003; Triggs & John, 2004). One contested assumption is the strength and direction of the relationship between the digital divide, as a divide between ICT ‘haves’ and ‘have-nots,’ in addition to broader, off-line social disparities (Mehra, Merkel, & Bishop, 2004; Vehovar et al., 2006). The confounding of social inequality and access to ICTs is not disputed; however, there are unresolved questions about the context of the digital divide in poverty, rural areas, and developing countries. Also problematic is framing the digital divide simply as an aggregated distribution problem requiring scaled up infrastructure (Barzilai-Nahon, 2006; Hull, 2003; James, 2005; James, 2008; Vehovar et al., 2006). Social exclusion is a common denominator for marginalized individuals and populations, for which barriers to both access and informed use of ICT characterize their experience of the digital divide (Mehra et al., 2004; Vehovar et al., 2006). Indeed, access and use of ICT is a central concern for makers of public policy (DiMaggio & Hargittai, 2001). For example, there is well documented research demonstrating the existence of a “digital divide” in our society in terms of access to, availability of, and use of ICTs (Hoffman, Novak, &
Schlosser, 2000; Light, 2001; Hargittai, 2002, 2003; Warschauer, 2003). Furthermore, the divide tends to exist along racial and socioeconomic lines, the same demographic characteristics that have stratified society in general (U.S. NTIA, 2000; U.S. NTIA 2002; Callison, 2004; DiMaggio & Hargittai, 2001; Robinson, DiMaggio, & Hargittai, 2003). Persons with disabilities are a marginalized group for whom the digital divide presents some unique challenges (Guo, Bricout, & Hung, 2005). For example, the obstacles that must be navigated and surmounted by persons with disabilities in accessing ICT and its content have led to an additional dimension of the digital divide encompassing design, interface, and usage factors, collectively known as usability factors (Gyi, Sims, Porter, Marshall, & Case, 2004; Roberts & Fels, 2006; Ward & Townsley, 2005; Wattenberg, 2004). Usability is the key to unlocking the full potential of ICT, particularly for persons with a disability. Web accessibility standards, although considerably more disability-friendly than in the past, still leave room for improvement (Sevilla, Herrera, Martinez, & Alcantud, 2007). Defined as a product’s ability to facilitate the efficient, effective, and satisfactory attainment of defined goals in a specified context (Sevilla et al., 2007), usability is ultimately predicated upon the user’s digital literacy. Indeed, to address the ‘informed ICT use’ gap in the digital divide, users must develop digital literacy skills, namely online skill in terms of efficiency and effectiveness of browser use, Internet-related knowledge, Web experience, and computer use skill (Hargittai, 2005; Hohlfeld, Ritzhaupt, Barron, & Kemker, 2008). Telework, or work (related) activities conducted at a distance through the medium of ICTs, as it is performed in the early 21st century, is predicated largely on the notion of Internet accessibility, either as a medium for worker communications (e.g., e-mail, voice over Internet protocol, instant messaging services, etc.), a tool for carrying out
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essential work functions (i.e., online research via the World Wide Web), or as a means for connecting to the physical workplace through secure websites or a virtual private network (VPN). These various uses of the Internet as part of telework suggest that accessibility of the Internet by persons with disabilities is also an important consideration for telework. Among stakeholders concerned with disability-related access to ICTs (i.e., e-accessibility), there are concerns not only about having, accessing, or using the technology, per se, but also about barriers to the content of the Internet and World Wide Web (U.S. Department of Commerce, 1999; Margolin, 1998). There are a number of websites that contain barriers to access for persons with disabilities resulting not only from design flaws, but also from a general lack of awareness and ad hoc accessibility implementation (Yu, 2002). The types and nature of barriers faced by persons with disabilities have grown over the years with the transformation of the Web into a multimedia, graphic-heavy medium that cannot easily be parsed by screen readers unless steps are taken to remediate these barriers to content access (Heim, 2000). There have been some attempts by the federal government to address issues of access by mandates and rulemaking, such as the Section 508 amendment to the Rehabilitation Act of 1973, which requires that all electronic and information technology developed by the federal government (including websites) be accessible for those with disabilities (Hackett, Parmanto, & Zeng, 2005). With appropriate foresight and innovation, incorporating considerations of context, usability, and digital literacy, ICT can help overcome digital divide-related social exclusion for persons with disabilities. In this chapter, we consider how telework, or remote work using ICT, when properly configured and implemented, provides employment opportunities for persons with disabilities and has the potential to leverage social networks to the benefit of social capital, social learning, and social inclusion. We argue that policies, practices, and structures ensuring inclusion are needed for
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telework to make strides towards closing the digital divide for persons with a disability.
BACKGROUND The Digital Divide and Persons with Disabilities: The “Disability Divide” Policy researchers have called attention to the fact that there are aspects of the digital divide that are specific to individuals with disabilities (Jaeger, 2006; Goggin & Newell, 2004; Dobranksy & Hargittai, 2006). The term “disability divide,” a variant of digital divide, has begun to appear in scholarly literature, and refers generally to the wide range of ICT barriers experienced by persons with disabilities. Use of the term “is meant to refocus awareness of how the digital divide… affects persons with disabilities specifically, and to address the gap that remains between able-bodied and disabled people despite advances in assistive technologies and more widespread awareness of implementing universal design” (Baker & Bellordre, 2003). A recent publication (RTC Rural, 2006) on the digital divide for persons with disabilities compared and analyzed several national surveys. The results suggest that economic, political, and social participation depends increasingly on the ability to use and access ICT (Hargittai, 2003; Jaeger, 2006). Data from a report by the U.S. National Telecommunications and Information Administration (U.S. NTIA, 2002) noted that, as of 2003, less than 30% of persons with disabilities aged 15 or over use the Internet, compared to 60% without a reported disability. The report also revealed that about 45% of those with disabilities own computers, compared to 72% of their counterparts without disabilities. Data also suggest that persons with disabilities face an additional barrier when living in rural areas, where telecommunications availability is less prevalent (Enders & Seekins, 1999).
Teleworking and the “Disability Divide”
Persons with a Disability Persons with a disability are not a monolithic group. The contexts in which they live vary, for instance, rural and urban, and will have an impact on their access to ICT. So, too, will their socioeconomic status, although it is, on average, very low around the world (Garcia, 2002). The individual’s type of disability will also have implications for our analysis. For example, the Web has been made more accessible for individuals with sensory disabilities (vision and hearing) than for individuals with cognitive disabilities (Sevilla et al., 2007). Disability type also introduces a rather large unknown factor into our considerations of telework arrangements because the extant research literature on telework for persons with a disability is rudimentary and characterized by small purposive samples, making it impossible to know what populations have adopted home-based telework, for instance, and what systematic differences are implied in designing and implementing disabilityspecific protocols, interfaces, and supports (Baker et al., 2006; Bricout, 2004). There is, however, anecdotal evidence gained through case studies of telework training and placement outcomes involving persons with a variety of sensory, physical, and cognitive disabilities. This evidence suggests that telework is a viable option for many persons with a disability (Anderson et al., 2001; West & Anderson, 2005), and in principle, telework arrangements incorporating principles of usability, Web accessibility, ICT use, and networking capabilities, ought to enable telework that decreases the digital divide.
Disability, ICTs, and the Workplace The increasingly widespread use of ICTs has opened new possibilities for both meta-geographic and virtual interaction (Cairncross’ “death of distance”) in social, community, and work environments (Cairncross, 1997; Millar & Choi, 2003; Van Alstyne & Brynjolfsson, 2005). However,
bridging distance is only one aspect of closing the digital divide for groups such as persons with disabilities. Much of the literature on the digital divide focuses on issues of information disparity and accessibility. While critical, this perspective overlooks an important aspect of the digital divide, the lack of socio-political access and opportunity faced by persons with disabilities, referred to here as the “disability divide.” For these populations, the inability to access and use ICTs represents more than exclusion from information. For many people with a disability this exclusion is a significant barrier to full engagement in employment activities. For exclusion to be decreased, the medium must also support networking capabilities that positively benefit well-being and social status (Grimes, 2000; Hopkins, Thomas, Meredyth, & Ewing, 2004; Hull, 2003). Work-related ICT use may promote such positive networking. For example, ICTs allow not only expanded work possibilities, but more broadly, they permit expanded networked learning opportunities characteristic of telework when optimally implemented. In contrast to telecommuting, in which the work is primarily shifted in locale, teleworking is a restructuring of the tasks to be accomplished with the larger work setting which could result in “work” being done remotely, or collaboratively with coworkers (remotely or not) using ICTs (Baker, Moon, & Ward, 2006). For persons with a disability, ICTs provide both accessibility and an immediacy of supports that might not otherwise be possible, especially in the case of home-based employment (Houlihan et al., 2003; West & Anderson, 2005). Such an assessment of telework is consistent with the assumption that, within the workplace, proximate (or “traditional”) workplace support for persons with a disability enhances opportunities for participation. It is sometimes presumed that the best opportunity for creating environments receptive to full participation is found in the proximate environment where persons and environments are mutually shaping, allowing customized supports, rather than in a remote system infrastructure (Wil-
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liams, Bunning, & Kennedy, 2007). Indeed, there is empirical evidence (Seekins, Traci, Cummings, Oreskovich, & Ravesloot, 2008) to support the perspective that close-in environments can be adapted for enhanced supports, particularly with respect to accessibility and participation. Further, research on accessibility suggests that barriers to work are features of the work environment or events that reduce accessibility, and that once removed, enable successful job performance (MacEachen, Clark, Franche, & Irvin, 2006). The notion of work that underlies this perspective is task performance-focused. This view, however, presents a misleading picture. In addition to purely physical barriers, persons with disabilities also experience a distance from, or lack of, social inclusion in the workplace. Persons with a disability often report having fewer ties to individuals and groups outside their immediate social networks than non-disabled persons – to their detriment in situations favoring extended work-related social networks (Carey, Potts, Bryen, & Shankar, 2004; Ruesch, Graf, Meyer, Rossler, & Hall, 2004). This suggests that the inherent capacity of telework to promote and sustain more remote social connections is important. Telework can facilitate the development of distributed (online) communities of practice (CoPs), expanding the boundaries of an in-group that shares a professional identity, experience and language to encompass a distributed network of co-workers/ peers and supervisors. It has the capacity to draw upon explicit knowledge from electronic media and interpersonal exchanges (Lee, Shin, & Higa, 2007). The online CoP facilitated by telework, when situated in supportive corporate culture and high task interdependence contexts, may become the basis for increased knowledge exchanges, with the caveat that in the short-term, teleworkers adapting to new technology may actually decrease both the flow of their communication and narrow its focus, resulting in less exchange of implicit knowledge (Belanger & Allport, 2008). Online CoPs provide a learning medium conducive to
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informal social learning, as well as more formal didactic learning (Gochenour, 2006), further increasing the teleworker with a disability’s participation as a valued an active contributor in the work process. The focus on CoPs, social capital, and knowledge should not obscure the fact that persons with a disability have often been socially excluded from the offline community, including the workplace (Bates & Davis, 2004) requiring both legal and statutory remedies of which the 1990 Americans with Disabilities Act (ADA) is the most prominent. To characterize work as only a series of tasks performed with or without external supports seriously under-describes the nature of work. Admittedly the shift from a conceptualization of work as attached to a specific individual and locale to a focus on tasks to be accomplished represents a paradigmatic shift. However, with few exceptions, work is a form of social activity that relies on social learning and cooperation and/ or and coordinated efforts of multiple workers. Both work and workplace learning are inherently social in nature, and therefore ‘distributed’ in a network that incorporates both proximate and distal elements, as well as other aspects, such as affective and instrumental ties (Choi & Kim, 2007). The complex nature of social ties and its profound impact on telework is illustrated in studies on home-work balance for teleworkers which suggests that the proximity of telework to family life may be detrimental to the work-life balance, a negative consequence of the boundary eliding accessibility of the virtual work medium (Montreuil & Lippel, 2003; Raghuram & Wiesenfeld, 2004). Although comparable studies (see Lapierre & Allen, 2006) have not been conducted using teleworkers with a disability, the importance of family supports for persons with disabilities suggests that home-based telework should be designed and implemented in such a fashion that proximate (familial in this case) supports are not overburdened, but rather operate in concert with distal ICT-mediated network supports.
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The assumption that proximate supports typically lead to increased “participation” is thus cast into doubt in the context of workplace participation for people with a disability. Reinforcing the importance of balancing immediate (proximate) and distributed (remote) social network supports, there is a large body of research literature (Kavanaugh, Reese, Carroll, & Rosson, 2005; Spence, Schmidpeter, & Habish, 2003) underscoring the importance of weak social network ties and similar bridging social capital to favorable employment and economic outcomes (Carey et al., 2004). Individuals in the teleworker’s immediate off-line social network provide the basis for “strong ties,” or reciprocal affective and instrumental exchanges that bond the participants together. These bonds typically generate the trust and reciprocal aid that characterize social capital, sometimes referred to as the “social glue” that holds groups together, and as a form of implicit social contract for civil behaviors in the workplace (Liukkonen, Vitranen, Kivimaki, Pentti, & Vahtera, 2004). Social capital is not restricted to the strong ties of immediate groups. It can extend to individuals who are only tangentially (indirectly) linked to the focal individual, creating “weak ties” that create links to distal networks from which the focal individual can benefit. The social capital generated through weak ties is termed “bridging social capital”, traversing the social space between disparate networks with bonds of mutual trust and reciprocity (Bates & Davis, 2004). Of course, this concept presupposes that there is a certain common understanding of the individual and his or her capacity (perceived or otherwise) to work effectively, and to engage socially in the workplace, which is not always the case.
KEY ISSUES AND PROBLEMS: DISABILITY AND WORK According to the ADA the social isolation and marginalization of persons with a disability has
deep socio-historical roots: “historically, society has tended to isolate and segregate individuals with disabilities, and, despite some improvements, such forms of discrimination against individuals with disabilities continue to be a serious and pervasive social problem” (ADA, 1990). While an awareness and analysis of the challenges faced by persons with disabilities has become more common in many social sciences, this attention is relatively new and has only begun to be supported by scholarship on the matter (Barnartt, Schriner, & Scotch, 2001). This relative paucity of academic scholarship may be due, in part, to the complex array of conditions, and characteristics that fall under the rubric of “disability”, as well as to the diversity of policy arenas and stakeholders. While there are good reasons to agree about the importance of including the many voices that constitute the disabled community in the formation of policy, the creation of sound public policy, by its very nature, involves normative assumptions about those social groups protected and constrained by these policies. In the broadest terms, what is necessary is a careful review and assessment of the appropriate concepts and methodologies, as well as extant private and public policies, regarding their impact on issues of disability, accessibility, accommodation, and integration. Our focus here relates to issues of using carefully designed and implemented telework arrangements as a means of leveraging access to online social capital, social learning and social inclusion for persons with disabilities, thereby decreasing the digital divide. This is an especially important subgroup of the larger group of persons with disabilities since the presence of a disability affects both earnings and ‘worklife’ expectancy (Gamboa et al., 2006). Moreover, for people with one or more disabilities, the opportunity to work is often an important element for their development and maintenance of social relationships, as well as for their sense of health and well-being (Ross & Mirowsky, 1995). Prior to the passage of the ADA, national health policy debates tended to overlook or ignore the
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needs and concerns of 19 million persons with disabilities (DeJong, Batavia, & Griss, 1989). While the ADA was a significant milestone for persons with disabilities by overcoming many of the barriers that prevent their full participation, it has not translated into a complete elimination of employment disparities for persons with disabilities. What evidence is there to suggest that, despite efforts such as the passage of the ADA, there remains a failure to integrate persons with disabilities into the workplace at a level commensurate with the employment rates of people without disabilities? According to Zola (1993), the number of people with a disability varies considerably depending on the definition or measure of disability used. One common approach uses data from the Current Population Survey (CPS) to demonstrate that the employment-population ratios for persons with disabilities deteriorated over the 1990s (Hale, 2001). The problem, as pointed out by Hale, is that current CPS questions on work limitation and disability lack a specific definition of the meaning of “disability.” As a result, the CPS lacks validity as an identifier “of persons with disabilities.” Thus, while some studies on disability and employment have used CPS data (e.g., Yelin & Katz, 1994) most studies make use of other national data sources. The failure of integration and subsequent exclusion of persons with disabilities from opportunities for employment often leads to an attenuation of social contacts and social support. Although conventional views of work often characterize it as difficult, arduous drudgery, this narrow view fails to capture the personal and social contexts in which work occurs (DesJardins, 2009). Majid Turmusani (2001) has observed that work, both in terms of one’s employment status and the type of job a person has, is a key determinant of status and identity formation in almost all societies. The perceived inability of a person to work, even if only a function of organizational norms about the location and nature of the work, is part of the stigma associated with being disabled and
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dependent. The concepts of both “disability” and “adulthood” in modern societies are understood in terms of work and employment. Disability, in particular, has been consistently defined by perceived “inability to work” (Priestly, 2003). According to a broader conception, stigmatization can occur when elements of labeling, stereotyping, separation, status loss, and discrimination are present in an environment that allows them (Link & Phelan, 2001; Sayce, 2003). This stigmatization and subsequent marginalization or exclusion from employment and employment opportunities also contributes to significant health inequalities experienced by disabled people compared to nondisabled people (Melville, 2005). Even in those cases in which businesses offer some employment opportunities for persons with disabilities, the failure to fully integrate them into the processes and decision-making activities of the organizational workforce often leads to a widening in the gap between those with access to social capital and those without (or having less) access to social capital. Putnam (2000) observes that the core idea of social capital theory is that social networks and interpersonal ties can generate trust and reciprocity as normative values. In this respect, social capital is one such recourse available to an actor in virtue of the actor’s role and position within a set of social and organizational relationships (Melville, 2005). The common thread in these and other characterizations of social capital is that it is a resource (power) to which individual actors (or groups of actors) have access to in virtue of their position and role within a social network. The failure to integrate, in a meaningful way, disabled people into the organizational workforce effectively limits the social capital available for the disabled person. Marginalizing and generally placing limits on a person because of perceived disabilities serves both to stigmatize the individual and to restrict his or her ability to make use of resources available to people more connected within the organization’s network. This also af-
Teleworking and the “Disability Divide”
fects the organization since having employees who are unable to take advantage of the social capital to which other employees performing comparable kinds of jobs and tasks have access reduces the overall efficiency and effectiveness of the organization. Accepting the assumption that “a positive impact” is created by social capital on the transfer, generation, and use of knowledge (Lesser & Prusak, 1999), then marginalizing and or failing to fully integrate persons with disabilities into the organizational workforce is a suboptimal solution for maximizing knowledge creation, sharing and use, and organizational efficiency and effectiveness. An ancillary effect of the marginalization of persons with disabilities, although mitigated when employed, is that their social networks tend to be less extensive than for those without disabilities (Bates & Davis, 2004; Forrester-Jones, Jones, Heason, & DiTerlizzi, 2004). In the context of using social networks as a key to understanding social capital, there are fewer opportunities for disabled people not integrated into the workforce of the organization to participate in and build CoPs. Membership and participation in CoPs can be distinguished from participation in workplace teams or in formally defined work groups within the organization. Participation in CoPs can go beyond just working as part of a team, to actively participating in the processes of social communication and the construct of identities in these communities (Lueg, 2001). This sense of identity, based on shared interests and perceptions of the world, is an important element of CoPs. To the extent that the failure to integrate persons with disabilities into the organizational workforce eliminates or inhibits the formations of CoPs, there will be a loss of social and personal identification of persons with disabilities with one another and with other, non-disabled workers in the organizations. Provided that adequate and appropriate accommodations are in place, and structural barriers to performance are removed (Wilton & Schuer,
2006), persons with a disability can contribute positively to an employer’s overall diversity efforts with attendant economic benefits (Ball, Monaco, Schmeling, Schartz, & Blanck, 2005). Failure to institute such workplace community supports leads to a greater likelihood of social and personal isolation by workers with disability (at least regarding their workplace activities). Moreover, the adverse outcomes are not limited to the marginalized persons with disabilities; they also accrue to the organization itself as positions are deskilled and value systems are eroded (Wilton & Schuer, 2006). The failure to integrate persons with disabilities into an organization’s workforce not only affects persons with disabilities in a negative way; it also affects the organizational capacity and human capital in a negative way.
RECOMMENDATIONS: THE VIRTUAL WORK ENVIRONMENT Therefore, as noted above, given that persons with disabilities face many barriers to full inclusion in the workplace and an attenuation of work opportunities, how can ICTs help bridge this special case of the digital divide? One approach, and the one we advocate in the chapter, is by expanding the notion of the workplace to include a virtual environment. Thus, place is no longer a principally spatio-geographic notion but is instead a “space of opportunities.” Thus, the traditional conception of work is expanded to include telework. As we have previously argued, telework is conducted at a distance through the medium of ICTs. Hence, the conduct of telework is non-local in a strict geographic sense. It is physically dispersed and distributed along a network that may include non-teleworking co-workers, with psychosocial implications for the entire work community (Golden, 2007). Teleworkers, in a broader sense, are understood to include those for whom telework is their only work mode (so-called substitutors),
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those for whom it supplements their office work, and those who are self-employed (Schwitzer & Duxbury, 2006).
The Community of Work Although common parlance favors the phrase “community at work” (author emphasis), the phrase “community of work” (author emphasis) seems more appropriate for telework. The distributed nature of telework potentially extends the locus of work performance beyond the physical brick-and-mortar workplace, to include issues of identity, trust and commitment, organizational and interpersonal, to persons and place unseen, but nonetheless felt, and more importantly, acted upon (Robey, Khoo, & Powers, 2000). As noted above, for persons with a disability, social integration in the workplace may prove challenging, whether due to the relatively limited experience or behavioral repertoire of the individual, functional limitations, or limited capacity or receptivity on the part of the work environment to foster mutuality and adaptations that integrate the worker with a disability (Carrier, 2007; Holmes, 2003; Ward & Baker, 2005). While much of the research literature on the workplace social integration of persons with a disability has tended to focus on task-related exchanges or relational exchanges independent of work referents, a recent sociological perspective on the interactions between person and environment, posits a mutual adjustment that occurs between workers with a disability and their non-disabled co-workers (Carrier, 2007). In a qualitative study of ten cases (situations) involving workers with an intellectual disability receiving services from one of three public rehabilitation centers, Carrier found an asymmetric co-adaptation with more of the observed adjustment coming from non-disabled co-workers. It is reasonable to anticipate different outcomes for individuals with different functional disabilities, for which empirical research must be conducted however,
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the importance of co-adaptation and mutuality can scarcely be overstated as a fundamental precondition of social integration. Social integration is thus framed in terms of person-environment transactions, with implications for social capital (trust and reciprocity), social networks (network ties), human capital (personal resources), and perhaps most centrally, learning (social learning), which both draws upon the other elements (social capital, social networks, human capital) and contributes to their quality. Workplace learning is a core concept in understanding how telework may mediate the digital divide for persons.
Learning Learning has two dimensions; personal, as mediated by the individual’s knowledge, experience and cognition, and social, drawn from the experience and knowledge of others, together with documents, communications, artifacts, and embedded features of the physical environment (Becker, 2007; Eraut, 2007; Roan & Rooney, 2006). Personal, or individual, learning is strongly influenced by the social environment, and, in that sense, is social in nature. Moreover, there is evidence of collective group learning being greater or – in the case of “group think” – lesser than the sum of the individual parts (Duguid, 2005; Pelling, High, Dearing, & Smith, 2008). The social nature of learning exposes it to the same contradictions found in social capital and social networks; namely that a narrowing of perspective, an orientation that is exclusive rather than inclusive of new or challenging information, or even an outright denial of discordant information (Pelling et al., 2008; Roan & Rooney, 2006).
Properties of Workplace Learning Mainstream employment for persons with a disability, referred to as competitive or open employment, is associated with social inclusion, social capital, and community participation (Bates & Davis, 2004). Learning, particularly in its social
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context, has the potential for increasing social inclusion and social capital (Bates & Davis, 2004). Workplace learning, in contradistinction to vocational skills training, includes non-formal as well as formal learning; planned and unplanned (incidental) learning and yields, among other things, complex teamwork-related skills (Clarke, 2006). Social networks are instrumental in supporting computer-mediated collaborative learning environments of distributed learners (Cho, Gay, Davidson, & Ingraffea, 2007). Distributed social learning networks are strongly influenced by the existing social ties of network members. Among members who possess more effective communication styles, a more central position in the network and a more entrepreneurial personality will benefit more from emergent collaborative social learning (Cho et al., 2007). This translates into purposefully building relationships, largely non-local ties, and attending carefully to communication and personality factors. Cho and associates (2007) note that network structures and structural positions do not account for all the variation in individual collaborative learning outcomes. For teleworkers with a disability, who may for a variety of reasons have more limited existing social ties and skills, leveraging social networks for collaborative learning may involve mentoring, formal and informal, in the context of on-the-job learning. A particularly suitable vehicle for such mentoring, as well as for transmitting work-related social learning is the online CoP as a forum for building professional and peer relationships and learning (Wattenberg, 2004). Within the context of the workplace, CoPs structure and reflect social learning and define the competence of a group that is banded together by a sense of joint enterprise, mutuality, and a shared repertoire of communal resources. These are the social learning systems that one commonly finds in workplaces (Wenger, 2000). Non-formal learning, unlike the learning that arises from formal training, is situated in the exchanges between individuals; learning that takes place within CoPs is situated
learning, shaped by the forms of social interaction and the type of collaborative work in a dynamic fashion, informed by structural aspects of the community, the relative status of its members and societal context (Amin & Roberts, 2008; Roberts, 2006; Robey et al., 2000; Williams, 2007). In the case of telework, with its dispersed workforce and limited or non-existent opportunities for proximate exchanges and locally situated learning, what Roberts terms the “spatial reach” and boundaries of CoPs are extended, but “relational proximity” is still obtainable using ICTs (Roberts, 2006). The question remains: What are the upper limits, structural and epistemological, for the situated learning that takes place in attenuated CoPs? In other words: When does situated learning in the telework distributed workplace cease to have meaning or effect?
Bridging the Digital Divide: Telework Telework involves work conducted from a remote site at least one day a week using ICTs, which means that work performed through that medium will be distributed and non-local. However, this definition masks variation within the scope of telework which has strong implications for its character as a distributed work form. The heterogeneous nature of telework, which varies by location (home, mobile, telecenter, satellite office), the nature of the work (self-employment, full-time or part-time work, contract work), the circumstances of telework (return-to-work, new employment), and its proportion to office work (part-time, full-time, occasional) is consequential to the nature of the CoP and the environment in which workplace social learning is situated. Clearly, it also has implications for the social networks which bear part of the relational load of social learning. Home-based telework may be the most advantageous form of telework for persons with a disability due to the proximate supports of the home environment (West & Anderson, 2005). A hybridized telework-office work arrangement,
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in which the teleworker intersperses telework with regular office-based work and/or supervision, has sometimes been found to have advantages over a telework-only arrangement (Garrett & Danziger, 2007; Shia & Monroe 2006). But for persons with a disability, telework-only arrangements may be preferable because they eliminate the need for travel and office-based accommodations. Thus, the context for discussing telework as distributed work for persons with a disability is home-based telework with no office component.
Distributed Teleworkplaces By virtue of its distributed nature, telework represents an increasingly important strategic choice for employers, informed by personnel, human resource, market, and cost considerations (IIlegems & Verbeke, 2004; Kowalski & Swanson, 2005; Watad & Will, 2003). Thus, the decision to adopt telework, as well as the explicit forms that it takes, is the product of complex factors, resulting in unique adaptations depending upon the context (Ndubisi & Kahraman, 2005; Neufeld & Fang, 2005). Telework encompasses heterogeneous work arrangements, including full- or part-time employment, alternative work arrangements (i.e., temporary work or through employee leasing), self-employment or independent contracting, and as a convenience in general, as well as an accommodation for persons with disabilities. The spaces in which telework takes place are similarly diverse, including homes, telecenters, mobile locations, and satellite offices. Regardless of the particular form of telework, social relations with co-workers, supervisors, and others in the distributed work environment are essential to effective performance (Golden, 2007; Wiesenfeld, Raghuram, & Garud, 2001). For home-based telework to properly support CoPs as social learning systems, employers must promote participation in work-based communities (Roberts, 2006). This could be achieved by intensive virtual team work, document-sharing
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tools, as well as coordinated and cooperative, but independent, task performance and high job demands. These factors have been found to promote innovative (i.e., learning-intensive) behavior in virtual teams (Leede, Kraan, Hengst, & Hoof, 2008). During the initial training phases of the job, co-locating supervisor and teleworkers to achieve face-to-face communication is important to situated learning in virtual teams. These needs may be readily supplemented by remote communication of task and socio-emotional content using interactive remote communication media (i.e., videoconferencing, telephone) developing relational, as well as problem-solving learning resources, contingent upon appropriate managerial support (Robey et al., 2000). For situational learning to take place in attenuated CoPs, proper management support in terms of mentoring, performance appraisal and rewards are critical lest the learning process shut down for wont of competence guidelines, feedback, and incentives. For persons with a disability, telework can provide not only an accommodation that removes barriers to work, but also when properly implemented, a platform for online participation in work-related social networks and social learning, to the benefit of the teleworker’s social and human capital (Anderson, Bricout, & West, 2001; Baker, Moon, & Ward, 2006; Bricout, 2004). Preliminary guidelines are beginning to be developed to inform such efforts (Kaplan, Weiss, Moon, & Baker, 2006; West & Anderson, 2005). The network capacity-building properties of properly designed and implemented telework arrangements foster greater participation in the distributed community by virtue of increased engagement in online communities. By opening up new distributive networks for learning and professional development telework can generate human capital for persons with a disability more effectively than other forms of work.
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CONCEPTUAL MODEL Telework, as a form of distributed work, has the potential to provide a platform for increased participation in both online and offline domains. In particular, telework that is embedded in an environment that encourages the development of online relationships and exchanges has the potential for closing the digital divide. Empirical studies of online or virtual communities have been conducted since the early 1990s. However, more recent technological advances have expanded access to ICT as a social technology, producing a much larger and more diverse online community. This has occasioned a shift from user- or interest-specific online communities to emergent or ‘organic’ learner groups and collaborations, as well as a growth in Web-facilitated social networks for work and pleasure (Cho, Gay, Davidson, & Ingraffea, 2007; Ross, 2007; Sproull, Dutton, & Kiesler, 2007). Gochnenour (2006) has termed these developments “distributed communities,” or geographically distributed social networks. Such networks are chiefly defined by relationships or connectivity among members, rather than passive group membership. Voluntary association and choice have always been hallmarks of online communities, whether distributed communities, or emergent online communities. Indeed, the preferences, concerns and interests of the individuals who people the online communities generate idiosyncratic social structures. In other words, the individual’s personality, social history, and lifestyle all impact the nature of online participation (Cho et al., Gouchenour, 2006; Ross, 2007; Sproull et al., 2007). Similarly, it has been argued that distributed work environments reflect the organizations from whence they emerge (Heen, Bjornholt, & Knudsen, 2008). The online social world appears to be an imperfect mirror of the offline social world however, inasmuch as high sociability online does not predict high sociability offline. Gains in online social world do not ensure similar gains offline; indeed, a study
of Chinese Internet users with a disability found that while the Internet offered opportunities for more friends online, corresponding opportunities offline could not be assumed (Guo et al., 2005). Thus, the mere fact that telework creates the potential for distributed community is not sufficient to close the digital divide. Rather, factors promoting sustainable online relationships, including teleworker, co-worker and supervisor supports for work problem-solving and professional development, foster an environment in which online social inclusion can flourish. Online social inclusion grounded in professional and/ or occupational development has potential for breaking the online-offline barrier. Although beyond the scope of this paper, the potential for telework-based offline gains, extending beyond the digital divide to offline social exclusion and disparities cannot be discounted. The conceptual model that we propose (Figure 1) describes the relationship between key elements of a telework arrangement optimally configured for increasing online social networks and social learning. The digital divide for persons with a disability is a reflection of accessibility to resources, learning, and services, both online and offline (Blackburn & Read, 2005; Guo et al., 2005; Konur, 2007), and is represented here as a dashed box. Having properly selected and implemented assistive technologies, such as screen readers in Figure 1
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the case of individuals with a visual impairment, or specially organized and formatted online content for individuals with a learning disability are critical to accessing the online social exchanges that will facilitate both knowledge exchange and relationship building, for the purpose of learning and building a sense of belonging. Instituting online co-worker networks, perhaps composed of office-based as well as teleworking co-workers is important in establishing workgroup practices and identity that promote online social networks and social learning, while online CoPs provide platforms for workers sharing a professional and/ or occupational identity to further develop practical knowledge and skills that simultaneously build community and competence. Groupware that supports online exchanges is equally fundamental. Digital literacy skills are indispensible for both teleworkers and supervisors, as is the ‘fit’ between worker and telework job, on the one hand, and proper training in supervising virtual work for front line managers on the other hand. The net effect of this constellation of selection, training, development, and support activities is to increase the teleworker with a disability’s participation in social learning and in social networks which are webs through which social capital flows, militating against the digital divide by closing gaps of usage, knowledge and resourced relationships.
FUTURE TRENDS Opining about the future is a tricky business even when all of the current data are available, which is clearly not the case with telework and participation in distributed communities for persons with a disability. One approach to the question of future trends is to construct an empirical model that extrapolates from the present and targets those trends that are most compelling in the current environment; for example, in this time of high energy prices and an economy in deep recession,
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to assume a parallel rise in operational cost-cutting and energy-saving telework. Indeed, this may be at least a partial impetus behind a new telework bill for federal agencies moving through the United States Congress at this time (2008). However, history teaches us that trends propagate in unforeseen ways, so predictions of future trends must be made with care, by targeting emerging factors whose centrality to the design and implementation of telework is clear and unambiguous. Thus, we draw upon our conceptual model to explore three emerging trends relevant to the conduct of properly supported telework by persons with a disability: (1) the diversification of the workforce (Wehman, Targett, Yasuda, McManus & Briel, 2007), (2) the diversification of telework ‘feeders,’ including non-profit referral and training programs, self-employment, and employee retention (human resource) programs in addition to traditional vocational rehabilitation services (Kallinikos, 2003; West & Anderson, 2005), and (3) the proliferation of alternative work arrangements (intermittent, temporary, part-time, etc.), influencing the impact of telework on social engagement (Heen, Bjornholt, & Knudsen, 2008; Malenfant, LaRue, & Vezina, 2007). Each trend portends challenges to designing and implementing what we might call ‘participatory telework.’ Participatory telework involves a diverse workforce in a pluralist but highly interconnected society. It is grounded in an ethos characterized by greater interdependence in work tasks, flatter organizational hierarchies, and more inclusive environments. A more diverse, distributed workforce is supported by facilitating greater complexity in the creation of online relationships and knowledge building; similarly a more diverse workforce will require additional considerations in establishing teleworker fit and supervisor training. The diversification of pre-telework history and experience may well introduce systematic differences in the readiness of prospective teleworkers, and challenge the readiness of telework environments to reconfigure job development,
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training and ICT interface resources for distinctly different groups of teleworkers.. Alternative work arrangements are consequential to organizational membership, status, investments and incentives to generate full-blown participatory telework configurations, rather than partial, truncated or scaled-down telework configurations that will not have the desired effect of closing the digital divide. A top-down, one size fits all, approach to the design and implementation of telework, or even a professional service delivery model, would be hard pressed to respond to such complexity. Self-directed strategies and approaches that vest key choices in the individual would seem to offer more promise. In particular, it will be important for individuals with a disability to have access to decision support tools that permit sound assessments of their readiness to engage in participatory telework, and readiness of the environment to support such telework. Practice guidelines derived from an evidence base of effective telework accommodations (Kaplan, Weiss, Moon, & Baker, 2006; Sanford & Milchus, 2006) become a point of departure for an assessment of the social dimensions of the distributive work environment. Participatory telework arrangements extend beyond evidence-based telework accommodations to include knowledge network skills and competencies that require a broader web of resources and supports intended for the longer term project of development, rather than immediate work performance. This focus on development, embedded in social network and social learning, is calibrated to increase employability and job tenure, as well as diminishing the digital divide by virtue of increased organizational commitment and added value to teleworker contributions. Organizations will need to undergo an evolution towards structures and policies that foster and incentivize social learning, social and human capital, and social networks, both at the organizational and individual level for their employees who telework (Clarke, 2006).
The distributive work environment must be considered an endogenous part of the organization, as tangible and real as the face-to-face environment, despite its virtual nature and incorporated into the organizational evaluation and planning processes. For teleworkers who are self-employed or independent contractors, networking becomes even more critical to fully exploit the possibilities of the distributive work environment for participation. Persons with a disability may face additional hurdles in this domain, because the prevailing notion of accommodation is tied to a short time horizon and immediate performance considerations, while underplaying the importance of social architecture of online exchanges, relationships and communication and the longer-term. This poses a fundamental challenge to social policy as the interpreter of reasonable or feasible accommodations. In the absence of practices, structures and policies targeting the development of the distributive work environment, telework is much less likely to close the digital divide for persons with a disability. The probability of logic or persuasion driving forward the necessary changes is low; rather, necessity in the form of global competition, economies of scale, high energy costs, and labor market pressures from workers’ expectations of family-work balance, are likely, individually or in some combination to bring about a tipping point. Short-term gains at the expense of longer-term viability and parallel incentive structures rewarding immediate performance goals over capacity and long-term value building will prove difficult to maintain in the context of global competition, scarcity and sustainability challenges.
CONCLUSION The increasingly complex social and economic context of business represents both threats and opportunities to the inclusive, diverse workplace. The historical production-line, or factory, model of work becomes further and further removed from
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the reality of the workplace in light of the capabilities of modern ICTs. There is clearly a need to engage and fully exploit the tremendous scope of collective knowledge-worker abilities, competencies, and needs in the 21st century. We argue that the implementation of virtual workplaces, particularly, the use of participatory telework, which goes beyond the bounded notion of telecommuting, mandates reengineering the traditional idea of a fixed workplace environment. Most critically, the social and community processes that underlie the idea of work and objectives to be accomplished a developmental part of work, must be considered an essential organizational strategy, as tangible and real as the face-to-face environment despite its nontraditional “non-present” nature and actively incorporated into the organizational evaluation and planning processes. Participating in the virtual domain as a teleworker is not, by itself, a prescription for the digital divide facing persons with a disability. Participatory telework arrangements, characterized by good ‘fit’, access, skills, knowledge and learning networks go far beyond standard notions of accommodations, which provide a ramp without adequate consideration of user, context or destination; constituting what is in effect, a ‘bridge to nowhere’ unless supports facilitating greater social inclusion are deliberately incorporated. Thus, systematic data collection involving case observations of enhanced teleworking, virtual collaborative platforms, teleprescence alternatives, and relevant digital literacy training would constitute first steps, to be followed by the distillation of these data into applied best practices and strategic implementations, is required. Organizational and institutional changes, emphasizing organizational learning that supports the growth of social networks, social capital and social learning as critical components of adaptability and workforce development are needed to fuel the adoption of telework, which has shown disappointing growth (Schweitzer & Duxbury, 2006), while at the same time ensuring that the telework arrangements will
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effectively address the digital divide for persons with a disability. Similarly, social policies that promote workforce development in the domains of information technologies can foster programs that upgrade the skills of workers and management to operate in virtual, distributed work environments, including online learning environments, while promoting digital literacy. In the absence of practices, structures and, policies targeting the distributive work environment, telework is much less likely to close the digital divide for persons with a disability. The probability of logic or persuasion driving forward the necessary changes is low. Rather, pressures for innovation, born of an era of necessity, are likely to force policy and practice changes favorable to participatory telework as a distributed work form that builds long term value, in part by decreasing the digital divide and its cost to a knowledge society in which every contributor is important.
ACKNOWLEDGMENT This chapter was based, in part, on research supported by the Rehabilitation Engineering Research Center for Wireless Technologies, sponsored by the National Institute on Disability and Rehabilitation Research (NIDRR) of the U.S. Department of Education under grant number H133E060061, and the RERC on Workplace Accommodations, supported by NIDRR Grant H133E070026. The opinions contained in this paper are those of the authors and do not necessarily reflect those of the U.S. Department of Education or NIDRR.
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Spence, L., Schmidpeter, R., & Habisch, A. (2003). Assessing social capital: Small and medium sized enterprises in Germany and the U.K. Journal of Business Ethics, 47(1), 17–29. doi:10.1023/A:1026284727037 Sproull, L., Dutton, W., & Keisler, S. (2007). Introduction to the special issue: Online communities. Organization Studies, 28(3), 277–281. doi:10.1177/0170840607076013 Triggs, P., & John, P. (2004). From transaction to transformation: Information and communication technology, professional development, and the formation of communities of practice. Journal of Computer Assisted Learning, 20, 426–439. doi:10.1111/j.1365-2729.2004.00101.x Turmusani, M. (2001). Work and adulthood: Economic survival in the majority world. In M. Priestley (Ed.), Disability and the life course: Global perspectives (pp. 192-205). Cambridge: Cambridge University Press. U.S. Department of Commerce. (1999). Understanding the digital economy, the growing digital divide in access for persons with disabilities: Overcoming barriers in participation in the digital economy by Cynthia Waddell. Washington. Retrieved on April 25, 2008, from http://www.icdri. org/CynthiaW/the_digital_divide.htm U.S. National Telecommunications and Information Administration (NTIA). (2002). A nation online: Entering the broadband age. Washington, D.C.: Department of Commerce, Economics, and Statistics Administration. Retrieved on April 23, 2008, from http://www.ntia.doc.gov/reports/anol/ NationOnlineBroadband04.htm Van Alstyne, M., & Brynjolfsson, E. (2005). Global village or cyber-Balkans? Modeling and measuring the integration of electronic communities. Management Science, 51(6), 851–868. doi:10.1287/mnsc.1050.0363
Vehovar, V., Sicherl, P., Husing, T., & Dolnicar, V. (2006). Methodological challenges of digital divide measurements. The Information Society, 22, 279–290. doi:10.1080/01972240600904076 Ward, A. C., & Baker, P. M. A. (2005). Disabilities and impairments: Strategies for workplace integration. Behavioral Sciences & the Law, 23, 143–160. doi:10.1002/bsl.631 Ward, L., & Townsley, R. (2005). It’s about a dialogue: Working with people with learning difficulties to develop accessible information. British Journal of Learning Disabilities, 33, 59–64. doi:10.1111/j.1468-3156.2005.00346.x Warschauer, M. (2002). Reconceptualizing the digital divide. First Monday, 7(7). Retrieved on April 26, 2007, from http://firstmonday.dk/issues/ issue7_7/warschauer/index.html Warschauer, M. (2003). Demystifying the digital divide. Scientific American, 289(2), 42–48. Watad, M. M., & Will, P. C. (2003). Telecommuting and organizational change: A middle manager’s perspective. Business Process Management Journal, 19(4), 459–472. doi:10.1108/14637150310484517 Wattenberg, T. (2004). Beyond legal compliance: Communities of advocacy that support accessible online learning. The Internet and Higher Education, 7, 123–139. doi:10.1016/j. iheduc.2004.03.002 Wehman, P., Targett, P., Yasuda, S., McManus, S., & Briel, L. (2007). Helping persons with traumatic brain injury of minority origin: Improve career and employment outcomes. The Journal of Head Trauma Rehabilitation, 22(2), 95–104. doi:10.1097/01.HTR.0000265097.44683.22 Wenger, E. (2000). Communities of practice and social learning systems. Organization, 7(2), 225–361. doi:10.1177/135050840072002
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West, M., & Anderson, J. (2005). Telework and employees with disabilities: Accommodation and funding options. Journal of Vocational Rehabilitation, 23, 115–122. Wiesenfeld, B., Raghuram, S., & Garud, R. (2001). Organizational identification among virtual workers: The role of need for affiliation and perceived work-based social support. Journal of Management, 27, 213–229. doi:10.1016/S01492063(00)00096-9 Williams, A. M. (2007). International labour migration and tacit knowledge transactions: A multilevel perspective. Global Networks, 7, 29–50. doi:10.1111/j.1471-0374.2006.00155.x Williams, P., Bunning, K., & Kennedy, H. (2007). ICT and learning disability: Multidisciplinary perspectives on Project @pple. ASLB Proceedings, 59(1), 97–112. doi:10.1108/00012530710725232 Wilton, R., & Schuer, S. (2006). Towards socispatial inclusion? Disabled people, neoliberalism and the contemporary labour market. Area, 38(2), 186–195. doi:10.1111/j.1475-4762.2006.00668.x Yu, H. (2002). Web accessibility and the law: Recommendations for implementation. Library Hi Tech, 20(4), 406–419. doi:10.1108/07378830210452613 Zola, I. K. (1993). Disability statistics, what we count and what it tells us. Journal of Disability Policy Studies, 4(2), 9–39. doi:10.1177/104420739300400202
KEY TERMS AND DEFINITIONS Communities of Practice (CoP): Groups that structure and reflect social learning and define the group norms and processes, banded together by a sense of joint enterprise, mutuality and a shared repertoire of communal resources. They may be either online or face-to-face. Disability Divide: digital divide as related to persons with disabilities, including lack connectivity, access, or exclusion from information technologies. ICT: Information and communications technology, such as informatics, computers, web-based collaborative platforms, software applications. Participatory Telework: Arrangements that build in customized or ‘fitted’ resources and supports to increase teleworker employability and effectiveness. Social Capital: features of social organization such as networks, norms, and social trust that facilitate coordination and cooperation for mutual benefit (Putnam). Social Learning: learning that takes place in a collective fashion, or in a social context. Social Networks: structured social relations that carry informational and affective content. Telework: Activities, tasks and participation, either separately or in the aggregate conducted at a distance through the medium of ICTs and group practices. Workplace Participation: engagement and participation on work teams, and in the broader workplace community, either in situ, virtually or a combination of both.
This work was previously published in Handbook of Research on Overcoming Digital Divides: Constructing an Equitable and Competitive Information Society, edited by Enrico Ferro, Yogesh K. Dwivedi, J. Ramon Gil-Garcia and Michael D. Williams, pp. 155-178, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises for E-Business Adoption Ritesh Chugh CQUniversity Melbourne, Australia Pramila Gupta CQUniversity Melbourne, Australia
ABSTRACT SMEs have been looking at expanding their market share by extending beyond their geographical boundaries and this is where electronic business has come to the forefront. The path to e-business adoption is ridden with barriers and understanding these along with the benefits it offers to SMEs is important. This chapter has reviewed the existing literature of barriers and benefits of e-business adoption by SMEs to identify the various enablers that can facilitate adoption. The chapter also provides an insight into e-readiness and analyses six existing tools that are used globally to measure e-readiness. Based on a comprehensive analysis, DOI: 10.4018/978-1-60960-587-2.ch719
an holistic framework (Motivation Application Measurement Support (MAMS) e-readiness assessment framework) has been proposed. The framework can be utilized as a reference to assess, design and implement a supplementary strategic approach for the assessment of e-business readiness of SMEs. Further empirical research to test, amend and improve the MAMS framework can be undertaken in the future.
INTRODUCTION Small to medium sized enterprises (SMEs) play an important role in any country’s economy and can be considered as the backbone or engine of the national economy. The European Union has
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A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
around 23 million SMEs that provide around 75 million jobs and represent 99% of all existing enterprises (European Commission, 2005). Almost 90% of the total number of businesses across the world are classed as SMEs accounting for more than 60% of employment in their countries (Hall, 2002; Organisation for Economic Cooperation and Development [OECD], 1997) and also account for 80% of global economic growth (Jutla et al, 2002). Australian figures are similar to the global figures with more than 95% of companies classed as SMEs (Data Monitor, 2004). In 2008, UK’s Department for Business, Enterprise and Regulatory Reform reported that SMEs together accounted for 99.9 per cent of all enterprises. Internationally, approximately 99.5% of all businesses have 100 or less employees while 99.8% of all businesses have 200 or less employees (OECD, 2005). In almost every country, SMEs play a vital role in contributing towards the national economy by job creation, income generation and overall competitiveness. SMEs, worldwide, are seen as major contributors to a nation’s economy and the Gross Domestic Product (GDP) of their countries. However their contribution to the GDP has been declining over the past few years (Abernethy, 2002). With the financial turmoil that has currently engulfed most countries, this situation is unlikely to show any major improvements in the near future. The decline of SME contribution to GDP needs to be reversed by adopting some strategic goals for long term growth. To achieve long term growth, SMEs have been looking at expanding their market share by extending beyond their geographical boundaries and this is where electronic business (e-business) has come to the rescue. SMEs have been adopting e-business, in the past, for their business operations yet it needs to be adopted with more rigour and vitality to improve the situation. Undoubtedly, in today’s global networked world, e-business has the potential to become a major source of competitive advantage for SMEs. Conducting business online will help to lower operational costs, allow small
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companies to come at par with larger competitors on an international scale, and help serve customers more efficiently. Moving from bricks to clicks is becoming a matter of existence for most organisations today and SMEs are no exception. E-business is often touted as a global phenomenon that provides businesses with strategic advantages in the present competitive environment by enabling their processes online using Information and Communication Technologies (ICT). Thus its adoption by organisations, irrespective of their size and location, cannot be overlooked. As with the adoption of any technology, despite their benefits, the adoption of e-business by SMEs is slow and is often accompanied with various barriers. The slow adoption of e-business by SMEs can be attributed to a range of factors that include, but are not limited to, lack of physical infrastructure, high operational costs, external forces, poor guidance, lack of government support and often management who is not aware of the potential benefits of ebusiness. To add to these difficulties, the barriers to e-business adoption by SMEs vary between developing and developed countries, necessitating a review of these barriers. This would allow the enablers to be presented in a holistic context to promote successful adoption of e-business by SMEs globally rather than a contorted view that does not encourage and enhance universal adoption. A disparity seems to exist in diverse empirical findings that have reported the level of adoption of e-business in SMEs (Parish et al, 2002; Ramsey et al, 2003; Xu et al, 2007). It can be argued that SMEs that do not adopt the Internet to execute their business processes will not survive. Conversely adoption may not necessarily provide a competitive advantage until it becomes part of the overall business strategy (Porter, 2001). While the problems constraining e-business adoption are considered more complex and diverse in developing countries and hinder their economic development, a range of studies have indicated that
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
approximately one third of SMEs in the United States have yet to adopt the use of Internet technologies to conduct business (Pratt, 2002; Auger et al, 2003; Levenburg et al, 2005) There is substantial evidence that any country’s economy, whether developed or developing, is supported by SME performance and SMEs cannot be overlooked (Poon & Swatman, 1999; Jutla et al, 2002). SMEs cannot be left behind in the race of e-business adoption and need to grasp the opportunities proffered by ICT. Thus, this chapter provides an insight into the benefits, barriers and enablers of e-business for SMEs that will apply globally across multiple industries rather than being limited to a specific industry. Also, at this stage the importance of e-readiness assessments to measure the preparedness of an entity to conduct business processes in the online world cannot be forgotten. Substantial literature on SME e-business adoption is fragmented, complex and industry specific, so this chapter has been derived from the vast extant literature on SME adoption of the Internet and Internet- based technologies in executing business processes thus presenting a unified view. The chapter begins by providing definitions of e-business and SMEs before reviewing different e-business benefits and barriers. By overcoming the identified barriers, SMEs will benefit by adopting e-business in their day-to-day activities enhancing profits by reducing operational costs. The term ‘barrier’ can be broadly assumed to include all requisites for e-business adoption, some easily available and some requiring special efforts from internal or external sources. The chapter then proposes key enablers that can help to resolve the barriers to encourage e-business adoption. The attention is then given to the concept of e-readiness as presented in the literature and its usefulness in assessing the preparedness for the adoption of ICT. The chapter also explores six existing e-readiness assessment tools (loosely called models or frameworks in the corresponding literature) for e-readiness that measure differ-
ent sets of categories for assessing e-readiness. Due to the difference in e-business adoption in developing and developed countries, an insight into these tools is relevant for the purpose of proposing a consolidated e-readiness framework for assessing the readiness of e-business adoption with particular focus on SMEs. Review of the tools revealed that e-readiness categories relate to different levels and the nature of countries, organisations and e-business applications that have resulted in numerous but isolated studies and methods of measurements with no linkage to the barriers and enablers of e-business adoption. Subsequently, different e-readiness categories or factors of e-readiness are presented. The comprehensive analysis of existing research of e-business adoption is then used to bring the different aspects, i.e., enablers and barriers of e-business adoption by SMEs, e-readiness categories as related to the target nation or organisation together, and is presented as an e-readiness assessment framework (Motivation Application Measurement Support (MAMS) e-readiness assessment framework). The framework consolidates different e-readiness aspects and shows how they link with each other. Later in the chapter the application and usability of the framework are discussed in the context of a generic case to assess readiness for e-business adoption by SMEs. Finally, future research avenues have been recommended.
DEFINITIONS OF ELECTRONIC BUSINESS AND SMES E-business and e-commerce are terms that are often used interchangeably. Undoubtedly e denotes ‘electronic networks’ or the use of Internet (i) and other information technologies to facilitate business processes. It can be argued that electronic commerce includes outward facing processes for buying and selling, involving customers, suppliers and other external stakeholders whereas electronic business, apart from outward facing processes, also
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includes inward facing organisational processes. Thus, electronic business refers to a larger range of processes performed electronically encompassing electronic commerce too. Various authors have provided definitions of e-commerce and e-business in isolation, however because of the seemingly gray area, a definition for e-business needs to be deduced to remove any further ambiguity at least for the purposes of this chapter. Various existing definitions for electronic commerce and electronic business have been presented below: World Trade Organisation (WTO) has defined e-commerce as the production, distribution, marketing, sale, or delivery of goods and services by electronic means. (Baker and McKenzie, 2001) Electronic Commerce Team of European Union has defined e-commerce as “buying and selling products or services over the Internet.”(Schulze & Baumgartner, 2001, p. 7) Poon (1999, p.114) provided a specific definition for small business Internet commerce as “the use of Internet technology and applications to support business activities of a small firm.” Currie (2000, p.7) has defined electronic business as “use of the Internet for electronic transactions, digital delivery of informational goods and services, and retail sale of tangible goods.” As evident from the above definitions and as reported by Ramsey et al (2003) and Searle (2001) there is a difference between e-commerce and e-business in terms of extent of organisational processes, technology used, and business value achieved. However the gray area has not actually ceased to exist and both the terms are still used interchangeably. Lambert (2002) has differentiated e-commerce from e-business by defining e-business as all aspects of a business where technology is imperative. Because of these variations and in the absence of a commonly agreed
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definition of e-business the following definition for e-business is proposed: “Buying, selling and conducting other business operations using ICT, more specifically Internet-based technologies.” Having a definition of e-business to proceed with, attention is directed to the categories of conducting business electronically. McNurlin et al (2009) have provided three important categories of working inward (Business to Employee), working outward (Business to Consumer) and working across (Business to Business). An understanding of these categories will lead to an overview of how businesses can support electronic working between the various stakeholders involved in the business ecosystem. 1. Business to Consumer encompasses buying and selling between the firm and its customers. 2. Business to Business encompasses all commercial interactions between upstream and downstream partners ie. co-suppliers, suppliers, distributors and retailers. 3. Business to employee encompasses the integration of all activities relating to employees in the firm. The discussion in this chapter will merge all three categories and not emphasise one over the other since it is reasonable to assume that the enablers and barriers will almost overlap each category. A review of the literature on SMEs does not provide an agreed universal definition of SMEs and a systemic problem of an accurate definition seems to exist because of the diverse nature of SMEs. Most often the classification of SMEs is based on inherent characteristics of the firm that include, but are not limited to, the number of employees in the enterprise, revenue threshold, financial assets, capital turnover and industry in which the SME operates although more often than not the main distinction is simply based on the number of employees working in the enterprise.
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
Each of the classification has its own demerits. For example, it can be difficult to benchmark turnover across industry sectors and the turnover may not even be a true indicator of the capital invested, and financial assets can be difficult to value owing to their inconsistency and varying risk profile. The number of employees or size seems to be internationally accepted, but the difference between developing and developed countries can be large due to the varied demand/supply nature of labour. Some acceptable definitions for SMEs have been presented below to allow a more informed judgement: European Commission (2005, p. 5) classifies SMEs as “enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.” The Australian Bureau of Statistics (2003) defines SMEs as firms employing less than 200 full time equivalent workers and are not subsidiaries, public companies, or incorporated bodies. Reserve Bank of India in a 2009 circular to all scheduled commercial banks in India defined SMEs as enterprises engaged in the manufacture or production, processing or preservation of goods where the investment in plant and machinery is more than Rs.2.5 million but does not exceed Rs.100 million. A separate definition for firms engaged in the services sector has been provided that classifies SMEs as enterprises engaged in providing or rendering of services where the investment in equipment is more than Rs.1million but does not exceed Rs.50 million. Most countries have their own definition for SMEs including quantitative or qualitative elements to better describe them and the definition becomes more important particularly for taxation purposes. The United Kingdom, Canada, Greece, Mexico and the Slovak Republic use the number
of employees to make the distinction. Portugal combines the number of employees and turnover to make the distinction (OECD, 2004). Analysing some of these definitions leaves us in no doubt that there are many variables that influence an enterprise, especially SMEs, including economies of scale, market structure, the industry itself, and the regulatory environment that influences the firm. In the absence of a shared definition, it is appropriate to adhere to a definition that combines the number of employees and the annual turnover. From the existing definitions of SMEs in various countries, some qualitative and quantitative elements that may be useful in defining SMEs are presented in Table 1. In view of the above elements, it is also worth noting that a report by OECD (2004, p. 12) mentioned that “the diversity and richness of SME characteristics, political strategies and economic conditions are unlikely to ever yield a commonly used and accepted definition of SMEs.” There is a nature of impracticality in coming to a universal definition owing to the diversity of elements. For the purposes of this chapter, the revised definition by the European Commission given in 2005 has been adopted as it accounts for headcount, annual turnover, and annual balance sheet total.
THE BENEFITS AND BARRIERS OF E-BUSINESS ADOPTION E-business has redefined the way business is conducted and should not be merely considered as anTable 1. Elements of SME definition Qualitative Elements
Quantitative Elements
• Non subsidiaries, public companies or incorporated bodies
• Number of employees
• Independently owned and managed
• Annual Turnover • Financial assets • Investment in equipment
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other technology that helps in running operations. It is an innovation that has replaced the traditional way of doing business (Laudon & Laudon, 2010; Lee, 2001). The easy accessibility of the Internet and World Wide Web has transformed e-business into what used to be a complex business activity to a reasonably easy and economical means for many businesses. Various studies have shown that e-business has a significant contribution towards economic growth and competence (Forrester Research, 2005; IDC, 2004). It was pointed out earlier in the chapter that SMEs also play an important part by providing a positive contribution to a nation’s economy and now the emergence of e-business has paved the way for SMEs to reach millions of customers globally. Increased growth of e-business in recent years can be attributed towards lesser production costs and increased productivity. Now with lesser expenditures, any small business can go online; thanks to the Internet, liberalisation of telecommunications and advancement in technological segments of communications. Every firm that has adopted e-business principally depends on how it is operated, therefore it becomes necessary to edify benefits and barriers of e-business adoption to realise the true value of e-business.
Benefits of E-Business Adoption Profiting from e-business is no longer confined to large firms with established brand names or several stores across the globe. Technical advancement has provided opportunities for SMEs to position themselves in a global market and reach worldwide customers. Most established firms now have both an offline and online presence; thus, enhancing their brand credibility and e-business provides an opportunity for SMEs to compete with the established firms by reaching out to consumers world-wide even without a physical presence. The Internet is of a global nature and has neither physical boundaries nor entry barriers creating opportunities for both small and medium sized
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businesses to operate on a unique platform. The ubiquitous nature of the Internet has made it an important tool of e-business for SMEs. The World Wide Web is an arena where there are no national or international barriers and regardless of company size, the Internet allows it to reach a global audience to trade their products and services. Unswerving price, new products and services and an impressive shopping experience are the essential qualities any customer looks for while shopping (Walters & Lancaster, 1999). By providing quality products, attractive prices and services, easy to navigate sites and speedy delivery and checkouts, SMEs can build and preserve an upholding relationship with their customers. Most customers now possess the ability to conduct business anytime and anywhere with the advent of relatively inexpensive ways of communication channels like the Internet and mobiles phones. Consumers of today demand products that suit their needs and by identifying the expectations of customers in terms of value, merchandise, service, information and promotions, SMEs can target ideal customers. Thus one of the important benefits of the Internet is facilitating information transfer (Tiessen et al., 2001). The information transfer can adopt any mode and can be relevant for the stakeholders of SMEs. It is not just about building a website, but SMEs are now able to increase their output and competence by creating practical organizations where a product can be tested for its pros and cons before representing it to their customers. SMEs can make use of the enormous influence of the Internet to promote their brands and increase sales by traffic generation. The success of SMEs not only depends on superior planning and smart management but also in realising and working towards developing a better communication relationship with clients to understand and address their needs. According to Sensis (2005), SMEs use the Internet for various purposes that include, but are not limited to, communication via email, referencing information or researching data, looking for information
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
about products and services, banking, making and receiving payments, taking and placing orders and monitoring competition and marketing. Past studies have indicated that firms have been using e-business for various benefits. Some important benefits of e-business adoption that are more relevant for SMEs include: direct and indirect cost savings, increased productivity, enhanced customer satisfaction and better relationships, increased competitiveness, efficient information delivery, speedy responses to customer queries, new sales and distribution channels, faster product delivery, improved organisational brand image, knowledge sharing and organisational learning through networking, relatively cheaper advertising medium, and integration of business partners in existing processes(Kaynak et al., 2005;OECD, 2004; Walczuch et al, 2000; Nath et al., 1998; Poon & Swatman, 1995; Poon & Strom,1997; Abell & Limm,1996).
Barriers of E-Business Adoption Despite the numerous benefits from e-business adoption, SMEs are slow in its adoption and usage compared to their larger counterparts (Kartiwi & MacGregor, 2007; Ihlstrum et al, 2003; Chau & Turner, 2004) and it is mainly larger firms that are reaping the benefits of e-business (Riquelme, 2002). It is plausible that the benefits mentioned in the previous section may not have the same degree of importance for all SMEs. Various studies have been undertaken to identify the barriers that SMEs face for the adoption of e-business. Chau and Pederson (2000) have identified some of these barriers as lack of resources, complex change and implementation processes, lack of technical skills and training, poor understanding of computer technology, lack of technological and telecommunication infrastructure, initial high costs, ongoing support costs, and poor motivation. Lack of telecommunication infrastructure has also been put forth as a barrier by Sheth and Sharma (2005) and this barrier is one of the major
concerns for some developing countries that are now in the process of setting up telecommunication infrastructure. The barriers become more unique for developing countries where factors such as low average income of its people, slow credit card uptake, and cultural barriers (Hawk, 2004) and initially low profits make the use of e-business technologies more uncertain. Owners of SMEs may not want to risk investing larger amounts where there are no significant profits in the short term. Apart from technology adoption problems, SMEs are also concerned with factors relating to trust, security and privacy of the transactions online, along with policies that affect online business. A study by Lawson et al. (2003) of the factors affecting adoption of e-commerce technologies by SMEs identified the top four barriers to be concern about security and privacy of transactions, cost of consultants, lack of government incentives, and lack of IT expertise. Barriers like these in developing and developed countries alike have indubitably slowed down the adoption of the Internet as a viable way of doing business. In a study by Kartiwi and MacGregor (2007) to ascertain the barriers for e-business adoption between Sweden and Indonesia, the most significant barrier reported in both countries was that e-ecommerce was not suited to the products and services offered by the surveyed SMEs. Similar views have been echoed by Hughes et al. (2003) where the products offered by the firm have been classed as unsuitable for sale on the Internet. On an alternative note, it might be worth arguing that suitability of products and services may not necessarily be a barrier to adoption of e-business since there are other important uses of e-business apart from simply buying and selling. This would call for empirical research in further studies. Cloete et al. (2002), in their study of SME adoption of e-commerce in South Africa, have summarised a number of other additional issues that have a decapitating impact on the adoption of e-business. These issues include low adoption of e-commerce by SME customers and suppliers,
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high costs of e-commerce technology, legal and liability concerns, security concerns, restricted knowledge of e-commerce models and methodologies, and finally the perception that e-business does not provide any benefits to the enterprise. One of the key identified barriers in their study was lack of acquaintance and poor understanding of technology. The need to educate SMEs about the value of e-businesses cannot be underplayed and is vital. As SMEs are mostly run by owners or managers who invest on their own and are the main decision making authorities, adapting e-business largely depends on how the owners perceive e-business and its value for them. Adapting to and maintaining ICT is largely dependent on its owners’ or managers’ characteristics as the management of SMEs is generally centralised to a few key individuals. To add to this, it would perhaps be fit to say that a lot of SMEs lack the initiative for innovation and thus prefer to remain followers rather than becoming leaders in the adoption of e-business. Kalakota and Robinson (2001) have classified the unwillingness of managers to be responsible for technological change as one of the main barriers to e-commerce adoption. Many identified barriers in the various studies appear to be more non-technical and demonstrate general lack of knowledge of the potential benefits that the adoption of e-business can offer (Lawson et al. 2003). There is an absolute need to educate SME owners about the opportunities and benefits of adapting e-business. ICT comes at a price and not every SME is willing to adapt it owing to lack of funds, centralised decision making authorities, and the lack of necessary expertise required to maintain and update software applications. Governments need to educate and create comprehensive training programs for apprising SMEs of the importance of e-business and how its non-adoption will make them obsolete and difficult to exist in the future. As we move into the future and reflect back, is it possible to imagine the existence of enterprises without telephones?
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It is evident from above that a diverse range of barriers prevent SMEs from reaping the benefits of e-business adoption and the problems seem to extrapolate for developing countries. The review described in this section has provided a clearer understanding of the benefits and barriers although the nature of the relationships between the two is not clear. It is not the intention of this chapter to explore it either, but to call for further research in this area. Without trying to assert a relationship between the benefits and barriers but drawing from the barriers, the next section proposes some key enablers that can help in promoting and directing SMEs towards the adoption of e-business.
ENABLERS OF E-BUSINESS ADOPTION Barriers in e-business adoption can be overcome with effort, support and facilities provided by internal (organisation) and external (customers, suppliers, and government) stakeholders to gain strategic advantage. There is no doubt that governments have a vested interest in promoting SMEs as they play an important part in building a nation’s economy. Governments should promote IT usage and adoption by SMEs as they form a strong foundation that is integrated into the country’s economy. SMEs depend on governments for various services and the time consumed for these services can be reduced if IT practices are in place which facilitate faster connectivity and deliver reliable products and information on a wider scale. Governments should themselves adopt e-business to buy products from their domestic SMEs and thereby encourage SMEs to begin using similar technologies by providing incentives. Governments need to develop and promote policies and strategies to create facilitating conditions that benefit SMEs enabling them to adopt e-business by overcoming barriers like the lack of government incentives to SMEs.
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
In order to trade at both national and international levels, there need to be policies and strategies in place for businesses to set up and thrive. There is an apparent consensus that the shortage of policies to support SMEs is a very concerning barrier. Policies that regulate equal rule of law for all firms (online or offline), boast frameworks that are clear, competitive and transparent, have governing legal laws that confer equal treatment for transactions on both national and global levels are important. Tax cuts can be provided to SMEs that expend on e-business technologies. Training and educating owners of SMEs about the potential benefits of e-business is a significant measure that needs to be addressed by the government apart from designing policies and strategies that cover issues relating to telecommunications, consumer rights, security, cyber crime, and privacy. Training will go a long way in reducing the negative perceptions and counteracting problems that SMEs business owners face, encouraging their willingness to adopt e-business. Technical training of the development, application, and support of e-business technologies can also be promoted so that the lack of skills barrier declines with time. Technological infrastructure is one of the most crucial enablers for e-business adoption and sustenance. Telecommunications infrastructure and advancements in technology facilitate innovation, efficiency and accelerate economic growth. It is also important that the technology comes at a relatively low cost otherwise it becomes a barrier to adoption again. Nations need to promote and invest in infrastructure that supports interoperability, innovation, variety and expansion, so that it is employed by SMEs effectively. Arguably, developed countries are ahead in the adoption of technology but developing countries are leap-frogging in the implementation of newer infrastructure, which can be seen as a boon for SMEs in developing countries. Lack of information regarding e-business benefits is one of the most common impediments hindering SMEs’ inclination towards e-business.
Much needed resources like research materials, websites, and practice guides for access to information regarding benefits of e-business adoption should be provided by governments. Fostering information availability across all platforms and maintaining and developing pertinent information content and rights is necessary to promote e-business awareness. Governments should provide information and assistance to companies, especially targeted to SMEs, although currently there are a variety of private companies that offer technical and business services for enterprises wanting to develop their e-business capabilities. To draw from the discussion in this section, five enablers of e-business adoption come to the forefront: government support, e-business laws and policies, training and education, set up technological infrastructure, and adequate information. Having identified some enablers and the barriers they help to overcome, the chapter now focuses its direction on various aspects of e-readiness that are useful to assess the readiness of a country and its organisations for the uptake of e-business. Of particular interest are the assessment categories (e.g. physical and technological infrastructures) and how these are assessed, that is, tools and methods.
E-READINESS As evident through the review so far, e-business has a lot to offer for SMEs in developing and developed countries. In terms of relative preparedness for the adoption of e-commerce, developed countries are better prepared but nonetheless the barriers of adoption are still the same for developed countries although the seriousness of barriers may diminish for developed countries. In general, regardless of their status countries need to assess how prepared their SMEs are for adopting e-business. Owing to the nature and characteristics of SMEs, they possess unique needs for adopting e-business. To help businesses adopt ICT, various e-readiness
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tools have been proposed and, although the focus of most tools is on a country’s e-readiness, it is important to note that the assessments can be done for any enterprise including SMEs. Bridges.org (2005) has defined e-readiness as “the ability for a region to benefit from information and communications technology”. The authors of this chapter disagree with the limited inclusion of region in the definition and have proposed the following expanded definition “the ability or degree to which an enterprise, community or country is prepared to use ICT to accelerate economic growth and facilitate business”. E-readiness assessments are important as they enable enterprises, communities, and countries to understand their preparedness for adoption of ICT, which will further help in benchmarking, monitoring progress and prioritising action. It is important to assess e-readiness of SMEs too, so that business benefits can be derived and inefficiencies can be overcome. Various organisations and government bodies have developed e-readiness assessment tools to provide quantifiable and/or qualitative indices of how a country could benefit from the adoption of ICT. Over 25 different tools to assess countries’ e-readiness are currently available that use a diverse range of questionnaires, statistical methods, best practices, and historical analyses (Bridges. org, 2005). Most of these existing tools provide contrasting definitions of e-readiness with different goals and objectives and the vast array of often complex tools makes choosing the right tool very difficult. Performing these assessments helps countries and their organisations plan effectively and strategically for the integration of ICT. The majority of the available tools provide definitions and validations that are related to government initiatives with no specific emphasis on the needs of SMEs. Before conducting an e-readiness assessment, it is very important that users weigh the pros and cons of each tool to ensure it meets their needs. There have been numerous studies on the diverse range of e-readiness assessment tools but these studies had their own motives and included
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skewed factors to complete the assessment and were not necessarily tailored for SMEs and the barriers restricting their e-readiness.
A Review of E-Readiness Assessment Tools To understand how an assessment tool can be selected for testing e-readiness of SMEs, this section reviews existing e-readiness assessment tools by adopting a qualitative approach. The report by Bridges.org (2005) has categorised the e-readiness assessment tools into three different groups: ready-to use tools/questionnaires, case studies, and third party surveys and reports. For the purpose of this chapter and to spread the analysis a total of six tools were chosen that is, two tools from each group. The tools were randomly picked with no particular emphasis on one over the other. The tools that were analysed have been elaborated below:
Asia-Pacific Economic Cooperation (APEC) E-Commerce Readiness Assessment APEC Telecommunications and Information working group has developed this assessment to provide a process whereby every economy can assess its own state of readiness for e-commerce and engage with the business community to set strategies to improve positioning for the digital economy (Asia-Pacific Economic Cooperation [APEC], 2000). This general framework can be applied by any economy or community. The tool builds on six indicators of e-readiness: basic infrastructure and technology, access to necessary communications services, current level and type of use of the Internet, promotion and facilitation activities, skills and human resources, and positioning for the digital economy. These six broad indicators of readiness for e-commerce have been developed into 100 multiple-choice questions that provide direction as to desirable policies that
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
will promote e-commerce and remove barriers to electronic trade. The results of the assessment can be used to develop the most suitable strategies to overcome the barriers. The tool relies on questionnaire-based data. The results of the assessment are not intended to be scored, rather to provide a starting point in a strategic planning process for adoption of e-business (APEC, 2000). Assessment is based on opinions of individuals and there is no guide for interpreting the results of the assessment. The APEC tool is more inclined to focus on assessing government policies for e-business.
Computers System Policy Project (CSPP) Readiness Guide: For Living in the Networked World CSPP’s self assessment tool is designed to help towns, cities, counties, states, countries, or any community to determine preparedness for participation in the networked world. Communities here could include government, businesses, schools, community groups, and individual citizens, too. The guide promotes a better understanding of a community’s status in a networked world. CSPP has selected five categories that are believed to be essential to capture the benefits of the networked world. The five main categories are networked infrastructure, networked access, networked applications and services, networked economy, and networked world enablers. The guide has provided a series of 23 questions that have been segregated into four progressive stages that show the e-readiness of the community under each of the five main categories. The 4 progressive stages range from a community that has a minimum of necessary technology and applications to a community that has the maximum technology and ubiquitous applications. The assessment results might yield communities that are at different stages as each category is evaluated. For example, a school might have advanced infrastructure but does not aggressively use the infrastructure for
providing educational and administrative services. An overall score for the community being assessed can be estimated by averaging the scores across each category. One of the major advantages of this guide is its scalability, allowing everyone to adapt it to their needs (Computers System Policy Project [CSPP], 1998). It does not provide guidance on how to move between each of the four progressive stages of e-readiness.
Mosaic Group’s Global Diffusion of the Internet (GDI) Framework The GDI framework measures the state of Internet diffusion in an economy. Six categories to assess e-readiness are included in this framework: pervasiveness, geographic dispersion, sector absorption, connectivity infrastructure, organisational structure, and sophistication of use. Each category is ranked on a scale of zero (non-existent) to four (pervasive and highly developed)(Mosaic Group, 1998). The GDI framework does not combine the six categories to compute an overall index score for a country although Economist Intelligence Unit e-readiness rankings calculate it in their framework. The lack of an overall score makes it difficult to make adequate comparisons. There is also a mix of quantitative and qualitative data, although primarily qualitative, which makes scores open to individualistic interpretation. The GDI framework highlights a country’s relative strengths and weaknesses of Internet adoption using case studies but base data is not always available or is unreliable. It does not factor in literacy levels and access issues. Sophistication of technologies is also hard to measure (Minges, 2002). GDI only focuses on Internet penetration and not on ICT adoption in general.
Association of Southeast Asian Nations (ASEAN) E-Readiness Assessment ASEAN countries also recognise the need to develop a comprehensive collection of ICT
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indicators; so an e-readiness assessment was undertaken in 2001. The assessment measured the ten member countries’ readiness in terms of ICT infrastructure, e-society, e-commerce, and e-government. The aim of the assessment was to provide member countries with suitable policies to promote e-commerce and an e-society. An analysis of the assessment revealed a limitation showing diversity in ICT indicators available among member countries, their surveyed elements, definitions, methodologies, and their ability to conduct the survey (Rachman, 2002). IBM was contracted to conduct the assessment for the ASEAN countries using the identified categories although IBM used their own methodology to cluster the member countries. Their methodology defines four stages in the development of an information economy; emerging, evolving, embedding, and extending (Bhatia, 2001). The four stages are a good way to classify the countries but whether IBM’s methodology can be adopted by others is questionable due to copyright issues.
McConnell International (MI) Ready? Net.Go! Tool McConnell International have developed the MI Ready? Net.Go! tool that measures status and progress of a countries’ e-readiness using a qualitative reference guide. The tool aims to evaluate e-readiness of countries, governments, and citizens in the networked economy. The tool has five categories: connectivity, e-leadership, information security, human capital, and ebusiness climate. The tool rates countries in one of the above five categories on a scale of one to three that indicate whether conditions are conducive to support e-business or not (McConnell International 2000, 2001). The MI Ready? Net. Go! tool focuses solely on economic growth but emphasises infrastructural issues.
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Economist Intelligence Unit (EIU) E-readiness Rankings 2009 Report The EIU assesses the world’s largest economies on their ability to absorb ICT and use it for economic and social benefit. The 2009 EIU rankings have covered seventy countries. The purpose of EIU’s ranking is to allow governments to gauge the success of their technology initiatives against those of other countries. Over 100 separate criteria, both qualitative and quantitative, are organised into six primary categories that are weighted according to their assumed importance as influencing factors. The categories with their weightage are: connectivity and technology infrastructure (20%), business environment (15%), social and cultural environment (15%), legal environment (10%), government policy and vision (15%), and consumer and business adoption (25%). A 1-10 scoring scale is used for all indicators. Denmark has topped the 2009 rankings whilst Azerbaijan has been ranked at the 70th. Governments can use these rankings to encourage e-business adoption in their countries. The criteria are scored on their relative presence (or absence) in a country’s economic, political or social environment (Economist Intelligence Unit [EIU], 2009). These rankings also provide companies that wish to trade internationally an overview of the countries’ use of ICT. This assessment primarily focuses on business adoption of ICT and the large number of qualitative variables makes objective analysis very difficult. Table 2 summarises the key assessment categories of the six tools that were analysed in this research.
An Analysis of the Investigation of the E-Readiness Tools Despite the importance of e-readiness assessments, the existing e-readiness tools do not adequately focus on SMEs and their unique characteristics particularly, in relation to overcoming the barriers. Reviewing these tools produces a general
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
Table 2. Categories to measure e-readiness E-readiness Assessment Tools Categories to measure e-readiness
Focus
Ready to use tools/Questionnaires
1
2
Asia-Pacific Economic Cooperation (APEC) E-commerce readiness assessment
• Basic infrastructure and technology • Access to necessary communications services • Current level and type of use of the Internet • Promotion and facilitation activities • Skills and human resources • Positioning for the digital economy
National and International e-commerce readiness
Computers System Policy Project (CSPP) Readiness Guide: For living in the Networked World
• Networked infrastructure • Networked access • Networked applications and services • Networked economy • Networked world enablers
Existing Technology and Policy
Case studies
1
Mosaic Group’s Global Diffusion of the Internet(GDI) framework
• Pervasiveness • Geographic dispersion • Sector absorption • Connectivity infrastructure • Organisational structure • Sophistication of use
2
Association of Southeast Asian Nations (ASEAN) e-readiness assessment
• ICT infrastructure • e-society • e-commerce • e-government
Internet Diffusion
ICT Infrastructure
Third party surveys and reports
1
2
McConnell International (MI) Ready? Net. Go! tool
• Connectivity • e-leadership • Information security • Human capital • e-business climate
e-competitiveness of countries
Economist Intelligence Unit (EIU) E-readiness rankings 2009 report
• Connectivity and technology infrastructure • Business environment • Social and cultural environment • Legal environment • Government policy and vision • Consumer and business adoption
Technology Initiatives
impression that there is a lot of repetition of assessment categories amongst the tools and most of them were focussed on measuring technological infrastructure although there is no doubt that it is a very important category that cannot be ignored. Also, most of the existing tools seem to focus on countries at a macro level not at a micro level e-readiness assessment for SMEs. Too many categories and sub-categories in the existing tools also make assessment cumbersome. Additionally, no tool provide any guidance on how it could
be adapted, developed or extended to assess ereadiness when new paradigms and specialised applications emerge in the arena of e-business or if the focus is different from the originally intended audience. This section also assumes that “soft” categories like education and literacy are important for SMEs. In an attempt to strike a balance between the varying categories that the above 6 tools have provided and to eliminate any existing redundancy, the following 6 categories come to the forefront
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that need to be assessed for SMEs. These categories are by no means exhaustive and could be expanded or narrowed depending upon the need of the assessor to overcome the barriers of specific e-business applications. The categories are: Technological Infrastructure: Technology that is less complex, cost effective and executes the needs of companies’ specific goals is seen to be vital for SMEs e-business adoption. Every business has to develop strategies to understand the impact of technology on e-business as ICT is becoming more widely used and the role of existing ICT infrastructure needs to be determined. In this category, it is important to ascertain the hardware, software and telecommunication infrastructure that exists. Knowledge Infrastructure: Barricades to knowledge awareness have to be removed to eliminate inefficiencies resulting due to lack of knowledge. Educating and training SMEs about the inferred knowledge of e-business is essential for boosting confidence in conducting business and to eliminate any existing barriers. Assessing the literacy levels of stakeholders will also be important to help in the adoption of e-business. Human Support: Human inventiveness has a significant contribution towards overall business efficiency. Amalgamation of company specific business practices, knowledge and technical expertise allows businesses to leverage the potential of human support in fulfilling individual customer needs in a steady and personal way. Existing human skills and expertise needs to be assessed to reap the benefits of e-business. Assessing soft skills so that e-business adoption can be achieved is of prime significance. Government Support: SMEs need government intervention to promote, educate and provide incentives to adopt e-business. Assessment in this category will determine the contribution of governments in providing favourable environment, implementing policies that address issues related to system infrastructure and broadband use, governing laws guarding security and privacy,
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so that SMEs can operate and function in a fair and free market. Internet Penetration: Assessing adoption of the Internet by customers and suppliers is of prime importance. This will enable SMEs to decide whether they should adopt e-business or not. Often such data is available from government statistical bodies. High Internet usage by customers and suppliers would mean a good indicator for SMEs, whereas low Internet adoption by customers and suppliers becomes a stumbling block to e-business adoption by SMEs. Conduciveness: Analysis of the barriers suggested that e-business adoption depends on the products and services that the SME offers. If the product or service cannot be sold online, then it is seen as an impediment to e-business adoption. Often the products or service can be sold online but customers may not want to buy it before inspection and thus e-business turns out to be unsuitable. As mentioned earlier, it can be argued that e-business is not only about buying or selling but other important organisational processes that can be facilitated using ICT. Nevertheless, this is an important category that needs to be assessed.
MAMS E-READINESS ASSESSMENT FRAMEWORK Comprehensive analysis of existing research of various aspects of e-business adoption and e-readiness assessment tools as discussed and reviewed in the previous sections has revealed that e-readiness assessment categories relate to different levels and nature of countries, organisations and e-business applications. Numerous but isolated studies, tools and methods of e-readiness measurements with no linkage to the barriers and enablers of e-business adoption however are not sufficient to assess and help SMEs in finally adopting and implementing e-business for their economic growth and to win competitive advantage over their competitors.
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
Many research attempts have compared the tools, their approaches, the categories they measure (Bridges.org, 2005; Bui et al, 2003; Beig et al, 2007) and the target audience for e-market adoption. Such studies have only added more tools if the tool/s being investigated are found to be lacking in the categories of assessment to be measured. In contrast the research in this chapter was directed towards formulating a more generic and holistic framework for e-readiness assessment. The proposed MAMS e-readiness assessment framework (Figure 1) links the multiple aspects of e-readiness for e-business adoption together with appropriate links. The links are abstract but logical. The most important links in the framework are inbound to and outbound from e-readiness catego-
ries that have been used to name the framework as MAMS (Motivation, Application, Measurement and Support) e-readiness assessment framework. The major components of the framework include: •
•
•
Barriers that make the provision of the ereadiness requirements difficult and are often the motivation to assess the availability and suitability of those assessment categories. Enablers that would make it possible to overcome barriers and support and facilitate the provision of the assessment categories. Assessment methods to assess how a business entity scores in different areas of e-
Figure 1. MAMS e-readiness assessment framework
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•
readiness categories at different levels of operation (micro and macro). The existing methods provide for both qualitative and quantitative measurements. Some methods that could be used are questionnaires, case studies, interviews, third party reports and analysis of primary and secondary data. E-readiness assessment categories that are fundamental to e-business adoption as related to particular application areas and audience (can be enterprise, communities or countries).
Assessment Categories As discussed in Section 5.2 SMEs must have access to technological and knowledge infrastructure, human and government support, penetration of ICT to its customers and suppliers, and conduciveness of e-business for the SMEs’ products and services. Owing to the digital divide, the assessment for e-readiness can vary; nevertheless, the categories incorporated for assessment should stay the same. The categories are listed in the corresponding block in Figure 1.
Application of the Framework
Barriers and Enablers
The MAMS framework is generic in nature and is independent of the size, nature and the level of the business entity that is being assessed. It provides a comprehensive picture of readiness for e-business adoption by depicting all major components for assessing e-readiness together as a logical collection. Depending upon the scenario and the environment in which a SME operates the blocks can be populated. It is possible to identify content for each of the blocks in isolation but the major use of the framework is in linking the components together to provide an holistic view of the e-readiness assessment of an enterprise. Consequently, the framework can be utilized as a reference to assess, design and implement a supplementary strategic approach for the assessment of e-business readiness of the SME. For example, the framework can be a guide for an iterative assessment of the category by strengthening the enabling support if, in the preceding round, the category was assessed to be weak in e-readiness.
In the case of e-business adoption by SMEs the impact of barriers may be quite impounding. Within the MAMS framework it is easy to relate barriers to assessment categories and identify if any category is missing. Before populating the blocks of barrier and enablers in Figure 1, a table is created(Table 3) to show the relationship between the six categories and the corresponding barriers from the barriers discussed in Section 3.2 along with the enablers (from Section 4.0) to alleviate the problem and further understanding. The list of barriers and enablers as extracted from Table 3 are shown in the corresponding blocks in Figure 1. Creating the links between category and the barriers will assist in identifying if any category or enabler is missing.
A Generic Case of E-Readiness for E-Business Adoption by SMEs This section explains how the blocks of the framework are populated for the case of e-readiness for e-business adoption by SMEs.
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Assessment Methods Some common assessment methods that could be employed to assess the categories have been shown in the framework. It is possible that more than one of the assessment methods could be employed to help in the assessment since each method has its own pros and cons. A common application of the framework is to motivate appropriate identification and comparison of various existing tools and methods for the range of categories that can be tested. It should be accepted that one tool will not
A Unified View of Enablers, Barriers, and Readiness of Small to Medium Enterprises
Table 3.Categories, barriers, and enablers of SMEs Categories
Barriers
Enablers
Technological Infrastructure
Security Concerns; High Entry Costs
Government Support; Set Up Technological Infrastructure; Adequate Information
Knowledge Infrastructure
Inadequate Skills; Security Concerns; Poor Perception of Benefits; Complex Change Process
Government Support; e-business Laws and Policies; Adequate Information
Human Support
Inadequate Skills
Training and Education; Adequate Information
Government Support
Lack of Government Incentives; Poor Perception of Benefits
Government Support; Adequate Information
Internet Penetration
High Entry Costs
Government Support; Set Up Technological Infrastructure; Training and Education; Adequate Information
Conduciveness
Unsuitability for some Products and Services
Training and Education; Adequate Information
be suitable for all tests. Some tools will cover all categories that need to be assessed or if a tool is not compatible for some categories it can be extended or combined with other tools. Following from the above discussion for the case of SMEs’ assessment categories, the available tools can be reviewed and the most suitable tool for assessment of the categories can be short listed for use per se or with modifications and extensions. For example, in the case of SMEs as mentioned in Section 5.2 Soft Skills is a critical and integral part of the categories Knowledge Infrastructure and Human Support to overcome the barriers of inadequate skills, security concerns, poor perception of benefits, and complex change process. However, none of the tools reviewed in Section 5.1 provide for assessing soft skills. The tool closest to the requirement of a generic SME application is APEC e-commerce readiness assessment which would then need to be extended to include tests for Soft Skills. The above analysis was possible with the holistic nature of the MAMS framework making it vital to consider and work with different components of the framework linked with each other and not in isolation.
LIMITATIONS AND FUTURE RESEARCH AVENUES This is a qualitative study and further quantitative research is required to gain a clearer understanding of the barriers and enablers of e-business adoption by SMEs. It is worth noting here that this study has been informed by the extant literature of previous research on the enablers and barriers to arrive at the suggested framework. The possibility exists for further refinement of the framework after quantitative studies have been carried out. In order to develop the framework, this research has relied on hard data to capture the essence of existing tools but implementation of the framework and its testing remain open to future research. It will be interesting to apply the framework to assess e-readiness by SMEs in both developing and developed countries providing a thorough cross-country perspective. Alternative research approaches could be used to assess the framework to improve our understanding of its usefulness and applicability. For example, the framework could be applied to different industries focussing on individual categories of e-readiness. The suggested framework is by no means exhaustive or definitive and further empirical research can be undertaken to improve it. The chapter calls for using the framework in
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the future for e-readiness assessments by SMEs as this would help support relative evaluations, comparisons, and improvements. The assessment categories that have been identified in the proposed framework can be further classified into sub-categories with weights assigned according to the perceived level of importance making measurement more valuable.
CONCLUSION The importance of e-business as a critical parameter to achieve competitive advantage cannot be underemphasised. Adoption of e-business to improve operations and enhance customer satisfaction is becoming increasingly vital in today’s global world and SMEs cannot afford to lag behind. In order to thrive in a competing environment, SMEs are also beginning to adopt ICT to improve their operations and accomplish many benefits. Various barriers were discussed in the chapter with an aim to facilitate the removal of the barriers by encouraging the implementation of appropriate enablers for SMEs to be e-ready. Obviously, SMEs are not necessarily prepared for the adoption of e-business so e-readiness assessments are becoming increasingly important. Assessing e-readiness is not an easy task as it relies on a large number of assessment categories and thus remains a constant challenge. Six existing tools of e-readiness were reviewed that possess their own lacunae and forte but none of them has been tailored specifically for SMEs. In this light, the MAMS e-readiness assessment framework has been proposed that provides an holistic view by putting together the assessment categories, enablers, barriers, assessment methods, and audience thereby making it easier to apply the framework for assessing e-readiness by SMEs. The proposed framework owes a lot to the pre-existing e-readiness tools that were
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analysed. The proposed framework, like others too, helps to present a simplified representation of reality but allows the user to adapt it to their needs to get an accurate representation of e-readiness. The proposed framework is not expected to be prescriptive but a generic guide that can be used by SMEs to assist in the assessment of their e-readiness. Alternatively, it is essential to bear in mind that integrating e-business in operations will only be beneficial to SMEs when it is incorporated into the overall business strategy so that the benefits of e-business will outweigh the disadvantages. This chapter has its own implications in providing guidance for the adoption of e-business in SMEs to top managers and professionals. This chapter has given a concise and holistic understanding of the challenges confronting e-business adoption in SMEs and also achieved the objective of communicating barriers to a professional audience who can then apply the enablers to adopt e-business in SMEs. This generalist approach to SMEs’ e-business adoption will be very pragmatic for an academic audience, particularly students. In conclusion, it is becoming imperative to review the benefits, barriers and enablers of ebusiness for SMEs. SMEs play an important part in any country’s economy and for any country and its organisations to move forward the adoption of e-business cannot be underplayed. It can be expected that in the future SMEs will increasingly migrate from bricks to clicks as they become more aware of the benefits of adopting e-business to facilitate their processes, particularly if their customers and suppliers are also becoming technologically savvy. In the interim, technological possibilities and opportunities are continuing to evolve and SMEs cannot afford to be left behind in joining the e-business bandwagon to achieve competitive advantage and gallop ahead into a largely unknown but bright future.
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McConnell International. (2000). Risk E-Business: Seizing the Opportunity of Global E-Readiness. Washington, DC: McConell International. Retrieved September 3, 2009 from http://whitepapers.zdnet.co.uk/0,1000000651,260019500p,00. htm McConnell International. (2001). Ready? Net. Go!Partnerships Leading the Global Economy. Retrieved September 3, 2009 from http://www. witsa.org/papers/e-readiness2.pdf McNurlin, B. C., Sprague, P. H. Jr, & Bui, T. (2009). Information systems management in practice (8th ed.). Upper Saddle River, NJ: Pearson Education. Minges, M. (2002). Assessing e-readiness: A review of the Mosaic Methodology. iNet Conference 2002, Washington DC. Retrieved September 3, 2009, from http://www.itu.int/ITU-D/ict/ papers/2002/inet02/MM.pdf Mosaic Group. (1998). The Global Diffusion of the Internet Project: An Initial Inductive Study. Retrieved September 3, 2009, from http://mosaic. unomaha.edu/GDI1998/GDI1998.html Nath, R., Akmanligil, M., Hjelm, K., Sakaguchi, T., & Schultz, M. (1998). Electronic commerce and the internet: issues, problems, and perspectives. International Journal of Information Management, 18(2), 91–101. doi:10.1016/S02684012(97)00051-0 Organisation for Economic Cooperation and Development. (1997). Small Business, Job Creation and Growth: Facts. Paris, France: Obstacles and Best Practices. Organisation for Economic Cooperation and Development. (2004). SME Statistics; Towards a More Systematic Statistical Measurement of SME Behaviour. Istanbul: Turkey. Organisation for Economic Cooperation and Development. (2005). OECD SME and Entrepreneurship Outlook. OECD Publishing.
Parish, A., Kibblewhite, G., Woodley, M., & Richardson, J. (2002). The UK electronics industry e-commerce initiative-a study of the adoption of e-commerce. Retrieved August 10, 2009, from www.intellectuk.org/publications/ reports Poon, S. (1999). Small business and Internet commerce: What are the lessons learned? In Sudweeks, F., & Romm, C. (Eds.), Doing business on the Internet: Opportunities and pitfalls (pp. 113–124). London, UK: Springer-Verlag. Poon, S., & Strom, J. (1997). Small businesses use of the Internet: some realities. Association for Information Systems Americas Conference, Indianapolis, IN, 15–17 August. Retrieved August 10, 2009, from http://www.isoc.org/INET97/ proceedings/C2/C2_1.HTM Poon, S., & Swatman, P. M. C. (1995). The Internet for Small Businesses: An Enabling Infrastructure for Competitiveness. Proceedings of the Fifth Internet Society Conference, (ed.) Chon K., Hawaii, 221-231.Retrieved August 10, 2009, from http:// www.isoc.org/inet95/proceedings/PAPER/126/ html/paper.html Poon, S., & Swatman, P. M. C. (1999). An exploratory study of small business Internet commerce issues. Information & Management, 35(1), 9–18. doi:10.1016/S0378-7206(98)00079-2 Porter, M. E. (2001). Strategy and the Internet. Harvard Business Review, 79(3), 62–78. Pratt, J. H. (2002). E-biz; Strategies for small business success. US SBA Office of Advocacy. Retrieved August 10, 2009, from http://www.sba. gov/advo/research/rs220tot.pdf Rachman, Z. M. (2002). ASEAN e-Readiness Assessment. Retrieved August 22, 2009, from http://unpan1.un.org/intradoc/groups/public/ documents/APCITY/UNPAN011274.pdf
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This work was previously published in E-Business Issues, Challenges and Opportunities for SMEs: Driving Competitiveness, edited by Maria Manuela Cruz-Cunha and João Varajão, pp. 291-312, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Against Strong Copyright in E-Business D.E. Wittkower Coastal Carolina University, USA
ABSTRACT As digital media give increasing power to users— power to reproduce, share, remix, and otherwise make use of content—businesses based on content provision are forced to either turn to technological and legal means of disempowering users, or to change their business models. By looking at Lockean and Kantian theories as applied to intellectual property rights, we see that business is not justified in disempowering users in this way, and that these theories obligate e-business to find new business models. Utilitarian considerations support disempowering users in this way in some circumstances and for the time being, but also show that there is a general obligation to move to new DOI: 10.4018/978-1-60960-587-2.ch720
business models. On these moral bases, as well as on practical bases, e-business ought to refrain from using the legally permitted strong copyright protections, and should instead find ways of doing business which support, value, and respect the technical capabilities that users have gained.
INTRODUCTION One of the most ethically contentious areas of e-business is the assertion and enforcement of intellectual property rights by businesses based upon content provision. Businesses engaged in content delivery tend to view themselves as sellers of goods rather than service providers, and this difference in perspective has significant social,
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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practical and ethical implications. By debunking the idea that strong copyright over content in a digital context is morally supported on Lockean or Kantian considerations, and by shifting the burden of proof on economic and utilitarian considerations against those who employ strong forms of copyright, the chapter demonstrates that there is generally a moral obligation to refrain from use of standard (or, maximalist) copyright protection in e-business. Thus, businesses based upon content provision should, for both moral and practical reasons, change their business model from the product to the service economy. While it is well established in U.S. law that sweat-of-the-brow does not generate goods subject to copyrighting, there is still a strong intuition that a moral, if not a legal right over expressive works is generated through labour. By an investigation of the Lockean presumption against the right of exclusion, we can see that a viewpoint true to Locke’s moral emphasis on the preservation of freedoms held within the state of nature would not support such a right given the current structure of digital media. Indeed, Locke himself, even though he wrote in a far different communications context, supported only limited intellectual property rights, which he justified on a utilitarian, not a labour-desert basis. The Kantian basis of intellectual property rights is approached next. The Kantian view centers on author’s rights, and is far removed from the current legal regime in place in the U.S. and spread internationally through the World Intellectual Property Organization, but again speaks to a strong intuition that a moral, if not a legal right to exclusion is generated in expressive works. Here, by looking at Kant’s Metaphysics of Morals, as well as his essay “On the Wrongfulness of Unauthorized Publication,” we see that the moral basis of the right of exclusion is founded upon the communicative relationship between an author and her public, and offers no support to the use of strong copyright law in our current communications context. Instead, a Kantian
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perspective would today support open-content models utilizing public domain dedication or GPL/Creative Commons licensing. Finally, a utilitarian perspective—the explicit basis of intellectual property rights in the AngloAmerican legal tradition—is considered. The moral basis being found in consequences rather than in natural or moral rights, the great success of the open-source movement is the primary consideration. By looking at recent history, it can be seen that the practical necessity of a right of exclusion over expressive works within our current communications context is suspect at best. The primary utilitarian considerations holding weight today have to do with the large role played by copyright-based industries in our economy, and the disutility that would be caused by undermining the basis of these industries. This consideration, while important, is counterbalanced by considerations of the loss of public rights required by the use of strong copyright. Several examples of currently marginal but emerging business models are then presented, including shareware, subscription, patronage, and value-added delivery models. These examples illustrate how a conceptual shift in content-delivery-based e-business from a product to a service model is able to satisfy practical utilitarian and economic considerations while remaining true to Lockean and Kantian moral considerations. In conclusion, it is argued that e-business has an obligation, on the grounds previously explained, to refrain from the use of legally available strong copyright protection.
BACKGROUND The current debate over copyright is a tangled mess. Concerns with individual and corporate rights are intertwined with concerns about economic and social effects, and within each of these kinds of concerns there are a great number of stakeholders whose interests are not readily
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ranked. The rights in question include those of various parties who may or may not be the same person: the author, the creator, the copyright holder, the purchaser, the consumer, the licensee, and the user. Within larger societal concerns, the field is no less crowded: we are concerned with the freedom of the market, the freedom of the culture, and the freedom of expression; and also with the benefit of the public, of the entertainment industry, of the national economy, and of the entrepreneurial impulse. We are rightly committed to all of these concerns, and the majority of differences in opinion between those who argue the strength of copyright protection should be diminished and those who defend full use and continuation of current copyright protections arise from little else than different views on the relative importance of these concerns. Ought we to view the rights of the author as determinative of the rights of the user, or the licensee? Ought we to view a largely corporate-owned culture as an acceptable price to pay for the health of our economy? To what extent does encouraging innovation through profit motive justify governmental protection of industry practices which disable free use of purchased goods, or which infringe upon the privacy of consumers and users? In order to decide these issues, we tend to fall back to established positions. This takes place both practically and intellectually. Practically, we often respond to these shifts in architecture—to use Lawrence Lessig’s term (2006)—by attempting to fit applications of technologies into the ruts already worn by previous architectures, maintaining the economic relations, rights, and privileges required by previous technical regimes. The movement towards Digital Rights Management (henceforth DRM) systems is straightforwardly an attempt to make the new media act like the old in order to keep stable the power relations between content producers, business, and the market. Intellectually, we also fall back to established positions; in the realm of copyright in particular, we fall back upon
Lockean, Kantian, and utilitarian foundations of intellectual property rights. The constitutionally granted power of Congress “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries” (Federal Convention of 1787) has usually been interpreted in a strictly utilitarian manner. For example, we see Justice O’Connor’s statement that “the 1976 revisions to the Copyright Act leave no doubt that originality, not “sweat of the brow,” is the touchstone of copyright protection in directories and other fact-based works” (Feist Publications v. Rural Telephone Service, 1991). This interpretation reinforces the implication, based upon the optional nature of Congress’ granting of intellectual property protection, that the law recognizes these author’s and inventor’s rights as artificial rather than natural, as stated before by Chief Justice Hughes: “copyright is the creature of the federal statute passed in the exercise of the power vested in the Congress. As this Court has repeatedly said, the Congress did not sanction an existing right, but created a new one” (Fox Film Corp. v. Doyal, 1932). Nevertheless, it seems that Lockean intuitions may underlie recent legislative action, particularly the automatic extension of copyright over works already created provided in the Sonny Bono Copyright Term Extension Act of 1998 (henceforth CTEA), and the extreme length of the term created thereby. Justice Breyer’s dissent in Eldred v. Ashcroft (2003), while it did not claim that the CTEA emerged from Lockean intuitions, provided many strong arguments that go towards establishing such a claim, such as that the CTEA would extend copyright terms to such an extent that these rights would serve the interest of providing income for authors and their descendents at the expense of public commerce in ideas and expressions, thus promoting to an unprecedented extent intellectual property owners’ right of exclusion—the right to prevent others from utilizing intellectual property (henceforth IP) for profit,
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non-profit, or personal purposes—over the social and utilitarian benefits of releasing those rights. These various foundations of intellectual property rights (henceforth IPR) are rational ones, and even if the motivation to provide IPR protection falls outside of the utilitarian intent that seems implied within the constitution, it is certainly possible that the legislation may still be constitutional even as the motivation behind it is not. These various foundations have, indeed, been part of the public dialog about IPR for some time, and our interest in non-utilitarian justifications of IPR did not emerge from obscurity with the rise of digital media. And yet, the shifting architecture of the methods of articulation of IP provides radical new possibilities to authors, users, and owners of IP, and as we return to our Lockean, Kantian, and utilitarian intuitions, it is worthwhile to reconsider basic forms of the theories which underlie those intuitions in this new and changing social/ technological milieu. What we find is remarkable. In the following reconsideration of these theories, I attempt to provide evidence that, when we consider copyright protection over digital objects, not only can these traditional sources of justifications of IPR not be presupposed, but instead that, when digital objects are considered properly, the burden of proof ought to fall upon the copyright maximalists rather than the copyright minimalists. In this discussion, since I am trying to address what e-business should do today, the copyright minimalist and maximalist positions will not be approached as positions on the law—e.g. whether copyright terms should be extended to life of the author plus seventy years, as they are under the CTEA, or reduced to the earlier term of fourteen years, as in the Copyright Act of 1790—but instead only as positions on how to use the legal structures currently in place. In this context, the copyright maximalist position can be defined as the position which holds that it is appropriate to use the strongest copyright protection allowed under current law; a simple “all rights reserved” assertion of copyright. The copyright minimalist
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position, which I advocate here, can be defined as a position which holds that only a weaker protection can be morally justified, such as those provided by Creative Commons licenses or the GNU Public License. These less extensive uses of copyright law allow users to retain various rights, such as the right to share or reproduce content with attribution, the right to remix for non-commercial use, or the right to access and use source code so long as the resulting software is shared alike. The case argued here is a limited one in a few important ways: First, I do not hold that any of these ethical theories are right or wrong, or that any is more important than any other. I discuss these because they are the theories that most strongly influence public opinions and beliefs, regardless of how well- or ill-founded they are on a moral, philosophical, or constitutional basis. It is for this reason that I consider these perspectives rather than others, which may arguably be more correct, useful, or productive. Second, I am addressing digital media, and digital media alone. Issues about analog IP in an increasingly digital world are beyond the scope of this inquiry. Third, I address only copyright, and not other forms of IPR. Digital technologies have transformed IPR of all kinds in important ways, but only in the realm of copyright have they brought about widespread public skepticism regarding the justice of providing such rights. Thus, it is here that our intuitions seem to have the greatest—or at least most apparent—mismatch with current law. Fourth, I will not discuss international issues in IPR legislation, but will concentrate on U.S. copyright law. IPR varies in significant ways in different nations, and enforcement varies even more, but U.S. copyright-based industries have been particularly aggressive in trying to export U.S. laws to other nations, both through industry groups such as the Business Software Alliance and the Recording Industry Association of America, and through the World Intellectual Property
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Organization. For this reason, U.S. law is of particular global relevance. Nevertheless, in order to maximize the relevance of these arguments to all parties in global e-business, I will not concentrate on legal structures, but instead the moral arguments that may or may not serve as a foundation to a variety of legal structures. Fifth, and finally, I will not deal extensively with contemporary reformulations, rehabilitations, or reconstructions of the canonical ethical theories discussed. As valuable and powerful as such contemporary theories are, my intention here is not to prove that these theories are unable to support strong copyright protection, but rather to show that the basic intuitions which emerge from each of these traditional justifications of IPR are tied in important ways to pre-digital media. My goal is simply to shift burden of proof by raising doubts from within canonical versions of these theories, and for this, we need not show that such proof cannot be given.
THE ETHICS OF COPYRIGHT OVER DIGITAL GOODS We will consider Lockean, Kantian, and utilitarian justifications of copyright in the light of digital modes of articulation. In order to avoid biased terminology, I will often refer to intellectual goods rather than intellectual property. Locke and Kant both offer rights-based justifications of intellectual property laws. When considering both Locke and Kant, we will see that their theories no longer imply a moral right that requires legal protection, and this will be sufficient to show that there is therefore no justification to use these legal protections, since they limit the rights and freedoms of others. Utilitarianism, however, even if it does support strong copyright, does not do so by asserting a moral right, but only because the granting of such an invented right of exclusion over intellectual goods is for the best for society as a whole. Here, it will be shown that this “copy-
right bargain” is questionable, but, due to the consequentialist reasoning involved, it can only be asserted that the burden of proof should be on those who would use strong copyright protection, not that such use will always be unjustifiable.
The Lockean Perspective It is often suggested that the writings of John Locke—specifically the second of his Two Treatises on Government—may provide a justification for strong copyright laws, and public intuitions supporting IPR are often based upon Locke’s labour-desert theory of property rights. A critical investigation of the Lockean theory, taking digital media into account, reveals that it no longer supports the idea of a natural right which corresponds to copyright protection, and that it instead affirms the natural right to copy and to produce derivative works. The famous and most oft-quoted passage, from Chapter V: Of Property (Locke, 2005), is as follows: Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others. (Ch. V, §27) “Mixing” of one’s labour with the goods of the world, given to mankind in common by God,
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implies a right to the fruits of that labour, for, as Locke argues later, “if we will rightly estimate things as they come to our use, and cast up the several expenses about them, what in them is purely owing to nature, and what to labour, we shall find, that in most of them ninety-nine hundredths are wholly to be put on the account of labour” (2005, Ch. V, §40). If we follow Locke in holding that the value in the product springs from the labour mixed therein, and that the labour therein is by nature property of the labourer, the labourer then has a natural right to the value of the product with which he has mixed his labour. This theory is a fine one when speaking of acorns and apples; when your labour provides you a good which has a use to you, whether that good emerges merely from collection of the bounty of nature or an industrial use of natural resources, you certainly have a moral claim over such a good. The idea that this theory can be applied to intellectual property, wherein what is collected and worked is not seed and soil but rather ideas, sounds, words, or facts of nature, is not an irrational one. It might additionally be argued that, the labour of the creation of such a good being of such a greater proportion than the labour involved in the subsequent utilization of it by parties other than the author, the author should retain a proportional right over such derivative works. This is certainly the viewpoint which has guided our extension of the Constitutional allowance of the ability of Congress to provide protection over “Writings and Discoveries” to the arguably extraconstitutional (cf. e.g. S. Vaidhyanathan, 2003) ability of Congress to legislate protection over works derivative of these writings and discoveries. There is, indeed, support from Locke (2005) on this point, for he argued that [h]e that had as good left for his improvement, as was already taken up, needed not complain, ought not to meddle with what was already improved by another’s labour: if he did, it is plain he desired the benefit of another’s pains, which he had no right
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to, and not the ground which God had given him in common with others to labour on, and whereof there was as good left, as that already possessed, and more than he knew what to do with, or his industry could reach to. (Ch. V, §34) Thus, if I should have words, ideas, sounds or facts of nature available to me which are as good as those already taken up by others, I have no right to meddle with those already improved by others. The Beatles do not have dominion over the sounds of which their music is made, and should I wish to make music of my own I have as much access as they to those sounds, and therefore have no right to trespass upon the particular ways in which they have been already cultivated. We may first note a serious disanalogy that presents a problem for this application of Lockean property theory: digital objects, and songs in general, are non-rivalrous goods. When I take your acorns or apples, your cultivated land or, indeed, your book, my benefit is a rival of yours; I gain only through your loss. When I make a copy of your digital file or when I sing your song, you are not the less for it. Thus, when I copy software you have written, for example, I do not trespass upon your right to the fruits of your labour—I have in no way prevented you from reaping the benefits of your cultivation of mathematical facts. On the other hand, when you prevent me from sharing your music, making use of your source code, or remixing your movie, you prevent me from reworking those materials and being recognized for my addition of my labor. It may be objected that I have lessened the profits that you might have realized through the sale of copies. This argument, however, is ex post facto and has no place here, for it already assumes that you have a right to control such copies, and this supposed right is precisely what is in question. Nevertheless, copies and derivative works are certainly a means of benefiting by the labour of another, and it may yet be that we owe
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to the author some share in the benefit we have therefrom taken. If we should, for example, remix a Beatles song, we mix an amount of our own labour with the sounds, words, and ideas with which they have already mixed their labour. But these sounds, words and ideas are not found within virgin untouched nature. Do the Beatles then owe a portion of their benefit to, for example, the descendants of those who contributed to the invention of the modern guitar? To assert so would be ludicrous. The appropriation of the guitar has become akin to the appropriation of a fact of nature, for, just as Locke said regarding untamed nature, such appropriation being non-exclusive, it keeps nobody else from profiting from her own appropriation of the guitar. As Locke (2005) worded it: Nor was this appropriation of any parcel of land, by improving it, any prejudice to any other man, since there was still enough, and as good left; and more than the yet unprovided could use. So that, in effect, there was never the less left for others because of his enclosure for himself: for he that leaves as much as another can make use of, does as good as take nothing at all. No body could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst: and the case of land and water, where there is enough of both, is perfectly the same. (Ch.V, §33) The Beatles do not infringe upon the natural rights of the inventors of the guitars they used, for they have not taken anything from them, or deprived them of anything whatsoever. They, further, have taken nothing from the commons by taking the instrument for their own use, for they in so doing have kept nobody else from doing likewise. The same can be said of a later artist using the music of the Beatles. DJ Dangermouse, for example, has taken up the work of those before him, mixing the Beatles’ White Album and Jay-Z’s
Black Album in his Grey Album, but he has done so in a non-rivalrous, non-exclusive way, leaving, in effect, as much commonly available after as before his appropriation.1 It may be that we wrong the authors in some other way by such appropriation, but we do not tread upon their property rights in a Lockean perspective. For Locke, what is questionable is exclusion. This is necessary with regard to goods whose possession is rivalrous and exclusive, such as land, and it is this necessity that motivated Locke’s attempt to justify holding property. As Locke (2005) stated: it is very clear, that God, as king David says, Psal. cxv. 16. has given the earth to the children of men; given it to mankind in common. But this being supposed, it seems to some a very great difficulty, how any one should ever come to have a property in any thing. (Ch. V, §1) If you have mixed your labour with elements of the earth held in common, you have, he concludes, a natural right to possess that cultivated good. If that good is, however, of a kind which does not require exclusion in order for you to reap profits from it, the superaddition of exclusion can find no justification in Locke, for Locke seeks only to justify the necessary evil of exclusion, not to justify exclusion when wholly unnecessary. Thus, you have a natural right to the song that you write: I ought not to deprive you of the lyrics you have written down. However, you have no right to tell me not to sing it. Tom Bell (2004) has put the point more generally: [C]opyright and patent protection contradicts Locke’s justification of property. By invoking state power, a copyright or patent owner can impose prior restraint, fines, imprisonment, and confiscation on those engaged in peaceful expression and the quiet enjoyment of the tangible property. Because it thus gags our voices, ties our hands,
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and demolishes our presses, the law of copyrights and patents violates the very rights that Locke defended. (p. 4) If you should write a computer program, you have a right to object if I destroy your copy. In just the same way, if I should copy your program, I have taken nothing from you, and you have no right to keep me from free and full use of my copy of this program. We talk about property rights as a “bundle” which may or may not include certain particular rights, such as the right to exclude others from one’s property, to use it, to profit from it, to rent it, or to sell it. Locke provides a strong defense of some rights in some ways, but his theory offers no support for the extension of the right of exclusion over copies of digital objects.
The Kantian Perspective It may be argued that a Kantian justification for the extension of copyright over digital objects may be given on the basis that if we consider the maxim “I intend to copy this digital object” we shall find that it is not universalizable, for if everybody copies digital goods, nobody will be able to afford to produce further originals to copy. Furthermore, it may be argued that doing so does not respect the creator of the digital object as an end to herself, but treats her merely as a means. An additional Kantian justification of the extension of copyright over digital objects, one more in line with the continental European legislative tradition of author’s rights, might be given in the argument that such objects are often or always expressive in nature, and the protection of the data which constitutes an authorial expression is required if the integrity of that expression is to be adequately protected. These arguments will be addressed in this order. First, we ask, following Nissenbaum (1995), whether the maxim to copy my neighbor’s software is universalizable. It seems to many people
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that such behavior is equivalent to theft,2 but this ignores the non-rivalrous nature of digital objects. Kantian moral theory claims that unethical actions are those which fail to accord with what Kant calls the “categorical imperative”: That the maxim (or, the rule that one implicitly follows in the action) should be capable of being willed as a universal law of human behavior. So, approximately, we can ask whether it is possible for all other actors to take the same action we are considering. If it is not possible, or if a world in which everyone acted in such a manner would be undesirable, then we can tell that we are making an exception of ourselves in this action. We can consider this action beneficial only because most others refrain from doing as we are doing. Hence, Kant claims that when we cannot will the maxim of our action as a universal law, we are using others for our benefit. Consider theft of some useful analog object from my neighbor. When I take valuable property, I am thereby given a good, and my neighbor loses an identical good. In one version of the famous Kantian argument I steal from my neighbor and thereby gain a loaf of bread, which is fine and good, but we discover that this is unfortunately not universalizable, for if everybody stole bread then those in possession of bread would stop leaving it out in the open where people can get at it, or perhaps bakers would stop making it altogether. When I copy my neighbor’s digital object, I am thereby given a benefit, and my neighbor is none the less for it, for digital objects are similar to an idea in that, in Thomas Jefferson’s (1813) words, “he who receives an idea from me, receives instruction himself without lessening mine.” For this reason already, we see that the categorical imperative does not provide as strong an argument against copying of digital goods as it does against the seizure of analog goods. If everybody copied their neighbors’ digital goods, this in itself should in no way cause any reticence on anybody’s part, unless it can additionally be reasonably expected that such an imagined law of nature would preclude
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the creation of further such goods, or would so greatly diminish their number or quality that we could not will to live in such a world. To make this more clear, consider Christine Korsgaard’s (1996) restatement of wherein the wrongness of an immoral action lies according to Kant: “your action would become ineffectual for the achievement of your purpose if everyone (tried to) use it for that purpose” (p. 78). Perhaps, although my neighbor is not directly harmed by my action, I am nevertheless using others because I am neglecting to support authors of digital objects, and the corporations that employ them, in order to allow for the continued creation of such products. The question then is whether, if everybody copied digital objects, new digital objects would continue to be created. The answer here is quite clear: there would be no shortage of digital goods. It is true that the profitability of large-scale digital good production would be greatly diminished, but this is not the only source of digital goods. The software released as freeware, under GNU general public license, under open-source BSD license, or otherwise copylefted, is sufficient to replace a wide variety of proprietary programs, and the availability of the source code of proprietary programs would provide ample resources to increase the number of such non-proprietary applications, and quite likely at an higher rate of increase than that provided through production under fully proprietary licensing. Similar licensing is being applied to other digital goods, such as music, video, and written works, and many authors feel that these licenses are preferable to standard copyrighting, which tends, in many important ways already discussed, to discourage innovation and creation. Thus, we see again that the categorical imperative, in its first formulation, is not at odds with the maxim to copy my neighbor’s digital objects. It may be objected that the maxim should read instead “I intend to copy proprietary digital objects whenever convenient,” for the above confuses the copying of freeware or copylefted goods, which
is equivalent to accepting a gift or continuing a conversation, with the piracy of commercially produced content, which is arguably equivalent to theft. Admittedly, I have a duty to respect the law, as I cannot consistently will that everybody should break the law whenever they find it convenient to do so. This does itself establish a Kantian argument against so-called piracy, but not by means of any particular aspect of the action itself. In further support of this position, we may note that the creators of these digital products had a reasonable expectation of profit from its resale, and to deprive them of that profit which the law guarantees them would treat the programmers and corporate managers and CEOs as a mere means, for they no doubt have life plans which are dependent upon the income which our unlawful behavior would deprive them of. We are in a system wherein they are playing by the established rules, and for that reason, we have a duty to hold up our end of the bargain. This is of course a conservative Kantianism, for it would be possible to argue that we never consented to this system in any meaningful sense, or perhaps that one ought not respect legislation which requires behavior which is immoral, an allegation which some have argued. Most notable is Richard Stallman’s argument that copyright in fact requires us to act immorally and erodes basic social goods, an argument which he brings together by the slogan “cooperation is more important than copyright” (2004). A more modest line is taken by Helen Nissenbaum (1995), who argues that at least some situations exist in which it is moral to ignore copyright. The most comprehensive argument along these lines of which I am aware is Michael Perelman’s Steal this Idea (2002), which makes a book-length case against intellectual property rights in general. Even if we stay true to the conservative Kantianism, and respect laws in place simply because they are the laws in place, this is an ex post facto justification, for it tells us nothing about whether
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the law supports or inhibits moral behavior. If the copying of proprietary digital goods cannot be shown to be wrong outside of the fact of its illegality, we should conclude that it is wrong in the way that sitting at a whites-only lunch counter may have once been wrong: to transgress here is to neglect a duty to be lawful but is otherwise acceptable behavior, and thus the law itself should be considered questionable. If the transgression of this law violates no duty other than that of lawfulness, and if this law does not continue to fulfill the obligation in the service of which it was created, then we will conclude that copying proprietary digital objects is indeed immoral, but we must also conclude that making use of this law through asserting strong copyright is itself immoral, for it unnecessarily restricts the freedom of others. When we look at the goals stated in the enactment of copyright law in the Anglo-American tradition, the justifications are (1) to ensure that the author of a useful expression is benefited, or at least not ruined, (2) to encourage the creation of such works, and thus (3) to benefit the public in general.3 If we ignore, for a moment, the existence of digital media, we easily see a Kantian justification of such legislation. If we consider the creation of a useful and successful complex expression, say a manual of some kind, the production of this expression presumably requires a fair amount of labour while its reproduction requires relatively little. In this case, if we universalize the maxim of freely reprinting useful expressions, we see that this practice would not be sustainable, for nobody would find it worth their while to create such expressions. Thus, copyright law does have a clear and significant moral basis, especially if we also consider that to discourage such expressions would constitute a purposeful impediment to the realization of human potentialities, as in accord with Kant’s third example in the second section of the Groundwork, 4:423 (1996a). When we again take digital media into consideration we see that the law no longer has this moral basis, for the free reprinting/reproduction
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of digital goods can now be willed as a universal law. With regard to the obligation to assist the creator of such useful expressions, (1) above, we may easily note that the expenditures required in the creation of such complex expressions as software are no longer prohibitive, as evidenced by the fact that significant and increasing numbers of such creators choose not to receive recompense for their labour even when given the legal means to do so, and, further, that such recompense, in the cases of software and music at the least, is not limited to retail sales in its origin, but can profitably be shifted into the service economy, as will be discussed further below. This itself is enough to establish that objectives (2) and (3) no longer require these laws, but it is worth noting that there is also significant evidence that copyright over digital objects is not only unnecessary but actually detrimental, discouraging both innovation and the public benefit which is to be gained from such innovation (e.g. Nadel, 2004; Perelman 2002). We find more concrete discussion of the issue in Kant’s article “On the Wrongfulness of Unauthorized publication of Books” and the related arguments in The Metaphysics of Morals.4 Kant argues that writing does not constitute a plain object, but is instead also a form of speech, and thus an expression of the will of the author. Then there is the fact that the author chooses a certain publisher, a certain provider of the “mute instrument for delivering the author’s speech to the public” (1996c, p. 30), which can then carry out the will of the author in the name of the author. This means that another publisher which would publish without authorization would express the will of the author in his speech, yet would do so against the will of the author, for the author cannot authorize more than one publisher to carry his expression to the public. It is this last point that is least obvious and most crucial. Specifically, the argument is that the author cannot authorize more than one publisher as the instrument of their speech for “it would not be possible for an author to make a contract with one
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publisher with the reservation that he might allow someone besides to publish his work” (1996c, p. 31), because the two would “carry on the author’s affair with one and the same entire public, [and] the work of one of them would have to make that of the other unprofitable and injurious to each of them” (1996c, p. 31). So, the author as a matter of fact cannot actually authorize two publishers to publish their speech, for no publisher would agree to such an arrangement. It is for this reason that another publisher cannot assume the permission of the author, for that permission cannot be granted, and thus they would bring the speech of the author to the public against the possible will of the author. What is remarkable about this argument is that the claim of the authorized publisher against the unauthorized publisher is guaranteed by the impossibility of the consent of the author; an impossibility, but not a logical impossibility. We see, further, that with regard to digital objects this is no longer an impossibility, and thus the majority of the argument simply does not apply to digital objects. Now we ask: Is it possible for an author of digital objects to authorize multiple publishers? Yes, it clearly is, for publishers need not be in competition with one another, though they speak to the same public, for they may not charge for the product at all. This conflict only arises with regard to proprietary digital goods. Furthermore, Kant (1996c) argues that “if someone so alters another’s book (abridges it, adds to it, or revises it) that it would even be a wrong to pass it off any longer in the name of the author of the original, then the revision in the editor’s own name is not unauthorized publication and therefore not impermissible” (p. 35)5 It seems this Kantian source does not support the kind of closed-source proprietary license currently prevalent, but instead supports only a license no more restrictive than the GNU GPL (General Public License), for if an adaptation is potentially sufficiently differentiated to be appropriately considered an independent
work, then to prohibit the use of the first expression in the creation of an ex hypothesi different expression would clearly be outside of the realm of the author’s rights. So it seems that Kant may be used to support the judgment that it would be wrong to copy proprietary digital objects, for this could potentially be the act of a distributor acting in the name of the author, but against the will of the author. But it is far less clear that Kant would support making digital objects proprietary to begin with, since this is no longer necessary to express the communication of an author to her public. Even if Kant does not disallow making such goods proprietary, his writing and reasoning clearly does not support closed-source licensing, and even directly ridicules the very idea of contributory infringement.6 So, on the basis of these arguments, it seems that Kant would require us to respect the chosen distributor of an expression unless the author authorizes multiple or unlimited distributors, but that authors and rightsholders are not justified in preventing the public from access to and use of code, or from the creation of derivative works.
The Utilitarian Perspective Utilitarianism claims that the moral action is the action which produces the greatest net benefit for all parties involved. The utilitarian view, being based on the consequences for happiness or suffering, validates talk of “rights” only as a means to an end. Even fundamental rights, such as freedom of speech, are viewed as having an instrumental value rather than an absolute justification. Still, on a utilitarian view, some things, such as freedom of speech, are viewed as being so essential to happiness that they should not be abridged except in the most extreme cases. Hence, the utilitarian will claim that we should have a robust “right” to free speech because without it our society would be dysfunctional, ruled by prevailing opinion no longer subject to criticism, and we would feel unable to develop and express ourselves.
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A utilitarian view of property rights in general is similar. Without the ability to own property, and the right to exclude others from use or enjoyment of it, we would lack many assets which seem to be basic to human happiness, ranging from the ability to enjoy the fruits of our labour to the inability to be secure in our plans for the future. If there is a utilitarian basis to rights over intellectual goods, there must be similar widespread and basic benefits for us, either individually or as a society. As we have already discussed, though, digital goods are non-rivalrous, so this right cannot be based on our individual ability to keep possession of our creation, for copies and derivative works do not remove our copies from our possession. Instead, a justification must instead come from a larger social benefit produced through the provision of this legal protection. The most basic utilitarian intuition behind copyright protection is that the profit motive mobilized by the granting of a temporary monopoly provides a greater diversity and amount of intellectual goods to the public. Closely allied to this is the claim that such goods will be of higher quality, for producers of such goods will be better able to make investments of money and time, due to the possibility of remuneration granted through the artificial monopoly created by copyright, amounting to a market-based system of patronage.7 This is what is referred to as the “copyright bargain”: The right of exclusion is granted, for a limited time, not because there is any inherent benefit in this temporary monopoly, but because the temporary public loss of the right to use that copyrighted material is counterbalanced by a public benefit when that material falls out of copyright protection. This, of course, is only a good bargain when the goods produced remain of greater balance after the copyright term expires than the immediate value of the (presumably fewer and worse quality) goods which might have been produced in the absence of this legal protection. The “copyright bargain,” it seems, may have hitherto been a good deal for the public on the
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whole, however, with the widespread availability of digital technologies, it is possible for independent members of the public to produce goods of similar utility to those produced by the IP industries, and the production of these goods is not dependent upon granting a right of exclusion, due both to increasingly effective alternate methods of mobilization of profit motive and to the increasing relevance of non-profit-based motives as production costs fall. The utilities given to the public by the “copyright bargain” may now be realized in the absence of copyright to a far greater extent, and thus the concrete benefit of copyright protection has been lessened. Concurrently, the social cost of effective copyright enforcement has risen—i.e. the “copyright bargain” is ever more onerous to the public in terms of opportunity costs, loss of freedoms, and imposition of externalities. Finally, it is reasonable to expect technological progress to continue to lessen the benefit of copyright protection relative to the absence of such protection, and to continue to increase the social costs of such protection. The most basic and intuitive version of a utilitarian argument in favor of copyright goes approximately as follows. An exclusive right granted through copyright allowed for works to be created that would otherwise not have been. The expense required by producing and distributing copies of creative works was such that collective action was necessary; this was accomplished through granting the right of exclusion to authors, such that it could then be granted to corporations that were able to bear the costs of manufacture and sale which the author could not bear herself. Additionally, this has allowed for greater expenditures of both time and money on the part of the author, as publishing houses and their equivalents are able to use profits from other authors and prior works to speculatively support the creation of new works through book advances, record deals, upfront payment of actors, regular employment of software engineers, and so forth. Through this profit-based production, corporate
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support allows for the creation of works far more costly than would otherwise be produced. The concrete benefit which the public gains through these works form the basis of the copyright bargain as usually understood. The superadded value to these cultural products relative to those which would be produced in the absence of the collective advantage provided by corporate actions—be this benefit in terms of artistic or entertainment value, or simply in terms of the volume of works created—is meant to counterbalance the loss of rights to the public in their use of these works, which loss is mitigated by the temporary nature of this loss of rights. This bargain was, of course, a better deal for the public in the past, both due to the more limited term of copyright that was in place and to the far greater necessity of involving profit-motivated concentrations of capital. The harms caused to the public by the “copyright bargain” rise sharply with widespread increased technological capabilities. As the means of production of industries based on intellectual goods have come increasingly within the possession of the public, industrial and private employment of ideas have become increasingly indistinguishable. It is impossible to tell whether I have sent somebody a music file as a form of private communication, as I might tell somebody about a book in recommending its purchase, or whether I have sent the music file as a form of industrial manufacture, as if I had manufactured a book in order that its purchase should be unnecessary. The priority of the industrial interpretation has been codified in law under the No Electronic Theft (NET) Act and, thus, the public is subjected to the strict requirements with which corporations were originally burdened in order to benefit the public. These basic forms of sociality are at risk, for as our lives become increasingly involved with digital technology, my inability to lend my neighbor a copy of e.g. some software, becomes an increasingly significant intrusion of business concerns into interpersonal and community relationships (Nissenbaum, 1995). The
shrinking scope of fair use is, of course, also a significant concern, as it becomes increasingly difficult through DRM for the end-user to do simple space- and time-shifting, especially as DRM is given legal protection through the anticircumvention provisions (§1201) of the Digital Millennium Copyright Act. In order to enforce the artificial monopoly granted to the copyright holder, increasingly significant intrusions must be made on the public. The public is limited in use, sharing, and enjoyment of cultural artifacts, and even the astronomical fines imposed seem insufficient to deter copyright infringement. From this, we should not simply conclude that music- and file-sharers are incapable of properly weighing risk and reward, but we should consider instead that sharing elements of culture with others may represent a human good as basic as freedom of speech, and that the filesharer simply would prefer to put herself at risk of bankruptcy than to submit to a legal system which disallows her from this basic form of sociality. These attempts at enforcement, furthermore, are not only onerous but also ineffective; perhaps doomed. In a global communications context, files can simply be hosted in localities where IPR are either weak or weakly enforced. The only options for a truly effective enforcement involve either (1) convincing the public that they ought not share, download, or remix IP, (2) spreading strong copyright law and strong copyright enforcement throughout all wired nations, or (3) monitoring individual internet connections to search for infringing packets. The first option seems both undesirable and unlikely: as noted above, sharing culture may be a human impulse basic to our social existence, and to convince the public otherwise may be difficult, and may be accomplished only at the expense of freedom of expression and a feeling of community. The second option seems an insurmountable task, unless strong moral arguments can be given why all nations should adopt strong copyright protection, and, as I have argued, sufficiently strong moral arguments may be lack-
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ing. The third option requires a thoroughgoing invasion of public rights that is hard to imagine could possibly represent the greatest good for the greatest number. The feeling of surveillance is deeply unsettling, and injurious to our privacy and security—no amount of big-budget movies and new pop singles seems to outweigh the disutility of knowing that our communications are being monitored. Although the industrial dependence on strong copyright protection carries these disutilities, any lessening of the use of copyright protection may carry with it significant upheaval in IP-based industries, and these disutilities on the other side of the equation must be considered as well. We cannot ignore that the industrial production of culture employs a great many Americans, and thus supports many families and provides a driving force in our national economy. Intellectual products provide emotionally and economically rewarding work to a great many—not just studio and label heads, actors, musicians, programmers, and writers, but also caterers, personal assistants, studio musicians, limousine drivers, costume designers, best boys, lawyers, and lobbyists—and are a major export commodity, most notably in the movie, music, and software industries. As industry lobbyist Jack Valenti once hyperbolically stated this point, “By leading all other manufacturing sectors in their contribution to the American marketplace, the copyright industries are this nation’s most treasured assets... Protection of our intellectual property from all forms of theft, in particularly [sic] online thievery and optical disc piracy, must take precedent [sic] if the United States is to continue to lead the world’s economy” (Motion Picture Association of America, 2002). It is, however, one thing to argue that utilitarian considerations support copyright protection simpliciter, and quite another to argue that utilitarian considerations support the status quo due to the disutility of social upheaval that may follow from an otherwise beneficial change in policy—especially if a similarly disutile social
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upheaval is required by the maintenance of the status quo, due to the shifting architecture discussed above. Indeed, on a strictly economic basis the structure of intellectual property lends itself to public production and ownership, even considered independently from the social and legal costs necessitated by enforcement given public availability of the relevant means of production. Intellectual property based products, as they have a high fixed cost and a negligible marginal cost, are of a type of good whose production costs are best socialized rather than left to the private sector. As Michael Perelman (1991) stated, [w]ithin [Kenneth] Arrow’s logic, computer software is an ideal public good. Once produced, software code costs virtually nothing to duplicate. One can even read Arrow’s analysis of the economics of information as an economic justification for the piracy of computer software; that is, software piracy, generously interpreted, approximates the price structure that pure neo-classical economics implicitly recommends, assuming that software vendors are marketing nothing more than the information embodied in the program. (p. 194) This is not the place to ask about whether it is best to create intellectual goods through market forces, however. Our question here is whether utilitarian considerations justify using the strong copyright laws currently provided. If the utilitarian defense of our current IP legal regime is simply that we are dependent upon it, rather than that it is and will continue to be for the greatest good, then we are perhaps justified in continuing to use copyright, but only if we do so in a way that minimizes and our dependence upon it, and minimizes the burdens placed upon end users and consumers. If this is right, in other words, we are economically dependent upon a system which will cause increasing social harms, and the proper solution is to decrease our dependency until we can afford to no longer cause these harms.
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There is an ancient and probably apocryphal story about Hero of Alexandria. Having invented a steam engine—an aeolipile, he called it—he went to his king, excited by its great productive potential. The king saw this as a problem, rather than a solution. “What,” he asked, “would we do with all the slaves?” In a situation where we are economically dependent upon a legal regime, and technological changes make that regime unjustifiable, we should not use the disutility of social upheaval as a reason to avoid change. The situation here is of course less morally dire, but structurally similar. To continue using strong copyright is to continue our dependence upon an increasingly harmful legal regime, and, therefore, while it may be justifiable in some cases and temporarily, the burden of proof in any particular case should be against those who would argue that strong copyright is for the best, especially when enforced through DRM.
FUTURE RESEARCH DIRECTIONS Shareware licensing represents a viable business model that is currently underutilized. Those illegally downloading music or movies often state that if they find something they truly enjoy, they will buy the CD or DVD in order to support the artists. This is nothing but a spontaneous public employment of the shareware model over currently proprietary goods. Musicians such as John Mayer and Jonathan Coulton have used online distribution networks in order to gain notoriety, and established musicians gain from the so-called “piracy” of their back catalogue, as Janis Ian has noted (2005). Many artists already produce most of their profits from live performances, and the diminution or elimination of copyright laws would aid this by reducing the artificial scarcity in reproductions of music, thereby freeing expendable income to be spent on entertainment to be given over directly to artists. Some artists such as Radiohead and Trent Reznor have decided to
make their music freely downloadable, and have shown that it is possible to regard the musician as the provider of a service, supported through ticket sales, donations, and upselling, rather than as the provider of a product (the album or track) for sale. There is no reason that these methods of utilizing an open-source shareware model, already successful in some areas of music and software development, could not be adapted to other kinds of intellectual production. As public radio demonstrates, there is no need to ensure that each and every user pays for a service in order to be able to fund the provision of that service to all who wish it. A sponsorship model of funding is another underutilized strategy, and one which provides a patch to one of the major problems of the shareware model: the risk inherent in speculative creation of a good requiring a significant financial outlay. An example of sponsorship funding can be found in Maria Schneider’s Grammy-winning album “Concert in the Garden.” The album was produced through artistShare.net, which offers artists the ability to offer fans the opportunity to sponsor the production of works, similar to the way in which institutions or individuals might commission a work, but on something closer to a grass-roots model. As Maria Schneider put it, “This project was funded with the help of my fans and distributed entirely through my own website. I feel very proud of taking that first step and incredibly grateful that it has proven to work so well!” (AllAboutJazz.com, 2004). The artistShare model could equally well be applied to other areas of intellectual production, allowing businesses currently dependent upon sales for income to find an alternate and sustainable source of revenue. The shift from a sales- to a service-based business model is already emerging in various ways in the marketplace. In software, Red Hat offers the clearest example of the potential for growth in this business model, and Richard Stallman (2004) has argued for this as a more general economic model. Red Hat has enjoyed great success selling sub-
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scriptions, support, training, and customization of open-source and free software. As open-source and uncommodified software becomes more prevalent, we can expect demand for software servicing to increase perhaps precipitously, not only because of the obvious challenges of implementation or the obvious advantages of customization, but because of liability issues. One of the great benefits which software service providers are able to offer businesses is the ability to take a share of legal liability in cases of software-based damages, such as compromised client personal information or data loss. In this way, software service firms are able to act as informational insurance brokers, offering a greater degree of financial security, in addition to the improved data security which customization and a direct service relationships offer, as compared to centralized, mass produced software sellers. MIT’s OpenCourseWare provides a similar example of rethinking intellectual property as something to be serviced rather than sold. MIT OpenCourseWare • • • •
Is a publication of MIT course materials Does not require any registration Is not a degree-granting or certificategranting activity Does not provide access to MIT faculty (2007)
When MIT first started this open-source approach to their course materials, which makes available online all manner of information from syllabi to lecture notes to tests, there was reportedly some confusion about why MIT would give away the very goods it was in the business of selling. As Hal Abelson (2004) explained at an academic open-source conference, MIT decided the information covered in a course was not a competitive good with enrollment within that course—MIT, in other words, does not view itself as a seller of information, but rather as a supplier of services, which include not only access to information,
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but also presentation of that information within a particular environment of other students, accessible and responsive professors, labs, discussion groups, and various other educational resources.
CONCLUSION Now that the means of industrial production of intellectual property are firmly in public hands, any reasonable assessment of the future of monopolistic and exclusive employment of intellectual goods will include increased regulation and encroachment upon the everyday lives and personal activities and projects of the public at large. The public is already denied many benefits of intellectual goods. As technological advances continue, these denials will have to become more extreme as means of circumvention become more powerful. Furthermore, the benefits which these denials remove from the public will become greater as the productive abilities which would otherwise be in public hands increase in power and as their application continues to expand in breadth through the increasing range of uses of digital technology. In the absence of any moral right of authors requiring the right of exclusion—a moral right which the Lockean and Kantian perspectives no longer supply—this increasing disutility is unjustifiable. Given recent technological advances, the copyright bargain removes significant benefits from the many in order to benefit the few, and furthermore does so by inflicting harms upon the many by restricting basic rights, by breaking down social bonds, and by preventing the public from freely realizing their creative impulses. Given the likelihood that such advances will continue, we can expect both the benefits lost and the harms gained to steadily and continually increase. Whatever benefits the copyright bargain still provides may be nearby and certain, but they are impure, and the harms brought about through the copyright bargain are nearby, certain, fecund, and wide-ranging.
Against Strong Copyright in E-Business
As e-business models emerge, and as businesses increasingly become e-businesses, entrepreneurs, managers, and others involved in business have a responsibility to find revenue models which are not dependent upon asserting unjustified rights and removing rights and freedoms from others. There are many such models, as discussed in the foregoing, but the business environment is currently in flux, and these models are unstable. There are surely other such models yet to be developed. There are, however, some principles that businesses should follow. Given that consumers are now producers and distributors; given that anyone can create, edit, publish, and remix intellectual goods; and given that the technical capabilities of the public are likely only to further increase, businesses that wish to survive as content providers must recognize that they can no longer be gatekeepers, and that they need to ask what they have to offer the consumer, rather than asking what they deserve from the consumer. Members of the public must be treated as partners and clients, not consumers. This is the primary principle I would suggest for how to use copyright in an ethical and sustainably profitable way: think service, not product. Digital media means consumers do not need content producers anymore: they can produce their own content if you make yours too difficult to use, restrictive, or otherwise unattractive. Don’t ask how to get your user/audience to pay to access content; ask what you can do to make them value your business and the service you provide in that content delivery. How can you do this? 1. Don’t tell your customers how to enjoy your product. 2. Open discussions, don’t close them. 3. Remember that the user is supporting you, even if she might not be paying to do so Don’t lock users into a particular device or software program if you don’t have to. Don’t make them feel like you’re trying to take their informa-
tion, privacy, or ability to choose. It’s unjustifiable, and the public is increasingly unwilling to put up with it, even if it is legal. Both morally and practically, it’s a bad way to do business. Give them the freedoms they need to enjoy your service on their own terms. Give them the opportunity to support you because they like your service and your content rather than trying to force them to support you if they want access or use. This is a time of great opportunity for e-businesses based in content provision, but only if business can respond in a positive and proactive way to technological changes; can recognize and respect the power that users now have; and chooses to treat the user base as partners, whether or not they have paid for the privilege of popularizing your content and bringing you publicity.
REFERENCES Abelson, H. (2004, November). Universities, the Internet, and the Intellectual Commons. Paper presented at the Conference on the Intellectual Commons, Orono, ME. AllAboutJazz.com. (2004). Maria Schneider - 4 Grammy nods and NOT ONE RETAIL SALE! Retrieved from http://www.allaboutjazz.com/php/ news.php?id=4785 A&M Records v. Napster, No.00-16401, D.C. No. CV-99-05183-MHP (2001). Assemblée nationale française. (n.d.). Law on the Intellectual Property Code (Legislative Part) (No. 92-597 of July 1, 1992, as last amended by Law No. 97-283 of March 27, 1997). Retrieved from http://www.wipo.int/clea/en/details.jsp?id=1610 Bell, T. (2002). Indelicate Imbalancing in Copyright and Patent Law, In A. Thierer and C.W. Crews Jr. (Eds.), Copy Fights: the Future of Intellectual Property in the Information Age (pp. 1-17). Washington, DC: Cato Institute.
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Deutscher Bundestag. Law on Copyright and Neighboring Rights (Copyright Law) of September 9, 1965, as last amended by the Law of July22,1997. Retrieved from http://www.wipo. int/clea/en/details.jsp?id=1032
Kant, I. (1996c). On the Wrongfulness of Unauthorized Publication of Books. In Gregor, M. (Ed.), Practical Philosophy (Cambridge Edition of the Works of Immanuel Kant) (pp. 23–36). Cambridge, UK: Cambridge University Press.
Eldred v. Ashcroft. 1 U.S. 537 (2003).
Korsgaard, C. (1996). Creating the Kingdom of Ends. Cambridge, UK: Cambridge University Press.
Federal Convention of 1787. (1787). The Constitution of the United States of America. Retrieved from http://www.law.cornell.edu/constitution/ constitution.overview.html Feist Publications, Inc. v. Rural Telephone Service Co. 499 U.S. 340 (1991). Fox Film Corp. v. Doyal, 286 U.S. 123 (1932). Free Software Foundation. (2002). Selling Free Software. Retrieved May 6, 2009, from http:// www.gnu.org/philosophy/selling.html Hull, G. (2009). Clearing the Rubbish: Locke, the Waste Proviso, and the Moral Justification of Intellectual Property. Public Affairs Quarterly, 23(1), 67–93. Retrieved from http://papers.ssrn. com/sol3/papers.cfm?abstract_id=1082597. Ian, J. (2005). The Internet Debacle—An Alternate View. Retrieved May 6, 2009, from http://www. janisian.com/article-internet_debacle.html Jefferson, T. (1813). Thomas Jefferson To Isaac McPherson, Monticello, August 13th, 1813. Retrieved from http://www.temple.edu/lawschool/ dpost/mcphersonletter.html Kant, I. (1996a). Groundwork of the Metaphysics of Morals. In Gregor, M. (Ed.), Practical Philosophy (Cambridge Edition of the Works of Immanuel Kant) (pp. 37–108). Cambridge, UK: Cambridge University Press. Kant, I. (1996b). The Metaphysics of Morals. In Gregor, M. (Ed.), Practical Philosophy (Cambridge Edition of the Works of Immanuel Kant) (pp. 353–604). Cambridge, UK: Cambridge University Press.
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Landes, W., & Posner, R. (2003). The Economic Structure of Intellectual Property Law. Cambridge, UK: Belknap. Lessig, L. (2006). Code 2.0. New York: Basic Books. Retrieved from http://codev2.cc/ download+remix/ Locke, J. (2005). Two Treatises of Government. Project Gutenberg. Retrieved from http://www. gutenberg.org/ebooks/7370 MIT OpenCourseWare. (2007). MIT OpenCourseWare. Retrieved September 4, 2007, from http:// ocw.mit.edu/index.html Archived at http://web. archive.org/web/20070904051417/http://ocw. mit.edu/index.html Motion Picture Association of America. (2002). Study shows copyright industries as largest contributor to the U.S. Economy. Retrieved December 3, 2005, from http://mpaa.org/copyright/2002_04_22.htm Archived at http://web. archive.org/web/20051203235151/http://www. mpaa.org/copyright/2002_04_22.htm Motion Picture Association of America. (2005). Internet Piracy. Retrieved May 6, 2009, from http://www.mpaa.org/piracy_internet.asp Nadel, M. (2004). How Current Copyright Law Discourages Creative Output: The Overlooked Impact of Marketing. Berkeley Technology Law Journal, 19, 785-856. Available at SSRN: http:// ssrn.com/abstract=489762
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Nissenbaum, H. (1995). Should I Copy My Neighbor’s Software. In Johnson, D., & Nissenbaum, H. (Eds.), Computers, Ethics, and Social Values (pp. 200–212). Upper Saddle River, NJ: Prentice Hall. Parliament of England. (1710). The Statute of Anne. Retrieved from http://www.copyrighthistory.com/anne.html Perelman, M. (1991). Information, Social Relations and the Economics of High Technology. New York: St. Martin’s. Perelman, M. (2002). Steal this Idea: Intellectual Property Rights and the Corporate Confiscation of Creativity. New York: Palgrave. Stallman, R. (2004). Why Software Should Not Have Owners. The GNU Project and the Free Software Foundation. Retrieved from http://www. gnu.org/philosophy/why-free.html U.S. Department of Justice. (1998). The No Electronic Theft (“NET”) Act: Relevant portions of 17 U.S.C. and 18 U.S.C. as amended (redlined). Retrieved from http://www.usdoj.gov/criminal/ cybercrime/17-18red.htm Vaidhyanathan, S. (2003). Copyrights and Copywrongs: The Rise of Intellectual Property and How It Threatens Creativity. New York: New York University Press.
ENDOTES 1
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The argument I have presented in this section is based on the “enough and as good” portion of the Lockean proviso. For a valuable alternate approach, based upon the spoilage proviso, see Gordon Hull’s “Clearing the Rubbish: Locke, the Waste Proviso, and the Moral Justification of Intellectual Property” (2009). E.g. “Piracy is theft, and pirates are thieves, plain and simple. Downloading a movie off
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of the Internet is the same as taking a DVD off a store shelf without paying for it” (Motion Picture Association of America, 2005). This false identity has in important ways been codified in American law under the No Electronic Theft Act of 1997 (henceforth, the NET Act). This act, besides implicitly equating copyright infringement and theft through its very name, strikes a provision in 17 U.S.C. § 506 which formerly required commercial advantage or private financial gain as a criterion for a criminal infringement offense. Under the law as modified by the NET Act, criminal infringement may be established by the willful reproduction or distribution of copyrighted material of a total retail value exceed $1000 within any 180 day period or by the receipt of commercial advantage or private financial gain. Further, the NET Act added a creative definition to 17 U.S.C. §101, stating that “the term ‘financial gain’ includes the receipt, or expectation of receipt, of anything of value, including the receipt of other copyrighted works” (U.S. Department of Justice, 1998). This definition states that the receipt of copyrighted works is an illegal financial gain, thereby implying that piracy is a form of theft. As stated in the Statute of Anne: “Whereas printers, book sellers, and other persons have of late frequently taken the liberty of printing... or causing to be printed... books and other writings without the consent of the authors or proprietors of such books and writings, to the very great detriment, and too often to the ruin of them and their families; for preventing therefore such practices for the future, and for the encouragement of learned men to compose and write useful books; may it please your Majesty...” (Parliament of England, 1710) Cf. also Constitution of the United States, Article 1, §8, clause 8 (Federal Convention of 1787).
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4
5
6
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The Metaphysics of Morals does not add anything of significance to these issues to his earlier comments in “On the Wrongfulness [etc.].” For those who wish to compare the two, or who do not have easy access to the less common essay, the argument addressed in following is presented in briefer form in The Metaphysics of Morals, §31, II., 6:28991 (1996b, pgs. 437-8). This idea is also present in both French and German law (Assemblée nationale française, 1997; Deutscher Bundestag, 1997). In a surprising footnote, Kant asks rhetorically “Would a publisher really venture to bind everyone buying the book he publishes to the condition that the buyer would be prosecuted for misappropriating another’s goods entrusted to him if the copy sold were used for unauthorized publication, whether intentionally or even by negligence?” (1996c, p. 29fn). This now may constitute “contributory infringement,” wherein one may be found guilty of copyright infringement simply by offering assistance to the practice of copyright infringement in situations in which the abettor knew or ought to have known of the infringing activities. This was a primary charge in the Napster case (A&M Records v. Napster, 2001), and has since been used in threats directed at individuals, universities, and internet service providers. A more complete list of possible utilitarian justifications might look like this: copyright
protection, in exchange for an acceptable loss of social freedoms, (1) provides a greater diversity and amount of intellectual goods to the public, (2) allows for creation of goods requiring a huge initial investment, which would not otherwise be produced, (3) allows for profit-motivated responsiveness to the desires of the public, (4) diminishes search costs on the part of users/consumers through effective marketing and distribution, (5) effectively and efficiently preserves and distributes older and less popular goods of cultural value, (6) provides rewarding labour to many Americans, (7) represents a valuable export good for the U.S. market, (8) discourages wasteful rent-seeking expenditures. Here, I only am able to address the most central intuitions about a utilitarian justification of IPR: that the copyright bargain is necessary to adequately encourage socially and economically foundational production. Landes and Posner (2003) discuss all of these possible utilitarian justifications, including those that are less obvious or intuitive, however they note that “while we discuss a number of issues relating to intellectual property rights in computer software and to the impact of the Internet on intellectual property law, readers who believe that these are the central issues of that law today will be disappointed with our coverage” (p. 7).
This work was previously published in Ethical Issues in E-Business: Models and Frameworks, edited by Daniel E. Palmer, pp. 152-171, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 7.21
The Structure of Theory and the Structure of Scientific Revolutions:
What Constitutes an Advance in Theory? Steven E. Wallis Institute for Social Innovation, USA & Foundation for the Advancement of Social Theory, USA
ABSTRACT From a Kuhnian perspective, a paradigmatic revolution in management science will significantly improve our understanding of the business world and show practitioners (including managers and consultants) how to become much more effective. Without an objective measure of revolution, however, the door is open for spurious claims of revolutionary advance. Such claims cause confusion among scholars and practitioners and reduce the legitimacy of university management programs. Metatheoretical methods, based on insights from systems theory, provide new tools for analyzing the structure of theory. Propositional analysis is one such method that may be applied DOI: 10.4018/978-1-60960-587-2.ch721
to objectively quantify the formal robustness of management theory. In this chapter, I use propositional analysis to analyze different versions of a theory as it evolves across 1,500 years of history. This analysis shows how the increasing robustness of theory anticipates the arrival of revolution and suggests an innovative and effective way for scholars and practitioners to develop and evaluate theories of management.
INTRODUCTION As scholars, we seek to improve our understanding of management practices. An important part of this process is how we advance our theories. While an advance in understanding might be understood as relating to individual perception,
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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advances in theory relate to the development of formal structures that are communicable, testable, and useable across our discipline. The question of what actually constitutes an advance in theory is still open, and new answers to that question are only now emerging. For example, it has been claimed that a theory of greater complexity should be considered as one that is more advanced (Ross & Glock-Grueneich, 2008). Another approach claims that improved theories are those that combine multiple theoretical lenses (Edwards & Volkmann, 2008). Still another approach suggests that theories of greater structure may be considered more advanced (Wallis, 2008b). For scholars outside this growing metatheoretical conversation, the standard method for advancing a theory is to determine if that theory works in practice. However, each theorist seems to claim that his or her theory is best, so this is not a very useful measure. Investigating the Faust-Meehl Strong Hypothesis for Cliometric Metatheoretical investigations, Meehl notes that many authors claim their theories are good because they are parsimonious. However, Meehl (2002, p. 345) notes, this claim is misused, and represents a weak claim for successful theory. Popper (2002) suggests that the best theories are those that are falsified. Yet, this level of testing seems to represent too high a hurdle for social scientists (Wallis, 2008d). Few theorists even attempt to falsify their own theories, or encourage others to do so. Some authors, in claiming that they have developed an advanced theory, invoke the spirit of Thomas Kuhn and his description and discussion of paradigmatic revolution. Drawing on centuries of hindsight, Kuhn (1970) developed the idea of scientific paradigms; each of which includes laws, theories, application and instruments which combine to support “coherent traditions of scientific research” (Kuhn, 1970, p. 10). A paradigmatic revolution is said to occur when the traditions of a science change in significant ways. For example, moving from the Ptolemaic view of the solar system (where the
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Earth is at the center, surrounded by nested crystal spheres on which are embedded stars, planets, etc.) to a Copernican view where the sun is at the center. Revolutions also result in major improvements to the effectiveness of practitioners. With modern physics, it is possible to have communication satellites, while under the Ptolemaic paradigm, no such achievement would be possible. Some authors in the field of management claim that their theories are not only effective and useful, but have achieved the status of paradigmatic revolution – ushering in a new age of management, presumably as great as the shift in thinking between Ptolemy and Copernicus. For example, after the development of Total Quality Management (TQM) by Ishikawa, a Kuhnian revolution was claimed. It was argued of TQM that, “All of these characteristics and underlying philosophies point to fundamental changes in the rules of business--a paradigm shift” (Amsden, Ferratt, & Amsden, 1996). While some authors claim revolution, others lend legitimacy to such claims. For example, Clarke & Clegg (2000, p. 45) refer to a proliferation of paradigms and describe over twenty publications that claim significant paradigmatic changes. They closely investigate some claims of paradigmatic revolution including, “Transition From Industrial To Information Age Organization.” On the other hand, some authors are content to strongly imply a revolution, as would be found in a shift toward more spiritual management practices (Steingard, 2005). Still others do not make such claims, but explicitly seek revolution in their field (e.g. Stapleton & Murphy, 2003). The nature of these claims seems to suggest that management science, as with the broader social sciences, does not have a shared understanding of what constitutes a Kuhnian revolution, or even the advance in theory needed for such a revolution. This lack of advance is reflected in management studies where the field is disparaged as being fragmented (Donaldson, 1995) by academics and where practitioners have little interest in the
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theories of academia (Pfeffer, 2007). In short, these “paradigm wars” lead to a loss of legitimacy from philosophers and practitioners (McKelvey, 2002). The responsibility for these spurious claims may rest upon Kuhn’s shoulders. While he wrote convincingly his focus, “leaves largely intact the mystery of how science works” (Nickles, 2009). In a sense, Kuhn described that houses of theory were built, but did not describe the method of construction. We can say that Kuhn’s approach missed the mark in two important and closely related ways. The first was his focus on empirical data as a tool for advancing revolution. That focus, we will briefly explore in this section. Second, in looking at data, Kuhn missed the opportunity to focus on theory. That focus we will investigate (and remedy) in the remainder of this chapter. For the first focus, Kuhn (1970) highlighted the idea that collecting facts is critical to the advancement of science. For example, he suggests that Coulomb’s success in developing a revolutionary theory of electrostatic attraction (EA) depended on the construction of a special apparatus to measure the force of electric charge (Kuhn, 1970, p. 28). Kuhn provides this kind of specific example for the development of empirical data, but does not provide close descriptions of how scientists used that data to develop their theories. This pursuit of the empirical is exemplified by Popper (2002, p. 113) who suggests that scientists should begin with relatively arbitrary propositions. Then, they should move to the more serious work of deductive testing and falsification. In his view, it seems that the development of theory is relegated to a secondary status, while objective analysis reigns supreme. This empirical approach has colored the social sciences from the outset – and for good reason. Social scientists of the early 19th century might have experienced an appreciable envy of their counterparts in physics, who were then reveling in the newfound success of their science. It was as if social scientists had looked up one day to see their counterparts living in comfortable homes of brick – safe behind solid walls of useful theory –
while the social scientists languished outside in the cold. Those early social theorists recognized the benefit of having solid walls, but were unsure about the process of building a house of theory. It must have seemed to them that the house of physics was built using factual bricks of empirical analysis. Comte, for example, is said to have developed theories using a positivist, or empirical approach (Ritzer, 2001). However, in the words of Poincaré, “…a collection of facts is no more a science than a heap of stones is a house” (Bartlett, 1992). When social scientists used that empirical approach, however, the results were disappointing. Instead of solid walls, they had only piles of bricks. By the middle of the twentieth century, it was becoming clear that social theory was not very useful in practice (Appelbaum, 1970; Boudon, 1986). As a result, three general remedies emerged. One remedy was for scientists to focus on smaller scale systems (Lachmann, 1991, p. 285). This approach led to the development of organizational studies and management science, as found in the writings of Lewin, McGregor, and others (Weisbord, 1987). Another remedy focused on investigations that were essentially a-theoretical. These “epistemologies of practice” (Schön, 1991) suggested the need for investigation, reflection, and action instead of the act of creating formal theories (Burrell, 1997; Shotter, 2004). Finally, the failure of a social science based on empirical investigation prompted the call for still more empirical investigation – a call that continues today (e.g. Argyris, 2005). Unfortunately, the results generated by those alternatives do not seem to be any more useful than their predecessors. For example, despite the popularity of these approaches, studies have shown that Total Quality Management (TQM) fails at least 70 percent of the time (MacIntosh & MacLean, 1999), organization development culture change efforts seem to fail about the same rate (M. E. Smith, 2003) and Business Process Engineering (BPR) should not be considered a viable approach (Dekkers, 2008). Other authors
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echo this concern. For example, Ghoshal (2005) suggests that management theory as taught in MBA programs is a contributing factor to serious issues such as the Enron collapse which leads to concerns about the viability of management science in academia (Shareef, 2007). The essential idea, that social scientists could engage in empirical observation and use the resulting data to create useful theories, appears to have been flawed. Kuhn reported that houses of theory were built, and that they were built from empirical bricks, but he did not explain the process by which the bricks were assembled. If we are to understand how to build solid houses of theory, it seems that our focus should be directed toward understanding theory. Only by looking between the bricks can we learn how they are put together. Only by investigating how these houses of theory are assembled, regardless of what empirical building blocks are used, can we find how they are built, and how we may advance management theory. In this chapter I will investigate one method for objectively measuring theory to ascertain if this method may be used as a path for the advancement of management theory. In a metaphorical sense, I will identify the previously unknown techniques of bricklayers responsible for the well-built house of physics and, from that perspective, suggest how management scientists might build solid houses of useful theory. In this, we will seek to answer Kuhn’s question, “Why should the enterprise sketched above move steadily ahead in ways that, say, art, political theory, or philosophy, does not?” (Kuhn, 1970, p. 160). Several perspectives may prove useful in this investigation. The first comes from developments in systems theory and the closely related field of complexity theory, specifically mutual causality – the idea that everything is interrelated. When applied with academic rigor, this idea of interrelatedness allows the objective analysis of the structure of theory. Moving forward, we first review background information that identifies important similari-
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ties between theories of physics and theories of the social sciences. These similarities allow us to conduct analyses on one form of theory and draw inferences to another. Next, as part of understanding both forms of theory, we will look at the broader context of the growing conversation on metatheory, with a focus on the structure of theory, which may be analyzed in an objective way described in terms of formal robustness. That understanding of theory leads into the main thrust of the chapter where EA (electrostatic attraction) theory is analyzed in various forms as it evolved over time as it evolved over time – moving from antiquity (where the theory merely described curiosities), into modernity (where robust theories supported paradigmatic revolution). By comparing the developmental path of EA theory with the present structure of some theories of management, inferences about the present state of management theory can be made along with suggestions for accelerating the advancement of management theory toward more effective application in practice.
BACKGROUND The Common Ground Between Physical and Social Theories The contrast between the physical sciences and the social sciences may framed in terms of complexity. In classical physics it is generally considered possible to develop predictive theories or laws to explain and forecast the workings of the natural universe because the physical universe is relatively stable and predictable. In contrast, complexity theory suggests that social systems exhibit inherent complexities, understood as non-linear dynamics (Olson & Eoyang, 2001; Wheatley, 1992). Therefore, in the social world, prediction (and the creation of predictive theory) is considered problematic or impossible. This point of view is not a strong one, however, because a statement such as, “It is not possible to create
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useful theories in social systems” is itself a theory that makes a prediction about a social system. The self-contradictory nature of that position renders it questionable. Therefore, we cannot rule out the possibility of predictive theories within the social sciences (Fiske & Shweder, 1986). Moreover, the present chapter is not about theory creation, so many of these concerns may be set aside. The goal here is to measure the similarities between existing theories. This is an important distinction because the a-theoretical camp has not shown that theories of management cannot exist because, indeed, they do. They have only shown that within the current paradigm of management science we don’t have the ability to create effective theory, which is reasonable since the evidence shows we don’t. The validity of the analysis in this chapter rests on the similarity between theories of physics and management, leading us to ask: How might the two be compared? The essential commonality between theories explored in the present chapter is found in the structure of the theory as seen in the interrelated nature of the propositions contained within the theory. Theories of physics and theories of management both contain interrelated propositions. For an example, physicist Georg Ohm developed the proposition (for a simple electrical circuit) that an increase in resistance and an increase in current would result in an increase in voltage. As an example from management theory, Bennet & Bennet (2004) suggest that (in an organization) more individuals and more interactions will result in more uncertainty. This similarity between propositional structures in theories of physics and theories of management provides a basis for comparison. Thus, structural inferences from one set of theories may be applied to another set of theories with some level of reliability. Of course, other aspects are not held in common between theories of physics and theories of management – specifically where theories from each discipline are used to describe relationships among different things. For example, Newton’s
laws describe the motion of planetary bodies in the context of our solar system, while management theory describes some relationships between humans in the context of the workplace. In this chapter we are focusing on the theories themselves, not the things described by those theories. Therefore, as demonstrated above, the comparison between structures of theories should hold true. Metaphorically, we are not trying to differentiate between the bricks of physics and the rough stones of management; we are looking at the mortar that can serve equally well to hold them all together. Further, we are not testing the process by which the theories were created, such as the formal process of grounded theory (Glaser, 2002) or more intuitive methods (Mintzberg, 2005). Neither will we consider the falsifiability (Popper, 2002) of those theories per se, although this analysis does suggest some insights and opportunities for further investigations along those lines. Because this is essentially a metatheoretical investigation, we begin with a brief explication of metatheory.
Metatheory In previous decades, the term metatheory meant the speculative construction of one theory from two or more theories (Ritzer, 2001). This understanding of metatheory is being superceded by scholars who use the term to describe investigations into the structure, function, and construction of theory (Wallis, 2008b, 2008d) as well as the more carefully considered construction of overarching theory (Edwards & Volkmann, 2008) and investigations into the validity of theory as related to the complexity of theory (Ross & GlockGrueneich, 2008), as well as the investigations of other authors in the present volume. The “theory of theory” or metatheoretical conversation draws on insights from Kuhn (1970), Popper (2002), and Ritzer (2001), as well as methodologies from Stinchcombe (1987), Dubin (1978), and Kaplan (1964). More recently, notable scholars such as Weick (2005), Van de Ven (2007),
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Starbuck (2003) and others have summarized our present understanding of theory development and called for a new look at theory. The goal of this conversation is to develop a better understanding of theory – including how theory is created, structured, tested, and applied – in order to engender better theories and support the development of improved applications. Theory may be understood as, “an ordered set of assertions about a generic behavior of structure assumed to hold throughout a significantly broad range of specific instances” (Southerland, 1975, p. 9). Theory is of key importance to practitioners as, “practice is never theory-free” (Morgan, 1996, p. 377) and to scholars because “there are no facts independent of our theories” (Skinner, 1985, p. 10) (emphasis, theirs). While Burrell (1997) suggests that theory has failed, others call for better theory (e.g. Sutton & Staw, 1995). This investigation falls into the later camp. This topic is of critical importance to our field because, “What constitutes good, useful, or worthy theory in our field remains up in the air and cannot be resolved through empirical validation alone.” (Maanen, Sørensen, & Mitchell, 2007, p. 1153). This echoes Nonaka’s (2005) argument that the creation of theory requires more than the traditional, positivist approach of seeking objective facts. While there has been a great deal of conversations around the creation of theory (e.g., K. G. Smith & Hitt, 2005) and the testing of theory (Lewis & Grimes, 1999; Popper, 2002), these conversations have not shown efficacy in advancing theory. Although, some academicians seem to imply that the creation of more theory is taken as a reasonable measure of success. For example, one web page notes that an accomplished professor emeritus, “…is the sole author of six books. He is author or co-author of over 100 papers” (GMU, 2009). While these are certainly impressive numbers, there was no mention of the value of the work or its application in the world – the value sits upon a shelf. Another popular method for determining accomplishment is counting cita-
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tions. These methods (and others) might indicate some sort of popularity (Wallis, 2008a), but do not seem to indicate any way to advance a theory. Indeed, in a recent HERA study, the author admits that there does not seem to be any reliable method for evaluation (Dolan, 2007). Another approach is called for.
Structure of Theory Kaplan (1964, pp. 259-262) suggests six forms of structure for theoretical models. His forms of structure include a literary style (with an unfolding plot), academic style (exhibiting some attempt to be precise), eristic style (specific propositions and proofs), symbolic style (mathematical), postulational style (chains of logical derivation), and the formal style. The formal style avoids “reference to any specific empirical content” to focus instead on “the pattern of relationships.” Dubin’s (1978) approach is similar, in that he suggests how theories of the highest “efficiency” are those that express “the rate of change in the values of one variable and the associated rate of change in the values of another variable” (Dubin, 1978, p. 110). Such relationships might be understood as structural in the sense that they represent causal and co-causal relationships between events. Because those relationships are well explained, we might expect such a theory to be more useful in practice, allowing the practitioner to use the theory to understand or predict those changes. In short, we might expect that theories with a higher level of structure to be more effective in practice. Because theory indicates changes between multiple interrelated events, the structure of theory might be understood as a system. Briefly, the history of systems theory might be best seen in Hammond (2003) while the breadth of the theory might be best seen from the systemic perspective of Daneke (1999). The application of systems theory to management is provided in Stacey, Griffin, & Shaw (2000) while Steier (1991) draws on an understanding of cybernetics to explore reflexive
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research and social construction. More relevant to the present study, advances in complexity theory, systems theory, and cybernetics suggest that a systemic perspective might provide a useful lens for viewing management theory (e.g. Yolles, 2006). The systems perspective may be applied to a conceptual system. In this case, the present methodology focuses on the systemic relationship between propositions in a body of theory measured in terms of “robustness” (Wallis, 2008b). It should be noted, by way of clarification, that the understanding and use of robustness as used here is different from a more common understanding, where robustness might be understood as strong, resistant to change, longevity, or widely distributed. Rather, robustness refers to the specific and objective measure of the relationship between propositions in a theory. The idea of a robust theory comes from physics and mathematics, and represents a theory with complete internal integrity. For example, Ohm’s law of electricity (E=IR) is considered to be a robust theory because it is amenable to algebraic manipulation – that is to say, this formula is equally valid if written as I=E/R, which means it is equally valid whether it is used to find volts (E), amps (I), or resistance (R). When I undertook to understand the structure of theory, I drew on insights from dimensional analysis, systems theory, Hegelian dialectic, and Nietzsche’s insights into the co-definitional relationships between the dimensions of those dialectics. These, and other ideas, I combined to develop the process of Reflexive Dimensional Analysis (Wallis, 2006a, 2006b). That methodology was further refined (Wallis, 2008b) to develop a method of propositional analysis that could be used to objectively determine the robustness of a theory. By way of background, a causal proposition describes a relationship between aspects – where each aspect relates to some observable or conceptual phenomena. For an abstract example, a proposition might be represented as, “A causes
B” (or, “changes in A cause changes in B”). A cocausal proposition might be, “Changes in A and B cause changes in C.” Such co-causal propositions are described as concatenated (Kaplan, 1964; Van de Ven, 2007). Van de Ven suggests that concatenated concepts may be difficult to justify and suggests, instead, that the more commonly used chain of logic is the better way to construct a theory. A chain of logic might be understood as explaining how changes in A are caused (or explained) by changes in B that are caused by changes in C. Conversely, Stinchcombe (1987), suggests that such a chain is less effective because any intermediary terms (B, in this abstract example) are redundant and so do not represent a useful addition to the theory. Further, any such chain must ultimately rest on some unspoken assumption. Extending the abstract example, the chain of steps (A, B, C, etc.) continues until the argument reaches a point where everyone agrees that some foundational claim is “true” (perhaps Z, in this case). However, insights developed from Argyris’ “ladder of inference” suggest that those underlying assumptions are not necessarily reliable guides (Senge, Kleiner, Roberts, Ross, & Smith, 1994, p. 242-243). In short, relying on unspoken assumptions may lead to folly as easily as wisdom. The robustness of a theory may be objectively determined in a straightforward manner (for an in-depth example, see Wallis, 2008b). First, the body of theory is investigated to identify all clear propositions. Those propositions are then compared with one another to identify overlaps and redundant aspects are dropped. Second, the propositions are investigated for conceptual relatedness between the aspects described in the propositions. Those propositions that are causal in nature are conceptually linked with aspects of the theory that are resultant (each aspect may then be understood as a dimension representing a greater or lesser quantity of some aspect or phenomena). Those resultant aspects that are described by two
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or more causal aspects are understood to be concatenated and are considered to be more complex, more complete, and more useful than aspects that are not as complex, or as well structured. Third, the number of concatenated aspects in the theory are divided by the total number of aspects in the theory to provide a ratio – a number between zero and one. This ratio is the robustness of the theory and represents the degree to which the theory is structured. A value of zero represents a theory with no robustness, as might be found in a bullet point list of concepts with no interrelationship between them. A theory with a value of one suggests a fully robust theory; an example is Ohm’s E=IR. Because of the successful application of robust theories in math and physics, it may be expected that a robust theory of the social science can be reliably applied in practice, and will be more easily falsifiable in the Popperian sense (Wallis, 2008b). Metaphorically, bricks that are directly mortared to other bricks would be highly robust (as found in a structured wall or home), while bricks that are scattered about would not be robust at all. A pile of bricks would be somewhere in the middle (as a pile might have slightly more structure than scattered bricks, though far less structure than a home). For an abstract example of determining robustness, consider a theory of five aspects (A, B, C, D, and E), each representing differentiable concepts or phenomena. The causal relationships between these aspects are suggested by two propositions: (1) A causes B; and (2) More C and more D results in more E. Of these, only E is concatenated because there are two aspects of the theory that are causal to E. Therefore, the robustness of this theory is 0.20 (the result of one concatenated aspect divided by five total aspects). This method of propositional analysis allows us to examine a theory and assign a relatively objective measure of that theory’s structure. With this method of measurement in hand, we can apply the yardstick of robustness to theories across time. And, importantly, we can determine if the
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robustness of the theory is increasing, decreasing, or merely wandering.
FORWARD TO REVOLUTION According to Kuhn, a paradigmatic revolution is a situation where, “the older paradigm is replaced in whole or part by an incompatible new one” (Kuhn, 1970, p. 92). Kuhn also suggests that a scientific revolution occurs when a new paradigm emerges, one that provides a better explanation, answers more questions, and leaves fewer anomalies. Such a revolution in management is expected to bring more effective theories and practices to managers. However, Kuhn’s description of revolution is problematic because it does not describe how much better the explanation must be. Nor does it describe exactly what reduction in anomalies must occur for a paradigmatic change to be considered revolutionary. There is no method of measurement. This issue was highlighted recently when Sheard (2007) framed the conversation as a contrast between superficial and profound revolution and asked, “Who decides what is ‘profound’?” Yet, in his reflections, Sheard shied away from establishing a metric for delineating revolution stating that revolutions, “may be qualitatively sensed, but are not amenable to any ratio of distinction” (Sheard, 2007, p. 136). This lack of distinction between superficiality and profundity may lead to spurious and conflicting claims for the existence of revolutionary change. Taking an example from social entrepreneurship theory, many authors agree that the act of social entrepreneurship is an important part of that theory (e.g. Austin, Stevenson, & Wei-Skillern, 2006; Bernier & Hafsi, 2007; de Leeuw, 1999; Guo, 2007; Mort, Weerawardena, & Carnegie, 2003). Yet, Fowler (2000) suggests that the focus is not so much the act of social entrepreneurship as it is the social value proposition created by that act. Is this difference between Fowler and others revolutionary? Following Kuhn’s example
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of historical evaluation, it is impossible to know without centuries of perspective; which, in turn, renders the concept of paradigmatic revolution useless for any conversation around contemporary issues. So scholars and practitioners continue to claim revolutionary improvement without any measure of what that means. In short, claims of revolutionary theory are unsupportable because there is no clear understanding of what constitutes a revolution. While scholars earn their pay by arguing points such as these, managers are rewarded for effectively applying those theories in practice. Academia does not seem to be producing any useful tools for today’s managers; indeed, “Management research produced by academics does not fare particularly well in the marketplace of ideas that might be adopted by managers” (Pfeffer, 2007, p. 1336). Pfeffer goes on to cite the work of Mol & Bikenshaw (forthcoming) who suggest that of the 50 most important innovations in management, none of them originated in academia. He also cites Davenport & Prusak (2003) as noting that business schools “have not been very effective in the creation of useful business ideas” (emphasis theirs). Obviously, this does not bode well for the social sciences in general or business schools, in particular. In short, the current paradigm of social sciences in the social sciences (in general) and management science (in particular) has not produced anything that managers can reliably apply for great effectiveness, let alone anything that might be considered revolutionary. Meanwhile, business students must wonder about the value of their tuition and managers must spend their lives without knowing what, if any, theory to apply for successful practice. This leads us to consider a challenging possibility: If we can identify a quantifiable link between management theory and paradigmatic revolution, we may be able to evaluate the usefulness of theory in terms of its potential for revolutionary implementation. That,
in turn, would allow us to predict, and or instigate, a revolution in management theory.
A Working Hypothesis An important part of a systemic perspective is to avoid looking at “things” because an improved understanding may be gained by looking at the relationships between them (Ashby, 2004; Harder, Robertson, & Woodward, 2004).The present chapter follows that suggestion by investigating the co-causal relationships between aspects within a theory in terms of that theory’s robustness. Instead of looking to our empirical bricks of data, we will focus on the theoretical mortar that binds them together. The present hypothesis suggests that revolution is enabled by the structure of the theory rather than some notion of objective data. To investigate this idea, I will revisit Kuhn’s work – investigating it from a metatheoretical perspective. Within his descriptions of paradigm revolution, Kuhn provides several examples of revolutionary theorists and their fields of study. Among others, he mentions Coulomb (and his work in advancing electrical theory), Newton (mechanical motion), and Einstein (relativity). Each of those scientists developed the final theory – advancing his field to paradigmatic revolution. The theories developed by these exemplars of scientific revolution are similar in at least one important way. Each has a robustness of 1.0 (on a scale of zero to one). For example, Newton’s F=ma has three aspects; each one concatenated from the other two. Therefore the robustness of Newton’s formula is 1 (the result of three concatenated aspects divided by three total aspects). Is it only coincidence that all these revolutionary theories have perfect robustness? If so, it seems an odd sort of combination, especially given the great differences between some areas of study. For example, who would imagine, a priori, that a theory involving electricity and a theory involving planets would have the same structure?
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Yet, the robustness of both theories is the same (Robustness = 1.0) as are many effective theories in physics. Such a relationship between structure and efficacy should not be too surprising because (as noted above) theories with a higher level of structure have long been expected to be more advanced. The problem, in physics and management, has been the lack of a standardized method for measuring the structure of a theory. Therefore, instead of seeking steadily higher levels of structure, management theorists were content to reach a level of logical structure deemed acceptable by the editorial/review process; there was no incentive to advance beyond that mark. So, rather than dismiss this relationship out of hand, the following analysis suggests that there is some sort of connection between the structure of a theory and the usefulness of that theory in practice. Simply put, it is suggested that the robustness of a theory may be understood as a key indicator of a scientific revolution. The implication of this insight is very significant. If there is an objective approach to identifying revolutionary theory when it emerges, the development of that theory can be accelerated, thus enabling a revolution in management theory within decades instead of centuries, and, importantly, providing the attendant benefits to humanity and our understanding of our social world. If the robustness of theory were, as hypothesized, a valid indicator of paradigmatic revolution, we would expect to see the development of a theory from low robustness to high robustness over some length of time. This expectation raises a question: How does the robustness of those theories change over time? In choosing a body of theory to study, it should be stated here that no paradigmatic revolution has occurred in management theory. Perhaps this lack is why managers express frustration in their need for usable knowledge (Czarniawska, 2001) of the sort that would be provided by useful theories. Because of this lack, we cannot draw upon management theory for the present analysis. Therefore,
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we must investigate the history of some other body of theory. Because Kuhn used the example of electrical theory as part of a revolutionary paradigm, that area of theory appears to offer a reasonable area of study. And, as noted above, because the analysis is limited to the structure of the theory, the inferences drawn from EA (electrostatic attraction) theory may be transferred to the structure of management theory. Thus, for this analysis, I will investigate the evolution of EA theory and determine the level of robustness during different stages of the development of this theory. Mimicking Kuhn, for data I will draw on “The Development of the Concept of Electric Charge: Electricity from the Greeks to Coulomb” (Roller & Roller, 1954).
Analysis In the present section, the method of propositional analysis will be applied to differing versions of the theory of electrostatic attraction as found in Roller & Roller, as that theory was understood at different points through history. The present history begins with a revolution in thinking that occurred when ancient Greeks began to explain, rather than simply describe, phenomena they encountered. Roller & Roller present Plutarch as an example of thinking about this time. Following the example of Roller & Roller, this particular analysis includes magnetism, because, in ancient times, both magnetism and what we now understand as electrostatic attraction were believed to represent the same phenomena. Around the year 100 CE, Plutarch wrote that lodestones (naturally occurring magnets) exhale, thus pushing the air, which would then push objects of iron (Figure 1). Amber behaved the same, except that amber needed rubbing to encourage it to exhale. The exhalations of amber would then push the air, which then would effect small objects (such as hair) instead of iron (Roller & Roller, 1954, p. 3).
The Structure of Theory and the Structure of Scientific Revolutions
Figure 1. Plutarchean electrostatic attraction theory
Deconstructing Plutarch’s theory into its essential propositions, it may be said that rubbing (amber) creates exhalations; exhalations push air; and air pushes small objects. Magnets exhale, exhalations push air, air pushes iron. In this, it may be seen that there are seven aspects of the theory (Rubbing, Amber, Magnet, Air, Iron, Push, Small objects). Magnets are causal to Push, which is causal to the movement of Air and moving Air causes Push, which is causal to the movement of Iron. In this sequence, there are four aspects and each one is the result of only one other aspect. None of them are concatenated. Indeed, Exhalations are synonymous with Push, as both appear to be a general representation of some form of force. Instead of concatenation, the relationship between these aspects may be understood as linear (Stinchcombe, 1987, p. 132). Where, for an abstract example, it may be said that A changes B, which changes C. In such a relationship, Stinchcombe notes, the concept of B is redundant. Therefore, it may be seen that Plutarch’s theory contained a redundant term by including the concept of air in the model. Redundant terms detract from the robustness of the model. Similarly, Occam’s razor suggests the need for parsimony in theory construction. In these older versions of the theory, the linear relationships between multiple aspects of the theory are examples of a
lack of parsimony and therefore a weakness in the structure of the theory. In contrast to linear relationships between some aspects of the model, Rubbing and Amber, together, cause Exhalations (Push); that Push is causal to the movement of Air, which is causal to the movement of Small objects. Here, the Push may be understood as a concatenated aspect of the theory because it is caused by a combination of Rubbing and Amber. In determining the level of robustness of this version of theory by propositional analysis, it should be noted there are seven aspects – only one of which is concatenated. The others have simple, linear, causal relationships. Therefore, the robustness of Plutarch’s theory may be set at 0.14 (the result of one concatenated aspect divided by seven total aspects). The next clear demarcation of theory surfaces in 1550. Jerome Cardan theorized that the rubbing of amber produced a liquid. And, that dry objects (such as chaff) would move toward the amber as they absorbed the liquid (Roller & Roller, 1954, p. 4, 5). Here, there are six aspects (Rubbing, Amber, Liquid, Movement, Absorption, and Dry objects). And, as with Plutarch’s model, only one is concatenated (Rubbing and Amber together produce Liquid). Therefore, the robustness of Cardan’s theory is 0.17 (the result of one divided by six). Although Cardan suggests a liquid instead of Plutarch’s exhalations of air, the theories are similar in their structure and level of robustness. The relationship between these theories stands as an example of how theories may appear to change because the terminology has changed. That change in terminology may be accompanied by changes in underlying assumptions, philosophical justifications, or even simple changes in speculation. Yet, looking at the theory through the metatheoretical lens of robustness, it becomes clear that no useful change has occurred at all. Roller & Roller note that the scientific revolution took hold about this time. More scientists began to investigate electrical phenomena. Those
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scientists began to develop new insights and a new vocabulary to relate the results of their experiments. About this time, every important experimenter had his own theory (Kuhn, 1970, p. 13). Continued experimentation led to the discovery that objects besides amber would exhibit what is now called electrostatic attraction when they were rubbed. About 1600, Gilbert called this class of objects, “electrics.” According to Roller & Roller (1954, p. 10, 11) Gilbert’s version of theory adds heat to the theory and suggests that rubbing and heat (but only heat from rubbing), and electrics, causes the release of an invisible liquid which then causes the attraction of dry objects (Figure 2). A moist barrier would interfere with that attraction. Additionally, Gilbert held that amber, glass, and gems all belonged to a class of material called “wet.” So, he concluded, that wet things were electric things. Yet, he found that wet things that softened or melted (such as wax and ice) would not attract. Similarly, electrics with impurities could not be rubbed to develop EA. Therefore, more aspects and more propositions were added to the theory suggesting that electrics were the result of “wet” things with higher melting points and lower levels of impurities. Gilbert’s theory of magnetism suggested that each magnet possesses a “form” and that form
would awaken a similar form in particles of iron that was near to the magnet. Indeed, he noted that the nearer the iron was to the magnet, the more mutual attraction would occur. Here, attraction may be understood as a synonym for movement. In total, Gilbert’s theory included 14 aspects (Rubbing, Heat, Electrics (objects that exhibit EA), Impurities, Melting point, Attraction, Liquid, Dry objects, Moist barriers, Magnets, Form, Awakening, Iron, Proximity). Of these, Electrics may be said to be concatenated because they are formed with more Liquidness and fewer Impurities. Similarly, Attraction is concatenated because it is generated by more Electrics, more Rubbing, and more Heat. Additionally, it may be said that Magnets and greater Proximity results in more Awakening. Therefore, Gilbert’s version of electrical theory has a robustness of 0.21 (the result of three concatenated aspects divided by 14 total aspects). In his time, Gilbert might have claimed that his own theory of attraction explained more than Plutarch’s theory. The moist barrier, for example, was not a part of Plutarch’s theory. Because Gilbert’s theory explains more than previous theories, today’s management theorist might be tempted to claim that it represents a scientific revolution. Yet, Kuhn does not suggest that a revolution oc-
Figure 2. Gilbertian version of electrostatic attraction theory
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curred until much later. This example suggests how today’s general academic understanding of what constitutes a revolution is unclear, and how that lack of clarity opens the door for false claims of revolutionary advancement. With continued experimentation, scientists generated more innovative terminology. By the mid 18th century, the “two-fluid theory” had emerged (Roller & Roller, 1954, p. 47, 48); described as: • • • • •
• •
There are two kinds of electric fluids (vitreous & resinous). Unelectrified objects contain equal amounts of the two fluids. Rubbing an object removes one of the two electric fluids. More imbalance results in greater strength of electrification. Touching objects will cause fluid to flow from one object to another, and so deelectrify the objects as the levels of electric fluid come into balance. Objects with similar fluids repel one another when they are near. Objects with differing fluids attract one another when they are near.
In this theory, there are eleven aspects (Vitreous fluid, Resinous fluid, Objects, Rubbing, Balance, Electrification, Repulsion of objects, Attraction of objects, Flow of fluid, Touching, and Nearness). The relationships leading to concatenated aspects may be summarized as: • •
• •
Rubbing and objects decreases balance thus increasing electrification. Touching and electrification and objects cause flow which then increases balance and so decreases electrification. Objects and nearness and balance cause attraction. Objects and nearness and lack of balance cause repulsion.
Note that many aspects are described in terms of linear relationships. For example, Flow increases Balance which decreases Electrification. It may be seen that the four aspects of Balance, Flow, Attraction, and Repulsion are concatenated by their relationship to the other aspects. Therefore, the robustness of this theory is 0.36 (the result of four concatenated aspects divided by eleven total aspects). The existence of many theories, and many aspects, meant that more new theories were called for thus creating, “a synthesis that serves not only to reconcile the contradictory features, but to provide explanations of a wider range of phenomena” (Roller & Roller, 1954, p. 81). In what may be considered the final stage of development of this theory, from the perspective of Roller & Roller, Charles Coulomb developed his theory about 1785. Coulomb focused on only three aspects. Force, Electric charge, and Distance (Figure 3). He determined that the Force was equal to the Distance (squared) divided by the Charge. He also found that the Distance (squared) is equal to the Force multiplied by the Charge. And, the Charge is equal to the distance (squared) divided by the Force. Therefore, it may be understood that each of the three aspects of Coulomb’s theory is concatenated from the other two. Therefore, the robustness of Coulomb’s theory is 1.0 (the result of three concatenated aspects divided by three total aspects). One benefit of developing a theory with a robustness of 1.0 was that mathematical techniques could now be used in conjunction with the Figure 3. Coulomb’s theory of electrostatic attraction
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Table 1. Summary of aspects and robustness of theories Total Number of Aspects
Number of Concatenated Aspects
Robustness
Name of theorist or theory
100
7
1
0.14
Plutarch
1550
6
1
0.17
Cardan
1600
14
3
0.21
Gilbert
1750
11
4
0.36
Two Fluid theory
1785
3
3
1.0
Coulomb
Year
experimental process. The result of this combination was revolutionary.
Discussion The above investigation used information from Roller & Roller (1954) to benchmark the development of EA theory at five points across hundreds of years. This objective analysis used the total number of aspects for each theory, and the concatenated aspects of those theories to identify the formal robustness of each of the five theories. That information is summarized in Table 1. The graph in Figure 4 shows the variation in the total number of aspects and the number of concatenated aspects over time. Note the prerevolutionary surge during the scientific revolution. This period of increased experimentation led scientists to suggest more aspects and to identify more relationships between those aspects. This may be understood as the time when the “scientist Figure 4. Change in aspects over time
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in crisis” is generating “speculative theories” (Kuhn, 1970, p. 87). Those theories may lead to a “critical mass” of ideas (Geisler & Ritter, 2003) and generate communities of practice (Campbell, 1983, p. 127). This peak lends validity to the idea that theory which is more complex may be considered more advanced (Ross & Glock-Grueneich, 2008). Also, note the change in focus over time (Figure 4). Early on, the body of theory included magnetics and electrostatics because both were thought to represent the same essential effect. As time and experimentation progressed, the field of study narrowed to the study of electrostatic attraction, only. Yet, despite the narrowed focus, the number of aspects that may be said to define theory continued to increase. The same phenomenon appears to be occurring within the social sciences. In the field of management theory, the fragmentation of the field has been reported as problematic (Donaldson, 1995);
The Structure of Theory and the Structure of Scientific Revolutions
Figure 5. Robustness over time
yet, that fragmentation might also be understood as a narrowing of the focus – with each fragment representing a more focused sub-field. In Figure 5, the robustness of theories is plotted over time. Note the rapid increase in robustness on the right hand of the chart. This rise corresponds with Kuhn’s description of scientific revolution culminating in paradigmatic change. The asymptotic change suggests an “event horizon” or a “phase shift” beyond which a theory may be considered a law. After this point in paradigm change, the focus would not be on developing new forms of theory, rather the focus would be on conducting empirical analysis to verify and/or falsify the theory. Once verified, the focus would shift to the application of theory in practice as a useful tool. This kind of change has not been found in management theory. The asymptote at the right-hand side of Figure 5 is also suggestive of a “power curve,” a vertical (or nearly so) line that stands as a diagrammatic indicator that something significant has occurred, such as a quantum increase in the capacity of a system (Kauffman, 1995). In this case, the system under consideration is the structure of a theory. The theory at the top of the curve has significant capacity for enabling action, where theories at the bottom of the curve have very limited capacity. In short, theory with higher robustness has greater capacity to support paradigmatic revolution than theories of lower robustness.
The relationship between robustness and paradigmatic revolution suggests that the robustness of a theory may be used as a milestone for marking the objective development of a theory and progress toward revolution. Similarly, the robustness of a theory may also be considered something of a predictor for such a revolution. In addition to the relatively passive approach of tracking changes in theories developed by others, a more activist approach may also be inferred. That is to say, if a theorist works toward the purposeful creation of robust theory, she may be able to purposefully spark a paradigmatic revolution. With that opportunity, there are also limitations. For example, we should probably disregard a speculative theory that seems to represent a robust relationship if it has no basis in reality. To conclude this section, the advancement toward robustness appears to be a useful indicator and potential instigator of paradigmatic revolution. The test of robustness might be understood as a validation of theory in the Popperian sense, although it is validation with considerably more rigor than Popper appears to have considered in his time. While validation is useful and necessary, there still remains the need to falsify those theories, as suggested by Popper (2002). In the following two sub-sections, I will investigate the implications of advancing management theory toward robustness. The first will relate more to academicians, who might be more interested in
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advancing management theory. The second will relate more to practitioners, who might be more interested in the application of robust theory.
Whither Management Theory? To date, no comprehensive test of robustness has been conducted of the field of management theory. However, some indicator of the field may be inferred from tests of robustness performed on bodies of theory from related sub-fields. In Figure 6, the robustness of each of eight theories are indicated on the curve from Figure 5 – the development of EA theory. By showing those theories in relation to the time required to develop EA theory to robustness, we may infer how much time might be required for each body of theory to reach a useful level of robustness. This is, of course, working under the assumption that the current paradigm of management science might follow the same trajectory as the EA theory – a question that is very much open for consideration. Briefly, those eight studies are related to management theory as follows. Social entrepreneurship theory is part of the general rubric of management theory for the simple reason that management is sometimes understood in terms of an entrepreneurial activity. A study of social entrepreneurship theory found a robustness of Figure 6. Robustness of some management theories
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0.13 (Wallis, 2009d). Integral theory has been applied to a wide range of disciplines in the social sciences (including management). A study of integral theory found a robustness of 0.10 (Wallis, 2008c). A study of a structure of ethics found a robustness of 0.15 (Wallis, 2009f). Organizational learning theory, has been found to have a robustness of 0.16 (Wallis, 2009c). Peak performance theory has a robustness of 0.17 (Wallis, 2009e). Institutional theory is a little better with a robustness of 0.31 (Wallis, 2009b). Higher levels of robustness are found in studies related to systems theory. A study of complexity theory, as it has been applied to organizations, finds a robustness of 0.56 (Wallis, 2009a). And, a study of Complex Adaptive Systems (CAS) theory as it relates to management and organizations finds a robustness of 0.63 (Wallis, 2008b). It should be noted that the areas of theory with the highest levels of robustness are those that are more closely related to systems theory (i.e. complexity theory and CAS theory). Therefore, it may be suggested that future studies of management should utilize approaches based in systems theory, cybernetics, and complexity theory. More studies of robustness are required in and of the field of management theory to confirm this idea. From Figure 6, we may begin to answer the question, “How long until management theory
The Structure of Theory and the Structure of Scientific Revolutions
experiences a true paradigmatic revolution?” Most theories of management noted here have a robustness at or below Cardan’s theory of EA (Robustness = 0.17). When Cardan presented his theory in 1550, Coulomb’s revolutionary theory was a distant 235 years away. When the two-fluid theory of electricity emerged in 1750 (R = 0.36), Coulomb’s discovery was a relatively modest 35 years in the future. Some management theories today, specifically in CAS theory and complexity theory, have levels of robustness that exceed the two fluid theory, suggesting those theories might achieve revolutionary status much sooner. Accelerating management theories toward robustness (and related revolution in improved efficacy) is important because of the depth and breadth of problems faced by practitioners.
Linking Theory and Practice Managers, consultants, CEOs, and all kinds of practitioners might read this chapter and ask, “What’s in it for me?” In brief, then, this study suggests that theories of higher robustness are expected to be more effective in application. Further, we may now purposefully advance a theory toward robustness and so enable a paradigmatic revolution. With a paradigm revolution, improvements in theory are associated with highly effective improvements in practice. To encapsulate an example from history, the low robust theories of EA were associated with explaining mere curiosities, such as the way that hair is attracted to amber because of exhalations. In management practice, this is like a performance management guru claiming that a stitch in time saves nine. Perhaps it is true in some metaphorical sense, but making it work in practice is entirely in the hands of the employee. Worse, there is no way to tell if these kinds of claims are actually true. This means that managers are likely relying on false information. In short, managers might be better off with no theory at all.
The EA theories of medium robustness, developed during the scientific revolution, were associated with public displays of new scientific insights – creating controlled shocks and showing how electrostatics might work under varying conditions; interesting, but of uncertain value. In management, this might be conceptually similar to conflict resolution or a facilitated organizational change process. There are successes and failures. The successes are widely touted while the failures are quietly ignored. Either way, the credit or blame might be applied to the consultant, the theory, both, or some other factor (such as a sudden change in the economy). At the end of the scientific revolution, when the understanding of EA reached a robustness of one, it had become a very useful theory. A recent search of the US patent database revealed over 7,000 patents that draw upon the principle of EA. In management terms, using a highly robust theory would be like having a way to accurately predict the behavior of your employees, the actions of the market, or the best strategic plan to follow. Obviously, we have none of those – yet. As management theory advances toward paradigmatic revolution, we can expect to see the same kinds of evolution in practical application. Early theories will explain curiosities while later theories may be used for effective application. What will the future look like when we have robust theories of management? We can no more predict such a future than Plutarch could predict the invention of cell phones or laptop computers. Rather than attempting to predict an incomprehensible future, this section will serve to suggest what practitioners might do in the near term to improve their use of theory and to support more effective practice. As we know too well, the emergence of a new management guru is accompanied by the arrival of thick hardback books gracing the bookstore shelves, their covers proclaiming some “new way” to work. Their pages are packed with wisdom-filled anecdotes and careful explanations detailing exactly why the reader should
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adopt this new point of view. Essentially, each new book represents a new theory, a new lens that provides the thoughtful reader with a new way to see the world. Along with that new view comes the implication and/or description of new actions, policies, and behaviors the practitioner should enact to achieve success. However, implementing a new system is a difficult and expensive process. Because, as the limited success of TQM and other methods have shown, past benefits are no indicator of future success. The difficulty here is that practitioners really have no certain way of determining if that guru’s approach is likely to be successful, or not. The present chapter provides some remedy, suggesting that practitioners should choose the theory with the highest level of robustness (avoiding choosing theories based only on their popularity), because, as suggested above, theories that are more robust have more capacity to support more effective action. Because robust theories are not immediately available, a more thoughtful approach is called for. It is important that the practitioner not be a “consumer” of theory – following the faddish dictates of each emerging guru. Rather, the practitioner must become something of a researcher, possibly working in parallel with academicians and in thoughtful interaction with management texts. An important idea here is that practitioners need to measure what is occurring in the workplace (we have no choice in this, we do it automatically) while at the same time, our sense of measurement (what we measure and how we measure it) must change. We must learn to understand the invisible things, such as morale (Dubin, 1978; van Eijnatten, van Galen, & Fitzgerald, 2003). In the development of the physical sciences, Kuhn suggests that the emergence of a new paradigm with its robust theory is accompanied by the development of new instruments for measurement (Kuhn, 1970, p. 28). However, in the study of management, no instruments currently exist for a CEO to measure (for example) the morale of her corporation. Indeed, the only instruments available to practitioners
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are the practitioners themselves. This “self as instrument” (McCormick & White, 2000) includes the self-identification of phenomenological reactions. An important consideration here is how to calibrate ourselves as an instrument for effective measurement. Bateson (1979) suggests that the process of calibration is enhanced by the use of “double description” where multiple streams of information are combined to suggest a new, third form of information that is more useful than the previous two. Other examples of double description include binocular vision (where the extra sense of depth is added), and synaptic summation (where neuron A and neuron B must both fire to trigger neuron C). In example after example, Bateson shows how these double descriptions create an extra dimension of understanding. Importantly, this is an understanding that is of a different (and higher) logical type. A parallel may be drawn between the structure of Bateson’s approach and the structure of theory. As described above, the idea of a concatenated aspect of theory may be found in a proposition describing how aspect A and aspect B combine to understand aspect C. This understanding of aspect C through the understanding of aspects A and B suggests a greater level of understanding – a higher logical type. The parallel between the idea of double description and the idea of concatenated theory suggests that applying the two ideas in parallel might provide more benefits than either one of them alone. In short, this similarity suggests the practitioner might improve the process of self-calibration using robust theory as a guide. The validation of this idea will require additional studies.
LIMITATIONS AND OPPORTUNITIES FOR FUTURE RESEARCH This study is limited because it examines the development of theory in only a single field –
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electrostatic attraction. Future studies of this type might investigate other forms of theory. For example, studies might be conducted on the evolving robustness of theories of motion, thermodynamics, and relativity. Such studies will provide additional insight into the advancement of management theory. The present study is also limited because it presents the insights of a single researcher. Future studies may investigate the validity of the present methodology by engaging multiple researchers in parallel studies of the same body of data. It is anticipated that, procedural errors aside, the results of multiple researchers will be similar to those presented here. This kind of study would add greatly to the validity of the metatheoretical conversation and so support the advancement of theory in a useful direction. Future research involving the testing or development of theory should include propositional analysis as an objective test for the formal robustness of theory. That way, scholars and practitioners will have a method of effectively evaluating the theory and its potential for advancement, calibration, and application. This “R” level should be indicated in the abstract of each publication. Future studies might also investigate the robustness of management theories over time and investigate the link between robust theory and calibration. These studies will be critical to supporting paradigmatic revolutions in management. More generally, managerial scholars may best be served by abandoning (at least temporarily) the tight focus on empirical research. Rather than employ methods based on empirical perception and so-called facts, scholarship should instead focus on metatheoretical efforts to identify robust relationships between concatenated aspects of theory. Only after we have developed highly robust theories will it make sense to engage in empirical research. Of course, such an approach is more easily said than done. As with the development of electrical theory, we might expect many arguments to emerge
around the specific meaning of each aspect of the theory. However, as long as we keep in mind that each aspect should be understood only in terms of two or more other aspects of the theory, we will have a compass indicating the direction toward success in the field of management theory.
CONCLUSION Although management science does not have theories that are highly effective in practice, we do have a boom in theory creation. In some sense, the increase in theory creation parallels the global information boom. While the business world is well acquainted with the difficulties (and opportunities) of that vast amount of information (Wytenburg, 2001), we academicians can readily retreat to our disciplinary niches (or create new ones), and so insulate ourselves from information overload. Instead of retreating, I suggest that we advance; and, in so doing, I suggest that we recalibrate our views of the world. When we look at the vast number of management theories, we should not see a fragmented and chaotic field. Instead, from a metatheoretical vantage point, we should see a field that is rich in resources from which we can build more robust theories. Rather than focus on empirical data from direct observation, we should use existing theories as data to investigate and advance management theory using rigorous metatheoretical methodologies. Given that we have the pursuit of robustness as a viable direction for positive and objective advancement and that we have a huge field of theory to draw from, my hope is that we can advance effective theories into practice on the order of years, rather than centuries. In the present chapter, I used propositional analysis (a metatheoretical methodology founded on principles of systems theory) to objectively investigate the development of theory over time in terms of its formal robustness. In this, I expanded our understanding of paradigmatic revolutions by
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developing a more detailed understanding of the role played by the structure of theory in advancing a science toward revolution. Specifically, by explicating how the achievement of fully robust theory appears to be an integral aspect of paradigmatic revolution. Importantly, with this new understanding of formal robustness, we have the opportunity to measure, and purposefully advance management theory toward paradigmatic revolution and improved efficacy. What does it take to be an Einstein? What does it take to be a stonemason who can take a pile of bricks and turn it into a well-built house? What does it take to create a revolutionary theory that, in turn, radically alters the fabric of management life? The study presented in this chapter suggests how scholars and practitioners in the field of management may anticipate great professional success by developing and applying management theory of appropriate robustness. Without purposeful advancement, management theory can expect to remain moribund for decades or centuries – with dire implications for practitioners and management programs in universities.
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This work was previously published in Cybernetics and Systems Theory in Management: Tools, Views, and Advancements, edited by Steven E. Wallis, pp. 151-175, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Section VIII
Emerging Trends
This section highlights research potential within the field of global business while exploring uncharted areas of study for the advancement of the discipline. Introducing this section are chapters that set the stage for future research directions and topical suggestions for continued debate. Discussions assessing the potential of new technologies for user authentication (verification of the user’s identity) on the basis of a practical test and an analysis of trust are offered. Another debate which currently finds itself at the forefront of research is the potential development and application of a ‘Social Network Scorecard’ (SNS) managerial tool to monitor social interchanges and relationships within and across organizations in order to assess the effectiveness of knowledge networks. Found in these chapters, concluding this exhaustive multi-volume set are areas of emerging trends and suggestions for future research within this ever- and rapidly expanding discipline.
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Emerging Business Models: Value Drivers in E-Business 2.0 and towards Enterprise 2.0 Te Fu Chen Lunghwa University of Science and Technology, Taiwan
ABSTRACT Many writers and researchers do not make a clear distinction between the technological enabler aspect and the social aspect. Introducing and developing a concept of e-Business 2.0 and having it implemented in the outmost circle of the figure help provide a better overview and framework for this research. The objective of this research is to further develop Entrepreneurship and strategic management theory on value creation in e-Business, by providing first insights in value drivers in e-business companies that use Web 2.0. To reach this goal this research tries to give first answers to the central research question: are value drivers associated with Web 2.0 DOI: 10.4018/978-1-60960-587-2.ch801
different from known value drivers in e-business? This research clearly defines the enabler aspect of Web 2.0 technologies that influence companies in e-Business, and allows a development of the concept ‘e-Business 2.0’. Since the Internet bubble, Web 2.0 with its core applications and enabling technologies has become popular and successful influencing e-Business. Successful start-ups created a new area in e-Business where Web 2.0 was a key factor in creating value. The focus in this research is on these companies that embrace Web 2.0 enabling technologies and core applications that cause a behavioural shift. This chapter, therefore, develops in scientific literature, the concept of e-Business 2.0 where e-Business companies are actively using Web 2.0 to create and appropriate value from, for, and with stakeholders. This research also makes
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a distinction between an internal and external focus. This research looks at e-Business 2.0 and has an external focus. E-Business 2.0 pure players depend on Web 2.0 to create and appropriate value with a focus to external customers, instead of internal organisations. There is a new wave of business communication tools including blogs, wikis and group messaging. There are new digital platforms for generating, sharing and refining information that are already popular on the Internet. These platforms are collectively labeled Web 2.0 technologies. The term ‘Enterprise 2.0’ focuses only on those platforms in which companies can buy or build in order to make the practices and outputs of their knowledgeable workers visible. Enterprise 2.0 looks at Web 2.0 technologies and practices within organisations and businesses and is therefore, referred to as internal focus. Enterprise 2.0 is the term used to describe how a Web 2.0 approach can be used to work more collaboratively together in business. Enterprise 2.0 is the use of emergent social software platforms within companies or between companies and their partner or customers. However Enterprise 2.0 is much more than just ‘Web 2.0 for business’. Moreover, the study proposed a case study of Enterprise 2.0 to demonstrate by a detailed KPI analysis, how collaboration platforms (and related HR management) can drastically improve the global performance of an international group. Furthermore, the study was to further propose another case study of e-gov 2.0. Enterprise 2.0 is an evolutionary step forward releasing employees from the constraints and limitations of the legacy communication and productivity tools. The study concludes the challenges of the Enterprise 2.0: ten facts and Six Enterprise 2.0 - Myths. Enterprise 2.0, being more a philosophy than a technology, can truly create huge added value for organizations in any sector and it is often remarkable to see in what way the Enterprise 2.0 methods are used to solve specific problems.
INTRODUCTION Market volatility makes understanding—let alone predicting strategic movements—very difficult. Practicing managers, consultants, investors, and students all face the problems associated with analyzing a dynamic market environment. As the environment changes, it becomes important to ask the following fundamental questions: 1. Do we understand the emerging business models? 2. Are we investing in the right business opportunities? 3. Are we attacking these opportunities using the right business model? 4. Are these opportunities ever going to be profitable? In today’s environment more than ever, managers of “old economy” companies need the right tools to support and improve their effectiveness when making major strategic moves, allocating scarce resources, and managing risk. Why? Because the large “old economy” companies from consumer products to industrial manufacturing have begun to see relatively small pieces of their markets taken away by new, Web-enabled firms. As a result, they’re waking up to the e-business threat (and opportunity) and have started to push toward more efficient digital strategies based on optimizing customer experiences, integrating their value chains, and accelerating information flow. Clearly, we’re in the early stages of a revolution that’s changing the business landscape. As with any revolution, there will be moments of extreme optimism when the potential reveals itself; there will also be moments of extreme pessimism when skepticism rules. However, one thing is certain. E-business is creating new opportunities for companies willing to adapt. For other companies, this same revolution represents a destabilizing threat to the status quo of “business as usual.”
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Therefore, the general research question is “Are the value drivers associated with e-Business 2.0 different from the known value drivers in eBusiness?”, the research sub-questions are:
LITERATURE REVIEW
emerge from the doldrums of the dot-com boom and bust cycle and had hit something of a dead end, but now innovation is arguably at its most frenetic level ever (Sturgeon, 2006). The bursting of the dot-com bubble in the Fall of 2001 marked a turning point for the web. Many people concluded that the web was over hyped, when in fact bubbles and consequent shakeouts appear to be a common feature of all technological revolutions (Perez, 2002). Shakeouts typically mark the point at which an ascendant technology is ready to take its place at Center stage. The pretenders are given the bum’s rush, the real success stories show their strength, and there begins to be an understanding of what separates one from the other (O’Reilly, 2005). Looking back at the beginning of Web 2.0, a core of theories and aspects, are mentioned by O’Reilly, which he calls the seven principles of Web 2.0 (O’Reilly, 2005).
New Web Mainstream Web 2.0
Does Traffic Equal Money?
What is Web 2.0?
Before start their E-business, many people just think about one thing: get traffic first. No matter which methods this website plan to adopt in the future to gain profit, if there is great traffic there will be the great chances. This thinking is not wrong, however, you can do much more and plan more precisely before simply consider about this. When we make the website, firstly we have to set the scheme of all the services your website will provide. For example, if the scheme of the website services is to provide shopping information and fashion news, then we can assume that the one visits this website suppose to be the consumer has great potential purchasing power. At the same time, if we highly categorize all the shopping information into different sections in order to bring convenient to the web users, then at the same time, web master will clearly define the shopping intention of the web users. If a web user were checking the information of facemask, the web master would not only knew that he want
1. How is value created and how is value captured as a competitive advantage? 2. What are the value drivers in e-Business? 3. What are differences between e-Business and e-Business 2.0? According to abovementioned, the objective of this research is to further develop Entrepreneurship and Strategic Management Theory on Value Creation in e-Business, by providing first insights in Value Drivers in e-Business 2.0.
The concept of Web 2.0, it is just the summary of all common characters of the websites still survive in these few years. In other word, nowadays, the concept of E-business should also evolve from one-side Web1.0 to two-side Web 2.0. Website administration is evolving while the web users are evolving as well. Web is like a real body, and all the technologies and other web elements are flesh and blood. This newborn baby with infinite potential and infinite amazed now start to open his eye to see this world (Yin, 2009). The definitions of relatively new concepts of Web 2.0 will be given in this Research: In the simplest terms Web 2.0 is the phrase being applied to ‘the second coming’ of the Internet. The 2.0 name is a clear allusion to the naming convention of software updates; this is the Internet version 2.0 (Sturgeon, 2006). Two or three years ago there was a feeling that innovation online had failed to
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to buy something, but also clearly knew what he wants to buy is facemask. When you can clearly define your business target and service mode, your design concept of the whole website will be different. You won’t strive to boost traffic just for having great traffic. Meaningless traffic will just waste your management resources, the same as meaningless members. The time when you start to charge users money is the time your business is on the decline. Successful website never actively asks web users to be their paid members. Although they provide different level services, only when the users need these specific services then they can choose to be members. All the information of the website is public, even you are not a member, but you still can read all the articles (Yin, 2009). Many website starts to lock the articles or some basic functions when they develop into certain stage. In order to find a way to earn money, they ask users to pay for some basic services. In my opinion, this is not the way to run the website for long-term development. Website running cost supposes to be covered by advertisers or the sponsors. Just as we mentioned before, if we can define the need of the web users so clearly, definitely we can find the related supporters or sponsors. Therefore, we can see how important it is to have a clear plan to design the whole website. If you don’t plan well in the first place, later on you will lose the direction. Because there are no sponsors, so the website has to sacrifice the benefit of the web users. When the websites start to do in this way, this is the time they start to be on the declines. Web 2.0 & social networking technologies are increasing enterprise profitability and changing the face of modern business more rapidly than ever. At E-Business 2.0, the study specializes in keeping business competitive with the latest tools & services to ensure that business remain relevant in today’s uncertain marketplace. The study focuses on fundamental enabling technologies for e- business & web business (Yin, 2009).
Web as a Platform Software as a Service (SaaS) Web 2.0 services are a combination of software and data. Individual, the software and the databases are of limited value, but together they create a new type of service. In this context, the value of software lies in being able to manage the (vast amounts of) data. The better it can do, the more valuable the software becomes.
Harnessing the Long Tail The Long Tail refers to the vast number of small sites that make up the Web as apposed to the few ‘important’ sites (Jaokar, 2006).
Harnessing Collective Intelligence This principle deals with the metadata/content created by users that collectively adds value to the. To understand Collective Intelligence one should understand three aspects: A. Peer Production: Is defined as a new model of economic production, different from both markets and firms, in which the creative energy of large numbers of people is coordinated (usually with the aid of the Internet) into large, meaningful projects, largely without traditional hierarchical organizational or financial compensation (Benkler, 2002). An Example are reviews on Amazon: Collectively, these small contributions lay the foundation for the ‘Intelligence’ of Web 2.0 also called the ‘wisdom of crowds’ B. The Wisdom of crowds: Large groups of people are smarter than an elite few, now matter how brilliant the elite few may be. The wisdom of crowds is better at solving problems, fostering innovation, coming to wise decisions, and even predicting the future (Surowiecki, 2005).
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C. Network effects from user contributions: The ability for users to add value (knowledge) easily and then the ability for their contributions to flow seamlessly across the whole community, thereby enriching the whole body of knowledge.
Data is the Next Intel Inside Data is the key differentiator between a Web 2.0 service and non-Web 2.0 services. A Web 2.0 service always combines function (software) and data (which is managed by the software). Database management is a core competency of Web 2.0 companies. While data is valuable, the company needs not necessarily own the data. Although in most cases, the company serving the data also ‘owns’ the data (e.g., Google Maps, Google does not own the data, which are maps and information. Web 2.0 website are often a combination of data from two or more sources into one experience, this is called a mashup. According to O’Reilly (2005) the race is on to own certain classes of core data.
End of Software Release Cycle A. Operations must become a core competency The shift from software as artifact to software as service causes that the software will cease to perform unless it is maintained on a daily basis. B. Users must be treated as co-developers The open source dictum, “release early and release often” has morphed into an even more radical position, “the perpetual beta,” in which the product is developed in the open, with new features slipstreamed in on a regular basis.
Lightweight Programming Models Simpler technologies like RSS and Ajax are the driving force behind Web 2.0 services. Because
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lightweight programming models are oriented towards syndicating data, they are contrary to the traditional mindset of controlling access data. They are also designed for reuse. As a result of this architecture, innovation is given a boost because a new service can be created using existing services through mashups. This is one other important aspect of Web 2.0, called Innovation in assembly: When commodity components are abundant, you can create value simply by assembling them in novel or effective ways. Web 2.0 will provide opportunities for companies to beat the competition by getting better at harnessing and integrating services provided by others.
Software above the Level of a Single Device One other feature of Web 2.0 is the fact that it is no longer limited to the PC platform. This principle is not new but rather a fuller realization of the true potential of the web platform, this phrase gives key insight into how to design applications and services for the new platform. iTunes is the best exemplar of this principle. This application seamlessly reaches from the handheld device to a massive web back-end (platform), with the PC acting as a control station. There have been many previous attempts to bring web content to portable devices, but the iPod/iTunes combination is one of the first such applications designed from the ground up to span multiple devices. O’Reilly (2005) expects to see some of the greatest change in this area of Web 2.0, as more and more devices are connected to the new platform. Real time traffic monitoring, flash mobs, and citizen journalism are only a few of the early warning signs of the capabilities of the new platform.
Rich User Experience The competitive opportunity for new entrants is to fully embrace the potential of Web 2.0. Companies that succeed will create applications that
Emerging Business Models
learn from their users, using an architecture of participation to build a commanding advantage not just in the software interface, but also in the richness of the shared data. In exploring the seven principles, O’Reilly (2005) highlighted some of the principal features of Web 2.0: Services, not packaged software, with cost-effective scalability; Control over unique, hard-to-recreate data sources that get richer as more people use them; Trusting users as co-developers; Harnessing collective intelligence; Leveraging the long tail through customer self-service; Software above the level of a single device; Lightweight user interfaces, development models, and business models. In October 2005 one definition of Web 2.0 is given (O’Reilly, 2005): It is the network as platform, spanning all connected devices; Web 2.0 applications are those that make the most of the intrinsic advantages of that platform: delivering software as a continually-updated service that gets better the more people use it, consuming and remixing data from multiple sources, including individual users, while providing their own data and services in a form that allows remixing by others, creating network effects through an “architecture of participation,” and going beyond the page metaphor of Web 1.0 to deliver rich user experiences. Joakar and Fish (2006) state a ‘unified view’ of Web 2.0 based on the seven principles of Web 2.0 by O’Reilly (2005) by which the second principle (harnessing collective intelligence) encompasses the other six. Web 1.0 was hijacked by the marketers, advertisers and the people who wanted to push content into the market. The dot com bubble was the end of many who took this approach of the broadcast content. What is left is the Web as it was originally meant to be a global means of communication. The intelligence attributed to the Web (Web 2.0) arises from us (i.e. the collective/people) as we begin to communicate. This approach focuses on the ‘Intelligent Web’ or ‘Harnessing Collective Intelligence’ and deals with the principle of ‘wisdom of crowds’ (Surowiecki, 2005). A more simple definition from
MacManus (2005) explains Web 2.0 as Platform. For corporate people, the Web is a platform for business. For marketers, the Web is a platform for communications. For journalists, the Web is a platform for new media. For geeks, the Web is a platform for software development. According to Hinchcliffe (Hinchcliffe, 2006a) the Web itself has become a vast landscape of information services that can be wired together to reuse and take advantage of aggregated data and functionality. The hallmarks of these online applications are their pervasive availability, interactivity, social immersion, user-driven organization, community contribution, and particularly their reusable, remixable services. Web 2.0 also refers to the creation of far greater levels of interactivity, not just between users, or between users and the Internet but between complementary online services through mash-ups and web services (Sturgeon, 2006). Web 2.0 is either a collaborative web where the content is created by the users (this aspect is often called the social layer of Web 2.0), or a web where the network is the platform or web that uses funky technologies such as Ajax or ruby on Rails (this one is called the technical layer of Web 2.0) (van der Vlist & Vernet et al, 2007). The focus in this study is on the social layer of Web 2.0 and the technical layer can be seen as an enabler for the social side of Web 2.0. Before the burst of new ideas that we call Web 2.0, the web seemed to have reached a stage where its growth would slowly start declining. The production of web content seemed deemed to be increasingly controlled by traditional media producers, and the alliance between AOL and Time Warner was showing that the web industry had started its consolidation phase. Socially, the Web had become a read-only medium where most of the content was published and broadcast pretty much like in conventional media. This hadn’t always been the case: the Web was originally designed as a medium where scientist could easily share their documents. This was still the case in the early 1990’s, when the Web was largely
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composed of home pages and link pages edited and published by web users from the benefit of other web users. This was possible because the technology was simple, and because the target audience was able and willing to edit web pages without much tool support. During the next iterations of web technologies more difficult tools where used and the audience expanded beyond the small circle of people willing to learn these technologies to publish their own content. As a result, the web became for most of its users a read only web, rather than the cooperative venture it had been originally. The social layer of Web 2.0 is about making the Web a read/write web again. For some, this goal is motivated by philanthropic or political reasons: everyone should be able to express his or her ideas. For others, the motivation is financial: if the growth of the number of web readers is deemed to slow down, the growth of the web can only be fuelled by the growth of the number of people that create content on the web. The technical layer is a consequence of the social layer: the ability to write on the web that has been limited by the growing complexity of the web technology can only be given back to web users by using more technology. In other words, the flurry of Ajax, JavaScript, and XML technologies that characterize most of Web 2.0 applications are needed to lower the barrier to entry in the circle of web publisher that web 2.0 applications try to enlarge. It is important to note that content here is meant to be content at large. Many web 2.0 sites do not rely on their users for creating all their content but only to enrich their content. A significant example is amazon.com. Of course, the main content on the amazon.com web sites comes from the company’s own database, however, what makes the difference between the amazon.com site and other similar sites is how it integrates content from amazon.com partners and users. Users are not only welcome to publish reviews, they contribute to the site each time they buy a new item and even by browsing the site: the simple actions are analyzed and they are used
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to publish tips such as the ‘What do customers ultimately buy after viewing items like this?’ that is currently displayed if you browse the description of this book on amazon.com. This is perhaps the most convincing example if a low entry barriers to contributing to a site’s content! (van der Vlist & Vernet, et al., 2007) Dion Hinchcliffe rather talks about social media: Social media describes the online tools and platforms that people use to share opinions, insights, experiences, and perspectives with each other. Social media can take many different forms, including text, images, audio, and video. Popular social mediums include blogs, message boards, podcasts, wikis, and vlogs (Hinchcliffe, 2007). Some ground rules of social media are (Hinchcliffe, 2007): Communication in the form of conversation, not monologue. This implies that social media must facilitate two-way discussion, discourse, and debate with little or no moderation or censorship. In other words, the increasingly ubiquitous comments section of your local blog or media-sharing site is NOT optional and must be open to everyone. Participants in social media are people, not organizations. Third-person voice is discouraged and the source of ideas and participation is clearly identified and associated with the individuals that contributed them. Anonymity is also discouraged but permissible in some very limited situations. Honesty and transparency are core values. Spin and attempting to control, manipulate, or even Spam the conversation are thoroughly discouraged. Social media is an often painfully candid forum and traditional organizations -- which aren’t part of the conversation other than through their people -- will often have a hard time adjusting to this. It’s all about pull, not push. Like McKinsey & Company noted a year ago or so, push-based systems, of which one-way marketing and advertising and command-and-control management are typical examples are no where near as efficient as pull systems where people bring to them the content and relationships that they want, instead
Emerging Business Models
of having them forced on themselves. Far from being a management theory, much of what we see in Web 2.0 shows the power of pull-based systems with extremely large audiences. As you shape a social media community, understanding how to make embrace pull instead of push is one of the core techniques. In social media, people are in control of their conversations, not the pushers. Distribution instead of centralization. One often overlooked aspect of social media is the fact that the interlocutors are so many and varied. Gone are the biases that inevitably creep into information when only a few organizations control the creation and distribution of information. Social media is highly distributed and made up of tens of millions of voices making it far more textured, rich, and heterogeneous than old media could ever be (or want to be). Encouraging conversations on the vast edges of our networks, rather than in the middle, is what this point is all about.
Value Drivers in Web 2.0 Vincent de la Mar (2007) indicated with Web 2.0 new features of the Internet transactions and participations are taking place. More and different stakeholders add value in e-business. This raises questions which (new) value drivers we can find in Web 2.0 and which ones are more important. By looking at these factors we are indirectly looking at the business models that are important in the New Internet. Providing more insight in value drivers and business models in Web 2.0 enables companies and entrepreneurs to adopt and prepare to take advantage of opportunities in this next stage of the Internet.
E-Business 2.0 The focus in this research is on the companies that embrace the web 2.0 enabling technologies and core applications that cause a behaviour shift (the outmost circle of Forrester’s figure). This research therefore introduces the concept e-Business 2.0,
by which the study means: e-Business companies that use Web 2.0 to create and appropriate value from, for and with stakeholders. This research will look at pure e-Business 2.0 companies with an external approach. The focus is on the customer, instead of an internal organisation (Enterprise 2.0) and the company is fully dependent on the web 2.0 technologies. Reason for this is that businessto-consumer developments occur often earlier than business-to-business developments. What is important to notice is that besides e-Business 2.0 pure players, also companies that acquire parts of e-Business 2.0 and regular e-Business (e.g. e-Commerce) companies are active? Companies can learn from these often-smaller e-Business 2.0 companies (start-ups) and use it to adopt to market changes and/or to enterprise 2.0 (de la Mar, 2007).
E-Business 2.0 Emerging Business Models E-commerce experts Ravi Kalakota and Marcia Robinson highlight several emerging e-business models, including Net markets, collaborative clickand-brick, and mobile portals. Asking yourself which of these emerging business patterns your company is attempting to compete with. Answering this question will help you get started assessing technology enablers and what opportunities they may present. E-business is tricky business. In these turbulent times, how should management respond? They should begin by asking the right questions. By focusing on the right transition, companies can proactively alter the nature of competition. What are the transitions that are taking place? Traditional market channels are giving way to new channels, production-centric processes are yielding to customer-centric processes, old business models are morphing to new models, information is replacing inventory, and physical goods are being replaced by digital products. Before you jump into the deep end of e-business change and begin shifting your operation toward the future, it’s important to stop and consider the emerging structural patterns that char-
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acterize the new economy, including e-channels, click-and-brick patterns, e-portals, e-market makers, and pure e and mobile portals. E-channels, or extension models of large companies, have evolved considerably. The first step was developing a standalone channel, or spin-off.com, independent of the parent company (for example, Proctor and Gamble spin-off venture Reflect.com); the second step was a stand-alone channel with some connection to the mother ship (for example, Wal-Mart.com). The new phase, channel synchronization, is a tightly integrated click-and-brick strategy, like CVS.com, that serves customers seamlessly no matter what the entry point is (Kalakota & Robinson, 2001). At the same time, e-portals, or business-toconsumer models, have evolved in three phases in the last few years. The first was developing appropriate traffic (for example, Yahoo!); the second was fighting for transactions (for example, Amazon.com). Now in the third phase, companies are beginning to battle for margins with click-andbrick partnerships such as Amazon.com and Toys R Us. Expect to see more partnerships like this. It’s interesting that both the e-channels and e-portals are converging on what appears to be the same business model: collaborative click-and-brick. The following sections discuss three e-business patterns that are fairly new—net markets, collaborative click-and-brick, and Pure E—to help you better understand the next set of e-wars (Kalakota & Robinson, 2001).
Collaborative Click-and-Brick (C&B) Here’s a formula for the electronic age: (brickand-mortar) + (click-and-order) = click-and-brick (C&B). So-called brick-and-mortar (BAM) companies are looking increasingly like new economy companies as they harness technology to achieve greater productivity. An increasing number of BAM companies, such as Williams Sonoma, Circuit City, and Wal-Mart, are attempting to transform their operations to support a digital business model. At the same time, several
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Internet-based companies are looking to build a real-world physical channel in addition to their virtual channel. The hottest trends in e-tail going forward probably won’t be pure-play companies selling strictly through the Net. The next trend is toward the click-and-brick pattern, a hybrid online/ offline business model incorporating both physical and online business practices. The C&B model allows an existing offline business to profit from partnering with an emerging online presence. A great example of C&B is discount stockbroker Charles Schwab. Schwab’s success has proven that storefronts can drive traffic to their Web sites. The firm continues to open new storefront offices every year, because that’s where customers feel most comfortable signing up for their accounts. But once the relationship is established, the majority of the customers use Schwab’s Web site to monitor and manage their accounts, where Schwab’s customer-service costs are lower. This lesson has not been lost on other retailers, who are finally starting to see benefits of combining e-commerce with old-fashioned department store service. An established retailer’s name has tangible advantages in cyberspace in a world where consumers are swamped with too many choices.
Business-to-Business (B2B) Net Markets Business-to-business (B2B) business models are fairly young. But they’re also evolving rather furiously. This section addresses some of the changes that are taking place in the area of net markets. However, a basic classification of the various types has already emerged. Broadly speaking, business-to-business applications can be further divided into the following categories: A. Corporate Procurement Portals Corporations with substantial “buying power” are racing to create private portals for the procurement of both production-related goods and
Emerging Business Models
non–production-related goods. Production goods include raw materials, components, assemblies, and other items needed to produce a finished good. Non-production goods are items that businesses need to run day-to-day business operations: capital equipment; MRO (maintenance, repair, and operations) products; office, computer, scientific, and industrial supplies; and travel and entertainment. However, for many companies, development of a truly effective integrated procurement strategy is still a long way off. For all but a relative few, there is no clear vision of what needs to be achieved through reengineering and integrating the procurement process, nor is there a good roadmap of how to get there—or even an idea of what “there” should look like. B. Net Markets: Virtual Distributors, Auction Hubs The first generation of Net markets (for example, VerticalNet) provided community features alone. However, in the second-generation, transaction revenue derived from buying and selling products is becoming crucial. An example of this genre of trading exchanges is virtual distributors. Virtual distributors offer one-stop shopping for a fragmented buyer and seller community by aggregating disparate product information, primarily associated with multiple catalogs, from multiple suppliers (that is, manufacturers) into one megacatalog. Virtual distributors help streamline the systematic sourcing of direct goods and lower transaction costs by issuing a single purchase order and parsing the order to each relevant supplier that ships the product direct. Many are starting to add richer services, such as meshing with software that handles a company’s back-end operation—from order-taking to tracking inventory. Virtual distributors generally don’t carry inventory, nor do they directly supply products, but instead assist buyers in arranging for third-party carriers to transport the order goods. The jury is out on this model.
C. Industry Consortiums: Joint Venture Industry Procurement Hubs In response to startups, large companies are using their clout to create industry consortiums, of two types: buyer consortiums and supplier consortiums. In a buyer consortium, a group of large companies aggregate their buying power, the premise being that more buying power drives down price. Traditional industry players have a big advantage over Net-born startups when it comes to starting exchanges for high-volume commodity goods: instant commercial activity and liquidity. An example is MetalSpectrum, which plans to be the online neutral marketplace for aluminum, stainless steel, and other specialty metals. In response to exchanges and buyer consortiums, supplier consortiums have begun to emerge. Similar to their buyer-centric cousins, these consortiums are forming in industries where a few firms comprise a high concentration of market power. The big difference is that supplier consortiums must give sponsors the opportunity to promote and differentiate their products. They must provide the most compelling environment for buyers by aggregating the key industry suppliers, and offering a compelling amount of product depth, breadth, and selection and service. The future of industry consortiums is not clear. There are many issues to overcome around the areas of governance, technology, and antitrust. On the governance front, traditional competitors must form an independent company that promotes the interests of all the participants. The second big hurdle follows closely behind the first: technology selection. Again, with a cast of strong, powerful players, each with its own technology standards and systems, it will be difficult for the new entity to satisfy the requirements of all the members. The third hurdle is antitrust. In short, technology is no replacement for management or governance. And these issues have to be worked out.
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D. Collaboration Hubs Types of collaboration efforts can include product planning and design, demand forecasting, replenishment planning, and pricing and promotional strategies. Importantly, these platforms record historical trading data that can be analyzed in an effort to further improve future planning and forecasting, in turn enabling further compression of design and development cycles. These emerging exchanges go far beyond the transaction phase to help companies manage the supply chain end-to-end. Collaboration hubs seek to create one common Web platform that enables participants throughout an entire industry supply chain (for example, raw-material providers, manufacturers, importers/exporters, distributors, dealers) to share information, execute transactions, and collaborate on strategic and operational planning. Not only should this common platform facilitate new trading partnerships, but it should enable channel participants to better match production with demand (thereby reducing excess inventories in the channel) and help speed cycle times. Value-added services are the premium services that collaborative hubs provide to continuously drive market liquidity. By providing these services, collaborative hubs can increase site “stickiness,” generate multiple revenue streams, and increase competitive barriers to entry. Providing these services is an essential component of a collaborative hub strategy if the collaboration expects to develop a sustainable advantage and be the market leader.
Pure E: Digital Products and Mobile Portals Clearly, we are entering the Pure “E” decade—an era of digital products. A digital product is one for which the product is made online, stored online, sold online, delivered online, and consumed online. Some first-generation examples are digital music, software, books, and photos. How digital
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goods will be delivered is already changing. In the future, delivery will come, in many cases, as a service across the Internet (for example, via streaming media) instead of as a packaged product. Even the means for creating digital content is changing. Contributing to the growth of digital products are the proliferation of Internet-access devices (such as set-top boxes, WebTV, and video game consoles), cheap and abundant availability of bandwidth, sub-$500 PCs, growing free PC programs, and industry standardization of application programming interfaces (APIs).
Mobile Portals: New Platforms for Digital Media Delivery Seemingly overnight, the wireless revolution exploded, intensifying the movement toward mobile commerce. New programming languages, platforms, and protocols are embraced almost with abandon, or at least little consideration, while new partnerships and wireless portals are announced daily. The market for the delivery of Internet services through handheld devices is new and evolving rapidly. The business strategy behind the handheld computing marketing is straightforward. If you take control of the operating system infrastructure, you also control the software applications developed to run on it. As handheld devices are adopted in greater numbers and handheld device applications become integrated into other information appliances, an opportunity exists for these operating-system developers to extend their platforms for use on other handheld devices. The wireless revolution isn’t only about handheld devices, though. It’s also about the new generation of software infrastructure, which will soon enable the convergence of the Internet and mobile telephony. The next-generation mobile delivery systems include voice browsers and telephony-based speech-recognition systems. Now telephony-based speech recognition is extending to the Web. The business models in this area are in their infancy (Charron, et al., 2009)
Emerging Business Models
This is Real e-Business Kalakota and Robinson have put together a literal blue print for e-Business success. Not, it’s not 1.0, but “2.0”! As more and more “real” or “brick ‘n mortar” businesses put their businesses online, there needs to be a clear delineation of what is hype and fiction. What’s a fly by night Internet start up and what truly is a distinct “e-Business”? E-Business 2.0 leads the way. This is for companies that want to completely embrace all the Internet has to offer and ensure that their business leverages the opportunities it can provide. “To compete effectively in the e-commerce world, a company must structurally transform its internal foundation. This structural change requires a company to develop an innovative e-business strategy, focusing on speed to market and breakthrough exercises” “What sets the truly great organizations apart is their ability to use state-of-the-art e-commerce processes to transform themselves (Ray, 2000). They do the following three things well. 1. They redefine value for their customers 2. They build powerful e-business designs that outperform the competition 3. They understand customer priorities and consistently raise customer expectations to new heights. E-Business 2.0 is a business manual for strategically using the tool of the Internet to radically transform how you do business. In “Constructing the e-Business Architecture: Enterprise Apps”, Chapter 5 of e-Business 2.0: Roadmap for Success, the authors talk about applications and integration - the technology bedrock of e-Business. By using case studies and examples, e-Business 2.0: Roadmap for Success will give you a bird’s eye view of how to acquire e-Business applications and tools for your specific business. If your a CEO, President or some other upper management, and are serious about exploring how e-Business can be
for your business, then e-Business 2.0: Roadmap for Success is a must read (Ray, 2000).
Value Drivers in e-Business 2.0 Vincent (2007) researched nine e-Business 2.0 examples--nine Dutch (e-Business 2.0) cases, that were selected from companies listed in the Dutch Web 2.0 Awards that was held in January 2006; over 50.000 people could nominate and select Web 2.0 initiatives. Very interesting companies to have a look at:
Wakoopa Wakoopa is a social network site for software. People can track what kind of software they use and share it with others and find (better) applications. With Wakoopa users acquire information on what software they use and can share software and opinions. The real value that is created using this site is the sharing experience users get when they share software and (new) applications. Wakoopa has made a platform and tracker to use for this site. The technique is only one part of Wakoopa’s function. The other part is the community platform and the incentives to people to contribute on the platform. Wakoopa is not only a creator of the technology and facilitator of the platform, but also a motivator and stimulator in a way it wants people to help collaborate by sharing experiences and knowledge.
Swoot Swoot is an innovative leader in skinning and transforming web enabled applications for the desktop. Users can build their own browser and can participate in building a new website. There is a Swoot portal where all the developed browsers on many topics can be found, which can be accessed when people install a one time plug-in. Swoot offers a technology platform for, what they call, ‘ultimate freedom in design and
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marketing in a fun online experience.’ The idea is that everybody can create and control their own Internet browser, instead of using standard ones, like Firefox and Explorer.
Boomr Boomr is ‘a platform where artists from all genres can share their music with everyone who has access to the Internet.’ Boomr is also a place where people can get to know their favourite artists music and personal matters. Value is created for the artists on Boomr by enabling a connection to exist with potential supporters and vice versa, value is created for the listener who is able to find music they like. Boomr is free to use and focuses on the non-familiar artists, as well. The value is created by users and artists who contribute and participate on the platform. There is an artist community and a user community. The user community is based on voluntary contributions, like reporters (enthusiastic fans of an artist) that write about concerts. Boomr’s artist and user communities are growing and are of significant value to this initiative and helps create a lock-in.
Buurtlink.nl Buurtlink.nl is part of the Buurtlink foundation and its goal is to increase social cohesion within the Netherlands and to become the largest district website based on zip codes. Buurtlink.nl creates its own value by having a large base of active users. Neighbours can communicate on Buurtlink. nl and can keep their own district website active and relevant. Since facilitating the platform alone is not enough, Buurtlink.nl makes a distinction between ‘Buurtlinkers’ and users. A ‘Buurtlinker’ is an active user, like an ambassador or correspondent, and delivers content and promotes the website in the neighbourhood. This motivates neighbours to participate and in creating a stronger collaboration, Buurtlink.nl gives incentives to ‘Buurtlinkers’ by yearly activities and free gadgets.
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Besides ‘Buurtlinkers’, there are users that live in the neighbourhood who can also participate and generate content on the platform. Everyone can give their opinion on the website or can talk/ work together with their neighbours. The founders of Buurtlink.nl try to deliver less content as possible on the platform; they have a facilitating and motivating task. Besides collaboration with the users of the website, Buurtlink.nl works together with several partners. These partnerships can have local goals, but also national goals, like regional news stations, digital marketplaces, and local weather forecast agencies.
Watvindenwijover.nl Watvindenwijover.nl is a free service platform to easily save interesting web pages on the Internet. There are several features of the site that are new and related to Web 2.0 technologies. For example, users can make their own notes on the site while easily organizing results by tagging and can share favourite sites and topics with other users. The activities on the platform are also recognized as ‘social browsing’, which means social searching and sharing. There are several clusters of communities based on interest and Watvindenwijover.nl tries to link people actively by giving recommendations. In this manner, people can collaborate to find more or better information on certain topics. Watvindenwijover.nl is a subset of Winkwaves and is used as a marketing tool and as a playground to experiment. The actual value appropriation with these platforms is done by Winkwaves in a Business-to-Business context and relates more to Enterprise 2.0.
YelloYello Traditional guides (in this research referred to as e-Business e.g. Goudengids.nl and iLocal.nl) do not answer questions like; where can I find a good plumber? What is the best lawyer in the district? As a user of this website, you often ask recom-
Emerging Business Models
mendations from friends and family.’ YelloYello is a company that fills this gap with help of Web 2.0 by ‘social local search’: YelloYello has local communities and is a social network and guide in one. Everyone can contribute easily by giving reviews, tagging, and upload locations. The company stimulates people to share experiences so the company can create a recommendation list of companies. The community and cluster aspect can be found in the case of YelloYello. The company focus is on places and people. Based on places and interest there are clusters of communities that contribute and add value for other users. The value is created by the users and is a combination of content and the social aspect of the website. Since the business information is already familiar, the new data contributed by the community adds new value.
Fleck Fleck.com wants to add a new layer of interactivity to the web by adding new tools that allow its users to add information rather than just consuming it. Fleck allows users to interact with pages on the web just as if it were pages in a magazine; People can save annotated page for own purposes, send it to friends or colleagues or use it in their blog.’ The value, appropriated on the platform by its users, is created by the users because data on top of the existing webpage is collected by a collaboration of Internet users. When this data is aggregated correctly, new opportunities for value creation arise, but also appropriation may appear, for instance, more efficient search methods, recommendations, and suggestions on websites. Efficiency and complementarities are the most important drivers for Fleck. People use the platform and technology for several purposes, like bookmarking, communication, and page sharing. In the second half of 2007, Fleck will focus more on collaboration and the Long Tail by increasing the ‘discovery factor’. According to the founders of Fleck, there is a huge potential
for collaboration with Fleck and it will become the most important driver. Fleck tries to enable knowledge sharing within the community. In this way people can efficiently use the information and knowledge other users contributed on websites. All these contributions on websites are collected in a database. Not only will the popular website be collected in this database, but also smaller and unfamiliar WebPages, referred to as the Long Tail, are collected. Fleck uses the collective intelligence to create value that is contributed by its users.
Hyves Hyves is one of the most used e-Business 2.0 pure players in the Netherlands and is the most popular social network (Ruigrok NetPanel, 2007). The focus for Hyves is on establishing an online platform, in which people can (re)connect with each other, as they say: ‘Always in touch with your friends’. Users can share photos, videos, blogs, and recommendations, but the most added values for users of Hyves are to get reconnected with old friends (Ruigrok NetPanel, 2007). Hyves tries to be the place on the Internet where users share his or her information. Not only can you connect with people, but you can also collaborate and share by using a weblog or gadgets. Integration is also very important to Hyves, like importing an existing weblog on your Hyves page by Web 2.0 technology (RSS), which makes it easy and efficient for users to share. In the near future, Hyves is going to increase their use of AJAX-tools to integrate more easy-to-use applications to create increased value for its users.
Favr Favr is ‘a website platform on which you can save and share your favourites, like websites and articles’. Users can review and recommend favourites in order to establish a top ranking of favourites. The company wants to create a unique social bookmarking platform, that looks like Deli-
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cious, since interest is focused on website level. The community creates value and Favr’s role is an intermediary one by which it gives incentives and tools for users to contribute. The community decides what ranking certain websites and articles get and is not influenced by the company. The founder of Favr is also the founder of web-log.nl that was sold successfully to Ilse Media in 2004 (Wiersma, 2004), who started both companies as an experiment. In summarize above, Vincent (2007) proposed a Value Drivers in e-Business 2.0 model as Figure 1.
What Does the Study Means with an e-Business 2.0? This research adopts Forrester’s perspective on Web 2.0 (Koplowitz and Young 2007). It allows this research to clearly define the enabler aspect of Web 2.0 technologies that influence companies in e-Business, and allows a development of the concept ‘e-Business 2.0’. According to Forrester Research Inc., a renowned technology and market research company,’Web 2.0 is a set of technologies and applications that enable efficient interaction among people, content, and data in support of collectively fostering new businesses, technology offerings, and social structures (Koplowitz & Young, 2007).’ Koplowitz and Young (2007) Figure 1. Value drivers in e-Business 2.0. Source: Vincent (2007)
point out that there are three lenses through which to view Web 2.0: 1. Enabling technologies - provide the infrastructure and building blocks for Web 2.0 applications. These supporting technologies are often not as important for marketers, by a lack of knowledge of techniques like AJAX and XML (Derksen, 2007a). 2. Core applications and features - enable people to efficiently interact with other people, as well as, content and data. 3. Forrester Research Inc. calls this ‘social computing’: Social computing refers to ‘easy connections brought about by cheap devices, modular content, and shared computing resources, that are having a profound impact on our global economy and social structure (Koplowitz &Young, 2007). Individuals increasingly take cues from one another rather than from institutional sources like corporations, media outlets, religions, and political bodies. To thrive in an era of Social Computing, companies must abandon top-down management and communication tactics, weave communities into their products and services, use employees and partners as marketers, and become part of a living fabric of brand loyalists (Charron, Favier et al., 2006). Many writers and researchers use the term Web 2.0 as the next stage of the Internet and of e-Business. These researchers do not make a clear distinction between the technological enabler aspect and the social aspect. Introducing and developing a concept of e-Business 2.0 and having it implemented in the outmost circle of the figure help provide a better overview and framework for this research.
E-Business 2.0 and Enterprise 2.0 Since the Internet bubble, Web 2.0 with its core applications and enabling technologies has
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become popular and successful influencing eBusiness. Successful start-ups created a new area in e-Business where Web 2.0 was a key factor in creating value. The focus in this research is on these companies that embrace Web 2.0 enabling technologies and core applications that cause a behavioural shift. This research, therefore, develops in scientific literature, the concept of e-Business 2.0 where e-Business companies are actively using Web 2.0 to create and appropriate value from, for, and with stakeholders. Although ‘e-Business 2.0’ is used in a book from Robinson et al. (1999), the meaning is different. A perspective of van der Sleen (2007) who refers to contact with customers and suppliers, is more related. However, scientific theory on Web 2.0, let alone e-Business 2.0, is scarce. As can be seen in the figure, this research also makes a distinction between an internal and external focus (Figure 2). This research looks at e-Business 2.0 and has an external focus, e-Business 2.0 pure players depend on Web 2.0 to create and appropriate value with a focus to external customers, instead of internal organisations. The latter focus is called ‘Enterprise 2.0’ and is introduced by McAfee (2006a). McAfee (2006a, p. 23) argues that ‘there is a new wave of business communication tools including blogs, wikis and group messaging. There are new digital platforms for generating, sharing and refining information that are already popular on the Internet. These platforms are collectively labeled Web 2.0 technologies. The term ‘Enterprise 2.0’ focuses only on those platforms in which Figure 2. Enterprise 2.0. Source: Vincent de la Mar (2007)
companies can buy or build in order to make the practices and outputs of their knowledgeable workers visible.’ Enterprise 2.0 looks at Web 2.0 technologies and practices within organisations and businesses and is therefore, referred to as internal focus. McAfee (2007, p. 52) simply and concisely defines Enterprise 2.0 as ‘the emerging use of Web 2.0 technologies like blogs and wikis within the Intranet’. Next to e-Business 2.0 pure players, companies that acquire parts of e-Business 2.0 characteristics and regular e-Business (e.g. e-Commerce) companies are also active on the Internet. Larger companies can learn from these, often smaller, eBusiness 2.0 companies who display themselves as early adopters (Rogers, 1995) and use it to adopt to market changes and/or to Enterprise 2.0. The concept of e-Business 2.0 highlights that e-Business is evolving. E-Business 2.0 is a part of e-Business and can also be referred to as a new stage in e-Business that will become more prominent in the next few years. E-Business will adopt more e-Business 2.0 aspects and this is in correspondence with Van der Vlist et al. (2007), who argue that the e-Business and the Internet have reached a stage where its growth would slowly start to decline. Traditional media producers controlled the Internet and mergers and acquisitions signified that the Internet industry had started its consolidation phase. From a social perspective, the Internet was mostly used to read. This was however, not the meaning of the World Wide Web (www) and was not the case at the beginning of the Internet. The Web was originally designed as a medium where scientists could easily share their documents (Leiner & Cerf, et al., 2003). According to van der Vlist et al. (2007) this was still the case when publishing home pages and editing was still easy because of simple technology and a smaller group of participants. In the last decade, the Internet has had more difficult tools and technologies added and more people were interested in using the Internet, which resulted in a passive Internet usage. With simple Web
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2.0 technologies the Internet is becoming a read/ write web again. Web 2.0 enables Internet users to participate and share contributions again in a simple manner. Recent research shows that this changed the way we use the Internet completely; ‘nearly half of online consumers participate in at least one Web 2.0 activity with 13% coming from creators (e.g. publish WebPages or blogs, upload photos), 19% from critics (e.g. comment rate or review), 15% collectors (e.g. use RSS or tag WebPages), 19% from joiners (e.g. use social networking sites), and 33% from spectators (e.g. read blogs, watch peer-generated videos and listen to podcasts)’ (Forrester Research, 2006a). Although research reveals that a low number of Internet users are familiar with the definition of Web 2.0, many people do use it (Ruigrok, NetPanel 2007). By several experienced people, it is already pointed out that Web 2.0 changes our economy and business perspective. For instance, Charron, Favier et al. (2006a) argues that top down-management must be abandoned; Hinchcliffe (2007) points out to focus on communication in the form of conversation, instead of a monologue; and Sturgeon (2006) writes about new levels of interactivity. This research tries to extend this by providing first insight in companies that already take advantage of Web 2.0. (Vincent, 2007) Vincent (2007) indicated this research tries to give first answers to problems that are argued: Our first problem from a theoretical approach is that theory on value creation in e-Business is relatively scarce. This is related to a more practical problem that companies could make incorrect decisions, because of scarce theory. With the upcoming of new developments of Web 2.0 a second problem arises and results in the fact that extending theory on value drivers in e-Business becomes even more relevant: Previous theory on value creation in e-Business might not be applicable anymore. Amit and Zott (2001) research value drivers in e-Business companies before 2001. With new aspects of Web 2.0 these results might not be up
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to date anymore. Therefore the objective of this research is to further develop Entrepreneurship and Strategic Management Theory on value creation in e-Business, by providing first insights in value drivers in e-business companies that use Web 2.0. To reach this goal this research tries to give first answers to the central research question, if value drivers associated with Web 2.0 are different from known value drivers in e-business?
Leveraging Enterprise Web 2.0 for Competitive Advantage What is Enterprise Web 2.0? For the last 3 years, web 2.0 and social networking have been all the rage in the Internet community. This is where the VC money is going, the media attention is focused and users are spending much of their time. Businesses are still trying to figure out what does it mean for them. Applying web 2.0 principals and attitudes to business and the enterprise can be called enterprise web 2.0. Many tend to think that becoming a 2.0 organization as the use of flashy interfaces, communities, blogs, wikis and user generated content and tried to jump on the bandwagon by adding these to their sites without comprehending the deeper and more fundamental cultural changes that make these tools effective, and have seen little gain. Web 2.0 is about attitudes and a new way of interaction with all constituents, customers, employees, and partners. With all its hype, cool startups and sexy conferences, web 2.0 still baffles many business people who see it as a playground for kids (MySpace, Facebook, YouTube) or a get-rich scam for young entrepreneurs and VC’s. Many who have been through Bubble 1.0 would rather wait until the web 2.0 fads disappear to see what is left standing. Tim O’reilly has provided what many see as the most comprehensive definition of web 2.0. And while his explanation is very thorough, it is also technical in nature (Fishler, 2008).
Emerging Business Models
The definition comes from Ian Davis who wrote: “Web 2.0 is an attitude, not a technology. It’s about enabling and encouraging participation through open applications and services. By open I mean technically open with appropriate APIs but also, more importantly, socially open, with rights granted to use the content in new and exciting contexts.” Web 2.0 is indeed defined as an attitude that can be personal or organizational. A web 2.0 organization adds specific terms and values to its code of conduct and sets priorities and incentives to promote them. The study sees web 2.0 attitudes, or to call the web 2.0 spirits, as made of the following attitudes (Ori Fishler, 2008): A. Open: you don’t have to share your source code to be open but from the application to the users, the approach is open. Easy to integrate with, easy to add to. Built on Sharing. Open to new ideas, Flexible, Agile, Simple, and Diverse. Interactive: the interaction among users and active participation is a core element of Web 2.0. The ability of customer and partners to respond and engage in discussions, post reviews, comments, thoughts and ideas. Agree and disagree. Provide a different point of view. Support and promote. B. Transparent: Do not hide, lie, spin, manipulate, threat, or intimidate. The Internet walls are nonexistent and everything you say or do, internally or externally will be exposed. Therefore: Share as much information as possible, acknowledge mistakes, and explain decisions. C. Collaborative: Listen, encourage opinions and group decisions. True collaboration is a tremendous thing producing a result much greater than the sum of the parts. It can only flourish in a nurturing environment. Social: Web 2.0 is about building relationships, trust, playing well with others, give and take, respect of each player and of the social order that is in place. Social corporate
responsibility, caring about the environment and about the local community are very important as well. Andrew McAfee at Harvard likes to add the term Emergent, noting that out of many local interactions as web 2.0 facilitates, comes higher level structures. I’ll expand that definition to include emergence of order and structure out of the seemed chaos that is online interaction. It is the transcendence of web 2.0 communities that created Wikipedia.
What can be Gained? Enterprise web 2.0 promises substantial incentives for early adopters (Fishler, 2008): A. Enhanced brand image, exposure and buzz. As influence circles expand, using new methods for communication and data distribution will reach an ever-expanding user base. B. Improved customer relationships and increased loyalty. Customers will appreciate the new approach that respects and listens to them. C. Faster feedback cycle and agile response to market opportunities. By providing real avenues for customer collaboration and listening to chatter and monitoring usage, companies can create faster release cycles and quicker response methods. D. Improved utilization of internal creativity and innovation. When employees at all level are engaged is collaboration and discussion, great ideas and solutions can quickly surface, get reviewed and implemented E. Better lead generation and inbound traffic. Beyond search, activity in the social web can be a great source of traffic and referrals. F. New business channels. Whether it is finally establishing a DTC channel to leveraging social commerce applications, the new
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landscape provides new opportunities and new potential partnerships.
Adoption Challenges So now, show of hands. Has your organization embraced the web 2.0 spirit? Chances are that unless you are working for a web 2.0 startup, the most you have seen is the introduction of a limited corporate blog or a Wiki’s coming up on your intranet. Many companies have a deep-rooted problem with the web 2.0 spirits. It contradicts some of the fundamental principles of corporate mentality and therefore risky to undertake. In my experience very few companies have truly bought into this attitude and at the most are paying lip service by implementing some basic enterprise 2.0 applications to replace their failed and unused Intranets and KM systems. Bob Warfield provided a very insightful discussion as to the reasons companies are wary of embracing web 2.0: The headlong rush the Web brings to expose everything to everyone scares the heck out of most corporate types. Their two biggest requests for Web 2.0 initiatives are Governance and Security, and the reasons for it are exactly what we’ve been discussing. It isn’t just that they have “control issues”. There are sound business reasons why controls have to be in place (Ori Fishler, 2008). A. Morale: Do we really want everyone to know how poorly some initiative is going? How will it help to tell those who can’t make a difference and would only be depressed by the knowledge? Is it fair to expose some internal squabble that was mostly sound and fury signifying nothing? Won’t that just unfairly tarnish some otherwise good people’s reputations and make them less effective? B. Governance: Is the information legal and appropriate for everyone to know in this age of SOX and Securities Laws? C. Competitive Advantage: Do I want to risk giving my competitors access to key
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information because I’ve distributed it too broadly? Still, the web 2.0 spirit as reflected in the actions, habits and expectations of users will impact the way companies do business. Some of the most important trends include: A. Loss of control: as mentioned above, companies no longer have absolute control over their brand, products and services and how they are portrayed. From rumor sites to product reviews and fake commercials, people have many more ways to learn about you and form opinions. B. Opinions matter. 68% of shoppers read products reviews before making a purchase. C. Wider influence circles. Information (good and bad) can quickly spread through influence and social circles. Transparency is expected and recent cover-up attempts by companies like Merck and Bear Stearns were not tolerated. Companies will have to adapt because the old practices are getting them in trouble and new opportunities for leadership position are being lost due to lack of clear web 2.0 corporate strategy or what we would call enterprise web 2.0 By embracing the new enterprise web 2.0 paradigms, businesses can create long lasting changes that will truly resonate with audiences beyond the quick fix of adding a marketing blog to the web site and some promotional videos. As these changes take time to implement, early adopters and market leaders can create a significant competitive advantage by differentiating themselves and reaping the benefits (Ori Fishler, 2008).
Enterprise Web 2.0 A Butler Group Report In some circles, the terms ‘Enterprise Web 2.0’ and ‘Enterprise 2.0’ are used interchangeably to
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describe the application of Web 2.0 ideas and technologies in the enterprise; however, Butler Group believes that a clear distinction exists between the use of these two terms, and that this differentiation is important to maintain, as it enables a more meaningful discussion to be had when examining the future role of IT within the business (butlergroup, 2008).
Enterprise 2.0 Professor McAfee at Harvard (2006) argues there is a new wave of business communication tools including blogs, wikis and group messaging. There are new digital platforms for generating, sharing and refining information that are already popular on the Internet, where they are collectively labeled Web 2.0 technologies. The term “Enterprise 2.0” focus only on those platforms that companies can buy or build in order to make visible the practices and outputs of their knowledge workers. Enterprise 2.0 is all about Web 2.0 technologies and practices within organisations and businesses. Andrew McAfee provides a clear, clean explanation of Enterprise 2.0; the emerging use of Web 2.0 technologies like blogs and wikis within the Intranet (McAfee, 2007). He has introduced his “SLATES” mnemonic to help guide those creating or acquiring Enterprise 2.0 software. SLATES describes the combined use of effective enterprise search and discovery, using links to connect information together into a meaningful information ecosystem using the model of the Web, providing low-barrier social tools for public authorship of enterprise content, tags to let users create emergent organizational structure, extensions to spontaneously provide intelligent content suggestions similar to Amazon’s recommendation system, and signals to let users know when enterprise information they care about has been published or updated, such as when a corporate RSS feed of interest changes (McAfee, 2006).
As in previous innovation cycles, whenever multiple point capabilities converge – such as wireless, pervasive broadband, and online collaboration – many new applications become possible. In these cases, consumers tend to adopt the new services and products before the enterprise, but in the end the enterprise market is usually far larger and more profitable. In McKinsey’s and Sand Hill Group’s Software Industry Report 2006 state that the hype around “Web 2.0” for consumers – with its rapid innovation in content tools (e.g., blogs, wikis, user editing and tagging) heralds a much larger opportunity to put these innovations to work in the enterprise. Many innovations, collectively termed Web 2.0, will fully reach the enterprise – as in previous cycles, innovation developed for individual users will translate into substantial enterprise opportunities (Berryman & Jones, et al., 2006).
CASE STUDIES Enterprise 2.0 for IBA, a Belgian Fast Growing Company IBA is a worldwide company based in Belgium and active in the cancer diagnosis. It currently counts 2500 employees and has doubled its staff in less than 2 years. This fast growth makes IBA facing new organisational challenges around knowledge, innovation and collaboration management. In that context, Early Stage was in charge of auditing the company structure and the way the multiple BU’s are currently collaborating. Through its proprietary methodology, made of workshops and internal structured analysis, Early Stage submitted its recommendations on the following topics (Early Stage, 2009): 1. IBA’s maturity in terms of Enterprise 2.0 2. The potential social software set that best matches IBA’s strategic objectives and environmental context
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3. The possible locations where pilot projects can be deployed 4. The User Adoption Plan (UAP) around the pilot projects and the further deployments 5. An Enterprise 2.0 roadmap for the next 24 months IBA is actually a challenging Enterprise 2.0 business case, for several reasons: 1. IBA is present on 4 continents and the top management must deal with different cultures and work organisations 2. The core business covers different activities around cancer diagnosis, and each one runs its own methodology, serves its own market and has its own legacy 3. The IBA staff is a mix of young engineers (Generation Y) and experienced professionals (Generation X) In this context, a few months after the launch, Early Stage will be proud to demonstrate, thanks to a detailed KPI analysis, how collaboration platforms (and related HR management) can drastically improve the global performance of an international group (Early Stage, 2009).
Belgian Government: E-Fov 2.0 Study In 2008-09, Early Stage run an analysis of interactive tools used for eGov 2.0 projects for the Belgian Government together with the development of a web governance model for the new Belgian federal portal. This mission had as ultimate goal the development of the basis for an “e-Government Maturity Model” (eGMM) for the Belgian government and this on the following levels: the interactivity in the service delivery, the multi-channel distribution and the compilation of available data to deliver personalised information with added value. The most evolved
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layers of such a model foresee notions such as « co-governance » (participative democracy) and the legal dialogue in real time with the citizen. Early Stage has developed his own maturity model for this project that is simple, flexible and adaptable. It can be used during benchmark and audit studies but also to formulate recommendations and to develop roadmaps. The goal to apply this model consisted in the development of a roadmap but also in an e-Governance that specified the roadmaps founding principles and its sustainability. If the roadmap was intended to evolve together with the standards and best practices we know in the web-universe then it was clear that it also had to follow a strategic course that would ensure the validity of the model throughout the time and that is exactly the goal that was achieved with this e-Governance model (Laurent, 2008). The maturity model was also based on specific fundamental values that were considered “key” in a performing and globally adopted e-delivery of the public service. These values commonly refer to the following goals: 1. 2. 3. 4. 5.
Simplification Transparency Respect for the private life Citizen’s engagement Distribution of the information
Another goal was also to align the different relations: 1. Align the e-Gov strategy with the “Gov” strategy (to avoid that one would not be aligned with the other one so that both are aligned) 2. Align the e-Gov strategy with the citizen (Offer interactive services that take into account the current evolutions so that they are accessible, understood and available for all the citizens. Take into account the penetration of certain equipment and the evolution
Emerging Business Models
of the common habits in our country. What is OK for the States is not necessarily ok for Belgium. 3. Align the e-Gov strategy with the public servant (to avoid that the public service delivery will be wrongly understood or badly handled due to the public servant’s intervention in the process). 4. Align the e-Gov strategy with the existing infrastructure (make it so that the roadmap is actually implementable on the current technical infrastructure). For this mission, Early Stage has analysed over 200 sites oriented towards e-Gov 2.0 in the whole world in order to find the “best practices”. These practices have been filtered and adapted to the Belgian situation and finally led to a web governance model for the future Belgian federal portal (Laurent, 2008).
FUTURE RESEARCH DIRECTION Enterprise 2.0 is the term used to describe how a Web 2.0 approach can be used to work more collaboratively together in business. Harvard professor Andrew McAfee coined the phrase Enterprise 2.0, defining it: the use of emergent social software platforms within companies or between companies and their partner or customers. However Enterprise 2.0 is much more than just ‘Web 2.0 for business’. Enterprise 2.0, being more a philosophy than a technology, can truly create huge added value for organizations in any sector and it is often remarkable to see in what way the Enterprise 2.0 methods are used to solve specific problems. In the near future the study will to further propose applications of Enterprise 2.0 projects in specific sectors.
CONCLUSION AND RECOMMENDATIONS Conclusion This research adopts Forrester’s perspective on Web 2.0 (Koplowitz and Young 2007). It allows this research to clearly define the enabler aspect of Web 2.0 technologies that influence companies in e-Business, and allows a development of the concept ‘e-Business 2.0’. According to Forrester Research Inc., a renowned technology and market research company,’ Web 2.0 is a set of technologies and applications that enable efficient interaction among people, content, and data in support of collectively fostering new businesses, technology offerings, and social structures (Koplowitz &Young, 2007). Enterprise 2.0 describes the introduction and implementation of Web 2.0 technologies within the enterprise, including rich Internet applications, providing software as a service, and using the web as a general platform. This topic will track the latest Enterprise 2.0 developments. According to Earlystage (2009), businesses have incumbent technology platforms, multiple data sources and many regulations and policies. Employees are drowning in a sea of information and are often unable to access the people and knowledge they need. Enterprise 2.0 is an evolutionary step forward releasing employees from the constraints and limitations of the legacy communication and productivity tools. If people feel like they can make a difference, they will. The Enterprise 2.0 approach promotes open communications that encourage respect and participation, even across geographic and cultural boundaries. Access to knowledge empowers and motivates people to strive towards common goals together. Enterprise 2.0 addresses ‘knowledge silos’ by enabling a common space for knowledge capture and sharing. Unlike information locked-up in email and discrete documents, this centrally captured knowledge is easier to find and use when people actually need it. It is more likely to be up to date, and it can be fully searched by all who have access.
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High calibre people are attracted to companies using cutting edge technology. This is particularly true for ‘Generation Y’ people (today’s 18–25 year olds) who already use Enterprise 2.0 technologies in their everyday lives and expect to be able to use them in the workplace too. As with many things, it takes the passing of the older generation from executive status into retirement before a true shift can occur. Over the next three years, millions of baby boomers will retire and the younger workers brought in to fill the void will not only want, but will expect similar tools in the office as those they use at home in their personal lives. The whole business world is about to face a series of new fundamental challenges that go deep into the companies’ DNA and organisation. Companies will need to be guided through the fog, turning their traditional e-business masterpieces into genuine interconnected systems. Organisations who disregard those fundamental changes, don’t take the necessary actions or underfund such projects will face huge corporate-wide problems. The world is in constant evolution, everybody knows it. Most recent trends in the human behaviour and in the latest technological evolutions will allow companies and organisations to leverage the potential of a collective intelligence (and therefore the overall efficiency) thanks to adapted tools, processes and mindset. People who’re about to enter the business today have grown up digital, with connected computers and mobile phones in their young hands. Social Networks leverage Social Intelligence: Social Networks are both symptoms and results of the Digital Native demographic move, and they can be put to work for business. New trends of Web technology clearly show the way towards the Web as a platform and widespread SaaS. Enterprise 2.0 enables a diverse, distributed workforce to work together efficiently on projects. Information is more accessible, and subject-matter-experts can be found quickly. This avoids duplicated effort and saves time, leading to greater efficiency and improved productivity. Enterprise 2.0 technologies are not really “new”
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technologies but more the combination of already existing ideas in a professional environment. The Enterprise 2.0 market (also known as the Social software market) is fully exploited by established firms but also by start-ups who are trying to position themselves in this new market. However, at this time, there is no real leader yet. Forrester Research predicts in a recent report that enterprise spending on Web 2.0 technologies will reach $4.6 billion by the year 2013. External Web 2.0 expenditure will dwarf internal spending, by 2013, by a billion dollars. Internally, companies will spend money on internal social networking, blogs, wikis, and RSS; externally, the spending patterns will be very similar. Social networking tools that provide customer interaction, allowing customers the ability to create profiles, join discussion boards, and company blogs, for example, will receive more investment and development over the next five years. One of the main challenges of getting Web 2.0 into the enterprise will be getting past the gatekeepers of traditional I.T. Businesses have been showing interest in these new technologies, but, ironically, the interest comes from departments outside of I.T. Instead, it’s the marketing department, R&D, and corporate communications pushing for the adoption of more Web 2.0-like tools.
Recommendations Enterprise 2.0 still suffers from a couple of myths coming from the “2.0” label. But, far from being a hype word applying Web 2.0 concepts to professional organisations, it refers to a tangible reality. Earlystage (2009) shatter a few myths as follows: One tends to consider that any concept with a ‘2.0’ timestamp refers to a hyped-buzz reality, originating from young entrepreneurs’ creativity but whose added-value is questionable or inapplicable to existing infrastructures. However, Enterprise 2.0 covers a tangible reality that goes beyond technology and tools: it answers some important challenges for companies, such as collaboration and sharing, knowledge management, mobility or
Emerging Business Models
work-life balance – and leverages the power of collective intelligence. Enterprise 2.0 is beyond technology – it is business-related. Most of the tools do not require big bangs and are compliant with existing frameworks on which implementation is layered on top. Most of the collaboration and knowledge management concepts proposed by recent traditional software are built-upon “features”, while native Enterprise 2.0 tools put them at the heart of their philosophy. On top of that, they are most of the times compatible with existing major software. Enterprise 2.0 puts collaboration, knowledge sharing and social intelligence at the center of the organisation’s relationships. Doing so, it refers to work organisation rather than to specific skills, processes or professions, and impacts any business at any level. The different paradigms that lead to consider Enterprise 2.0 solutions do not come from corporations’ strategic decisions: they come from the evolutions of the human society and demography, putting any organisation in the line of fire. Enterprise 2.0 relies on SaaS principle, which is considered as the future of IT by most leader analysts. Security and privacy is one of the most serious components of such tools. If needed, they can even be installed on-site. Enterprise 2.0 tools are almost always cheaper than traditional products whose license costs are often high. Besides, they allow scalability as they are often billed according to the number of users. On the other way, the overall cost for the organisation should include the productivity gain and loss, and the goodwill it would gather while encouraging collaboration, knowledge sharing and collective intelligence. The part of technology in the total balance is less important than you can think. According to Earlystage (2009), Markets & Professions Although solutions such as Wiki’s, Blogs and collaboration spaces are often seen as “generic” solutions that can be implemented in any organization it is interesting to see how these
tools can help organizations in specific sectors. Some examples are as follows: 1. Finance, Bank & Insurance: New collaboration tools are improving the transparency of the internal workings and allow the organization to keep better track of investment portfolios and to improve risk management. 2. Healthcare: R & D departments can use Enterprise 2.0 tools to improve knowledge sharing and shorten research cycles for new products. 3. Political Organisations: Often scattered on the whole territory in local federations, E2.0 tools will help them to better communicate internally, synchronise actions, remotely collaborate on dossiers, and make members relationships easier. 4. Strategy & Watch: Concatenation of customized RSS feeds on monitored topics, automatically imported in a strategy dashboard, makes strategic watches easier. 5. Universities: Enterprise 2.0 techniques facilitate fundamental research within and between universities through collaboration authoring tools or by creating students’ project teams around courses.
REFERENCES Benkler, Y. (2002). The wealth of networks: How social production transforms markets and freedom. Yale University Press. Retrieved from http:// www.benkler.org/Benkler_Wealth_Of_Networks. pdf BlogSpot. (2009). Value drivers in Web 2.0. Retrieved from ValueWeb2.BlogSpot.com Butlergroup. (2008). Enterprise Web 2.0: Building the next generation workplace. Retrieved from http://www.butlergroup.com/research/ reportHomepages/EntWeb.asp.
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Charron, C., Favier, J., & Li, C. Joseph, J., Neurauter, M., Cohen, S.M., et al. (2006). D. Richard Dance, a book review: CPA and principal of Soft Resources LLC. Retrieved from http://www.forrester.com/Research/Document/ Excerpt/0,7211,38772,00.html Charron, F. (2006a). Social computing: How networks erode institutional power, and what to do about it. Forrester Research. de la Mar, V. (2007). Value drivers in e-Business 2.0: How Web 2.0 is changing the landscape of e-Business. Retrieved from http://valueweb2. blogspot.com/2007_03_01_archive.html Derksen. (2007a). Update Web 2.0. Retrieved from http://www.upstream.nl/comments. php?id=496_0_1_0_C. Earlystage. (2009). Enterprise 2.0: Myths. Retrieved from http://www.earlystage.be/enterprise20/myths.php Fishler, O. (2008). Leveraging Enterprise Web 2.0 for competitive advantage. Edgewater Technology Weblog. Retrieved May 1, 2008, from http:// edgewatertech.wordpress.com Hinchcliffe, D. (2006a). Welcome to the Web 2.0 world of Flickr,del.icio.us, Writely, Basecamp, Digg, and many others. Retrieved October 13, 2006, from http://www.web2journal.com/ read/178008.htm Hinchcliffe, D. (2007). Social media goes mainstream. Retrieved March 14, 2007, from http:// web2.socialcomputingmagazine.com/social_media_goes_mainstream.htm Jaokar, A., & Fish, T. (2006). Mobile Web 2.0 - The innovator’s guide to developing and marketing the next generation wireless/mobile applications. London: Futuretext Limited. Kalakota, R., & Robinson, M. (2001). e-Business 2.0: Roadmap for success (2nd ed.). Addison-Wesley Information Technology Series. Longman, Inc.
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Kalakota, R., & Robinson, M. (2009). e-Business 2.0: Emerging business models. Indianapolis: Informit. Koplowitz & Young. (2007). What is Web 2.0? And how are businesses making use Of Web 2.0 tools and techniques? Retrieved from http:// www.forrester.com/rb/teleconference/what_is_ web_20_and_how_are/q/id/1846/t/1 Laurent. (2008). Belgian government: e-gov 2.0 study. Retrieved October 2, 2008, from http:// www.earlystage.be/belgian-government-e-gov20-study Leiner, B. M., Cerf, V. G., Clark, D. D., Kahn, R. E., Kleinrock, L., & Lynch, D. C. (2003). A brief history of the Internet, version 3.32. Internet Society. MacManus, R., & Porter, J. (2005). Web 2.0 for designers. Digital Web Magazine. McAfee, A. (Spring 2007). The future of the Web. MIT Sloan Management Review, 49-64. McAfee, A. P. (2006). Enterprise 2.0: The dawn of emergent collaboration. MIT Sloan Management Review. McAfee, A. P. (2006a). I can quote them. The Business Impact of IT. O’Reilly, T. (2005). What is Web 2.0: Design patterns and business models for the next generation of software. Retrieved September 12, 2006, from http://www.oreillynet.com/pub/a/oreilly/tim/ news/2005/09/30/what-is-web-20.html Perez, C. (2002). Technological revolutions and financial capital: The dynamics of bubbles and golden ages. Cheltenham, UK: Edward Elgar. Ray, R. (2000). This is real e-Business. Robinson, M., Tapscott, D., et al. (1999). eBusiness 2.0: Roadmap for success. Boston: Addison-Wesley Professional.
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Rogers, E. M. (1995). Diffusion of innovations (5th ed.). NY: Free Press, Simon & Schuster. Ruigrok NetPanel. (2007). Web WHAT? - Web 2.0 research. SlideShare Inc. Stage, E. (2009a). Enterprise 2.0 for IBA, a Belgian fast growing company. Retrieved from http:// www.earlystage.be/success-stories/ Stage, E. (2009b). Challenges of the Enterprise 2.0: Ten facts. Retrieved from http://www.earlystage.be/challenges/ Sturgeon, W. (2006). Cheat sheet: Web 2.0. What on earth is it and should you care? Retrieved from http://networks.silicon.com/webwatch/0,39024667,39161662,00.htm Surowiecki, J. (2005). The wisdom of crowds: Why the many Are smarter than the few, and how collective wisdom shapes business, economies, societies. Random House. van der Sleen, G. (2007). Nu alles 2.0! Web, e-Business, enterprise en meer? Retrieved August 19, 2007, from http://the-efuture.blogspot. com/2007/03/nu-alles-20-web-e-business-enterprise.html van der Vlist, E., & Vernet, A. (2007). Professional Web 2.0 programming. Indianapolis: Wiley Publishing, Inc. Yin, V. (2009). New Web: mainstream Web 2.0. Verecom Web design blog. Retrieved from http:// www.verecom.com.au/verecomblog/wordpress/ new-web-mainstream-web-20-what-is-e-business-20/2009/02/
ADDITIONAL READING Allindialive. (2009). Enterprise 2.0: e-business transformation. Retrieved from http:// toostep.com/insight/enterprise-2-0-ebusinesstransformation?t=online-business
Cawthorne, J. (2010). Evaluating SharePoint 2010 as an Enterprise 2.0 platform. Retrieved from http://bx.businessweek.com/enterprise-20/ view?url=http%3A%2F%2Fwww.cmswire. com%2Fcms%2Fenterprise-20%2Fevaluatingsharepoint-2010-as-an-enterprise-20-platform-007417.php Davila, T., Epstein, M. J., & Shelton, R. (2006). Innovation: Creating long-term value in new business models and technology. Wharton School Publishing. de Pasquale, F. & Siemens (2010). Innovation in an Enterprise 2.0 world. Retrieved from http://bx.businessweek.com/enterprise-20/ view?url=http%3A%2F%2Ffeedproxy.google. com%2F~r%2FFrontEndOfInnovationBlog%2 F~3%2Fwct4x6YMbX0%2Ffei2010-innovationin-enterprise-20.html Elphick, K. (2010). Approaching Enterprise 2.0, beware your mindset. Retrieved from http:// bx.businessweek.com/enterprise-20/view?url=htt p%3A%2F%2Fdigitalbridges.wordpress.com%2 F2010%2F05%2F04%2Fapproaching-enterprise2-0-beware-your-mindset%2F Haque, U. (2009). Why ideals are the new business models. Harvard Business Publishing. Morgan, J. (2010a). Implementing Enterprise 2.0 at Océ, part one: Business, drivers, http. Retrieved from //www.jmorganmarketing.com/ implementing-enterprise-2-0-at-oce-part-onebusiness-drivers/ Morgan, J. (2010b). Implementing Enterprise 2.0 at Océ, part two: Making the push. Retrieved from http://www.cloudave.com/link/implementingenterprise-2-0-at-oce-part-two-making-the-push Scarpazza, D. P. (2009). High performance computing: Is Larrabee for the rest of us? Retrieved from http://www.drdobbs.com/high-performancecomputing/221601028;jsessionid=RLHRYH3UZ FBKNQE1GHRSKHWATMY32JVN
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Thompson, M. (2010). Creating a typology of Enterprise 2.0 use cases. Retrieved from http://bx.businessweek.com/enterprise-20/ view?url=http%3A%2F%2Fwww.headshift.co m%2Fblog%2F2010%2F04%2Funderstandingenterprise-20-us.php Viscio, A. J., & Pasternack, B. A. (1996). Toward a new business model: Strategy & business, global commercial consulting firm. Booz & Company.
KEY TERMS AND DEFINITIONS E-Business 2.0: Although ‘e-Business 2.0’ is used in a book from Robinson et al. (1999), the meaning is different. A perspective of van der Sleen (2007) who refers to contact with customers and suppliers, is more related. e-Business 2.0 has an external focus, e-Business 2.0 pure players depend on Web 2.0 to create and appropriate value with a focus to external customers, instead of internal organisations. The concept of e-Business 2.0 highlights that e-Business is evolving. e-Business 2.0 is a part of e-Business and can also be referred to as a new stage in e-Business that will become more prominent in the next few years. Enterprise 2.0: The term “Enterprise 2.0” focus only on those platforms that companies can buy or build in order to make visible the practices and outputs of their knowledge workers. Enterprise 2.0 is all about Web 2.0 technologies and practices within organisations and businesses. Andrew McAfee provides a clear, clean explanation of Enterprise 2.0; the emerging use of Web 2.0 technologies like blogs and wikis within the Intranet (McAfee 2007). McAfee (2006a: 23) argues that
‘there is a new wave of business communication tools including blogs, wikis and group messaging. There are new digital platforms for generating, sharing and refining information that are already popular on the Internet. These platforms are collectively labeled Web 2.0 technologies. The term ‘Enterprise 2.0’ focuses only on those platforms in which companies can buy or build in order to make the practices and outputs of their knowledgeable workers visible.’ Enterprise 2.0 looks at Web 2.0 technologies and practices within organisations and businesses and is therefore, referred to as internal focus. Mashup: Web 2.0 website are often a combination of data from two or more sources into one experience, this is called a mashup. According to O’Reilly (2005) the race is on to own certain classes of core data. Social Computing: Orrester Research Inc. refers social computing to ‘easy connections brought about by cheap devices, modular content, and shared computing resources, that are having a profound impact on our global economy and social structure (Koplowitz and Young 2007). Software as a Service (SaaS): Web 2.0 service is a combination of software and data. Individual, the software and the databases are of limited value, but together they create a new type of service. In this context, the value of software lies in being able to manage the (vast amounts of) data. The better it can do, the more valuable the software becomes. Web 2.0: In the simplest terms Web 2.0 is the phrase being applied to ‘the second coming’ of the Internet. The 2.0 name is a clear allusion to the naming convention of software updates; this is the Internet version 2.0 (Sturgeon 2006).
This work was previously published in Implementing New Business Models in For-Profit and Non-Profit Organizations: Technologies and Applications, edited by Te Fu Chen, pp. 1-28, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Chapter 8.2
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering Jan Goossenaerts Eindhoven University of Technology, The Netherlands Frank Possel-Dölken RWTH Aachen University, Germany Keith Popplewell Coventry University, UK
ABSTRACT New challenges result from the virtualization and distribution of product development activities. This article analyzes problems of cooperative engineering as well as methods and tools for the virtual engineering of extended products. Based on these analyses, a broad road map is proposed that articulates public- and civil-sector roles in coping with future engineering challenges. With a strategic horizon, the public-sector role targets the creation of a knowledge-intensive global business ecosystem conducive to balanced civil-sector innovation and sustainable growth. The civil-sector DOI: 10.4018/978-1-60960-587-2.ch802
roles evolve tactics that implement proven cooperative and virtual engineering practices with a focus on value creation.
INTRODUCTION This road map has been drafted on the basis of gaps identified at two expert workshops organized by the IMS (Intelligent Manufacturing Systems) NoE Special Interest Group 6 on Collaborative Engineering of Virtual Products. A first workshop took place during the IMS Forum held in May 2004 in Como, Italy. A second took place during the Design of Information Infrastructure Systems for Manufacturing (DIISM) Conference in Octo-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering
ber 2004 in Toronto, Canada. The input of these workshops have been analyzed and positioned in a strategic research and technology development road map with specific attention to articulating requirements that are aligned to stakeholder needs and opportunities offered by technology. E-collaboration solutions in product life cycles promise to increase value for stakeholders, to shorten time to market, to handle the increasing complexity of products, and to lower the costs of development and ownership. In cooperative engineering (CE) the focus is on the organizational aspect of product development. In virtual engineering (VE) the focus is on the technological infrastructure that enables and supports CE and the life cycles of extended products. The three-cycle model of product development (Gausemeier, 2004) identifies the major issues of holistic product development as strategic product planning, virtual product development, and virtual production system development. Both the organizational and technological perspectives matter for all these cycles. Moreover, both perspectives extend into the social domain: Product stakeholders also affect the product life cycle via regulations, transportation, marketing, usage, repair and upgrade, take-back, and recycling and disposal, and there is a need for intimate information sharing among all product and production stakeholders (Kimura, 2005). Increasingly strong social demands and constraints and environmental considerations direct manufacturing activities and product use to be more resource saving and environmentally benign. Moreover, industry must be globally competitive. Information technology promises to accommodate both requirements (Kimura, 2005). With a focus on total benefit and cost of ownership, and socioenvironmental impacts, the socioindustrial global community must adopt a practice of collaborative product development, and it must achieve a high maturity level in obtaining and structuring data and knowledge from external and internal sources. A powerful e-collaboration
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environment bundling VE methods and solutions, tools, and infrastructure must enable advanced practices.
VISION, TRENDS, ENABLERS, AND PRACTICES FOR FUTURE ENGINEERING A Global Context and its Emerging Vision Over the past decade, the international community has articulated desirable outcomes, including social and environmental ones. It has achieved consensus about global development goals, such as the Millennium Development Goals1 (Sachs et al., 2005), and environmental targets, such as the Kyoto Protocol. Reporting frames such as that of the Global Reporting Initiative2 help organizations to report on environmental and social outcomes in addition to profits or losses. In the new growth paradigm, the precompetitive and postcompetitive phases of the knowledge production process (Yoshikawa, 1994) can be addressed in a more mature manner. The paradigm recognizes the broad context within which products are developed and production capabilities develop. The paradigm also admits ICT’s enabling role in achieving development goals such as sustainability and inclusivity. Kimura (2005) lists critical issues for the result-focused management of knowledge in the pre- and postcompetitive phases of product life cycles. Virtual and cooperative engineering require institutions, solutions, and practices regarding knowledge and idea flows that cannot escape the public-civil context. The emerging vision is to achieve, societywide, an excellent level of holistic harmonization and fit of technologies, organizational concepts, and company and market culture. The “improvement of the state of manufacturing industries as a whole” envisioned in the IMS3 program (Yoshikawa, 1994) includes industries’ ability to respond
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering
to global and local challenges and to contribute to realizing public policies while delivering value to the civil sector.
Trends and Collaboration Enablers The vision requires the integration of societal and organizational approaches, technical solutions, and company culture into an innovation and development environment that is result and customer focused, high performance, and leading in quality. Trends in cooperative engineering that support the vision include product life cycle management (PLM); networked, team-oriented, interdepartmental and intercompany process collaboration; product development as an integrated, formalized enterprise business process; increasing systematic innovation and knowledge management; and the setup of virtual enterprises of small and mediumsized companies (SMEs). In virtual engineering, the supporting trends include engineering object management and new approaches for distributed data and knowledge models; the development of aligned market-, industry-, and company-specific standards for data exchange between different applications; and development application integration (DAI) and enterprise application integration (EAI) based on portal or peer-to-peer technologies. The social domain also sees new institutional practices that aim to respond to challenges of the technology-intensive network economy. Wettig (2002) and Bilalis and Herbert (2003) describe the new approach to technical harmonization and standardization that was defined in an EU (European Union) Council Resolution of May 1985. It introduces a clear separation of responsibilities between the EU legislator and the European standards bodies CEN, CENELEC, and ETSI in the legal framework, allowing for the free movement of goods. Dul, Vries, Verschoof, Eveleens, and Feilzer (2004) illustrate how this approach delivers concerted directives and standards in the ergonomics area.
Experimental intellectual property schemes aim for a new balance between the public benefit from creation and the private reward for creators (the creative commons; Lessig, 2001). An international framework to promote access to data is being promoted. An emerging complex cyber infrastructure is rapidly increasing our ability to produce, manage, and use data. As research becomes increasingly global, data intensive, and multifaceted, it is imperative to address national and international data access and sharing issues systematically in a policy arena that transcends national jurisdictions. Open access to publicly funded data provides greater returns from the public investment in research, generates wealth through the downstream commercialization of outputs, and provides decision makers with facts needed to address complex, often transnational problems (Arzberger et al., 2004).
Collaboration Practices To achieve the vision, a road map must leverage the current state of practice and technology. For product development today, software applications are the most important tools. They facilitate the entire development process and manage electronically nearly all documents generated as part of product development and project management. CAD, FEM, simulation, document management, multimedia, and office communication are among the 13 different types of software applications that Robert Bosch GmbH applied in 2002 (Eversheim, 2002). Large companies, such as in the automotive industry, as well as SMEs in the tool and die industry and sheet-metal processing must set up internal standards and interfaces to cope with the heterogeneous system environment and data exchange problems in the product development process. All face the challenges of customeroriented job-shop manufacturing with increasingly short delivery times. In the tool and die industry, the CAD-CAM-NC chain is the major optimiza-
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tion target for cutting down lead times. Individual commercial software systems were integrated into a company-specific CAD-CAM-NC environment. This technical trend is accompanied by PLM, an extended management approach with a holistic view on all life cycle phases of products, from creation to disposal. For job-shop producers this means, for instance, integrating sales business processes with product development processes. Mass-production companies strive for life-cyclespanning, IT-supported business processes from marketing through development and production, to sales and service (Figure 1). In the machine tool industry, most European players are SMEs with limited financial and personnel resources. Yet, machine tools are among the most complex mechatronic products. They face some of the highest requirements concerning mechanical design, the usage of the latest electronic equipment, and advanced software solutions for control, operator support, and maintenance. Machine tools are also subject to requirements that are of public interest, such as the protection of the health and safety of users, and the protection of the environment. In order to keep up with growing customer requirements and competition from overseas, this industry is investing heavily
Figure 1. Product life cycle data management (Source: BMW, WZL)
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into research and deployment of the virtual machine tool (VMT). First, the VMT vision and concept calls for a coupled design environment for machine tools and related components. This environment must be based on commercial CAE applications and must allow for bidirectional exchange of product models between the development phases: design, component design and calculation, FEM, analytic mechanical analysis with multibody simulation, and performance evaluation and optimization by matching calculation results with measured machine tool behavior (Figure 2). Second, the VMT vision also extends to the mechatronic development domains, such as the design of electronic circuits with E-CAD systems, controls architecture development, controls programming, and control system simulation. Furthermore, current research focuses on the coupling of machine tool simulation and process simulation. The VMT concept also has a long-term perspective. It calls for integrated development environments that offer holistic support for mechatronic design. In the machine tool industry, environments with integrated data models are not available yet. Recent closer collaboration of CAE software vendors with automation providers and machine tool builders may lead to more integrated development environments building upon extended product data management systems. Because of their high complexity, mechatronic products like machine tools require domainspecific product models suited to the various development teams and stakeholders involved. In the longer term, various domain-specific product models need to be integrated as part of a DAI platform. Agent-oriented approaches provide the necessary means to set up information environments where the objects of a unified product model (UPM) can be flexibly linked and jointly administered while different stakeholders access only domain-specific views (Figure 3). Klement (2005) has developed a PDM platform that can consistently manage product data objects from
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering
Figure 2. Virtual machine tool design (Source: WZL)
different engineering domains as well as project management. Via an application programming interface (API), a CAE application loads its internal data objects into the generic data model of the agent platform and links to data objects of other applications. The CAE application thus becomes a tool providing a specific view onto the overall agent-managed product and project data structure, offering domain-specific functionality for manipulating selected data objects. Pockets and chains of excellence exist today. Yet, with respect to the vision of society-wide excellence enabled by global e-solutions, gaps emerge as local excellence is contrasted with the more common obsolescence. The socioindustrial Figure 3. Multiagent approach for engineering object management gaps (Source: WZL)
fabric faces sustainability challenges. Collaboration objectives cut across all multistakeholder product development and product-use activities. Collaborative design maturity must be enhanced. More than just being a technical challenge, this also is a sociotechnical challenge for a global IT-reliant work system.4 If the vision points in a direction, and as proven ICT-based solutions and experimental institutions demonstrate opportunities and feasibility, gaps and problems still exist in practices, knowledge and tools, as well as in the institutional infrastructure.
Conflicts of Interests and Competence Gaps The dynamism in the IT sector does not match well with the long investment horizons in some industries, such as process industries, or the limited learning means of others, such as SMEs. In these industries, collaboration along the product life cycle meets many nontechnical hurdles. A process-industry sector study into the adoption of product data standards (Dreverman, 2005) illustrates problems in the network of plant life cycle stakeholders. A first problem is data interpretation differences among the stakeholders. In the case of process plants, these stakeholders are engineering,
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procurement, and construction (EPC) contractors; plant owners; and equipment vendors. The engineering data differs greatly from the operational data. Plant owners actually need a fraction of this engineering data. They impose compliance to their own standards, but have decreasing knowledge of which data they actually need. EPC contractors, on the other hand, often work strictly to contract specifications and do not proactively participate in formulating improved specifications. As a result, plant owners end up with much unnecessary and redundant data. Fear of revealing critical information to competitors is a second problem. EPC contractors and also equipment vendors are reluctant to cooperate due to fear of revealing critical information to competitors. A third problem is the short learning curve. A plant is only built once and the frequency of projects is low. A slight change of parameters results in a greatly different design, and even when an exactly identical plant is built, the second plant differs significantly due to rapid progression of the technology used. Traditionally, plant owners did engineering in-house and hence have developed in-house standards. Today, plant owners often impose the use of in-house standards and software solutions on the EPC contractors. The multitude of such standards causes a need for multiple mappings and higher costs. This problem is amplified as equipment vendors differ significantly regarding their data readiness. Bigger vendors may be able to deliver in the required format, but many small suppliers use old systems or sometimes only deliver paper drawings. The human factor is another major cause of problems. In global multi-office engineering, it is very hard to really cooperate in design. This is because of differences in the style and taste of engineers. Aligning these different styles may cost more than the advantages of cooperation. For this reason, in the process industry, global engineering is mainly done at the unit and module level. Second, there is an envisioning gap between tech-
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nical opportunities and available experience on the user side. The high technical competencies of VE solution providers often face little experience and strong reservations against VE technologies by far too many product developers. Third, there is the system complexity for holistic VE solutions, which possibly overstrains the capabilities of most users, provided that software intelligence does not significantly increase.
Legacy and Application Gaps Legacy systems are forming a big hurdle to broad innovation. The system environment is heterogeneous and today’s VE applications lack interfaces for facilitating and supporting integrated information technology. This impedes the deployment and implementation of VE approaches. To take the innovation barrier, significant investments are required. Currently used CAE applications are large-scale engineering environments that need to be fundamentally adapted in order to support integrated product life cycles. Computing power is still insufficient for integrated simulation environments. This concerns particularly the simulation of complex automation and control solutions with respect to realtime behavior. Also, setting up virtual models of machinery or entire production systems requires extensive efforts. The success and benefits of simulation experiments on the other hand can in many cases not be predicted for sure. In addition, the integration of these virtual worlds into standardized development workflows is lacking. The commercial market for integrated simulation environments is just beginning to emerge.
Cross-Sectorial Gaps The adverse legacy systems, competence gaps, and conflicts of interest all contribute to not achieving collaboration objectives.
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering
Investments in collaboration technologies for the product life cycle exhibit strong network effects. These are complementary relationships in value creation among adopters of a common standard (Farrell & Klemperer, 2003) or joint technical infrastructure. For such technologies, lock-in situations are common, and the lack of expectation sharing among stakeholders may be just one factor of adoption inertia (Au & Kauffman, 2005). The value proposition must be articulated. A possible approach is to use the technique of the counterfactual model and social saving that originated in the 19th century for estimating the cost-reducing or resource-saving effect of railroads (Fogel, 1979). Gallagher, O’Conner, Dettbarn, Gilding, and Gilday (2004) have quantified the cost estimate of inadequate interoperability by comparing the current state of interoperability with a hypothetical counterfactual scenario in which electronic data exchange and availability is fluid and seamless. The resulting 2002 cost figure of $15.8 billion for the U.S. capital facilities supply includes design, engineering, facilities management and business processes software systems, and redundant paper records management across all facility life cycle phases. In general, there is a lack of systematic approaches and support tools for the capture, evolution, and reuse of knowledge applicable in the support of collaboration between departments or companies. Generic knowledge of the process of collaboration can be identified as applicable to almost all industrial sectors, as can sector-specific knowledge dependent on market and technological factors (Popplewell & Harding, 2004). Companies or virtual enterprises generate knowledge of their own collaboration issues, which, if captured and maintained, forms a growing body of enterprise experience that improves decision making and hence all measures of performance (i.e., financial, environmental, societal, etc.). Such knowledge at all levels is dynamic and expanding, and support tools must be able to use a wide range of techniques for knowledge capture, discovery, and retrieval.
Areas with weak systematics and generics include the following. •
•
•
Integrated models for product life cycles: There exist no holistic reference models for different application domains that describe domain-specific product life cycles. The methodological and technical support for integrated product, project, and production information management: Business processes continue to be inefficient because companies still lack the holistic understanding of their networked product development processes, their customer-focused project management, and their production and operations management. Formalized product life cycle workflows: The implementation of VE methods must be embedded into a sophisticated organizational approach that specifies and standardizes company-specific workflows of how to proceed in the development of products and processes.
Institutional Gaps in the Knowledge Economy At present, software vendors and standards bodies are the principals of the systematic and generic. For leading software vendors, lock-in of the customer base is the strategic objective. Standards bodies are ill-equipped to counteract monopolistic strategies in rapidly transforming and emerging markets. The public-sector weakness in the face of market dynamism structurally concurs with obsolete practices for managing public knowledge assets. Free riding and undersupply plague knowledge that becomes a pure and global public good. An actor that lacks the knowledge used to create value in a modern economy suffers from an idea gap (Romer, 1993). Whereas the partial and temporary monopoly power that is granted by patents, or by control of a large fraction of the market, lock-in, or network externalities, may act as motivators
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for intentional efforts to produce and transmit knowledge (Kurtzman, 2003; Romer), there is as yet no consensus on the basic institutional infrastructure for market exchanges when knowledge is the good exchanged. The Global Public Goods Task Force (2005, p. 22) summarizes: Most governments are heavily involved in regulating the production and dissemination of knowledge, using two instruments—(i) intellectual property laws that protect the rights of patent and copyright holders, and (ii) support for the common knowledge platform via funding of research in specific areas and protection of common use rights. However, the balance between the two kinds of systems has been tilting increasingly towards private intellectual property during the past 20 years, reflecting the pursuit of national commercial interests in the absence of international standards. The bottom line is a major contraction of the common knowledge platform, which is prejudicial to public interests. For today’s innovators, the relentless expansion of the current legal apparatus may be generating a highly fragmented and complex system of rights whose management incurs high transaction costs, with the effect of discouraging those types of creative activities that cannot afford such additional costs (Ramello, 2005). The “tragedy of the anti-commons” (Heller, 1998) is the name of the institutional failure that is looming with the trend to stronger patent systems and the patchwork approach to intellectual property in information products (Pendleton, 2005). The open-source movement (Lerner & Tirole, 2001) and the creative-commons licensing contracts (Lessig, 2001) are emerging practices at the other extreme. Neither of the extremes seems to establish the appropriate balance between the public benefit from creation and the private reward for the creator.
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A BROAD ROAD MAP FOR FUTURE ENGINEERING The gap analysis shows a problem space that spans both the civil and public sector and surpasses the solution portfolio of any engineering or social science discipline on its own. Improving the state of manufacturing industries and engineering as a whole is beyond the means of the manufacturing, engineering, and software communities. The connectedness of the global fabric is widely recognized. To overcome our inability to make engineering, manufacturing, and e-collaboration solutions part of concerted practices that respond to both global and local challenges, we must also expose the industry’s embedding in the global community as an engine of growth and as a beneficiary of right-sized institutions and new technologies.
A Broad Road Map On the challenges for society and organizations, Zall Kusek and Rist (2004, p. xi) state, “As demands for greater accountability and real results have increased, there is an attendant need for enhanced results-based monitoring and evaluation of policies, programmes, and projects.” Civil and public stakeholders must take aligned steps to cooperatively deliver extended markets and products that create sustainable prosperity. Virtual engineering e-collaboration technologies promise to make these steps affordable, but only if key participants purposely embark on a complex cooperative performance improvement program— institutional and organizational. Complementary scopes of public- and civil-sector roles must be supported by dedicated decision and reporting frames. Those of the Millennium Project and the Global Reporting Initiative must be further refined to serve as a yardstick for progress and a resource for planning. The road map is broad because it calls upon multiple stakeholders; addresses problems with strategic, tactical, and operational horizons in the
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering
dimensions of space and time; and calls for collaboration objectives expressed with respect to a comprehensive range of outcomes, including the social and environmental. In a global cooperative context, a road map must identify tasks for a large number of actors and stakeholders who together can achieve the scaling of excellence from their current pockets to society. Society is subject to the developments in and the limits of its natural and physical environment: the baseline and vulnerability context. Within this context, the excellent society should achieve bold development goals, as expressed in the Millennium Development Goals and the Kyoto Protocol. This society also is a community of value-exchanging actors moving into increasingly advanced uses of content, ICT, and application software to achieve outcomes that contribute to a total system of environment, economy, society, and culture (Monnai et al., 2005). Gaps are diverse, and conflicting trends exist. Concerted tasks to overcome gaps must be allocated to the natural stakeholders, that is, those responsible for the assets involved, and these stakeholders must enact a results-based monitoring and evaluation of their processes and projects. Where conflicting trends inhibit total welfare, decision frames must be established first before courses of action are decided (Zall Kusek & Rist, 2004). For the purpose of this broad road map, the stakeholders will be subdivided into two classes: those pursuing public benefit within a strategic to tactical horizon, and those pursuing private reward within a tactical to operational horizon.
A Public Sector that Enables Collaborative Product Development The public sector, including stakeholders such as academia and research institutes, standards bodies, and regulators, must facilitate collaborative product development. Often, the asset concerned is knowledge or institutional infrastructure. Knowledge has one of the oldest traditions of international
cooperation. Stakeholders in the public sector must rearticulate their purposes and their role models, taking into consideration the balancing of public and civil interests. There needs to be a transparent international dialogue, and a process with a view to achieving a knowledge consensus, on the appropriate balance between private intellectual property and knowledge in the public domain (Global Public Goods, 2005). In a global economy, this consensus must be shared globally. Academia and research institutes must then ensure that their activities, in particular, research target finding, the publication of results, dissemination approaches, and education, are informed also by the knowledge consensus. They must ensure open access to data for greater returns from the public investment. The global public sector must give adequate attention to the provision of knowledge as a global public good, and to the removal of hurdles that prevent its flow. With a strategic horizon, the international community must design and deploy an improved knowledge exchange infrastructure that is as pervasive as the international financial infrastructure and plays a special role as a conduit that lets productive ideas flow across the globe. Without this, change processes of most civil-sector stakeholders will continue to be poorly guided, slow, and laborious at best, and wrong or unfeasible in most cases. The Global Programs of the World Bank (World Bank Operations Evaluation Department, 2004) may offer one possible instrument to address this challenge. The proposals of the International Task Force on Global Public Goods describe a road map with far-reaching changes. The requirements framework of the improved knowledge exchange infrastructures must be built upon systematic and generic contributions such as integrated models for product life cycles; methodological and technical support for integrated product, project, and production information management; and formalized product life paths. Immediate action is possible for the principles regarding the establishment of access regimes
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for digital research data from public funding, to which 34 OECD member governments declared their commitment. Contracts regarding publicly funded research could include clauses that implement these principles for all contractors in line with their focus on public or private utility (thus reducing the contractual incompleteness that currently reigns in most knowledge exchanges, and encourages free riding and rent-seeking aims). Simultaneously, supporting infrastructural services should be identified or be implemented where gaps exist. Examples in this area are the Global Biodiversity Information Facility (GBIF)5 and the Interoperability Service Utility envisioned in the Enterprise Interoperability Research Roadmap published by the European Commission (Li, Cabral, Doumeingts, & Popplewell, 2006). For the civil-sector stakeholders, the transformations of the knowledge exchange infrastructure and the articulation of private and public phases in the product knowledge life cycle should have several implications. Where current contracts are shallow and suffer from contractual incompleteness, knowledge economy contracts should be knowledge aware and have a broader scope. Supported by a more capable market and knowledge exchange institutions, social and environmental values will become part of dedicated clauses in future contracts that will determine responsibilities, rights, and liabilities in product life cycles. This will reduce risks of breakdown in contractual relations, stimulate local content in global supply chains, and lead to improved socioenvironmental impact of product life paths. Civil-sector stakeholders should avoid the trap of hyperbolic discounting6 in their dealings with environmental and social values and with knowledge. Whenever knowledge on a product is captured by any stakeholder, this must be done early and comprehensively to allow for further sharing beyond the private boundary, and with transparent reflection of its hosting frame of reference in the knowledge evolution.
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A second area for immediate action is the application of the area of virtual engineering software and data of the new approach to technical harmonization and standardization (Bilalis & Herbert, 2003). The lack of interoperability of software for product development has long been addressed by standards alone (STEP) without strategic support from directives. Yet, there is a sound argumentation for institutional intervention where market failures support rent seeking by software vendors and where interventions do not lock in the market. Consider that left-right conventions do not harm the mobility utility on a network of roads (Arthur, 1994). Moreover, user-owned data can be separated from application-added data through a proper architectural style (Goossenaerts, 2005).
Collaboration-Based Competences in the Civil Sector Knowledge infrastructure and right-focused institutions will imply significant social savings and value construction opportunities for the civilsector actors. Today’s engineering and production companies are embarking on substantial changes in the area of virtual engineering. Software and services turnover for the digital factory is predicted to show annual increases of approximately 35% in the next 5 years. However, there is no single threaded path into the future, and information and communications technologies show a rapid and disruptive evolution. Hence, there are manifold issues that need to evolve and finally merge in order to establish a culture and technological environment for efficient networked product life cycles. Changes in practices are required. Many of these changes involve network effects. Enhanced knowledge infrastructures, right-sized institutions, and alliance approaches (van de Ven, 2005) will accelerate value construction by market participants. Below we address scenarios for the gaps that were highlighted in the article.
Vision, Trends, Gaps and a Broad Roadmap for Future Engineering
The resolution of conflicts of interest is achieved by the improved fitness of the publicsector infrastructure, which clearly identifies public knowledge and models, and separates them from their proprietary complements. This will facilitate companies to establish processes and culture that will spur and enable dynamic cooperation with suppliers, customers, or even competitors if required. A virtual enterprise is a temporary, project-oriented cooperation of companies established in order to handle projects that none of the partners could do alone (Zheng & Possel-Dölken, 2002). As cross-sectorial gaps are overcome, knowledge sharing, intelligent collaboration, and knowledge discovery will be facilitated. Knowledge sharing between product stakeholders will increasingly rely on shared information models. Recent research in system interoperability must be applied to increase the level of automation in the sharing of information. Beyond current workflow management, intelligent collaboration must embody and apply as wide a range as possible of knowledge of collaboration, the relevant industrial sector, the value chain, and the partners to identify and resolve potential decision conflicts at the earliest possible point, before avoidable expense is incurred. The volume of knowledge potentially available to support collaborative engineering is too vast to be adequately embedded in support agents through conventional elicitation and encoding. The capabilities of knowledge-based support agents must be extended with knowledge discovery methods (e.g., data mining) that derive new insights from current and historical information stored in structured hybrid knowledge bases with crisp open or private boundaries. Investments in new applications or in legacy conversion can then be rooted in a proven and rich joint technical infrastructure. Where simultaneous engineering can be considered as state of the art in most advanced engineering firms, the next step will be systemic, networked engineering approaches that link the expertise and knowledge of
past engineering projects with new engineering tasks across interdepartmental and intercompany boundaries. Networked engineering requires multidimensional modeling frameworks specified by metamodels that describe the structure and rules for application-specific models. These modeling frameworks facilitate integration activities in business information management, EAI, as well as vertical integration on the level of manufacturing execution systems (MES). Also in product development, integrated (vendor-specific) software environments emerge. One of the major tasks for information technology for the next 10 years will be the development of solutions on how to integrate the increasing number of “integrated peninsulas” into a flexible framework for integrated PLM where different stakeholders and application domains engage in information networks. The short-term task in the domain of work management is the development of reference activity models and their extension by methods and tools for the automated, context-sensitive generation of workflows. Intelligent workflow generation is based on semantic networks and domain ontology (Weck, Hoymann, & Lescher, 2004). Regarding applications, simulation approaches need to be combined in order to optimize not just the development of single manufacturing steps, but to focus on entire process chains. In order to achieve and guarantee lead times, product quality, production costs, and customization amongst other things, we need to analyze the production processes beginning with the very raw material for the different component threads, as well as customization processes, to finally merge into a single product, such as a machine tool or automobile (virtual process chains). Step by step we move to augmented reality: Product simulation, factory process flow simulation, and the simulation of automated manufacturing and assembly systems all become similar to the information and computer systems used to plan and control real-world product use and production.
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CONCLUSION Virtual engineering and e-collaboration technologies represent foundational cornerstones of the digital revolution in engineering, product development, and product use. Yet technological capabilities only slowly translate into improved sustainability and inclusivity of the socioeconomic fabric in which the products evolve and emerge. The excellence that is achieved in some pockets does not scale out due amongst other things to market or institutional failures and the limited cooperative maturity they perpetuate. Beyond being a CAE technology road map, a road map for future engineering must pay attention also to the restoration of the dynamic balance between the public and civil sector. This broad road map articulates some pathways that build upon the current technological capabilities and also leverage trends in global governance, the knowledge economy, modeling, and methodology.
ACKNOWLEDGMENT The authors thank all SIG 6 members and all participants to the Idea Factory sessions in Como, May 2004, and Toronto, October 2004, for sharing views and knowledge. Special thanks are due to Eiji Arai, Paul van Exel, Fumihiko Kimura, Frank Lillehagen, John Mills, Janusz Szpytko, and KlausDieter Thoben for their comments on drafts of this article. The authors also wish to acknowledge the Commission of the European Communities for their support of the IMS Network of Excellence within which the road map was developed.
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ENDNOTES 1 2
See http://www.developmentgoals.org/ The GRI was launched in 1997 as a joint initiative of the U.S. nongovernmental organization Coalition for Environmentally Responsible Economies (CERES) and the United Nations Environment Programme with the goal of enhancing the quality, rigour, and utility of sustainability reporting. The initiative has enjoyed the active support and engagement of representatives from business, nonprofit advocacy groups, accounting bodies, investor organizations,
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trade unions, and many more. Together, these different constituencies have worked to build a consensus around a set of reporting guidelines with the aim of achieving worldwide acceptance. The Global Reporting Initiative (2002) Sustainability Reporting Guidelines can be found at http://www.globalreporting.org. www.ims.org A work system is a system in which human participants and/or machines perform work using information, technology, and other resources to produce products and/or services for internal or external customers. IT-reliant work systems are work systems
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whose efficient and/or effective operation depends on the use of IT (Alter, 2003). GBIF is an interoperable network of biodiversity databases and information technology tools that enables users to navigate and put to use the world’s vast quantities of biodiversity information to produce national economic, environmental, and social benefits (http://www.gbif.org/). Hyperbolic discounting is a term economists use to refer to the tendency of people to apply lower discount rates to events in the far future and high discount rates to events in the near future (Perelman, 2003).
This work was previously published in Virtual Team Leadership and Collaborative Engineering Advancements: Contemporary Issues and Implications, edited by Ned Kock, pp. 226-240, copyright 2009 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.3
Emerging Trends of E-Business Pengtao Li California State University, Stanislaus, USA
ABSTRACT E-business has grown dramatically in the last ten years. Its only constant is change. Awareness of these changes can help both business and customers better utilize and take advantage of e-business. This chapter presents the emerging trends of ebusiness in various areas, including Web services, Web 2.0, Mobile Commerce (M-Commerce), and corresponding ethical and social issues.
INTRODUCTION E-business has grown dramatically during the last ten years. The Internet has provided companies
with access to new markets and customers. And customers have found e-business an effective way of researching and purchasing products/services. Things have constantly changed since e-business emerged and will keep changing in the future. The benefit of e-business cannot be gained if companies do not understand or adapt properly to these changes. In this chapter, we will not focus on those full-fledged e-business technologies or applications, but on emerging trends of e-business in recent years. These could be the super stars in the near future, or, if not properly handled, the fatal disasters for some companies. Topics include: Web services, Web 2.0, Mobile Commerce, and emerging ethical and social issues.
DOI: 10.4018/978-1-60960-587-2.ch803
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Emerging Trends of E-Business
Web Services The growth of e-business depends on businessto-business (B2B), application-to-application (A2A) and business-to-consumer (B2C) interaction over the Web. This requires a technology that supports cross operating system, cross hardware platform transaction, and integration of software modules written in any language, sometime with legacy systems. However, no previous distributed computing architecture (such as Sun Java Remote Method Invocation (RMI), OMG Common Object Request Broker Architecture (CORBA), Microsoft Distributed Component Object Model (DCOM)) can deliver such benefits (Lim & Wen, 2003), because these technologies are heavily dependent on the particular proprietary environment and tight-coupling of client and server, where one application that calls a remote network is tied strongly to it by the function call it makes and the parameters it requests (Joshi et al., 2004). Web services refer to a group of loosely coupled software components that exchange information with each other using standard network protocols and languages (Laudon & Laudon, 2006). It is a technology that allows applications to communicate with each other in a platform- and programming language-independent manner. It uses protocols based on the XML language to describe operations to execute or data to exchange with another Web service. A set of Web services interacting together in this manner defines a particular Web service application in a Service-Oriented Architecture (SOA) (Laudon & Laudon, 2006). Furthermore, Web services can work on a more abstract level where data types can be re-evaluated, revised or handled dynamically. So, on a technical level, Web services can deal with data much more easily and allow software to communicate more freely than most previous systems (IBM, 2007a). For instance, Google and Yahoo both provided the Web service APIs (application programming interface) allowing other applications to integrate Google’s and Yahoo’s map and satellite images.
Google has even simplified that process to the level of embedding only four lines of Java codes. There are separate core standards developed for various Web services activities. The most important ones are Web Services Description Language (WSDL), Universal Description, Discovery, and Integration (UDDI), and Simple Object Access Protocol (SOAP). A basic Web services architecture is described in Figure 1. Web services providers use WSDL to describe a Web service. UDDI registries hold the Web service descriptions. And service requestors around the globe can access UDDI registries to browse and find the specific Web service. Then service requestors bind (invoke as required) the service from the provider based on SOAP. SOA is a popular way to implement Web services. It is defined as a set of self-contained services that communicate with each other to generate a software application (Laudon & Laudon, 2006). These services interact by passing data from one service to another, or by coordinating an activity between two or more services. With SOA, loose-coupling of software components is more likely. Instead of embedding calls to each other in their source codes, services use defined protocols to describe how they communicate with each other. Often, Business Process Execution Language (BPEL) is used to extend the service concept by specifying the interaction among Web services to support business transactions. BPEL could facilitate the expansion of automated process integration both within and between businesses. Figure 1. Web services architecture
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Following the service-oriented trail, one can also find some more recent concepts such as mashups, SaaS (Software as a Service) and cloud computing, among which cloud computing has attracted a lot of attention recently. Gartner stated that cloud computing would be as influential as e-business (Stevens & Pettey, 2008). Evolved from SaaS, cloud computing is service-centered. Gartner defines cloud computing as “a style of computing where massively scalable IT-related capabilities are provided ‘as a service’ using Internet technologies to multiple external customers” (Stevens & Pettey, 2008). Cloud computing services usually provide regular business applications online that are accessible from a web browser, while the software and data are stored on the servers. The term “cloud” refers to the Internet, based on the way people draw the Internet in computer network diagrams, and is an abstraction for the sophisticated infrastructure it hides (Erdogmus, 2009; Scanlon & Wieners, 1999). By 2006 Harvard Medical School and its hospital affiliates have smoothed their business processes through the sharing of medical data transparently by building an SOA integrating about 25 categories of Web services shared between 400 different departments with 14,000 employees (McKendrick, 2006); Amazon uses SOA to create a sales platform supporting 55 million active customers, and more than one million retail partners worldwide. Its operation is an integration of hundreds of services from a number of application servers (Laudon & Laudon, 2006). In 2002, Amazon started to provide Web services, such as storage service and shopping cart functionality, at http://aws.amazon.com, for other web sites or client-side applications. It is called Amazon Web Service or AWS. AWS also supports cloud computing. In June 2007, Amazon claimed that more than 330,000 developers had signed up to use AWS (Storani, 2008); Founded by a former Oracle executive, Salesforce.com is another well-known Web services provider who offers a Web service version of customer relation-
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ship management (CRM) software and has been very successful. Web services allow programmers to pull data from many different Web sites and combine them with other information to make entirely new applications. Thus, the Web becomes a platform where programmers can create many new services quickly and inexpensively (Laudon & Laudon, 2006). Because of the loose coupling nature, high-level interoperability, easy integration and simplicity, Web services architecture has been adopted by all major technology vendors, including Microsoft, Oracle, IBM and Sun (Joshi et al., 2004). For example, Sun had built Web services support into J2EE (Java 2 Enterprise Edition) and Microsoft has built it into.NET framework. However, Web services could expose business methodologies, business applications, or confidential business details, which need to be protected from unauthorized access and use (Joshi et al., 2004). For B2B applications, companies need to connect services outside of their firewalls, thus more security concerns arise. It is an ongoing effort to develop various security protocols and methods to address these concerns. Examples of such protocols include WS-Security 1.0 and Security Assertion Markup Language (SAML) (IBM, 2007b).
Web 2.0 Since Tim Berners-Lee created the WWW in 1990, it started as a way to allow the users to navigate among the Web pages electronically. But later the Web has evolved to such a level that users can publish content to millions of others; share their preferences, bookmarks and online personas with each other; create virtual lives; and join online communities. This “new” Web has been referred to “Web 2.0” (Laudon and Traver, 2008): YouTube, purchased by Google with $1.65 billion, grows to the largest online consumergenerated video posting site. It draws 70 million monthly visitors, and accounts for 60% of all
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videos watched online (Laudon & Traver, 2008); MySpace and Facebook make to the lead of online social networking sites, each with over 100 million registered users; Google attracts the largest Internet audience with 140 million unique monthly U.S. users, and over 575 million international users; Wikipedia allows people around the world to share their knowledge and has become the most popular online encyclopedia, much more successful than early professional encyclopedias such as Encarta or even Britannica (Laudon & Traver, 2008). It is one of the largest collaboratively edited reference projects in the world, and one of the top ten most visited sites globally (Alexa.com, 2009). Tim O’Reilly (2005), who coined the term “Web 2.0”, stated that the strategic positioning of Web 2.0 is to use “the Web as Platform”. He defined Web 2.0 as “the business revolution in the computer industry caused by the move to the Internet as platform, and an attempt to understand the rules for success on that new platform” (O’Reilly, 2006). More easily to understand, Web 2.0 refers to a perceived new generation of web development and design, targeting to facilitate communication, secure information sharing, interoperability, and collaboration on the WWW (Wikipedia, 2009). Although the term suggests the second version of the Web, it does not refer to any new technology, but rather to new ways software vendors and endusers design and use the Web. Web 2.0 concepts have facilitated the development of web-based communities, hosted services, and applications such as social-networking, photo/ video-sharing, wikis, blogs/microblogs, tagging and social bookmarking, RSS (Really Simple Syndication), and AJAX applications (Asynchronous JavaScript and XML). However, some argue that “Web 2.0” is not a new version of the Web, but simply continues to use “Web 1.0” technologies and concepts. Techniques such as AJAX cannot replace communication protocols like HTTP, but add an additional layer of abstraction on top of them (Wikipedia, 2009). Some people think it is just a marketing
buzzword. In an interview with an IBM developerWorks podcast editor, Tim Berners-Lee, the inventor of WWW, said:”... I think Web 2.0 is, of course, a piece of jargon, nobody even knows what it means...” (Laningham, 2006). Furthermore, some people worry it is another Internet bubble (Dvorak, 2007; Waters, 2007). Graham (2005) stated “It seemed that it was being used as a label for whatever happened to be new—that it didn’t predict anything.” Social media is another popular term in the recent years, and is often used along with “Web 2.0”, with many people thinking that they are interchangeable. However, it could be better defined as a major subset of Web 2.0. In the simplest way, social media refers to “content that has been created by its audience” (Comm, 2009). The keywords are participation and interactivity. Businesses also use the term user-generated content (UGC) or consumer-generated media (CGM). Examples include, but are not limited to: blogs (WordPress), micro-blogs (Twitter), social networking (Facebook, MySpace, and LinkedIn), Wikis (Wikipedia), social bookmarking (Delicious), social news (Digg), media sharing (Flickr, YouTube, and Last.fm), and virtual world (Second Life and World of Warcraft). Without doubt, social media have shaken the foundation of traditional publication industry. Moreover, it even changes the world of politics, and certainly generates new business opportunities. Although a lot of people laughed at Twitter when it was founded in 2006, it has grown dramatically since then. From February 2008 to February 2009, Twitter grew by 1,689% (Whitworth, 2009). Now there are more than 2 billion messages (or Tweets) posted on Twitter and the number is still counting (http://popacular.com/ gigatweet/). Now some believe Twitter is the most important website since Google. Based on a survey in January 2009, Twitter is the most often used tool for social media marketing (Stelzner, 2009). Market researchers look to it to find out
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up-to-minute trends. Although its functionality needs to be improved, Twitter Search (http:// search.twitter.com) could be the best “real-time” search engine available today, even timelier than Google, especially for time-critical information such as world events and sports. Businesses such as H&R Block and Zappos are now using Twitter to facilitate customer service. Media groups are focusing on Twitterers as first-to-the-scene reporters (such as China earthquake and Mumbai attacks in India in 2008). Due to Twitter’s popularity, CNN started its Twitter news channel: CNNBRK (http://twitter.com/cnnbrk). Israel is believed to be the first country to have its own official blog, MySpace page, YouTube channel, Facebook page and a political blog. The Israeli Ministry of Foreign Affairs created the country’s video blog and its political blog (Simon, 2008). The Foreign Ministry also held a microblogging press conference via Twitter about its war with Hamas. The conference notes were later posted on the country’s official political blog (Cohen, 2009). In the news industry, companies like CNN use professional reporters to get stories and take pictures. Now people can post their pictures on iReport.com and describe the events. Some of pictures and stories are chosen and used by CNN. Similarly, former publications need to purchase the stock photographs from professional photographers and pay a huge amount of money. Today, everyone can sell or buy stock photographs, illustrations, or even audio and video on Web sites such as iStockPhoto.com with very low prices. This phenomenon is referred as crowdsourcing (Jessup & Valacich, 2007). Massively Multiplayer Online games, or MMOGs, are often treated as virtual worlds or online communities. They even change the way the young generation lives. With more than 11.5 million monthly subscribers (Blizzard, 2008b), World of Warcraft (WOW) is the world’s most popular subscription-based MMORPG (Massively Multiplayer Online Role-Playing Game)
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(Blizzard, 2008a; Snow, 2007). In April 2008, WOW was estimated to hold 62% of the MMOG market (Woodcock, 2008). With monthly subscription around $15 per player, one can easily do the math. Furthermore, interestingly WOW opened a market for the trading of accounts with well-equipped characters. Based on BBC news, the highest record of account trade was for £5000 (about $9,900 USD) in early September 2007 (Jimenez, 2007). Some players even pay to level up their own characters. And it is estimated that the global real money trade (people paying real cash for online gaming virtual items) is worth around $300 - $400 million (Jimenez, 2007). Because social media attracts large population; the audience gathers in groups by common interests; and there is basically no cost to publish content, it is a perfect place to conduct marketing. Social Media Marketing (SMM) is a type of Internet marketing which targets to accomplish branding and marketing goals by participating in various social media networks (Rognerud, 2008). It can involve developing content that aims social media audience, building a network, requesting votes, and getting traffic and exposure from social media websites (Scocco, 2009). Based on Williamson (2008), SMM has a huge business potential. For instance, MySpace generated $850 million in online advertising revenues in 2008, and Facebook $325 million (increased more than 300% since 2007). Although the current Web 2.0 applications such as social networking provide new ways of communication and collaboration, they are “walled gardens” and isolated from each other (Chartier, 2009). It means that a person who picked one social networking service cannot easily share the content with another person who picked a different service. The social activities are more or less locked away in each of these services, not matter whether it is Facebook, Twitter, or others. In the Report of W3C Workshop on the Future of Social Networking in January (W3C, 2009), it is also concluded that with the current architecture,
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users have to create many accounts and record their data separately, which is “counter-productive” and obstacles innovation. Future social networking should be discentralized so that the data could be more freely moved across the social networks. Google has made the first hit to break down the barriers. On May 28, 2009, Google Wave is announced (It will be released later in 2009) (Google, 2009). It is a web-based service to merge e-mail, instant messaging, wiki, and social networking, providing real-time communication and collaboration. It has the potential to unite various social media services, making it much easier to communicate and manage with a single log-in.
such as iPhone and broad-band cellular networks such as 3G network. The less price-sensitive early adopters with age of 13-25 could lead the initial growth (Frost & Sullivan, 2007). The m-commerce applications include the following:
M-Commerce
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In July 2008, there were about 255 million cell phone users in the United States and about 3 billion worldwide. The number easily dwarfs the global PC population of about 1 billion (TIA, 2008). Due to their portability and convenience, mobile devices are starting to be used to purchase goods and services. The use of mobile devices for purchasing goods and services from any place has been termed mobile commerce or m-commerce (Laudon & Laudon, 2006). So far, m-commerce is used most widely in Japan and Europe (especially in Scandinavia) where cell phones are more prevalent than in the United States. For example, NTT DoCoMo has provided wireless services (called i-mode) in Japan. The subscribers can access wireless Web sites to check train schedules, obtain movie listings, browse restaurant guides, purchase tickets on Japan Airlines, trade stocks, view cartoons, and read daily newspapers. Till 2007, m-commerce in the United States still has been a disappointment. Only 2% of the retail brands in the top 1,000 U.S. brands in 2007 operated a mobile Web site, and m-commerce counted for less than 1% of all B2C e-commerce (Laudon & Traver, 2008). However, m-commerce is expected to grow rapidly in the United States in the next few years because of smart phones
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Mobile Ticketing: Tickets (e.g. for parking, movie, concert and event) can be sent to mobile phones. Customer can use their tickets instantly by showing their phones at the venue. It increases customer convenience and reduces transaction cost. Mobile vouchers, coupons and loyalty cards could work in a similar way. Mobile Entertainment: Currently mainly the sale of ring-tones, wallpapers, and games for mobile phones. In the future, it may include full-length music tracks and video, or even the whole movies (with 4G-level wireless network). Information services: News, stock data, sports results, financial records, traffic information. This could include locationbased services such as local maps, offers, and weather. Mobile purchase: Mobile purchase allows customers to shop online at any time in any location. Mobile Auction starts to gain popularity as well. Mobile banking and brokerage: Financial institutions are exploring the possibility to allow their customers to not only access bank account information, but also make transactions, such as purchasing stocks and remitting money, via mobile device in a timely matter. It still needs the support of better mobile network security technologies to be widely implemented. Mobile marketing and advertising: Advertisement could be displayed on the screen of mobile devices.
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The main payment methods used to enable m-commerce include premium-rate calling numbers; charging to the mobile device users’ bill or deducting from their calling credit; a credit card that is linked to a SIM (Subscriber Identity Module) card; and PayPal Mobile checkout services (Laudon & Laudon, 2006). Although m-commerce is promising, there are still some obstacles: keyboards and screens of mobile devices are usually tiny and uncomfortable to use (which started to change with iPhone); Most Internet-enabled cell phones have limited memory and power supplies; Using mobile devices while driving could be unsafe; Data transfer speed on second-generation cellular networks is very slow compared to high-speed Internet connection to PC. With the 3G network and other broad-band cellular services, the speed problem could be alleviated. But beyond usability, greater concerns, involving privacy (Tarasewich et al., 2002), standardization, and security issues (Kim, 2006), still need to be addressed to popularize m-commerce.
Ethical and Social Issues Data Security and Privacy In mid-December 2006, the TJX companies, the largest international apparel and home fashions off-price department store chain in the United States, discovered that its computer systems were compromised and credit card information of about 45.7 million customers was stolen (Vijayan, 2007). The number was not final since the full investigation would take very long time (Jewell, 2007). So far it is the world’s largest data breach (McGlasson, 2008; Simpson, 2007; Vijayan, 2007). In August 2008, 11 alleged hackers around the globe were arrested (McGlasson, 2008). However, this is not the only story. If you search “Top 10 data/security breach” online, you will find many similar cases, with large amounts of economic lost especially in the recent years.
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In typical e-business architecture, basically every part could go wrong: from the client and the server to the communications pipeline (wired or wireless). There are a number of security threats to both e-business consumers and site operators: malware (e.g. virus, worm, Trojan horse, spyware, and botnet), identity theft (e.g. phishing), cyber vandalism (e.g. hacking), credit card fraud/theft, spoofing and span Web sites, DoS (Denial of Service) and DDoS (Distributed Denial of Service) attacks, sniffing, insider attacks, and software flaws/security holes. In order to secure e-business, we need help from more advanced technologies, better management policies and business procedures, and new public laws. Better, more effective, and more personalized services require business to collect and analyze a huge amount of customer data. Along with the openness of Internet and mobile network, customers’ privacy and information security are more vulnerable than ever. To e-businesses, the ability to give consumers control of their privacy in order to create an acceptable level of trust is highly essential (Smith & Shao, 2007). Protecting individual privacy and information security is important and beneficial to both consumers and businesses. While the existing technologies make a promising start to enhance consumer privacy and security in e-business, much still needs to be accomplished. For example, Doubleclick (www.doubleclick. net), an Internet advertising broker, is allowed by hundreds of Web sites to track the activities of their visitors. Over time Doubleclick can create a detailed profile of a person’s spending and computing habits on the Web that can be sold to companies to help them target the Web advertisement more precisely. ChoicePoint, one of the largest data brokers, uses an extensive network of contractors to collect data from police and motor vehicle records; credit and employment histories; addresses; licenses; insurance claims; loan applications; and so on. The company has collected information on almost every adult in the
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United States, and sells the personal information to businesses and government agencies. However, these private data brokers are largely unregulated (Laudon & Laudon, 2006). There has been very little or no federal/state control of how they collect, maintain, and sell their data. A specific federal law for privacy protection is highly expected (Laudon & Laudon, 2006). New technologies could also help to protect privacy. P3P (the Platform for Privacy Preferences) is a good start. In Europe, especially with the European Commission’s Directive on Data Protection coming into effect in 1998, the privacy protection is much stronger and more comprehensive than in the U.S. In EU (European Union) nations, the businesses are not allowed to use personally identifiable information without consumer’s prior informed consent. Furthermore, the customers have the right to access that information, correct it, and request that no further data be collected. Over the past decades, due to the extensive concerns about privacy issue, more and more companies added a new position to their senior management ranks, chief privacy officer (CPO).
Intellectual Property Rights Since the first federal Copyright Act of 1790, the intent behind intellectual property laws has been to encourage creativity and authorship by ensuring that creative people received the financial and other benefits of their work. But the intellectual property laws are always challenged by the new technologies, such as, mainly in the past ten years, Internet and E-commerce technologies. Although the Digital Millennium Copyright Act (DMCA) of 1998 tried to adapt the copyright laws to the Internet age, its effectiveness still need to be tested. In 2007, Viacom filed a $1 billion lawsuit against YouTube and Google for copyright infringement, claiming YouTube was engaging in “massive intentional copyright infringement” for making available about 160,000 unauthorized Viacom
clips. Google lawyers said they are relying on the 1998 DMCA’s safe harbor and fair use to shield them from liability. The case is still unsettled. Another big headache in the Internet age, especially for record industry, is illegal file sharing over P2P network. By 2008, the record industry had filed over 30,000 lawsuits for file sharing (Kravets, 2008). Furthermore, social media bring us new questions. For example, Wikipedia is an online “e-book” encyclopedia written and updated by thousands of, if not more, contributors. Its cousin, Wikibooks, create textbooks that can be edited by anyone. Then, who owns the copyright of these encyclopedia and textbooks?
Child Protection In 1998 after FTC (Federal Trade Commission) found that 80% of Web sites were collecting personal information from children, but only 1% required their parents’ permission, U.S. congress passed the Children’s Online Privacy Protection (COPPA) (Laudon & Traver, 2008). COPPA requires that companies are not permitted to collect or use personal information from children under 13 without the prior, verifiable consent of parents. It appeared to have been successful (Laudon & Traver, 2008). In order to protect children from online pornography, in 1996, Communications Decency Act (CDA) and Child Pornography Prevention Act were passed. But both were struck down by the Supreme Court, in 1997 and 2002 respectively. A 1998 law, Children’s Online Protection Act (COPA) has been struck down five times (1999, 2003, 2004, 2007, and 2008), mainly because that COPA violated the First Amendment of freedom of speech (Laudon & Traver, 2008). In January 21, 2009, the U.S. Supreme Court refused to hear the government’s appeal against the banning of the COPA, effectively killing the bill (Nichols, 2009). In 2001, Congress passed the Children’s
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Internet Protection Act (CIPA), which required schools and libraries to install “technology protection measures” (filtering software) to shield children from pornography. In June 2003, the Supreme Court upheld CIPA. However, all the justices agreed that current filtering software was unable to distinguish child pornography from sexually explicit material (which is protected by the First Amendment), and generally unreliable (Greenhouse, 2003). It seems that better filtering technology would help. But as far as legislation is concerned, it is still unsettled. And there are arguments that individual families should take actions to block inappropriate content on the Internet, rather than the government deciding what can and cannot be seen by all children. Besides online privacy and pornography issues, cyberbullying is also a concern that troubles parents. With flourishing of social networking services, such as MySpace, Facebook and Twitter, it becomes even severer. In 2006, 43% of U.S. teens surveyed by Harris Interactive reported having experienced some form of cyberbullying in the past year (Wagner, 2008). In the same year, Megan Meier, a 13 years old girl at Missouri, committed suicide, which was attributed to cyberbullying through MySpace (Associated Press, 2009). Because of the case, the Megan Meier Cyberbullying Prevention Act was introduced in Congress in May 2008. And by the beginning of 2009, at least 19 states passed laws addressing cyberbullying. Federal lawmakers are also considering action (Michels, 2008). There are also software tools such as Cyber Bullying Alert to help children to report and further prevent cyberbullying. Online safety education services such as i-SAFE (http:// www.i-safe.org/) can empower public to make Internet a safer place. All these efforts, combined with parents’ closer attention, hopefully will make us stand a better chance to prevent cyberbullying tragedies like Megan’s suicide. Online sexual predators are another notorious threat to children. A number of families from mul-
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tiple states have attempted to sue or sued MySpace and Facebook about sexual assaults. Facebook, in its agreement with New York legislation, promised to respond faster to complaints about sexual messages and to warn users in stronger language that the site could not guarantee children’s safety. On January, 2008, MySpace, has signed an agreement with attorneys general of 49 states (without Texas) to take new steps to protect children from sexual predators on its site. It also agreed to lead a nationwide effort to develop technologies (such as Zephyr) to verify the ages and identities of Internet users (Bernard, 2008). And by February 2009, MySpace have been used a tool called Sentinel SAFE to identify and remove about 90,000 registered sex offenders from its Website. The number was almost double what MySpace officials initially estimated last year (Walker, 2009). “This is an industry-wide challenge, and we must all work together to create a safer Internet,” said Hemanshu Nigam, the chief security officer of MySpace (Bernard, 2008).
Taxation The Internet Tax Freedom Act of 2007 extended the moratorium on no new Internet taxes until 2014 (Griffin et al., 2008). While this might ease the pressure to tax e-business on the Internet in a short term, it remains a national or even a global problem. The supporters of Internet taxation point to the loss of tax revenue over the Internet. The opponents insist that increasing taxes will cause higher expense for the consumer and thus will limit the growth of e-business. It is estimated that by 2011 the revenue loss from not taxing e-business will be $54.8 billion (Bruce & Fox, 2004). This is a huge force pushing the efforts to tax e-business. Since the current tax collection system is not feasible for e-business, new sales or use tax methods need to be developed to reduce the confusion of e-business tax collections (Griffin et al., 2008).
Emerging Trends of E-Business
CONCLUSION It has been almost twenty years since we had World Wide Web in 1990. E-business has offered us one surprise after another. Without doubt we are facing another set of new technologies, and the corresponding business applications and services. New standards, policies, regulations and legislations will then be developed to control, accommodate, utilize and benefit from them. Different from traditional computing architecture, Web services allow applications to communicate with each other in a platform-free and programming language-independent manner, which leads to an easier and more flexible way to build new software applications. Web 2.0 concept and social media allow users to publish content online for almost free, facilitating sharing and collaboration. M-commerce pushes the ubiquity of e-commerce to the next level. It will offer customers more freedom. And with these new phenomena, we need to reconsider many of such issues as data security, privacy, intellectual property, children protection, and taxation (and the list could go on and on); and new legislations will be passed to address some or all of these issues. Being aware of these emerging trends of ebusiness, entrepreneurs will be better prepared for their adventures in the business world; while customers may expect more convenient, enjoyable and secure online shopping experiences.
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Kravets, D. (2008). File Sharing Lawsuits at a Crossroads, After 5 Years of RIAA Litigation. Retrieved June 15,2009, from http://www.wired. com/threatlevel/2008/09/proving-file-sh/ Laningham, S. (2006). developerWorks Interviews: Tim Berners-Lee. Retrieved March 2, 2009, from http://www.ibm.com/developerworks/ podcast/dwi/cm-int082206txt.html Laudon, K. C., & Laudon, J. P. (2006). Management Information Systems: Managing the Digital Firm (10th ed.). Upper Saddle River, NJ: Prentice Hall. Laudon, K. C., & Traver, C. G. (2008). ECommerce: Business, Technology, Society (5th edition). Upper Saddle River, NJ: Prentice Hall. Lim, B., & Wen, H. J. (2003). Web services: An analysis of the technology, its benefits, and implementation difficulties. Information Systems Management, 20(2), 49–57. doi:10.1201/1078/4 3204.20.2.20030301/41470.8 McGlasson, L. (2008). TJX arrests are ‘tip of the Iceberg’: Largest ID theft case in history is just a symptom of true global threat, experts say. Retrieved June 14, 2009, from http://www. bankinfosecurity.com/articles.php?art_id=930 McKendrick, J. (2006). Ten examples of SOA at work, right now. Retrieved June 9, 2009 from http://blogs.zdnet.com/serviceoriented/?p=508&tag=rbxccnbzd1 Michels, S. (2008). Prosecutors bringing charges under law inspired by Megan Meier suicide. Retrieved June 18, 2009, from http://abcnews. go.com/TheLaw/Story?id=6520260&page=1 Nichols, S. (2009). COPA Child-Porn Law Killed. Retrieved June 17, 2009, from http:// www.pcworld.com/article/158131/copa_childporn_law_killed.html
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Woodcock, B. S. (2008). MMOG subscriptions market share April 2008. Retrieved March 12, 2009, from http://www.mmogchart.com/charts/
KEY TERMS AND DEFINITIONS M-Commerce: Mobile Commerce, the use of handheld wireless devices for purchasing goods and services from any location. SOA: Service-Oriented Architecture, a set of self-contained services that communicate with each other to generate a software application. Software vendor can reuse these services in other combinations to build a different application. It is a completely new way of developing software. SOAP: Simple Object Access Protocol, a set of rules for structuring messages that enable applications to pass data and instructions to one another. Social Media: Information content created by people using highly accessible and scalable publishing technologies that facilitate communications, influence and interaction with peers
and public audiences. It is sometime called user generated content. UDDI: Universal Description, Discovery, and Integration. It enables a Web service to be listed in a directory so that it can be easily located, just as you can locate services in a yellow page book. Web 2.0: A perceived second generation of web development and design, that aims to facilitate communication, secure information sharing, interoperability, and collaboration on the World Wide Web. Web Services: A set of loosely coupled software components that exchange information with each other using standard Web communication protocols and languages, a technology that allows applications to communicate with each other in a platform- and programming languageindependent manner. WSDL: Web Services Description Language, a common framework for describing the tasks performed by a Web service and the commands and data it will accept so that it can be used by other applications.
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 1147-1159, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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What is New with Organization of E-Business: Organizational Viewpoint of the Relationships in E-Business Vojko Potocan University of Maribor, Slovenia Zlatko Nedelko University of Maribor, Slovenia Matjaz Mulej University of Maribor, Slovenia
ABSTRACT In modern working relations, a company can improve its business dramatically, especially with formation and performance of suitable management. An important role in the whole management of a company belongs also to management of ebusiness. A broad definition defines e-business as a business process that uses Internet (and/or any other electronic medium) as a channel to complete DOI: 10.4018/978-1-60960-587-2.ch804
business transactions. One of the main concerns about management of e-business is how much of each e-business should be owned by each ebusiness participants. This is called the extent of vertical integration. But in the modern business environment, vertical integrations alone are not enough. The alternative to vertical integration is some other form of relationship, not necessarily ownership. Inthe authors’ contribution, they will examine the relationship between the links of the e-business in terms of the flows between the operations involved. The authors use term link for
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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all the different types of flow in exchange. This contribution discusses two issues: 1) How different relationships in e-business impact organization of e-business, and 2) How different organizational forms impact of e-business.
INTRODUCTION Many factors importantly influence the way in which organizations conduct their business nowadays (e.g., see Etzioni, 1997; Daft, 2003; Potocan, Kuralt, 2007; Robins, 2007; etc.). In the last decade a special attention has been focused on advancement in information-communication technology (i.e., ICT), since it has made a tremendous impact on the contemporary business practice in various ways (e.g., see Rodgers et al., 2002; Hartley, 2007; McLeod, Schell, 2007; Schermerhorn, 2009; etc.). In that frame, electronic business (e-business) has become an inescapable fact and also a powerful initiator for different kinds of improvements within organizations (e.g., see Amor, 1999; Amit, Zott, 2001; Eckersley et al., 2004; Laudon, Laudon, 2005; Laudon, Traver, 2008; etc.). E-business means different things to different people. This contribution attempts to fill in the perceived theoretical gap by developing an organizational model for understanding, defining and management of relations (and/or relationships) between entities involved in e-business. But to do that, we must first define the contents of e-business and relationships in e-business. In theory and in business practice there is no general agreement on definition of e-business (e.g., see Timmers, 2000; Culler, Webster, 2007; Pavic et al., 2007; Turban et al., 2008; etc.). A prevailing definition defines e-business as a business process that uses Internet (and/or any other electronic medium) as a channel to complete business transactions (Swaminathan, Tayur, 2003). In literature one often sees the definition by Wu (see Wu et al., 2003), that defines e-business as the use of the Internet technologies to link customers, suppliers,
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business partners, and employees, employing at least one of the following: e-commerce websites that offer sales transactions, extranets and supply chains, intranets and enterprise information portals, and electronic data interchange. For contents-related understanding of ebusiness it is also important to emphasize that the concept of e-business is often mixed with the concept of electronic commerce (e-commerce). In reality they are completely different concepts (e.g., see Afuah, Tucci, 2000, Rodgers et al., 2002; Beynon-Davies, 2004; Li, 2006; etc.). E-commerce focuses primarily on transaction with organization’s customers (e.g. see Savole, Raisinghani, 1999; Amor, 1999; Anderson, 2000; Laudon, Traver, 2008; etc.). On the other hand e-business expands the concept of e-commerce and also includes connections of organizations with their suppliers, employees and business partners (e.g., see Rodgers et al., 2002; Budd, Harris, 2004; Li, 2006; Pavic et al., 2007; etc.). We look at the e-commerce in a broader sense, therefore we use terms e-business and e-commerce interchangeably. E-business has some important and distinguishing characteristics (e.g., see Anderson, 2000; Laudon, Laudon, 2005; Chaffey, 2006; Daft, 2006; etc.). Laudon and Traver (2008) defined the following: •
•
•
• •
Ubiquity – Internet (and web technology) is available everywhere (at work, at home, at official/public institutions), Global reach – reach of technology is boundariless, and it reaches across national boundaries, around the globe, Universal standards – internet standards enable interoperability among different users, Richness – communication channels are very rich, Interactivity – since the technology works by interacting with the users,
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•
•
Information density – use of technology reduces information costs and raises quality of information, Customization – since technology enables delivering of personalized messages to individuals as well as groups.
Many organizations recognized the importance and possible benefits from e-business in nowadays business environment in order to remain/become competitive (e.g., see Amit, Zott, 2001; Laudon, Traver, 2008; etc.). Experiences from business practice assign different benefits from engagement in e-business, such as (e.g., see Wang, 2001; AlMashari, 2002; Peet et al., 2002; Rodgers et al., 2002; Laudon, Laudon, 2005; McLeod, Schell, 2007; etc.): •
•
•
•
E-business enhances the competitiveness of the organization by lowering transaction costs in various fields in organization (e.g. less paper work); Improved customers satisfaction by differentiating products/services and better customer service before, during, and after sale; Improved relationships with partners in supply chain, especially suppliers and financial community; and Increased overall performances of organization, due to previously mentioned benefits, which can result in organization’s increased, profit/reduced loss.
However, organizations engaging in e-business could also experience the following disadvantages (Rodgers et al., 2002; Laudon, Laudon, 2005; McLeod, Schell, 2007; Pavic et al., 2007; etc.): •
High development costs are one of the primary obstacles for engaging in e-business. Due to the complexity of e-business applications, the organization may need to
•
•
restructure its current systems (e.g. new hardware, software, employee training); Security becomes another concern for the organization when implementing e-business, since all information is now exposed over the internet, which is vulnerable (e.g. hackers) and; Immature or unavailable software.
E-business therefore requires profound changes in the ways that organization conducts its business. From the firm’s perspective a crucial consideration is management of relationships between entities involved in e-business. When organizations try to adopt e-business, it also creates its own network of relationships between entities involved in e-business (e.g., see: Bensaou, Venkatraman, 1995; Gulati et al., 2000; Vlaar et al., 2006; Potocan, Kuralt, 2007). There is plenty of literature about e-business phenomenon, but from the organizational aspect little is known about type/forms of relationships among entities involved in e-business (e.g., see Ring, Vandeven, 1994; Amor, 1999; Afuah, Tucci, 2000; Kalakota, Robinson, 2001; Wu et al., 2003; Vlaar et al., 2006; etc.). Relationships among entities in e-business are mostly partially addressed (see: Bensaou, Venkatraman, 1995; Gulati et al., 2000; Johnson, Whang, 2002). Even more, literature available to date did not provide many discussions about possible differences between types/form of relationships of e-business. An exception is, for example, discussion by Johnson and Whang (2002), which addresses relationships between entities involved in e-business (as a whole), beyond the transactions among the supply chain partners, both suppliers and customers, as an e-collaboration, but very limited and only in the frame to define their impact on the supply chain.
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BACKGROUND OF RELATIONSHIPS IN E-BUSINESS E-business can be defined in terms of its content, once its working characteristics are known and understood (e.g., see Hatch, 1997; Afuah, Tucci, 2000; Tiwana, Willianms, 2000; Beynon-Davies, 2004; Chaffey, 2006; Daft, 2006; Mullins, 2007; etc). Therefore it makes sense to first study the possible basic forms/types of working of e-business in organizations. Theory and business practice know of many different definitions of e-business working that create the basic division of e-business types (e.g., Bensaou, Venkatraman, 1995; Amit, Zott, 2001; Laudon, Traver, 2008; Daft, 2009; etc.). We can put the various models in two groups to meet the needs of our consideration. The first group can collect models, which are defined according to the orientation of e-business activities (e.g., see Afuah, Tucci, 2000; Trombly, 2000; Chaffey, 2006; Laudon, Traver, 2008; etc.). In literature and also in business practice this group of models is prevalent. As a rule they combine different types of consumer-oriented activities and/or different types of businessoriented activities. For our further consideration Figure 1. Model of e-business
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we will chose from the set of models the model by Geoffrion and Krishnan (2001). With it they tried to holistically define the most important attributes of e-business working and most crucial preconditions for its working; they considered for this end its activities (i.e. consumer-oriented activities, and business-oriented activities), and its infrastructure. Their model of e-business is presented in Figure 1. For the purpose of our work we collected in the second group models, which are defined according to the various forms of e-business applications (and also area of work in organization) (e.g., see Afuah, Tucci, 2000; Trombly, 2000; Chaffey, 2006; Laudon, Traver, 2008; etc.). Models in this group are mostly defining e-business according to the various forms of e-business applications (also including the areas of work in organization) into three categories (Johnson, Whang, 2002): •
E-commerce helps a network of supply chain partners to quickly and flexibly respond to changing customer demand captured over the Internet;
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•
•
E-procurement enables procuring of needed materials, as well as handling value-added services (e.g. transportation, warehousing) over the Internet; and E-collaboration facilitates coordination of various decisions and activities beyond transactions among the supply chain partners (i.e. both the suppliers and customers) over the Internet.
This group can also include models that are by purpose created to match the needs of consideration of transactions in e-business, e.g. the model, developed by Chaffey (2006). His model is supposed to support a more detailed consideration of attributes of relationships between consumers and producers and between producers themselves. It provides a basic classification of potential types transactions in e-business. Chaffey’s model of e-business is presented in Figure 2. There is a substantial difference between B2B and B2C e-business transactions (e.g., see Afuah, Tucci, 2000; Chaffey, 2006; Laudon, Traver, 2008; etc.). B2B transactions involve relatively few people/entities in comparison to B2C, where transactions occur between organization and endusers. The number of B2B transaction is relatively low in comparison with B2C transactions, but on the other hand B2B transactions’ values
Figure 2. Taxonomy of transaction between business and consumers
are quite high, because a single B2B transaction between supplier and manufacturer could involve thousands of items and millions of dollars. Another crucial aspect which differentiates “B2B” and “B2C” is the level of training and expertise of the people involved in transactions (e.g., see Beard, Sumner, 2004; Kim et al., 2005; Laudon, Laudon, 2005; Li, 2006; McLeod, Schell, 2007; Nedelko, 2008; etc.). In comparison to B2B transactions, B2C transactions require substantial design differences due to different level of training and expertise of people involved in transactions. People involved in B2B transactions are usually highly trained and have a sufficient expertise in using information systems and are familiar with business processes, which are affected by transactions. On the other hand customers in B2C transactions may have no sufficient expertise with information technology. Due to this fact web sites must offer help and instructions. Possible issues could also arise from having a slow internet connection, inappropriate navigation on site, payment security, etc. The above main types of e-business are most commonly used in business practice. Other types of e-business are also business to employees (B2E) and electronic government (e-gov) (more about that in Laudon, Laudon, 2005; Chaffey, 2006; McLeod, Schell, 2007; etc.). Trombly (2000) defines also two other e-business models, namely: peer-to-peer (P2P), where individuals trade goods with one another (e.g. Napster); and E-marketplaces, where buyers and sellers trade their goods online (e.g. e-Bay). Content-related cognitions about various kinds, types, and forms of e-business activities present a formal basis for further organizational consideration. But the knowledge of the basic typology of the relationships in e-business is not enough for a rather detailed insight in and definition of their organizational attributes. Using the types in an organizational consideration makes us namely face dilemmas: 1) typology of relationships of
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e-business can be understood differently on the bases of different content-related understanding of e-business in 2) single types of relationships of e-business can be organized in different ways. Based on this review of references, and the reach beyond their selected frameworks, with our work we would like to shift attention from a generalized discussion about different e-business models and/or management of e-business to a more practical issue: how to organize e-business on the basis of consideration of relationships between its participants. We offer some new suggestions about: role and meaning of e-business from organizational viewpoint, different contents types of relationships in e-business, starting points of design of approapriate organization for different types of e-business relatinships, and creation of different organizational structure for the relationships in e-business.
ORGANIZATIONAL UNDERSTANDING OF E-BUSINESS E-Business: New form of Business vs. New Concept of Business In literature and business practice one can often hear, that implementation of e-business within established organizations usually leads to coexistence of the classical way of conducting business and e-business, whereas many new ventures are based solely on e-business (e.g., see Afuah, Tucci, 2000; Trombly, 2000; Chaffey, 2006; Mullins, 2007; Potocan, Kuralt, 2007; Laudon, Traver, 2008; etc.). On the other hand, e-business is often considered just another facet of every-day business transactions (e.g., see Adeoti-Adekeye, 1997; McLeod, Schell, 2007; Wang, 2001; Sumner, 2004; Potocan, Kuralt, 2007; etc.) or even as a pervasive channel for selling product globally (e.g., see Wang, 2001). What is, or might be, contents of e-business from organizational viewpoint? The fast develop-
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ment of ICT (information and communications technologies) and the internet on one hand and hyper-competitive global economy on other hand created a new competitive landscape – one in which events and attributes change constantly and unpredictably (e.g., see Etzioni, 1997; Hatch, 1997; Daft, 2000; Potocan, 2002; Robbins, 2007; Hitt et al., 2008; Daft, 2009; Potocan, Mulej, 2009; etc.). All these conditions require organizations to transform their business from traditional business into the modern post-industrial ones, which are becoming open, flexible, innovative, and sustainable. In accordance with that, the “new economy” presents the framework for e-business implementation and working (e.g., see Hatch, 1997; Laudon, Laudon, 2005; Mullins, 2007; Laudon, Traver, 2008; etc.). Trends that appeared due to development and increasing application of information technology, influencing the organization structure crucially, are the business globalization, change in employees structure, elimination of boundaries between parts within organizations, as well as between organizations (e.g., see Potocan, 2002; Potocan, Kuralt, 2007; Potocan, Mulej, 2009; etc.). Organizations can significantly improve their activity with the use of the e-business. We must mentioned here, that authors use different approaches in research of e-business, be it the new form of business or new concept of business. In accordance with their intentions authors also expose different viewpoints of e-business’s activity – for example organizational, managemental, informational, ethical, etc. (e.g., see Afuah, Tucci, 2000; Trombly, 2000; Chaffey, 2006; Laudon, Traver, 2008; Potocan, Mulej, 2009; etc.). For the need of our research, different understanding (and treatment) of e-business by different authors can be divided in two basic groups (e.g., see Afuah, Tucci, 2000; Potocan, 2002; Trombly, 2000; Chaffey, 2006; Potocan, Kuralt, 2007; Laudon, Traver, 2008; Potocan, Mulej, 2009; etc.).
What is New with Organization of E-Business
•
•
The first group of researchers defines and treats e-business as a (new) stage of development of business. Different authors asume that the activity of the classical business in the modern environment must be adapted to new conditions and demands, especially concerning resources, management structure, technology, values, and knowledge. To define the characteristics of components of the new e-business various criteria are used. In the framework of continual process of development they define the basic type of business’s change from the traditional business to the e-business. Evaluating the development of all important and selected attributes enables the definition of the e-business stage of the whole organization. In business practice the stage of each organization can be somewhere in the interval between the wholly traditional and wholly virtual business. The second group of researchers define and deal with e-business as new concept of business in the framework of global new economy. The consideration of e-business problematique by this group of authors the following is typical: 1) e-business is viewed as a concept of business, that can and does exist independently from the traditional business, 2) they pressume that the organization can work only in the e-business style, 3) they assume that the rules and principles of e-business differ from the ones of the traditional business.
In spite of all differences the approaches are mutually connected and supplement each other. The first approach enables us to understand starting points of transforming of a classical business of organizations to e-business of organizations. It focuses on research of different stages of business development and enables us to more holistically understand the development process. The second concept is focused on handling of the completely
implemented e-business, as the final phase of development of the e-business activity and/or as the most developed form of the e-business activity of an organization. Despite the differences, researchers share opinion that transforming the traditional business of organizations into e-business of organizations is not possible without innovative change of organization and management of business (e.g., see Mulej et al., 1992; Potocan, 2002; Mulej, 2007; Potocan, Kuralt, 2007; Potocan, Mulej, 2009). What do these congnitions mean for our consideration? The known types of relationships of e-business in the above typologies give us a basis to understand e-business as a new concept of business, as e-business as a development step in e-business, or as a combination of the two. The definition of the concept of content-related understanding of e-business provides therefor for a urgent, but not sufficient precondition for a more holistic understanding of the organizational viewpoint of e-business. The latter must hence be, in addition, considered with congnitions and definitions of the attributes with crucial impact over the organizational contrent of relationships in e-business.
How to Define the Organizational Contents (and Characteristics) of Cooperation Relationships in E-Business Successful e-business requires organizations to apply the systems approach across all stakeholders of e-business (e.g., see Afuah, Tucci, 2000; Potocan, 2002; Laudon, Laudon, 2005; Chaffey, 2006; Mullins, 2007; Potocan, Kuralt, 2007; Potocan, Mulej, 2009; etc.). When applied to e-business, the systems approach suggests that organizations must recognize the interdependence of major functional areas within, across, and between firms. In turn, the goals and objectives of individual ebusiness participants should be compatible with
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the goals and objectives of other participants in the e-business. How does e-business change relations between e-business stakeholders? A realistic perspective is that individual participants of a e-business will compete based on the relevant capabilities of their e-business network/s, with a particular emphasis on immediately adjacent suppliers or customers (or any other members of organizational environments) (e.g., see Potocan, 2002; Potocan, Kuralt, 2007; Potocan, Mulej, 2009). A number of key attributes are associated with e-business, including power of e-business participants (i.e. stakeholders), a long-term orientation, leveraging technology, enhanced communication across e-business, and interactivity, interfunctional, and inter-organizational coordination work (e.g., see Amit, Zott, 2001; Potocan, 2002; Daft, 2003; Vlaar et al., 2006; Potocan, Kuralt, 2007; Hitt et al., 2008; Laudon, Traver, 2008; etc.). Although each of these is discussed in the following paragraphs as discrete entities, interdependencies exist among them (e.g., see Potocan, 2002; Potocan, Kuralt, 2007). Power of e-business stakeholders: E-business recognizes the power of each stakeholder and views each stakeholder as un-material assets. In recent years, a clear shift of power has moved away from the manufacturer toward the customer power. The increasing power of customers has important implications for the design and management of e-business. Because customers needs and wants change relatively quickly, e-business should be fast and agile. The ‘fast’ encompasses a speed/ time component, while the ‘agile’ focuses on an organization’s ability to respond to changes in demand with respect to volume and variety. A long-term orientation: A long-term orientation tends to be predicted on relational exchanges, while a short-term orientation tends to be predicated on transactional exchanges. At a minimum, relational exchange may result in individual e-business stakeholders having to rethink (and rework) their approaches to other e-
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business stakeholders. We must mention here also partnerships, as long-term relationships between e-business participants. Some partnerships can be informal, while others involve ownerships. Alternatively, partnerships can be formalized by some type of contractual agreement among the various stakeholders of e-business. Leveraging technology: It is argued that technology has been at the centre of changes taking place that affect the e-business, and that two key factors – computing power and the Internet – have sparked much of this change. With respect to the former, e-business can be made of complex entities consisting of multiple organizations, processes, and requirements. As such, attempts at ICT support e-business in an effort to maximize shareholders’ wealth and/or minimize costs. However, the introduction and continued development of the ICT now allows for fast, low-cost ICT solutions to complex e-business issues. Enhanced communications across e-business: Because e-business depends on huge quantities of real-time information, it is essential that this information can be seamlessly transmitted across organizations. It is also important that all members of e-business understand, that the enhanced communications across organizations depends upon both technological capabilities and willingness to share information. Interactivity, inter-functional, and inter-organizational coordination: Until the past 30 years, managers tended to be concerned with optimizing the performance of their particular activities, particular functions, or particular organizations. By contrast, e-business requires managers to subordinate their particular activities, functions, or organizations in order to optimize the performance of their e-business. The interconnected nature of e-business suggests that optimal performance will be elusive without coordination of activities, functions, and processes. Additionally, there’s little doubt that inter-organizational coordination is more challenging and difficult than either interfunctional or interactivity coordination.
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The mentioned criteria enable us to define the basic attributes of relationships of e-business, that can be measured by flows of operations. Single types of operations form, when working, flows (e.g. of material, value, information, etc.), defining their attributes in a unified way.
Organizational Viewpoint of Relationships in E-Business The relationship between the links of the ebusiness will be examined in more detail in terms of flows between the operations involved (e.g., see Bensaou, Venkatraman, 1995; Amit, Zott, 2001; Potocan, 2002; Daft, 2003; Vlaar et al., 2006; Potocan, Kuralt, 2007; Turban et al., 2008; Schermerhorn, 2009; etc.). These flows may include transformed resources such as materials or transforming resources such as people or equipment. The term used to include all different types of flow is exchange. The exact nature of the relationship between the different linkages within the e-business can be viewed on a continuum which goes from highly integrated at one extreme all way to temporary and short-term trading commitments at the other. Literature offers various divisions of relationships (For details concerning each division, see also Bensaou, Venkatraman, 1995; Timmers, 2000; Amit, Zott, 2001; Potocan, 2002; Vlaar et al., 2006; Potocan, Kuralt, 2007; Mullins, 2007; Robbins, 2007; Turban et al., 2008; Daft, 2009; etc.). We will limit our consideration to a selection from the set of various possible forms of content-related relationships of e-business as follows: integrated hierarchy, semi-hierarchy, co-contracting, coordinated contracting, coordinated review links, longterm trading commitment, medium-term trading commitment, and short-term trading commitment (e.g., see Potocan, 2002; Mullins, 2007; Potocan, Kuralt, 2007; Potocan, Mulej, 2009). Integrated hierarchy: What is known as an integrated hierarchy is a fully vertically integrated process organization which houses all activities
in the e-business from raw material source to dispatch to the end customers, as well as all their support activities on one site. In an integrated hierarchy there is no inter-company exchange of orders, information and materials because the entire e-business is “under one roof”. Examples of totally vertical integrated chain are rare. Semi-hierarchy: In a semi-hierarchy organization the firms in the e-business are owned by the same holding organization or are part of the same group, but they operate as separate business units. Both integrated hierarchy and semi-hierarchy are examples of vertical process integration, as in both cases ownership belongs to the same organizations. In semi-hierarchy, however, there is an exchange process between different organizations: materials, services and money change hands between the separate business units. Co-contracting: Co-contracting is a term used to describe alliance between organizations which have long-term relationship (e.g. co-contracting as partnership) but which, for various reasons, do not merge, but transfer some equipment (ownership), technology, people, and information, as well as goods and services. These alliances typically do not include the whole business chain. A type of co-contracting receiving significant attention is partnership. Partnership is a long-term process and should not be viewed as an instant cost-saving exercise, but rather as an investment where future returns are possible, but only in the medium to long term. Coordinated contracting: Coordinated contracting involves a prime contractor, who employs a set of sub-contractors, with whom a long-standing relationship exists over several contracts. They are used on a contract basis of each specific job, but between jobs there is no continuing relationship. In coordinated contracting the contractors usually provide the specification and instructions for the production of goods and services to be exchanged. It may provide materials (or other important inputs) and will usually take responsibility for planning and control of
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all the sub-contractors. The sub-contractors will often provide the necessary tools and equipment required for their trade or profession. Coordinated revenue links: Coordinated revenue links are used primarily for licensing and franchising and are a form of relationship which transfers ownership to other, usually smaller, firms while still retaining a guaranteed income for the licensor or franchiser. This type of relationship is common in many services, especially those with very high customer contact. These operations need many small local sites which can be located for the convenience of their customers. Rather than managing all the sites themselves, the original owners of the service concept will license out each individual operation to separate owners. Medium-/long-term trading commitment: It is not uncommon for businesses to trade with each other for 20 years or more, but never exchange formal long-term contracts that legally tie them together. However, where this medium- to longterm trading takes place, some commitment beyond each delivery of a different type can be made. Short-term trading commitment: In situations where there is no interdependence beyond one order, all that is transferred between the parties to the transactions are the orders in one way and goods and services in the other. Once the good or service is delivered and payment is made, there may be no further trading between the parties. However, this short-term, price-oriented type of relationship can have a downside in terms of ongoing support and reliability. The presented potential contents of relationships of e-business can cover all types of relationships of e-business in the framework of all conceptual approaches to consideration of e-business and on the basis of application of all criteria for definition of organizational viewpoint of e-business. Hereby we created the contentrelated framework for research of relationships of e-business. From the whole problematique of organizing different types of relationships on e-business, we
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are going to discuss the chosen important starting points to form organizational structure supporting their work.
Basis for Design of Organizational Structure for Relationships on E-Business Managers (or/and other influential participants) deal with two main problems when forming the organizational structures of different types of relationships in e-business. i.e.: 1. How to understand relations between strategy and structure, and 2. How to implement contingency approach for creation of e-business organizational structure (e.g., see Lu, 1995; Etzioni, 1997; Hatch, 1997; Daft, 2000; Daft, 2006; Potocan, Kuralt, 2007; Robbins, 2007; Schermerhorn, 2009; etc.). The first is the fact, that the structure follows the organizational strategy and reflects it (e.g., see Etzioni, 1997; Daft, 2000; Potocan, 2002; Daft, 2006; Mullins, 2007; etc.). Therefore, we cannot talk about proper structure without previous and wholly suitable and recognizable defined strategy of relationships of e-business. Thereby, the organization can choose for its chosen strategy different types of organizational structure to enable the required coordination of activities to reach its aim. On the other hand, we can use single organizational structures in different situations which, at the same time, are suitable to satisfy different needs and demands of the organization. (e.g., see Hatch, 1997; Potocan, 2002; Daft, 2003; Mullins, 2007; Robbins, 2007; etc.). Both viewpoints of the problem – choosing the proper structure for e-business – are partly solved by the contingency approach, which is based on the presumption that by forming organizational structure, all managers have to consider specific needs and demands of
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the given organization and specific content-related characteristics of its work (more about contingent approach see in Etzioni, 1997; Hatch, 1997; Daft, 2000; Hitt et al., 2008). Because of statements mentioned in organizational and management theory and business practice, general valid solutions for organization of different types of relationships in e-business do not exist (see Potocan, 2002; Potocan, Mulej, 2009). Organizing work and the choice of the organizational structure are to a great extent independent from the chosen legal form of organizational structure. But in reality, the owners and other influential participants have direct influence on the organization and the choice of the organizational structure. The basic dilemma of managers is to search for, and assure, balance between the vertical approach (which is based on the vertical mastering) and horizontal approach (which is based on the horizontal coordination) of organizational work in accordance with the organization’s needs and demands. Vertical dealing is connected with aims of efficiency and stability. Horizontal coordination is connected with aims of success, innovation, and
flexibility. Figure 3 shows the relation between the organizational structure of e-business and chosen forms of organizational structure of e-business on one hand and the organizational needs for efficiency and success of the e-business on the other. Managers (and other influential stakeholders) therefore must improve the process of transformation of organizational structure all the time. Another problem is creation of appropriate information support for working of the chosen organization form, which presents a selected structure and/or specific combination of structures (e.g., see Lu, 1995; Etzioni, 1997; Hatch, 1997; Daft, 2000; Daft, 2006; Potocan, Kuralt, 2007; Robbins, 2007; Schermerhorn, 2009; etc.). When an organizational form does not suit the informational needs of the given organization, its participants will not have enough information or will occupy themselves with processing unnecessary data that cannot be used as information, i.e. influentially. The basic problem in forming a comprehensive informational flow of each organization (and structure of organizations, which are based on different relationships in e-business) is the “natural” opposition between the vertical and horizontal informational flow and informational connections
Figure 3. Relationship of structure to e-business’s need for efficiency vs. effectiveness
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that they include (Potocan, 2002; Potocan, Kuralt, 2007; Potocan, Mulej, 2009). The vertical connections are formed (especially) to assure control over work and behavior of an organization. Horizontal connections are meant to assure and perform cooperation and coordination, which consecutively lowers (the level and extent) of control. Figure 4 presents the relation between organizational forms and different structure approaches to its forming. Each organization must form a structure that includes balanced integrity of vertical and horizontal informational connections. From the problematique – when discussing integrity of informational connections of an organization – we present the chosen starting points and basic characteristics of vertical and horizontal informational connections for relationships of e-business.
HOW INFORMATIONS SUPPPORT INFLUENCE ON ORGANIZATION OF RELATIONSHIPS IN E-BUSINESS One of the main decisions in interest in e-business reads: how much of the given e-business should be owned by each participants (i.e. stakeholders) of e-business (e.g., see Bensaou, Venkatraman,
1995; Amit, Zott, 2001; Potocan, 2002; Daft, 2003; Vlaar et al., 2006; Potocan, Kuralt, 2007; Turban et al., 2008; Schermerhorn, 2009; etc.). This is called the extent of vertical integration (The alternative to vertical integration is some other form of relationship, not necessarily involving ownership. Informational connections also have an important role.) The connections in general can be defined as showing up of communication and coordination between the organizational factors. For the needs of our discussion, (different) connections in an organization were defined as vertical and horizontal. Vertical connections represent coordination activities on all levels (or work and behavior) of an organization from the supreme management to performers of work and are target-formed for the needs of its control. The intention of such connections is to adjust work of participants with the aims (of the management) (for example organization, type of e-business, value chain) and to give the supreme management all the needed information about the work on the lower working levels. Organizations can use for forming them different solutions, as for example: hierarchy, rules, plans, and (formal) vertical management informational systems. Important for work organization in organizations, which work on the basis of different
Figure 4. The relationship of organization design to vertical vs. horizontal structure
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relationships in e-business, are especially horizontal informational connections. They enable a requisitely holistic (and relatively united) coordination of work of all participants aimed at reaching organizational aims and dismissing barriers in cooperation among (single) parts (for example of an organization, type of e-business, value chain, etc.). Contextually, they refer to the quantity of communication and coordination by horizontal adjustment among parts of the organization. Horizontal connections (regularly) are not separately shown in the organizational scheme, although they represent an important part of the organizational structure. The organization can use – for the formation of horizontal connections – different solutions, as for example horizontal informational system, direct connection, temporary commissions, integrators and permanent groups (more about the characteristics of single solutions e.g. see Daft, 2000; Potocan, 2002; Daft, 2003; Potocan, Kuralt, 2007; etc.). Which of the mentioned cognitions about the organizational viewpoint of consideration of relationships of e-business can be used for defining the organization and organizational structure in sigle organizations?
A Model of Organizing Relationships of E-Business In the subchapter Basis for design of organizational structure for relationships on e-business we mentioned that it is impossible (or makes no sense) to create generally valid solutions for organization of different types of relationships in e-business. Thus, we can conclude that a more holistic model of organizational consideration of relationships of e-business can be created, matching two interdependent and interrelated preconditions: •
It defines a unified framework of consideration of relationships of e-business in dif-
•
ferent (kinds, types and forms of) organizations, and It enables a (bigger) comparison of considerations in different organizations (needing and able to use for their consideration a unified framework of it).
What can be unified in the model and how can we attain this unification? In order to consider the organizational viewpoint of relationships of e-business we used our theoretical cognitions and practical experiences to formulate the Process Model for designing organization (and organization structure) for relationships of E-business. The model content is shown in Figure 5. The model presents an entity of three phases: •
•
•
Phase 1: Preliminary research of organizational viewpoints of relationships of e-business; Phase 2: Research of organizational characteristics of relationships of e-business; and Phase 3: Creation of a requisitely holistic organizational framework for operation of relationships of E-business.
The Phase 1 is aimed at a (requisitely) holistic definition of the area, way, and content of consideration. In this framework: •
•
The area definition defines the general framework for research on the basis of the foreseen selection of the: Prevailing theoretical perspectives, Driving forces, Explaining theories, and Important (and selected) domains; The definition of the way of consideration defines the methodological framework for the selected research on the basis of the foreseen approach (i.e. methodology), methods and techniques for consideration of the business reality.
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Figure 5. Model for designing organization (and organization structure) for relationships of e-business
•
The definition of contents of consideration defines the general content-related framework for research. For consideration in our model we defined the general contentrelated framework by application of three factors: the selected concept of e-business, selected model of e-business, and selected taxonomy (and/or classification) of relationships of E-business.
In our model (Figure 5) the content of the Phase 1 is denoted with the term resources for research. The basic criteria for its definition consist of three factors. But our model can be used in two ways. The model can present a part of a (requisitely) holistic organizational consideration of business, which can (and must, if we aim at assuring its application) be based on a unified definition of the area and way of consideration. In this case, of course, there is no need for our re-definition of the area and way of consideration for research of relationships of e-business. Model can also be used with limitation to consideration of a single part and/or area of business (e.g. relationships of e-business); but
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in this case, of course, its specific area and way of consideration must be defined. The central area of the process model (Figure 5) lies in the 2nd phase that is aimed at consideration of the organizational characteristics of relationships of e-business. In this phase we try to as holistically as possible learn to know, define, and systemize kinds, types, and forms of relationships of e-business from the organizational viewpoint. In working on this phase we study in synergy: Types of contents for relationships of business, Basic criteria for definition and evaluation of relationships of e-business, and different approaches for creation of organization. The basic aim and wish in this phase covers formation of groups of relationships of e-business, that possess the same or similar attributes and can therefore in the next phase make sense of organizing in a similar way and with application of the same organizational structure. The Phase 3 (in Figure 5) is aimed at formation of a requisitely holistic organizational framework for operation of relationships of e-business. Theoretically, the Phase 3 can (and must) be done in two ways. If the enterprise wants to create a totally new or unique solution, this phase includes the following
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activities: innovative formation of its organizing of single types of relationships of e-business, and innovative formation of suitable organizational structure for single types of relationships of e-business. The phase 3 can also be done as a process of defining the organizing and organizational structure for the chosen types of relationships of e-business on the basis of the created basis of knowledge about the potential organizing and way of organization. In this case the organization considers the phase 3 in two steps. •
•
In the 1st version the knowledge about organizing and way of organization (and other knowledge, e.g. from good practices) is used to define the typology of possible organizing of working and typology of possible ways of organizing (or possible applications of various types of organizational structures) for working of relationships of e-business. In the 2nd version the formation of the desired organizing and way of organizing uses the given basis of knowledge.
In the business practice a separation of the presented ways of performance of the 3rd phase is possible in principle only, as a rule. In every creation of organizing and ways of organizing the given and additional knowledge is always used (available in formal and informal forms). Whether the available knowledge will be applied in a routineloving style, i.e. by selection of an existing/known form of organizing and/or ways of organizing, or with an innovative creation of new solutions – this depends on different subjective and objective factors (e.g. situations, knowledge, values, culture, ethics, norms, etc.).
FUTURE RESEARCH DIRECTIONS The presented model is aimed at a more unified organizational consideration of relationships of
e-business. Though, it might become more usable and yield better results, if the basis of knowledge about organizing and ways of organizing of single types of relationships of e-business operation inside single (kinds, types, and/or forms of) organizations was created. Theory and business practice know of researches on organizational attributes of organization’s business relationships (including e-business). But these investigations mostly cover relationships in relations between organizations and their environments (e.g. topic of outsourcing), relations between process phases and entire process (e.g. topic of value chain), needs related to working of production (especially the mass production) in the difficult competition conditions (e.g. automotive industry). Less many investigations tackle organizing of relationships of e-business operation of production, services, and public administration organizations aimed at matching the need for organizing them while using both the traditional and e-business. In this framework a possible research might address the development of organizing and ways of organizing in the process of transition from the traditional to e-business. Theory namely fails to offer requisitely holistic solutions concerning dynamic changing of organizing and ways of organizing under a rapid development of different forms of them. This development might demand a permanent, innovative, and flexible adaptation to new requirements and preconditions of working, including its permanent renewal of organizing and ways of organizing. In such conditions an organizational consideration urges a requisitely holistic understanding and taking in account of the new bases of organizational working, including the systemic understanding of organization, of synergetic entity of objective and subjective organizational factors, of behavioral factors of organizational working, of cognitions from other sciences (e.g. from social sciences), etc. The organizational theory is trying to find answers to the mentioned and other open issues of the
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contemporary organizational working, especially inside two of its directions of development – the postmodernism and a scientific value approach.
CONCLUSION A broad definition defines e-business as a business process that uses Internet (and/or any other electronic medium) as a channel to complete business transactions. Many different terms and concepts describe e-business; some of them overlap and describe various parts of the e-business. They present an increasing degree of integration among the e-business linkages. The exact nature of the relationship among the different linkages within the e-business can be viewed on a continuum between the highly integrated at one extreme, and temporary and the short-term trading commitments at the other. The organization tries to define all working tasks, their mutual relationships, connections and synergies, as well as mechanisms for the suitable connection and coordination of organizational factors. For the formation of the working structure, the organization can use various starting points. The modern conditions of work demand that organizations include into their structure the characteristics of the informational process needed for the realization of organizational aims. The organization can use the traditional or modern formation of the structure. The traditional approach to the formation of the structure is based on considering vertical informational connections. But for most organizations, the vertical connections are not enough, so they complete them up with horizontal connections. For the formation of the organizational structure, the organization can use functional grouping, divisional grouping, grouping with more viewpoints, and horizontal grouping. Different structures in the frame of functional, divisional, and horizontal structures enable different levels of coordination and integration.
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In the frame of functional and divisional structures, the management can create a requisitely holistic business support by forming all vertical and horizontal connections. In such a way, efficiency of the present vertical connections will increase and the integration of the organizational work will improve. In horizontal structures, the activities are organized horizontally around the basic (or key) working process. Most organizations form specific hybrid structures, which include characteristics of two or more structure types, on these starting points.
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This work was previously published in E-Business Issues, Challenges and Opportunities for SMEs: Driving Competitiveness, edited by Maria Manuela Cruz-Cunha and João Varajão, pp. 131-148, copyright 2011 by Business Science Reference (an imprint of IGI Global). 2274
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Chapter 8.5
New Profession Development: The Case for the Business Process Engineer Ying Tat Leung IBM Almaden Research Center, USA Nathan S. Caswell Janus Consulting, USA Manjunath Kamath Oklahoma State University, USA
ABSTRACT Adding engineering discipline to defining and managing the operation of business processes has become a truism although results of practical application have been mixed. This chapter argues that an obstacle to business process (re)engineering is the lack of a business process engineer role with an associated professional education, tools, and community. The main argument derives from an analysis of the domain structure for system design and comparison with existing practices DOI: 10.4018/978-1-60960-587-2.ch805
in manufacturing engineering. We observe that: (1) At present there does not exist a profession of business process engineers. Their role in a firm is filled, on an ad-hoc basis, by business line personnel, information technology analysts or architects, and/or management consultants; (2) There is an increasingly critical need to master the subject of business process engineering for an individual firm as well as the general U.S. industry; (3) Other professionals, while having their own specialized skills valuable to a firm, do not necessarily have the optimal skill set for business process engineering. We therefore conclude that there is an urgent need for a professional business process engineer.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
New Profession Development
We discuss the skills required of this profession and briefly describe a first course offered at a university on this subject. We propose that academic institutions should seriously consider such a new program today.
1. INTRODUCTION AND PRELIMINARIES It would be reasonable to assume that business transformation, process redesign or reengineering, an area much talked about by industry and academia, and practiced by a wide gamut of industries for more than a decade, is a fairly well defined academic and/or professional discipline. Our careful examination of this area indicates that this is not the case. In this paper, we argue for the need of such a discipline, which should be practised by a business process engineer (BPE). The success of the profession and ultimately, the business enterprises it serves depends on associated professional community, education, and standards.
1.1 Historical Background The goal of every enterprise is profitable, efficient, and effective delivery of valuable products and services to a customer. Since the industrial revolution, the complexity of accomplishing this goal has increased through regular cycles of technological innovation followed by adaptive business restructuring to effectively capture new value. Enterprises have moved from basic production, to transporting goods to remote markets, to managing corporations of a national or international scale [Perez, 2002]. In the present “information age” cycle, information processing, communication and storage technologies shift the focus of innovation from task-oriented productivity to system responsiveness. Recognition of time as a competitive differentiator (see e.g., Blackburn [1990]) and the more recent focus on globalization are driving a
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dramatic increase in coordination and coherence across worldwide systems. Finding means to cope with the increased complexity is essential to the core enterprise goal. Simple automation of existing coordination structures is not sufficient. In manufacturing, digital processing has recapitulated the technological evolution since the industrial revolution. In manufacturing, the first wave of computerization focused on factory automation but often failed to deliver the expected cost saving. Postmortem studies revealed that even locally effective automation addressed only about 5% of factory cost structure. Addressing the remaining 95% drove a new engineering discipline focused on coordinating manufacturing processes and supply chain management utilizing the basic, physical production steps. Recognizing cross-functional business processes (see, e.g., Davenport and Short [1990]), we came to realize that a set of related tasks in different functional areas - say, sales, purchasing, design, manufacturing, and distribution - had to be treated collectively. The focus again was placed on automating activities, but this time across functional areas, within large “turn-key” enterprise resource planning (ERP) systems. The pattern of business automation is not dissimilar to that of the first wave of factory automation with a focus on automated tools for individual activities. Results similar to that of factory automation occurred for similar reasons [Davenport, 1998]. However, we cannot expect information technology (IT) to compensate for the inadequacies of a business process design. Automating an unproductive task will consume unnecessary resources even faster. On the other hand, automating a well designed process could provide additional yet critical benefits of time reduction for the overall process. When time delays cannot be eliminated or reduced through process design (such as in a step of physically transforming materials), automation is our last resort. In this chapter we observe that the sequence of activities in business process design and engineer-
New Profession Development
ing is analogous to that of a manufacturing process design. We elaborate this comparison in Section 2. Such similarity leads us to argue the need for a business process engineer as a more general version of the more familiar manufacturing systems engineer or process planner. This new role does not replace the typical multi-disciplinary team that is assigned the responsibility of designing a business process, but rather adds critical skills to the team so that the resulting process design is technically sound. We describe the role of the business process engineer in more detail in Section 3 and propose in Section 4 propose a core skill set a BPE ought to possess. Section 5 discusses our experience in an initial step towards business process engineering education. In our concluding remarks in Section 6, we explain why it is important to recognize the need for the role of BPE and devote adequate resources for the creation of such at the present time. The time to act is now. A preliminary version of the material contained in this chapter was presented at the IEEE International Conference on Service Operations and Logistics, and Informatics in 2006 [Leung et al. 2006].
1.2 Definitions and Related Literature There are several definitions and interpretations of terms related to business processes. We establish working definitions that we will use in this chapter. Similar definitions can be found in the literature; the Appendix provides a brief comparison. We use variations of the definitions used in Davenport and Short [1990] and Towill [1997a], but are more specific to exclude manufacturing activities for this discussion (in general, business processes include manufacturing processes): Business Process. A set of logically related activities in the day-to-day operation of a business, including planning activities (e.g., resource planning), business transactional activities (e.g., purchasing raw materials and selling products),
customer service and support activities (e.g., handling warranty issues). Business Process Engineering. We adopt the definition of Business Systems Engineering (BSE) suggested in Towill [1997a] as our definition for business process engineering: “BSE is a systems approach to designing new business processes and redesigning existing business processes. It provides a structured way of maximizing both customer value and the performance of the individual business.” [Towill 1997a] Business Process Engineer (BPE). We argue in this paper that there is a need for a professional role in the framework of BSE as defined in Towill [1997a, b]. This professional role, whom we call a Business Process Engineer, would be a key contributor in the multi-disciplinary team that Towill advocated. The job of a BPE is design and development of business processes that provide efficient and effective composition and coordination of individual skilled activities to bridge the strategic needs of the business. Since the influential work by Hammer and Champy [1997], many authors have discussed the importance of business process engineering. More recently, Karmarkar [2004] proposes several key competencies for a business enterprise to compete in the services based economy, one of which is business process design. In Chesbrough [2004], the author puts forth an agenda for services innovation research and argues, “Any useful understanding of the opportunities and risks that are unique to services innovation will invariably involve business process modeling, business models, systems integration and design.” As we shall see later, these activities constitute a key set of components of business process engineering. Rouse [2004] proposes that industrial engineers need to expand their focus to the entire business enterprise and even external entities that interact with it, including its suppliers, distributors, customers, and competitors. The author points out a number of potential education and research topics, a crucial one of which is understanding
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the relationships between these entities and the entire value stream that flows within and between these entities. These relationships are manifested on a day-to-day basis in intra- and inter-enterprise business processes that need to be designed and controlled in an optimal way. Our chapter contributes along the same line of thought as these works, but we show in detail why there is a need for business process engineering and specify what role a business process engineer would play in the overall design and operation of an enterprise. A related work is Tien and Berg [2003], in which the authors propose a set of engineering methods and principles for service systems. These methods span the entire life cycle of a service transaction, from planning to execution to measurement. Our proposed role of the business process engineer would be a practitioner of some of these methods to design and engineer a business process. In particular, all of the four major characteristics of a service system (information driven, customer centric, e-oriented, and productivity focused) would be key foci of the business process engineer. Business process engineering would be a part of service systems engineering, but is not limited to service enterprises. It is applicable and useful for traditional manufacturing industries as well as government institutions. In the last several years there has been a fairly wide recognition in academia of the need of a transformation in business related academic programs to reflect the needs of the changing environment. Most notable are proposals in Industrial Engineering [Askin et al., 2004; Kamath and Mize, 2003; McGinnis, 2002; Rouse, 2004; Settles, 2003] and Business (e.g. Smith and Fingar [2002: Appendix E]). This chapter is a contribution to defining the requirements for these new programs. Obviously, business processes have been in existence as long as businesses themselves. They are a necessity for a business to operate and deliver its output, be it a physical product or a service. It is only relatively recently (about two decades ago)
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that we have used the term “business processes” and have focused on studying them. The reason is that up until then business processes were relatively simple and to a large extent manual. There was only one or two ways of doing things. Manufacturing processes, on the other hand, were already quite complex and required several engineering disciplines to set up production (most often including electrical engineering, mechanical engineering, and industrial or production engineering)1. Today, business processes have also become quite complicated due to several reasons. First, as physical products become increasingly complex, the complexity of processes that support and coordinate all the manufacturing related functions has also grown accordingly. Second, logistics (and hence all its associated processes), be it material supply, distribution of products, or even logistics of information from suppliers, distributors, and end users have become a roundthe-clock, global operation. Third, new technology has raised new possibilities and alternatives. For example, a customer can now place an order through different means: phone, email, fax, electronic data interchange, or the world-wide web. An order management process has to handle all of these alternatives. Finally, the combination of the above three factors has increased the complexity and alternative possibilities of business processes that they now rival manufacturing processes. Coupled with the tremendous growth of the service industries where business processes are the “manufacturing” processes, it is natural to seriously consider the subject of business process engineering now.
1.3 A Framework for System Design For the exposition of the proposed BPE role, we start from an articulation of the general problem of system design shown in Figure 1. This framework forms the basis for analysis of existing roles in business design and comparison with analogous
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Figure 1. A framework for business system design
domains. Referring to Figure 1, three horizontal layers appear in business design, corresponding to the design of the system as a whole, design of a configuration of components, and design of the components themselves. Such a three-layered framework has its roots from general systems theory (see, e.g., Bertalanffy (1976)). The “system definition” layer (i.e., the top layer) defines the intent of the system, its positioning within a known external environment, and external behavior of the system in interacting with its environment. The outcome of a system definition activity is a description of the external interactions of the system defining its relationships with the environment from the perspective of the environment (such as a customer). The external environment involved is generally very different in nature from the internals of the business system. Engineering this top layer obviously requires strategic considerations of the environment that are only possible with distinct training, skills, and knowledge.
The “implementation” or component layer (i.e., the bottom layer) focuses on the design of each of a set of parts from which the system is assembled. The design takes place from the perspective of an execution infrastructure for the business. Each component ultimately will represent a physical entity (such as a human operator trained in some specific tasks, a machine for producing physical parts, or a database engine), since a business will deliver some physical entity or activity to a customer. In a typical business process engineering exercise, the top layer is likely to be outside the scope of the design effort. The top layer is the job of senior executives or entrepreneurs whose approaches or “algorithms” are an entire research subject. The outcome of the top layer is usually given at the outset of the business process engineering project. In a way, one can also view that the bottom layer is often outside the scope of a business process engineering exercise. Unlike the top layer, the bottom layer is usually not explicitly given,
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but it is practically constrained to a finite set of choices, such as machine types, software packages, or traditional job descriptions or functional positions (for humans). It is entirely possible that new machines or software packages can be custom built from scratch, but such cases are not very common. It would be technically easier to create new job descriptions, but would still be nontrivial to gain acceptance and success of the new position. On the right side of Figure 1, we map our system design framework onto the specific case of designing a business system. To this end, we chose to use the four layer framework proposed by Kumaran [2004]. The system definition layer corresponds to the market definition and business strategy stages, the system composition to the business operations and platform independent IT design stages, the implementation layer to the platform independent IT design and platform dependent IT design stages. The business operations stage is the logical design of the business operations required to satisfy the overall or strategic objectives as defined by the top layer of business strategy and design. Commonly the case nowadays, the business operations are supported by information technology. The platform independent IT design stage is where the logical design of the supporting IT system takes place. This design is usually different from the business operations design because very rarely one can completely automate the entire business. (At least so far we have not seen a completely automated business.) The logical design is independent of the software or hardware platforms that might be used for its actual implementation. The platform dependent design is the detailed specification of the supporting IT system that can be built or purchased (or partially purchased and partially built) without knowledge of any of the layers above it. It is a blue-print of the system that can be given to, say, a third party system development vendor to build.
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2. DESIGN AND DEVELOPMENT OF A BUSINESS PROCESS AND A MANUFACTURING PROCESS In this section we present the adaptations of the above system design framework for the design of a business process and a manufacturing process. As we will see, the framework adapted for manufacturing process design is commonly found and is relatively well understood. By comparing the business process design version with the manufacturing one, we can identify gaps in business process design that is practiced today, in particular the missing role of the business process engineer. To examine the separate cases of designing a business process and a manufacturing process, we assume that the external characteristics of the system, the strategy layer, are given. For the manufacturing process this includes the material input and product produced. Following Nigam and Caswell [2003] we take purpose of a process to be the attainment of some operational goal, such as a sales transaction, and the product to be a business artifact. A business artifact is a representation of the information required to know the current state of progress toward the goal. Referring to Figure 1, the first step in the system composition band is identification of the parts that will perform the activities to produce the business artifact in question. Figure 2 is a more detailed version of the right side of Figure 1, including the typical roles that are responsible for the different design stages. For a manufacturing process, the manufacturing strategy includes specifications such as make or buy, or the extent to which we make the product, the type of production facility – existing or new, job shop or highly automated flow line, etc. Similarly, for a business process, the business strategy will include considerations such as what part of the process is done in house or outsourced and the location and nature of the facility - existing or new. Clearly, the exact factors to be considered depend on the nature of the business artifacts, the existing business environment
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Figure 2. A framework for business process and manufacturing process design
and long-term strategy of the firm, the expected volume, profit, and life expectancy of the business artifacts and their possible follow-on relatives, etc. At the same time, high level strategic goals are set, such as target lead times, customer order lead times, target work-in-process inventory levels, and finished goods inventory levels. For the exposition of this chapter, we purposely chose to assume that a cellular manufacturing approach will be used in the example of manufacturing process design. The design of many business processes has much in common with the design of manufacturing cells, as observed independently by MacIntosh [1997]. Further, we assume that we will use product oriented manufacturing cells, i.e. one or few dedicated cells will be designed for the product line in question.
2.1 Design and Development of a Manufacturing Process Based on the manufacturing strategy, overall planning of the manufacturing operation begins. Figure 3 depicts the sequence of activities after setting the manufacturing strategy. Besides following the systems design approach discussed above, this
procedure is consistent with the typical manufacturing systems design practice of going from “rough-cut” to detailed design, as advocated by Browne et al. [1985], Nyman [1992], Suri [1985], among others. The first task in the manufacturing operation activity is to determine a manufacturing process plan for the products to be built, i.e. the processing steps required to transform the raw material to the final product. For example, a metal part may go through the steps of cutting, turning, milling, and final polishing steps. Complex parts may involve subassemblies which can either be purchased or made in-house. So make-vs.-buy decisions for subassemblies or components may be required at this stage. Once the process plan is developed, it will have to be executed by a physical manufacturing facility. Likely the firm already has certain existing manufacturing operation (which may be cellular or otherwise, or a mixture), so the current task is to plan how the new cells fit into the existing facility and what impact they have on the existing operation. At this point only the key input and output of the new cells need to be known – raw materials and end products from the corresponding cells, or any work-in-process which have to be sent outside of the cells for processing,
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Figure 3. Manufacturing cell design framework (numbers in parentheses refer to chapter numbers in Nyman [1992])
such as to a central paint shop or an electroplating line. In order to ascertain the input and output of the new cells, a very high level concept of the cells has to be developed, such as a preliminary grouping of products into families and assigning families to cells, the type and a rough number of the cells needed. In particular, product grouping is not a trivial task; many approaches and algorithms have been proposed in the literature for product or machine grouping to form manufacturing cells. Chapter 5 in Nyman [1992] proposed an approach for macro facility planning, assuming that the process plans are given and with an emphasis on planning for an entire facility from scratch. Besides the direct production activities, the requirements of the new cells and new products on planning and control functions (such as production and inventory planning, shop floor order scheduling, and materials planning), and other indirect support functions (such as equipment maintenance and shipping) have to be considered.
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Using the lead time and inventory targets set by the manufacturing strategy, an approach to master production and inventory planning for the new products is devised. Existing planning methods for other products are very useful starting points. The production order release mechanism and intra-cell or department level shop floor scheduling are also designed, taking into account the corresponding processes for other, existing portions of the factory. Once we have laid out what cells we will have, what goes in and comes out of those cells, and how those cells are controlled (in the production control sense) in the previous “manufacturing operation” activity, we can start to design the innards of each cell. This is the production line design activity in Figure 3. In this activity, the conceptual flow of material within the cell is developed, rough sizing of equipment is performed, and a high level layout of the cell is developed. Alternative designs are considered and evaluated using suitable analysis tools, such as modeling and simulation. Representative products (such as the basic product in a family) or aggregated products (such as an “average” product in a family) can be used for most of the work here. As well, qualitative evaluation such as flexibility, future expansion capability, ease of maintenance, level of human skills required, and environmental considerations have to be performed. Chapters 6 and 7 in Nyman [1992] contain a practical approach to the production line design activity. At the end of the production line design activity, we have a chosen cell design that represents the best cost benefit trade-off with reference to our strategic goals. This chosen cell design will have to be fully developed into an implementable plan, with all details such as the full specification of material handling and production equipment, as well as that of planning and control software and hardware. Sizing of all equipment (i.e., number of machines and their production rates) has to be determined. For decisions such as how many buffer spaces should be allowed for the input and
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output of each machine, or what the algorithm for loading jobs onto each machine should be, detailed analysis using simulation modeling is often necessary. Contrary to earlier activities, all parts that are planned to be produced by the new cells may have to be modeled. Besides performance issues, other aspects such as the handling of deadlocks (if it is a fully automated system) or the handling of reworks have to be considered. Chapter 14 in Nyman [1992] gives a comprehensive account of detailed design with an emphasis on the design of the physical cells. It also touches upon a control aspect – cell scheduling. Other facets of control, such as methods for production planning or inventory management of components and raw materials need to be considered as well. Chapter 15 in Nyman [1992] provides guidelines to equipment specification and request for proposals. Although these guidelines were apparently written with a focus on physical equipment, they also apply to software that is used for planning and control.
2.2 Design and Development of a Business Process In business process design, we find it useful to follow the general approach used in manufacturing process design described above. Our proposed framework of business process design, as shown in Figure 4, thus follows a similar hierarchy of design/ development activities. Nevertheless, some of the design considerations in a business process are different from those of a manufacturing process, since there are some fundamental differences in the nature of the two types of processes. Some of the key differences are as follows. 1. Because the processing of the business artifact in a business process is often information related and will mostly be supported by information technology, the emphasis will be on the logical rather than physical transformation of the business artifact. Physical facility planning will be simplified. For
Figure 4. Business process design framework
example, the input and output of the process can often be handled physically by a computer or communication network. In other cases where physical transformation is needed, such as an equipment repair, the physical part is typically of small effort relative to the entire service process which includes handling a service call, traveling to the equipment site or the customer shipping the equipment, and getting the required service parts. The coordination of all these activities becomes more important than the physical repair operation. 2. The nature of an individual operation spans two extremes, from a manual operation carried out by a human operator with possibly large processing times with a high variance, to completely automated operation performed by a computer algorithm with very short and relatively deterministic processing times. Most automated processing steps can in fact be considered to be instantaneous at the logical design stage. 2283
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3. In many cases, information technology is the only “machine” available for automating business processes. At this point in time for most businesses, software is the major issue. Consequently, there is a much more pronounced emphasis on software in the first level process design activities, as can be seen from Figure 2. 4. We observe that the current focus of the software design/development is more on the transaction management aspect (e.g., work flow). This is as opposed to manufacturing where significant emphasis is placed on planning, such as production and inventory planning. Transaction management in manufacturing would be production order management, materials order management, and the like. Clearly this is important to a manufacturing process as well, but is not quite the one and by far the most focused upon. We believe that in the future business process design will also place equal emphasis on planning aspects and that they are not as such today primarily because manufacturing process design is more mature. 5. Because a business process usually involves human decisions and interventions, the number of possible paths is large and it is more important to provide exception handling capabilities in the process. This is especially true in service industries where the business artifact is co-produced with the customer [Vargo and Lusch 2004] and the customer is actively influencing how the process will proceed. Since the customer experiences the process first hand, in a way the business process itself is a business artifact seen by the customer. Hence we see the rise of the topic “experience engineering.” [Carbone and Haeckel, 1994]. In business process design, given an overall business strategy (discussed above), the next step is to design the business operations. This is
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composed of several activities, as shown in Figure 4. Business process planning is analogous to developing a manufacturing process plan, where each operation step and the sequence of steps is specified logically. This differs from a manufacturing process plan in that the focus is on the requirements of the process, i.e., what the process needs to do, rather than the exact detailed steps (“the how”). For example, the operations may include a phone call being received, being routed to the appropriate operator, operator conversing with the caller, and so on. One of these operations may indeed be “manufacturing the product” but only a high level specification will be considered (e.g. system input and output). Conceptual design will be focused on developing to some detail the necessary steps and their sequence, the logical interaction and impact of the process at hand on existing processes, and physical locations of human operators when intensive interaction between people is expected. As well, high level ideas are developed on how business artifacts are grouped such that a group is handled by a corresponding set of operators or a particular version of the process. Different logical alternatives are explored, such as combining certain operations, reducing checks and controls, centralized vs. decentralized operations [Hammer and Champy, 1993; Buzacott, 1996]. The level of detail in the conceptual design should be adequate to provide a meaningful comparison of different alternatives in terms of cost, response times, or other measures. Evaluating alternative designs is similar to the analogous step in manufacturing process design. Suitable analysis tools, including quantitative ones such as mathematical modeling and simulation and qualitative ones such as expert ranking, can be used to estimate the performance of the different alternatives. One design is then chosen and full fledged details will be developed for that design. For example, a detailed specification of each activity in the business process, the exact sequences of the activities, the level of resources (human and
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machine) required to deliver the expected volume of work are drawn. The specification of each activity includes the input, output, and how the input is transformed to obtain the output. The machine requirements are most likely IT requirements, and at this point in the design process these are specified in terms of functional (e.g., what data need to be provided by the system) and non-functional (e.g., response time or volume of storage) requirements. With the detailed design, the process should be executable with the appropriate human operators, albeit completely manually. The platform-independent IT design describes the processes and information flows that the user has chosen to implement in an IT system to support the overall business process. It does not assume a particular implementation (such as hardware and software platforms), allowing iterative performance improvement that are consistent with the requirements set by the previous detailed design step. The platform-specific IT design defines the actual IT processes in a specific realization of the platform-independent IT design. Here hardware and software specifications are drawn. Today, many software tools can be used to help assemble or generate the actual code that is run during the operation of the business process. For example, modern enterprise resource planning (ERP) systems are becoming highly configurable. Once a specific ERP system is selected, the designer uses appropriate tools to assemble modules found in the system to develop a specific realization. Note that in Figure 3 we have depicted the activities as sequential with one way arrows. However, this is not true in practice; feedback between two activities in sequence exists and the first activity may be revisited after the second activity is partially performed. For example, in the detailed production line design block, we may find that the chosen design may not be able to achieve our objectives (such as production lead time) and we may have to go back to the production line design block to explore other alternative designs
that were proposed but not chosen. In fact, the entire manufacturing design block may feed back to the product design block (not shown in Figure 3) such that a product design may be modified to make it more manufacturing friendly. Such is the presently well-known principle of design for manufacture.
3. THE ROLE OF A BUSINESS PROCESS ENGINEER To date, virtually all business process engineering work (including both one-time re-engineering efforts and continuous process improvement activities) has proceeded under the key assumption that facilitated interactions of subject matter experts (SME) is sufficient to re-engineer complex systems. Business process design work is canonically performed by a multi-disciplinary team selected from organizations currently operating the business. (See e.g., Hammer and Champy [1993], Towill [1997a, b]). More often than not, such design or redesign work is commenced when the business is facing a crisis, such as when it is under intense financial pressure or when it is under severe attacks by new or very strong competitors. Typical teams include the following roles: 1. A business or executive sponsor. This is usually filled by a senior executive of the enterprise, whose role is to ensure that the process design effort will be a success, including the allocation of adequate resources to the effort. 2. A process owner who is responsible for the results produced by the process. This role ensures that the process produces the required output at a performance level that is satisfactory to the business. 3. Workers who carry out parts of the process on a daily basis. They are the subject matter experts (SMEs). They provide requirements to the design and also act as experts in how
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4.
5.
6.
7.
a necessary output can be achieved independent of any specific tool or system used. IT architects whose primary purpose is to develop a high level design of the IT system to support the business processes and establish a design framework for all sub-systems to follow. They focus on the IT infrastructure such as computing networks and platforms, and technical aspects of applications such as availability, scalability, reliability, maintainability, and cost. They take user requirements (including functional requirements) from the SMEs and even though they may make suggestions to the process design, their rationale is IT based. IT architects also serve as the SME in the IT area, providing expertise on what is or is not possible from the technology point of view. The chief architect is typically the single point of contact for all matters related to IT, and may have overall responsibility for all such matters. IT analysts who primarily act as the bridge between the users (the process workers or the SMEs) and the IT system developers or vendor. They take user requirements from the SMEs, document them and translate them into technical specifications of IT applications, and help develop a new application, or help choose and implement a commercially available one to support the processes. Human resources (HR) or organizational change experts to provide expertise on matters related to job description, human performance incentives, organizational design that accompanies the process design, or work culture. The customer of the process is sometimes part of the team to ensure a smooth process handoff during production.
Such experts drawn from the existing business generally have a stake in the status quo. The assumption is that such a team has all the knowledge and skill required to design an integrated system:
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the only thing they lack is the ability to work together, so facilitation and structuring the reengineering activity is required. This often leads to the hiring of management consultants who bring a structured methodology or approach that they have used in the past. The above approach results in “design by committee” solution2. Characteristics of such solutions, such as local optimization and a lack of overall cohesion or accountability, often occur in descriptions of reengineering efforts. Accountability for the design, as opposed to the project accountability (i.e., for meeting project completion dates and budgets), may appear to rest with the process owner role, but this may not be the case in practice. The process owner is generally an executive role, responsible for the execution of the process and accountable for the results produced by the process, but not for the design of the process itself. Changes to the process design are therefore often left to natural adaptation with details determined by the local workers. Further, many types of changes to an existing process are inelastic due to the time that it takes to change such things as culture, incentives, communication patterns, and infrastructure. The speed of an organic adaptation process is diffusion limited, with the rate determined by the gradient between the old and the new, which is typically rather slow for smallish differences. A new equilibrium may take long to establish, or may even be unstable, e.g., oscillating. Instability may occur as a result of changes starting at different places, meeting and modulating each other in some way, and then re-propagating again. It is interesting to note that at times there can be many changes happening to no eventual productive purpose. What is lacking in this common scenario is a role that takes an active process design function focused on the consistency, completeness, and optimization of the system as a whole rather than on its parts. We believe that this role should be filled by a professionally trained business process engineer. The business process engineer possesses
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skills of process engineering at the general or abstract level and applies them to the process design at hand. He/she provides expert guidance to the team, leads the team through a structured process of process design and engineering, performs the necessary technical analysis, helps interpret the results of the analysis, and brings in knowledge of what information and other technologies can provide to support or enable the process. (Today, some management consultants provide some of these capabilities, most notably a structured process or “methodology” to perform business process engineering.) With this role, the new design will not be blindly or overly dependent on what is being done today or what the SME’s have seen in their own experience. (However, the existing design is always available as a starting point of a new design.) Figure 5 conceptually compares the present state of design by committee and the future state of having a business process engineer as the professional designer in the team. The existing team members are still very much needed in the future, but we also need the input and effort of a professional process designer. As Figure 2 depicts, the business process engineer in many aspects plays the analogous role of the manufacturing process planner or engineer, as follows.
1. Just as manufacturing process planners or engineers design and optimize a production process plan for a physical product, business process engineers design and optimize a business process to produce the required output, be it an information based business artifact or a customer experience encountered in a service. 2. Similar to the make-vs.-buy decision in manufacturing, the business process engineer determines what, if any, portion of the process or business artifact is outsourced or purchased from a supplier. This decision is based on an analysis of strategic considerations, cost, response time, ease of managing the process interfaces, as well as the availability of outsourcing providers. 3. Just as manufacturing process engineers work with manufacturing systems engineers and machine engineers, business process engineers work with IT architects, analysts, and software engineers for detailed design and development. Because of the fundamental differences between a manufacturing process and a business process noted earlier, the business process engineer has a slightly different responsibility in the business operations task (see Figure 1) from that of
Figure 5. Business system designers: The present and the future
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the manufacturing process engineer in the manufacturing operations task. The following represent the respective implications of the differences in the processes as discussed in Section 2. 1. There is no separate physical production line design task in business process design. Capacity planning of human operators is performed in the business operations task. The business process engineer effectively represents a combination of the manufacturing process engineer and the manufacturing systems engineer. 2. The supporting IT system is usually not a bottleneck in interactive usage mode and is hence ignored in the capacity planning of human operators. In cases where IT system is used intensively and where the computation time is significant, the IT system is usually used in batch mode without human intervention. 3. IT hardware and base operating systems are limited to a few standard choices. Software, either purchased as-is, custom built, or most likely custom configured, is a major focus of business process design. Further, the software applications supporting a business process are often of an interactive, real time nature. (In manufacturing systems, there are also real time software applications, such as those in machine control. Such are usually outside the scope of the manufacturing process engineer.) As discussed earlier, today’s emphasis is on transaction management software in business process design. On the other hand, the nature of a business process (as we defined it) usually entails substantial human involvement. The business process engineer therefore would have a stronger focus on human-human or human-computer interaction, group dynamics, negotiation, and real-time decision making. (In manufacturing systems, there is obviously an important human
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element to them and past human factors studies have focused on a most directly relevant aspect - humans performing physical tasks.) It is interesting to note that few industries have existing or emerging roles that are close to a BPE. In hospitals, the role of industrial engineers is filled by management engineers, a well accepted professional job in the field [HIMSS 2009]. Hospitals have notoriously complex and potentially inefficient processes, even though they do not make a traditional, physical product. We would like to generalize this role to all other industries.
4. THE SKILL SET OF A BUSINESS PROCESS ENGINEER In this section we discuss the skill set required to perform the role of a business process engineer explained in the previous section. While an extensive discussion of skills needed by the BPE and their justification are outside the scope of this chapter, we present our preliminary work on identifying the key skills for a successful BPE. We note that many of these technical areas are not new in themselves. Some specific techniques and methods have already been proposed in the literature [Biemans et al. 2001; Buzacott, 1996; Chadha, 1995; Osmundson et al., 2004; Park and Park, 1999; Rouse, 2005; Sousa et al., 2002; Tait, 1999; Towill, 1997a, b]. Others have grown out of other disciplines but have wide applicability in business process engineering. Just like when computer science started more than half a century ago, many topics then were part of other fields such as mathematics and electrical engineering.
4.1 Critical Skills of a BPE We assume that basic scientific thinking, engineering fundamentals, and mathematics, such as those provided by an undergraduate engineering degree program, are already covered. We use an outcome-based approach to describe the skill set
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of a BPE. We group the skills according to the focus areas within a BPE’s job scope, as shown in Figure 6. For each focus area of a BPE shown in Figure 6, we list, in Table 2, Table 3, and Table 4, the key educational outcomes relevant to that area and the corresponding topics that need to be taught in order to achieve the educational outcomes. In addition, Table 1 contains the educational outcomes and the respective topics for a basic set of skills of a BPE.
5. AN INITIAL STEP IN BUSINESS PROCESS ENGINEERING EDUCATION 5.1 College Level Education in Business Process Engineering The two logical home departments for business process engineering education at the undergraduate and graduate level are Industrial Engineering (IE) and the Business School. The former may present the greatest opportunity to develop and offer such a program because of the current status of IE education and practice, its unique mix of human-technology-business tradition, and the applicability of many of its existing courses. The IE community is beginning to realize that modernizing the curriculum is critical to the future of the IE discipline. Several efforts have been underway to define the IE of the future [Askin
et al., 2004; Kamath and Mize, 2003; Kuo and Deuermeyer, 1998; McGinnis, 2002; Rouse, 2004; Settles, 2003]. Today’s IEs do much more than task-oriented efficiency studies. The scope of IE has gone beyond the design of the physical work place and production processes to the design of systems involving knowledge/information work [Kamath and Mize, 2003]. BPE is a natural extension of the traditional, physical production space into the non-production space. We submit that BPE should be part of the core program of the “new” industrial engineer. Programs offered by Business Schools have been undergoing rapid changes driven by relatively recent technology advancements. They have taken the lead role in offering programs and options that focus on information systems, e-commerce, and supply chains. However, these programs produce mainly business analysts or information system analysts, a primary role of whom is to act as a liaison between the business users and the software developers and vendors. These programs emphasize business and IS/IT concepts and are somewhat weak in system design content. Nevertheless, much knowledge offered by business schools today, such as business strategy, financial planning, business performance measurement, is fundamental to a BPE (as evidenced by our discussion throughout Sections 3 and 4 in this chapter). This is similar to the existing relationship between business schools and industrial engineering departments today.
Figure 6. The job scope of a business process engineer
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Table 1. BPE skill set – basics Educational Outcome
Relevant Topics
Basic understanding of management, organization, corporate structure Understanding of contemporary business/enterprise concepts Understanding of production system concepts applicable to business processes Understanding of service systems concepts Ability to apply systems engineering principles and approaches to solve a business problem
How businesses are organized and managed. Economics of organization. Functional silos and cross-functional processes. JIT, Lean, Six Sigma, etc. Virtual enterprises/integration, supply chains, business ecosystems, and e-business. Enterprise ontology and business architecture. Manufacturing system organization (process/product/cell). Quality assurance and process control. Manufacturing vs. service operations and physical vs. knowledge work environments. Current topics in service sector domains such as retail, healthcare, entertainment, IT services, and professional services. Service quality concepts. System engineering fundamentals. Engineering problem solving and design approaches. Structured and object-oriented approaches for information system design and development
Table 2. BPE skill set – process design Educational Outcome An ability to develop descriptive process models An ability to (re)design a business process An understanding of human behavior in the workplace
Relevant Topics Process modeling techniques such as IDEF0/IDEF3, Event-driven Process Chains (EPC), and Petri nets. Process and value stream mapping. Design principles (e.g. modularity, postponement, and impact of process variance on design); service orientation (e.g., service oriented modeling). Analysis techniques of a qualitative (e.g., control-flow verification) and a quantitative (e.g. response times using simulation and analytical techniques) nature. Design methodology that covers identification of tasks (what), development of control flow (how), and assignment of tasks to resources (who). Impact of technology on human performance including human interface issues, human-centered design and user-friendliness. Impact of people behavior on work system’s success. Application of anthropological techniques. Employee satisfaction and customer satisfaction. Ethical and privacy issues.
Table 3. BPE skill set – process monitoring and measurement Educational Outcome An understanding of the need for process monitoring and measurement An ability to support the design a measurement system
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Relevant Topics Common measures of success. Linking business strategy and measurement, e.g., balanced score card. Measurement as a process management tool. Measurement as an incentive tool. Measurement as a feature of the service, e.g., service level agreements and contractual terms. Defining and selecting measures, including the use of modeling techniques. Determining how measurements are calculated utilizing existing techniques such as statistical process control, statistical sampling, on-line analytical processing (OLAP), and real-time performance dashboards. Application of measurement instruments for human subjects, e.g. surveys and panels.
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Table 4. BPE skill set – process automation and support Educational Outcome Basic understanding of knowledge management concepts Basic understanding of enterprise applications and general technology capability Basic understanding of business process automation technologies
5.2 Pilot Offering of a BPE Course A senior-level elective course titled “Engineering Business Processes” was designed and approved as part of the Bachelor of Science curriculum in Industrial Engineering and Management (BSIE&M) at Oklahoma State University, Stillwater, OK, US. The course format included traditional lectures by the instructor and several presentations by the students. Due to the limited hours in a single undergraduate course, only a key subset of the all the skills discussed in Section 4 was included in the course. The topics were grouped into three modules (i) Overview of business concepts and introduction to BPE, (ii) Modern enterprise concepts, and (iii) Modeling, analysis, design and implementation of business processes. Feedback from the students indicated that they believed that the course was value-adding to their program. One of students who is currently employed by a global oil and gas company has seen distinct benefits in the following three areas – in understanding how to model data and data relationships, in identifying ‘how-to’ automate business processes with long-term maintenance in mind, and in looking beyond the process ‘step’ level and evaluating how business processes span across the organization (impact and touch points). While the above represents the experience of only one university, it should be noted that the BSIE&M program has a structure that is very
Relevant Topics Knowledge representation, document engineering, agents, ontologies, and unified modeling language (UML). Introduction to ERP, customer relationship management (CRM), supply chain management, financial/accounting systems, IT management systems, and IT infrastructure technologies. Information exchange and integration, using data warehousing, extensible markup language (XML), and related technologies. Process choreography using workflow management systems and service oriented computing. Using commercial applications to implement common business processes.
similar many such programs in the US. Hence, it is quite plausible that a course such as the one above could be offered at least as an optional course in other similarly structured IE programs in the US.
6. CONCLUDING REMARKS Business process re-engineering, some ten years after its widely publicized inception as a mainstream tool to improve business performance, is still somewhat controversial. Many organizations have varying degrees of success with it. While the concept of BPR is more commonly accepted as a valid approach for a business to stay competitive in today’s fast changing environment, how and by whom should a BPR exercise be carried out remains debatable. The issue we explore in this article, namely the non-existence of a professional business process engineer today, is one probable contributing factor to the uncertain results of BPR projects. Many factors contribute to today’s fast changing business environment: unprecedented changes in political landscapes globally, explosion of technological inventions, man-made trends from the fashion and entertainment industries, global competition aided by enhanced communication and the dismantling of trade and political barriers. Undeniably a major factor is the advancement and proliferation of information technology such as
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the personal computer or the cellular phone, the world-wide web which can be reached from a multitude of devices, and software technologies that have made IT a much friendlier tool when compared to that of the past. Such IT tools have and will enable the automation and transformation of many business processes and in some cases entire industries. Well-known examples: Rental car check-out and check-in, on-line auctions or reverse auctions in the B2B and B2C space, or even the process of collecting information for and filing individual income tax. Many of these important transformations have been invented by individual entrepreneurs who relied on their keen observations on certain inefficiencies of a familiar business process. In order to exploit, on a broad scale in all industries, the use of technology in transforming (i.e., beyond automating) business processes into more effective ones, we need more resources than the gifted entrepreneurs who, by definition, are only interested in opportunities that are extremely profitable to them. As is widely known in the U.S., the continued shift of the economy from manufacturing
to services has underscored the importance of non-production processes (see Figure 7). It has been estimated that two-thirds of the U.S. non-farm labor force belongs to the category of service providing (rather than goods-producing) workers. While our know-how in manufacturing process design and management had propelled U.S. manufacturing to the top in the past, we need to do the same for service industries for the U.S. economy to survive and continue to grow in this changing, global environment. Business process engineering to service industries is the equivalent of manufacturing engineering to manufacturing industries. It is also essential to note that the government in the U.S., while employing about the same fraction of non-farm people as the total of manufacturing and other goods producing sectors since 2003, is largely engaged in non-production activities (see Figure 7). It can be argued that business process engineering is therefore as crucial as manufacturing engineering, based on the needs of the government sector alone. In this age of emphasis on lean and efficient governments,
Figure 7. U.S. non-farm employment profile 1959-20083
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business process engineering is a crucial subject for the U.S. and other governments in developed countries. Further, because IT is almost the sole, and certainly the predominant, technology available for a business process, the success of the IT industry will have an intimate relationship with the success of business process engineering. For one, many requirements of IT will come from the needs of engineering a business process. The days of IT as a pure automation tool are numbered in developed countries. Significant new developments in IT will go hand in hand with new, innovative ways of transforming an existing business process. Major IT vendors (such as IBM) have already recognized this trend, as can be seen by their emphasis on the business transformation business in the last several years. The continued success of the IT industry, especially in developed economies, will to a significant extent depend on our success in business process engineering.
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Kamath, M., & Mize, J. H. (2003). Impact of major driving forces on IE education and practice. In Proceedings of 2003 Industrial Engineering Research Conference, Portland, OR. Karmarkar, U. (2004). Will you survive the services revolution. Harvard Business Review, 82(6), 100–107. Kumaran, S. (2004). Model driven enterprise. In Proceedings of the Global EAI Summit, Banff, Canada, 166-180.
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Towill, D. R. (1997a). Successful business systems engineering. Part 1: The systems approach to business processes. Engineering Management Journal, 7(1), 55–64. doi:10.1049/em:19970109 Towill, D. R. (1997b). Successful business systems engineering. Part 2: The time compression paradigm and how simulation supports good BSE. Engineering Management Journal, 7(2), 89–96. doi:10.1049/em:19970209 Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic of marketing. Journal of Marketing, 68(1), 1–17. doi:10.1509/ jmkg.68.1.1.24036
ENDNOTES 1
There are many obvious examples of fairly complicated products that have been in large-scale production since World War II.
2
3
They include consumer products such as automobiles and televisions, not to mention commercial aircraft and shipbuilding. Perhaps the comparison point to make here is that the factory level design isn’t going to be performed by a production line workers’ committee. They are a clear source of input as to what works, what is problematic but do not have the overall, integrating viewpoint. Other goods producing sector includes mining & logging, construction. Non-government service providing sector includes trade, transportation, & utilities; information; financial services; professional & business services; education & health services; leisure & hospitality; other services. Data source: U.S. Bureau of Labor Statistics, Annual Average Employment, retrieved from ftp:// ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt, April 2009.
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APPENDIX Comparison of Definitions Related to Business Processes in the Research Literature In the research literature, there are several definitions and interpretations of terms related to business processes. We provide a brief comparison of those definitions with that used in this chapter.
Process Any activity or group of activities that takes an input, adds value to it and provides an output to an internal or external customer. Processes use an organization’s resources to provide definitive results on behalf of the business [Towill, 1997a]. Our definition of a process agrees in principle with the above. However, we wish to emphasize the ordering present within a group of activities by qualifying “activities” above with “activities arranged or linked in a specified order.” The activities of a process are not just a set, but a set with very specific relations between the elements. We also note the often neglected role of resources in defining both the structure of a process and interactions between processes. The value of processes is not just in aggregating the functional activities but in coordinating actions and resources.
Business Process A linked or natural group of skills and competencies which start from a set of customer requirements and deliver a total product or service [Towill, 1997a]. A set of logically related tasks performed to achieve a defined business outcome [Davenport and Short, 1990]. In general, we use a variation of the above definitions and add examples of the groups of activities, which allows us to use a narrower definition for this article: A set of logically related activities in the day-to-day operation of a business, including planning activities (e.g., resource planning), manufacturing activities (e.g., building a gadget), business transactional activities (e.g., purchasing raw materials and selling products), and customer support activities (e.g., handling warranty issues). However, in this chapter, we use the term business process to mean non-manufacturing activities, to distinguish from manufacturing activities for convenience of comparison. We also use “activities” instead of “tasks”. As is customary, an activity is defined as a collection of closely related tasks and is therefore a level above a task in the process hierarchy.
Business Process Redesign/Reengineering (BPR) The means by which an organization can achieve radical change in performance as measured by cost, delivery time, service and quality via the application of the systems approach which focuses on a busi-
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ness as a set of customer-related core business processes rather than as a set of organizational functions [Towill, 1997a]. The analysis and design of work flows and processes within and between organizations [Davenport and Short, 1990]. … the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed (Hammer’s definition from [MacIntosh, 1997]). … the redesign of an organization’s business processes to make them more efficient [Curtis et al., 1992]. BPR is seen by some as a tool or technique that has transformed organizations to the “degree that Taylorism once did [Davenport and Short, 1990].” BPR has been differentiated from the constant tweaking of process details (a.k.a. continuous process improvement or CPI) by the “radical” or step changes that it causes in an enterprise’s processes. In addition, cross-functional processes and the advancements in IT are often associated with BPR activities. Our focus in this chapter is on business process design/engineering and we believe that our definition and approach can easily be adapted to redesign/reengineering situations by making the obvious changes. Like Towill [1997a, b] we also advocate a systems approach, wherein the focus is on the behavior and performance of the total enterprise.
Business Systems Engineering (BSE) BSE is a systems approach to designing new business processes and redesigning existing business processes. It provides a structured way of maximizing both customer value and the performance of the individual business [Towill,1997a].
Business Process Engineer (BPE) Towill’s [1997a, b] work certainly help lay a foundation for our thesis here. We argue in this paper that there is a need for a professional role in the framework of BSE as defined by Towill [1997a, b]. This professional role, whom we call a Business Process Engineer, would be a key contributor in the multidisciplinary team that Towill advocated. As we will see in the later sections of this paper, the BPE draws on the principles of systems thinking with skills from a set of different yet related disciplines of business, industrial engineering, operations research, computer science, and information systems and technology. It is a professional discipline whose purpose is the design and development of business processes.
This work was previously published in Service Science and Logistics Informatics: Innovative Perspectives, edited by ZongWei Luo, pp. 336-358, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.6
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs Kenneth David Strang APPC IM Research, USA & University of Central Queensland, Australia
ABSTRACT An e-business new product development (NPD) knowledge articulation model is built from the interdisciplinary empirical and theoretical literature. The model is intended to facilitate a case study of a large multinational mobile communications services/products company (with team members in Europe, Asia and Australia). The NPD teams include subject matter experts that function as a community of practice, electronically collaborat-
ing in a virtual context. The knowledge created and shared in the NPD teams involve various unknown levels of tacit and explicit ideas, which are difficult to understand or assess. The goal of the research is to build a tacit knowledge articulation framework and measurement construct that can be used to understand how a successful (or unsuccessful) NPD team operates, in terms of knowledge innovation and productivity. Complex issues and controversies in knowledge management are examined to clarify terminology for future research.
DOI: 10.4018/978-1-60960-587-2.ch806
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
INTRODUCTION In new product development (NPD) for business, individual tacit knowledge must be articulated to be shared with other specialists so as to augment ideas and design new products/services (Chang & Cho, 2008; Kyriakopoulos & deRuyter, 2004; Sherman, Berkowitz, & Sounder, 2005). In the management science literature, the leading innovation-focused researchers argue that the ability to capture and leverage tacit knowledge is itself a competitive business advantage and it ensures organizational sustainability (Edvinsson, 1997; Hamel & Prahalad, 1994; Handy, 2001; Nonaka & Teece, 2001; Sveiby, 1997b; Teece, 2001; von Krough, Ichijo, & Takeuchi, 2000; Wiig, 2002). It takes knowledgeable subject matter expects to articulate, collaborate and transform individual tacit innovations into workable products and services that will match consumer needs in the market (Leonard & Sensiper, 1998). In e-business, technology can be leveraged to facilitate tacit knowledge articulation and sharing for NPD, allowing insightful people to electronically collaborate (e-collaborate) across geographic boundaries and over different time zones (Backman, Borjesson, & Setterberg, 2007; Ettlie & Elsenbach, 2007; Gordon, Tarafdar, Cook, Maksimoski, & Rogowitz, 2008; Reid & Brentani, 2004; Sawhney, Verona, & Prandelli, 2005). There are many examples of this (yet there is no attempt here to single out any particular one as being better than others). Multinational companies such as Nokia, Xerox, SAP, Apple, Microsoft and IBM are representative e-business case studies (cited in the literature and stock markets) demonstrating the capability to harness tacit knowledge in NPD across geographic and time boundaries to achieve competitive advantage and long-term sustainability (Chang & Cho, 2008; Handy, 2001; von Krough, et al., 2000). There are two interesting trends associated with tacit knowledge sharing in the e-business economy that reveals its strategic benefit for NPD. The first
is the e-collaboration of multiple stakeholders in the supply/value chain (Strang, 2008a), such as suppliers and customers interacting, providing social capital to influence NPD (Gronröos, 1994; Kavali, Tzokas, & Saren, 1999; Nonaka & Teece, 2001; von Krough, et al., 2000). The second is the concept of tacit meta-knowledge being intellectual capital, meaning that knowledge about knowledge (meta-knowledge) can be considered more valuable than the underlying information or product (Boudreau & Ramstad, 1997; Kim & Mauborgne, 1999; Stewart, 2000). For example, in the financial market, tacit knowledge shared within and between investment analysts, can generate more profit than the explicit value increase from the knowledge about the underlying stocks. We know the exponential power of leveraging tacit knowledge from the global economic crises of 2008 because those that could leverage the tacit meta-knowledge restructured their investments beforehand (or converted currencies for quick money market gains). In the vacation industry, the tacit knowledge for designing consumer solutions using multifaceted tours and multiple travel routes can be worth more than the combined margins on the separate package components. “The air travel industry has become two different industries: the flying industry, which is marginally profitable at best, and the information-about-flying industry, which makes money hand over fist.” (Stewart, 2000, p. 15). Nevertheless, the tacit knowledge articulation process is not well-documented for e-business NPD (Strang, 2009a). There is a lack of formal theory along with ambiguous terminology for tacit knowledge articulation in the literature (Wilson, 2002). It is argued that if there was a universal approach then there would be a generally accepted body of knowledge. Perhaps there should be more best-practices by discipline, as we find with theology across the various religions, GAAP in accounting, or PMBOK in project management. The aim of this research is to explore tacit knowledge creation theories, in a unique context
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of NPD, by an online community of practice from a successful multinational e-business. (Figure 1) presents a simplified systemic model of an ebusiness NPD process showing the product life cycle of needs gathering through to production. The feedback loop injects new explicit and tacit knowledge into the system. NPD is just one of the many business functions (yet a critical one), that take place in most organizations (Strang, 2009a). A challenge here is to determine how knowledge articulation can take place with subject matter experts designing new products in e-business, using technology to collaborate online (across countries and cultures). The technology is considered less important (in this study), because there are numerous tools available (and emerging) that allow communities of practice to electronically collaborate (e-collaborate) for NPD, asynchronously as well as synchronously (Gordon, et al., 2008; Sawhney, et al., 2005). Instead it is the “how” - the underlying knowledge articulation mental-models - that are of interest. NPD in e-business is not strictly concerned with how to manufacture components or assemble
service elements into products (albeit that is often a subsequent design activity). In e-business the focus is on inventing innovative designs using explicit and tacit knowledge from decentralized subject matter experts to create products/services that will match market needs and wants (Strang, 2009a). Eventually ideas need to be transformed into services or products to be sold. Nonetheless, the scope of this research is limited to the knowledge sharing part of the NPD e-business process, as implied by the simple model in (Figure 1). The SWOT process within NPD is an acronym for analyzing strengths-weaknesses-opportunitiesthreats.
BACKGROUND The genesis of many exemplary scientific and business innovations originates from the unspoken tacit knowledge of professional subject matter specialists. When Einstein received the Nobel Price for Physics in 1922 he reflected on tacit knowledge that had sparked his theory of gravita-
Figure 1. Simplified systemic model of NPD e-collaboration in e-business
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tion: “I was sitting in a chair in the patent office at Bern when all of sudden a thought occurred to me: if a person falls freely he will not feel his own weight.” (Einstein, A., 1922 Kyoto Address cited from: DeBono, 1967, p. 63). Knowledge management has always played an important role in evolution and society (Fuller, 2001). Anthropology confirms that our ability to articulate and share tacit knowledge has allowed humans to evolve much quicker than other species. The world has moved through the industrial revolution and technology era, into the knowledge economy (Kim & Mauborgne, 1999). The emphasis in this knowledge economy is on collaborating to transform and combine ideas in better ways, more quickly (Brown & Duguid, 2001; Nonaka & Teece, 2001; Werbach, 2000). Occasionally insights from the ancient philosophers inspire us for tacit knowledge creation approaches, namely Socrates and his apprentice Plato. In 1653 Aristotle (a student of Plato) offered wisdom for tacit knowledge articulation: “Write down the thoughts of the moment. Those that come unsought for are commonly the most valuable.” (Grolier, 2007, p. 2387). Not surprisingly this principle is advocated as a preliminary step in the complex innovation process by contemporary knowledge creation legends (Nonaka & Teece, 2001; von Krough, et al., 2000) and by innovation research specialists (Rogers, 1995; Schön, 1983; Yin, 2003). Despite the lack of formal theory for tacit knowledge articulation and notwithstanding the ambiguous terminology across disciplines (Wilson, 2002), it seems absurd to ignore the existing literature in favor of gathering evidence at the source by using a (blank-slate) grounded theory, or action learning approach. Consequently, the extant literature will be reviewed to define relevant tacit knowledge facets. These terms can be used to explain the espoused theory of subject matter experts using on-line NPD. The goal is to build a model that can be used to guide and assess tacit
knowledge articulation by NPD subject matter experts in a multinational e-business that designs and produces mobile products and services. In lieu of a standard methodology for tacit knowledge articulation and sharing in NPD, there are many generic theories and models explaining intellectual capital and knowledge management. There may be too much conjecture about knowledge creation (Carrillo, 2001), lacking empirical evidence with industry/discipline specific community of practice guidelines (Heaton & Taylor, 2002). Furthermore, tacit knowledge creation is often referenced differently across the overlapping disciplines. The taxonomies commonly cited include: knowledge management, intellectual capital, corporate memory, organizational learning, group idea generation, ideation, intangible assets, enterprise brainstorming, creation tension, disruptive innovation, etc. Sometimes tacit refers to a process or just a thought; sometimes it is included within the concept map of knowledge while in other literature it is not. Cross-disciplinary and cross-cultural synonyms can waste research time and camouflage novel publications (Strang, 2009b, 2009c). Knowledge management terminology appears in most disciplines (management science, educational psychology, health sciences, engineering, project management, etc.), but there are many synonyms and conflicting perceptions (Weick, 2001; Wiig, 2002). Given the work that goes into creating international and national standards, the various standards associations were searched. Currently there is no ISO or national body of knowledge for knowledge creation. Yet there are some very basic guidelines from ISO (Rollo & Clarke, 2001) and there is a framework for knowledge management (Standards Australia, 2008), but nothing appropriate for tacit knowledge articulation in NPD. There are many online community of practices that contain a lot of interesting debate on knowledge management, such as the Knowledge Management Consortium (Wiig, 2003), which is an excel-
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lent source to examine the deeper philosophical meaning of the epistemology. There are several peer-reviewed journals that focus on knowledge management, along with research handbooks (Cortada & Woods, 2001) and books (Awad & Ghaziri, 2004; Becerra-Fernandez, Gonzalez, & Sabherwal, 2004; Wenger, McDermott, & Snyder, 2002) – all of which informed this research. The literature on knowledge management has evolved from defining the terms (Meacham, 1983; Wiig, 2003) to discussing complex knowledge creation/sharing life cycle theories and methodologies (Becerra-Fernandez, et al., 2004). Notwithstanding theories of knowledge originated from the earlier philosophers (Socrates, Plato, Aristotle, Kant, Descartes, Dewey, etc), modern terms include: explicit, tacit, intellectual capital, etc. (Nonaka & Teece, 2001). Knowledge has been described as complex enterprise-wide processes (O’Dell, 2000; Samaddar & Kadiyala, 2006), then expanding the individual perceptions on these processes and terms (Cabrera, Collins, & Salgado, 2006; Lesser & Prusak, 2000). There has been a lot of research on methodologies for capturing/disseminating knowledge (Malone, 2002; Storck & Hill, 2000), followed by constructs like balanced scorecards for assessing/evaluating knowledge creation outcomes (Barchan, 2002; de Jager, 1999; Kaplan & Norton, 1992; Schuppel, Muller-Stewens, & Gomez, 1998; Sveiby, 1998). Consequently, although there is no generally-accepted comprehensive body of knowledge or meta-knowledge about ‘knowledge’, the widely cited literature is the best starting point. It is impossible to synthesize all publications so the emphasis is on the most relevant for tacit knowledge sharing in e-business NPD. It will make this research more applicable to other researchers and communities of practice by referencing common accessible knowledge management theories and models.
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KNOWLEDGE ARTICULATION MODEL This section begins by defining contemporary knowledge management terms, followed by a synthesis of key concepts related to tacit knowledge sharing in e-business NPD. These terms will later be used to build a model to explain e-business NPD in the case study of a mobile/wireless product/ service multinational.
Generally-Accepted Knowledge Definitions As suggested by (Figure 2), the term ‘knowledge’ could be described as five main paradigm views. Many domains overlap. Empirical research may encompass all of these or apply some to specific disciplines. •
•
•
•
•
Memory. Individual, team, community of practice or enterprise state of knowing (could be explicit or tacit or not-yet-known, includes learning and reflection at all these levels). Taxonomy. Descriptive structures with definitions to differentiate (tangible, intangible assets, resources, intellectual/social capital, explicit/tacit, facts, data, information, meta-knowledge, etc.). Process. Workflow/lifecycle to create or share, procedures to find, transform, manage and share. Learning. Comprehensive life cycle ideology, theories and feedback for organizational learning. Performance. Measurement, innovation (independent factors, moderators, dependent variables).
The remainder of this section briefly explains the meaning and relevance of these domains for NPD. Each section integrates and progressively
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
Figure 2. Generally-accepted knowledge management paradigms
builds on the previous, leading to a proposed measurement model.
Knowledge Memory This paradigm refers to knowledge as memory stored and retrievable by a human or a group of humans (differentiated from artificial intelligence of computers or databases - possibly a future extension). The source(s) may include combinations of individuals, teams, communities of practice and the organization. Cognitive psychologists categorize knowledge as declarative or procedural memory (DuBrin, 2004): •
•
Declarative knowledge. Consists of descriptions of facts, things, methods, procedures; all declarative knowledge is explicit, which can be and has been articulated into semantic memory. Procedural knowledge. Action or behavior descriptions that originate from personal experience and/or explicit knowledge, and is stored as episodic memory (two different views are common): ◦⊦ knowledge that manifests itself in the doing of something, and as such is
◦⊦
reflected in physcio-motor or manual skills, and/or embedded in cognitive or mental skills; knowledge about how to do something - this view accepts a description of the steps of a task or procedure as procedural knowledge.
In business “memory knowledge” can be held by individuals (Lank, 1997), customers (Prahlad & Ramaswamy, 2000), teams (Takeuchi, 2001), communities of practice (Wenger & Snyder, 2000) and/or organizations through their procedures, strategy or culture (Beckett, 2000; Walsh & Ungson, 1997; Zack, 1999). Memory knowledge may be a state of knowing (to know about) - be familiar with or to be aware of facts, methods, principles, techniques; a capacity for action (know how) - understand facts, methods, principles and techniques sufficient to apply them in the course of making things happen; and/or a body of knowledge (know what) - codified, captured in books, papers, formulas, procedure manuals, computer code, and so on (Nickols, 2001). Memory knowledge in business is typically differentiated from facts as “a conclusion drawn from the data and information” (Stewart, 2000, p. 69).
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Several researchers such as Zack (1999, p132) extended the basic memory knowledge definition using the “W5+how” principle to include “causal knowledge (know why)”, “conditional knowledge (know when)” and “relational knowledge (know [who]).” Others suggest there may be memory knowledge characteristics associated with motivation (Quinn, Andersen, & Finkelstein, 1996; Teigland, 2000) as well as emotion/trust (Goleman, 1998, 2000). Anxiety (along with fear and helplessness) have also been linked with memory knowledge (Schein, 1993, pp. 86-88; Seel, 2001). Language and national culture have always been critical psychological dimensions associated memory knowledge (Brown, 1998; HampdenTurner & Trompenaars, 2000; Holden, 2002; Strang, 2009c; Swierczek, 1994; Trompenaars, 1993). Language is a fundamental determinant of how humans interpret definitions (Brown, 1998); people often use shades of meaning (varying by language and culture) to explore and interpret each other’s perception and sense of a phenomenon (Chomsky, 1959; Strang, 2008b, 2009c). This leads to the next critical characteristic of memory knowledge expressed as “tacit” (Polanyi, 1997, p. 136). Explicit memory refers to knowledge that is (or can be) codified while tacit means silent, “more than we can tell […] such as face recognition from millions of faces” (Polanyi, 1997, p. 136). There are variations and extensions to the tacit memory knowledge in the literature. Nickols (2001, p. 15) views tacit knowledge as that which cannot be articulated at all and where “the knowing is in the doing.” Burton-Jones (1999) describes some kinds of tacit knowledge as “sticky” which is difficult to codify or explain so that it tends to stick to the person with that knowledge and is only transferred with a fair bit of explanation and effort. Sharmer (2001, p. 70) expressed two additional characteristics of tacit memory knowledge: “embodied tacit knowledge” (knowledge in use) and “self-transcending knowledge” (not yet embodied knowledge). It is possible that these last two characteristics could be described as intuition – a well
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known phenomenon in e-business NPD (Strang, 2008a). Weick (1995, p. 112) defines tacit knowledge in use as instinct: “wise people know that they do not fully understand what is happening right now because they have never come against that precise situation before, however, they pattern match for similar situations […] and make their judgments accordingly.” Perhaps this is an innate form of knowledge? Another form of tacit memory is “implicit knowledge” (Nickols, 2001) which is implied by or inferred from observable behavior or performance. Additionally, tacit knowledge can only be shared if the recipient individual or group is “absorptive” (Cohen & Levinthal, 1990) - ready and capable of receiving and understanding. However, certain implicit or tacit knowledge may so complex that it is “not teachable” (Davenport & Prusak, 2000, p. 70) and thus it cannot be retrieved or used other than by the holder. Despite the difficulty of sharing or teaching tacit knowledge, organizational memory is recognized as a critical form of enterprise knowledge for corporate succession and continuity. Organizational memory includes traditional corporate knowledge, namely strategy, procedures, etc. (Hansen, Nohria, & Tierney, 2001), as well as competitive intelligence capability (Johnson, 2001), and tacit memory. Moorman and Miner (1997) suggest four dimensions of organizational memory: level, dispersion, accessibility, and content. Organizational memory is “[…] a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information […] it often becomes embedded not only in documents or repositories but also in organizational routines, processes, practices, and norms” (Davenport & Prusak, 2000, p. 5). Organizational learning often associated with, and is seen as the main source, of organizational memory (Brown, 1998, p. 16). Communities of practice (Wenger & Snyder, 2000) are valuable sources of organizational
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
memory. These practice communities are “informal, spontaneous, self-organized groups of people who share knowledge, solve common problems and exchange insights and frustrations” (Lesser & Prusak, 2001, p. 253). These groups are bound by informal relationships, share similar work roles and a common context, to produce social capital (memory). Community of practice is a significant memory knowledge paradigm impacting e-business NPD. NPD teams are communities of practice (Strang, 2009a). They include subject matter specialists from anywhere (across time zones), such as designers, marketers, engineers, and so on. They are able to create and share explicit knowledge, through discussion, dialogue, drawing and/or writing, using online technology. Can NPD teams create and share tacit, implicit, knowledge-in-use, self-transcending knowledge and intuition?
Knowledge Taxonomy Taxonomies provide an organized framework, a classification of categories and descriptions for explaining knowledge. This can facilitate understanding the content from capturing, valuing, managing and sharing knowledge. Taxonomies expand on the memory definitions because they differentiate between them. The common categories are: tangible/intangible assets, resources, intellectual/social capital, explicit/tacit, facts, data, information, and meta-knowledge. Three knowledge taxonomies are discussed: intellectual capital, action identifiers and knowledge assets. These are integrated into a matrix. Intellectual capital has been developed as a practice (Edvinsson, 1997; Onge, 1999; Sveiby, 1997a) to classify important business knowledge memory characteristics, namely: human, structural and customer capital. Human capital “embodies the energy, talent, experience, and behavior of people” that can create an organizational culture to deliver products and services that attract customers to an organization, rather than its competitor
(Stewart, 2000, p. 91). This refers to the tacit, instinct, intuition, not yet embodied memory/ capabilities, and tacit organizational memory. The human capital ideology argues to keep staff instead of other resources if cost-cutting measures are necessary. For NPD this is important because it suggests to: identify, seek out and retain talented subject matter specialists. Structural capital is codified organizational memory and resources. It is the means by which people are connected to physical, informational and knowledge infrastructure - in order to deliver services and products that will attract customers to an organization rather than its competitor (Stewart, 2000). Structural capital includes: databases, patents, intellectual property, organizational intelligence (collective assemblage of all intelligences that contribute towards building a shared vision, renewal process, direction for the organization), and items employees cannot take home (Liebowitz, 1999). Customer capital is value of loyalty customers share with an organization (Onge, 1999), which enables it to continue delivering products and services that attract customers from competitors (Stewart, 2000). Loyalty can be envisaged as repeat business, co-development of products and services through development of a mutually beneficial relationship, providing feedback to an organization, as well as disseminating positive opinions about an organization to build a good reputation. In support of this, Liebowitz (1999, p. 9) declares “sharing knowledge is power.” A variation of intellectual capital is “social capital”: “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet & Ghoshal, 1998, p. 243). Stewart (2000) insists most intellectual (social) capital does appear on the balanced sheet. In other words, this may be the intrinsic value of stocks as well as the potential within NPD communities of practice. Partnerships (either with clients,
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Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
Table 1. Action identifiers across knowledge memory asset types Action identifiers↓
Knowledge memory asset types Explicit
Tacit
Self transcending
Performing
Know-what
Knowledge in use
Reflection in action
Strategizing
Know-how
Theory in use
Imagination in action
Mental modeling
Know-why
Metaphysics in use
Inspiration in action
Sculpting
Know-who
Ethics/aesthetics in use
Intuition in action
suppliers, vendors, or community groups) can be valuable sources of intellectual capital for NPD. Returning to the discussion of self transcending memory, Scharmer (2001, p. 70) extended the concept into four action-oriented identifiers, suggesting how knowledge memory is categorized in business. The first was an action identifier referred to as delivering results that create value (performing). Next it was improving the process of performing (strategizing), then reframing the assumption of performing (mental modeling). Finally re-conceiving the identity of performing is sculpting. (Table 1) illustrates a conceptual synthesis of the four action identifiers across the three memory knowledge types. It is likely that most of the knowledge types and action identifiers would be present in NPD team work. The four types of knowledge assets are “experiential”, “conceptual”, “routine”, and “systemic” (Nonaka, Toyama, & Konno, 2001, p. 29). These principles borrow upon the earlier memory definitions as well as the intellect capital taxonomy. Experiential knowledge can be human or customer capital and is primarily individualcentered - it requires a supportive environment to encourage individual knowledge sharing and development. Routine knowledge assets are primarily organization centered; they are structural and are often found as organizational memory (they may contain explicit and tacit knowledge). This requires a group or “organizational function” to create or share knowledge. Conceptual knowledge assets are human capital (sometimes customer capital) and organizational memory but
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tend to be decoded by human interception and are subject to human interpretation (like tacit memory). Systemic assets are structural capital, grounded in the organization, its hardware, software and groupware. NPD concepts and designs are symbolic knowledge associated with an organization’s employees and, where applicable, the supply chain. Systemic brand equity in NPD is associated with customer perceived value (customer capital). A value-added exercise is to integrate memory knowledge types with intellectual capital and knowledge asset theories. A proposed integrated matrix taxonomy is shown in (Table 2), using an NPD perspective. A matrix such as this can be used in e-business NPD as a planning tool to guide the sharing of knowledge gathering. Starting at the top of the matrix, different team members would individually be responsible for locating explicit knowledge (from peers, organizational records and customers/partners). At the middle level, tacit knowledge is best organized by individuals first articulating ideas using knowledge and theories in use, imagination and inspiration (from peers, organizational memory and clients), then dialoguing these, using nominal brainstorming techniques. Then the bottom level of the matrix becomes useful as a guide, as the team move from mental modeling to sculpting the ideas using reflection, intuition and instinct. Often several alternative NPD designs are ranked by community of practice members (for quality and innovation potential), then by management (for economies of scale, risk and profitability).
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
Table 2. Integrated intellectual knowledge taxonomy Knowledge memory types↓
Intellectual capital Human
Structural
Customer
Explicit knowledge (what, why, where, when who + how)
Experiential (performing), conceptual (organizational memory strategy)
Routine (organizational memory processes) & systemic (hardware, software)
Experiential (performing, surveys) conceptual (value & supply chain, imagination, inspires)
Tacit knowledge (knowledge in use, theory in use, metaphysics in use ethics/aesthetics in use)
Experiential (strategizing, meta physics in use); conceptual (mental modeling)
Systemic (conceptual system models), mental modeling (meta-knowledge)
Experiential (strategizing, ethics / aesthetics in use), conceptual (concept maps, value chains)
Self-transcending (intuition in action, reflection in action, imagination in action, inspiration in action, intuition in action)
Experiential (sculpting, embedded imagination in action, inspiration in action)
Possibly systemic (embedded reflection in action, intuition in action)
Experiential (sculpting, embedded imagination in action, inspiration in action)
Knowledge Process Processes describe the way knowledge is created, transformed and shared/transferred, while borrowing upon certain memory definitions and taxonomies. As compared with methodologies, processes are separate workflows, tools and techniques in the knowledge life cycle (they are not necessarily integrated in a systematic loop). There are broad views in the literature about the knowledge management processes; the common theme is that the knowledge processes are discussed as systematic tools and techniques: for sourcing/capturing, organizing/transforming/storing/retrieving, and sharing/transferring. In business, explicit knowledge is most readily captured from organizational records (techniques, performance, data mining), from communities of practice members (project histories), and from customers/suppliers (surveys, feedback). Procedural and declarative knowledge are important to capture because this is the basis for skill development, job descriptions, project management, productivity, quality, and eventually competitive advantage. The sources are often tacit behavior and occasionally they are organizational memory/intelligence (documented strategy, core competencies). Interestingly, the literature reminds us that valuable explicit intellectual capital can be researched from external sources, namely: innovation approaches
and best practices (Horvath, 2001). Customers (the third relational component of intellectual capital discussed earlier) are a good source of explicit knowledge (Ulwick, 2002). This raises another point. The primary incentive for creating knowledge in business is often to increase innovation, productivity and competitive advantage – it is recognized the best organizational resources are tacit knowledge as well as intellectual capital (Davenport & Prusak, 2000; Dixon, 2000; O’Dell & Jackson Grayson, 1998; Prusak & Cohen, 2001). Tacit knowledge (including implicit and self-transcending memory) are considered more valuable, albeit more difficult to capture. Usually a specialist is needed (such as an engineer or analyst in a community of practice) to assist in capturing tacit or implicit knowledge (Strang, 2009a). Tacit knowledge can be captured using a community of practice (von Krough, et al., 2000, p. 83): •
•
Direct observation: through doing so and sharing a dialogue about the observation, observers can also test beliefs about what works, what does not and speculate why that my be so; Imitation: imitate an action based upon observation;
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Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
•
•
Experimentation and comparison: trying out various solutions and sharing perceptions; Joint execution: community members attempting to solve problems under the watchful and helpful support of a more experienced person.
Sharing tacit knowledge follows the general axiom that first it must be articulated (into explicit memory), before it can be communicated or transferred (Kaye, 2001). However, articulation methods go beyond verbalizing, drawing and writing - they may include body language, signals, and even shared perceptions. Storytelling is a method for sharing tacit knowledge, which involves (primarily NPD subject matter specialists) using combinations of personal stories, evidence to support their ideas, along with a visual metaphor (superimposed on an “analysis tree”) that shows the structure and relationships among the ideas/ phases (Forman, 2001). Storytelling permits the transfer of rich contextual knowledge details (Hansen & Kahnweiler, 1993), while empowering the community of practice members to reframe their own perceptions (not necessarily filtering out or denying cultural norms) thus enabling individuals to grasp new implied tacit knowledge not in their conscious memory (Ambrosini & Bowman, 2001; Sternberg, et al., 2000; Strang, 2009b; Swap, Leonard, Shields, & Abrams, 2001). Other useful processes for creating and sharing tacit knowledge include sense making whereby specialists reflect on tacit, explicit and self-transcending knowledge, forming or augmenting their mental model (Senge, Kleiner, Roberts, Ross, & Smith, 1999). Additionally practice members are able to use other techniques mentioned above to share that concept. Mental models can sometimes be shared within a community of practice where members have shared experiences (Wenger, 1999). Dixon (2000) investigated knowledge sharing and transfer using case studies of Bechtel, BP, Buckman Laboratories, Chevron, Ernst & Young,
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Ford, IT Texas Instruments and the US Army. She identified five types of explicit and tacit knowledge transfer processes (Dixon, 2000, p. 169): •
•
•
•
•
Serial transfer: the knowledge a team has learned from doing its task that can be transferred to the next time that particular team does the task in different setting. Near transfer: the explicit knowledge a team has gained from doing a frequent and repeated task that the organization would like to replicate in other teams that are doing very similar work. Far transfer: the tacit knowledge a team has gained from doing a non-routine task that the organization would like to make available to other teams that are doing similar work in another part of the organization. Strategic transfer: the collective knowledge a team needs to accomplish a strategic task that occurs infrequently but is of critical importance to the whole organization. Expert transfer: the technical knowledge a team needs that is beyond the scope of its own knowledge but can be found in the special expertise of others in the organization.
Nonaka and colleagues (2001, p. 73) describe a knowledge creating and sharing process that spirals in a four dimensional cycle of “socialization”, “externalization”, “combination”, and “internalization” (SECI), using a community of practice. crucial in fostering creativity. Nonaka describes the community of practice as “ba” (Nonaka & Konno, 1998, p. 133), “Nippongo” in Japanese for shared interpersonal space. The SECI process is briefly enumerated below with NPD examples. •
Socialization: tacit to tacit (acquiring someone else’s tacit knowledge through observation, imitation and practice); in NPD, knowledge is created and re-created as it is reframed, transformed through
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
•
•
•
multiple perceptions then tested and challenged by all members. Externalization: tacit to explicit (conversion of acquired tacit knowledge into specifications, albeit there are some doubts this possibility since tacit knowledge has been defined as something that cannot be articulated, thus raising the question of whether such knowledge is the tacit knowledge in its original form); in NPD this is articulation through continual repeated dialogue, text, drawing, writing… and using external information to add explicit perceptions and meanings. Combination: explicit to explicit (combining discrete pieces of explicit knowledge to form new explicit knowledge); in NPD, this is closely liked to the previous process step, whereby team members combine ideas and theories in new ways, reusing and/or revising the existing explicit knowledge such as operating procedures, manuals, information bases, product designs, etc. Internalization: explicit to tacit (the process of internalizing explicit knowledge); in NPD, self- reflection, mental modeling, and reframing are used to “make sense” of the explicit knowledge; (adapted from: Nonaka, et al., 2001).
Tools such as workflow models, diagrams, tables, text and so on, are typically used to codify tacit knowledge. Once knowledge is codified, it can be stored for later retrieval, transformation and even to be improved (these processes are often referred to as knowledge management). Technology facilitates knowledge management, in terms of organizing the memory using taxonomies, providing search engines, and also to manage the version control for changes. Technology is also useful for distribution of this knowledge. In NPD, basic e-business tools include: online discussion forums, learning management systems, email,
and e-collaboration software. Additional tools include: digital imaging, voice recording, and conferencing, along with a large number of software programs for survey analysis and product design (Strang, 2008a). In NPD there is a great deal of collaboration (online and directly, depending where the community of practice members are located with respect to one another). This collaboration also takes place with the other business functions such as marketing, management, production, distribution, and finance (Strang, 2009a). If this concept of SECI, knowledge creation-sharing, and the knowledge memory definitions were combined, the resulting model for NPD in e-business might resemble the abstract in (Figure 3). In that diagram, the word “innate” is used to represent the self-transcending, not-yet-embodied, instinct and non-human memory.
Knowledge Learning Organizational learning as an organizational process, both intentional and unintentional, enabling the acquisition of, access to, and revision of organizational memory, thereby providing direction to organizational action (Robey, Boudreau, & Rose, 2000). Organizational learning and organizational leadership are two essential ingredients for establishing and sustaining a knowledge management life cycle (Hansen & von Oetinger, 2001). Organizational learning is necessary first to complete the systemic loop, by returning tacit and explicit feedback into the knowledge creation process (for strategy purposes). Secondly, organizational learning is takes place as knowledge is as the community of practice members create and share intellectual capital. High quality organizational learning is often integrated with the community of practice concept, using dialogue as a process for capturing valuable tacit knowledge into the organizational memory (intellectual capital). Communities of practice (COP) are “groups of people informally bound together by shared expertise and passion
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Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
Figure 3. Knowledge articulation and e-collaboration in decentralized NPD teams
for a joint enterprise” (Wenger & Snyder, 2000, p. 139). The literature contains many examples of the relevance of COPs for capturing tacit knowledge in NPD. For example, at Xerox informal (but highly focused) technical specialists solved complex and often perplexing problems by collaborating (Kikawada & Holtshouse, 2001), which was used to improve product designs. This tacit knowledge can be shared as organizational memory through dialogues, storytelling, and other processes, so the organizational is able to “learn” (Brown & Duguid, 1991; Davenport & Prusak, 2000; Lesser & Prusak, 2001). Organizational learning in this manner contains several feedback loops so that both the community of practice and management can capture explicit and more difficult tacit knowledge, so as to innovate and increase productivity for sustainability (the business ecology view point). Single loop learning is a basic explicit feedback process connecting results from behavior back to rules (Argyris & Schön, 1996). Double loop learning interconnects each element in the process context and goes deeper, challenging the assumptions, using reflection to find insights (tacit knowledge) of why the results occurred and how they may be improved (Argyris & Schön, 1996). Triple
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loop (also called a deutero process) goes even further by asking provocative questions such as: are these the right principles (McKenna, 1999) and are there alternative ideologies philosophies or justified true perceptions of tacit knowledge (Strang, 2003). Another important element for a knowledge articulation methodology is organizational leadership. Transformational leadership is argued to be the most effective approach for creating and managing a knowledge methodology, as well as for inspiring a community of practice (Amabile, 1998; Nonaka, et al., 2001; Strang, 2005). Visioning, modeling, empathy, intelligence, fairness, goal setting, and humility are important traits needed for transformational leaders (Bass, 1998; Lesser & Prusak, 2000; Malhotra, 2000; McDermott & O’Dell, 2001; Nonaka, et al., 2001; Strang, 2007). Starting and implementing such a methodology essentially requires change management (a variation of organizational leadership). Nonaka (2001) suggest a “shock” is often needed to dislocate people from a sense of complacency and smugness, followed by a executive promotion of the communities of practice. Leibowitz (1999) advises to create a knowledge sharing environment using incentives or linking the employee’s contribution
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
to the knowledge repository as part of the annual job performance review. He suggests implementing the principles of the intellectual capital model to show tangible benefits, and he recommends the CEO should drive the knowledge management philosophy (Liebowitz, 1999). Any discussion of organizational learning, communities of practice and leadership in ebusiness is not complete without addressing the national cultural dimensions. Holden discusses an alternative view of how global organizations can successfully develop cross-cultural competencies. He suggests a concentric model for knowledge transfer (Holden, 2002, p. 277). At its core lies a pre-established atmosphere for learning, networking and knowledge sharing. Surrounding this in concentric circles is: Participative competence - that is an ability to concurrently hold several opposing, often extreme, views in mind; interactive translation - an ability to work with others to translate concepts and knowledge from in one cultural setting (organizational or national) and point of view to another; knowledge sharing; knowledge distribution; and at the outside ring enveloping all this, an atmosphere for further knowledge-sharing. Finally, it is necessary to return to the philosophy and ideology underlying a tacit knowledge articulation model for NPD in e-business. If the aforementioned memory definitions, taxonomies and processes are integrated, while also considering the essential NPD business function, we might have a model such as the one depicted in (Figure 4). The significant philosophy underlying that model (to differentiate from the existing knowledge management literature), is the concept of a continuum for creating, understanding, and sharing NPD community of practice ideas (explicit, tacit and innate). This is labeled in the model as falling into the three human memory domains of conscious (explicit), super-conscious (tacit) and subconscious (innate knowledge). Although knowledge artifact examples are listed in the model, these are not exhaustive, nor is there
position fixed as diagrammed, since the boundaries between the three domains of articulated knowledge is inexact, thereby the same artifact could be located in alternative zones when viewed by peer community of practice members, or even if viewed by the same person at different times. In this model, the triple loop learning mechanism operates within the articulated knowledge continuum, informed through feedback from the NPD e-business function. The outcome is the new product or services - the final component needed for this model is a measurement mechanism (discussed next).
Knowledge Performance Performance refers to the measurement of innovation, sustainability and profitability, but for NPD knowledge articulation in e-business, intermediate dependent variables are needed to judge effectiveness. Both the independent factors as well as the dependant variables (along with any instrumental modifiers) must be isolated. Some factors may be reversed as dependent variables, and vice versa, depending on the perspective of the researchers. For example, are the number of ideas generated a factor or an outcome? A key argument for measuring intellectual capital as a dependent variable is that human creativity produces innovation which when commercialized creates and demonstrates the quantitative value (Edvinsson, 1997; Stewart, 2000; Sveiby, 1997a). Intellectual capital is difficult to measure, due to its tacit nature. The most critical elements are argued to be associated with human and customer capital. A possible list of NPD factors or outcome variables is: • • •
Trust (“anticipated reciprocity” or “residue of promises kept”): Likert scale rating; Space (cognitive space: share of mind around knowledge): years NPD experience; Slack (time to reflect on what you know): reflection hours per NPD project;
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Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
Figure 4. Knowledge articulation model for NPD e-collaboration in e-business
•
• • •
Coherence (shared context, shared knowledge, “communities of practice”): years in COP; Shared vocabulary: number of special terms used within NPD team; Symbols and signals: number of NPD diagrams used across all projects; Organizational culture: employee satisfaction survey (Likert scales), available in the OB/HRM literature, calculated by using an overall mean of the responses (adapted from: Liebowitz, 1999, pp. 44:86).
Another approach, which could be used in combination with the above, is to classify the most important knowledge assets (using the “Integrated intellectual knowledge taxonomy” presented in Table 2 as a framework), then assess each using a numeric scale. The scale might reflect usefulness or how easy the artifact is to share/reuse (based on perceptions surveyed from the NPD community of practice). A measurement model has been published in the literature which closely follows the ideology of a flexible continuum for classifying knowledge (as proposed earlier in Figure 4). The “seven di-
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mensions of knowledge” (Davenport & Prusak, 2000, p. 70) uses a taxonomy of seven knowledge memory types, each measured on a continuum (Likert scale from 0 to 4), as summarized below (with an example in Figure 5). •
•
•
Tacit-Explicit. An individual knowledge item could be described even if tacit yet it may lie at different locations upon the continuum (it may be precisely on one end, or part way between); for example, finger print matching can be very tacit since a “percent match” benchmark is used; Not teachable-Teachable. Some knowledge is un-teachable in that the only way to learn is through experience. Examples of un-teachable knowledge might be emotions, faith, sports; although these examples may have underlying techniques and theory that can be taught relating to the “what”, yet something “special” happens when experimenting and experiencing the actual tacit knowledge; Not articulated-Articulated. Some knowledge cannot be easily articulated. On the other hand, culinary skills may in-
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
Figure 5. Knowledge articulation measurement example of NPD case study
•
•
•
nate or super conscious - they are difficult to describe since they refer to the use of taste senses and consistency; as a further example, the Japanese invention of a bread making machine required a sustained period of apprenticeship and interaction with production engineers in an experiment to replicate the knowledge of bread making to transfer this to a machine (Nonaka & Takeuchi, 1995); Not observable-Observable. Some knowledge is not observable because it remains hidden inside the mind, such as the creative thought processes of artists, musicians and elite sportspeople and NPD subject matter specialists. Rich-Schematic. Knowledge may be schematic, easily reducible to rules and patterns, or it may be so rich in context (known only from using multiple senses) that its definition is impossible; schematic knowledge lends itself to being framed in tables, rules and other forms of clear representation, for example in case based reasoning systems (in the insurance claims industry). Complex-Simple. Complexity versus simplicity also defines ends of a knowledge
•
item spectrum; knowledge about weather prediction (or indeed many other types of prediction) illustrates this dimension. The interaction of many different elements or dynamic sub-systems can turn predictive knowledge into a highly complex activity; Undocumented-Documented. Some knowledge is documented while other knowledge is never documented; obviously a single knowledge item can be assessed on all of the above scales.
The NPD example from Figure 5 shows a radar diagram (on right) with the zero scale of each dimension at the center, and a scoring line connecting the ratings. The case study was an NPD design “blueprint” for a mobile (cellular) phone (using e-collaboration with a multinational decentralized COP). The blueprint is clearly drawn with labels but contains a few elements that cannot be fully described in a two dimension blueprint (rated as 3 out of 4). The contents and drawing method can be taught (using CAD software), but considerable skill is needed to produce a high quality image such as the design (rated 3 out of 4). There is no question the blueprint is both articulated and observable if we focus on the paper itself and not the underlying device (rated 4 out of 4). Since
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Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
the blueprint is intended to be used for assembly, it is schematic (rated 4 out of 4), but there are a few complex portions which qualify for less than total simplicity (3 out of 4). In this case the NPD team has not released the blueprint so it is not “officially” documented (but since the project is listed in the organizational program charter, we rate it 1 out of 4). Finally, returning to the intellectual capital concept, there are obvious outcome variables that can be used to assess the success of innovation, productivity and sustainability of NPD design in ebusiness. The literature contains well-documented examples of this, namely two devices that are very similar: Intellectual Capital Monitor (Stewart, 2000) and the Balanced Score Card (Kaplan & Norton, 1998). First it is necessary to point out the ambiguity between product and process innovation (Chang & Cho, 2008); the former refers to innovations embodied in the product itself, and the latter deals with innovations involved in the overall process of manufacturing the product. The balanced score card attempts to measure an organization’s performance from four key perspectives: •
•
•
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Financial: measures that are at present commonly used such as profit levels, market share etc.; these answer the question: how do we look to our shareholders? – these ratios can be calculated on an NPD project basis using variables and formulas defined in the accounting/GAAP literature; Customer: measures that can be used to report on customer satisfaction, customer experience etc.; these are concerned with the question: how do we look to our shareholders? - the can be done using many of the available client satisfaction surveys available in the HRM/OB literature; Internal business process: measures of efficiency and effectiveness of business processes, for example: throughput of a production line; OHS effectiveness in
•
terms of lost time for injuries; quality management system measures etc.; these measures help answer the question: what must we excel at? - there are surveys available in the TQM (quality) literature to do this; Innovation and learning: measures that identify learning and innovation performance; these measures help answer the question: “can we improve and create wealth?” - this can be measured by using surveys from the organizational learning literature or by assessing the intermediate outcomes from the NPD project (perhaps using the “NPD factors” listed earlier).
The knowledge definitions, intellectual capital taxonomies, creation/sharing processes and organizational learning methodology have been successively integrated where relevant for NPD. The performance paradigm will be superimposed on the knowledge articulation model once several issues are mentioned.
Issues, Controversies, Problems The knowledge articulation issues are due to a lack of interdisciplinary theory as well as and failure to integrate culture and perception. The impact caused by the issues is similar despite each problem differs. Issues weaken the credibility of research and reduce the potential to improve interdisciplinary practice.
Knowledge Memory Issues The first point concerns tacit memory controversies. Perception influences the interpretation of tacit and innate knowledge; just consider the parable of the glass being half full or half empty. On one hand many researchers follow Aristotle’s view that most knowledge is derived from experience, either directly, or indirectly, by deducing new facts from those already known (Grolier, 2007). In contrast, fewer researchers discuss the
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
instrumental impact perception has on both explicit and tacit knowledge. The word “tacit” (Polanyi, 1966, p. 136) has been misused by some researchers. In the literature, tacit knowledge has been described as being action-oriented knowledge that could be acquired even “without” the knower being aware of its existence (e.g. on an innate or subconscious level). Tacit knowledge has been characterized as professional instinct (Sternberg, 1985; Sternberg & Horvath, 1999) yet these authors later contradict that definition. According to the alternative viewpoint, to be classified as tacit knowledge, artifacts must possess all three characteristics of being: procedural in nature, acquired with little help from others as personal experience, and relevant to the attainment of goals (Sternberg, Wagner, & Williams, 1995; Wagner & Sternberg, 1985). Furthermore, some researchers suggest the existence of tacit knowledge memory relates to individual performance success and practical intelligence. “[Tacit knowledge is] characterized as a type of knowledge the possession of which distinguishes more from less practically successful individuals” (Sternberg, et al., 2000, p. 105). It is possible this extreme view was taken due to correlation of knowledge with performance. Nonetheless, empirical research on leadership does suggest that tacit (and innate) knowledge explains performance and follower satisfaction differences (Strang, 2005; Strang, 2007). Many researchers such as (Nonaka, et al., 2001) cite their interpretation of tacit knowledge from the work of Polanyi, which he defined as: “knowledge is an activity which would better be described as a process of knowing.” (Polanyi, 1966, p. 132). Albeit Nonaka cites Polanyi as the basis of the SECI model, tacit knowledge can articulated or made explicit during the externalization process (Nonaka, et al., 2001, p. 28), while Polanyi clearly believes all knowledge is tacit and would be difficult to articulate: “tacit knowing achieves comprehension by indwelling, and that all knowledge consists of or is rooted in such as
of comprehension” (Polanyi, 1966, p. 55). Other researchers admit tacit knowledge is difficult to communicate and articulate but they assert it can be made explicit to some degree (Sternberg & Horvath, 1999; Sternberg, et al., 1995; Takeuchi, 1998; Teece, 1998). As discussed earlier, Scharmer (2001) put forth the transcending (not yet embodied) qualification on tacit knowledge (which is described in this research as innate, Figure 4). The alternative theory is that tacit knowledge cannot be interpreted as “knowledge-not-yet-articulated” (Tsoukas, 2003), and it was argued that tacit knowledge can never be articulated because it would no longer be tacit. Ironically the most flexible view of tacit memory as being a continuum can be implied from the ancient philosophers. Descartes originated the Cartesian split concept where the act of perceiving knowledge was differentiated from the object directly perceived (Grolier, 2007), separating the tacit aspect of knowledge from the explicit object known. Kant elaborated by proposing three degrees of perception: •
•
•
exact and certain but uninformative (makes clear only what is contained in definitions) [explicit]; experience-based (but subject to errors of perception) [somewhere between explicit and tacit]; pure intuition, both exact and certain [innate or tacit, but mostly the latter]; (Grolier, 2007).
Knowledge Taxonomy Issues National culture influences the articulation of tacit and explicit knowledge, beyond differences in language (Strang, 2008b, 2009b, 2009c). Eastern orthodox cultures (Buddhism, Taoism, etc.) tend to emphasize tacit aspects such as intuition, self-awareness, realism, and sensing; maintaining that only consciousness is genuinely real and that perceived objects are ultimately illusory “true
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beliefs”; while western cultures (Catholic, Baptist, etc.) emphasize facts, performance, explicit oriented perceptions (Nonaka & Teece, 2001; Takeuchi, 1998). Therefore, in a multinational NPD team (that use English as a common language), there may be variations in the priority of explicit, tacit (or even innate) knowledge artifacts. Good ideas may be criticized due to cultural differences (Strang, 2009b). Furthermore, there may be gaps between the NPD team and management. There may be top down “silo” or lateral “power broker” pressures affecting knowledge classification if the organizational structure is hierarchical or if the leadership is transactional (Naito, 2001; Teece, 2001). Furthermore, the level of analysis for intellectual capital can be misleading, as there are differences in the classification of tacit or explicit knowledge when viewed from the lens of business management versus communities of practice versus customers/supply chain partners. For example the term “design success” in NPD carries explicit and tacit attributes yet it carries different perceptions on the organizational level (profitable, economies-of-scale, regulation compliant), as compared with team (meets scope requirements of price, place, promotion, position, production) versus client advocates (meets needs and wants). As mentioned, there are two valid attenuations of tacit and explicit NPD knowledge: the first relates to innovations being “embodied within” the product/service itself, while the second refers to the “innovative processes” underlying the product/service (Chang & Cho, 2008, p. 16). This affects the retrieval of research and best practices from the literature (as well as from organizational memory), if the object versus process attenuation is not clearly articulated. Another impact is there may be dichotomies between the attenuations placed on knowledge artifacts by the NPD team as compared to other business functions.
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Knowledge Process Issues Perceptional and cultural differences can affect individual as well as group knowledge creating, transforming and sharing processes (Strang, 2008b, 2009c). During the SECI explicit-to-tacit process, knowledge is “justified by being compared to the reality of the world” (Nonaka, et al., 2001, p. 27). Reality in this context refers to cultural norms or professional ethics. If explicit knowledge is internalized as being a justified belief in this “reality” then it is accepted; otherwise a gap of “creative tension” emerges between the “espoused” knowledge element and this “reality” perception of it (Senge, 1990). When a knowledge gap exists this “then triggers a new cycle of knowledge creation” (Nonaka, et al., 2001). From an organizational cultural standpoint, there may be over-reliance on transmitting explicit rather than tacit information in e-business because the communicating the former is easier and faster - especially when face-to-face or bidirectional voice contact is not available or desired (Liebowitz, 1999). One topic that does not seem to have appeared in the knowledge management literature is the requirement and process of deleting antiquated or ineffective tacit knowledge, forgetting tacit memory (albeit there had been some research on retiring explicit knowledge artifacts). This has been mentioned in a different disciplinary context, in the organizational learning literature under the term “unfreezing” (Senge, Kleiner, Roberts, Roth, & Smith, 1999). In terms of impact on NPD, this makes the processes unpredictable, as well as making the explicit/tacit knowledge hard to measure since the assessor could have a different perception than one or all of the community of practice members. Espoused knowledge gaps can lengthen the SECI process when a new cycle is triggered during brainstorming. Furthermore, if all NPD team members have vastly different cultures (and perceptional tendencies), this could impede
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the creativity and design process despite that all team members might be brilliant, experienced and creative (Strang, 2009b). This carries over to organizational knowledge assets (human and structural intellectual capital), since diversity in culture, ethics or perception affects knowledge creation and retrieval - innovative NPD knowledge could even be “purposefully” ignored (Strang, 2009b).
Knowledge Learning Issues There are several alternative viewpoints in the literature about the role of organizational learning and communities of practice in knowledge articulation. One of the criticisms of the MIT version of organizational learning as defined by Senge comes from a scholar at nearby Harvard Business School: “discussions of learning organizations have often been reverential and utopian […they] lack a framework for action, and thus provide little comfort to practical-minded managers.” (Garvin, 1998, p. 13) and Senge (1990), studied the inner psychological factors that facilitate or block learning, Garvin (1998) focused on systemic procedure applied over the stages that encompass the knowledge life cycle. However all of these approaches focus on individual (not group) knowledge articulation techniques such as reflective learning and knowledge-in-action. An alternative view is that tacit knowledge cannot be taught or shared so an organization cannot learn it. Tacit knowledge refers to knowledge that usually is not openly expressed or stated [...] by our use of tacit in the present context we do not wish to imply that this knowledge is inaccessible to conscious awareness, unspeakable, or unteachable, but merely that it is not taught directly to most of us (Wagner & Sternberg, 1985, p. 439). At an even more extreme position, it has been argued that organizational learning is not useful unless it generates organizational explicit knowl-
edge of value to those who are able and willing to apply that knowledge in making decisions or influencing others in the organization (Miller, 1996, p. 18). Another form of learning is also available for organization knowledge articulation and sharing: cognitive apprenticeships (Collins, Brown, & Newman, 1989). In this theory, experts mentor novices. A criticism towards cognitive-apprenticeships if that it is labor intensive (requires an subject matter expert for each novice). Furthermore, experts mentor novices to effectively apply tools and techniques, but not necessarily how to solve complex problems that have not been encountered during training. The true value of experience is not how much mentoring a novice receives, but how well they are able to leverage experience to acquire and apply tacit knowledge (Sternberg, et al., 2000). Yet there are many unproven factors that affect explicit and tacit knowledge transfer through organizational learning and cognitive apprenticeships, such as length of time being exposed to experts, trust, culture, ethics, intelligence, experience and personality - these factors are difficult to account for in NPD teams and extremely tedious to measure in research projects. Communities of practice members have a group identity, a subculture, and participants learn through interaction plus memorization of embedded knowledge (Wenger, 1998). On the other hand, as Nonaka and colleagues pointed out (2001), participants of the “Ba” shared context don’t belong to it (no membership) - instead they relate to it, using it as a place to interrelate for creating knowledge (Nonaka, et al., 2001, p. 24). The shared “Ba” context of the SECI cycle is a place where knowledge is created (which is also the locus of control), its boundaries are fluid (changed by the participants), it is moving (with no historical element nor identity), and its membership is dynamic - composed of any combination of individuals, organizations, teams, and so on (Nonaka & Teece, 2001). An additional aspect is that Seely-Brown and Duguid emphasize the
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shared practice and social identity of whereby over time participants develop a common outlook and understanding of the world around them, and they share the same sort of judgment, and look to the community as place to engage in learning, rather than knowledge creation per se (Brown & Duguid, 2001). Another debatable aspect of communities is there may be some hierarchy and purposeful NPD goal-setting guidance from the organizational authority, but this might not be forthcoming with the less-structured “Ba” (Grant, 2001). Therefore, productivity could be lower in “Ba” as compared with a pure NPD community of practice format. Communities of practice could suffer from the same interpersonal conflicts as teams do, as a result of personality differences, behaviors and/or stress. This can also manifest between individual or groups and their management (as well as with other business functions). Researchers have pointed out that communities of practice could suffer “groupthink” which can seriously hamper NPD team innovativeness (Felps, Mitchell, & Byington, 2006; Seel, 2001). In fact this led Leonard-Barton (1995) to introduce the concept of “creative abrasion” as a deliberate attempt to provide conflict within the community of practice to force members to question the status quo, reframe problems and generate fresh ideas. Organizational leadership could even interfere with NPD team prioritization of both tacit and explicit knowledge because communities of practice operate autonomously with intrinsic and motivation. Finally, culture and learning styles differences between NPD team members and stakeholders can impact knowledge articulation and sharing (Strang, 2008b, 2009a). The risk of these issues can be reduced by making other researchers aware of this (especially if others will replicate or extend this work).
Knowledge Performance Issues The key knowledge performance challenge concerns identifying what units of analysis to assess
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in terms of which independent factors and dependent variables to measure. All of the independent factors discussed in the knowledge taxonomy section are difficult to measure (Barchan, 2002). Some of these factors could be counted, such as number of explicit designs, number of tacit ideas in a storytelling session, while some of the factors could be outcomes instead of inputs (Haynes & Price, 2002). Some have only qualitative indicators, while others have no known observable or quantifiable characteristics. Tacit (and innate) factors or variables would be very difficult to quantify - researchers contend that some knowledge artifacts can never be precisely articulated (Leonard & Sensiper, 1998; Tsoukas, 2003). There might be subjectivity in the assessing of any of these factors or variables (inter rater agreement issues). This inherently exposes the controversy of “levels of analysis” for the dependent variables, which refers to what perspective is used to measure outcomes. The relevant levels of analysis would be: organization, team (community of practice), business unit, or individual. Furthermore, the same levels of analysis should be used when matching independent factors to measure dependent variables (Creswell, 2003). For example, it would not be credible in NPD research to use a community of practice member’s years of experience as a factor to predict the team’s experience capability (instead it would be necessary to average the experience of team members). The same factor or variable name could be measured across several of these levels, such as the example just given (subgrouped by person, team, country, culture and/or multinational business units); thus, the inherent meaning of such analysis could be multifaceted. Finally, there is some controversy in the literature over the best construct(s) to use for measuring intellectual capital as well as organizational learning, or even if any of these devices can effectively measure what they were intended to (Mills, Platts, Bourne, & Richards, 2002; Neeley, 2002; Whitley, 2002; Wilson, 2002). It has
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been pointed out that the Balanced Score Card is a facsimile of the Intellectual Capital Assets structure (Wiig, 2002), yet this argument might be irrelevant as long as one of the other were effective. Generally, it is advisable to use the level of analysis closest to the input and processing point of origin. Therefore, since tacit knowledge is articulated by members in the e-business NPD community of practice, the levels of analysis should be at the NPD project team and individual levels (Strang, 2009a). Nevertheless, there are still issues in the literature over the statistical validity and reliability of the published instruments used for knowledge assessment (Haspeslagh, Noda, & Boulos, 2001; Wilson, 2002).
Solutions and Recommendations There are ambiguities with tacit knowledge meanings, overlapping taxonomy structures, conflicting process perspectives, organizational learning controversies and tacit knowledge assessment challenges. In terms of meanings, there has always been a philosophical disparity between researchers that take an interpretive ideology accepting phenomenological concepts, as compared with a positivist view that focuses on explicit empirical evidence (Erlandson, 2006). This philosophical polarity has also occurred in the knowledge management literature (Lee, Green, & Brennan, 2000). Much of the early and current literature adopt the interpretive perspective of tacit knowledge (Polanyi, 1966), with fewer cases applying the controversial “practical capability” meaning of (Sternberg, et al., 2000) yet there have been some interesting empirical logical positivist studies that apply an interdisciplinary view (Chang & Cho, 2008). This “meaning of knowledge” issue may be methodological (not purely ideological in nature) because the interpretive and positivist paradigms both advocate the use of scientific research methods yet the techniques for gathering knowledge and analyzing it are different. For example, at
opposite ends of the research methods continua, in action learning data is gathered from reflections and interview narratives followed by qualitative analysis to discover themes (Yin, 2003), while a correlation or explanatory approach usually gathers data using an a priori survey construct accompanied by factor, variance and/or regression analysis to predict cause-effect. Factor analysis can be difficult to replicate (reducing external validity) while regression will often inflate minor relationships with large samples over 500 (Strang, 2009c). It is possible to overcome the remaining knowledge taxonomy, process ambiguity and organizational learning obstacles by taking an interdisciplinary approach and using mixed research methods. This can be done by locating statistically validated instruments to measure the human capital factors, while best practices can be used to identify and count the knowledge artifacts and performance outcomes (Creswell, 2003; Schwalbach, 2003). Mixed methods can be used to gather corroborating qualitative and quantitative evidence from different sources and levels (Keppel & Wickens, 2004; Onwuegbuzie & Leech, 2005; Strang, 2009d; Yin, 2003), to produce an overall picture of knowledge articulation in NPD project teams. A hypothetical measurement model is shown in (Figure 6). Specific recommendations are discussed below. The “group level of analysis” will be the common denominator baseline to test the hypotheses. The biggest challenge in viewing knowledge on a continuum is how to articulate it for research purposes (to assess it). The solution may be to use one of the knowledge processes - storytelling (in combination with other methods). To apply this idea, subject matter specialist could be asked to participate in a focus group to develop and present (transform to quasi-explicit meaning) all NPD project knowledge artifacts. As explained earlier, storytelling is a methodology (not a bedtime parent-child activity). Nevertheless it must be acknowledged there is a risk for loss of rich
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Figure 6. Performance measurement model for knowledge articulation in NPD
tacit knowledge during this proposed storytelling method for quasi-explicit knowledge articulation (Becerra-Fernandez, et al., 2004). In referring item 1 of the proposed measurement model (Figure 6), the above methodology could be used to count the quasi-explicit knowledge artifacts, grouped by taxonomy type from Table 2 on the tacit knowledge continuum of Figure 4 (along the seven knowledge dimensions in Figure 5). Items 2, 3 and 4 of the proposed measurement model (Figure 6), could be assessed using existing a priori instruments (from the literature). Item 2 is proposed to measure NPD community of practice team satisfaction and organizational learning - both at the individual and group levels of analysis. Many instruments are available from the literature to measure individual employee satisfaction, as well as individual learning, so these can be averaged by groups to produce a composite team rating (Strang, 2009d). Item 3 can be measured by computing the project per-
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formance ratios (PMI, 2008; Strang, 2008a), on the group level of analysis. Item 4 can be assessed by adapting the e-business/NPD team constructs proposed in a number studies such as (Boddy & Macbeth, 2000; Chong, Holden, Wilhelmij, & Schmidt, 2000; Courtney, 2003; Strang, 2009a). Finally, as a triangulation of the first four measurement items, it is proposed that a quasi-indicator of innate and tacit knowledge articulation (at the group level of analysis) can be approximated by identifying successful versus unsuccessful NPD project teams. This may seem ironic, as it implies more intelligent NPD team members should produce more innate, tacit and explicit knowledge artifacts (Sternberg, et al., 2000), yet this has been a successful approach found in the empirical psychology literature (Creswell, 2003). This could be implemented using two statistical techniques. The first could be accomplished by treating the first two dependent variables measurements (at the group level of analysis) as independent factors, and the
Articulating Tacit Knowledge in Multinational E-Collaboration on New Product Designs
last two (items 3 and 4) as dependent outcomes, using MANOVA (Strang, 2009d). The second approach could be to treat all items 1 through 4 as independent factors, by merging the groups into successful versus unsuccessful classes, and then applying discriminant analysis to validate the hypothesis (Strang, 2009d).
FUTURE RESEARCH DIRECTIONS One of the critical contributions of the proposed knowledge articulation model introduced here is the perspective of viewing and measuring knowledge on a continuum (Figure 4), complimented by proposing a triangulated mixed methods research approach to gather (and average) different perspectives (Figure 6). The philosophy here (as conceptualized in Figure 4 and 7), is that knowledge is a justified true perception on a continuum, rather than an “either or” bipolar distinction (as is commonly argued in the literature). This itself is not a new scientific assertion since Ambrosini and Bowman (2001) as well as Edmondson and colleagues (2003) already suggested encoding knowledge as a degree of “tacitness”. Furthermore it was also pointed out that ancient philosopher Kant already seemed to imply that concept. Nevertheless, this is a new proposed concept of explicit, tacit and innate knowledge being on a sub-conscious, super-conscious and conscious continuum, along with a proposed measurement model. A knowledge articulation model for e-business NPD team project innovations has never been discussed in the literature, by integrating five overlapping paradigms of: cognitive/organizational memory, intellectual capital taxonomies, creating/sharing processes, organizational learning and performance. Typically only one or two of these paradigms are encompassed within any particular empirical research study. It is argued the growth of the knowledge economy and technology (and in light of lessons-
learning from the 2008 global economic crisis), have placed a renewed emphasis on measuring knowledge. Given the increased use of e-business software, e-collaboration is becoming a common activity in NPD teams. Consequently, the interdisciplinary approach suggested here provides a more practical and positivist methodology to understand and assess knowledge articulation in e-business NPD communities of practice. Using a priori instruments (where applicable), and generally accepted scientific mixed methods, to test the hypothetical model (Figure 6), will provide a contribution to the empirical literature. To that end, the next phase of this project is underway to study NPD e-collaboration in a multinational mobile phone communications product/service company that has multicultural business units in several countries.
CONCLUSION This chapter started with goal of proposing a knowledge articulation model that could be used to assess the innovative productivity of an e-business NPD community of practice team that e-collaborates across multiple cultures and countries. The relevant knowledge management literature was reviewed using a unique meta-model consisting of five paradigms: memory, taxonomies, processes, organizational learning and performance. The review was both interdisciplinary and integrative, in that explanations were grounded in multiple epistemological domains (interpretive as well as empirical), and subsequent sections built on the previous, concluding with a hypothetical knowledge articulation measurement model (Figure 6). Significant historical and contemporary knowledge management issues were revealed. A proposed solution was recommended to test the hypothetical knowledge articulation measurement model, using a priori instruments, best-practices and generally-accepted mixed research methods. The chapter should stand alone as a guideline for
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other researchers that wish to adapt or improve the theoretical models and methodologies proposed herein. Additionally, this chapter has been put into operation in a multinational mobile communications empirical case study (with the results to be published when complete).
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KEY TERMS AND DEFINITIONS Balanced Score Card: A performance measurement device intended to represent business innovation and value from four dimensions: financial (profit levels, market share etc.); customer (satisfaction); internal business process (efficiency and effectiveness of knowledge articulation processes); innovation and learning (longer term systemic results of knowledge articulation). Communities of Practice: “Groups of people informally bound together by shared expertise and passion for a joint enterprise” (Wenger & Snyder, 2000, p. 139); these are often informal (but highly focused) subject matter specialists, that can solve complex and perplexing problems by collaborating. Intellectual Capital: Human (people), structural (physical, hardware, software), customers, that provide explicit and tacit knowledge to the organization. Knowledge Articulation: Continuum: philosophy that knowledge is not necessary explicit or tacit (“black or white”), but exists as a “justified true perspective” from the viewer standpoint; it can exist on several levels of analysis, namely as organizational memory, community of practice/ team capability, individual memory/capability (and possibly other levels beyond the scope of this research such as culture or political). Organizational Learning: Memory and a systemic feedback look in e-business; leverages the power of a community of practice, along with human, structural and customer capital, to articulate knowledge that can be reused later, to
improve innovation, productivity and performance at the company level. Storytelling: A business executive or community of practice method for sharing tacit knowledge, which involves (primarily subject matter specialists) using combinations of personal stories, evidence to support their ideas, along with a visual metaphor (superimposed on an “analysis tree”) that shows the structure and relationships among the ideas/phases (Forman, 2001). Storytelling permits the transfer of rich contextual knowledge details (Swap, et al., 2001), while empowering the community of practice members to reframe their own perceptions (not necessarily filtering out or denying cultural norms) thus enabling individuals to grasp new implied tacit knowledge not in their conscious memory (Ambrosini & Bowman, 2001; Hansen & Kahnweiler, 1993; Sternberg, et al., 2000; Swap, et al., 2001). Tacit Knowledge: Characterized as “knowledge is an activity which would better be described as a process of knowing.” (Polanyi, 1966, p. 132); professional instinct (Sternberg, 1985; Sternberg & Horvath, 1999); procedural in nature, acquired with little help from others as personal experience, and relevant to the attainment of goals (Sternberg, et al., 1995). Transcending Knowledge: Scharmer (2001) put forth the transcending (not-yet-embodied) qualification on tacit knowledge (which is described in this research as innate, see Figure 4); this may be instinct, or subconscious behavior (in humans), or unobservable as economies-of-scale potential in e-businesses.
This work was previously published in Collaborative Search and Communities of Interest: Trends in Knowledge Sharing and Assessment, edited by Pascal Francq, pp. 206-238, copyright 2010 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.7
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms Ranjit Goswami Indian Institute of Technology, India S. K. De Indian Institute of Technology, India B. Datta Indian Institute of Technology, India
ABSTRACT E-business adoption towards creating better stakeholders’ values in any business organization should begin with corporate home pages, which is equivalent of the online identity of the physical firm. This paper, by taking two snapshot pictures of corporate homepages, one in 2005 and another in 2007, analyses e-business adoption levels in fifteen DOI: 10.4018/978-1-60960-587-2.ch807
publicly-listed Indian firms of three different sizes and five sectors from four external stakeholders (Customers, Suppliers/Alliances, Shareholders and Society/Community) perspectives. We also measure overall e-business readiness levels from four stakeholders’ perspectives in 2005 and 2007, and analyze the adoption as per Stages of Growth model. The measurement is based on presence of various categories of interactions, as commonly perceived, between the firm and respective stakeholder group.
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
INTRODUCTION Creating an e-business strategy to support corporate functions is quite an intriguing task due to the evolving nature of e-business practices, technological innovations and also due to increasing reach of the Internet. Business organizations were still not in a position to effectively leverage real time queries from stakeholders until the turn of the twenty first century when Internet with its increased reach and acceptability made it possible for organizations to engage into real time capturing of information and conducting business transactions with various stakeholders, as and when wanted by the stakeholders. Effective e-business practices generate opportunities to create value for the enterprise by reducing response time and costs due to reengineered business processes in one side, and by increasing market reach, thereby resulting in better satisfaction levels and financial performances. E-business is defined as the use of Internetbased Information and Communication Technologies (ICTs) by organizations to conduct business transactions, to share information and to maintain relationships (Singh & George, 2005). We studied e-business adoption by studying the corporate portals of our sample, starting with the homepages. A portal is an application of information technology that facilitates complex business interactions by presenting them in an easy-to-use web based interface (Curran & Singh, 2001) whereas a homepage is the main page of a website, intended chiefly to greet visitors and provide information about the site or its owner. Reichinger & Baumgartner (2004) found that an entity can have multiple homepages, however there can be only one entity that has any particular homepage, i.e. not allowing two entities to have the same homepage. Normally we don’t see business organizations having multiple homepages, they rather have one. A homepage in this sense is a public web document about that business entity, though parts of that public
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web document may have private access. For this work, we felt homepages did qualify to be part of corporate portals as well Like the physical business of any organization that strives to meet the diverse needs of its various stakeholders, the homepages also addresses and informs different groups of stakeholders, thereby facilitating online/offline business and meeting their diverse online business needs. Through clearly demarcated sections in homepages, firms try to reach out to its various stakeholders like customers, alliances/suppliers, shareholders, government, potential employees and finally to the community (society). Addressing online the company initiatives, to foster a better community through Corporate Social Responsibility (CSR), can be an excellent tool for enhancing the legitimacy of the firm among its other stakeholders, and thereby helps towards development of a positive corporate image (Morimoto et al, 2004). Homepages can be the platform where the various other stakeholder-specific public or private portals of the firm can potentially converge. This paper examines already adopted Ebusiness practices in fifteen Indian firms for four groups of stakeholders - namely Customers, Suppliers/Alliances1, Community and Shareholders over two time-periods. As adoption of e-business strategy is influenced by firm and industry level factors, the sample comprised five different segments (Banking, Chemical, Metal, FMCH and IT) and three different sizes (small, medium and large). E-business with Government as a stakeholder is not considered as that remains outside the purview of homepage functionalities - to whatever extent that happens over Internet. Similarly employees are also not considered for this study because e-business practices with employees may not be publicly accessible. Two categories of information flows are considered between firms and select four groups of stakeholders – one what the firm wants to communicate with the selected stakeholder groups through standardized open communica-
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
tions, and 2nd what customized queries the firm intends to entertain from the selected stakeholder groups based on their generic and specific interests in the firm. To do so, we identified certain set of stakeholder specific hygiene and motivational factors, and checked for presence (or absence) of these factors in the corporate homepages of these fifteen firms to finally arrive at combined corporate ebusiness adoption level scorecard for these four categories of stakeholders. The studies were first initiated in 2005 (March), and again repeated in 2007 (December) to have two comparable periodic pictures on adoption levels. The overall scores of individual firms are added across segments and sizes to arrive at e-business readiness of that segment and size or that of the overall sample to have an insightful understanding of adoption of e-business in Indian firms. The overall contribution of our paper is to introduce two more variables (firm size and firms’ prioritization of stakeholders’ interests while adopting e-business practices) in the Stages of Growth Model (Nolan and Gibson, 1974; Nolan, 1979) based on our findings of these two surveys. The next section of the paper presents the literature review while the subsequent sections deal with the methodology, the findings and finally to the conclusions.
A REVIEW OF STAKEHOLDER THEORIES IN E-BUSINESS Researchers identified indicators that reveal the nature of a website. As the data for research had to be easily accessible, therefore each criterion had to be either present or absent in that study, where the objective of the study was more in gauging transparency and openness (Beer, 2004). Models like e³ value methodology (Gordijn, 2003) provided ontology to conceptualize and to visualize an e-business idea. Ontology as an area provides definitions, concepts, relations between
the concepts, and rules, which are interpreted in the same way by stakeholders, to conceptualize a specific domain, so that multiple e-business actors and multiple stakeholders don’t interpret things differently. Other notable e-business model ontology described the logic of a “business system” for creating value in the Internet era based on product innovation, infrastructure management, customer relationship and financial aspects (Osterwalder & Yves, 2002). E-business stakeholder model (Figure 1) of Jutla et al (2001) is customer focused, arguing business stakeholders work together to meet customers’ demand, and to improve customer acquisition, satisfaction and retention levels. The external stakeholders or linkages identified in this model are strategic partner, operational partner, customer community and governance. Stages-of-growth model (Caroline & Swatnam, 2004) proposed four stages for B2B e-commerce implementation, namely initial e-commerce, centralized e-commerce, looking inward for benefits and global e-commerce as e-commerce evolves to maturity in any organization. The closest match to our studies came from Straub and Watson (2000) as they developed the Hexagonal Model to describe the organization’s interactions with various stakeholders. They showed the firm’s interactions with six stakeholders, namely: (1) suppliers, (2) intermediaries, (3) customers, (4) government, (5) employees, and (6) investors whereas we retained three of the above group of stakeholders, adding society/ community as its importance grows in business environment. We also excluded government, employees and intermediaries as our improvised methodology could not support applications predominantly based on intranets and/or applications meant for closed-user-groups. In our methodology, we not only tried to capture presence of these interactions; but also wanted to qualitatively measure exhaustiveness of these interactions (at least the intent or the promise, not what’s being delivered). Online interactions between firm and
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Figure 1. E-business stakeholders’ model (Jutla et. al., 2001)
its intermediaries, government and employees tend to follow Closed User Group (CUG) model which are less likely to have their initiations from the homepages. That’s true for customers and suppliers as well, however firms always compete to attract new customers and better suppliers, the beginning of these two categories of interactions tend to be more publicly accessible in homepages. On the geographical dimensions of e-business adoption across countries, it is closely linked with macro-economic factors like telecom and Internet infrastructure. Oyeyinka and Kaushalesh (2004), through firm-level data from three developing countries (India, Nigeria & Uganda) concluded that size of operation, export performance, prof-
itability, significantly determine firm level ebusiness adoption. On E-business readiness and adoption studies in different countries, The Economist Intelligence Unit (EIU – 2004, in its fifth such annual rankings) in co-operation with IBM Institute of Business Value ‘The 2004 ereadiness ranking’ ranked India in 46th position (same in 2003 also) in terms of global e-readiness ranking with a score of 4.45 out of 10 (3.95 in 2003)2. It cited Indian business environment being indifferent to hostile to niches of programming, customer services & business process outsourcing. Another study of Rastogi (2003) also pointed similar observations. It identified some of the barriers to e-commerce adoption in India like limited Internet access among customers and
Figure 2. Hexagonal (Hex) model of firm interactions (Straub and Watson, 2000)
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
SMEs, poor telecom and infrastructure for reliable connectivity, multiple gaps in the current legal and regulatory framework, and multiple issues of trust and lack of payment gateways. However The Economist study also talked about drastic increase in investments and bandwidth happening in India in 2004-05, results of which have been seen in subsequent years in tremendous growths in mobile telephony, and very lately in broadband penetrations as well. The EIU study was based on nearly 100 quantitative and qualitative criteria, organized into six distinct categories - (1) Connectivity & technology infrastructure (25% wt. in overall score), (2) Business environment (20%), (3) Consumer & business adoption (20%), (4) Legal & policy environment (15%), (5) Social & cultural environment (15%) & finally (6) Supporting e-services (5%). On a comparative basis, India’s rank didn’t see improvements in-spite of the earlier promise of investments as it slipped to 54th rank in the year 2007. Another cross-country comparison among ten countries (India although not included in that sample) among developed, newly industrializing and developing nations by Gibbs et al (2002) found global, environmental and policy factors also influences e-commerce diffusion. It concluded that B2B e-commerce is driven by global forces through increasingly globalized competition and ‘MNC push’.
METHODOLOGY Stakeholders as such can be categorized into existing and potential ones. Existing stakeholders can be better served by user-identification protected intranets/extranets which may/may not have its origin/linkages from/with corporate homepages, accessible to all. However objective of corporate portal is to attract, acquire, retain and thereby engage the targeted potential stakeholders on an ongoing manner in line with company’s business objectives. The paper makes an assumption that
any e-business strategy therefore should begin from corporate homepages only – which is easily accessible by all existing and potential stakeholders without any entry barriers and easily identifiable with the corporate entity of the firm. Therefore for present study, corporate homepages are taken as the starting point from where organizations initiate and interact with these set of stakeholders, which essentially acts as a dissemination point for company’s orientation to different stakeholders, as a platform for sharing news and views with regular financial statements to target stakeholders as well as respond to customized queries from any of these existing or potential stakeholders. We argue that closed user group systems that firms may have with existing stakeholders is an outcome and a subsequent development resulting from corporate homepages, as existing stakeholders had also been potential ones at some point in past (and considering firms as ongoing entities). This paper studied fifteen Indian organizations’ corporate homepages and analyzed e-business practices and adoption levels for the selected four categories of stakeholders across a time-span of over two years. We follow a simple improvised methodology. First, we observed for specific presence of exclusive separate zones for these four categories of stakeholders on corporate homepage. Subsequently we looked for the necessary and sufficient features within the homepage-portal that facilitates two categories of interactions - from firm to stakeholders in Category I, and stakeholders to firm in Category II. Based on presence and absence of these features, and also based on a qualitative understanding on convenience and detailing of the need, as likely norms or as likely exceptions that these stakeholders may have with the firm; we assigned scores out of a pre-defined distributed weighing system. We define Category I communications to be essentially the answer of the firm when following generic question is asked:
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
“What does the firm want to communicate with this group of stakeholders online?” Whereas Category II communications, in turn, is the answer by the firm when following generic question is asked: “What categories of online customized queries from this group of stakeholders do the firm entertain?” Further, the paper identifies certain Hygiene factors and Motivational factors3 in both categories of interactions, weight of Hygiene factors in determining e-readiness being more (50% for Hygiene against 25% for Motivational; balance 25% on exclusive stakeholder zones on homepage). Based on present practice of recognition of these four stakeholders’ requirements in the priorities of the organization, we arrived at e-business readiness scores of firms, and subsequently of segments and sizes from a stakeholders’ perspective and finally to an indicative measure of e-business readiness status for overall Indian industries (true, sample size and segments studied are small for this generalization). The specific types of Hygiene and Motivational factors across Category I and II are given in Table 2 of Appendix A.
Note of Caution on Characteristics of Variables, and on Their Measurements With segment specific characteristics, stakeholders’ expectations would vary. Like what customers value in Banks & Financial Institutes (Percival-Straunik, 2001) would be different from what buyers would value while buying industrial chemicals (Dennis, 2001). Zhu et al (2002) segregated manufacturing firms with high and low-IT intensity sectors towards accessing firm performance to e-commerce capabilities. Our study however follows same variables with same weigh, irrespective of segment-specific
2336
characteristics, except in two specific changes in stakeholder characteristics, namely as (1) ‘Alliances’ substituted ‘Suppliers’ in Information Technology firms, and (2) for Banks & Financial Institutions, ‘Suppliers’ are interchangeable with ‘Customers’. Also while measuring based on presence of these stakeholders’ zones in the homepage itself, and subsequently by features enabling both way communications as identified, there exists significant scope of manual error/bias. There is a further possibility of that bias being different during the two distant periods of study (one in March 2005 and the other in December 2007, and in ebusiness - that’s a long time!). The measurement anyway represents a snapshot relative picture as firms often change their websites, and date of accessing the homepage for both the studies (2005 & 2007) were provided with respective scores in Appendix A & Appendix B. For any ‘miss’ or ‘errors’, the authors take their due responsibility and state omission/misinterpretation is purely unintentional. Any measurement of non-financial parameters and practices would be subjective to such errors. There can also be information/interaction opportunities across stakeholders, like the already stated CSR practices or financial information, which can be used by customers, suppliers as well along with shareholders. The methodology we followed however didn’t provide additional weigh for such provisions.
SAMPLE SURVEY Sample characteristics The objective of this study is to identify e-business readiness of firms and adoption level of e-enabled processes in meeting stakeholders’ requirements across different segments and sizes of business organizations in India. In this paper, fifteen listed business organizations were selected from five
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
different segments. A broad financial characteristic of the sample is given in Table 1 of Appendix A. Out of three firms from each segment, one was selected from BSE4 ‘Sensex’ scripts (representative of large firm in segment), one from BSE ‘A’ group (representative of mid-sized firms in the segment) and last one was from BSE ‘B’ group (representative of small firm in the segment) leading to sample comprising five firms from ‘Sensex’ scripts, five from BSE ‘A’ group and five from BSE ‘B’ group from five different segments, namely (1) Banks and Financial Institutes, (2) Chemicals/ Conglomerates within broader Chemicals segment, (3) Commodities (primarily Iron & Steel, though one player had power exposure as well), (4) FMCG and finally (5) Information Technology. E-business readiness score at firm level and subsequently at segment or size level from the four identified groups of stakeholders’ perspective, namely Customers, Suppliers/Alliances, Shareholders and Community are the dependent variables of this study. These are derived by surveying the homepages of the sample firms for presence (or absence) of exclusive stakeholder zones in homepages, and subsequently for presence (or absence) of Hygiene & Motivational features for Category I & II communications (as identified and listed in Table 2 of Appendix A). On a zero to one score, based on presence of exclusive stakeholder zones in homepage and subsequently based on the qualitative coverage of Hygiene and Motivational factors in Category I and II areas, this measurement is tabulated in Table 3 of Appendix A. Subsequent multiplication by the weigh of the respective categories gives the e-business readiness score (Table 4, Appendix A). Independent variables are derived from exclusive stakeholders’ zones in homepage (presence/ secondary presence/absence) in 1st level and subsequently from qualitative presence/absence of both way critical and desired Hygiene & Motivational factors for both-way (Category I & Category II) interactions. This essentially is a quantitative measurement in the form of ‘Yes/In-between/
No’ for stakeholders’ zones for their exclusivity of presence in the homepage through ‘presence/ presence with reduced priority/absence’ practices. Each of the four groups of stakeholders weigh is assumed to be uniform and therefore stands at 25%. One-fourth of that is assigned on presence/ absence of clearly marked zones – therefore 6.25% for each stakeholder specific zones on the homepage, a ½ rating indicates presence with reduced priority (e.g. no exclusive zone in homepage but clubbed under a broader heading like ‘About Us’ which is interpreted as reduced priority/space allotment in homepage). Out of balance 75%, 50% is on Hygiene factors and 25% on Motivational factors distributed equally over Category I and II interactions (37.5% each). Therefore 12.5% each is assigned for presence/absence of Hygiene factors for twoway effective communications (Category I & Category II each having 6.25% again) between firm and its each stakeholder group under study. Similarly 6.25% is the weigh assigned on each stakeholder group Motivational factors (totaling 25%) for both-way communications (Category I & Category II each having 3.125%). The score is based on combined presence (or absence) of any number of identified features, and therefore can take figures other than ‘1’/’0’ binary forms. Scores in Categories (I & II) and Factors (Hygiene & Motivational) for a stakeholder get multiplied by assigned score of exclusivity in homepage. Therefore when Community as a stakeholder is missing from corporate homepage altogether (0 score in Stakeholders’ zone for Community), subsequent Community scores for Hygiene and Motivational factors in both Category I and II (depicted as CO-CI-HF, CO-CII-HF, CO-CI-MF & CO-CII-MF) would all be zero (cell scores in Table 3, Appendix A are already multiplied by parent scores). Thereby Table 3 rates the respective homepages of the firms based on presence/ absence of stakeholders’ specific exclusive zones, and also based on qualitative presence of preidentified Hygiene & Motivational factors (Table 2
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
of Appendix A) across two categories – Category I & Category II communications respectively. The total firm level e-business readiness score is thereby arrived at from these four groups of stakeholders’ perspectives, and tables accordingly to segments and for sizes in Table 4 in Appendix A as Summary Findings. A similar exercise was repeated with same sample in December 2007, and findings of that are provided in Appendix B (Tables 9, 10, 11,& 12) with more of the scores and few company characteristics (like M-Cap) without as much detailing as Appendix A (for 2005) provided, as the methodology remained same.
Findings of our Study
•
•
Firm, segment and size related salient findings are: •
•
•
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Majority of the studied companies already adopted certain practices towards better stakeholders’ interactions management online; however they mostly took the communications as one way than both ways, focusing more on Category I interactions. Public Sector Unit like Balmer Lawrie (only PSU5 firm in sample) had its tenders put on homepage which act as suppliers’ interface to a certain extent (Category I partly covered for suppliers as a stakeholder). Otherwise suppliers’ interface was missing from all other mid-sized and small manufacturing companies in 2005, and that mostly remained valid in 2007 as well.. Firms in services sectors like B & FIs & IT companies have their homepages largely dedicated to customer services and knowledge practices respectively. ICICI Bank & Infosys had community as a category getting served with exclusive zones in 2005, however not in the homepage itself, but under ‘About Us’ category (2nd level if homepage is taken as 1st level), which we concluded as assigning them less prior-
•
ity (‘shelf-space’ not given in homepage in comparison to retail sector) in-spite of their managing this stakeholder interactions well otherwise. Large manufacturing companies like RIL & Tata Steel have online ordering/interactions with established large ‘A’ group customers, however it looked like they don’t have online support/order acceptance from a new (potential) customer, or CRM for retail end consumer as expected for the challenges of B2C nature of fulfillment and relationship issues (same with certain divisions of ITC, in FMCG sector as well). In Investors’ Relations cell, most ‘Sensex’ companies have well-established processes, however we did not see future/upcoming schedule of analysts’ meet in any site, which we took as one criterion in Category I Motivational Factor for shareholders as it enables all to know and follow that on a real time basis, making information available to all uniformly irrespective of reach and status irrespective of being in the firm’s closed user group of ‘analysts’. Suppliers’ linkages with ITC is found to be nil (as the firm exhibits significant level of vertical integration) other than ambitious e-choupal initiatives of its International Business Division (IBD) where present and potential suppliers of certain agri-inputs for IBD are/can be millions of rural farmers. FMCG sector as such faces this fragmentation challenge in e-business supply chain management (both suppliers and customers are many in numbers, and thereby fragmented by nature of business), and this being true to a certain extent for other manufacturing companies as well who sell partly or mostly through retail distribution channels. Channel partners’ interactions, vital for FMCG firms, are not specifically considered in this study where channel
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
•
•
•
•
partners’ have been clubbed with broader ‘Customer’ base as a stakeholder. Archies has joined hands with leading B2C portal indiatimes (media firm) to serve and fulfill customer registrations and order fulfillments online. Indiatimes could have been considered as a strategic partner/alliance, which however we didn’t. Contact details of Registrar and Share Transfer agents (Category I Hygiene Factor for investor community) was not found in most IT firms, however these firms have a feature on subscribing to company news. Hexaware didn’t have Analysts’ meet presentations, however it made available brokerage houses’ outlook on the firm. This can also be explained by higher proportion of overseas listing of Indian IT firms (within our samples, two out of three had overseas listing; highest among the five segments; and that’s in general true for IT sector in India). Other than the large firms from Sensex, the study shows that e-enabled business interactions of Community and Suppliers as stakeholders are significantly less for mid-sized (two out of five firms have some features for both Community & Suppliers) and small firms (none out of five for Community & two out of five for Suppliers having some features) in 2005. The broader trends of above (for 2005) was found to be true in 2007 studies as well, though we found Small and Medium Sized players to have improved significantly in matters of customers and investors communication categories.
E-Business Readiness Score Analysis Simple analysis of scores was carried out in Table 4 to Table 8 for 2005 (Appendix A). These were primarily focused at:
1. Firm level e-business adoption for these stakeholders (Table 4) varied from 0 to 0.88 (out of 1) indicating practices from initial e-business to global e-business (Chan et al, 2004), surprisingly within same segment in our 2005 studies. The lower range remained same even in 2007. 2. Segment level (Table 5) e-business adoption score of these five segments in 1st study of 2005 varied from 0.37 (commodities/metals) to 0.69 (B & FIs), and size level (Table 6) e-business adoption score for three different size-categories varied from 0.325 (small firms) to 0.7 (large firms). In our repeat study of 2007 (Table 10 of Appendix B), we found a degree of convergence across segments and sizes (segment scores varied from 0.39 for commodities to 0.66 for chemicals, and 0.37 for smaller firms to 0.7 for the larger ones). 3. Stakeholder wise adoption level of business interactions across sizes and segments (Table 7, Appendix A) varied from 0.06 (community) to customers (0.19) and the trend repeated even in 2007 (0.22 for customer and 0.07 for community) showing customer-centric adoption with community as most neglected stakeholder; and finally 4. Category-wise (Category I interactions from firm to stakeholders and Category II interactions from stakeholders to firms) and Factor-wise (Hygiene and Motivational factors of interactions desired) e-business readiness form sample and across sizes is presented in Table 8, Appendix A and Table 12 of Appendix B. The adoption level of Category I interactions and that of Hygiene Factors outscored Category-II interactions and Motivational factors in both the years. It’s natural and as per expectations in terms of higher adoption of Hygiene factors, however that can’t be true for Category I & II interactions as firms fail to make best use of
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
listening to their stakeholders using Internet as a media. Few of the salient findings, many in line with expectations but quite a few otherwise as well are noted below: 1. Tata Steel scored highest for e-business readiness (with 0.88 score) followed by a close 2nd ICICI Bank (0.87) followed by UTI Bank (72%) at 3rd place in our 1st survey (2005). The range of absolute score varied from 0 to 0.88 (out of 1) in terms of e-readiness adoption from four of these stakeholders’ perspectives. The top order saw quite some changes in 2007, with Reliance occupying the top position followed by ITC and then followed by Tata Steel. All the three top rankers in 2007 essentially came from the large groups. 2. Interestingly, the least score (and 2nd least score also) comes from same commodity group (steel) segment that produced the overall winner (in 2005). In 2007 also, we find this segment having least adoption level due to extreme score of one sample within a sample size of three. 3. Overall e-business readiness of firms studied in 2005 had a mean e-business readiness score of 0.49, and a Standard Deviation (SD) of 0.24. Extremely small sample size is noted here. In 2007, we see small and medium firms making clear progress whereas large firms overall rating remaining same; leading the mean to go up to 0.55 and standard deviation to come down to 0.2, explaining convergence as time progressed. 4. Expectedly, low-touch standardized services segments like Banks & Financial Institutes had the highest mean in segment e-business readiness score (0.68) in 2005, although it could not retain that position in 2007 (mean score 0.59, as online banking alone is no longer a winning feature for banks). Chemicals/
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5.
6.
7.
8.
conglomerates segment ranked 2nd with 0.51 mean in 2005, and came on top in 2007 (0.66). Other than Monnet Ispat score of zero skewing mean score of commodity (steel) segment, making it the worst performing segment; FMCG segment also was a laggard in both the years. These findings are in line with Boston Consulting Group (shop.org, 2001) forecasts of US online transactions (1999) and Forrester Research findings on Leaders and Laggards. From stakeholders’ perspective, firms have maximum e-readiness in order of customers (0.19 out of 0.25 for each stakeholder’s groups), shareholders (0.15), suppliers (0.1) and community (0.06) in 2005 with same order was repeated in 2007 as well (0.22 for customers followed by 0.18 for shareholders followed by 0.08 for suppliers and finally community scoring 0.07). Other than a few exceptions, adoption of e-business decreased as we moved from Sensex companies (large ones) to BSE ‘A’ group (mid-sized) to BSE ‘B’ group (small ones) in both the surveys. Expectedly, Standard Deviation of firms in mid-sized & smaller ones were higher compared to larger firms in 2005, meaning adoption level was more non-uniform across medium and small firms in our initial studies. However in 2007, we found SD of mid-sized firms to be the least (0.09 against 0.21 in 2005). The comparable scores for large firms were 0.12 (against 0.16 in 2005) and 0.25 (against 0.21 in 2005). Size wise SD figures for 2007 not separately shown in Appendix B, though it was calculated and can be calculated from given values. We also found that large companies largely have similar scores towards Customers and Shareholders (true for broader sample also). Variance in score for Suppliers stakeholder is explained by segment dynamics and/or on scale of integration. Other than RIL, all large
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
companies were engaged in significant eenabled community development programs towards the CSR objectives in 2005, which surprisingly took a beating in 2007. 9. Mean scores on Category I (what firms communicate to stakeholders) and Category II communications (what customized queries from stakeholders’ the firm encourages) show that firms in-general engage in more one-way communication (from firm to stakeholder) than they prefer to listen to what their stakeholders have to say. Category I mean score was 20% vis-à-vis Category II mean score of 13% in 2005 (2007 figures were 22.5% and 15.6% respectively). Both Categories have equal weight of 37.5% in determining e-business readiness in our model (balance 25% being stakeholder specific zone in homepage). 10. Similarly mean scores on Hygiene Factors (24.3% out of 50%) vis-à-vis Motivational Factors score (9.4% out of 25%) justify the focus to be more on essential than on desired features, and expectedly organizations adopt Hygiene Factors more and faster. The trend was similar in 2007 as well (26.8% and 10.9%). 11. Overall, the comparison of the e-readiness scores across two time periods showed an improved adoption level in overall scores (more so amongst the SMEs) and also in each of the sub-groups like stakeholder wise (except suppliers category), segment wise and size wise improvement; although the trend of neglecting community as a stakeholder or Category II communications remained intact.
Our Perspective on E-Business Adoption Across Sizes and Stakeholders Aided by above findings and analysis, we present our model by incorporating two more variables
Figure 3. Stages of Growth in e-Business Adoption: Size and Stakeholders’ perspectives (amended from Nolan & Gibson, 1974)
in the Stages of Growth Model, namely size of firms and prioritization of stakeholders’ interest in firms’ operations (Figure 3). We see here that firms’ initially have a customer-centric approach as they adopt e-business, and large firms score higher in overall e-business adoption levels compared to small-and- mid-sized firms. However with time, the gap of e-business adoption level across firms from different sizes diminishes; and also as firms’ move to maturity, they start paying attentions to other stakeholders’ (namely suppliers and community). We also conclude that the initial drivers of e-business adoption that favor certain sectors (like Banking, as we found in our first survey of 2005) diminish as online banking percolates down to the very basics of banking business itself.
CONCLUSION Stages-of-growth model (Nolan and Gibson) has been the most popular approach used for strategy development and implementation covering areas of new innovative practices. Going by four stage-of-growth models proposed for e-business implementations specifically and for Information Systems in Organizations from a more generalized perspective (Chan et al, 2004), fifteen Indian
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
organizations studied here collectively display the characteristics of these four categories of evolution – from ‘initial e-business’ to ‘global e-business’ in both these two time-periods with a clear shift of progress in growth models, as scores improved in 2007. Community as a stakeholder gets least attention from Indian business organizations whereas customers and shareholders get the maximum attentions, in respective orders. As e-business increasingly resembles business itself, the study could throw insightful findings on Indian firms order of priorities related to different stakeholders in running their businesses. Customers and Shareholders came on top in order of priority. The paper also found similar sized firms show better uniformity in levels of e-business adoption, with smaller and medium sized firms learning fast and improving the gaps in e-business adoption practices against larger ones by copying best practices quickly (Porter, 2001). This again proves that learning in e-space to be real fast, even in a country like India with poor Internet infrastructures. While the study validated what was anyway expected on a generalized basis, it also provided quite a few meaningful new insights and surprises in understanding how firms prioritize stakeholders’ interests in more details. In the background when e-business increasingly looks to be maturing as an application, we were surprised that firms, irrespective of their sizes and segments, use their homepages and features therein more to announce about themselves rather than using the interactivity rich feature of Internet to listen to the various customized queries that their stakeholders might have.
REFERENCES Beer Michael. (2004). Corporate Identity & the web: What your homepage tells about your organization. Available: http://ui4all.ics.forth.gr/ workshop2004/files/ui4all_proceedings/adjunct/ organisational/72.pdf (Accessed: 2005, February 25).
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Chan, C., & Swatnam, P. M. C. (2004). B2B E-commerce Stages of Growth: The Strategic Imperatives. In 37th Hawaii International Conference on System Sciences. Curran, C., & Singh, G. (2001). Enterprise Portals: Building Value through Organizational knowledge. DiamondCluster International Inc Centre for Technology Innovation, 2(2). Dennis, D. L. (2001). New Study by Accenture Reveals Keys to Online Success for Chemicals Industry. Available: http://www. accenture.com/xd/xd.asp?it=enweb&xd=_ dyn%5Cdynamicpressrelease_305.xml (Accessed 2004, July 7). Gibbs, J., Kraemer, K. L., & Dedrick, J. (2002). Environment and Policy Factors Shaping E-commerce Diffusion: A Cross-Country Comparison. Center for Research on Information Technology & Organizations. Irvine: University of California. Gordijn, J. (2003). Why visualization of e-business models matters. In 16th Bled Electronic Commerce Conference eTransformation, Bled, Slovenia, June 9-11, 2003 http://www.cs.vu.nl/~obelix/ publications/Why%20visualization%20of%20 e-business%20models%20matters.pdf Jutla, D. N., & Bodorik, C. J. (2001). A methodology for creating e-business strategy. In The 34th Hawaii International Conference on System Sciences. Morimoto, R., Ash, J., & Hope, C. (2004). Corporate Social Responsibility Audit: From Theory to Practice. University of Cambridge, Judge Institute of Management, Working Paper No. 14/2004. Nolan, R. (1979). Managing The Crisis In Data Processing. Harvard Business Review, 57(2), 115–126. Nolan, R., & Gibson, C. F. (1974, January/February). Managing the four stages of EDP growth. Harvard Business Review, 76–88.
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Osterwalder, A., & Pigneur, Y. (2002). An e-Business Model Ontology for Modelling e-Business. In 15th Bled Electronic Commerce Conference e-Reality: Constructing the e-Economy, Bled, Slovenia. Oyelaran-Oyeyinka, B., & Lal, K. (2005). Determinants of e-business Adoption: Evidence from firms in India, Nigeria Uganda. Institute for New Technologies (INTECH), United Nations University, Available: http://www.intech.unu. edu/publications/discussion-papers/2004-14.pdf (Accessed: 2005 22nd February) Percival-Straunik, L. (2001). E-commerce. London: Profile Books Ltd. Percival-Straunik, L. (2001). Shop.org. In ECommerce, The Economist. Porter, M. (2001). Internet and the Strategy. Harvard Business Review, 79(3).
The Economist Intelligence Unit in co-operation with IBM Institute of Business Value. The2004ereadiness rankings. Available: http://eb.eiu.com/ site_info.asp?info_name=err2004 (Accessed on October 10, 2004), and ‘The 2007 e-readiness rankings’ available at http://www.eiuresources. com/mediadir/default.asp?PR=2007042601 (accessed on March 25, 2008) Zhu, K., & Kraemer, K. L. (2002). e-Commerce Metrics for Net-Enhanced Organizations: Assessing the Value of e-Commerce to Firm Performance in the Manufacturing Sector. Information Systems Research, 13(3), 275–295. doi:10.1287/ isre.13.3.275.82
ENDNOTE 1
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Rastogi, R. (2003). India: Country report on Ecommerce Initiatives. http://www.unescap.org/tid/ publication/part_three2261_ind.pdf (Accessed: 2005 February 20) Reichinger, K., & Baumgartner, R. (2004). SEMNUM RDF Vocabulary Specification v.01. DBAI Technical Report. http://www.dbai.tuwien.ac.at/ local/reports/semnum.pdf (Accessed: 2007 July 21st). Singh, M., & Byrne, G. (2005). Performance evaluation of e-business in Australia. Electronic Journal of Information Systems Evaluation, 8(1). Available: http://www.ejise.com/volume-8/v8-iss-1/ v8-i1-art8.htm (Accessed 2005, February 25). Straub, D. W., & Watson, R. T. (2000). Key issues in researching IT and electronic commerce: Research report of Georgia State University.
One of the five sectors studied is banking industry, where, when money is taken as the primary input and output for banks; both the customers and suppliers are same. However, here the distinguishing factor is depositors and lenders. We could have taken suppliers of the banks to be the ATM manufacturers or systems suppliers; however we felt the other categories to be more suitable. Incidentally, in its 8th annual e-readiness ranking of 2007, Indian came in 54th position (53rd in 2006) with a score of 4.66 (4.04 in 2006). http://www.eiuresources.com/ mediadir/default.asp?PR=2007042601 We use Hygiene factors and Motivational factors in the same sense as it’s proposed in Two-factor Theory by Frederick Hertzberg (1966). Satisfaction from e-business by stakeholder group is determined more by Motivational factors whereas lack of Hygiene factors in e-business features cause dissatisfaction in respective stakeholder groups.
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
4
2344
Bombay Stock Exchange is one of the two leading stock exchanges of India (other one being National Stock Exchange), and it’s also the oldest in Asia.
5
Public Sector Unit, where Government owns majority of the ownership in the firm.
140.9
Paid-up Equity Capital (in Million US$)
27.1
NA
21.9
NA
Icicibank. com
RONW (%)
Plant Locations
URL
Southindianbank. com
NA
23.6
10.6
N
90
10.8
72
SIB
Ril. com
5
17.4
12.0
Y
7250
319.1
18214
RIL
Tatachemicals.net
3
12.1
14.3
N
457
49.2
799
TCL
Balmerlawrie. com
13
10.9
16.6
N
40
3.7
76
BL
Chemicals/Cnglmts
Tatasteel. com
6
45.4
7.3
N
1032
126.6
5430
Tata Steel
Jindalsteelpower. com
4
42.8
7.6
N
196
3.5
843
Jindal Steel
34
Monnetgroup. com/ iron_division. html
1
25.5
6.5
N
7.0
141
Monnet Ispat
Commodity/metal
Itcportal. com
66
27.3
19.1
Y
1451
56.7
7776
ITC
Dabur. com
14
29.8
26.6
N
61
6.5
794
Dabur India
FMCG
11
Archiesonline. com
6
11.4
8.8
N
1.5
12
Archies
Infosys. com
3
40.7
35.8
Y
744
30.9
13776
Infy
52
Hexaware. com
NA
5.7
41.0
Y
5.4
411
Hexaware
IT
56
Tatainfotech. com
3
26.4
11.5
N
4.2
165
Tata Infotech
Notes: 1. In FMCG segment Britannia Industries was initially chosen as BSE ‘A’ group company, however as its homepage was not accessible during the study period (britindia.com, as per group portal) which asked for user identification, we shifted to Dabur India Ltd. 2. Market-cap, Paid-up equity capital & P/E are as of 4th March 2005. Balance Figures are of FY2003-04 year-end figures as per audited statements. RONW figure is for preceding financial year. Source is Cyberline, Intranet version of Capitaline Corporate Database 2000. INR: US$ is taken as 43.75:1 as per prevalent market rate of 2005. 3. Scale of size and complexity of operations/degree of globalization could be analyzed by number of employees and global presence (in number of major economies) respectively. However information of these two was not easily available, therefore not presented in Table 1. 4. ‘NA’ stands for not available in Capitaline.
Utibank. com
17.7
15.9
PE
N
Y
260
53.2
1236
UTI
B & FIs
Overseas listing
1831
6687
M-Cap (in Million US$)
Net worth (in Million US$)
ICICI
Financial/ business characteristics
Measures
Table 1. Sample characteristics (2005 findings)
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
APPENDIX A: DATA COLLECTION AND ANALYSIS
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Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Table 2. Hygiene & Motivational factors for Category I & II interactions (Partly adopted from Jutla et al, 2001 and further developed by authors) Stakeholders
Motivational & hygiene factors desired for Category I & II (75%)
Hygiene factor Category I (6.25%in each cell)
Hygiene factor Category II (6.25%)
Motivational factor Category I (3.125%)
Motivational factor Category II (3.125%)
Customers (CU)
Products, Prices, Places (3 Ps), Engage, Order, Fulfill, Support. However last two can be user defined.
Information on Products, Places
Customized query generations/form
Customer relationship management/ testimonials
Order placement with fulfillment supports/e-sales
Community (CO)
Engage, Community interaction, Community services, Community governance, Sustainability
Sustainability, CSR
Community interactions, Query generation
Community Governance, initiatives in local, & national levels
Online application and approval process
Suppliers/Alliances (SU)
Requirements, selection criterion, approval process, queries.
Selection criterion / values sought from alliances
Online application/ initiation and approval status.
Supplier requirements & approval process / list of alliances’
E-Procurement/ query from potential alliances
Shareholders (SH)
Financial statements, projections, analyst meets, press releases, news, credit rating, investor education & rights
Financial statements & news, Registrars & Share Transfer Agent
Queries to investor relation cell
Outlook, Analyst meets, Schedule of future analyst meets.
Feedback mechanisms from shareholders.
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1 3/4
1
3/4
1
SH-CII-HF
SH-CI-MF
SH-CII-MF
0
0
0
0
1
1/2
1
1
0
0
0
0
1
1/2
1
1
0
1
0
1
SIB
1
3/4
1
1
1
1
0
0
0
0
0
0
3/4
3/4
1
1
1
1
0
1
RIL
1/2
1
1/2
1
0
0
0
0
0
1
0
1
0
0
0
1
1
0
1
1
TCL
0
0
1
1
0
1
0
1
0
0
0
0
0
0
1
1
1
1
0
1
BL
Chemical/Conglomerates
1
3/4
1
1
1
1
0
1
0
1
1
1
3/4
3/4
1
1
1
1
1
1
Tata Steel
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
1
0
0
1
1
Jindal Steel
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Monnet Ispat
Commodity/metals
0
0
1
1
1/4
1/4
1/4
1/4
0
1
0
1
3/4
3/4
1
1
1
1/2
1
1
ITC
3/4 0
1
1
0
0
0
0
0
0
0
0
0
1
0
1
1
0
0
1
Dabur
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
0
0
0
1
Archies
FMCG Firms
0
0
0
3/4
1
3/4
0
3/4
1
3/4
1
1 0
0 0
1
0
0
0
0
0
1
0
1
1
1
0
1
Hexaware
0
0
0
1/2
1/2
1
1
1
1
0
1/2
1
Infy
IT Firms
0
0
0
1
0
1
0
0
0
0
0
0
0
1
0
1
1
1
0
1
Tata Infotech
Notes to Table 3: 1. While rating a homepage for presence of exclusive stakeholders’ zones, if presence is on homepage and exclusive, rating of 1 is given. If presence is in the next level where stakeholder exclusivity is maintained, rating of ½ is given. If neither of above two is present, a rating of 0 is given. 2. For rating presence/absence of Category I & II Hygiene and Motivational factors, a combined score is assigned based on presence or absence of identified factors in Table 2. Nomenclature is first two letters of Stakeholder-Category (I or II)-Factor (Hygiene or Motivational). For example CO-CII-HF measures firms’ web-based interactions with Community for Category II Hygiene Factors.
1
1
1
1
1
1
SH-CI-HF
SU-CI-MF
1
0
SU-CII-MF
1
1
SU-CII-HF
1
SU-CI-HF 1/2
0
1/2
1/2
CO-CII – MF
CO-CI- MF
0
1/2
CO-CII- HF
1 0
1
1/2
CO-CI-HF
3/4
1
CU-CII-MF
1
CU-CI-MF
1
1
1
CU-CI-HF
1 1
1
1
Suppliers
Shareholders
CU-CII-HF
0
1/2
Community
1
1
Customers
UTI
ICICI
B & FIs
Exclusive zones, HF & MF for CI-II
Segments Measures
Table 3. Homepage survey: detailed scores. Exclusive zones for stakeholders and subsequent Hygiene & Motivational factors for Category I & II communications (based on March 5-March 7, 2005 findings)
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
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0.13
0.25
0.24
0.87 (2)
Suppliers
Shareholders
Total (Rank)
0.72 (3)
0.24
0.23
0.00
0.24
0.25
Customers
Community
Firms Stakeholders
UTI
ICICI
B & FIs
0.47 (9)
0.00
0.23
0.00
0.23
SIB
0.57 (5)
0.24
0.09
0.00
0.23
RIL
0.48 (8)
0.20
0.00
0.16
0.13
TCL
0.53 (7)
0.19
0.16
0.00
0.19
BL
Chemical/Conglomerate
0.88 (1)
0.24
0.19
0.22
0.23
Tata Steel
0.22 (13)
0.00
0.00
0.09
0.13
Jindal Steel
0.00 (14)
0.00
0.00
0.00
0.00
Monnet Ispat
Commodity/metal
Table 4. Firm level score of e-business readiness (based on 2005 findings)
0.66 (4)
0.19
0.08
0.16
0.23
ITC
FMCG
0.37 (11)
0.21
0.00
0.00
0.16
Dabur
0.25 (12)
0.00
0.00
0.00
0.25
Archies
0.54 (6)
0.20
0.00
0.13
0.22
Infy
IT
0.54 (6)
0.20
0.19
0.00
0.16
Hexaware
0.38 (10)
0.13
0.09
0.00
0.16
Tata Infotech
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Table 5. Segment level score of e-business readiness Segment
Segment mean
Segment SD
B & FIs
0.69
0.20
Chemicals/Conglomerates
0.51
0.08
Commodities/metals
0.37
0.46
FMCG
0.43
0.21
IT
0.49
0.09
Table 6. e-business readiness score, as per size Sample
Segment mean
Segment SD
Overall sample
0.49
0.24
Sensex (Large) firms
0.70
0.16
BSE ‘A’ group firms (Midsize)
0.47
0.21
BSE ‘B’ group firms (small ones)
0.325
0.21
Table.7. Stakeholder wise e-business readiness score, as per size Customers
Mean
Sample
0.19
SD 0.07
Community Sample
Mean 0.06
SD 0.08
Suppliers Sample
Mean 0.10
SD 0.10
Shareholders
Mean
Sample
0.15
SD 0.10
Sensex
0.23
0.01
Sensex
0.13
0.08
Sensex
0.12
0.10
Sensex
0.22
0.02
BSE ‘A’ Grp
0.16
0.05
BSE ‘A’ Grp
0.05
0.07
BSE ‘A’ Grp
0.08
0.12
BSE ‘A’ Grp
0.17
0.10
BSE ‘B’ Grp
0.17
0.10
BSE ‘B’ Grp
0
0
BSE ‘B’Grp
0.10
0.10
BSE ‘B’ Grp
0.06
0.09
Table 8. Category-wise (I & II) & factor-wise (Hygiene & Motivational) readiness score Categories of communications/factors of communications
Overall sample Mean
SD
Sensex Mean
BSE ‘A’ Group SD
Mean
SD
BSE ‘B’ Group Mean
SD
Category I mean score (wt. 37.5%)
20.4%
9.33%
27.5%
7.1%
20.6%
7.0%
13.1%
8.7%
Category II mean score (wt. 37.5%)
13.33%
10.66%
22.2%
8.0%
9.7%
10.8%
8.1%
8.1%
Hygiene factors mean score (wt. 50%)
24.37%
12.94%
35.3%
8.4%
21.6%
11.2%
16.2%
12.2%
Motivational factors mean score (wt. 25%)
9.37%
6.00%
14.4%
5.7%
8.7%
5.0%
5.0%
3.6%
APPENDIX B: DATA COLLECTION IN 2007 (DECEMBER 10-11 FOR HOMEPAGE SCORES) The studies were done following our methodology, and the findings have not been shared with the real life firms. As explained in the limitations of the study, subjective elements in scoring cannot be ruled out; though there’s been no deliberate bias of researchers.
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2350
0.625 (5)
Score in 2007 & Rank
0.66 (4)
0.72 (3)
675
8
UTI
B & FIs
0.5 (10)
0.47 (9)
552
0.4
SIB
0.84 (1)
0.57 (5)
581
106
0.58 (7)
0.48 (8)
254
2
TCL
0.56 (8)
0.53 (7)
335
0.25
BL
Chemicals/Cnglmts RIL
0.70 (3)
(0.88) (1)
263
0.45 (11)
0.22 (13)
1402
12
Jindal Steel
0 (13)
0 (14)
280
0.4
Monnet Ispat
Commodity/metal
14
Tata Steel
0.8 (2)
0.66 (4)
237
18
ITC
0.45 (11)
0.37 (11)
329
3
FMCG Dabur India
0.41 (12)
0.25 (12)
196
0.024
Archies
0.55 (9)
0.54 (6)
172
24
Infy
IT
0.59 (6)
0.54 (6)
69
0.3
Hexaware
Please see notes to Appendix B below (point 2)
Tata Infotech
Overall mean at 0.55 in 2007 against mean of 0.49 in 2005 (Std. dev in 2007 is at 0.20 against 0.24 in 2005). Sample size in 2007 14 Notes to Table 9 1. Market-cap figures are of 6th December, 2007. INR: US$ is taken as 39.5:1 as per prevalent market rate. 2. UTI Bank was renamed as Axis Bank, and url thereby changed to www.axisbank.com/, RIL went through a demerger process in the end of 2005, Tata Chemicals also had tatachemicals.com (along with with.net homepage url as in 2005), Monnet Ispat changed its name to Monnet Ispat and Energy Ltd. in 2006, though the homepage remained same; and Tata Infotech was amalgamated into one of the larger IT services company within same Tata group, TCS in 2005. It meant that 2007 survey of ours had 14 samples, and only 2 from IT. 3. Balmer Lawrie, as the only PSU in our sample, had provisions made on its homepage related to Rights to Information Act (2005). It also had the content in one of the local official languages (Hindi), the only firm in our sample to have local language content. 4. Though the name of Monnet Ispat changed as per stock-exchange information and media information, a visit to its web-site reflected no such distinctions in terms of its various identities (as sponge iron & steel, and power and ferroalloys were into two different domains). Therefore the rating still remained poor. 5. ITC has a list of divisional and group companies’ website on its home page, due to its diverse nature of business interests. Similar practice was found in Tata Steel as well (as it acquired few other entities globally). 6. The above sites were studied on 10th & 11th of December 2007 following same methodology as in 2005, as done for Table 3. The total and sector-wise/size-wise and stakeholder-wise scores have been given here, avoiding detailed markings as was done in Table 3. However we calculated these total scores and other break-ups of it using same methodology. 7. We acknowledge that relative marking on presence/absence of features/communications for stakeholders in 2007 may not be uniform as it was followed in 2005. Expectedly the individual bias would vary across these two time-period of studies, though it’s likely to be uniform across any single period of study. Though same set of individuals performed thissurvey, the uniformity in qualitative measurements is difficult to be exactly replicated after more than 2-years. 8. We were also interested to see if there exists any meaningful correlations between m-cap gains of firms (an indicator of overall and financial performances) with e-business adoption levels; however we didn’t find any significant linkages. However the gain in e-Business adoption level (between 2007 and 2005) had better correlations with gain in m-caps rather than the individual stand-alone scores over these two timeperiods. * Rank in 2007 means e-business readiness rank in 2007 in a repeat survey following same methodology as followed in 2005 (Table 3 & 4 of Appendix A).
0.87 (2)
506
% rise since 2005, Table 1
Score & Rank* as per Table 4, Appendix A (2005 studies)
34
ICICI
M-Cap (in billion US$)
Financial/ business characteristics
Measures
Table 9. (for same sample group as in Table 1 of Appendix A) and comparison with 2005
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Study on E-Business Adoption from Stakeholders’ Perspectives in Indian Firms
Table 10. Segment and size wise comparison of e-business readiness score (2007 with 2005) Segment
Segment mean, 2007 (2005)
Size
Mean in 2007 (2005 fig)
B & FIs
0.59 (0.69)
Sensex (Large) firms
0.70 (0.70)
Chemicals/Conglomerates
0.66 (0.51)
BSE ‘A’ group firms (Mid-size)
0.54 (0.47)
Commodities/metals
0.39 (0.37)
FMCG
0.55 (0.43)
BSE ‘B’ group firms (small ones)
0.37 (0.325)
IT
0.57 (0.49)
Table 11. Stakeholder wise e-business readiness score & comparison with 2005 Average for customers
Average for community
Average for suppliers
Average for shareholders
Sample (in 2007, 14)
0.22
0.07
0.08
0.18
Sample (in 2005)
0.19
0.06
0.10
0.15
Table 12. Category-wise (I & II) & factor-wise (Hygiene & Motivational) readiness & comparison with 2005 Categories of communications/factors of communications
Overall sample (2007)
In 2005
Mean
Mean
Category I mean score (wt. 37.5%)
22.5%
20.4%
Category II mean score (wt. 37.5%)
15.6%
13.33%
Hygiene factors mean score (wt. 50%)
26.8%
24.37%
Motivational factors mean score (wt. 25%)
10.9%
9.37%
This work was previously published in E-Business Applications for Product Development and Competitive Growth: Emerging Technologies, edited by In Lee, pp. 290-309, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Chapter 8.8
The Global Telecommunications Industry Facing the IP Revolution: Technological and Regulatory Challenges Harald Gruber European Investment Bank, Luxembourg
1 INTRODUCTION Technological innovation in the telecommunications sector is a key contributor to the rapid diffusion of e-business. The steady drive towards semiconductor miniaturisation leads to a continuous decline in the price of telecommunications equipment and increase in performance. Technological change therefore continues to transform the way telecommunications services DOI: 10.4018/978-1-60960-587-2.ch808
are provided and used. Telecommunication networks are subject to a technological switch from so called circuit switched technology to packet switched technology. In fact, digitalisation of audio and video signals has led to the convergence of telecommunications, data processing and broadcasting technologies into a single service platform based on Internet Protocol (IP). This has strong implications on legacy networks of existing operators, because they need to support during a transition period both technologies in the
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
The Global Telecommunications Industry Facing the IP Revolution
network, but this duplication is inefficient. This is more so as the incumbent telecommunications operators are subject to sector specific regulation. This regulation was motivated by the externalities that telecommunications generate and the concern that operators would exploit market power to the detriment of users. This appears to be less the case when there is a multiplicity of telecommunications networks. In Next Generation Networks (NGN) all communication services (voice, data, Internet and TV/ video) will be migrated to IP, will share a single aggregation and backbone infrastructure and there will be a unique service management platform and integrated provision of applications, including e-business. The migration of services from the switched network to NGN will be progressive. Data is the first to migrate and voice (VOIP) is normally the last because of the technical constraints, volume and investment required. Even larger investment would be necessary for access networks with sufficient transmission capacity, which may need to increase as type of e-business applications become more demanding in terms of network performance. Telecommunications companies are thus facing the need for significant investment volumes on NGN for both the core network and the access network. They expect from this operating savings in the future as a result of having unified IP networks and also by the increased revenues as a result of a being able to offer a broader product range. However, there is the risk that if the demand for the new services and applications does not materialise on the fixed and/or mobile networks, a part of the forecast savings are overestimated and NGN investments will not yield expected financial returns. This risk induces several operators to adopt a cautionary approach to investment, also because they do not take into account the externalities they cannot appropriate. In particular they fear that they will not have any share in the increasing value of the information, to a large extent created through e-business, which will transit over their networks.
This market failure represents a reason for public support to investment into access infrastructure. To put the role of telecommunications for ebusiness into perspective, this study unravels the interplay between the evolution of technology, market performance of the telecommunications sector and regulation. It is arranged as follows. Section 2 provides an overview of the main market trends on a global level. It illustrates which regions show a particular strong market performance. Section 3 links the technological evolution to the market strategies that telecommunications operators currently are faced with. It shows that rapid technological change challenges the positions of established operators across a broad range of markets. A critical step is the setting up of broadband access networks close to the end-customer. They are key for satisfying demand of high bit rates such as High Definition IPTV. Section 4 illustrates the regulatory challenges, as regulation has profound implications for investment. The debate is still going on and is far from being concluded, while international comparisons suggest that different access provisions do lead to different results. Section 5 concludes.
2 MARKET OVERVIEW The market dynamics in telecommunications are characterised by rapid technological change and the introduction of new services. This leads to a rapid and increasing penetration of telecommunications infrastructure, in particular for mobile and broadband services. Telecommunications infrastructure is an important input for sustained economic growth (Röller and Waverman, 2001) and thus there is a strong public interest in good performance of this sector. The market is typically divided into the following segments: fixed voice services, mobile voice services and data/broadband services. These segments have fairly different growth profiles. Growth in the mobile telecommunications sec-
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The Global Telecommunications Industry Facing the IP Revolution
tor has remained sustained since the adoption of digital (mostly GSM) technology and competitive supply of services by two or more companies in each country (Gruber, 2005). The worldwide mobile subscriber base has reached 2.6 billion in 2006, which corresponds to 40 subscribers per 100 inhabitants1. As a comparison, in 2000 there were 12 subscribers per 100 inhabitants. What is even more striking is that two thirds of mobile subscribers are in developing countries, which are also contributing to most of the growth in the subscriber base. A continuation of subscriber growth is expected, possibly leading to 54 subscribers per 100 inhabitants by 2010 (IDATE, 2007). On the other hand the fixed line telecommunications subscriber base is shrinking in many countries, in particular in industrialised countries. This reduction is mostly compensated by the fixed line growth in China. In 2006, there were 19 fixed lines per 100 inhabitants at worldwide level, but with great disparities across countries. While the fixed line penetration level is stagnating, the number of mobile subscribers now more than twice outnumbers fixed line subscribers, with the ratio still increasing. The greatest impact from mobiles comes from the fact that they are not just a different or complementary way of communication but have opened up entirely new communication means in many parts of the developing world. Mobile telecommunications has become an important tool for economic development and fighting poverty (ITU, 2006). It has not just created new jobs and revenues but also contributed to economic growth by widening markets, creating better information flow, lowering transaction costs, and substituting for costly physical transport. Data traffic is increasing its share of overall telecommunications revenues, even for mobile telecommunications. While voice revenues are still the predominant part of mobile service revenues, for a mobile operator like Vodafone, non-voice revenues such as SMS and Internet data transmission account already for 17% of its total mobile telecommunications revenues (OECD, 2007).
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However, the fixed line network is bound to remain the preferred platform for data traffic and broadband access, at least in developed countries. Broadband is also the way fixed line companies are able to stem the decline from traditional voice revenues due to fixed mobile substitution for both subscribers and traffic. Broadband services are playing a key role in keeping up the subscriber numbers and the revenue base for fixed line telecommunications. The number of broadband lines is increasing steadily with 280 million lines installed worldwide in 2006, corresponding to 4 lines per 100 inhabitants. The vast majority of broadband users are in the developed world: more than 95 percent are located in Asia-Pacific, Europe and North America, in particular countries with a well developed fixed line infrastructure. Strong disparities exist across countries in the penetration of fixed lines. There is an average of 12 fixed lines per 100 inhabitants in developing countries, compared to 46 lines per 100 inhabitants in developed countries. This makes the supply of fixed line broadband access more difficult in a developing country context. Hence wireless access should represent an interesting technological alternative for future broadband development. Likewise there is a substantial gap in broadband availability within countries, with rural areas having much lower penetration rates than urban areas. Balanced competition as a result of increased numbers of suppliers and service platforms leads to declining prices for telecommunications services. This downward pressure is enhanced by the shift of voice traffic toward data traffic by means of voice over internet protocol (VOIP). This implies that telecommunications traffic revenues is bound to move away from time and distance sensitive charging towards a flat fee pricing structure for network access based on capacity. Subscriber access should therefore become the key variable for revenue generation in the telecommunications business. This is happening already to a noticeable extent in the fixed line sector, with
The Global Telecommunications Industry Facing the IP Revolution
dramatic implications for the revenue structures of telecommunications companies. The mobile sector has been unaffected by the shift to VOIP up to now. It is however likely that with the diffusion of mobile broadband access the revenue structure will be affected in a similar way as in the fixed line sector.
3 IMPACT OF DIGITALISATION ON SUPPLY SIDE 3.1 Technological Progress in Access Technologies Technological innovation in semiconductors transforms the way telecommunications services are provided and used. In fact, the performance increase of semiconductors has allowed for transformation of analogue text, audio and video signals in to a common format of zeros and ones, i.e. digitalisation. Digital signals can be sent over any transmission infrastructure. In other words, infrastructures previously dedicated to single services such as voice telecommunications, data processing or broadcasting now are able to transmit any type of information content based on Internet Protocol (IP). Let us look at this transformation more in detail with respect to the customer access infrastructure for communications services. The access to communication services was traditionally dedicated to the type of the service to be supplied. This is illustrated by the “silo” paradigm, where there is a dedicated access infrastructure for each service. Mobile operators use cellular wireless access technologies to provide mobile voice telecommunications services, while fixed line operators like the incumbents or alternative operators rely on copper cables in the ground to provide access to voice services and later predominantly broadband data access. The cable TV operators used a coaxial cable access network for the distribution of the TV services only.
Helped by digitalisation, all three access types have gradually started to expand their offers. More in general, the single service business model has moved towards a “triple play” offering consisting in voice, broadband data and TV services. For instance, for fixed line operators the supply of broadband services has become a key factor in fighting the loss of voice service subscribers and traffic to the mobile networks and fixed line operators are also providing TV services.
3.2 Next Generation Access Infrastructure Legacy fixed line access networks, mainly based on copper infrastructure, are not capable to handle future data transmission rates. Along with the strongly increasing traffic flow there will also be the need for increasing the transmission capacity of the telecommunications infrastructure. This can be achieved by using optical fibre instead of copper cables. While optical fibre has been already in use since long time in backbone infrastructure, the need for increasing the transmission capacity for individual customer the optical fibre cable has to be put closer to the customer. Currently the typical broadband subscriber has a digital subscriber line (DSL) where the transmission capacity is inversely related to the length of the copper local loop, i.e. the line between the user and the local telecommunications exchange. It typically has a minimum data transmission capacity of 1Mbps. A critical step of the NGN in terms of investment requirements and impact on services will be the installation of optical fibre on the customer access network. Several architectures of FibreTo-The-Loop are possible, ranging from Fibre to the Curb combined e.g. with Very high speed DSL (VDSL), to Fibre to the Home (FTTH). The choice will depend on the commercial objective, the competitive situation, the financial resources of the companies and investment horizon. Fibre close to the end-customer allow for transmission bit rates of around 100 Mbps each
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The Global Telecommunications Industry Facing the IP Revolution
way possible, which is considered the reference bit rate for the near future. Fibre combined with copper (VDSL) should deliver up to 50 Mbps. One key factor for demand of high bit rates is High Definition Internet Protocol Television (HDIPTV) that becomes essential for viewing quality with the larger TV screens. The 100 Mbps each way can be used e.g. for near 100 Mbps symmetric Internet or for 50 Mbps symmetric Internet plus 4 to 5 simultaneous HD-IPTV channels (using a 10 Mbps bit rate average), in addition to VOIP service. It is not foreseen that DSL alone will enable such bit rates for the average distances from the final users to the local exchanges.
4 THE POLICY CONTEXT AND REGULATORY ISSUES Regulation strongly affects firm behaviour, especially when it involves large investments in access infrastructure with relatively long and uncertain payback periods. After the steep decline in investment activity, as a consequence of the bursting of the financial bubble in 2000-2001, investment in telecommunications has remained flat. In real terms it is below the investment level prior to the speculative bubble (OECD, 2007). Investment performance in the EU remains also poor compared to the US and Asia. At a per capita level, investment in telecommunications in 2005 was more than 50% higher in the US and Japan (USD 193 and USD 191 respectively) than in Europe (USD 124). As will be seen shortly, investment incentives are also to a large degree shaped by the regulatory framework. Telecommunications is a regulated network industry and regulatory provisions have a bearing on the investment incentives and the overall economic performance of the industry. Access regulation has an important role to play in this respect. Not surprisingly, the economic literature has contemplated the case that inappropriate access regulation has negative effects on infra-
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structure investment (Guthrie, 2006). Regulatory conditions are country specific and a comparative analysis gives useful insights on the performance of regulatory measures. For instance, much attention is given towards incumbents giving open access at cost based prices. More in general, access regulation is permeated by the idea that new entrants should be assisted to enter in a way that foresees initially limited investment, but then it should increase. In other words, entry should first be service based and then increasingly switched to own facilities. In the longer term regulation could then become unnecessary because of the existence of competing platforms. This has been associated with the “ladder of investment” theory (Cave 2006), which postulates that initially new entrants use the facilities of the incumbent for service based competition and later invest in own infrastructure, i.e. assets with increasing difficulty to replicate. The economic literature has contemplated the case that inappropriate access regulation has negative effects on infrastructure investment. This is in particular the risk when regulators cannot ex ante committo specific ex post prices. Gans and King (2004) show how investment incentives can be improved through ‘access holidays’, i.e. a limited period without access regulation. Such a perspective however is likely to create substantial dispute, as there are strongly conflicting interests involved. Although the way access products are priced have an influence on the investment incentives, the regulatory frameworks are silent on the investment incentives for either the incumbent or the new entrant. For instance, the EU regulatory framework is expected to stay firmly based on the notion of access price regulation and of mandatory unbundling of bottleneck infrastructure such a local loops. This regulatory evolution in the European Union may be compared with the regulatory trends in the United States. The evolution of the telecommunications market is oriented by the Telecommunications Act of 1996. As in the
The Global Telecommunications Industry Facing the IP Revolution
European Union, there is a policy objective of overturning the regulated monopoly regime by injecting competition in the market, and these forces should make regulation unnecessary in the long run. Incumbent operators were mandated to unbundle network elements, such as local loop access to customers. But the unbundling obligation was successfully challenged in court in 2004. The regulator FCC did not appeal to the court’s decision, and this was widely interpreted as a strategy switch away from service competition based on a single infrastructure (intra-platform competition) towards inter-platform competition2. In the aftermath the incumbent Verizon has made substantial investment for FTTH infrastructure. A consensus is emerging on the proposition that inter-platform competition would help to create the premises for rolling back regulation in the sector. This has been achieved in the US, but in Europe there is a trend towards a single platform: the share of DSL technology in total broadband access technologies is steadily increasing. By 2008 DSL accounted for 82 per cent of the broadband access lines. The focus on a single access technology may have two important drawbacks for the diffusion of broadband access. First, the investment level is crucially affected by the incentive for the incumbent fixed line operator. Second, the benefits of inter-platform competition are foregone. Cable modem, which used to be the most important alternative broadband platform is losing share. The only technology that appears to become increasingly important, albeit starting at a very low basis is wireless in the local loop.
5 CONCLUSION Telecommunications is a key enabler of the diffusion of e-business services and has very strong bearings on the productivity growth performance of advanced countries. IP has shaken up the delivery mode of services by allowing for the convergence of different types of service
provisions on a single platform and lowering the cost of transmission. Moreover, it has increased the competition by allowing for the entry of new actors on the scene. The new sector challenge is investment in NGN to cope with the traffic growth induced by IP technology. While investment in NGN core networks aimed at integrating different service platform into an all-IP network is well under way, investment in NGN access network is only at the beginning. The latter constitute a much larger challenge because for the sheer size of the investment requirements, the uncertain nature of financial benefits and the exposure to regulatory discretion. Regulation has profound implications for investment and regulatory environments are shaped at national or regional level. It is these regulatory frameworks that provide one of the greatest differentiating factors in the industry and determine its performance. For instance, cost based access pricing regimes were put in place in Europe to favour competitive entry, at least for intra-platform competition. In this sense the ladder of investment concept worked to illustrate the entry mode with increasing own facilities over time. However, it failed to deliver significant investment for inter-platform competition. Entry through unbundled local loops does not seem to lead to inter-platform competition, which seems to be the only self-sustaining form of competition to allow a rolling back of sector regulation in favour of competition law. The US on the other hand has rolled back regulation in broadband access and this has induced strong investment in fibre to the home infrastructure. The solution of the problem of investment incentives will be a key determinant for the diffusion of technological innovations and the benefits induced by the IP revolution.
DISCLAIMER The views expressed are of the author and need not necessarily reflect those of the EIB.
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REFERENCES Cave, M. (2006). Encouraging Infrastructure Competition Via the Ladder of Investment. Telecommunications Policy, 30, 223–237. doi:10.1016/j. telpol.2005.09.001 Denni, M., & Gruber, H. (2007). The diffusion of broadband telecommunications in the US: the role of different forms of competition. Communications and Strategies, 4, 139–157. EC (2003). Electronic Communications: The Road to the Knowledge Economy. European Commission COM, 65 final. Gans, J., & King, S. (2004, March). Access Holidays and the Timing of Investment. The Economic Record, 80, 89–100. doi:10.1111/j.14754932.2004.00127.x Gruber, H. (2005). The Economics of Mobile Communications. Cambridge, UK: Cambridge University Press. Guthrie, G. (2006). Regulating infrastructure: The impact on risk and investment. Journal of Economic Literature, 44(4), 925–972. doi:10.1257/ jel.44.4.925 IDATE. (2007). Digiworld 2007. Montpellier, France: Idate. ITU. (2003). Broadband Korea: Internet Case Study. Geneva: International Telecommunications Union. ITU. (2006. World Telecommunication/ICT Development Report 2006: Measuring ICT for social and economic development. Geneva: International Telecommunications Union. OECD (2007). Communications Outlook. Paris: OECD. Prieger, J. E., & Heil, D. (2009). Is Regulation a Roadblock on the Information Highway? In I. Lee (Ed.), Handbook of Research on Telecommunications Planning and Management for Business. Hershey, PA: IGI Global.
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Röller, L.-H., & Waverman, L. (2001). Telecommunications Infrastructure and Economic Development: A Simultaneous Approach. The American Economic Review, 91(4), 909–923.
KEY TERMS AND DEFINITIONS Digital Subscriber Line (DSL): A family of technologies that provides digital data transmission over the wires of a local telephone network and allows “always on” connection to the Internet. Typically, the download speed of consumer DSL services ranges from 256 kilobits per second (kbit/s) upwards. Fiber To The Home (FTTH): A network architecture that uses optical fiber to replace the usual copper local loop used for telecommunications. Internet Protocol (IP): A key protocol on which the Internet is based. It is a standard that describes software that keeps track of the Internet’s addresses for nodes, routes outgoing messages and recognizes incoming messages. Internet Protocol Television (IPTV): A mode of transmitting system television service using Internet Protocol over any broadband communications infrastructure, instead of being delivered through traditional broadcast and cable formats. Ladder of Investment: Regulatory concept according to which mandated access to network infrastructure components should lead to increasing investment in competing networks. Next Generation Network (NGN): A broad term to describe some key architectural evolutions in telecommunication networks (both for core and access) that will be deployed during the next decade. NGNs are commonly built around the Internet Protocol, and therefore the term “all-IP” is also sometimes used to describe the transformation towards NGN. Voice over Internet Protocol (VoIP): A general term for delivery of voice communications over the Internet. This implies that traditional
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geographical numbering systems as well as traditional charging rules (e.g. time, distance) may not apply.
ENDNOTES 1
Figures are from WDI data base of the World Bank.
2
There is empirical evidence (Denni and Gruber, 2007) for the US that inter-platform competition has significant positive effects on the diffusion of broadband access. Intraplatform competition, based on the same platform, instead has ambiguous effects. See also Prieger and Heil (2009).
This work was previously published in Encyclopedia of E-Business Development and Management in the Global Economy, edited by In Lee, pp. 1117-1124, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 8.9
Optimizing and Managing Digital Telecommunication Systems Using Data Mining and Knowledge Discovery Approaches Adnan I. Al Rabea Al Balqa Applied University, Jordan Ibrahiem M. M. El Emary King Abdulaziz University, Kingdom of Saudi Arabia
ABSTRACT This chapter is interested in discussing and reporting how one can be benefited by using Data Mining and Knowledge Discovery techniques in achieving an acceptable level of quality of service of telecommunication systems. The quality of service is defined as the metrics which is predicated DOI: 10.4018/978-1-60960-587-2.ch809
by using the data mining techniques, decision tree, association rules and neural networks. Digital telecommunication networks are highly complex systems and thus their planning, management and optimization are challenging tasks. The user expectations constitute the Quality of Service (QoS). To gain a competitive edge on other operators, the operating personnel have to measure the network in terms of QoS. In current times, there are three data mining methods applied to actual GSM net-
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
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work performance measurements, in which the methods were chosen to help the operating staff to find the essential information in network quality performance measurements. The results of Pekko (2004) show that the analyst can make good use of Rough Sets and Classification and Regression Trees (CART), because their information can be expressed in plain language rules that preserve the variable names of the original measurement. In addition, the CART and the Self-Organizing Map (SOM) provide effective visual means for interpreting the data set.
INTRODUCTION In response to human communication needs, telecommunications have developed into cellular radio networks, which enable subscribers to connect and communicate regardless of their location and even movement. The first generation networks were analogue, but the benefits of digital transmission, such as fewer transmission errors and more efficient use of radio frequencies, have paved the way for second-generation networks (2G) digital mobile telecommunication networks, whose most widely spread realizations are based on the Global System for Mobile communications standard (GSM World, 2003). The next generation, 3G networks are now being built, and the GSM successor is based on the Universal Mobile Telecommunications System (UMTS) standard. The UMTS network extends user connectivity on a global scale and provides more bandwidth for the user, enabling even multimedia transmissions. Digital mobile telecommunication networks are highly complex systems and thus their planning, management and optimization are not trivial tasks. The systems’ complexity arises from elements such as switches, controllers, transceiver stations, to name just a few, which jointly form the radio interface of a network for mobile stations. The basic units of this complex network are base
transceiver stations with antennas pointed to a radio coverage area, called the cell. The subscribers, connected to the network via their mobile stations, expect network availability, connection throughput, and affordability. Moreover, the connection should not degrade or be lost abruptly as the user moves within the network area. These user expectations constitute Quality of Service (QoS), specified as “the collective effect of service performances, which determine the degree of satisfaction of a user of a service” (ITU-T E.800). To gain a competitive edge over other operators, the operating personnel have to measure the network in terms of QoS. By analyzing the information of their measurements, they can manage and improve the quality of their services. With the information, they can also optimize the parameters and the configuration of the network. However, because the operating staff is easily overwhelmed by hundreds of measurements, the measurements are aggregated into performance indicators, the most important of which are the Key Performance Indicators (KPI), which again can be divided into cost efficiency and QoS indicators (Lempiläinen & Manninen, 2001). Personnel expertise with the KPIs and the problems occurring in the cells of the network vary widely, but each personnel know the desirable KPI value range at least. Furthermore, the operators have their individual ways to judge if the KPIs in the cell indicate that the cell is performing as expected and if the cell is in its normal state. Their judgment may be based on simple rules such as “if any of the KPIs is unacceptable, then the state of a cell is unacceptable”. The acceptance limits of the KPIs and the labeling rules are part of the a priori knowledge for analysis. When the operating personnel improve the QoS on the basis of their a priori knowledge, they face a lot of questions given below: •
What is the most common combination of KPI values when the state of a cell is unacceptable?
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• • •
Which KPIs is the most useful one for detecting problems? Which cells have the best QoS and how does KPI data manifest this? Whether all the KPIs relevant for analysis?
In finding the answers for QoS related questions, the personnel’s main goal is to locate the problem areas in the network. Also, to support QoS improvement, one should know the best areas in the network. Should there be any; the configurations of well performing areas could be used to configure the problem areas of the network. Finally, even if most cells in the network perform as expected, it is useful to find cell groups that differ from each other and investigate if the groups could be optimized separately. The competence of the operating staff combined with the answers to the above questions should clarify the causes of the problems. Some complications may be solved by copying the parameter and configuration values learned from the best performing cells into the worst cells. Reliable knowledge of performance issues in the network gives the network operator a competitive edge over its rivals, as the knowledge helps solve the QoS related problems. Then how can the information about QoS performance are achieved? One potential answer is, it can be achieved through advanced approaches like data mining and knowledge discovery which are presented in the next section.
DATA MINING AND KNOWLEDGE DISCOVERY PROCESS Data mining is the science and technology of exploring data in order to discover previously unknown patterns. Data Mining is a part of the overall process of Knowledge Discovery in Databases (KDD). The accessibility and abundance of information today makes data mining a matter of considerable importance and necessity. Most data mining techniques are based on inductive
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learning, where a model is constructed explicitly or implicitly by generalizing from a sufficient number of training examples. The underlying assumption of the inductive approach is that the trained model is applicable to future, unseen examples. Strictly speaking, any form of inference in which the conclusions are not deductively implied by the premises can be thought of as induction. Traditionally data collection is considered to be one of the most important stages in data analysis. An analyst (e.g., a statistician) used the available domain knowledge to select the variables to be collected. The number of variables selected was usually small and the collection of their values could be done manually (e.g., utilizing handwritten records or oral interviews). In the case of computer-aided analysis, the analyst had to enter the collected data into a statistical computer package or an electronic spreadsheet. Due to the high cost of data collection, people learned to make decisions based on limited information. However, since the information-age, the accumulation of data became easier and storing it inexpensive. It has been estimated that the amount of stored information doubles every twenty months. Unfortunately, as the amount of machine readable information increases, the ability to understand and make use of it does not keep pace with its growth. Data mining is a term coined to describe the process of shifting through large databases in search of interesting patterns and relationships. Practically, Data Mining provides tools by which large quantities of data can be automatically analyzed. Some of the researchers consider the term “Data Mining” as misleading and prefer the term “Knowledge Mining” as it provides a better analogy to gold mining (Klosgen & Zytkow, 1996). The Knowledge Discovery in Databases (KDD) process was defined my many, for instance Fayyad et al. (1996) define it as “the nontrivial process of identifying valid, novel, potentially useful, and ultimately understandable patterns in data”. Frietman et al. (2001) considers the KDD process as an automatic exploratory data analysis
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of large databases. Hand et al. (2001) views it as a secondary data analysis of large databases. The term “Secondary” emphasizes the fact that the primary purpose of the database was not data analysis. Data Mining can be considered as a central step of the overall process of the Knowledge Discovery in Databases (KDD) process. Due to the centrality of data mining in the KDD process, there are some researchers and practitioners who use the term “data mining” as synonymous to the complete KDD process. The purpose of a knowledge discovery process is to find new knowledge from an application domain (Klosgen & Zytkow, 1996). The process consists of many separate, consecutive tasks of which data mining phase produces the patterns and information to be analyzed. Knowledge discovery deals with the data in a data warehouse or database. Several descriptions of a KDD and data mining processes have been published; solid representations are for example in publications (Fayyad, Piatetsky-Shapiro, & Smyth, 1996; Han & Kamber, 2001). For the purpose of knowledge discovery in the mobile telecommunications the authors suggest five main phases for KDD and further five within data mining, • • •
Knowledge requirement Data selection Data mining
• •
a. Data reduction; b. Data mining method selection; c. Data preprocessing; d. Data preparation; e. Use of data mining methods Result analysis Knowledge incorporation
The suggested processes (Pekko, 2003) are depicted in Figure 1 and Figure 2 respectively. The first step of knowledge discovery is to specify the knowledge requirement, that is, to define what it is that the analyst wants to find out from the application domain. To be able to specify the knowledge requirement the analyst has to have some a priori knowledge of the application domain. Generally speaking, knowledge requirement is to find out problem related information from the data, more specifically, “what is the most common combination of KPIs when cell state is ‘unacceptable’?, which KPIs indicate problems and what is the most common problem in the network?” The second step is to select, possibly from several sources, the right data to support the knowledge requirement. Again, the skills and a priori knowledge of the analyst are needed. He should state what measurements, cells, and time periods are of interest. The necessary measurements are then fetched from a database, aggre-
Figure 1. Knowledge discovery process [Pekko, 2003]
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Figure 2. Data mining process [Pekko, 2003]
gated to KPIs and organized to a data table. For this study, the authors have given a KPI data set from a real operator. The data set consists of 53 measurements, covering three months period of 30 cells totaling in 3069 observations. The third step, data mining - a process by itself – is now ready to start from the reduction of the selected data set. Result analysis and knowledge incorporation are considered steps of the KDD process.
Data Reduction The raw data from a base controller database are commonly aggregated to KPIs according to predetermined equations. The author of the equations can either be the manufacturer of the network management system or the network operating staff can make the KPIs by themselves. The authors have done aggregation to their data and reduced the amount of the data over seven times instead of the original 53 measurements. Sometimes data reduction is regarded as a part of preprocessing.
Data Mining Method Selection The selection of an analysis method is dependent on the knowledge requirement and the preference
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of the analyst. An important requirement was the method’s ability to retain the original KPI name in the results. It was also desired that results should be in the same rule format as the a priori knowledge. Additionally, visual representations were needed to quickly address the analysis to the data structures. On this basis, Rough Sets, Classification And Regression Trees (CART) and Self-Organizing Map (SOM) were selected. Rough Sets and CART are capable of producing rules whereas both CART and SOM are used to visualize the structures in the data.
Data Preprocessing The purpose of data preprocessing is to ensure that the analysis methods are able to extract the required information from the data. The most important phase of preprocessing is the feature extraction that is affected by the overall goals of the analysis, method selection and a priori knowledge. According to Kumpulainen et al. (2003), preprocessing is viewed as an iterative process. In feature extraction step, data integration, reduction, cleaning and transformation tasks can be recognized (Fayyad et al., 1996), but the tasks overlap somewhat. For the data set used, the integration was not needed as the data was acquired from a
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single source. The calculation of KPIs is a data reduction step, but at this point it is possible for the analyst to further reduce the amount of data by omitting some of KPIs. Data cleaning was done by omission of the measurements that had missing values. Visual inspection of the data was done to sort out the obvious outliers from the data. Several transforming operations were done, first of those was the attachment of the pre classification result to the data set as a new variable. Two other transformations, discretization and normalization were needed because rough sets are only usable for discrete data and SOM is usually trained with normalized values.
Data Preparation Because rough sets are only usable for discrete data, the preprocessed data set had to be transformed accordingly. This is called discretization and it is used to transfer all the continuous values of the selected data set to just few, discrete values. The limits for semantic values (“unacceptable”,
“bad”, “normal”, “and good”) were given by an expert and they were further modified by visual inspection of the distributions. An example is given in Figure 3, where dropped calls are given discrete limits of 0, 20, 0, 65 and 2, 0 to discretize the variable to the respective “good”, “normal”, “bad” and “unacceptable” zones. SOM algorithm is based on the measurement of Euclidian distances between the measurements. Different scales of variables can greatly distort the results if the variables are supposed to have equal importance (Vesanto, Himberg, Alhoniemi, & Parhankangas, 2000). As this was the case for the data used, it was decided to give equal importance to all the KPIs and each KPI was scaled to the range of [0 … 1, 0].
Use of Data Mining Methods Figure 4 depicts Simple Classification Tree of four levels. After the preprocessing and preparation, the data is ready for processing with the selected methods.
Figure 3. Discretization limits of the dropped calls KPI
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Figure 4. Simple Classification Tree of four levels
USING THE KNOWLEDGE DISCOVERY PROCESS FOR DETECTING AN ERROR IN ESS SWITCH: CASE STUDY The KDD process employed in the case study of this chapter is very similar to the process used in many other projects. The steps in this process are given below.
Understanding the Data Mining Problem The first step in the process involves gaining an understanding of the application domain and the goals of the KDD task. In this case, such an understanding had been acquired through previous work on the ANSWER expert system. The goal is influenced by a previous effort that attempted to use data mining techniques to predict catastrophic failures of 4ESS switches (Weiss, Eddy, & Weiss, 1998). A catastrophic failure is one in which the functioning of the entire 4ESS switch is compromised. The previous effort was seriously hampered by the rarity of catastrophic failures; only 50 such failures had been recorded and were
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available for study. Because of this experience, and to get the results be more widely applicable, the more general goal of predicting individual component failures was focused on. The data mining task, as described previously, is not well defined since neither the term “prediction” nor “pattern” was defined. To be meaningful, a prediction must apply to a specific time period. A prediction of a component failure is said to be correct if and only if the prediction occurs more than warning time and less than monitoring time before the actual failure. For example, given a warning time of one minute and a monitoring time of eight hours, a prediction must occur between one minute and eight hours prior to the actual failure for the failure to be considered successfully predicted. The warning time parameter ensures that there is sufficient time to respond to a failure prediction prior to the actual failure and the monitoring time parameter allows the user to control the specificity of the prediction. A prediction is “issued” if one of a pre-specified set of patterns (i.e., patterns identified by the data mining process) occurs in the stream of alarms coming from the 4ESS switch. Patterns are described using a pattern language. Key features of this language were identified based on knowledge of the telecommunication domain. First, because alarms can be generated as a result of unrelated problems, the pattern language must provide a way of specifying a pattern so that the presence of an alarm does not prevent a pattern from matching. Secondly, because a fault may manifest itself in slightly different ways at different times; perhaps due to different activity occurring outside of the faulty component, there must be a way of specifying a pattern without fixing the order of all alarms within the pattern. Finally, because time is such an important factor, and because the behavior of the system will change in response to a fault, it must be possible to associate a time period with each pattern. Given these three requirements, it should be possible to specify the pattern “3 types-alarms and 2 type-
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B alarms occur, in any order, within a 5 minute period” (Weiss et al., 1998).
failures. The data mining task is then to predict these failure alarms (Weiss et al., 1998).
Selecting a Target Dataset
Applying Data Mining
The target dataset was formed by collecting two weeks worth of alarms from the database at one of the two technical control centers. The resulting dataset contained 148,886 alarms, where each alarm contained approximately 20 variables. Based on knowledge of the domain and what variables are most important for diagnosis, five variables were selected to describe each alarm. These variables were:
The next major step in the KDD process involves selecting the data mining task and the algorithm to be applied. For this case study, the data mining task is clearly a prediction task. Because each alarm record represents an event—an observation that occurs at a specific instant of time; as an event prediction task was referred. A temporal data mining algorithm is required because the dataset contains events, not examples, and because predicting component failures will require the identification of temporal relationships in the data. Other important considerations in selecting a data mining method include the fact that the component failures are rare and known to be difficult to predict. Given these characteristics, the data mining algorithm may need to find patterns that occur very infrequently in the data and have relatively low predictive accuracy—perhaps well below 50%. Most data mining methods are not well suited to problems with these characteristics. The genetic-based data mining algorithm can be developed to solve this data mining task (Weiss et al., 1998).
• • • • •
The time of generating the alarm; A unique identifier for the device associated with the alarm; The type of device; The diagnostic code associated with the alarm; and The severity of the alarm.
Thus, an alarm is represented by the tuple . There are several dozen types of devices in a 4ESS switch, hundreds of diagnostics codes, and three severity levels (warning, minor, and major). Because the 4ESS switch recognizes component failures and automatically generates alarms for such failures, no additional effort was required in order to record these failures in the alarm stream. Preprocessing and Transforming the Data Components can fail for a variety of reasons. Because there is no need to distinguish between different types of failures, the various failure alarms were replaced with a common failure alarm. Also, because routine maintenance testing will cause failed components to generate additional failure alarms, a simple software program was applied to the target dataset to prune the “redundant” failure alarms. The resulting dataset yielded 1045 failure alarms corresponding to 1045 distinct component
Interpretation of Results The data mining algorithm produces a set of patterns for predicting component failures (i.e., each pattern x can be viewed as a rule of the form “x ⇒ device failure”). Recall and precision values are computed for each pattern. For this domain, a pattern’s recall is the percentage of the total component failures that it predicts and its precision is the percentage of times a prediction is correct. Note that if these patterns/rules are viewed as association rules, then recall corresponds to support and precision to confidence. To help select the most appropriate subset of the generated patterns, data mining software orders the patterns from most to least precise and then uses this ordering to generate a precision/
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recall curve. This curve is generated by viewing the most precise pattern as a solution, the two most precise patterns as another solution, etc., and then plotting the precision and recall for each solution. For this domain, as for most domains in the real world, these costs are not precisely known. In this case, these values may be estimated. Alternatively, several solutions can be given to a domain expert, who could then choose the most attractive solution based on the precision and recall values (Weiss et al., 1998). The KDD process is an iterative process and it is common to use results as feedback into earlier stages in the KDD process. In this case study, the warning and monitoring times are parameters to the data mining software, and preliminary results were used as feedback to modify these parameter values. The values selected for evaluation were partly based on the “sensitivity” of the results to these parameters. For example, if a small increase in the monitoring time significantly improved the ability to predict a failure correctly, then additional points in this neighborhood can be explored. This exploration provides an insight into the nature of the prediction problem. For example, decreasing the warning time enables much better predictions to be made. This indicates that there is some useful information for predicting failures that occurs shortly before the actual failure. The final step involves consolidating the discovered knowledge. This was accomplished by documenting and distributing the key results. Most importantly, these results were then to be incorporated into the ANSWER expert system in the form of rules (Weiss et al., 1998).
APPLICATION OF DATA MINING AND KNOWLEDGE DISCOVERY PROCESS IN ANALYZING THE QOS ISSUES Information needed to analyze QoS issues exists in KPI data, but sometimes it is not easy to recognize. The techniques of Knowledge Discovery
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in Databases (KDD) and Data Mining help us to find useful information in the data. In early 1990’s, Data Mining and KDD have been much discussed in research topics. However, since the terminology still varies and the definitions overlap, the present research must find its own definitions. In this work, data mining is defined as a partially automated KDD subprocess, whose purpose is the nontrivial extraction of implicit and potentially useful patterns of information from large data sets. When Data Mining and KDD are taken into consideration, the former is to be seen as a subprocess of the latter. The KDD process starts with a knowledge requirement and ends, after the information produced by data mining has been interpreted, with knowledge that fulfills the requirement. However, data mining deals with a given set of data and produces patterns of information from it. KDD is the framework that sets up a need for information, whereas data mining is the tool that provides it. To date, a fully automatic KDD process has not yet been realized, because systems producing large amounts of data are also very complex. Problems in a complex system are not solved by using merely the information in the measured data. A human analyst is a must for successful analysis, because he can provide a priori knowledge not present in the data yet needed for KDD. Human participation is needed to select the right data for KDD, to provide additional information for the data mining methods, and to judge the usefulness of the information patterns. KDD does not begin with specifications as to how data should be collected or measured but with the data already stored in the database. This does not mean that the knowledge gained could not be used to improve measurement and data recording. After defining the knowledge requirement, the data set that supposes to contain relevant information should be selected. The selected data set must be preprocessed before actual data mining methods can be applied to it. The methods then automatically extract “valid, novel, useful and understandable” (Fayyad et al., 1996) patterns of
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information from the preprocessed data. Validity, novelty, usefulness, and intelligibility define the interestingness of the pattern (Han & Kamber, 2001). Human judgment is then needed to decide whether the extracted information is interesting. And if the patterns are deemed interesting, the interpreting person gains new knowledge by comparing the results with his a priori knowledge. Because of the rather loose definition of data mining, several methods can be used to extract and summarize information from the data. Choosing a method is largely up to the analyst applying KDD. The methods should suit the knowledge requirement task, but choosing a suitable data mining software package may be difficult because the knowledge requirement is task-specific. If suitable methods are not available, the analyst has to program the methods into a computer or even re-specify the knowledge requirement. The most important criterion considered in the process of selecting data mining methods is their suitability as tools for the operating staff of a digital mobile telecommunications network to alleviate the task of interpreting QoS-related information from measured data. Three methods were chosen that fulfilled the criterion: rough sets, classification trees, and self-organizing map type neural networks. Classification trees and neural networks are commonly used in data mining software packages. Rough Sets (Pawlak, 1982) can be used to find out features in the data that can be expressed in the form of rules. Rough sets sort out those variables that contain relevant information for analysis. However, before they can be used, a priori knowledge has to be added into the selected data set. Classification And Regression Trees (CART), a common analytic method developed by Breiman et al. (1984), produce results similar to rough sets. Classification trees give features as rules similar to rough sets and only relevant variables are taken into account. In addition, classification trees provide a visual tree-shaped structure that can help the analyst understand the features in the data.
The Self-Organizing Map (SOM) (Kohonen, 1995) works best as a visualization tool for data, as it shows the structure of a data set usually as a two-dimensional map. Data points are placed on to the map, and the differences between measurements are visualized in color. The structure can be further simplified by clustering the map into just a few groups. These three methods provide three views of the features of a data set; the final choice and usefulness of a method depend on the analyst’s knowledge requirement and preference. Data mining, KDD, and related applications in telecommunication networks have been reported (Chen, Dayal, & Hsu, 2000; Garofalakis & Rastogi 2001; Klementtinen, 1999). Challenges to the operational management of telecommunications networks are discussed in Terplan (2001), where four main tasks are listed for operational management: • • • •
Resolving service problems, Managing service quality, Maintaining and restoring a network, Collecting and managing data.
The most important task for the management personnel is to guarantee the level of quality service the customer requires, and for that they have to master the above tasks. Terplan (2001) suggests a choice of appropriate tools for the task, tools that should be useful for monitoring components, collecting data, and correlating information from many sources to help solve problems. It also points out that a large amount of data poses problems, and that advanced, automated methods are needed to help the personnel analyze the problems. More specifically, methods such as expert systems, neural networks, knowledge conservation, case-based reasoning, and data mining (Terplan, 2001) but it omits more detailed discussion of the subject. The basis for handling massive data sets is laid by Suutarinen (1994), which presents a solution for managing a GSM base station system and shows that aggregating raw network measurements into
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fewer performance measurements helps manage the network tasks. Aggregation helps change the focus of analysis and simplify it because of less data. Also Ni (2001) has approached the QoS management of GSM network, but from the viewpoint of dynamic channel allocation, not from data mining. Mattison (1997) brings up some general ideas about data mining for telecommunications and describes the business value of data warehousing and data mining technology. Its focus is not on the scientific or technological aspects of data mining but rather on general concepts and their clarification and some examples of the use of commercial programs in data warehousing and data mining in telecommunications. Also Sasisekharan et al. (1996) have a rather general approach to data mining in telecommunications. They describe a data mining process that starts from extraction of features from the data and ends in finding classification rules. They do not focus much on the problem domain as on describing the properties of the rule sets discovered. In their analysis, they use a commercial program called SCOUT (Sasisekharan, Hsu, & Simen, 1993). Chen et al. (2000) have studied data mining and on-line analytical processing for customer profiling. Železný et al. (2000) have studied rule discovery for the autoimmunization of switchboard operations. Garofalakis and Rastogi (2001) discuss storage, exploration, and analysis of data sets in network management and present methods for compression of data and fault management. Weiss et al. (1998) describe the use of data mining to predict failures of telecommunication equipment. Ezawa and Norton (1995) applied the knowledge discovery approach and Bayesian network to fraud detection in telecommunications, whereas (Sterrit, Adamson, Shapcott, & Curran, 2000a, 2000b) applied Bayesian network to fault management. Klementtinen (1999) studied data mining by analyzing alarms generated in a mobile network and presented a KDD process that make use of two rule-based analyses to discover recurrent alarm patterns in the data.
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Quality Performance Measurements First generation analogue mobile networks, such as the Nordic Mobile Telephone (NMT) standard, have become obsolete in favor of the second generation (2G) digital mobile networks. The most widely spread 2G networks are based on the Global System for Mobile communications (GSM) standard. GSM World (2003) predicts that the number of GSM subscribers will exceed one billion in late 2003 or early 2004. Second generation networks have been operational and constantly developed since the early 1990’s. The GSM standard has been updated to the GSM Phase 2+ standard with added features and services. The additions extend the lifetime of the GSM standard at least till the end of 2010. The third generation (3G) digital networks such as the Universal Mobile Telecommunications System (UMTS) were developed at the outset of the third millennium to provide more data bandwidth for subscribers. Moreover, it is forecasted that by 2006 the GSM family, including UMTS, will have close to 85% of the world market (Nokia 2003). The popularity of the communications services available via 2G and 3G networks proves clearly that the technology has met with consumers’ expectations. Public Land Mobile Network (PLMN) consists of several systems and their subcomponents. The PLMN has to provide communication services for the subscriber reliably and promptly. A skilled network operator and an appropriate network management system are required to respond to user expectations, for an important part of the operation is to monitor and analyze the quality of service provided for the user.
Telecommunications Management Network Tasks The Telecommunications Management Network (TMN) model shown in Figure 5, is a collection of standards to provide a framework for managing the business of a telecommunications service provider.
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The model consists of four layers − business, service, network, and element management − which communicate information to one another. The purpose of the information transfer is to manage the telecommunications network. The model’s top layers need information from the layers below to support decisions, and the bottom layers are the ones to provide it. Operational processes in each layer are documented in the Telecommunications Operations Map (TOM) (Laiho, 2002;TMF 910). Network management operations reside in the network management layer. The TMN model lists five processes in network management, which are network • • • • •
Development & planning; Provisioning; Inventory management; Maintenance & restoration; and Data management
Terplan (2001) and Tisal (2001) recognize and discuss network data operations and their management. Quality analysis is an important part of data management with one of its main goals being to “provide sufficient and relevant information to verify compliance/ non-compliance to Service Level Agreements and QoS levels” (TMF 910). The methods and the results in Pekko (2004) are
discussed from the viewpoint of the operations personnel who are responsible for managing network data operations (Figure 6) in the network management layer. The functions and data areas of the process are shown in Figure 6 as a detailed operations map of the network management layer. The areas corresponding to network data management are highlighted. An alternative view of network data management is given in Figure 7 in terms of its inputs and outputs.
Quality Performance Measurements Suutarinen (1994) laid the foundation for quality performance measurements by developing a solution for managing the performance of a GSM base station system. He suggested a task oriented approach to network management and listed four management categories: •
• •
Implementation of a new network, which means that if problems occur, the functionality of the network must be verified from base station sub-system observations, Monitoring, that is, daily evaluation of services and the necessary control tasks, Tuning, which requires verifying adequate service levels, identifying problems, optimization, and analysis of the network?
Figure 5. A detailed network management operations map forms the content of the network management layer in the TMN model
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Figure 6. Processes function set groups, and data areas of a detailed network management operations map
Figure 7. Network data management process
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•
Planning, aiming for the optimal configuration of the network is a perpetual process.
Each task category must have defined goals and information criteria, and means must be developed to get the information from the network management system. For monitoring and tuning, the measurement data from the BSS is thus very important. Suutarinen (1994) shows that instead of using raw measurements from the BSS, attributes constructed of the measurements are easier to understand and thus preferable in managing the network. Measurements from a PLMN contain information about the state of the network. And though the state of the network has not been defined universally, it can be judged roughly. For example, the state of the network is normal, when measurements fall within predefined values, and no alarms occur in the network. Another example, albeit undesirable, of a network state is the situation in which one or several measurements fall outside the predetermined limits and trigger alarms. However, should a problem arise, its causes should be investigated, and once they are known, the same or similar problems are easier to avoid in the future. The network should be optimized and if some cells in the PLMN perform better than others, the reason should also be investigated. It may be that if the parameters set for well-performing cell are copied to normal or poorly-performing cells, the performance of the latter will improve. Furthermore, excess and shortage of capacity in a cell should be avoided. The states of the network must be recognized before problems and their causes can be sorted out. Past experience (a posteriori) and a priori knowledge can be used to help in recognition: calls in the network should get through with a predetermined probability, only a certain number of dropped calls are acceptable, the connection should not be cut when the calls are handed over from one cell to another, and so forth. This a priori knowledge can also be considered a requirement for acceptable network performance. Furthermore,
some simple rules by an expert can be applied to certain measurements and used as boundaries of a normal operating state. Alternatively, a method to classify the data purely mathematically, though even here the operator must provide information about the quality of the state of found classes, at least a division into normal and problem states.
Selection of a Data Set Data selection must support the knowledge discovery tasks. To support the discovery tasks, four main issues must be specified in measurement selection: • • • •
Sampling rate, Time period, Geographical area, Variable selection.
Raw measurements are mostly event-based counters stored in BSC databases. KPIs are calculated from the raw counters, based on either the network operator’s or the network management software provider’s preferences. Depending on the KPIs required for the analysis, a database is queried and the relevant counters are fetched from the BSC databases. Based on the KPI equations, the KPIs are formed and stored in a separate KPI database. The KPIs were divided into two main groups, capacity- and quality-related KPIs. The capacity-related KPIs were to provide information on how efficiently the radio network was used, and the quality-related KPIs on how the radio interface affected the QoS. KPIs were available only as 24h measurements, which meant that it was not feasible to select a large number of cells over a short period of time, say a week, because only few measurements per cell were then available. Thus the data set was chosen to cover a period of 138 consecutive days to ensure that it represented long-term changes in intrinsic QoS. The data set contains measurements from 33 cells spanning a geographical area of closely located cells. How-
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ever, neither the cells’ exact geographical position nor their adjacency information was available. The fact that the cells were from the same general network area is yet enough to interpret the results.
can then write out his rules to interpret the data as a labeling function.
Preprocessing
A Key Performance Indicator (KPI) is considered an important performance measurement. In GSM network management, KPIs may be used for several purposes; thus selecting KPIs for analysis is a subjective matter (Laiho et al., 2002). However, KPIs can be divided roughly into cost efficiencyand quality-related KPIs (Lempiläinen & Manninen 2001). The QoS related KPIs in this thesis are based on the measurement of SDCCH and TCH logical channels and handovers. Intrinsic QoS analysis depends on quality-related KPI measurements available from the network elements. In the GSM network, the most important services are bearer and teleservices. The intrinsic QoS of a bearer service means that the network’s radio coverage is available for the subscriber outdoors and indoors. However, the subscriber accepts that the network is unavailable in sparsely populated areas and when the signal is obstructed by the terrain. Likewise, the network signal can be blocked because of dense walls and when the subscriber moves underground. However, availability of the network is necessary for teleservices; therefore, KPI data contains information about those cells where the bearer service is degraded. Teleservices require a functional bearer service and a successful connection. Speech, SMS, fax, and data depend on the bearer service, and the subscriber’s need for teleservices has to be filled in most cases. The subscriber is cognizant, however, of the fact that it is not always possible to use the services, especially in situations in which many people try to use the services contemporaneously within a small area. Should cell coverage be provided in extreme situations, investment in hardware would become financially unsound for the operator. Five of the KPIs related to QoS refer to the use of the logical channels of the GSM network that require physical channels. The UM interface
Preprocessing the selected data set was rather simple: observations containing missing values were removed from the set. If any KPI values were missing in a single observation, the whole data row was removed. If the cells were to be compared, a whole day had to be removed from the data. The removal of missing values left 93 days out of the original 138, a reduction of approximately 33%. However, the removal was necessary to ensure the validity of the results of any data mining method, as missing values would invalidate a method.
Limits Based on a Priori Knowledge The analyst knows roughly the normal range of KPI values, and he knows also which end of the scale is desirable. For instance, his a priori knowledge of SDCCH access is that it is normal for KPI values to be close to 100. He also knows that if the value drops below 100, a problem ensues because the signaling channels should be available all the time. To ensure that his a priori knowledge is justified, the analyst can plot the KPIs’ Probability Density Function (PDF) estimates, assuming that the data is acquired from a network that has been under normal operational control. PDF estimates are plotted so that variable data is divided into slots along the horizontal axis, which represents a KPI’s value. Each slot has an equal number of data points, which means that the height of the slot is proportional to the density of data points over the range of one slot. When the analyst scrutinizes the plotted KPI PDF-distributions, he can justify and possibly refine the limits of a good, normal, bad and unacceptable KPI. Based on the limits and his a priori knowledge, the operator
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of the GSM network uses both Time Division Multiple Access (TDMA) and Frequency Division Multiple Access (FDMA) for receiving and transmitting information (Penttinen, 2001). TDMA means that each frequency channel is divided into eight repeated time slots. A separate time slot is a physical channel, and one physical channel can contain logical channels defined as Traffic CHannels (TCH) for call data and Control CHannels (CCH) for transmitting service data between the nodes of the network. In a time slot, the two types of logical channels can be combined (Penttinen 2001; Tisal 2001). Several TCH types are available for carrying traffic in a GSM network, and they can be divided into two groups: channels used for carrying speech and those for carrying data (GSM 05.02). As the performance measurements used in this thesis are indifferent to the types of traffic, it is adequate for the purpose here that the abbreviation TCH refers to any or all types of traffic channels. CCHs are used to signal or synchronize data and can be divided into four categories: Broadcast, Common, Dedicated and Cordless Telephony System (CTS) (GSM 05.02). Broadcast channels are used only in the downlink direction and are thus not very useful for performance measurements. A Common CCH (CCCH) is equally useless for the same reason; it transmits only in one direction. A CCH is used for CTS when a mobile station is used in a home environment and not connected to a PLMN. The performance measurement data set in this work contains measurements only about a Standalone Dedicated Control CHannel (SDCCH). A SDCCH serves many communication purposes between the network and an MS. First of all, it is used when a call is initiated and information about the TCH and Slow Associated Control CHannel (SACCH) used for the call is transmitted. Secondly, Um interface protection signaling, used for encryption, is carried in the SDCCH. Furthermore, a SDCCH is also needed to deliver short messages, when an MS is not involved in a call (Penttinen, 2001). Finally, successful
handovers are an important element of a mobile network. Handover means switching a connection from a physical channel to another. Handovers are divided into intra-cell and inter-cell handovers.
CONCLUSION In this chapter, data mining is presented as a tool to manage quality of service in digital telecommunications networks. Three data mining methods and a priori knowledge were applied to a real quality of service data set to interpret and summarize the information content of key performance indicators. These methods − Rough Sets, CART, and SOM. According to the results, Rough Sets are best suited for analyzing the QoS of single cells in a network, the CART for ruling out the most important KPIs and detecting potential outliers in the data, and the SOM for visualizing data features and checking a priori decision making. While the methods here are only a fraction − though an important one − of all the available data mining methods, the KDD framework in this chapter is solid and provides a systematic approach to dealing with information in data. Future challenges in knowledge discovery lie in the clear formulation of the discovery task, further automation of the knowledge discovery loop, and in reliable means to assess every step in KDD. To be more specific, suppose if it is possible to formulate a fair discovery task, then it should also find automatic, robust and reliable means to • • • • • • •
Use a priori knowledge, Acquire measurement data both sufficient for and relevant to the discovery task, Apply basic statistical analysis to verifying the quality of the data, Preprocess data, Select data mining method(s) suitable for the discovery task, Prepare the chosen data, Select parameters for the method(s),
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• •
Assess the validity and usefulness of the information produced, and Store useful information as knowledge.
It should be able to automatically analyze the feasibility of the data for the discovery task by basic statistical analysis and exploration methods. Such automated analysis has already been considered in Vesanto (2002) and Wright (1998). Obvious faults in the data, such as missing values or clear outliers, should be fixed with less effort, for the validation of data is now laborious. It is hard to automate the selection of a data mining method, though attempts have been made (Spiliopoulou, Kalousis, Faulstich, & Theoharis, 1998). Automatic selection is hard because it depends on the discovery task, available data, and the analyst’s preference. Currently, the decision on the applicable method is left largely to the analyst and the constrains set by the KDD system. A priori knowledge of both domain and method is needed when a data set is prepared. In this thesis, the preparation was manual, except that a decision variable was used. Automated preparation is now actively being researched (Pyle, 1999). Analyst expertise was called again when the methods’ parameters were set for desired results. However, to decrease the threshold for data mining, a good KDD system should be able to suggest appropriate parameters for a given discovery task and data set. Perhaps the most difficult task is to automate final steps, that is, to assess the validity and usefulness of information patterns, to interpret information to knowledge, and to decide how and in what form the knowledge is stored. However, it is questionable if in the near future automated and reliable means will be possible for interpreting information without human intervention. Penttinen and Ritala (2002) have considered issues of knowledge management from the technical angle. Over the past years, telecommunications have been rapidly becoming more and more important with no end in sight for their expansion. As people and life become increasingly depen-
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dent on telecommunications services, networks require increasingly detailed management and control. This chapter shows that data mining can be applied successfully to telecommunications. In the future, such application is a must. Further research concentrates on the preprocessing; the aim is to ensure that the methods produce robust and understandable results. Also the role of the metadata and information required in the phases of the process is an interesting topic of further study. While the research concentrates on the methods presented in this paper, other methods such as fuzzy clustering could be useful for this type of data.
REFERENCES Breiman, L., Friedman, J., Olshen, R., & Stone, C. (1984). Classification and Regression Trees. Boca Raton, FL: Chapman & Hall/CRC Press LLC. Chen, Q., Dayal, U., & Hsu, M. (2000). OLAPBased Data Mining for Business Intelligence Applications in Telecommunications and Ecommerce. In Bhalla, S. (Ed.), Proceedings of Databases in Networked Information Systems, International Workshop DNIS 2000 (pp. 1–19). Aizu, Japan. doi:10.1007/3-540-44431-9_1 Ezawa, K., & Norton, S. (1995). Knowledge Discovery in Telecommunication Services Data Using Bayesian Network Models. In U. Fayyad & R. Uthurusamy (Eds.), Proceedings of the First International Conference on Knowledge Discovery & Data Mining, Montreal (pp. 100-105). Canaak, AAAI Press, Menlo Park, CA. Fayyad, U., Piatetsky-Shapiro, G., & Smyth, P. (1996). From Data Mining to Knowledge Discovery. An Overview. In Fayyad, U., PiatetskyShapiro, G., Smyth, P., & Uthurusamy, R. (Eds.), Advances in Knowledge Discovery and Data Mining (pp. 1–34). Cambridge, MA: The MIT Press.
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Frietman, E., Hill, M., & Khoe, G. (2001). A Kohonen Neural Network Controlled All-Optical Router System. International Journal of Computer Research, 10(2), 251–267.
Lempilainen, J., & Manninen, M. (2001). Radio Interface System Planning for GSM/GPRS/UMTS. Dordrecht, The Netherlands: Kluwer Academic Publishers.
Garofalakis, M., & Rastogi, R. (2001). The NEMESIS. In Proceedings of Data Mining and Knowledge Discovery DMKD 2001. Santa Barbara, CA: Data Mining Meets Network Management.
Mattison, M. (1997). Data Warehousing and Data Mining for Telecommunications. Norwood, MA, USA: Artech House, Inc.
Han, J., & Kamber, M. (2001). Data Mining: Concepts and Techniques. San Francisco: Morgan Kaufmann Publishers. Hand, D., Mannila, H., & Smyth, P. (2001). Principles of Data Mining. Cambridge, MA: The MIT Press. ITU-T E.800 (1994). Terms And Definitions Related to Quality of Service And Network Performance Including Dependability. ITU-T Recommendation E.800. Klementtinen, M. (1999). A Knowledge Discovery Methodology for Telecommunication Network Alarm Databases. Thesis (PhD), University of Helsinki. Klosgen, W., & Zytkow, J. (1996). Knowledge Discovery in Databases Terminology. In Fayyad, U., Piatetsky-Shapiro, G., Smyth, P., & Uthurusamy, R. (Eds.), Advances in Knowledge Discovery and Data Mining (pp. 573–592). Cambridge, MA: The MIT Press. Kohonen, T. (1995). Self-Organizing Maps. Berlin: Springer-Verlag. Kumpulainen, P., Hätönen, K., & Vehviläinen, P. (2003). Automatic Discretization in Preprocessing for Data Analysis in Mobile Network. In XVII IMEKO World Congress Metrology in the 3rd Millennium. Cavtat- Dubrovnik, Croatia. Laiho, J. (2002). Radio Network Planning and Optimizations for WCDMA. Thesis (Doc. Tech.), Helsinki University of Technology.
Ni, S. (2001). Network Capacity and Quality of Service Management in F/TDMA Cellular Systems. Thesis (Doc. Tech.), Helsinki University of Technology. Nokia Inc. (2003). A History of Third Generation Mobile 3G. Nokia Inc. Pawlak, Z. (1982). Rough Sets. International Journal of Computer and Information Sciences, 11(5), 341–356. doi:10.1007/BF01001956 Pekko, V. (2004). Data Mining for Managing Intrinsic Quality of Service in Digital Mobile Telecommunications Networks. (Thesis) Ph.D, Tampere University of Technology Publications. Penttinen, I., & Ritala, R. (2002). 2002 (pp. 154–158). Stockholm, Sweden: XML-Based Process Control. In Proceedings of Control Systems. Penttinen, J. (2001). GSM-tekniikka. Järjestelmän toiminta ja kehitys kohti UMTS-aikakautta. Helsinki: WSOY. (In Finnish) Pyle, D. (1999). Data Preparation for Data Mining. San Francisco: Morgan Kaufmann Publishers. Sasisekharan, R., Hsu, Y., & Simen, D. (1993). SCOUT: An approach to Automating Diagnoses of Faults in Large Scale Networks. In Technical Program Conference Record, GLOBECOM ‘93, Global Telecommunications Conference (pp. 212-216). Sasisekharan, R., Seshadri, V., & Weiss, S. (1996). Data Mining and Forecasting in Large-Scale Telecommunication Networks. IEEE Expert, 11(1), 37–43. doi:10.1109/64.482956
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Spiliopoulou, M., Kalousis, A., Faulstich, C., & Theoharis, T. (1998). NOEMON: An Intelligent assistant for Classifier Selection. In Wysotzki, F., Geibel, P., & Schädler, K. (Eds.), Beiträge zum Treffen der GI-Fachgruppe 1.1.3 Maschinelles Lernen (FGML98) (pp. 90–97). TU Berlin. Sterrit, R., Adamson, K., Shapcott, M., & Curran, E. (2000b). Parallel Data Mining of Bayesian Networks from Telecommunications Network Data. In Proceedings of IPDPS 2000 Workshops. Cancun, Mexico. Sterritt, R., Adamson, K., Shapcott, C., & Curran, E. (2000a). Data Mining Telecommunications Network Data for Fault Management and Development Testing. In Becken, N., & Brebbai, C. (Eds.), Data Mining II (pp. 299–308). Southampton: Wit Press. Suutarinen, J. (1994). Performance Measurements of GSM Base Station System. Thesis (Lic.Tech.), Tampere University of Technology. Terplan, K. (2001). OSS Essentials: Support System Solutions for Service Providers. Chichester, England: John Wiley & Sons, Ltd. Tisal, J. (2001). The GSM Network. Chichester, England: John Wiley & Sons, Ltd. TMF. (1999). Network Management Detailed Operations Map. Evaluation Version 1.0. TeleManagement Forum. Vesanto, J. (2002). Data Exploration Based on the Self- Organizing Map. Thesis (Doc. Tech.), Helsinki University of Technology. Vesanto, J., Himberg, J., Alhoniemi, E., & Parhankangas, J. (2000). SOM Toolbox for Matlab 5. Helsinki, Finland: Helsinki University of Technology. Weiss, G. M., Eddy, J., & Weiss, S. (1998). Intelligent Telecommunication Technologies. In Jain, L. C., Johnson, R. D., Takefuji, Y., & Zadeh, L. A. (Eds.), Knowledge-based Intelligent Techniques (pp. 249–275). Boca Raton, Florida: CRC Press. 2378
World, G. S. M. (2003). Website of the GSM Association [online]. Retrieved August 6, 2003, from: - http://www.gsmworld.com/index.shtml. Wright, P. (1998). Knowledge Discovery PreProcessing: Determining Record Usability. In Proceedings of the 36th Annual ACM Southeast Regional Conference (pp. 283-288). Marietta, GA, USA. Zelezný, F., Mikšovský, P., Štepánková, O., & Zídek, J. (2000). KDD in Telecommunications. In DDMI 2000 Workshop (pp. 103-112). Porto: University of Porto.
KEY TERMS AND DEFINITIONS Classification and Regression Trees (CART): Classification and regression trees are a set of techniques for classification and prediction. Data Mining (DM): Data mining is a popular way of discovering new knowledge from large and complex data sets such as business transaction data, GIS data, environmental data, genomic data, text and web data, and so on. Global System for Mobile communications (GSM): It is a globally accepted standard for digital cellular communication. Key Performance Indicator (KPI): It is a visual cue that communicates the amount of progress made toward a goal. Knowledge Discovery (KD): It is the process of constructing valid, new, interesting, and potentially useful knowledge from data. Knowledge Discovery in Database (KDD): KDD consists of steps in discovering knowledge that lying in the database. Seven steps in KDD are: Goal Identification Create Target Data, Data Preprocessing, Data Transformation, Data Mining, Interpretation and Evaluation, Taking action. Quality of Service (QoS): It is a set of technologies for managing network traffic in a cost effective manner to enhance user experiences for home and enterprise environments.
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Self-Organizing Map (SOM): It is a clustering algorithm that is used to map a multi-dimensional dataset onto a (typically) two-dimensional surface. Telecommunications Management Network (TMN): The Telecommunications Management Network (TMN) provides a framework for achieving interconnectivity and communication across
heterogeneous operating systems and telecommunications networks. TMN was developed by the International Telecommunications Union. Universal Mobile Telecommunications System (UMTS): It is the European standard for 3G mobile communication systems which provide an enhanced range of multimedia services.
This work was previously published in Knowledge Discovery Practices and Emerging Applications of Data Mining: Trends and New Domains, edited by A.V. Senthil Kumar, pp. 66-84, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital in the Mediterranean Area Marco De Maggio University of Salento, Italy Pasquale Del Vecchio University of Salento, Italy Gianluca Elia University of Salento, Italy Francesca Grippa University of Salento, Italy
ABSTRACT The rising of the knowledge economy, enhanced by the fast diffusion of ICTs, drives a wider perspective on the divide among Countries, interpreting it more and more as the result of an asymmetry in the access to knowledge and in the readiness to apply it in order to renew the DOI: 10.4018/978-1-60960-587-2.ch810
basics of their development dynamics. Looking at the Mediterranean Area, the positive correlation between the Networked Readiness Index and the Global Competitive Index developed at Global Economic Forum – INSEAD, shows that the opposite sides of the Mediterranean Sea are performing a development path at two different paces. In the effort to face the challenge of supporting the creation of Intellectual Capital able to apply, diffuse and benefit from e-business, in 2005
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
the e-Business Management Section (eBMS) of Scuola Superiore ISUFI – University of Salento launched the “Mediterranean School of e-Business Management”. The present work aims to offer a presentation of its genesis, its most distinctive features, operational model and action plan. The preliminary results of its activities show the role and the main challenges of the School in addressing the needs of the Mediterranean Countries towards a logic of partnership for the development of their Intellectual assets.
INTRODUCTION The beginning of the 21st Century’s was marked by a pervasive change in the geo-political scenario, characterized by a new international division of work and distribution of production. The fast diffusion of the Information and Communication Technologies accelerated the rising of a novel technological cycle. At macro-economic level, this brought to a natural mechanism of “casting out” of some economic realities from the global competitive landscape. This bi-polarization trend differentiates the economies involved in the global market from those excluded from the new production systems proper of the “knowledge economy”, based on the access to information and technology [Castells, M. (2000)]. The interpretation of these phenomena brought to the conceptualization of the “Digital Divide”, a multidimensional phenomenon reshaping the map of the world [Sachs, J., (2000)], encompassing a global dimension, referring to the divergence in Internet Access between industrialized and developing Countries; the social dimension, referred to the richness of information in each nation; and a democratic dimension, referred to the adoption of digital resources for the participation in public life [Norris, P. (2001)]. The phenomenon, that started to be investigated only under the views of the diffusion of ICT physical infrastructure and of ICT access, becomes more
and more the expression of an asymmetry in the access to knowledge and in the capability to use it in order to radically renew models, processes, and development dynamics. On the one hand the development and diffusion of the ICT at a global scale supported an exponential growth of the capability to compute, manage, share and broadcast information. On the other one it caused the rise of the level of knowledge and competencies required to employ the new technologies and to create new appropriate applicative solutions. The wished leapfrog in the age of digital networks, knowledge and globalization [Negroponte, N., (1998)] can be achieved only if a competitive ascending spiral is activated starting from growing investments in technological infrastructures, human resources, and innovation, focusing on a productivity increase in traditional sectors and development in sectors with a higher employment of technologies and knowledge. To face the challenge of reducing the “Digital and Knowledge Divide” and speed up the leapfrog of the emerging economies, it becomes necessary the investments in all the components of the Intellectual Capital [Bontis, N. (1998)]. This requires: • • • •
•
•
a radical change in training and education; the development of new learning strategies; the introduction of new technologies to support the organizational processes; the enhancement of interactions among markets, universities and a wide community of actors that present a concrete context of application; the promotion of networks of organization and local communities for the innovation advancement; the support of national and international cooperation for Intellectual Capital creation.
In the effort to face these challenges, in 2005, the e-Business Management Section of Scuola Superiore ISUFI – University of Salento, launched
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital
the Mediterranean School of e-Business Management, a program funded by the Italian Ministry of Education, University and Research. The initiative was aimed at proposing a systemic approach to the “Digital and Knowledge Divide” in the Mediterranean Area, through the creation of a network of Competence Centres for developing Human, Structural and Social Capital, focusing on the exchange and integration of practices in Business and ICT management, to leverage the capability of Mediterranean Countries to leapfrog the global economy. Next paragraphs describe the competitiveness scenario within the Mediterranean Area, highlighting the correlation between the delay in the ICT penetration and the country’s competitiveness; then the relationship between Human and Technological Capitals is investigated, and the emerging needs at organizational level of introducing the suitable competences to grasp the opportunities coming from ICT adoption. Within this framework the Mediterranean School of e-Business Management is presented and described.
LITERATURE REVIEW AND EMPIRICAL ANALYSIS The analysis of nature and context of Digital and Knowledge Divide within the Mediterranean Area countries relies on two main research fields, that provided the background for this study: a. the research on conditions enabling or hindering the successful adoption of ICT in organizations at both public and private ground, and b. the collection of real data related to the readiness of these countries to introduce and boost the potential of ICT, the state of adoption of e-business models, and to the state of the conditions enabling these processes at country level within Mediterranean countries.
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Previous research has emphasized the influence of contextual and industry impediments in ICT diffusion and e-business adoption processes (Molla, A., Licker, P.S., 2005): beside macro issues, organizational attitude, commitment and readiness to change have been also investigated (Humphreys, 2005, Bernerth, J., 2004). Accordinlgy, more productive and innovative ICT adopters are characterized by the set of organizational “practices” that are in place, mainly related to the strong strategic focus and heavy investments in human capital (Brynjolfsson, 2002). More than an application-building effort, the take-up of ebusiness seems thus to be a capacity development venture addressed to enhance “soft” or human capital factors as critical triggers of successful technology adoption (Taylor, 2004). A basic assumption is that firms managed by informed and qualified entrepreneurs are more likely to adopt advanced e-business applications (Lal, K., 2005), also through technological collaboration with external organizations. Intra and inter-organizational collaboration, enhanced by Internet and other digital networks, may be the real driver of long-term success in e-business adoption. In fact, the benefits from investing in channel relationships and coordination may prove to be more sustainable than many investments that firm make in technology or process innovations (Clark, 2001). Managers base their competitive advantage no more on internal and existing resources but rather on the ability to create and combine resources in new ways, leveraging on distributed networks of dynamic capabilities (Daniel, E.M., 2003). Among processes which are critical in e-business adoption, the importance of organizational learning as well as knowledge acquisition, application, and sharing has been also studied (Hsiu-Fen, 2005). A common thread through many knowledge management initiatives is the challenge of developing and supporting new network-based communities, through which companies can improve internal collaboration and work more closely with partners and customers
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
(Mentzas, 2006). Co-creative communities are revolutionizing economy and the diffused way of thinking (Tapscott, D., 2006), and virtual communities proliferate at an unprecedented rate, addressing critical organizational and Information System (IS) issues. Moving the focus from a micro to a macrolevel, the integrated development of human and relational capital from one side, and technology enablers from the other can help overcome the forms of isolation or digital divide, based on different technology and knowledge development, among economic realities which are “in” and those which are “out” (Castells, M., 2000). In this sense, the World Bank mentions the need of a leapfrog strategy to sustain a quantum leap in the development of countries and their economic and institutional framework. Governments, universities and researchers are challenged to understand how Internet and digital networks can be used to facilitate knowledge sharing and collaborative work, and which public and private efforts should be enacted to streamline digital and organizational change. The observation of the geographical context was relevant for this study. Under the view of the drivers of the new economy, the Mediterranean Area shows at a glance a clear divergence between the northern and the southern sides. A survey undertaken in Mediterranean countries in the frame of MEDA Program (European Union MEDA Programme, 2002) reports an average of 27% of employees working in SMEs located in Algeria, Cyprus, Jordan, Lebanon, Morocco, Syria, Tunisia and Turkey which use ICT mainly for e-mail messaging and information search. A second relevant data reveals that the 87.5% of firms surveyed are not “networked” with providers and the 93% are not networked with customers. More, the perspective of being part of a network, not necessarily Internet-based, is not even envisaged by the 93.6% of firms. The situation is similar in Europe where the “dimensional” gap in
e-business adoption is particularly evident among SMEs and large firms. The European e-Business Market Watch 2006 reports that only the 8% of SMEs surveyed use ICT to connect with suppliers, and 11% to connect with customers. The MEDA report highlights that the 18.9% of companies express a lack of interest towards ICT solutions and the 49.5% do not consider the development of related skills as a necessity. At a first glance, reasons for the situation here described might stay in organizational constraints related to company size, investments and capabilities required. A closer look would be interesting to understand at what extent the reluctance is linked to a lack of awareness of potential benefits, an amplified perception of costs needed to develop infrastructure and know how, and a competitive rather than cooperative attitude. The analysis of the trend of the current economic scenario requires the application of indicators able to express the consistency of the “Digital and Knowledge Divide”, and to correlate it to the perspectives of the medium-long term development dynamics. Among them the “Networked Readiness Index” (NRI) is a complex measure, able to weight the different components of the “Digital and Knowledge Divide”. It was developed at INSEAD (France) in collaboration with “World Bank” and “World Economic Forum”, and allows for a better understanding of a nation’s strength and weaknesses with respect to ICT (INSEAD, 2008). It is based upon the following premises: 1. Readiness: there are three important stakeholder’s categories to consider in the development and use of ICT: individuals, businesses, and governments; 2. Environment: there is a general macroeconomic and regulatory environment for ICT in which the stakeholders play out their respective roles; 3. Usage: the usage rate and the impact of ICT on the three stakeholder’s categories are
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital
related to their capability to use and benefit from ICT. The “Global Competitiveness Index” has been developed at World Economic Forum and is based on 12 pillars grouped in three categories: “basic requirements”, containing the pillars of institutions, infrastructure, macro-economic stability, health and primary education; “efficiency enhancers”, containing the pillars of higher education and training, goods market efficiency, labour market efficiency, financial market sophistication, technological readiness, market size; “innovation and sophistication factors, containing the pillars of business sophistication, and innovation. This index, that captures the stages of economic development of a Country, results positively correlated with the NRI (Clark, 2001) for the year 2007, showing that if the actors of an economy are not networked ready, it will be hard for the economy to transition to the innovation driven stage of development. The NRI 2007 – 2008 for the Mediterranean Area gives evidence of the cited divergence. The average value at the world level of 3.93 marks the approximate ridge of the “in” and “out” countries, and draws the separation of European side countries, with an average value of 4.50, and the African side, with an average value of 3.87. If we consider the preparedness of a country or region towards the Knowledge Economy, the divergence becomes clearer. The Knowledge Economy Index (KEI) is an aggregate index, developed by the World Bank’s Knowledge Assessment Methodology (KAM) (Daniel, E.M., 2003), as the simple average of 4 sub-indexes, which represent the pillars of the knowledge economy: Economic Incentive and Institutional Regime (EIR), Education and Training, Innovation and Technological Adoption, Information and Communications Technologies (ICT) Infrastructure. The KEI average value at the world level of 6.33 shows again a different situation in the Mediterranean regions, in North side ones, with an aver-
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age value of 8.16; and South side ones, with an average value of 4.07, showing the lowest ranks in Economic Incentive and Education components. Jordan is showing a positive trend toward the inclusion in the new global economy. The NRI index showed an improvement of 10 positions from the 2006-2007 to the 2007-2008 ranking, switching from the 57 to the 47, achieving the value of 4.08, one of the highest in the South Mediterranean coast. As well, the Global Competitiveness Index developed by the World Economic Forum saw the improvement from the position 49 to the 52, during the same period. To reduce these differences and overcome the state of isolation of “out” countries, it seems important not only to invest in ICT, but also to improve the Human Capital, and to set consistent actions devoted to create the more conducive environment for the exploitation of the Knowledge Economy opportunities. There are three key considerations which can be extracted form the theory and empirical analysis made [4]: (a) the relevance of human capital competencies and awareness as fundamental triggers in technology implementation; (b) the importance of integrating knowledge and processes in an inter-organizational perspective; (c) and the role of collaboration to leverage the potential of individuals and organizations. Moving from these insights, next two sections describe the organizational model and the technology platform designed and developed for the Mediterranean School in the attempt to enact the networking of knowledge, people and processes as facilitators of successful e-business implementation.
THE MEDITERRANEAN SCHOOL OF EBUSINESS MANAGEMENT The Mediterranean School of e-Business Management is an initiative of e-Business Management Section of the Scuola Superiore ISUFI, launched
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
in 2005 and funded by the Italian Ministry of Education, University and Research. Geographically positioned at the heart of the Mediterranean Area, the Scuola Superiore ISUFI of University of Salento was born in 1999 and is characterized by a clear vocation for the cooperation across the Southern Mediterranean Countries. During the launch phase of ISUFI it was decided that at least the 30% of participants in each higher education program, PhD and Master Courses, had to be selected in South Mediterranean, not European Countries. At the end of a 5 years period of experimentation, a dense community of young talents trained at eBMS-ISUFI was already involved in the activity of Institutions, Universities and Companies distributed mainly in the South Mediterranean Area. The awareness of the value of this growing community and the opportunity to expand the Mediterranean Network of the ISUFI partnerships to other Universities and Institutions, created the perspective of developing a Mediterranean School, with the mission to activate a virtual cycle of education, research and entrepreneurial actions to create a network of excellence centres, and streamline a synergic development of Intellectual Capital through ICT-based business innovation. The initiative leverages on key capabilities such as a constant focus on leadership processes, the relevance of international partnerships, the centrality of innovative learning and knowledge management approaches to support change, and the integration of business and technology aspects. The institutional start of the Mediterranean School of e-Business Management was framed in the Italian-Moroccan Intergovernmental Agreement, signed during the Second Catania Pattern to the Creation of Euro-Mediterranean Space of Higher Education and Research in 2005. The Agreement led to the first step in the process of creation of the Mediterranean School through the first partnership between eBMS-ISUFI and Al Akhawayn University of Ifrane (Morocco).
Afterwards, other agreements for collaboration and partnership were signed between eBMSISUFI and the University of Jordan, the Technopole Elgazala (Tunisia) and the “Confédération Générale des Entreprises du Maroc” (CGEM), to widen the network of Competence Centres that build the structure of the Mediterranean School. The role of the central node of the network created across the Mediterranean coasts is the Italian node of the Network, the Euro-Mediterranean Incubator, created in Lecce within the eBMS – ISUFI, and acting as the propeller hub and the headquarter of the whole Mediterranean School. Consistently with its mission, and the social and economic contexts of each one of the partner Countries, the Mediterranean School of e-Business Management aims to achieve the following objectives: •
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demonstrate the benefits of Digital Innovation and Organizational Change through pilot projects in agri-food, tourism, cultural heritage, aeronautics, automotive, electronics and public administration; create, reinforce and consolidate competencies and professional qualification in eBusiness Management to diffuse a productive and innovative use of ICT; ensure the diffusion of new managerial theories and practices based on the integration of Business Management and ICT Management; support the launch of pilot projects for changing relevant industries of Mediterranean economies; contribute to mobility of students in the Euro-Mediterranean space; support SMEs creation, collaboration, and networking among Italian, Jordanian, Tunisian and Moroccan businesses.
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The Distinctive Features and the Operational Model The distinctive features of the Mediterranean School of e-Business Management derive from its main objectives that are: •
•
•
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fostering the transition of the Mediterranean Area toward the Digital and Knowledge Economy; integrating the available knowledge at the global scale in an interdisciplinary way, to support the development of competencies in Business and Technology Management; investing in human capital to enhance the capability of young talented people to absorb and apply knowledge; activating horizontal links among whichever level of actors and Countries to prevent the bi-polarization of development between the opposite sides of the Mediterranean area.
The presented goals shape the distinctive features of the Mediterranean School as follows: 1. Network. The logic of “integration” and “partnership” has been the most characterizing element of the Mediterranean School of e-Business Management since its beginning. It points the creation of a wide Mediterranean “network” supported by the raising of centres of excellence, aimed at building consistently with the local national policies, the intellectual capital necessary to accelerate the leapfrog to the development of the overall region, preventing the casting out of the countries on the score of the global competitive dynamics. At the moment, the network is constituted by 4 main nodes: the Euro-Mediterranean Incubator created by eBMS-ISUFI in Lecce (Italy) and the three Competence Centres developed in Morocco, Jordan and Tunisia in collaboration with its Mediterranean partners (the Al Akhawayn University in Morocco, The University of Jordan,
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the Technopole Elgazala in Tunisia, the “Confédération Générale des Entreprises du Maroc”). To reduce the differences among Mediterranean Countries in the preparedness towards the Knowledge Economy, and overcome the state of isolation of “out” countries, it appears necessary not only the investment in ICT, but also the creation of a conducive environment for exploiting the emerging development opportunities. The ICT enabled network is able to support the common learning, knowledge sharing and entrepreneurial behaviours to enhance benefits coming from ICT. Network is seen as the suitable dimension for developing and disseminating strategic know-how, and to enhance relationships among different actors, Companies, Universities, Institutions, in sectors such as agri-food, tourism, cultural heritage, aeronautics, automotive, electronics and public administration. 2. Interdisciplinarity/Knowledge Integration. The Mediterranean School of e-Business Management program is based on an integrated system of Research, Higher Education, ICT diffusion accompaniment actions, to blend business models and traditional processes of production with the ICT technological innovations, to contribute to the creation of a new generation of “leaders” able to drive the change and modernization of Mediterranean Countries. The Interdisciplinary approach, already experimented at eBMS-ISUFI, is a core characteristic of the Mediterranean School. It allows to break down the separation among the traditional branches of Business and Technology Management, to build “just in time” the competency toolkit to manage the emerging challenges of the current scenario. It is conceived to enable the processes of crossfertilization among crucial sectors of the traditional economy and the dynamics of the new one, to provide suitable applicative solutions to face the needs of the Mediterranean regions. 3. Young Talents: the levers of growth. The strategic asset of the Mediterranean School of eBusiness Management is represented by its human
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
capital. The perspective of creating a multi-cultural leading class able to manage ICT driven change, disseminate innovative practices, and develop the competencies necessary to sustain the modernization of Mediterranean Economies, focuses on the young talented people as the main actors and beneficiaries of the human capital creation initiatives of the School. They are selected in the Mediterranean Countries, from the Academy as well as from the Corporate context. Once trained in the Mediterranean School they act as innovators and disseminators of knowledge and experiences in different regional contexts. 4. A New sense of Partnership: the Multilateral cooperation. The promotion and the extension of the network to the overall Mediterranean area is oriented to a growing democratization of the cooperation, to activate horizontal links among whichever level of actors and Countries. The vision of a further step beyond the bilateral cooperation will drive the fulfilment of a dense multilateral network, able to prevent the bi-polarization in the development of the opposite sides of the sea, that risks to be strengthened by the creation of different trade areas, like the Great Arab Free Trade Area (GAFTA) started with the Agadir process, and the Euro-Mediterranean free trade area, planned for the 2010 by the Barcelona Agreement. The promotion of the economic development of each region is intended as a path of co-creation of the conducive conditions, with a deep and operative involvement of local actors, representatives of Institutional, Entrepreneurial, Business and Academic Entities. The sensitiveness to the needs of the local players and the sharing of the country related issues allow a new way of cooperating that goes beyond the knowledge and technology transfer from the North to the South, to emphasize the mutual commitment to build together solutions and new opportunities for the development of the whole Mediterranean Area. Operational strategy and activities of the Mediterranean School of eBusiness Management follows the model of the Euro-Mediterranean
Incubator in Lecce, by which all the Competence Centres created in the Mediterranean Area inherited their logical structure and functionalities. It is represented in Figure 1. It is organized in four main core programs (Higher Education initiatives, Research initiatives, Executive Education initiatives, Continuous Learning initiatives). The programs are designed in partnerships with market and institutional stakeholders, and they are focused on traditional industries (tourism, agrifood), hi-tech sectors (aerospace, software), education and public administration. These programs aim to develop individual and organizational change management capabilities; they share a common learning strategy based on a competency development approach through which participants think, work and reflect together through action learning projects, case studies discussion, complex problem analysis. A virtual global learning environment supports the four core programs, through the offering of on line multimedia materials and interactive learning services. According to the vision that “In the advancing Digital Economy, Intellectual Capital will be increasingly the most important driver of competitive advantage, development and innovation of countries and organizations”, the EuroMediterranean Incubator aims at accelerating the leapfrog of Southern Mediterranean regions towards the digital economy in two ways: •
•
enhancing the knowledge in business innovation through market-oriented, basic and applied research projects and learning programs; and creating Business Engineers and Change Managers able to integrate organizational and digital innovation to implement new business models and accelerate business transformations.
Research activities, innovation projects and advanced education programs are designed in
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital
Figure 1.
partnerships with market and institutional stakeholders. The results are applied to traditional industries (tourism, agrifood), hi-tech sectors (aerospace, software) and public administration. The Incubator’s core programs are constituted by 4 complementary actions:
Action 1: International Master and PhD Programs in e-Business Management This action aims to the creation of experts and researchers in e-Business field, ensuring a higher mobility between the Countries and firms partners of the initiatives. The action is characterized by the integration between content and competencies about Business and ICT Management; a “learning in action” approach oriented to the application of integrated solutions for managerial practices; strong linkage between research and entrepreneurship, at local and international dimension. The action is addressed to young talents with technical and managerial background.
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Action 2: e-Business Readiness Program for SMEs This action aims at providing integrated projects for training, capacity building and the diffusion of a major feeling of awareness within SMEs about the digital innovation issues. The program foresees two different actions according to the professionalization of “tutors” and “managers” targets: they have to develop at different level the capability to activate and manage the promotion of e-Business practices in SMEs, and to train other tutors and managers, enabling a virtuous cycle of dissemination of the digital innovation.
Action 3: Digital Innovation in Industries and in Public Administration The action aims to create and promote the development of a hub of scientific, technological and entrepreneurial competences within SMEs and the public administrations.
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
The implementation of pilot projects is aimed at demonstrating the benefits of digitalization in the following sectors: •
• •
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agri-food sector, developing systems for the supply chain integration, the creation of e-marketplace for the aggregation of offer and demand, and traceability of the food value chain; tourism, developing systems for destination and incoming management; aeronautic and automotive, to set up new methodologies and techniques enabling collaborative working environment for new product development (NPD); public sectors, for the implementation of intelligent systems of territorial management and the creation of knowledge hub to allow the development of effective decision making processes.
The ICT Platform The integration of information and knowledge management with the overall strategy, as well as the centrality of business and industry-related issues, represent two aspects which have been strongly addressed in the design of the technology infrastructure of the Mediterranean School. Contemporary business systems are indeed characterized by a growing interdependence between organizational strategy, procedures and Information Systems (ISs) (Sachs, J., 2000), and management ISs address the application of people, technologies, and procedures to solve business problems. The technological platform of the Mediterranean School is composed by two integrated subsystems: •
Action 4: Lifelong Learning Program This action is transversal to the previous ones, and consists of making available a set of weblearning modules and resources. An interactive and multimedia system enables the development of a cyber space where effective innovative learning approaches are implemented like case based and problem based learning. The Virtual Global Learning Environment is conceived as a network of experiential laboratories operating through platforms and new generations ICTs infrastructures for the creation of the sets of competences and capabilities necessary to activate and manage the process of transition and change required by the new technologies. The set of methodological tools and technological platforms made available by the Incubator, supports the network of the Mediterranean School in the implementation of its strategic programs. They constitue the ICT Platform of the Mediterranean School, that is described in the following paragraph.
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a general purpose subsystem, including knowledge management, web learning, project management, multimedia, social network analysis, business process engineering, and e-business components and applications; an industry-specific subsystem, including components and applications for tourism, agrifood and aerospace sectors;
A shared technical facility represents the backbone of the two subsystems and it is constituted by an integrated environment of hardware, software, network and security components. The hardware infrastructure is based on blade server technologies and a shared storage area network (SAN). The wide usage of open source operating systems (mainly Linux), the integration of wired and wireless networks through Virtual Local Area Network (LAN) management policies, and a two-level security infrastructure for accessing to resources represent the most important features of the system. Next chart (Figure 2) represents the whole ICT architecture and its main components:
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital
Figure 2.
In the next sections, a detailed description is provided of the general purpose and industryspecific subsystems, and their related components and applications. A. General Purpose Subsystem. The general purpose subsystem includes 7 categories of components: knowledge management, web learning, project management, multimedia, social network analysis, business process engineering, and e-business. The system is supported by an innovative platform which was awarded in 2006 in Denver (Colorado, USA) with the International “Brandon Hall Research” prize in the category “Learning Technology”. All the components and applications are described hereafter. 1. Knowledge Management components aim at creating collaborative and distributed processes of knowledge creation, sharing, search and application. The following services are provided: ◦⊦ Community, to facilitate the development of learning communities/ communities of practice aimed to exchange experience, project knowledge, and ideas. Individual and group chat, thematic forums, areas for sharing knowledge and exchanging documents, spaces for collaborative work
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and virtual meeting represent the main applications. Content Management, to manage information, news, bookmarks and posts on electronic blackboards. Document Management, to manage the whole lifecycle of project documents (or other), including the aspects of workflow to support process automation. e-Library, to manage physical and digital library resources such as ebooks, CDs, DVDs, other videos sources. Recommendation Engine, to suggest news, documents and references to domain experts useful to deepen a topic, to solve a problem, or to execute a specific task. Search and Retrieval, to retrieve resources stored in the knowledge base of the system. Different types of search are available which leverage on both the syntactic and semantic features of a text: search based on tags added in the cataloguing phase (metadata search), search of keywords contained in the text (text-based search), search based on the navigation of do-
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
main taxonomies (taxonomy-oriented search), and search based on graphical navigation of conceptual maps (knowledge map). ◦⊦ Web Mining, to retrieve useful resources (news, papers, etc.) from many different possible web sources. This “new” knowledge is periodically tagged and catalogued, in order to be available for a successive search. 2. The Web Learning component aims to support unstructured and just-in-time learning processes designed to develop specific business and technology management competencies. An innovative learning strategy is implemented which is problem-driven, project-based and strongly integrated with knowledge management. The following services are provided: ◦⊦ Recommendation Engine, to suggest learning patterns and resources in line with a given competency profile/level to achieve, as well as with the personal interest and preferences. ◦⊦ Skill Gap Analysis and Competence Profile Management, to identify possible competency gaps and manage the different profiles existing within a project team or learning community. ◦⊦ Structured Learning Program Management, for realizing structured on-line learning paths and curricula. ◦⊦ Tracking and Reporting, to monitoring the “performance” of a given learner and/or a specific learning path. ◦⊦ Unstructured Learning Program Management, to allow the creation of non-predefined learning paths and curricula, in the perspective of justin-time learning. These services operate on different categories of content. The Competence Taxonomy is a key
component structured in three levels: “Knowledge Domains”, “Competencies” and “Learning Objectives”. A second class of content is represented by Competence Profiles managed by the system through a punctual monitoring of levels achieved and gaps to fill. Third, the system also contains SCORM objects, i.e. the traditional learning modules realized according to SCORM standards, and the Multimedia Knowledge Objects (MKO), which aggregate different file types (ex. pdf, word, power point, excel) coming from the Knowledge Management subsystem. Finally, learning paths created according to a problem based strategy are implemented in the Multimedia Learning Modules (MLM). Figure 3 synthesizes the main architecture of the web learning system in terms of services/processes, content and components: 3. Project Management components provide a set of functionalities useful for a flexible and integrated management of projects. Among the distinguishing features, two aspects are particularly innovative: first, a native integration with document management services (to optimize retrieval and reuse of project documents and deliverables while enriching the knowledge base); second, the integration with Web Learning applications (to optimize resources/competencies allocation on project tasks, and to develop competency development plans founded on a project-based learning strategy). The following services are provided: ◦⊦ Phases/Activities Management, to structure a project in terms of phases and activities. Each activity is then associated to a responsible for the preparation and submission of final deliverables. ◦⊦ Recommendation Engine, to suggest just-in-time those learning paths which can help an actor to execute a specific project task, in the case he/
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital
Figure 3.
she does not possess the competency profile/level required. ◦⊦ Reporting, to provide project managers with integrated snapshots, both synthetic and analytic, about the advancement state of a project (use of traffic light icons), possible delays, milestones and deliverables, and the responsibilities of people in single phases and activities. ◦⊦ Workflow Definition, to manage and automatically orchestrate the workflow of project documents, including their review and final approval. 4. Web Learning, Knowledge Management and Project Management components are supported by a Multimedia Lab for the acquisition, processing, storage and delivery of multimedia content. The main characteristics and components of the Multimedia Lab are: ◦⊦ high resolution fixed and mobile acquisition systems; ◦⊦ automatic acquisition system based on sensors;
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a 4-terabyte storage system, a postproduction system; ◦⊦ a streaming system to broadcast content; ◦⊦ a documents scanning system; ◦⊦ tools for the semi-automatic translation of content in other languages (included Arabic). 5. Social Network Analysis components are aimed to provide a diagnostic methodology and a set of tools to track the evolution of interdependent organizations and communities, in terms of knowledge creation and exchange processes, learning performance, social capital development and competency growth. The following services are provided: ◦⊦ dashboard and analysis of individual metrics such as actor’s “centrality degree”, “betweeness” centrality and “contribution index”; ◦⊦ dashboard and analysis of group metrics such as group’s “centrality degree”, “betweeness centrality”, “network density” and “core/periphery” structure;
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
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software tools for the analysis and representation of social networks dynamics. 6. Business Process Engineering components are aimed to support the design of alternative process configurations leveraging on shared process knowledge, also based on best practices of different industries and organizations. The following services are provided: ◦⊦ web-based process repository, developed in collaboration with the MIT Center for Digital Business, of more than 5000 process descriptions related to different industries and a set of tools for viewing/editing process descriptions; ◦⊦ process modeling and re-engineering methods and tools; ◦⊦ process benchmarking methods and tools; ◦⊦ metrics-based process analysis and redesign; ◦⊦ query language capability for keyword-based and attribute-based search. 7. e-Business components are aimed to provide an experimental setting for the simulated use of e-business applications, through illustrative industry-based examples and customized tools. The following services are provided as modules of a whole e-business suite available: ◦⊦ ERP – Enterprise Resource Planning; ◦⊦ CRM – Customer Relationship Management; ◦⊦ SRM – Supplier Relationship Management ◦⊦ SCM - Supply Chain Management; ◦⊦ BI - Business Intelligence. ◦⊦ Marketplace services such as Webstore and B2B exchange facilities
B. Industry-Specific Subsystems. They aim to contextualize the design and experimentation of market-oriented pilot projects, ICT development and application in three specific sectors: tourism, agrifood and aerospace. 1. The tourism platform’s services are organized in three main categories, for three different types of users: tourists, firms and institutions. Services to tourists include “search” services (ex. of information about destinations, attractions and services by geographical area, theme/ interest or category, with the possibility to store, organize, access, modify and reuse the information collected); “interactive” services (ex. asynchronous and synchronous communication with local tourism enterprises and institutions, tourists and residents); and “transactional” services (ex. booking directly on the Internet). Services to firms (mainly primary suppliers but also intermediaries and carriers) include “publication” services (ex. offerings on the Internet), “e-marketing” services (management of products/ services promotion and pricing, relationships with suppliers and customers, according to the level of e-readiness and the managerial capabilities of the enterprise), “e-booking” and “e-payment” services on the Internet, “collaboration” services (ex. exchange of documents, invoices and information as well as project management functionalities), and “management” services (ex. accounting, employees payroll, business intelligence). Services to institutions (mainly local and regional tourism authorities, but also national or higher level organizations) are mainly related to tourism planning and development and the integration of information, with a particular focus on managing and monitoring the offer of tourism destinations. Examples are represented by tourism marketing planning, dashboards, management of tourists’ and suppliers’ accounts, management of ICT platforms and destinations’ web sites, as well as the communication of data to external institutions.
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An ICT-Based Network of Competence Centres for Developing Intellectual Capital
2. The ICT platform for agrifood has been designed with the objective to create a digital marketplace and information systems based on the idea of the “virtual enterprise”, and the improvement of vertical and horizontal relationships within the agrifood supply chain. The agrifood platform’s services are organized in three main categories: •
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B2B – Business-to-Business: Tendering, e-Catalogue, Auctions, Traceability and Logistics, Contract Management, Offering aggregation, Financial Service, Insurance Service, Order Management, Ratings EAI – Enterprise Application Integration with internal: Enterprise Resource Planning (ERP); Customer Relationship Management (CRM); Supplier Relationship Management (SRM); Supply Chain Management (SCM); Business Intelligence (BI). Support Services for Interactions with B2B operators: Information Services, eConsulting, Collaborative Service, Market Intelligence, e-Learning, Knowledge Management.
3. The ICT platform for aerospace has been designed with the objective to provide an integrated environment to optimize important new product development processes such as Multidisciplinary Integrated Modelling (MIM), Multidisciplinary Design and Optimization (MDO), Product Lifecycle Data Management (PDM), and technology assessment. The main applications developed and available are: •
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applications for collaborative working, including knowledge management systems, collaborative working environment, and enterprise portals; applications for Product Life Cycle Data Management, including technologies and systems for multidisciplinary analysis, re-
•
quirements management (QFD Method), configuration management, business process modelling and IT management; applications for Product Design, including CAD/CAE (Computer Aided Design/ Engineering), design for Six Sigma, Knowledge Based Engineering (CAx customization, automation and Integration), multidisciplinary design optimization and robust design, virtual prototyping (digital mock-up and digital pre-assembly).
In the following section, the model “in action” is showed, with the main output in terms of human, structural and social capital development, and some implications for public and private managers concerned with ICT development and e-business adoption in southern Mediterranean countries.
THE FIRST YEARS OF THE MEDITERRANEAN SCHOOL: PRELIMINARY RESULTS Since the beginning, the Mediterranean School of e-Business Management had the opportunity to launch and experiment several actions and pilot projects in collaboration with Mediterranean public and private stakeholders. These initiatives have been realized both in the main node of the Mediterranean School (located in Lecce, Italy, at the e-Business Management Section of Scuola Superiore ISUFI), and in the local nodes in Jordan, Morocco and Tunisia. Specifically, all these initiatives contributed to develop and consolidate the Intellectual Capital of the Mediterranean School, that is described and classified in terms of Human capital, Structural capital and Social capital as follows. A. As for the Human Capital dimension, the education programs of the Mediterranean School helped many talented people to develop competencies and skills for effec-
An ICT-Based Network of Competence Centres for Developing Intellectual Capital
tive design and development of business innovations based on web technologies. In more detail ◦⊦ a young Scientific Community of people has been created, engaged in interdisciplinary research and education activities, for a total of 66 units (27% coming from the Southern Mediterranean Countries) with an average age of 30 years (89% Graduates and 11 Undergraduates). ◦⊦ 38 young talents have been involved in PhD program, 16 of them (42%) coming from southern Mediterranean countries. ◦⊦ 160 young talents have been involved in 9 editions of the International Master’s Program, 67 of them (42%) coming from southern Mediterranean countries and of 10 young Moroccan managers involved in e-Business awareness programs. B. Referring to the Structural Capital component, the main results realized and obtained in the framework of the Mediterranean School are constituted by the three nodes created in Jordan, Morocco and Tunisia. Each node is configured as a Competence Centre who conveys and attracts local interests of public institutions, private companies, universities and research centres, and promotes with them some innovation projects focused on experimenting the benefits coming from the adoption of ICT in traditional industries and processes. In each Competence Centre, a set of facilities, technological equipments, access to technological infrastructures, methodologies and platforms available in the main node in Italy, guarantee and ensure an effective implementation of the innovation pilot projects.
At international level three cross-disciplinary edge research fields have been developed and consolidated: (i) Open Networked Business Management; (ii) Learning, Innovation and Value Network; (iii) Collaborative Product Design Management. A portfolio of 24 research projects related to the introduced fields have been acquired competitively at the Italian and European Community levels, with the participation of leading academic institutions as well as national and multinational companies. The scientific production amounted to 126 scientific works, 38 of them published in international journals and monographs, 11 in national journals and monographs, and 77 published in refereebased proceedings of international conferences. In October 2006 the School received an international award in Denver, Colorado (USA), by the “Brandon Hall Research” in the category “Learning Technology”, related to the creation of an innovative web learning platform which embeds a problem-based learning approach. C. Under the Social Capital perspective, the Mediterranean School of e-Business Management built a network of international relationships among the Italian, Moroccan, Jordanian, and Tunisian nodes, and supported the relationships between each node and the referring local national context of entrepreneurial and academic communities. Today it is consolidated a huge network of collaboration of national and international partners, and stakeholders representing relevant industries, with a major focus on aerospace, agro-industry, education, public government, software, and tourism. The faculty benefits from the contribution of more than 50 professors and executives representing 10 nationalities.
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CONCLUSION AND FUTURE DEVELOPMENTS The competitiveness of the new economies is the result of the integration at national and international level of both human and structural capital. The existence of a Digital and Knowledge Divide between the opposite sides of the Mediterranean Sea claims a combined effort both at national and international level. At national side, the local actors are called to support the development of capabilities to link technologies and business management in order to face the merging organizational needs. The international actors are called to orient public resources towards investments required to allow the leapfrog of the Southern Countries in the development process of the knowledge economy. The networking dimension is, at both levels, the most suitable one to activate virtuous cycles of mutual empowerment, internally and externally, involving academies, universities, companies and institutions without boundaries distinctions. Under this perspective, the Competence Centres of the Mediterranean School of e-Business Management were generated following a model based on the capability of: • •
•
creating environments for a more effective learning process; enhancing the level of commitment for realizing training programs focused on concrete issues related to the e-Business; promoting relationships with the national economic actors, and strategic alliances to increase on the field the value of the research conducted.
The relevant results achieved by the Mediterranean School in consolidating and developing the Intellectual Capital of the Mediterranean network, according to the Human, Social and Structural dimensions, confirm the rightness of its vision as well as the effectiveness of the strategy persecuted. They also establish the ground for
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future steps that will see the School engaged in the improvement of the partnership just established, and a closer collaboration between public and private nodes. The widening of the network to the overall Mediterranean area is oriented to a growing democratization of the cooperation, to activate horizontal links among whichever level of actors and Countries. The vision of a further step beyond the bilateral cooperation will drive the fulfilment of a dense multilateral network, able to prevent the bi-polarization in the development of the opposite sides of the sea.
REFERENCES Bernerth, J. (2004). Expanding our understanding of the change message. Human Resource Development Review, 3(1), 36–52. doi:10.1177/1534484303261230 Bontis, N. (1998). Intellectual Capital: An exploratory Study that Develops Measures and Models. Management Decision, 36(2), 63–76. doi:10.1108/00251749810204142 Brynjolfsson, E., & Hitt, L. (2002). Digital organization: preliminary results from an MIT study of Internet organization, culture and productivity, MIT Working Paper. Cardoso, J., Bostrom, R. P., & Sheth, A. (2004). Workflow management systems and ERP systems: differences, commonalities, and applications. Information Technology Management, 5, 319–338. doi:10.1023/B:ITEM.0000031584.14039.99 Castells, M. (2000). The Rise of the Network Society. London: Blackwell Publishing Ltd. Clark, T. H., Croson, D. C., & Schiano, W. T. (2001). A hierarchical model of supply-chain integration: information sharing and operational interdependence in the US grocery channel. Information Technology Management, 2, 261–288. doi:10.1023/A:1011497025090
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Daniel, E. M. (2003). The role of dynamic capabilities in e-business transformation. European Journal of Information Systems, 12(4), 282–296. doi:10.1057/palgrave.ejis.3000478 European e-Business Market Watch, (2005). Overview of International e-Business Developments. European Union MEDA Programme, (2002). ICT Solutions for Mediterranean SMEs. Hsiu-Fen, L., & Gwo-Guang, L. (2005). Impact of organizational learning and knowledge management factors on e-business adoption. Management Decision, 43(2), 171–188. doi:10.1108/00251740510581902 Humphreys, P., Mcadam, R., & Leckey, J. (2005). Longitudinal evaluation of innovation implementation in SMEs. European Journal of Innovation Management, 8(3), 283–304. doi:10.1108/14601060510610162 INSEAD. (2008). Global Technology Information Report 2007 – 2008. Retrieved from http://www. insead.edu/v1/gitr/wef/main/explore/framework. cfm Lal, K. (2005). Determinants of the adoption of ebusiness technologies. Telematics and Informatics, 22(3), 181–199. doi:10.1016/j.tele.2004.07.001
Mentzas, G., Apostolou, D., Kafentzis, K., & Georgolios, P. (2006). Inter-organizational networks for knowledge sharing and trading. Information Technology Management, 7, 259–276. doi:10.1007/s10799-006-0276-8 Molla, A., & Licker, P. S. (2005). e-Commerce adoption in developing countries: a model and instrument. Information & Management, 42(6), 877–899. doi:10.1016/j.im.2004.09.002 Negroponte, N. (1998, January). The Third Shall be First: The Net Leverages Latecomers in the Developing World, Wired Magazine. Norris, P. (2001). Digital Divide: Civic Engagement, Information Poverty, and the Internet worldwide. Cambridge, UK: Cambridge University Press. Sachs, J. (2000, June). A New Map of the World, The Economist. Tapscott, D., & Williams, A. D. (2006). Wikinomics: How Mass Collaboration Changes Everything. New York: Portfolio. Taylor, M., & Murphy, A. (2004). SMEs and e-business. Journal of Small Business and Enterprise Development, 11(3), 280–289. doi:10.1108/14626000410551546
This work was previously published in Handbook of Research on E-Services in the Public Sector: E-Government Strategies and Advancements, edited by Abid Thyab Al Ajeeli and Yousif A. Latif Al-Bastaki, pp. 164-181, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.11
Recognizing Innovation through Social Network Analysis: The Case of the Virtual eBMS Project Grippa Francesca University of Salento, Italy Elia Gianluca University of Salento, Italy
ABSTRACT Advances in communication technologies have enabled organizations to develop and operate decentralized organizational structures by supporting coordination among workers in different locations. Such developments have lessened formality in control structures and replaced formal channels of communication with less formal social networks. The chapter describes the development and application of a ‘Social Network Scorecard’ (SNS) managerial tool to monitor social interchanges DOI: 10.4018/978-1-60960-587-2.ch811
and relationships within and across organizations in order to assess the effectiveness of knowledge networks. In this chapter, a project team made up of individuals from academia and industry collaboratively implemented an integrated technological platform for KM, e-Learning, e-Business, and project management disciplines in a higher education environment. This VeBMS platform, consisting of a collaborative working environment within the University of Salento, Italy, was used as a ‘test bed’ to evaluate the validity of the scorecard in practice. The chapter describes how the SNS tool can help in monitoring the evolution of an organizational community, recognizing
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creative roles and initiatives, and tracing the connections between such initiatives and innovative outcomes. Looking at trends at individual, team, inter-organizational, and organizational levels, researchers identified the most innovative phases within the team’s life cycle using network indicators like density and degree centrality. The SNS provided feedback on the effectiveness of the team and helped discover the phases in which the team acted in a manner conducive to innovation. The Virtual eBMS project team followed the typical structure of an innovative knowledge network where learning networks and innovation networks co-exist with a more sparse interest network.
INTRODUCTION Looking at tacit knowledge as the key competitive factor, the discipline of Knowledge Management is going towards a new phase focused not just on knowledge codification (building databases, installing technologies, collecting and disseminating information). In what has been recognized as the “new wave of Knowledge Management” (Cross et al., 2006), managerial efforts are put in exploiting tacit knowledge built in social capital, searching for techniques to foster organizational learning and knowledge creation. Network-based competition requires new types of “business scorecard” for managers to understand the reliance and limitations of resource exchange in social networks. The utilization of network metrics to monitor the evolution of an organizational or inter-organizational network provides advantages for managers in terms of business intelligence and ability to recognize the emergence of innovation. Although managers recognize the importance of fostering collaborative networks inside and across organization’s boundaries, there is still a lack of methods and tools to assess and support links among people, and nurture the most promising relationships that might lead to innovation.
In this contribution we propose a Social Network Scorecard applied to an innovative project aimed to design and implement a technological platform integrating Knowledge Management, e-Learning, e-Business and Project Management. The platform - called “Virtual eBMS” - is a collaborative working environment enabling knowledge sharing and learning processes within a higher education institution (eBMS). The e-Business Management Section (eBMS) is a department of Scuola Superiore ISUFI, an advanced education institute of University of Salento, in Italy. In this research we have applied a methodology, that we call Social Network Scorecard, to monitor and discover the hidden phases and individual roles that are associated to the emergence of innovation. The innovation we are referring to is represented by the components of a technological platform whose success (described later) is based on the ability of a small team to create a high level of connection within and across university boundaries. The main research question leading our study is: How to use a social network scorecard to recognize the emergence of innovation in a project team? To answer this question, we illustrate the case of a team that successfully worked to design an innovative platform, the Virtual eBMS. To understand the hidden dynamics behind this successful collaboration pattern, we used the Network Scorecard as a methodological guideline to monitor the evolution of the individual and group dynamics. The team in charge of the Virtual eBMS project was composed by members of an international business school and a multinational consulting company (hereafter “partner company”) specialized in providing ICT-based solutions. We applied this scorecard to identify the innovation roles and the members’ contribution degree, matching actors’ formal roles within the team and the informal roles emerging from the analysis. The main goal was to identify “in fieri” the network properties able to give suggestions on how to better support the team in the efforts towards the creation of an innovative platform.
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LITERATURE REVIEW Within the aim of this chapter, we focus our literature review on three interdependent domains related to innovation management field: the knowledge management systems (KMS), the intellectual capital management (ICM) and the Social Network Analysis (SNA). These three research fields are briefly presented and introduced by highlighting the concept of “relation” as a key success factor for creating value.
Knowledge Management Systems The literature on Knowledge Management Systems (KMS) is very rich of multi-disciplinary contributions spacing from strategic perspectives to organizational dimensions, technological issues, human resource development and process-based approaches. A complete and holistic definition of KMS can be the one given by Ronald Maier (2002): “A KMS is an ICT system … that combines and integrates functions for the contextualized handling of explicit and tacit knowledge … A KMS supports networks of knowledge workers in the creation, construction, identification, … distribution, maintenance, searching, … application of knowledge, the aim of which is to support the dynamics of the organizational learning and organization effectiveness…”. From a business perspective, an effective usage of a KMS allows to gain competitive advantage in different areas of the company through better understanding of markets and customers, through more effective design of products and services, through supporting management and change plans (Heisig et al., 2001). In education, KM applications ensure to reach benefits at different processes’ levels: research, curriculum development, students and alumni services, administrative services (Jillinda, Kidwell et al, 2000). In the last few years, KMS attracted the interest of many organizations in order to create new collaborative ICT-enabled environments for
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sharing and applying knowledge in workplace contexts, both at intra- and inter- organizational level. The strategic importance of these systems derives mainly from the integration of two real observations: the fundamental role of knowledge in innovation processes for competitive dynamics, and the rapid evolution and diffusion of ICT. The integration of these two facts allows the digitization process of knowledge flows, with the consequent rapid exchanges and acquisition of experiences and know-how within and outside the organization. This generates new challenges in KMS domain focused on the integration of such systems with the rest of the enterprise digital infrastructure, with a specific focus on Learning Management Systems and Human Resource Management Systems. Moreover, the new waves of web 2.0 and web 3.0 open new perspectives for user-generated contents and experiences, and new tools for interaction and collaboration. Finally, the emerging paradigms of “cloud computing” and “internet of services” promise to revolutionize the models and the approaches to manage knowledge flows and to monitor social relationships among the knowledge workers. This last point highlights a very important topic in KMS concerning the strategies, techniques and tools to monitor effectively the social relationships among people working on the same project, in the same or different organizations, with or without the participation of external experts or other (virtual) communities. Indeed, the knowledge “embedded” in social relationships represents a valuable resource that could be used for exploiting current assets, enhancing the level of usage of specific services or knowledge sources, creating new adhoc “think tanks” focused on specific domains, or for exploring new fields to create future value.
Intellectual Capital Management Since the focus of this research is to propose a business scorecard to help organizations reach their goals, in this section we examine the main
Recognizing Innovation through Social Network Analysis
contribution given in literature in terms of methods and tools to monitor and assess innovation and knowledge creation (Wenger and Snyder, 2000, Ahuja and Carley, 1999). Knowledge as important asset for innovation is conceptualized in literature using the term “intellectual capital” to refer to the knowledge of a social collectivity, such as an organization, a business community, or a cluster of firms. It is often explained using the following classification: Human Capital (know-how, capabilities, skills); Structural Capital (organizational capabilities, patents, routines, systems, databases); Social Capital (connections and network of relationships inside and outside the organization). Although many researchers agree that knowledge is the key strategic asset for creating value in modern organizations, an effective system and set of tools to evaluate and manage effectively and systematically the knowledge flows do not yet exist in a well-structured ad consolidate form, considering both the explicit and the implicit dimension. Over the last ten years, several intellectual capital measurement methodologies have been developed: Balanced Scorecard (Kaplan and Norton, 1992), Skandia Navigator (Edvinsson and Malone, 1997), Intangible Assets Monitor (Sveiby, 2000), Inclusive Value Methodology, IC Rating of Intellectual Capital Sweden, and VAICTM (Value Added Intellectual Coefficient). Most of the traditional methods to measure intellectual capital have been criticized for their static nature. They have the limitations to be made “ex-post”, since they provide a static view of the quality of intellectual capital. They are tools able to offer a photograph of the knowledge assets with focus on human capital (e.g. training per employee, R&D expense/administrative expense, satisfied employee index), and structural capital (patents, licences) without adding any dynamic, temporal perspective. While measuring human capital and structural capital may be less challenging, measuring social capital is more problematic, but still strategically important. Burt (2000) suggests
how the social capital concept is “a metaphor about advantage”: the better the social connections between people, the higher the collective and individual returns for them. Given the need to build a system for managing knowledge assets in a dynamic way, we propose an analytical approach based on Social Network Analysis (SNA) defined as “the disciplined inquiry into the patterning of relations among social actors, as well as the patterning of relationships among actors at different levels of analysis” (Breiger, 2004, p. 506). Next paragraph will introduce the benefits of applying SNA to discover innovation roles and recognize the emergence of innovative phases in the organizations’ dynamics.
Social Network Analysis Given the increased prevalence of group work in organizations today, it is of great value for managers to evaluate the relationship between structural properties of work groups and team performance indicators. To reach this objective, Social Network Analysis can be used to dynamically assess the value created by social interactions. SNA is a set of methods and tools used to identify, visualize, and analyze informal networks within and across organizations. The focus is on the relationships among social actors (individuals, teams, organizations), and on the patterns and implications of these relationships. As is shown by recent studies among several communities of practice across a number of industries (Cross et al., 2006) SNA can be used as a warning system to measure social capital by connecting knowledge seekers and knowledge providers. It might help support and optimize knowledge flows, and discover groups of people collaborating actively to introduce innovations. It allows one to visualize the hidden informal relationships that can facilitate or impede communities’ effectiveness. Cross, Borgatti and Parker (2002) suggest a list of benefits deriving from the adoption of Social Network Analysis:
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• • • • • • •
Improving a network’s ability to sense and respond to opportunities; Supporting strategic partnerships; Assessing strategy execution; Integrating networks across core processes; Improving innovation; Finding and supporting communities of practice; Ensuring integration post-merger or large scale change.
Other scholars suggest that the analysis of hidden relationships can be used to recognize the emergence of Collaborative Innovation Networks (COINs), a type of informal networks that form from the interaction of self-motivated individuals who share the same vision (Gloor, 2006). In these networks, people join not for immediate monetary reward, but because they share a common vision, and want to be part of a community that enables innovation. COINs share many similarities with the concept of “virtual networks”, defined as “permeable structures without physical borders of separation from the environment, comprising a multiplicity of autonomous, adaptive, interdependent, and self-organizing actors that rely on the Internet infrastructure to integrate and exchange value” (Romano et al., 2000). The category defined COINs is described by Gloor (2006) as a type of “Collaborative Knowledge Networks” (CKN), a set of relationships among actors that provide a technical and social infrastructure for collaboration and allowing an effective sharing, extension of the tacit and explicit knowledge within and across organizations. The CKN ecosystem is made up of different types of virtual communities: Collaborative Innovation Networks (COINs), Collaborative Learning Networks (CLNs) and Collaborative Interest Networks (CINs). “Innovations originating from COINs are disseminated by a ripple effect transferring knowledge from COIN to CLN, and from CLN to CIN. Discussion of the innovations within the CIN leads to new innovation and the
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creation of new COINs, resulting in a perpetual Double Helix of CKN” (Gloor, 2006). The network scorecard that we propose in this research is based on the assumption that to recognize the presence of innovative groups or roles, it is possible to use network indicators like the ones we present in Table 1. Our scorecard is based on the main findings of research conducted by Burt (2000), Gloor (2006) and Cummings and Cross (2003), describing the organizational benefits of network indicators to recognize innovation roles and group dynamics. As Gloor stated (2006): “The COIN core team has comparatively high density, but low group betweenness centrality (GBC). A CLN or CIN has lower density, but higher GBC, as external members are only connected to core team members, but not among themselves”. Metrics like network density and GBC describe the network as a whole and can be used to track macro-level dynamics. Metrics like degree centrality and betweenness centrality can be used at meso-level to understand the evolution of a community or an organization within an extended network of stakeholders. Applied to the single organization’s level, the same metrics can identify relative positions with reference to partners or competitors. At individual level, the most used metrics for measuring “point centrality” are actor’s degree centrality, betweenness centrality and closeness centrality. This derives from the assumption that the power of individual actors is not an individual attribute, but arises from their relations with others. Centralization and density are important complementary measures, since the concept of density describes the general level of cohesion in a graph, while centralization describes the extent to which this cohesion is organized around particular focal points. In terms of the benefits of these metrics for organizational studies, the use of a metric like individual betweenness centrality allows to identify brokers and boundary spanners. These actors are located on the shortest path between many others in the network and are
Recognizing Innovation through Social Network Analysis
Table 1. Social network metrics and their benefits Level of Analysis
Network Metrics Actor Degree Centrality
IndividualGroup
DescriptionIt is the total number of other points to which a point is adjacent. It is also defined as the total number of a point’s neighborhood. A point is central if it has a high degree, defined in the interval (0.00-1.00) (Borgatti and Everett, 2006).
Main Benefits • To recognize individual prominence • To help overly burdened community members
It is the number of times an actor connects pairs of other actors, who otherwise would not be able to reach one another. It measures the extent to which a particular point lies “between” the various other points in the graph (Wasserman and Faust, 1994; Borgatti and Everett, 2006).CI is a number that ranges from “-1” to “+1”. A +1 value indicates that somebody only sends messages and does not receive any messages. A –1 value indicates that somebody only receives messages and never sends any messages. A 0 value indicates that somebody sends and receives the same number of messages (Gloor, 2006).
• To identify gatekeepers and boundary spanners • To quickly diffuse strategic information such as best practices or organizational changes.• To evaluate actor’s interactivity level • To recognize coordinators, ambassadors
Group Betweenness Centrality
The proportion of geodesics (shortest path between actors) connecting pairs of non-groups actors that pass through the group. GBC of the entire group is 1 for a perfect star structure, where one central person, the star, dominates the communication. GBC is 0 in a totally democratic structure where everybody displays an identical communication pattern. (Borgatti and Everett, 2006)
• To identify innovative phases within a community life cycle • To avoid centralized, star structures that might impede free knowledge flows
Group Degree Centrality
The number of actors outside the group that are connected to members of the group (Borgatti and Everett, 2006).
• To recognize similarity in the communication patterns among different group members
Density
The total number of relational ties (connections) divided by the total number of possible relational ties (Wasserman and Faust, 1994).
• To evaluate the network’s compactness and the presence of sub-groups
Actor Betweenness CentralityContribution Index
ideal people to work with when trying to diffuse strategic information (best practice, organizational redesign).
A SOCIAL NETWORK SCORECARD As Iyer, Lee and Venkatraman (2006) state: “We urge managers to view their company’s network scorecard as the blueprint for navigation in complex dynamic settings that call for intense degree of competition and cooperation. It is a scorecard that allows for multiple managers involved in different types of relationships to know how their actions and interactions are constrained or facilitated by other existing and potential ties in the network” (P.18). In this perspective, the application of a social network scorecard would help to recognize
when and how virtual networks emerge, following the evolution of key social network indicators. Figure 1 presents our proposed network scorecard that integrates six network metrics into a three-step methodology of analysis (based on sociogram, dynamic view and intensity of interaction). By looking at the most central actors or discovering the phases in which the intra-group communication is more intense, this scorecard may provide managerial recommendations at individual, group and organizational/inter-organizational level. This scorecard, if compared to some of the network scorecards proposed in literature (Iyer et al., 2006), is peculiar in that a multiple perspective on the network structure is proposed. As a matter of fact, managerial insights can derive from either the static representation of the network (sociogram), or the dynamic evolution of network indicators
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Figure 1. Social network scorecard
or the visualization of the intra and inter-group interactions (intensity). For instance, the use of metrics like betweenness centrality helps to identify the information broker that are able to span the organization’s boundaries, helping strategic knowledge to flow from the marketing department to the market and vice versa. As Cross et al. said: “Network analysis can also help reveal loosely connected or isolated members that often represent underutilized resources of a community as their skills, expertise, and unique perspectives are not leveraged effectively” (Cross et al., p.39). In our methodology, a complete network analysis requires three operational steps to be followed: 1. Visualize the sociograms, to get insights from the maps and identify the key actors. By coloring the nodes in the sociograms, it is easy to recognize fragmentation points or peripheral members that might affect an organization’s ability to promote innovation
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and knowledge transfer. Sociograms are graphs of the inter-relationships within a group (i.e., the basic network of friendship patterns and sub-group organization); 2. Visualize the evolution of the network, where the temporal evolution of the team is followed and the trends in groups’ and actors’ centrality is observed; 3. Visualize the intensity of interaction, where the communication patterns are studied sorting by amount of interaction. To support the visual insights with more quantitative evidences, a further step is required: the analysis of individual, team and organizational data referred to indicators like actors’ degree and between-ness centrality and contribution index. The decision to choose six out of all the possible metrics derives from the assumption that network scorecard cannot work for all firms and industry. It is critical to build one that reflects how a particular organization seeks to access knowledge from
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external and internal stakeholders. For example, Iyer et al. (2006) created a scorecard based on five network metrics (average degree of nodes, average degree of partners, path length, clustering coefficient and network density) to measure the topological structure of the software ecosystems. The proposed scorecard is contextualized to the analysis of intra and inter-organizational ties.
THE VIRTUAL EBMS CASE Virtual eBMS is a project launched in 2004. Its major goal was the creation of a collaborative working environment supporting every time and everywhere learning processes and knowledge flows among learners, mentors, professors, researchers and private/public stakeholders of the School. The project was promoted with the strategic perspective to enlarge the community of stakeholders interested in the School’s education and research activities, and to consolidate the collaboration among them. After the conclusion of the project, new relationships and collaborations emerged between the School and national/ international stakeholders. The virtual environment provided them with the tools and services required to collaborate as a distributed team. The partner for the project was chosen after an open competition at European scale. The entire project lasted two years from the conceptualization phase to the realization of the technological platform, including the effective delivery and usage of services by the end users. The Virtual eBMS system is composed of four complementary and integrated sub-components: a knowledge management suite, a project management tool, a web learning platform and an e-business suite. The knowledge and learning databases of the platform are strongly integrated and they contain several typologies of knowledge resources, learning modules, multimedia assets, case studies, web links and exercises. Today, it constitutes one of the main technological and
methodological assets of the School; it enables and supports knowledge sharing and collaborative learning processes that contribute to develop and consolidate the School Intellectual Capital.
Service Architecture of the Virtual eBMS The service architecture of the Virtual eBMS system is composed of four main complementary and integrated sub-components: • • • •
Knowledge Management (KM) suite; Project Management (PM) tool; Web Learning (WL) platform; e-Business (eB) suite.
A transverse layer to the previous mentioned components completes the overall system by ensuring authentication, authorization, system management and monitoring services.
Knowledge Management Suite The main services available into the Knowledge Management Suite are: •
• • •
•
Document Management, to manage the entire life cycle of the documents, including workflow issues; Content Management, to manage news, bookmarks and bulletins; e-Library, to manage e-books, CD-ROMs, DVDs, web seminars; Search and Retrieval, to extract knowledge embedded into documents, news, books, thanks to metadata-based search, text-based search, as well as taxonomiesoriented search and interactive knowledge map navigation; Community (and Collaboration), to support the creation and growth of informal communities for knowledge exchanges, ideas generation. In this context, chat
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Figure 2. The virtual eBMS architecture
•
•
rooms, forums, document exchange areas and virtual communication support collaborative activities within the communities; Web Mining, to gather and index new and updated knowledge from external knowledge sources; Recommendation Engine, to suggest knowledge resources according to user profile.
Project Management Tool The Project Management Tool is characterized by two elements that enhance its value: •
•
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the integration with the Document Management service, in order to feed and use the knowledge base through the knowledge generated into the projects; the integration with the Web Learning platform that gives the opportunity to structure project’s activities starting from the competencies of knowledge workers.
The main services offered by the Project Management tool are: •
• • •
Phase and Activity Management, to organize the project and to assign the responsibility to each knowledge worker. Workflow Definition, to organize the life cycle of the deliverables. Reporting, to monitor the status of each phase and activity. Recommendation Engine, to suggest “justin-time” to knowledge workers specific learning patterns according to the competence gap to fulfil.
Web Learning Platform The Web Learning platform allows the organization and delivery of competency development programs. Beyond the traditional way to offer web learning programs (based on SCORM objects catalogue), this sub-component offers learning patterns based on the Problem-Based Learning
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strategy. Thanks to this innovative element, in 2006 the Project won the international award Brandon Hall Research - Learning Technology category. The main services offered by the Web Learning platform are: •
•
•
• •
Skill Gap Analysis and Competence Profile Management, to map and manage the competence profiles of knowledge workers. Structured Learning Program Management, to offer structured learning programs based on the subscription to a predefined catalogue of on-line learning modules. Unstructured Learning Program Management, to offer learners the opportunity to self-define their own learning patterns through the navigation of the learning base. Tracking and Reporting, to monitor the learning results obtained by the learner. Recommendation Engine, to suggest additional learning modules according to the specific profile of competencies and interests.
Different data sources and typologies of contents feed the whole system, as in Figure 3. The Web Learning platform is also supported by a Multimedia Laboratory composed of a fixed multimedia capture system, a mobile multimedia capture system, an automatic multimedia capture system, a storage multimedia area, post-processing equipments, streaming technologies and advanced editing infrastructure.
e-Business Suite The e-Business suite allows to experiment the benefits of the adoption of ICT into business processes. During the classroom sessions, undergraduate, Master’s and PhD students can use the platform to experiment concretely the implications of “eBusiness”, by practicing on the platform. The main
services available into the e-Business suite are: Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM), Business Intelligence (BI). Moreover, this suite has been also customized to tourism and agro-industry sectors, to experiment models and processes characterizing respectively a Destination Management System and a Digital Marketplace.
Project Duration and Organization The overall duration of the Virtual eBMS project has been just less than 2 years (April 2004-June 2006), including the phase of training end users. The main activities can be classified in six phases: 1. Kick-Off, to define the strategic vision and objectives of the project; 2. Users and Services Analysis, to analyse user profiles’ requirements and needs; users’ scenarios and services’ prototype; graphical design; 3. System Design (services and contents), to perform a functional analysis of services’ requirements; design of the hardware architecture and the software architecture (middleware and implementation choices); Technical Design (use cases, class diagrams) of the KM, PM, WL and eB services; and the design of the Knowledge & Learning Base; Courseware design development; 4. System Implementation, to implement hardware and middleware architectures and KM, PM, WL, eB services; 5. System Test, through Single-based test and Integration test; 6. User deployment, involving training and monitoring. The first two phases (April 2004-July 2004) are monitored in this research and fall into the observation period. The main working groups
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Figure 3. Services and contents of the platform
formally involved into the design and implementation of the Virtual eBMS system were as follows: •
•
•
•
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Network and System Support group, focused on technical and functional design of the network infrastructure and hardware architecture; Software Architecture group, focused on software architecture design (operating system, middleware and application levels) and definition of the implementation design pattern; Courseware Design and Development group, focused on learning strategy implementation in the on line modules and in the definition of the methodology to create a multimedia on line modules from static knowledge resources used in face-to-face lectures; Knowledge Base design group, focused on taxonomies generation, definition of parameters to evaluate the effectiveness of
•
•
•
•
•
a taxonomy, definition of processes to update and to use the knowledge base; Software Implementation group, focused on coding the software application, according to the defined implementation guidelines (Software Design and Development group); Knowledge Management group, focused on defining and designing the knowledge management services, with the end-user perspective; Project Management group, focused on defining and designing the project management services, with the end-user perspective; e-Learning group, focused on defining and designing the e-learning services, with the end-user perspective; e-Business group, focused on defining and designing the e-Business services, with the end-user perspective.
Recognizing Innovation through Social Network Analysis
The above mentioned groups played a central role according to the different phases of the project. Figure 4 illustrates the duration of each phase as well as the involvement of the groups during the whole development of the project. For each sub-component a member responsible for the requirements analysis was appointed. Many cross-groups meetings were organized to share the main ideas inspiring the description of the services and to align the overall design of the integrated system.
SOCIAL NETWORK SCORECARD APPLIED TO A VIRTUAL EBMS PROJECT To verify the validity of the Social Network Scorecard – described in section 2 –we opted for the team working in the design of the Virtual eBMS. Data collection was realized by automatically accessing seven e-mailboxes of researchers involved in the project for a period of ten months (i.e. March-December 2004). The availability of tracking and mining digital data is an important
advantage for social network scientists, since most of the social network studies are still based on questionnaires that are limited by the response rate and by the subjectivity of the answer. To match group activities with network indicators’ evolution, and avoid any possible misinterpretation, we analyzed official project documents and conducted interviews with community members, including Project Managers, other key informants and the members who agreed to share their e-mailboxes in the data collection phase. A focused interview with the Virtual eBMS Project Manager helped contextualize the analysis.
Visual Analysis by Sociograms The visual analysis of sociograms provided evidences of the hidden organizational structure of the team, that over time appeared to be organized around three clusters/informal groups: • •
Cluster 1. Software Design and Development Team Cluster 2. Hardware and Network Team
Figure 4. Phases and time scheduling of the project
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•
Cluster 3. Client and Supplier Relationship Management Team
The third cluster was an unexpected informal group, not formally recognized in the official documentation (see Visual Analysis by Intensity). The visual analysis of the communication flow indicates that senior members of the partner consulting company hold a peripheral position in the network. This result is consistent with their tasks in the project, since they were financial accounting managers and managers in charge of future contextualization of the platform to specific industries. This group represents a Community of Interest (CIN), mostly acting as receivers of e-mails from the core team, which liaised with stakeholders interested in the further development of the platform. From March to December 2004 Cluster 1 was the most involved and interactive, while the other two were centralized around few key actors and characterized by a mono-directional flow of communication, from a central hub towards a periphery of internal and external members. Figure
Figure 5. Static view of three clusters
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5 shows the communication via email that the whole project team exchanged at the end of the observation period (10 months). A link represents an email sent and received and each node stands for a single actor. The more two nodes are close to each other, the most frequent is the exchange of emails between them. Red nodes are eBMS members, black nodes are members of the partner company and grey nodes represent other external stakeholders interested in the project. Looking at their communication patterns, we recognized three clusters: 1. Software Design and Development. This central cluster is composed of internal and external members jointly working to define the platform architecture. It was constituted of instructional designers, subject matter experts and knowledge mining experts. 2. Hardware and Network, composed of members of the partner companies connected directly to the central actor (eBMS IT Manager). Other members recognized as active communicators are: hardware sales
Recognizing Innovation through Social Network Analysis
manager, network architecture manager and eBMS technicians. In the first ten months of the Virtual eBMS Project this group interacted to understand how the innovative platform would impact the IT systems of the School. 3. Client and Supplier Relationship Management, a group of external observers composed of all the managers responsible for the initial contact between partnering companies and eBMS. This social network is built around the “External Relations Manager” at eBMS, whose role was to nurture relationships with external stakeholders interested in observing the evolution of the platform. Their external role in the design phase – rather than being operative - was typical of an interest network, or steering committee, in charge of visioning future applications for the platform. The results of the visual analysis support the findings of other studies that explored the impact of different network structures on group productivity. Guetzkow and Simon (1955) showed that communication patterns with centralized structures improved the diffusion of information when team were involved in simple tasks. This is exactly what we observed in the case of the Hardware and Network cluster and the Client and Supplier Relationship Management cluster, whose role in this phase is uniquely to nurture interest in the external stakeholders. The communication behaviour of the Software Design and Development cluster is decentralized, and represents a typical example of group patterns described by Shaw (1964) in his systematic review of research on communication structure of teams. The author showed how decentralized communication flows took less time to finish complex tasks than groups with centralized communication flows. At individual level, we recognized specific informal roles emerging from the social network maps. An interesting insight rising from the
analysis of the Hardware and Network cluster is the potential weakness coming from the high centralization of this cluster around one single actor, the eBMS IT Manager. He seemed to have no substitutes in managing the interactions with the hardware suppliers. Indeed, after removing this actor from the network, all the suppliers were disconnected from the network. This result represented a warning element that created awareness in the school’s direction to reduce the occurrence of this potential “single point of failure”. On the other hand, the positive performance of the platform in terms of software and hardware components showed that a “star structure” like this, instead of creating information bottlenecks, supported an efficient way of distributing workload. The IT manager had the typical role of a “boundary spanner”, that is an “individual within a team who acts as the transducer between the team and the rest of the firm (organization) during the exchange of information that take place during the process of innovation” (Afuah and Tucci, 2003). The most central actor in the Software Design and Development cluster was the Virtual eBMS Project Manager, whose role was to facilitate a fluid and constant information flow within the core team. He was in charge of coordinating an interdisciplinary group, composed of internal and external members, whose tasks were complex and required more information processing compared with the simple, routine tasks characterizing the other two clusters.
Dynamic Analysis The visual dynamic approach allows to find periods of high and low collaboration within a community’s life cycle. By observing the trends in terms of low and high group between-ness centrality (GBC), we identified few periods of potential high productivity and information dissemination. In a social network perspective, the group betweenness centrality of the entire group is 1 for a perfect star structure, where one central
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person dominates the communication. GBC is 0 in a completely democratic structure where every actor has an identical communication pattern. Figure 6 shows the evolution of Group Betweenness Centrality (red line), Group Degree Centrality (blue line), and Density (green line) from March to December 2004. The periods of intense communication and high activity are recognizable by slopes in the evolution of group between-ness centrality and high-density structure of the community (Gloor, 2006). A macro-level analysis suggests that, after the innovation seminar, the group between-ness centrality dropped down to less than 0.60, with a minimum value of 0.20 and an average value of 0.45. While in the initial four months the high centralized structure (average GBC 0.68) was explained by a high number of one-way seminars (training phase), after the Innovation Management Workshop the average GBC was steadily equal to 0.55 (for 6 months). During the Design Phase, several strategic meetings and workshops took place. To design the main features of the platform, as well as the customization of the solutions
proposed by the partner company, in the period June-July internal and external project members were involved in frequent meetings to discuss Design of the Content Management System, OpenCMS and NetOffice, Innovation Seminar, e-Business suite workshop. From the dynamic view we noticed a very intense period of information sharing during a two-day seminar called “Innovation Workshop”. It was organized as a modular brainstorming session to facilitate cross-fertilization of knowledge and experiences. It was targeted to members of eBMS (14 participants) and the partner company (12 participants) including: project managers, subject matter experts, e-learning manager, IT managers, software engineers, instructional designers, technicians. Its mission was to create a shared knowledge about the new approaches to Knowledge Management, e-Learning and Project Management, searching for a common definition of new ways for integrating them in the new technological platform. An operative outcome of this phase was the delivery of the “Design Documents”, a point of reference for the knowledge
Figure 6. Evolution of group level indicators over 10 months
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base classification, and for the e-Learning modules to be loaded in the innovative platform. During the Innovation Workshop there was an increased level of collaboration between members of the Software Design and Development and external partners involved in the project. Whereas the other two clusters are characterized by a centralized structure (see Figure 7), the first cluster had a low centralization and a good level of density and cohesion between eBMS members and the 14 external partners. Some interesting results emerged at a mesolevel analysis. To see the reliance of the network, we removed the three nodes with the highest between-ness centrality, who were also coordinators of cluster 1, 2 and 3 (see Figure 8). The resulting map represents a snapshot of the communication ties in June-July where 15 members of the partner company (black nodes) are still actively interacting with the community’s members. Taking out the hubs of clusters 2 and 3, the external stakeholders resulted totally disconnected from the core team. This result suggests that:
•
•
•
The Virtual eBMS project manager is the most central actor without being a bottleneck; The whole community has developed internal mechanisms able to make the communication network self-sustainable; The disconnection of cluster 2 and 3 from cluster 1 might represent a “structural hole” when the inclusion of external actors or IT decision makers is required.
Visual Analysis by Intensity (Adjacency Matrix) To look for more insights and confirm the ones emerging from the map and dynamic views, we observed the information flows through the value adjacency matrix created using Netgraph, a matrix generator embedded into the software suite TeCFlow (Gloor, 2006). Each cell in Figure 9 represents an information exchange between actors grouped by organization. The more intense the cell colour, the higher the number of emails exchanged between two actors. Quadrants A1 and A2 highlight the e-mails sent and received by members of the same organization, while quadrants B1 and B2 indicate the communication
Figure 7. Focus on the period of the “Innovation Workshop” (June-July)
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Figure 8. The three clusters without the most central actors
within the two organizations, eBMS and the partner company. We observed a dense collaboration in the quadrant A2, as well as an intense communication from the Virtual eBMS Project Manager towards external and internal members (first row/ actor in quadrants B2 and A2). This confirms the role of the Virtual eBMS project manager acting as “cluster 1 coordinator”, facilitator of information dissemination within the team and boundary spanner towards external community members.
Using indicators to Support Visual Insights In this paragraph, we re-consider the insights described in the previous sections through the lens of selected indicators. Figure 11 shows the most active members interacting in the ten-month period, divided by cluster. The three clusters were composed by mixed groups in terms of knowledge, skills and competences. In particular, the core team in cluster 1 was composed by knowledge experts in business management, IT management, software developers, instructional designers, IT architect. This represents one of the key factor to build an innovative project depending on the participation of a variety of talented people across the whole process. As shown by Rulke and Galaskiewitz (2000), decentralized groups composed mostly of special-
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ists and mixed background – such as in the Virtual eBMS team– outperform centralized groups composed by members with similar background. Watching the movies that visualize over time the communication dynamics of the Virtual eBMS community, we noticed how internal and external members filled different informal roles over 10 months. By recognizing the roles of individuals in virtual communities, we can answer questions like: Who are the experts within the team?, Who are the innovators, collaborators, and communicators? We also noticed a trend in the communication behaviour of the eBMS project manager. Starting in a position of receiver and collector of documents in month 1, he assumed at the end of the period a more active role of coordinator before the launch of the implementation phase. Adopting a classification introduced Gloor (2006), and based on a large number of innovation networks, we attribute the eBMS project manager a network role of collaborator or expediter. This role has been to plan, allocate, assign, schedule and assure completion of the innovation project, going beyond the traditional program manager’s tasks. This emerges from his contribution index (high frequency of interaction and average value equal to 0) which means good ability to facilitate knowledge exchange that is at the basis of the innovation process. Figure 9 shows the position of
Recognizing Innovation through Social Network Analysis
Figure 9. Matrix view of the communication in the community
Figure 10. Classification of the most central actors sorted by cluster
the most active members in the Contribution Index Plot (red dots are eBMS members, black dots are actors from the partner company). The majority of the community members have a contribution index within the interval [-0.8, +0.2], which is a sign of balanced communication and free flow of information (Gloor, 2006).
At the end of ten months, the aggregate value of contribution index indicates the emergence of the following “informal roles” (Figure 11): •
Collaborator: only the eBMS Project Manager holds this role and is in charge of organizing and coordinating tasks;
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Figure 11. Contribution Index for different project members: x-axis: frequency of communication, y-axis (contribution index by Gloor, 2006)
• •
•
Innovator or creator: eBMS IT architect/ software engineer; Gatekeepers and boundary spanners (six actors), among which the Project Manager of the partner company; More than fifteen knowledge experts, who serve as ultimate source of explicit knowledge. Among them most of the instructional designers whose role was to propose the methodology for preparing and delivering e-learning courses.
DISCUSSION OF RESULTS The results of our analysis suggest evidences that a social network scorecard has the validity to match knowledge management initiatives with innovation outcomes. The analysis allowed the identification of the most innovative phases within the community’s life cycle. Within the phase of high connectivity and intense collaboration, we recognized in the Virtual eBMS project team the typical topography of an “innovative collaborative knowledge network” (Gloor, 2006), where learning networks and innovation networks (core and
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extended teams) co-exist with a more peripheral interest network. The analysis allowed the identification of the most innovative or productive phases within the team’s life cycle. Within the phases of high connectivity and intense collaboration, we recognized in the Virtual eBMS project team the typical topography of an “innovative collaborative knowledge network” where learning networks and innovation networks (core and extended teams) co-exist with a more peripheral interest network (Gloor, 2006). During the two-year project, many critical situations happened, but the awareness to design and implement an innovative platform that could revolutionize the global education industry motivated all the groups, the two main organizations involved in the project and the stakeholders interested in the contextualization of the platform. This strong belief has been demonstrated by the list of results briefly described below: •
•
All the deliverables were positively accepted during the several auditing phases created by external international experts; The innovative elements characterizing the methodological assets and the technologi-
Recognizing Innovation through Social Network Analysis
•
•
•
•
•
cal solution have been published in international proceedings conferences and scientific journals; The network of relationships developed during the project have been transformed into stable partnerships of the School oriented to promote and realize new projects; Two prestigious awards have been obtained; an international one, received in 2006 in Denver, Colorado (USA), by the “Brandon Hall Research” in the category “Learning Technology”, for the creation of an innovative web learning platform which embeds the problem-based learning approach and a national one, received in Italy, for the “excellent” evaluation recognized to the knowledge management component, obtained within the National Operative Program for Research (PON Ricerca) 2000-2006. The realized system now constitutes the basic technological and scientific platform for a multi-year research program specialized in innovative management of tourism industry, agro-industry supply chain and collaborative product design in aerospace sector; The growth of the internal team involved in this project, that has been institutionalized into a new Laboratory. The overall platform supports the research and educational programs of the School, also those realized in partnership with external stakeholders. Indeed, a subset of services has been customized to support an international corporate master’s program realized by an international industrial group and some executive programs.
Even the evidences of possible weaknesses of the network turned to be effective structural properties, like the star structure shown by the IT support cluster. What we found is consistent with the results found by Shaw (1964) according
to whom “communication nets” with centralized structures improve the diffusion of information in simple tasks while decentralized structures delay the diffusion of information. The same analysis illustrated how groups with decentralized communication nets take less time to finish complex tasks than groups with centralized communication nets.
CONCLUSION Assessing and measuring the success of a community or project team can be a real challenge. Scholars have proposed several ways to assess its performance: evaluate the tangible outcome of the community in financial terms; ask external experts to rate the performance of the community; find other objective measures of community success such as the speed of innovation diffusion, or the time and degree of acceptance of the innovation proposed by the community. It is even more challenging to identify what went wrong during the innovation process, if managers do not have a sort of scorecard suggesting who is holding roles of informal leadership, who is acting as “gatekeeper”, who represents the knowledge repository. Once a community has developed a tangible product and its value is measured, it is important to recognize which factors helped reach those objectives. By using the Social Network Scorecard as methodological guide, we observed that in the Virtual eBMS project team innovation roles have naturally emerged beyond management’s expectations (e.g. coordinator, knowledge expert, boundary spanner). The Scorecard acted as a sort of toolkit to discover the hidden relations. We can summarize in the following dimensions the main success factors of the innovative team working to design the Virtual eBMS: • •
De-centralized communication structure; Frequent exchange of information within the operative team;
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•
Community structure based on three clusters: core/operative team, support/technical team, interest team; Interdisciplinary community’s composition; Balanced presence of different informal roles (gatekeepers, SMEs, coordinators); Organization of face-to-face workshops to speed up the innovation process.
Ahuja, M. K., & Carley, K. M. (1999). Network Sstructure in virtual organizations. Organization Science, 10(6), 741–757. doi:10.1287/ orsc.10.6.741
The Scorecard and the related concepts of SNA have been useful to assess the strategy execution during the first ten month of the project, stressing individual roles and phases associated with very collaborative patterns. It also helped to strengthen the relationship between the two organizations, eBMS and the partner company, providing feedback to their strategic partnerships that is still continuing. The findings of this study are limited to structures formed by email communication. It is possible that communication network formed by media other than email is substantially different, even though we assume that email communication is a good approximation of social ties in the case of virtual communities. It remains to be seen whether other media or even a more structured electronic environment will render similar results. Another limitation of this study is that we did not have access to the content of the email exchanges; thus we could not add more meaning to the interactions occurred. We believe that this limitation – typical of the Social Network Analysis approach - can be overcome with a strong contextualization of the analysis and – if possible – with a Content Analysis applied to digital records revealing the meaning/quality of the communication.
Burt, R. S. (2000). The network structure of social capital. In Sutton, R. I., & Staw, B. M. (Eds.), Research in Organizational Behavior (pp. 345–423). Greenwich, CT: JAI Press.
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REFERENCES Afuah, A., & Tucci, C. L. (2003). Internet business models and strategies: Text and cases. New York: Mac Graw Hill.
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Breiger, R. L. (2004). The analysis of social networks. In Hardy, M., & Bryman, A. (Eds.), Handbook of Data Analysis (pp. 505–526). London: Sage Publications.
Cross, R., Borgatti, S. P., & Parker, A. (2002). Making invisible work visible: Using social network analysis to support strategic collaboration. California Management Review, 44(2), 25–46. Cross, R., Laseter, T., Parker, A., & Velasquez, G. (2006). Using social network analysis to improve communities of practice. California Management Review, 49(1), 32–60. Cummings, J. N., & Cross, R. (2003). Structural properties of work groups and their consequences for performance. Social Networks, 25, 197–210. doi:10.1016/S0378-8733(02)00049-7 Edvinsson, L., & Malone, M. S. (1997). Intellectual capital: The proven way to establish your company’s real value by measuring its hidden values. London: Piatkus. Gloor, P. A. (2006). Swarm creativity: Competitive advantage through collaborative innovation networks. New York: Oxford University Press. Guetzkow, H., & Simon, H. (1955). The impact of certain communication nets upon organization and performance in task-oriented groups. Management Science, 1, 233–250. doi:10.1287/mnsc.1.3-4.233 Heisig, P., Mertins, K., & Vorbeck, J. (2001). Knowledge management: Best practices in Europe. City: Springer.
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Huber, G. P. (2001). Transfer of knowledge in knowledge management systems: Unexplored issues and suggestions. European Journal of Information Systems, 10(2), 72–79. doi:10.1057/ palgrave.ejis.3000399
Rulke, D. L., & Galaskiewicz, J. (2000). Distribution of knowledge, group network structure, and group performance. Management Science, 46(5), 612–625. doi:10.1287/mnsc.46.5.612.12052
Iyer, B., Lee, C. H., & Venkatraman, N. (2006). Managing in a small world ecosystem: Some lessons from the software sector. California Management Review, 48(3), 28–47.
Shaw, M. (1964). Communication networks. In Berkowitz, L. (Ed.), Advances in Experimental Social Psychology (pp. 111–147). New York: Academic Press. doi:10.1016/S0065-2601(08)600507
Jillinda, J., Kidwell, K., Vander Linde, M., & Johnson, S. L. (2000). Applying corporate knowledge management practices in higher education. EDUCAUSE Quarterly, 4, 28–33.
Storey, J., & Barnett, E. (2000). Knowledge management initiatives: Learning from failure. Journal of Knowledge Management, 4(2), 145–156. doi:10.1108/13673270010372279
Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard measures that drive performance. Harvard Business Review, 70(1), 71–79.
Sveiby, K. E. (2000). Measuring intangibles and intellectual capital. In Morey, D., Maybury, M., & Thuraisingham, B. (Eds.), Knowledge management: Classic and contemporary works. Cambridge, MA: The MIT Press.
Romano, A., Passiante, G., & Elia, V. (2000). Modelling growth clusters in the new Web Economy. Proceedings 45th International Conference on Small Business (ICSB) World Conference, Brisbane, Australia.
Wasserman, S., & Faust, K. (1994). Social network analysis: Methods and applications. Cambridge: Cambridge University Press. Wenger, E. C., & Snyder, W. M. (2000). Communities of practice: The organizational frontier. Harvard Business Review, 78(1), 139–145.
This work was previously published in Innovative Knowledge Management: Concepts for Organizational Creativity and Collaborative Design, edited by Alan Eardley and Lorna Uden, pp. 264-285, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.12
Organizational Password Policy Alex Ozoemelem Obuh Delta State University, Nigeria Ihuoma Babatope Delta State University, Nigeria
ABSTRACT
INTRODUCTION
The purpose of this chapter is to provide an overview of password policy. It specifically identifies some basic elements of password policy, password and password policy life cycles, essence of password policy within an organization, password policy usability considerations, implementation/ enforcement of password policies within organizations, the importance of access control in relation to password policy and computer security, and future trends in password policy are set forth. Generally, the absence of a password policy leaves a large void in any organization’s ability to operate effectively and maintain business continuity, and allows for ad-hoc decisions to be made by unauthorized personnel.
The ubiquity of passwords is a fact of the present age. Authentication is usually executed by using the combination of a user name and password (Vu, Proctor, Bhargav-Spantzel, Tai, & Cook. 2007). Thus, password is often a major barrier between a potential attacker and a victim’s information. Knowing a person’s password allows an attacker to impersonate that person in an online setting, or access sensitive data intended only for that person. As society becomes increasingly dependent on passwords for security, it also becomes vulnerable to those passwords becoming compromised. Previous works have shown that users, when given the option, tend to create simple passwords (Yan, 2001; Summers & Bosworth, 2004; Leyden, 2003). However, simple passwords are especially vulnerable to attackers (Yan, 2001; Vu, Proctor,
DOI: 10.4018/978-1-60960-587-2.ch812
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Organizational Password Policy
Bhargav-Spantzel, Tai & Cook. 2007). Therefore, many groups and organizations develop password policies which impose restrictions on the passwords a user may create and how those passwords are used. A well-written policy may increase an organization’s security (Polstra, 2005; Summers & Bosworth, 2004; Vu, Proctor, Bhargav-Spantzel, Tai & Cook. 2007; Kuo, Romanosky & Cranor, 2006). A large portion of password policies is usually related to the creation of passwords. For example, a password creation policy may require that passwords be at least six characters long and contain at least one numeric character. There are, however, several other facets in a password lifecycle for which password policies are relevant (Weirich, 2005). In the design of a password policy, it is crucial that human factors be considered in addition to technical factors. While a password policy may specify the encryption to be used on the password, an overly complex password may be written down on paper by its users because they fail to memorize it (Summers & Bosworth, 2004). Likewise, many password policies specify with whom a user may share passwords, and under what circumstances an administrator is to be contacted. There are many organizations using passwords for security, but no widely-accepted unified context under which all of those password policies may be understood and compared. Such a unified context would enable both the creation of better password policies and a better understanding of password policies (Summers & Bosworth, 2004). Passwords are the most common authentication for accessing computer systems, files, data, and networks. But are they really secure? According to Wakefield (2004), the SANS Institute indicates that weak or nonexistent passwords are among the top 10 most critical computer vulnerabilities in homes and businesses. A compromised password is an opportunity for someone to explore files and accounts, and even obtain administrative privileges, undetected. Federal regulations mandate
the security of confidential client information. The rising threat of litigation is prompting organizations to seriously evaluate computer security measures. Creating impenetrable passwords is a reasonable measure to enhance system security. Security breaches not only put firms at risk of litigation for failing to protect confidential information, they can also lead to financial losses (Wakefield, 2004). Passwords are commonly used to gain access to websites storing confidential financial information. They often enable users to execute and authenticate commercial and financial transactions. A compromised company password may lead to fraud, illegal activities, unauthorized transactions, or public disclosure of private information. The most common password vulnerabilities include user and administrative accounts with weak or nonexistent passwords and the lack of company policy to adequately protect passwords. Effective measures to reduce network vulnerability and increase security include the implementation of policies that outline important password habits, and proactive verification of password integrity (Polstra, 2005; Summers & Bosworth, 2004; Vu, Proctor, Bhargav-Spantzel, Tai & Cook. 2007; Kuo, Romanosky & Cranor, 2006). The objectives of this chapter are to: X-ray literature on system security policy dwelling particularly on password policy within organizations; identify the various stages of password policy life cycle, and features, guidelines, policy usability considerations and implementation.
BACKGROUND A ‘password’ is a secret word or string of characters that is used for authentication, to prove identity or gain access to a resource. The password must be kept secret from those not allowed access (Wikipedia, 2008). The use of passwords is known to be ancient. Sentries would challenge those wishing to enter
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an area or approaching it to supply a password or watchword. Sentries would only allow a person or group to pass if they knew the password. In modern times, user names and passwords are commonly used by people during a log in process that controls access to protected computer operating systems, mobile phones, cable television decoders, automated teller machines (ATMs), etc. A typical computer user may require passwords for many purposes: logging in to computer accounts, retrieving e-mail from servers, accessing programs, databases, networks, web sites, and even reading the morning newspaper online (Wikipedia, 2008). Despite the name, there is no need for passwords to be actual words; indeed passwords which are not actual words may be harder to guess, a desirable property. Some passwords are formed from multiple words and may more accurately be called a passphrase. The term passcode is sometimes used when the secret information is purely numeric, such as the personal identification number (PIN) commonly used for ATM access. Passwords are generally short enough to be easily memorized and typed (Wikipedia, 2008). For the purposes of more compellingly authenticating the identity of one computing device to another, passwords have significant disadvantages (they may be stolen, spoofed, forgotten, etc.) over authentications systems relying on cryptographic protocols which are more difficult to circumvent (Wikipedia, 2008). A ‘password policy’ is a set of rules designed to enhance computer security by encouraging users to employ strong passwords and use them properly. A password policy is often part of an organization’s official regulations and may be taught as part of security awareness training. The password policy may either be advisory or mandated by technical means. Generally, password policy is a guide to choosing satisfactory passwords. Some are controversial. They are usually intended to (Unicityd, 2006):
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• • • •
•
assist users in choosing strong passwords; ensure the passwords are suited to the target population; recommendations to users with regard to the handling of their passwords; a requirement to change any password which has been lost or compromised, and perhaps that no password be used longer than a limited time; some policies prescribe the pattern of characters which passwords must contain.
For example, password expiration is often covered by password policies. Password expiration serves two purposes (Unicityd, 2006): •
•
if the time to crack a password is estimated to be 100 days, password expiration times fewer than 100 days may help ensure insufficient time for an attacker. if a password has been compromised, requiring it to be changed regularly should limit the access time for the attacker
Some argue, however, that password expirations have become obsolete (Spafford, 2009), since: •
•
asking users to frequently change passwords encourages simple, weak, passwords. if one has a truly strong password, there is little point in changing it, since the existing password is already strong. Changing passwords which are already strong merely introduce risk that the new password may be less strong. However, since any compromised password is weak, essentially by definition, the possibility of compromise must be considered in estimating password strength.
Organizational Password Policy
PASSWORD LIFE CYCLE The lifecycle of a password comprises of four stages (Shay, Bhargav-Spantzel & Bertino, 2007) - creation, storage and memorization, usage, and deletion. One or more of these stages may be influenced by a password policy. A password policy is thus a set of rules regarding the creation, storage, usage, and deletion of a password. Password Creation. A password is created in accordance with the stipulations of a password policy. Such policy often ensures that the password is complex enough to present an obstacle to potential attackers. The policies of many organizations may require that a password have certain number of letters, numbers, and non-alphanumeric symbols. The policy may also set the minimum password length to be six characters, and the maximum length to eight, etc. Password Storage and Memorization. Once a password has been created, it must be memorized or otherwise stored by the user. The computer system must also retain the password to be able to authenticate the user. As an example, a password policy could require that all Unix passwords stored on a server be hashed in a particular type of database. Password policies are explicit about passwords needing to be stored encrypted and whenever possible, encrypted passwords should be kept in a protected file. There could also be policies which restrict the user from storing passwords in a particular manner such as, explicitly prohibiting users from writing down their passwords. Password Use. A password policy may provide users with instructions regarding the handling of a password which has already been created and memorized such as requiring that the users’ passwords be encrypted when being transmitted. Another related policy relevant to many organizations is a restriction on the sharing of passwords. Password Deletion. The final stage in the password lifecycle is deletion This stage may also be influenced by password policy. Deletion results in the password becoming unusable. Passwords
may be deleted for one of two reasons – expiration or revocation. Many password policies limit the temporal duration of a password. A password which has exceeded this limit is said to have expired. Passwords may be revoked when the user or administrator believes the password has been compromised. The password policy instructs users to request new passwords if they suspect their passwords are compromised.
THE ESSENCE OF A PASSWORD POLICY IN AN ORGANIZATION Employees should be informed of the vulnerability of computer systems and the potential risks to clients, the company, and their jobs should networks or files be penetrated. Policies that strengthen computer security incorporate a legal defense strategy and also demonstrate responsibility toward clients. Effective policies include password administration and control guidelines, as well as password creation procedures (Wakefield, 2004). Because computer security threats are internal as well as external, information security policies should answer the following questions (Wakefield, 2004): • • • • • • • •
Access to information: Who has access to particular databases, files, or networks? Who can perform e-commerce activities for the company? Who can access client records? Who can access company records? How is access determined? How is access managed (e.g., passwords, physical location, separation of duties)? Passwords: ◦⊦ Who has access to passwords? ◦⊦ Which files, databases, or networks require passwords? ◦⊦ Are passwords protected?
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Organizational Password Policy
◦⊦ ◦⊦ ◦⊦ ◦⊦ •
•
Are passwords the required length? How often are passwords changed? Are passwords recycled? Are denials due to an inaccurate password monitored? Reporting security incidents: ◦⊦ What constitutes a security incident? ◦⊦ How are security incidents documented? ◦⊦ Who is informed? ◦⊦ What specific remedies are available? Periodic review of security policies and procedures: ◦⊦ Who performs the review, and how often? ◦⊦ How comprehensive is the review? ◦⊦ Who evaluates the review, and how is it documented?
PASSWORD POLICY LIFE CYCLE The life cycle of a password policy involves the five phases illustrated in the Figure 1 (Weirich, 2005): •
Policy creation: During this phase, password administrators define the password configuration of a system platform. Typically, a different password policy is defined for each level within the enterprise.
Figure 1. Password policy life cycle
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•
•
•
•
Analysis: During this phase, password administrators validate the password configuration of a system platform against the settings defined in the password policy. Enforcement: During this phase, the password settings defined in the password policy are enforced on the different system platforms. Reporting: This phase deals with the generation of password policy compliance reports. Monitoring: This phase deals with the generation of real-time alerts when a machine’s password settings are changed.
COMMON FEATURES OF PASSWORD POLICY GUIDELINES In the past, research on computer security in general and password mechanisms in particular, has focused almost entirely on technical issues, such as encryption algorithms or firewalls. This approach has been criticized as early as 1975, when Saltzer & Schroeder (1975) included usability in the stated goals of the secure system. However, it is only in recent years that the security community at large has realized that a significant number of security breaches that are being reported have been enabled and facilitated by user behaviour (Weirich, 2005). The fact that user behaviour can be an important contributor to security breaches is not surprising,
Organizational Password Policy
since the way in which password mechanisms are set up requires users to perform a number of tasks in order to ensure that the resources in question are protected adequately. The exact tasks users need to perform depend on the specific implementation of the password mechanism that is in place, and on the particular threats that an organization faces. To these end password policies of most organizations specifies some common guidelines such as (Weirich, 2005): • •
• • •
Users need to choose cryptographically strong passwords. They need to choose a unique password for each password-protected resource they access. They need to memories their passwords (as opposed to keeping a physical copy). They must not share their passwords with third parties. They need to change their passwords at regular intervals.
PASSWORD POLICY USABILITY CONSIDERATIONS Password policies are usually a tradeoff between theoretical security and the practicalities of human behavior. The following scenarios will suffice to buttress this fact (Wikipedia, 2009): •
•
Requiring excessively complex passwords and forcing them to be changed frequently can cause users to write passwords down in places that are easy for an intruder to find, such as a Rolodex or post-it note near the computer. Users often have dozens of passwords to manage. It may be more realistic to recommend a single password be used for all low security applications, such as reading online newspapers and accessing entertainment web sites.
•
•
•
Similarly, demanding that users never write down their passwords may be unrealistic and lead users to choose weak ones. An alternative is to suggest keeping written passwords in a secure place, such as a safe or an encrypted master file. The validity of this approach depends on what the most likely threat is deemed to be. While writing down a password may be problematic if potential attackers have access to the secure store, if the threat is primarily remote attackers who do not have access to the store, it can be a very secure method. Inclusion of special characters can be a problem if a user has to logon a computer in a different country. Some special characters may be difficult or impossible to find on keyboards designed for another language. Some identity management systems allow Self Service Password Reset, where users can bypass password security by supplying an answer to one or more security questions such as “where were you born?,” “what’s your favorite movie?,” etc. Often the answers to these questions can easily be obtained by social engineering, phishing or simple research.
Other approaches are available that are generally considered to be more secure than simple passwords. These include use of a security token or one-time password system, such as S/Key (Wikipedia, 2009).
PASSWORD POLICY, COMPUTER SECURITY AND THE IMPORTANCE OF ACCESS CONTROL In its most basic sense, computer security deals with the protection of computer related assets such as the computers themselves, the data and software stored and running on them and the networks they
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Organizational Password Policy
are connected to (Gollmann, 1999). The process of security engineering usually starts out with the development of a threat model, which identifies the specific threats the resources in question need to be protected against (Anderson, 2001). This drives the development of the security policies, which specify clearly and concisely the security objectives that are to be attained. The policies, in turn, inform the design of the security mechanisms, and are in effect implemented through these mechanisms. Since policies are written at a broad level, organizations will often develop standards, guidelines and procedures that offer a clearer approach to implementing policy and meeting organizational goals (National Institute of Standards and Technology, 1995). Standards specify the uniform use of specific technologies and procedures to secure systems, whereas guidelines assist users in developing system-specific standard procedures. Procedures themselves are simply detailed steps to be followed by all involved in securing the resources in question. Security standards, guidelines and procedures are often disseminated throughout an organization via handbooks, regulations, or manuals. There are three objectives which any secure system would be expected to attain (Schneier, 2000): 1. Confidentiality ensures that any data stored on a system or transmitted between systems is disclosed only to authorized individuals. 2. Integrity safeguards that no data stored on a system or transmitted between systems has been modified, deleted or created by unauthorized individuals. 3. Availability makes certain that the data and services provided by a system are available when users require them. Ultimately, confidentiality, integrity and availability are provided through access control mechanisms (Schneier, 2000). We want to make sure that authorized users are able to do whatever
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they are authorized to do, whereas everyone else is not. Access control mechanisms usually are the first line of defence any malevolent wouldbe intruder to a computer system has to breach, and as such can be said to form the foundation on which much of computer security is built Anderson (2001).
IMPLEMENTING/ENFORCING PASSWORD POLICY Implementing/enforcing a password policy can be the real issue in any network setting. Security administrators can delegate a set of rules to endusers, but how is this going to be enforced? There are two common ways to do this (Wikipedia. 2009): •
•
By Mouth Approach: Many companies just enforce their policies by mouth. That is, they just state the password policy and expect network users to adhere to the rules. Custom Passfilt: For technology savvy administrators, there’s the option to create your own custom passfilt. Be careful though as this can be somewhat tricky and can be the cause of many headaches.
The principle underlying password security is deceptively simple: the authorized user of a computing resource and the password mechanism that has been put into place to control access to this resource share exclusive knowledge of a secret password, which is disclosed by the user during login to authenticate him. The manner in which this basic principle is implemented varies between different application software and operating systems. In a simplified manner, a typical implementation, as in existence in most organizations today, works as follows (Weirich, 2005): 1. The administrator of the password mechanism issues every new user with a username (for identification) and a password generated
Organizational Password Policy
randomly by the mechanism (for authentication), and sets up a new account with these details. Usually, the user will be handed this information in paper format and uses it to log in for the first time. 2. After the first login, the user will change the system-generated password to one of his choice. However, most systems will only accept user-generated passwords if they comply with certain criteria believed to ensure cryptographic strength, which makes offline dictionary attacks more timeconsuming (proactive password checking (Stallings, 1995). There is no agreed standard for the cryptographic strength of a password. It is usually assumed that it increases with the length of the password, the size of the character set it is drawn from, and the extent to which the sequence of characters in it is random (Anderson, 2001, Schneier, 2000). 3. The system stores the usernames and associated hashed passwords in a specific file, which on some systems is public and on others is kept protected. Even if the hashed password file gets stolen, the attacker cannot directly recover the unencrypted passwords from the hashed ones, since a hash function is not reversible (Schneier (2000)). In addition, random bits may be added to the plain text password before hashing it in order to increase the search space for dictionary attacks even further. As a result of these extra bits, which usually are called the salt, identical plain text passwords will be coded into different hashed passwords. 4. Users are supposed to memories their password and recall it during login. They use the keyboard to enter their username and password into a dialogue screen. Feedback is given on screen, but the password itself is not being echoed. Users are expected to
ensure that they are not being observed typing in their password. 5. The password is then hashed by the system, and, together with the username, compared to the stored entries in the password file. If a match is found, the user will be given access to the computer system. A lot of systems implement what is called a three-strike policy and suspend a computer account if a certain number of unsuccessful login attempts has been made (Viega & McGraw, 2001). 6. If a user forgets his password, he will not be able to log on to the computer. Instead, he will have to contact the administrator (usually in the form of a helpdesk) for the password to be reset. 7. Most systems implement password ageing, which forces users to change their passwords at regular intervals. If a change is not made in time, the username in question will be suspended and the user has to contact the administrator to have it activated again. This aims to reduce the likelihood of successful dictionary attacks and also tries to prevent a situation where a password gets compromised without the user’s knowledge and is used by an attacker indefinitely. On password Enforcement There are two obvious ways in which the organization can aim to achieve this (Weirich, 2005): 1. The organization can enforce a behaviour, as is done in the case of enforced password ageing. Here, users are forced to change their password at regular intervals and will not be able to log in unless they have done so. However, users might find ways of undermining this. As an example, they might just switch between two passwords on a monthly basis. If the mechanism keeps a history list of past passwords and makes it impossible to choose them again, they might just choose a password with an index
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Organizational Password Policy
that increases with every enforced change (e.g. ‘peter1’, ‘peter2’, ‘peter3’…). The organization might find ways of protecting itself against this, but it is clear that not all of the behaviours that users are required to perform are also enforceable. 2. The organization can monitor users and punish misbehaviours. However, this might seriously clash with the organizational culture. More importantly, some of the required behaviours cannot be monitored. As an example, a user might disclose his password to somebody else while he is away from the organizational premises. This would make it difficult, if not impossible to monitor him. This means that organizations are faced with a fundamental problem: they require their users to perform a number of behaviours, some of which can be neither enforced nor monitored. In other words, they rely on the users to co-operate and perform certain behaviours when they could choose other behaviours which would undermine security but which cannot necessarily be monitored. Failure to behave in a security conscious fashion may lead to security breaches, but it will almost always be impossible to prove beyond reasonable doubt that a security breach has occurred as the direct result of a user choosing an insecure behaviour.
FUTURE TRENDS Social engineering is the act of manipulating people into performing actions or divulging confidential information. The term typically applies to trickery or deception for the purpose of information gathering, fraud, or computer system access. In most cases, the attacker never comes face-to-face with the victim. All social engineering techniques are based on specific attributes of human decision-making known as cognitive biases. These biases, sometimes called “bugs in
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the human hardware,” are exploited in various combinations to create attack techniques, such as Pretexting, Phishing, Interactive voice response (IVR) or phone phishing, Baiting, Quid pro quo (i.e. something for something) etc. (Wikipedia, 2008). These forms of attack constitute a huge threat to password policy which is basically human oriented. In other words, human beings are required to adequately enforce password policies. To this end, it will be expected that to ensure continued relevance of password policies it has become imperative that responsibilities of password policy should be shifted more from humans to machines or rather policy issues and complexities should be more machine oriented. The dominance of password policy in ensuring system security will continue for a long time to come as most computer systems, access control is carried out by a process of user identification and authentication (Garfinkel & Spafford, 1996). Identification establishes who the user in question claims to be. Authentication then verifies that the user is who he says he is. Today, knowledge-based authentication, in particular in the form of the password mechanism, is the most widely used authentication mechanism. It is unlikely that this situation will change significantly in the foreseeable future. Password mechanisms have a number of vulnerabilities and usability problems, but so do their possible replacements. Alternative knowledge based mechanisms, such as passfaces, have not been tested sufficiently in real-world scenarios to ascertain their usability, and they also raise a number of implementation issues (Brostoff & Sasse, 2000). A physical token might be stolen, copied or left in its slot by the user (Schneier, 2000). Token construction and distribution is also far from trivial, and has led to documented financial loss (Anderson, 1994). Biometric solutions can be unpopular with users, who are afraid of a ‘Big Brother’ scenario, in which their every activity is being monitored (Deane, Berelle, Handerson & Mahar 1995). Intruders might also obtain digital representations
Organizational Password Policy
of biometrics by stealing them from a database, by intercepting them while they are being sent over a network during authentication, or by replicating them from analogue copies left behind by users (such as fingerprints on an empty beer glass). They can then be used to impersonate the corresponding user with impunity (Kim, 1995). Apart from the specific vulnerabilities and usability problems all authentication mechanisms possess, a deciding factor for the choice of a specific solution will always be its cost and the ease with which it can be implemented. Password mechanisms are often chosen for their superiority in both respects (Anderson, 2001). In addition, physical tokens and biometrics are currently almost always used in conjunction with a password, as in smart cards that require the user to provide a PIN. This entirely means that knowledge-based authentication in the form of the password mechanism will be with us for a long time to come (Weirich, 2005).
CONCLUSION The absence of a password policy leaves a large void in any organization’s ability to operate effectively and maintain business continuity, and allows for ad-hoc decisions to be made by unauthorized personnel. On the other hand, a well-written and easily understandable password policy provides an effective basis for decision making and planning. It gives both providers and users of a resource a clear understanding of what is expected. Lastly, because the development and enforcement of a password policy is a non-trivial task, the existence and use of these documents is testament to the commitment of an organization to professionalism (Weirich, 2005). The development of password policies will provide a number of benefits: they help to make decisions regarding other policies, a framework for deciding what actions to take in particular circumstances, and a framework for computer system configuration and network design. As such, these
policies should be approached with the intent of covering each aspect of the organization’s security needs (security policies, physical security, data access, network infrastructure, systems development, systems administration, contingency planning, and maintenance). Any aspect missing from the password policy will likewise result in gaps in the ability to identify and respond to events in the areas that are lacking. The creation of a password policy and its supporting mechanisms and processes will help ensure the integrity of information resources and provide a sound foundation for the expansion of the organization’s operations (Weirich, 2005). Password policy is intended to identify the measures that users are expected to take in ensuring the security of their account and management of the security of organizational information resources. It is important that the password policy remains a high-level policy document, rather than include standards or procedural elements (Schneier, 2000). Common mistakes in drafting a password policy include adding specific parameters on length and composition of a password, such as requiring a minimum length of 9 characters and mixed-case. These sorts of elements are best left to standards documents, especially since there is a wide range of information resources access controls and not all devices and applications may support a particular password standard (Summers & Bosworth, 2004).
REFERENCES Allan. A. (2004). Passwords are Near the Breaking Point. Gartner. Retrieved March 12, 2009. from http://www.indevis.de/dokumente/gartner _passwords_ breakpoint. PDF Anderson, R. J. (2001). Security engineering: a guide to building dependable distributed systems. Chichester, UK: John Wiley & Sons.
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Bidwell, T. (2002). Hack Proofing Your Identity in the Information Age. Rockland MA: Syngress Publishing. Retrieved May 12, 2009. from: www.amazon.com/Hack-Proofing-Your... Bidwell/.../1931836515
Kuo, C., Romanosky, S., & Cranor, L. F. (2006). Human selection of mnemonic phrase-based passwords. In SOUPS ’06: Proceedings of the second symposium on Usable privacy and security, (pp. 67–78). New York: ACM Press.
Brostoff, S., & Sasse, M. A. (2000). Are passfaces more usable than passwords? A field trial investigation. Paper presented at the HCI 2000, Sunderland, UK.
Leyden, J. (2003). Office workers give away passwords for a cheap pen. The Register.
Burnett, M. (2006). Perfect Passwords (Kleiman, D., Ed.). Rockland, MA: Syngress Publishing. Burr, W. E., & Dodson, D. F. W. T. P. (2006). Electronic Authentication Guideline. NIST. Retrieved June 22, 2009, from: http://csrc.nist.gov/publications /nistpubs /800-63 /SP800-63V1_0_2.pdf Deane, F., Barrelle, K., Henderson, R., & Mahar, D. (1995). Perceived acceptability of biometric security systems. Computers & Security, 14(3), 225–231. doi:10.1016/0167-4048(95)00005-S Eff Des Cracker Machine Brings Honesty To Crypto Debate. (1998). San Francisco, CA: Electronic Frontier Foundation. Retrieved March 12, 2009, from http://w2.eff.org/Privacy/Crypto/ Crypto_misc/DESCracker/HTML/19980716_ eff_descracker_pressrel.html Gollmann, D. (1999). Computer Security. New York: Wiley. Kim, H.-J. (1995). Biometrics, is it a viable proposition for identity authentication and access control. Computers & Security, 14(3), 205–214. doi:10.1016/0167-4048(95)97054-E Kotadia, M. (2005). Microsoft security guru: Jot down your passwords. Retrieved March 12, 2009. from: http://news.cnet.com/Microsoft-security-guru-Jot-down-your-passwords/2100-7355_3-5716590.html?tag=nefd.pop
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Mindi, M., Jason, R., & Shawn, H. (2009) “Cyber Security Tip ST04-002” Choosing and Protecting Passwords. US CERT. Retrieved May 12, 2009. From: http://www.us-cert.gov/cas/tips/ST04-002. html National Institute of Standards and Technology. (1995). NIST Special Publication 800-12, An Introduction to Computer Security: The NIST Handbook. Retrieved May 12, 2009. From: http:// csrc.nlst.gov/publications. Polstra, R. M. (2005) A case study on how to manage the theft of information. In InfoSecCD ’05: Proceedings of the 2nd annual conference on Information security curriculum development, (pp. 135–138). New York: ACM Press. Saltzer, J. H., & Schroeder, M. D. (1975). The protection of information in computer systems. Paper presented at the IEEE 63. Schneier, B. (1999). Snakeoil: Warning Sign #5: Ridiculous key lengths. Retrieved May 12, 2009. from: http://www.schneier.com/cryptogram-9902.html Schneier, B. (2000). Secrets and Lies. Chichester, UK: John Wiley & Sons. Schneier, B. (2005). Schneier on Security. Write Down Your Password. Retrieved May 12, 2009. From: http://www.schneier.com/blog/archives/ 2005/06/write_down _your.html. Schneier, B. (n.d.). Applied Cryptography, (2nd, pp. 233 ff). Chichester, UK: John Wiley and Sons.
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Schneier, B. (n.d). MySpace Passwords aren’t so Dumb. Wired Magazine. Retrieved May 12, 2009. From: http://www.wired.com/politics/security / commentary/security matters/2006/12/72300?c urrentPage=2 Shay, R. J. K., Bhargav-Spantzel, A., & Bertino, E. (2007). Password Policy Simulation and Analysis. Retrieved August 20, 2009. From http://homes. Cerias.purdue.edu/~bhargav/pdf/DIM07Password.pdf Spafford, E. (2009). Security Myths and Passwords. The Center for Education and Research in Information Assurance and Security. Retrieved August 20, 2009, from http://www.cerias.purdue. edu/weblogs/spaf/general/post-30/ Stallings, W. (1995). Network and internet security. Upper Saddle River, NJ: Prentice-Hall. Summers, W. C., & Bosworth, E. (2004). Password policy: the good, the bad, and the ugly. In WISICT ’04: Proceedings of the winter international synposium on Information and communication technologies, (pp. 1–6). Dublin: Trinity College. Unicityd (2006). In Defense of Password Expiration. Mount Laurel, NJ: League of Professional Systems Administrators. Retrieved August 20, 2009. From: http://lopsa.org/node/295. Viega, J., & McGraw, G. (2001). Building secure software: How to avoid Security problems the right way. Reading, MA: Addison Wesley. Vu Kim-Phuong, L., Proctor, R. W., BhargavSpantzel, A., Tai, B. & Cook, J. (2007). Improving password security and memorability to protect personal and organizational information. International Journal of Human-Computer Studies. Wakefield, R. L. (2004) Network Security and Password Policies. The CPA journal online. Retrieved August 20, 2009. From: http://www. nysscpa. org/cpajournal/2004/704 /perspectives/ p6.htm
Weirich, D. (2005). Persuasive Password Security. A PhD dissertation submitted to the Department of Computer Science, University of London. Wikipedia.org. (2008). Password. Retrieved March 12, 2009 From http://en.org/wiki/Password Wikipedia.org. (2009) Password Policy. Retrieved March 12, 2009 from: http://en.wikipedia.org/ wiki/Password_policy#Enforcing_a_Policy Yan, J. J. (2001) A note on proactive password checking. In NSPW ’01: Proceedings of the 2001 workshop on New security paradigms, (pp. 127–135). New York: ACM Press.
KEY TERMS AND DEFINITIONS Access: The privilege of using a computer system or online resource, usually controlled by the issuance of access codes to authorized users. Authentication: A security procedure designed to verify that the authorization code entered by a user to gain access to a network or system is valid. Encryption: The process of converting data contained in a message into a secret code prior to transmission via public telecommunication channels to make the content incomprehensible to all but authorized recipient(s). Organization: A structure of roles and responsibilities functioning to accomplish predetermined objectives. Password: An authorized word or sequence of characters that a user must enter as input in order to log on to a computer system and gain access to desired resources. Personal Identification Number (PIN): A code used in automated systems to identify authorized users. Policy: A deliberate plan of action to guide decisions and achieve rational outcome(s).
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Security: The technology developed to prevent unauthorized persons from gaining entry to protected systems and files.
This work was previously published in Handbook of Research on Information Communication Technology Policy: Trends, Issues and Advancements, edited by Esharenana E. Adomi, pp. 539-550, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.13
National Intellectual Capital Stocks and Organizational Cultures:
A Comparison of Lebanon and Iran Jamal A. Nazari Mount Royal College & University of Calgary, Canada Irene M. Herremans University of Calgary, Canada Armond Manassian American University of Beirut, Lebanon Robert G. Isaac University of Calgary, Canada
ABSTRACT Using a set of macro-level socio-economic indicators, we first explore whether two Middle Eastern countries (Lebanon and Iran) provide the foundation for organizations to develop their intellectual capital (IC). Then, we investigate the role of micro-level organizational characteristics DOI: 10.4018/978-1-60960-587-2.ch813
that might support or hinder the development of IC management processes within organizations. The insight gained through our comparison will shed light on some important organizational attributes that foster the management of IC for wealth creation. The analysis has important implications for multinational corporations (MNCs) that have operations in the Middle East, are contemplating business involvement in the Middle East, or that have employees with Middle Eastern origin.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
National Intellectual Capital Stocks and Organizational Cultures
INTRODUCTION The Middle Eastern countries are generally perceived as hotbeds for political upheaval rather than as serious business investment considerations. In spite of this perception, many multinational companies (MNCs) are looking for opportunities in this region and view the Middle East as a growing, lucrative marketplace. The Middle East has great potential for becoming a significant international economic force because it contains vast natural and human resources. Its strategic geographical position places it at the center of the global stage, making it an arena for competing global powers. As trade between the industrialized world and Middle Eastern countries continues to grow, the importance of gaining an understanding of the region’s complex and diverse people will become more apparent to MNCs operating in developed nations. Spurred by the desire to gain access to untapped markets and resources, MNCs have been a major force in increasing the volume of international trade worldwide. As a result of the increased pace of globalization, MNCs in developed countries are continuing to expand their operations to countries very different from their own in regard to business environment and practices, economic stability, level of economic development, and cultural characteristics. Because of this diversity, one popular means of entering new territories has been through the formation of strategic alliances called international joint ventures (IJVs). As host countries desire to maintain some control over the operations of MNCs, in some settings an IJV is the only entry option available to foreign investors. As well, an IJV arrangement helps to ensure that local stakeholders share in the economic and social benefits. From the entry options granted by the Iranian government to foreign firms, the IJV is the only possibility for establishing a long-term presence. The buy-back scheme where a foreign firm supplies plants and machinery in exchange for the goods that will be produced by means of
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such facilities is more of a financing instrument and a compromise solution for foreign investment in the short-run. The build-operate-transfer (BOT) arrangement allows foreign firms to invest in projects that are operated for a certain period of time by the foreign investor before being fully transferred to the Iranian government. For these reasons, IJVs are the only entry option for investment by foreign companies seeking to establish a long-term presence in Iran. The high level of political instability in Lebanon has made the IJV arrangement very popular as a means of entry for foreign companies. By having a local partner, a foreign firm can reduce the risks of operating in a highly uncertain business environment and minimize the losses resulting from potential disruptions to operations. The prevalence of IJVs in the globalization of business activities has been the subject of numerous studies (Cyr, 1995; Geringer & Hebert, 1991; Harrigan, 1985; Killing, 1983), many of which investigate the human resource practices of MNCs that pertain to their local operations (Bjorkman & Lu, 1999; Lu & Bjorkman, 1997, 1998; Tayeb, 1998; Wang & Satow, 1994; Wasti, 1998). The question that arises is if human resource practices should follow the established policies of the MNCs or those of the local partner (Beechler & Yang, 1994; Hannon, Huang, & Jaw, 1995; Lu & Bjorkman, 1997, 1998; Monks, 1996; Rosenzweig & Nohria, 1994). In this regard, firms have a continuum of options in trying to operate effectively. At one extreme is a policy of standardization of human resource practices across all international operations. At the other end is a policy of complete customization to local practices. In between these two extremes are many combinations of blending standardization with local responsiveness (Doz & Prahalad, 1981; Hannon et al., 1995; Lu & Bjorkman, 1997; Prahalad & Doz, 1987; Schuler, Dowling, & De Cieri, 1993; Taylor, Beechler, & Napier, 1996). The manner in which employees are treated in international operations have taken on increased
National Intellectual Capital Stocks and Organizational Cultures
importance with the realization that in much of the business world of today wealth is created increasingly by off-balance sheet assets, often called intangibles. These intangible assets include, in part, reputation, corporate responsibility, talented people, relationships, efficient and effective internal processes, and relationships, often referred to as intellectual capital (IC). IC is generally recognized as having three broad dimensions which are instrumental to wealth creation: structural, human and relational capital. Structural capital refers to the processes, technology, databases, and communication avenues that aid in development of both knowledge and relationships. Human capital refers to the knowledge and capabilities of the employees. Relational capital refers to the customer and supplier loyalty and other stakeholder relationships that an organization has developed. To the extent that an organization is able to derive wealth from its IC depends not only on its national infrastructure of education technology and trade policies but also on its ability to align its structure, culture, climate, and value systems to support wealth-creating assets (Chandler, 1962; Collins & Porras, 1997; Elliott, 1992). Previous research has found a relationship between the extent of an organization’s IC and certain positive characteristics in its culture. This chapter investigates the extent that micro-organizational characteristics might help or hinder the development of IC management processes when a nation appears equipped with the appropriate foundation for wealth creation, as measured by macro-level, socio-economic indicators. It explores the following research question: What macro and micro characteristics are conducive to IC management processes in developing countries? The rest of this chapter is organized in the following manner. First, Iran and Lebanon are compared on the level of national IC stocks. This is followed by a discussion of organizational climate and culture variables that are conducive to the IC management processes. Methodology and
data collection is discussed next. Then, the results of our statistical analysis are explained. Finally, the conclusions, implications and potential future studies are reported.
BACKGROUND Beck (1998) in her book about the knowledge economy, suggested that certain characteristics must exist to gain the advantages of developing knowledge-related resources, a sub-component of IC. In part, she suggested that countries with flexibility and transparency, access to electronic information technologies, and attractiveness of quality of life will have a foundation on which to develop wealth-creating IC assets. These characteristics, at a minimum, will allow human knowledge to develop and for countries to retain their asset base of knowledge workers. Her suggestion was further investigated by Hervas-Oliver and Dalmau-Porta (2007). They found technological capability and a government policy oriented to business to be key variables to what they refer to as IC stocks within nations that can lead to wealth creation. Bontis (2004) also investigated the IC stocks of a nation to determine their relationship to the nation’s financial capital, as measured by GDP per capita. Although Bontis (2004) studied the Arab region, neither Lebanon nor Iran was included in the study. Bontis (2004) used a number of macroindicators that he termed human, process, market (relationship), and renewal capital to measure the nation’s relationship between these indicators and its GDP per capita. However, none of these studies combined macro readiness indicators (or what are referred to as IC stocks) with micro-organizational indicators of culture and climate to determine if one might support or hinder the other. Initially, a nation must lay the foundation for IC development through macro infrastructure (such as education, GDP, Internet access, and more). However, stocks or inventories of IC might lie dormant and fail to create wealth for organizations if the structure,
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culture, and climate within those organizations are not integrated with appropriate IC management processes for extracting the potential from these IC inventories.
Comparison of Lebanon and Iran: National IC Stocks Previous studies of IC have called for additional research at the national level (e.g. Beck, 1998; Bontis, 2004; Hervas-Oliver & Dalmau-Porta, 2007). Therefore, we now discuss the national IC stocks that build the foundation for organizations to create their own IC stocks. We compare Lebanon and Iran by beginning with a general overview of the two countries. Then, we provide macro-level indicators that proxy for financial and IC stocks. National IC stocks are separated into three categories: structural, human and relational.
General Overview and Financial Capital Despite continued political instability, Lebanon, a small country with an approximate population of 4.06 m (Economist Intelligence Unit, EIU, 2008) on the Mediterranean coast is working on repositioning itself as the hub linking the Arab East and the European West. According to Lebanon’s 1926 constitution, the country is a secular Arab state with a parliamentary democracy and a free economy (EIU, 2008). Based on the quasi-democratic political system, the power in Lebanon’s political system is shared among three largest religious sects: Sunni Muslim, Maronite Christian, and Shia Muslim. Individuals support the heads of political groups from their own religious communities (EIU, 2008). Lebanon’s government has facilitated and encouraged investments by foreign companies. According to the US Commercial Service Report (2008, p. 5), the incentives include “a free market, a strong laissez-faire commercial tradition, a highly dollarized economy, the absence of controls on the movement of capital and foreign exchange,
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strict bank secrecy, a highly educated labor force, a good quality of life, and limited restrictions on investors.” The country experienced a high degree of stability and attracted many tourists until 2006. After the imprisonment of two Israeli soldiers by Hezbullah in 2006, a month-long conflict with Israel destroyed infrastructure across the country and caused massive loss of life. Since the call by the UN Security Council for the cessation of hostilities, Lebanon’s economy has been recuperating from the damages. Iran is a country that has been receiving a lot of attention in the current media. Unfortunately, most of this attention has been highly negative and focused on Iran’s nuclear programs and its political influence in the region. Iran, a vast country that covers an area as large as Germany, France, UK, and Spain has many unique characteristics and presents itself as an interesting possibility for a cross-cultural study in IC management. Iran is an Islamic republic, with an Islamic constitution and legal system which is administered in conjunction with Sharia law. The clergy act as judges although the country is a republic and a democracy. Since the Islamic Revolution in 1979 there have been forces at play attempting to revamp the Iranian consciousness away from the globalizing values advocated by the previous regime. An inward looking ideology has been espoused and defended on the grounds of religious beliefs. The argument put forward has been that there is a need to counter and reject universalistic and hegemonic Western ideologies by reverting to particularistic local traditions. The ultimate effect of these trends has been a cessation and indeed a reversal of the integration of Iran into global social forces. Attempts have been made to attract foreign investment, reduce red tape, and boost non-oil exports. Privatization initiatives have been undertaken by the government due to a realization that it cannot ignore the forces of globalization and the demands of international agencies. Defined as the total market value of all final goods and services produced within the country
National Intellectual Capital Stocks and Organizational Cultures
generally within a year, GDP (gross domestic product) is used as a proxy for the nation’s financial capital (Bontis, 2004). Because countries traditionally move from an agricultural to a manufacturing to a service economy, there is generally a high correlation between GDP and IC stocks. In 2006, Lebanon’s GDP (nominal) per capita is $5,603, whereas Iran’s is $3,108. Market capitalization of listed companies as a percentage of GDP is 36% for Lebanon and Iran’s is 17%. In current US dollars, market capitalization for Lebanon is approximately $8 billion and Iran’s is approximately $38 billion. However, the presence of a strong service economy is also an important indicator. In 2007 Lebanon’s service economy as a percentage of GDP was 77.1 percent, and Iran’s was 44 percent (WDI Online, 2007). In summary, on all financial capital indicators, Lebanon’s economy outperforms Iran’s.
Structural Capital Good technology, telecommunication systems, and electronic access lay the basis for building assets in human and relational categories of IC in organizations. Technology aids in gathering, organizing, and sharing a company’s information by developing databases to house and access knowledge. Systems of communication help to link a company to its suppliers, customers, employees, and other stakeholders to help build strong relationships. Good technology also aids in creating work environments for sharing and transferring knowledge among workers. Lebanon’s telecommunications system was severely damaged by the civil war and more recently by the Israeli invasion in 2006. Reconstruction efforts are well under way. According to a recent estimate, this small country has 6,998 Internet hosts and approximately 600,000 Internet users (EIU, 2008), resulting in 10.2 personal computers and 23.4 Internet users per 100 persons. Iran, a much larger country, has 5,269 Internet hosts and approximately 4.3 million Internet users, result-
ing in 10.6 personal computers and 25.7 Internet users per 100 persons. In Lebanon there are 678,000 telephone lines in use and approximately 775,100 mobile phone users. Per 100 persons, Lebanon has 27.2 mobile phone subscribers. Since 1994 the government of Iran has taken aggressive initiatives to improve the telephone system. The number of long-distance channels in the microwave radio relay trunk has grown. The number of main lines in the urban system has doubled; thousands of mobile subscribers have been served; many villages have been connected; and the technical level of the system has improved. According to a recent estimate there are 14,571,100 telephone lines and 13,659,123 mobile users. Per 100 persons, there are 19.5 mobile phone subscribers (WDI, 2007). The EIU (2006) has published an annual e-readiness ranking of the world’s largest 69 economies since 2000. The purpose is to evaluate the technological, economic, political, and social assets of the countries examined. The major variables used to achieve the aggregate score are: connectivity and technology infrastructure, business environment, social and cultural environment, legal environment, government policy and vision, consumer and business adoption. Thus, it provides a comparative indication of a country’s information and communications technology infrastructure and the ability of its consumers, businesses and governments to use information communications technology to their benefit. Unfortunately, Lebanon has not been ranked by the EIU, and therefore no score is available. Iran’s aggregate score for 2007 was 3.08 out of 10 giving it the very last rank among the 69 countries. On the component measuring connectivity and technology infrastructure Iran’s score was 2.8 compared to 8.1 and 7.9 for the US and Canada respectively. For structural capital, there is not a clear leader between Lebanon and Iran, although Lebanon leads on most indicators. (See Table 1 for more information.)
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Table 1. Comparison of Iran and Lebanon: Socio-economic macro-level indicators Iran (2006)
Lebanon (2006)
Financial Capital GDP (nominal) per capita
$3,108
$5,603
GDP growth (annual %)
3.06%
(1.10)%
Market capitalization of listed companies (% of GDP)
17.41%
36.44%
$38 billion
$8 billion
13,659,123
1,103,376
Market capitalization of listed companies (current US$) Structural Capital Mobile phone subscribers Mobile phone subscribers (per 100 people)
19.5
27.2
Personal computers (per 100 people)
10.6
10.2 (2005 figure)
School enrollment, tertiary (% gross)
26.8
48
43.7 (2007 figure)
76.5 (2007 figure)
International Internet bandwidth (bits per person)
53.2
111
Internet users (per 100 people)
25.7
23.4
82.4 (2005 figure)
87.4 (2003 estimate)
Exports of goods and services (% of GDP)
41.59
23.71
Exports of goods and services (annual % growth)
36.66
8.51
Service economy as a percentage of total GDP
Human Capital Literacy rate, adult total (% of people ages 15 and above) Relational Capital
Source: World Development Indicators Online (2007)
Human Development Although level of education and literary are input indicators, they are often used as proxies for level of knowledge within a country and therefore a representation of human capital. The EIU provides a Quality-of-Life Index which incorporates nine factors such as health, family life, community life, material well being, political stability and security, climate and geography, job security, political freedom and gender equality. Unfortunately, there is no ranking provided for Lebanon. The most recent ranking for Iran on the Qualityof-Life Index is 5.344 giving it a world position of 88 among 111 countries. The US and Canada were ranked 13 and 14 respectively with scores of 7.615 and 7.599. The Quality of Living Survey conducted by the British Mercer Human Resource Consulting
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organization covers 215 cities in the world. In 2008 Beirut’s ranking was 171 worldwide. In a point system Beirut scored 53.5 points compared to 52.5 in 2007. Regionally, the Lebanese capital came ahead of Damascus in Syria and Tehran in Iran. However, Dubai (83) and Abu Dhabi (87) are the Middle Eastern cities with the best quality of living. The Human Development Index measures three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrolment at the primary, secondary and tertiary level) and having a decent standard of living (measured by purchasing power parity and income). According to the UN’s 2007-2008 Human Development Report, Lebanon received a score of 0.772 based on the year 2005, giving it a rank of 88 and Iran’s score is 0.759, ranking it 94
National Intellectual Capital Stocks and Organizational Cultures
out of 177 countries (1 is the best rank). Regarding literacy, Lebanon’s estimated adult literacy rate was 97.4 percent in 2003, and Iran’s, 82.4 percent in 2005. In summary, Lebanon’s scores for human development are better than Iran’s for most indicators. (See Table 1)
Relational Capital A country’s imports and exports, willingness to participate in international agreements, and openness to foreign investment can indicate the types of relationships that it has with other countries. Both Lebanon and Iran are eager to attract inflows from other countries and provide a liberal investment climate. In Lebanon a framework for privatization law was passed in 2000 which opened possibilities for privatization initiatives in many industries including electricity, water, and telecommunications. The government will seek strategic partners for these projects among local and foreign companies. As of 2002, French, Italian, German, British, Korean, and Finnish companies were the predominant investors in Lebanon. Their presence is most strongly felt in the fields of electricity, water, and telecommunications (U.S. Commercial Service, 2008). Since the lifting of the passport restriction in 1997 many large US firms have opened branches or regional offices in Lebanon. These include Microsoft, American Airlines, Arthur Anderson, Coca-Cola, FedEx, UPS, General Electric, Parsons Brinckerhoff, Cisco Systems, Eli Lilly, Computer Associates and Pepsi-Cola, some of which specialize in knowledge products. Regarding Iran, in an attempt to encourage diversification of investment initiatives to include non-petroleum industries, the government has liberalized investment regulations in recent years (Nouraei & Mostafavi, 2008). In Iran, there are no limits on repatriation of earnings if investments are in industry, mining, or agriculture. Foreign companies are limited in their entry options. Foreign direct investment must be in the form of
joint ventures. However, there are no restrictions on the percentage of ownership in these joint ventures (Nouraei & Mostafavi, 2008). Among developed nations the most active investors have been Germany, Norway, UK, France, Japan, Russia, South Korea, Sweden and Switzerland. Some of the MNCs with operations in Iran include Svedala Industri of Sweden, Tata Steel of India, Kia of South Korea, Nissan of Japan, Peugeot and Renault of France, Nestle of Switzerland, Coca-Cola and Pepsi-Cola of USA, Alcatel of France, MTN Group of South Africa, Siemens of Germany, Total of France, Shell of UK/Holland, Gasprom of Russia, and Lucky Goldstar of South Korea (Library of Congress, 2006). Dr. J. Graf Lambsdorff of the University of Passau was commissioned by Transparency International to produce a Corruption Perception Index (CPI). The score relates to perceptions of the degree of corruption as seen by business people and country analysts. The score can range from 10 (highly clean) to 0 (highly corrupt). In 2006 Lebanon had a score of 3.6 and a regional ranking of 8 among 14 Middle Eastern countries. Its world ranking was 63 out of 180 countries. In 2007 its score decreased to 3.0 giving it a regional ranking of 9 among 14 Middle Eastern countries and a world ranking of 99. In 2007 Lebanon was one of the first countries in the Middle East to ratify the United Nations Convention Against Corruption. In 2006 Iran’s Corruption Perception Index (CPI) according to Transparency International was 2.7 giving it a regional rank of 11 among 14 Middle Eastern countries. Its world rank was 105 out of 180 countries. In 2007 Iran’s CPI score slipped to 2.5, while its regional rank improved slightly to 10. Its world rank slipped to 131. In 2001 Iran joined the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Nouraei & Mostafavi, 2008). An indicator sometimes used as a proxy for relationship capital representing a countries’ willingness to do business with other countries is its percentage of exports. In terms of exports
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of goods and services as a percentage of GDP, Iran’s exports were 42% of GDP and Lebanon’s were 24%.
ISSUES AND PROBLEMS The previous discussion provides evidence that due to the national IC capital, as measured by socioeconomic macro-level indicators, there is potential for capitalizing on the opportunities for creating stocks of IC assets within organizations, such as MNCs, operating in Lebanon and Iran. The countries’ GDP per capita, existence of a service economy, level of education and literary rate, availability of technology, and transitions toward increased foreign investment and transparency suggest a degree of readiness for organizations to create their own stocks of IC assets. A cursory examination of the macro-level indicators used as proxies (See Table 1), along with the background information we have provided thus far, suggests that organizations in Lebanon might have a slight advantage over organizations in Iran in embracing IC management as a strategic means of achieving competitive advantage. However, previous studies have shown that these macro-level indicators must be coupled with appropriate organizational characteristics, such as culture, climate, and structure, to extract wealth from stocks of IC assets through IC management processes. Some of these previous studies have studied the relationship between organizational characteristics and one aspect of IC management, such as information sharing (Chow, Harrison, McKinnon, & Wu, 1999), information technology (Powell & Dent-Micallef, 1997) or knowledge creation (Chua, 2002; Leonard-Barton, 1992, 1995). Some other studies have investigated only a few characteristics of culture or climate (Chua, 2002; Lee, Kim, & Kim, 2006) and their relationship to IC.
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Jafari and Akhavan (2007) adopt a macro perspective to knowledge management by discussing essential changes to be implemented on a national level. The authors state that most knowledge management activities are conducted on a voluntary basis and are personal. A society must therefore foster a culture of motivation, a sense of belonging, empowerment, and trust and respect so that such knowledge exchanges can occur freely and frequently. In contrast, at the organizational level Nazari et al., (in press) investigated the relationship of three culture variables, four climate variables, and two additional organizational traits that could impact the level of IC management processes and compared those culture, climate, and organizational traits between Canada and the Middle East. The authors observed strong associations for the three components of IC (structural, human, and relational), and all variables. The findings strongly point towards the importance that the roles culture, climate, and traits play in relation to IC management. The current study builds on the findings of Nazari, et al. (in press) by providing a comparative analysis of Iran and Lebanon, two Middle Eastern countries. The question that this chapter attempts to address is whether organizations in these two respective countries have appropriate cultures and climates that will build on the foundation of macro-level socioeconomic indicators for development of IC assets within these organizations. Although we are not attempting to investigate national culture, we do call on that literature to help determine what we might find at the organizational level. We provide a comparative study of three dimensions of organizational culture (tendency toward cooperation; deference to power; and fear of the unknown) and four dimensions of climate (risk-taking, ownership; openness; and trust) from data collected at the organizational level in Lebanon and Iran.
National Intellectual Capital Stocks and Organizational Cultures
Organizational Culture and IC Management Tendency Toward Cooperation Development of IC assets, especially the knowledge category, requires some degree of individualism to spur creative ideas but also sufficient tendency toward cooperation to share those ideas with others in a give-and-take process of improving and making those ideas into a feasible product. Without cooperation among employees, the ideas may remain in the domain of an individual employee’s mind rather than becoming an asset of the organization, owned by the organization’s employees in total. The results of the GLOBE (Global Leadership and Organizational Behaviour Effectiveness) study (House, 2004), which examined 62 countries including Iran and Lebanon, showed Arab societies scoring high on group and family collectivism (Kabasakal & Bodur, 2002). In a study specific to Lebanon, Jabbra (1989) found that Lebanese place high emphasis on social conformity. Iranian cultural practices show strong in-group collectivism. Although initially this tendency toward cooperation may seem beneficial, if too strong, it may discount human reasoning and the exercise of opinion in questions of law, leading to less openness and transparency. Confirming the GLOBE study, Ali & Amirshahi (2002) studied 768 managers in Iran, randomly selected from state, private, and mixed organizations, and found that the majority displayed a high tendency toward collectivism and a weak commitment to individualism (Ali & Amirshahi, 2002). A strong emphasis on consensus may create an obstacle to acceptance of new knowledge. In Hofstede’s (1984) cross-cultural study of work values Lebanon and Iran received scores that were very similar. Iran received a score of 41 on the Individualism/Collectivism dimension which is very close to the score for the Arab countries (Egypt, Iraq, Kuwait, Lebanon, Libya, Saudi
Arabia, and UAE) which was 38. However, the data for this seminal work was collected in 1972, and many of the Arab countries were grouped together. Due to a lack of more current literature providing a more direct comparison, it is likely that in both Lebanon and Iran employees may perceive similar levels of cooperation in their organizations.
Deference to Power Deference to power relates to the willingness of employees to place higher value and respect on decisions or ideas based on level of authority over expertise. It respects an uneven distribution of power in an organization and employees’ acceptance of this. Deference is paid to individuals located further up in the hierarchy in organizations. In contrast, weaker respect for authority, power, and hierarchy intensifies communications (Chaminade & Johanson, 2003) and provides a basis for more participatory decision-making (Chow et al., 1999). Deference to power within organizations could act as an impediment to knowledge sharing and a building of relationships, both important categories of IC (Ardichvili et al., 2006; Chow et al., 1999). Arab culture is characterized by large power distance in comparison to the West In Hofstede’s study of national cultures (1984), Lebanon was grouped with Arab countries, which received a score of 80 on this dimension. This would mean that obedience to authority and control are reflected in the Lebanese culture. The patriarchal nature of the Lebanese society has important implications for how people behave at work. Individuals’ outlook toward work is affected by their decisions to give up independence and submit to the father’s rule at home (Sharabi, 1988). Most employees would display little initiative to exercise independent judgment and creative thinking and would take comfort in simply following the suggestions of their superiors.
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The results of the GLOBE (Global Leadership and Organizational Behaviour Effectiveness) study (House, 2004) showed Iranian culture to be characterized by high power distance also. In Hofstede’s (1984) original study Iran received a score of 58. This indicates a culture in which authority takes precedence over competency. The recent developments in the country have had a profound effect on the work environment in that technocrats were replaced by ideologists and a competent skilled workforce was replaced by a loyal work force (Namazie & Frame, 2007). Managers tend to put loyal and ideologically-sound employees into key management and strategic positions, regardless of knowledge and expertise, which most likely is detrimental to IC development. As both Lebanon and Iran tend to show high deference to power, it is likely that employees in organizations in their respective countries may perceive similar levels of deference to power.
in their recruitment and selection procedures in hiring new staff. As indicated earlier in this paper, Iranian managers showed a preference for loyalty over competence. These initiatives can be viewed as steps taken to mitigate the negative effects of the unknown. Using the scores for uncertainty avoidance in Hofstede’s (1984) study, we find that Iran and Lebanon are similar when compared to Western countries. Iran’s score was 59 while that for Lebanon was 68. In both societies we would expect employees to exhibit a preference for clear rules and procedures in order to attain greater career stability. They would tend to be more tolerant of unfairness and more believing in absolute truths. Therefore, employees in these countries would be less open to experimentation with new or untested initiatives and may perceive similar levels of fear of the unknown.
Fear of the Unknown
Organizational Climate and IC Management
Fear of the unknown suggests that employees feel threatened by uncertainty. In organizations in which employees wish to avoid uncertainty, there is greater observance of rules to lower risks and promote stability and uniformity (Chaminade & Johanson, 2003). In organizations in which employees are comfortable with some degree of uncertainty, there is greater tolerance and less rigidity (George & Jones, 1999). Fear of the unknown can impede the development and implementation of new ideas, the sharing of knowledge, and the strength of relationships. On this characteristic it is difficult to find studies that would highlight differences in cultures between Iran and Lebanon. However, it may be said that the instability of the business environment in Iran has had the greatest impact on human resource management in that country (Namazie & Frame, 2007). The ever changing laws and regulations and the complexity of Iranian labor laws has caused many managers to be ever more selective
Because there is a scarcity of research on organizational climate in general, and even less on the Middle East, we provide a broad discussion on climate comparing national characteristics of Iran and Lebanon. Then, we frame this discussion with a model by Golembiewski (1979), which includes risk-taking, ownership of ideas, openness, and trust, but first we explain the relationship between culture and climate. Few researchers draw a distinction between organizational culture and climate and indeed culture creates climate (Reichers & Schneider, 1990; Schein, 1988). However, because culture is a more enduring organizational characteristic than climate, we felt that MNCs wishing to develop IC assets may find the distinction useful. MNCs may more readily find changing the organizational climate easier than the culture, as employees would be more conscious of climate than culture. Culture is defined as “a pattern of basic assumptions...” (Schein, 1984, p. 3) and shared values, beliefs
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(Sathe, 1985), ideologies (Beyer, 1981), attitudes (Fishbein & Ajzen, 1975). In comparison, climate describes an organization’s personality (Forehand & Vonhaller, 1964). Regarding organizational climate in Lebanon and Iran, Mikdashi (1999) used the KEYS instrument developed by Amabile et al., (1996) to evaluate various aspects of work environment in Lebanese firms that affected creativity. The instrument was administered to 300 Lebanese managers working in different lines of business. Finding solutions to problems requires employees to have the freedom to break the rules (Nemeth, 1997), feel safe about their ideas (McGowan, 1996) and feel free to take risks because failure is tolerated (Eisner, 1996). The study found that most Lebanese managers were lacking in creativity and perceived creativity and challenging work to be a unitary phenomenon. Dirani (2006) also echoes the finding that Lebanese shy away from exercising creative thinking. In terms of our study, this would indicate a low incentive for risktaking, a reluctance to take ownership of ideas, a lack of openness, and a high level of mistrust in Lebanese firms. The same analysis holds true for Iran. Ali and Amirshahi (2002) argued that in public institutions in Iran there was a centralization of power and authority at the top. In the private sector he identified lack of motivation, absence of participation and centralization of management practices. Iranian managers also show a high level of nepotism in their hiring activities (Namazie & Frame, 2007). This is because of the national culture emphasizing distrust of outsiders. The argument is that it is easier to teach a loyal person new skills rather than teaching loyalty to a competent individual. In a study investigating the critical factors for developing a knowledge management culture in the Iran Aerospace Industries, Jafari and Akhavan (2007) asserted that organizations in Iran have to restructure their way of thinking which is deeply rooted in tradition. IC measurement and management as a major component of knowledge man-
agement initiatives takes on increased importance in such industries. The authors suggested that to achieve organizational competitiveness there needs to be a change in culture and beliefs. This is because openness and trust that are so essential to knowledge management initiatives are lacking in most organizations.
Risk-Taking Within any organization, attempts to engage in innovation are greatly affected by attitudes toward risk-taking (Detert, Schroeder, & Mauriel, 2000). Different organizations may show varying degrees of acceptance of risk-taking (Lynn, 1999), and varying degrees of tolerance of failure which is important in knowledge creation (Leonard-Barton, 1995). Uncertainty avoidance hampers the creation of new ideas and impedes attempts by organizations to introduce IC management practices (Chaminade & Johanson, 2003). Nazari et al., (in press) demonstrated that more sophisticated IC management systems were found in organizations which encouraged calculated risk-taking. Both Lebanon (as part of the Arab country group) and Iran are characterized by Hofstede (1984) as possessing high uncertainty avoidance as a cultural characteristic compared to Western societies. In such environments employees would be risk averse. They would shy away from taking initiatives to try new approaches or ideas in fear of failure which might trigger the disapproval of a superior. The desire to maintain job security and achieve collective harmony would discourage any step that might be perceived as threatening the status quo. Therefore, in connection to IC management processes we suggest Iranians and Lebanese will perceive similar levels of perceived risk-taking in their respective organizations.
Ownership of Ideas Our discussion of this dimension is closely related to risk-taking. All the factors that would hinder
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risk-taking would also discourage employees from taking pride in putting forward novel ideas. In a study of an international engineering and construction company, De Long and Fahey (2000) concluded that after layoffs had occurred in the company, engineers were less inclined to admit making errors. DeLong and Fahey (2000) provide evidence for the importance for employees to take ownership of their ideas, have pride in their work, and receive recognition for their contributions. Nazari et al., (in press) found a strong relationship between ownership of ideas and all three categories (structural, human, and relational) of IC management processes at the organizational level, further supporting the importance of this variable for the extraction of wealth from IC assets. Without ownership of ideas, employees would find few incentives for proposing ways of improving performance and would be less inclined to stand by such proposals and claim them as their own. Therefore, in connection to IC management we suggest that Iranians and Lebanese will report similar levels of perceived tendencies toward taking ownership of ideas in their respective organizations.
Openness Gold et al., (2001) emphasized the extreme importance of interaction and dialogue among employees as a factor in converting tacit knowledge into explicit knowledge. These processes are instrumental in transmitting knowledge and giving birth to new ideas. Such an open culture is especially important with regard to IC management (Lynn, 1999). In another study, Nazari et al., (in press) found a high correlation between openness and IC management processes, suggesting that a climate characterized with openness will allow organizations to better manage their IC assets for wealth extraction. In light of the general description and macro indicators related to openness, we would expect a low perception of openness in the organizations
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in these two countries. Their cultural similarities along Hofstede’s (cultural dimensions) would indicate similar attitudes toward openness. Therefore, in connection to IC management we suggest that Iranians and Lebanese will report similar levels of perceived openness in their respective organizations.
Trust Trust is essential in creating an environment among employees that is conducive to the transmission of knowledge from individuals into the firm’s best practice archives, data bases, and other records (De Long & Fahey, 2000, p. 120). Studies have shown the importance of a relationship between trust and sharing of knowledge within organizations (Alavi, Kayworth, & Leidner, 2005; Gold et al., 2001) and in international settings. Nazari et al., (in press) found that organizations with a strong trust climate are more likely to have more appropriate IC management processes for creating wealth from IC stocks of assets. Performance appraisal systems in Iranian firms show a lack of clarity in setting performance indicators and failure to measure indicators objectively. Employees show a high level of distrust of managers because they believe there is much favoritism and subjectivity in such appraisals. As well, there is a high degree of nepotism in recruitment practices and a high degree of ambiguity in drafting of employment contracts and conducting performance appraisals in Middle Eastern firms. Managers are not seen to be investing in the development of their subordinates. Furthermore, Iran’s labor laws do not allow employees to strike or bargain collectively. In fact, sometimes employers have demanded prospective employees to sign “blank contracts” in order to get jobs. The employer later fills in the conditions of the contract (Namazie & Frame, 2007). All these factors contribute to a high level of distrust. In a similar study that assesses the potential of Iran’s software industry, Nicholson & Sahay
National Intellectual Capital Stocks and Organizational Cultures
(2003) state that skepticism and mistrust that are so prevalent in Iran may act as obstacles to the cross-fertilization of ideas among various domestic organizations as well as hampering collaboration with foreign companies. They find evidence of a reluctance to engage in low level data processing work that would facilitate trust building. A factor that compounds this even further is the current ideology that is driven by religion and discourages experimentation with new ideas, particularly from the outside. Tayeb (2001) attributes the general level of suspicion and mistrust amongst Iranians to the historical upheavals that took Iran from a powerful empire builder to being occupied by the Allies during World War II. Furthermore, during the Shah’s time the country embraced Western values and secularism only to reject all Western ideology after the revolution and to be immersed by the clergy in religious teachings. Although most of the preceding discussion is about Iran, we could find nothing that suggests that the level of trust would be different in Lebanon. Therefore, Iranians and Lebanese will likely perceive similar levels of trust in their respective organizations. In summary, the literature on socio-economic macro-level indicators suggests that Lebanon has a slightly better national foundation for development of IC stocks of assets. In contrast, the literature on organizational culture and climate suggests that the two countries could be very similar. Consequently, if organizational culture and climate act as obstacles to IC management, we may find that Lebanon has organizational IC management processes similar to Iran due to the similarity in their organizational cultures and climates.
Methodology We used a questionnaire to gather data from organizations in Lebanon and Iran for three major constructs: intellectual capital management, culture, and climate. To establish content validity, subject matter experts pre-tested the instrument to
determine if each question captured the intended domain. Each of these constructs was comprised of a number of subscales. The Intellectual Capital construct (19 items) consisted of three subscales characterizing Structural Capital (five items), Human Capital (eight items), and Relational Capital (six items). In harmony with the literature, the combination of these three subscales portrays the level of IC management processes desired to keep and foster capabilities for competitive advantage. Organizational Culture had three subscales which include Tendency toward Cooperation (five items), Deference to Power (three items), and Fear of the Unknown (three items). Organizational Climate included subscales of Risk-Taking (two items), Trust (three items), Openness (three items), and Ownership of Ideas (three items). We delivered the questionnaires to the MBA students at two universities in Iran and Lebanon. We also provided the MBA students with an online link where their interested colleagues could fill out the questionnaire electronically. The respondents were asked to rank the items on five- point Likerttype scale with the anchors 1 = strongly disagree, 2 = disagree, 3 = neither agree nor disagree, 4 = agree and 5 = strongly agree. Some questions were reverse scored to ensure that subjects moved back and forth along the scale as they answered questions. All surveys were in English as the level of employee asked to complete the survey in the Middle East had a sufficient command of the English language.
Results Similarity between demographic characteristics enabled us to do cross-sample comparisons. Using list-wise deletion approach to eliminate the cases with missing data left us with 61 cases (30 respondents from Iran and 31 respondents from Lebanon- see Table 2). The sample is deemed to be sufficient to conduct statistical analysis.
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National Intellectual Capital Stocks and Organizational Cultures
Table 2. Demographic characteristics of Iranian and Lebanese samples Demographic Characteristic
Iran N= 30
Lebanon N=31
Male
72%
62%
Female
28%
38%
Age
23-52
19-70
Upper level managers
10%
10%
Middle level managers
48%
24%
Lower level managers
24%
13%
Non-management (professionals)
18%
53%
Organization size (full-time equivalent)
10-44,000
6-15,000
Functional Areas
Engineering, consulting, operations, IT, finance, human resource, accounting, marketing and academics.
Education, accounting, engineering, marketing, human resource, consulting, finance, business administration and research and development.
Table 3. Correlations: IC management and organizational culture and climate Intellectual Capital Concept and Dimension
Structural
Human
Relational
.49**
.62**
.65**
Deference to Power
.32*
.48**
.42**
Fear of the Unknown
.34**
.45**
.40**
Risk-Taking
.67**
.53**
.68**
Ownership of Ideas
.52**
.53**
.56**
Openness
.42**
.42**
.56**
Trust
.57**
.68**
.73**
Organizational Culture Tendency toward Cooperation
Organizational Climate
Notes: * p < 0.05 ** p < 0.01
Correlational Analyses Due to exploratory nature of our work, we ran a correlation analysis. Using pooled data from both countries, we conducted bivariate correlation to assess the strength and significance of the relationship between organizational characteristics and IC constructs. All IC constructs (Structural, Human, and Relational) were significantly and positively correlated with one another. The cor-
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relations among these dimensions were not high enough to indicate collinearity (Structural with Human r =.68, Structural with Relational r =.67, and Human with Relational r =.73). With regard to the relationship among three IC constructs with culture and climate, we observed that all three dimensions of IC (Structural, Human, and Relational) were significantly related to all the dimensions of Organizational Culture and Organizational Climate, (see Table 3).
National Intellectual Capital Stocks and Organizational Cultures
ANOVA Results and Sample Specific Descriptive Statistics We conducted analysis of variance (ANOVA) to determine the extent to which the study constructs differed in two samples (Iranian vs. Lebanese). Summated scales were created using items for each sub-scale. The intent was to determine if differences occurred between Iran and Lebanon across the constructs of IC management, culture, and climate. Table 4 shows a summary of results for each sample; no significant differences were found. Intellectual Capital: Using a summated scale for the IC construct, the Iranian sample did not rate the items significantly different (F (1, 61) =.732, p =.396) from the Lebanese sample, indicating a similar level of IC management in these two samples. Furthermore, when the IC management construct was separated into its three dimensions, the differences in ratings were not significant for structural capital (F (1, 61) =.878, p =.352), human capital (F (1, 61) =.397, p =.531), relational capital (F (1, 61) =.679, p =.413) (see Table 5) Culture: When the subscales for the culture construct were aggregated the difference was not significant (F (1, 61) =1.769, p =.189). However, individual analysis of the cultural constructs indicated varied results. No differences were found between the two countries on the tendency for cooperation (F (1, 61) =.470, p =.496) or fear of unknown (F (1, 61) =1.708, p =.196). However, we did find evidence that the organizational culture in Lebanon is characterized by less deference to power (F (1, 61) =11.417, p <.01) than in Iran. (see Table 4 and 5). Climate: When the subscales for the climate construct were aggregated, the Iranian sample did not rate the subscales significantly different (F (1, 61) =.007, p =.934) from the Lebanese sample. When tested on separate constructs, the Iranian sample did not rate risk taking, ownership, open-
ness, and trust significantly different (see Table 5) from the Lebanese sample.
CONCLUSION, IMPLICATIONS, AND FUTURE RESEARCH In today’s global village, MNCs are exploring possibilities in untapped markets that are quite different from their home countries. MNCs invest in host countries to exploit valuable strategic intangible assets. The competition for acquiring and leveraging intangibles in untapped markets relies on learning how to manage operations in new environments (Kogut & Zander, 2003). This knowledge cannot be gained without an understanding of the impact of different host country characteristics on the strategic decisions. We studied macro-level indicators and micro-level characteristics that have been known to have impacts on strategic management of IC. For the macro-level indicators, we studied the readiness to create wealth from IC asset stocks using nationwide socioeconomic statistics. Lebanon shows a higher degree of readiness to create wealth from IC assets due it is higher GDP per capita and greater percentage of service economy. Lebanon also has higher levels of literacy and school enrollment, availability of personal computers and Internet use, and higher exports and foreign direct investment when compared to Iran. However, the opportunity does not play out in the respondents’ perception that Lebanese organizations employ IC management processes to a greater extent than Iran. Prior studies (Alavi et al., 2005; Nazari et al., in press) have emphasized the critical importance organizational culture and climate in fostering the management of IC. The significant statistical results obtained from running correlation among the organization’s culture/climate and all categories of IC management confirmed the results of prior studies. The cultural constructs examined within a sample of Middle Eastern organizations
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National Intellectual Capital Stocks and Organizational Cultures
Table 4. Descriptive statistics: IC management, culture and climate Variables Total IC (Summated Scale)
Structural Capital
Human Capital
Sample Iran
Culture (Summated Scale)
Culture- Tendency toward Cooperation
Culture -Deference to Power
Culture- Fear of Unknown
Climate (Summated Scale)
Climate- Risk Taking
Climate- Openness
Climate- Trust
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N
54
11.697
30
Lebanon
56.613
12.137
31
55.328
11.896
61
Iran
17.5
4.1
30
Lebanon
18.387
4.303
31
Total
17.951
4.193
61
Iran
14.033
3.828
30
Lebanon
14.938
3.767
31
14.5
3.793
61
Iran
22.467
5.538
30
Lebanon
23.313
5.025
31
Total
22.903
5.253
61
Iran
30.733
6.633
30
Lebanon
28.452
6.762
31
Total
29.574
6.742
61
12.7
3.659
30
Lebanon
Iran
13.355
3.8
31
Total
13.033
3.715
61
Iran
8.967
2.748
30
Lebanon
6.71
2.466
31
Total
7.82
2.826
61
Iran
9.067
1.999
30
Lebanon
8.387
2.06
31
Total
8.721
2.042
61
Iran
31.379
7.243
30
Lebanon
31.226
7.07
31
Total
31.3
7.093
61
Iran
6.367
1.81
30
6
1.673
31
Lebanon Climate- Ownership of Ideas
Std Deviation
Total
Total Relational Capital
Mean
Total
6.18
1.737
61
Iran
8.31
2.123
30
Lebanon
9.29
2.148
31
Total
8.817
2.175
61
Iran
8.233
2.046
30
Lebanon
8.065
2.476
31
Total
8.148
2.257
61
Iran
8.6
2.513
30
Lebanon
7.871
2.553
31
Total
8.23
2.539
61
National Intellectual Capital Stocks and Organizational Cultures
Table 5. Tests of between-subjects effects for IC management, culture and climate (Iran vs. Lebanon) Total IC (Summated Scale)
df
F
Sig.
1
0.732
0.396
Structural Capital
1
0.878
0.352
Human Capital
1
0.397
0.531
Relational Capital
1
0.679
0.413
Culture (Summated Scale)
1
1.769
0.189
Culture- Tendency toward Cooperation
1
0.47
0.496
Culture -Deference to Power
1
11.417
0.001
Culture- Fear of Unknown
1
1.708
0.196
Climate (Summated Scale)
1
0.007
0.934
Climate- Risk Taking
1
0.676
0.414
Climate- Ownership of Ideas
1
3.154
0.081
Climate- Openness
1
0.084
0.773
Climate- Trust
1
1.262
0.266
(tendency toward cooperation, deference to power, fear of the unknown) are strongly associated with three dimensions of IC management (structural, human, and relational). Furthermore, the climate constructs (risk-taking, openness, ownership, and trust) had strong associations with the same three dimensions of IC management. Based on the existing literature, we suggest that the difference in the IC management levels might be due to organizational characteristics that act as obstacles or initiatives for IC wealth creation. The results of our comparative study revealed that other than deference to power, all other cultural and climate variables are not significantly distinct in our two sample contexts. One possible conclusion to be drawn from the results of our study is on the importance of organizational (micro) level characteristics in fostering IC management. These findings are important to MNCs currently operating or planning to operate in these two countries with high reliance on off-balance sheet and intangible assets for the success of their operations. Given that climate is a less enduring, more observable characteristic (Denison, 1996), our findings suggest that managers should attempt
to create a climate with positive characteristics through incentives that promote risk-taking, openness, trustfulness, and ownership of ideas. Our study suffers from a small sample size and a weak literature on which to build a theoretical foundation for our findings. Due to a lack of availability of macro-level socio-economic indicators and studies on organizational human resource management in these two countries, it is difficult to make rigorous scientific predictions. Therefore, we encourage academics to conduct similar studies in other developing countries, which are attractive for foreign investment. Several interesting research questions remain to be investigated in future studies. Most of the studies related to the role of culture and climate in the development IC management are theoretical. More studies need to be undertaken to explore this interesting research area. We only focused on two developing countries in our study. Additional studies need to explore the role of organizational and national IC stocks in the organizational IC management processes in other developing or developed countries.
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National Intellectual Capital Stocks and Organizational Cultures
Our study focused on the IC management processes, and we did not study the role that the organizational characteristics might have in improving the actual existence of IC in an organization. Therefore, another fruitful area of research would be to investigate how the improvement in the IC management processes might lead to development of IC stocks for organizations operating in developing or developed countries. Finally, the results of our study indicated that managers can benefit from improving the organizational characteristics. However, the suitable management control systems that would promote these climates were not discussed in our study. Future studies can investigate the incentive mechanisms that should be put in place to promote such an atmosphere.
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National Intellectual Capital Stocks and Organizational Cultures
APPENDIX: ITEMS USED IN THE QUESTIONNAIRE Intellectual Capital: Structural Capital 1) People have access to the information systems they need to fulfill organizational objectives. 2) Our organization possesses processes to develop fully its unique capabilities, skills, and knowledge. 3) Features of our information systems capture the knowledge that exists in this organization. 4) Most co-workers/associates are familiar with organization information systems that assist job performance. 5) We have good systems within our organization to measure the value of our knowledge.
Intellectual Capital: Human Capital 1) The knowledge that each co-worker/associate has is not really appreciated until that person leaves the organization. 2) Most co-workers/associates clearly understand “why” they do what they do in their jobs. 3) Extensive knowledge sharing occurs between experienced and new people in our organization. 4) Because knowledge is shared non-systematically (e.g. sporadically, informally), dependency on a few key individuals for success is high. 5) Bureaucracy within our organization does not slow down the application of new ideas. 6) We are able to link the success of our organization to our knowledge and expertise. 7) We often develop techniques or processes based upon what we have learned from earlier experiences. 8) It is easy to spread individual knowledge throughout this organization for others to use.
Intellectual Capital: Relational Capital 1) We maintain appropriate communication with our stakeholders. 2) Suppliers and customers have a clear picture of who we are and what we offer. 3) Our clients believe that we work towards their best interests. 4) We emphasize getting to know one another in this organization. 5) Co-workers/associates generally confide in one another. 6) The structure within this organization promotes caring relationships.
Organization Culture:Tendency toward Cooperation 1) Most people in this organization think that teamwork provides appropriate recognition. 2) People in this organization get ahead working on their own rather than in a team. 3) The most valuable people in this organization are team players. 4) Most members are willing to put team objectives ahead of personal objectives. 5) In this organization, common core values guide co-workers/associates in a unified direction.
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Organization Culture: Deference to Power 1) Most members of this organization would feel comfortable disagreeing with their supervisors. 2) Employees are frequently asked to participate in our organization’s decision-making. 3) There is a willingness to allow anyone on the team to take the lead, based on who is most experienced.
Organization Culture: Fear of the Unknown 1) Mistakes are acceptable in this organization as long as we learn from them. 2) We are enthusiastic about taking on challenges in which we do not have complete information. 3) We are comfortable with uncertainty in our organization.
Organization Climate: Risk-Taking 1) Taking reasonable risks is acceptable in this organization. 2) Tolerating mistakes when trying new ideas is accepted in this organization.
Organization Climate: Ownership of Ideas 1) It is best not to take credit for your ideas in case they don’t work out. 2) People who offer innovative ideas really get ahead in this organization. 3) Expressing original ideas is encouraged in our organization.
Organization Climate: Openness 1) It is best not to tell others too much in this organization. 2) Constructive comment is well received among colleagues. 3) People are not reluctant to speak out when in meetings.
Organization Climate: Trust 1) Employees trust that the organization is concerned about their welfare. 2) We follow through on what we say we will do in this organization. 3) Levels of trust among employees in this organization are generally high.
This work was previously published in Strategic Intellectual Capital Management in Multinational Organizations: Sustainability and Successful Implications, edited by Kevin O’Sullivan, pp. 95-118, copyright 2010by Business Science Reference (an imprint of IGI Global).
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Chapter 8.14
The Role of ICTs in the Management of Multinational Intellectual Capital Mirghani S. Mohamed New York Institute of Technology, Bahrain Mona A. Mohamed New York Institute of Technology, Bahrain
ABSTRACT This chapter provides a systematic multidisciplinary framework that defines the role of technology in leveraging IC across borders and between headquarters and subsidiaries. In reaching this conclusion, this chapter investigates the strategic importance of Information and Communication Technologies (ICTs) in the management of Intellectual Capital (IC) within a Multinational Company (MNC) ecosystem. The chapter addresses the transubstantiation of MNC into boundaryless Global Knowledge-Based Organization (GKBDOI: 10.4018/978-1-60960-587-2.ch814
MNC) which ultimately propagates into Learning MNC (LMNC). The latter is a suggested MNC category that sustains competitive advantage through systemic adoption of “Knowledge Iterative Supply Network (KISN)” model proposed by the authors. The chapter suggests a new multinational ICT/IC governance strategy that handles the emerging complexities associated with modern intangible resource synthesis. In effect, these complexities originate from the introduction of functionalities such as just-in-time knowledge supply, elicitation of tacit knowledge, and leveraging of the core competencies for the creation and maintenance of geographically distributed value proposition.
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The Role of ICTs in the Management of Multinational Intellectual Capital
PROLEGOMENA The current global economical transformations have resulted in a turbulent marketplace that needs continual IC value rejuvenation to create and sustain companies’ competitive advantage. This fact has been highlighted by Guthrie (2001) who reports that “the rise of the ‘new economy’, one principally driven by information and knowledge, international competitiveness and changing patterns of interpersonal activities is attributed to the increased prominence of intellectual capital (IC) as a management and research topic.” Hence, this evolution in the IC is highly correlated with the growth of Knowledge Management (KM) as a new management discipline. Meso & Smith (2000) testify that with the developments in KM, intellectual capital is gaining a reputation as the only strategic asset. It has been reported by many investigators that ICTs help to establish social networks through their deployment via digital networks. In addition, ICTs provide channels for communication and learning for the improvement of products and services (Jitsuzumi et al. (2001), Hedelin & Allwood (2002), Mansell (2002), Baddii & Sharif (2003,Mohamed (2007b). Galán et al. (1999) report that ICTs form one of the pillars for global competitive advantage, in which there is a high competition in the marketplace. Furthermore, Stromquist & Samoff (2000) report that “as globalization expands the twin forces of the market and information technologies are pervading the educational arena. One instance is the Knowledge Management System (KMS), which proposes to produce easily retrievable materials via the Internet and hypertext. KMS attempts to be more than a mere data bank, for it seeks to provide highly selected and targeted knowledge”. However, Duffy (2001) states that it is difficult to capture all valuable knowledge needed by the organization. There is an opportunity now to harvest, transform, share, and reuse knowledge instantaneously though modern technology. We would add that it is unlikely that competitors will
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have the same mixture of technology and human capital to replicate the same kind of knowledge. Nevertheless, Mohamed (2007b) states that “ICT tools compress global business life-cycle through the ease of data exchange and analysis at various global levels. The mobilization of explicit knowledge through virtual communication significantly contributed to the sharing of knowledge, but mostly at the operational levels and less at the managerial level; this can be attributed to the fact that ICTs lack the ability to transform knowledge as they transfer it.” This article argues that although the world is experiencing the upshots of the knowledgebased economy (Havens & Knapp (1999), Civi (2000), and Lubit (2001), in which knowledge is the most important sustainable competitive advantage (Williams (2001), Bristow (2000), Gupta et al. (2000), IC elements for many MNCs still exist in disconnected islands. This scattered IC, in various MNCs’ subsidiaries, resulted in loss of what could have been a significant added value for these companies. ICTs may contribute to the solution of such a complex problem; however, one of the bona fide challenges facing the use of technology to manage IC is “knowledge de-contextualization” or “knowledge dilution”. These effects happen during the codification and externalization processes. However, proper consolidation of different types of ICs with diverse types MNCs may help in lessening such negative impacts. Nonetheless, this may happen only, if a true synergetic integration of IC stream from different MNCs’ subsidiaries is reached.
MNCs’ Typology and IC Classification Perlmutter developed the first typology of MNCs that consists of three categories: ethnocentric which is a home-country oriented MNCs, polycentric that describes host-country oriented MNCs, and geocentric that is characterized by a world orientation profile (Michailova & Nielsen (2006),
The Role of ICTs in the Management of Multinational Intellectual Capital
Maclean (2006) and Downes et al. (2000)). In a modification of such a classification, Kaye & Little (1996) reported that Heenan and Perlmutter presented four different approaches to internationalization, namely, ethnocentrism, polycentrism, regiocentrism and geocentrism. These categorizations are based on the power of the headquarters, and the cultural effects. However, the classification does not consider the interconnectedness of subsidiaries to mobilize IC, and the leverage the core competencies need to create value proposition and consequently market value. Mcconnachie (1997) defines intellectual assets at the Dow Chemical Company as knowledge with value and the cornerstone for creating the company’s wealth. Similarly, Miller et al. (1999) define IC as “intangible resources within an organization related to information and knowledge that are not generally measured or appreciated, but contribute to an organization’s success.” The author classified IC into human capital, structural capital, and customer capital. Human capital (employees) refers to what is in the minds of individuals, while structural capital (internal) is anything other than human capital within a company including process, procedures, policies, networks, software, databases, intellectual properties, while customer capital refers to customer relations. However, Seetharaman et al. (2004) used the same classes, but the author replaced customer capital with relational capital. The relational capital governs external relations with customers, alliances, licensing and agreements. Moreover, Cohen & Kaimenakis (2007) modified Skandia’s classification scheme into only two major classes, namely, human capital and structural capital. However, the authors divided the latter into two other sub-classes described as relational capital, which is previously described by Seetharaman et al. (2004), and organizational capital. The latter consists of databases, organization charts, strategies, manuals, etc. The customer capital has been subdivided into more sub-capitals as Allee (1999) suggested an expanded scheme
that in addition to human capital, structural capital and customer capital also includes social capital and environmental capital. From the above description, it is obvious that the definition of IC is as blurred as its components. However, the relationship between the three main components of IC and their interaction effects can be depicted as in Figure 1 and explained in Table 1.
The Hybridization of MNCs and IC Even though, classification of MNCs and typology of IC have been attempted by many investigators, surprisingly, there is no correlativity between the two spheres in the literature. This chapter proposed three types of MNCs that can be defined based on IC management practices, namely, Traditional MNCs, Global Knowledge-Based MNC (GKBMNCs), and Learning MNCs. This proposal is shown in Figure 2.
Traditional MNCs There are many differences between IC activities within MNCs and IC processes in national companies. These differences are the result of geographic distance, cultural diversity, and managerial style (Stewart et al. (2000), Kaye & Little (1996), Davis et al. (2005) (Granell (2000), Higgs (1996), Alexander Kouzmin (1999) and Kidd (2001). However, many MNCs still live in their ethnocentric contexts, because of their management ignorance of what the authentic MNC needs. Morrison & Beck (2000) found that “98 percent of the USA and UK managers have no clue how to be global; still they are responsible for global operations. This is because mangers restrict their thinking to the management of physical assets. Furthermore, “they intended to give the rest of the world a lesson on how to do things according to their way”. Traditional MNCs disregard crosscultural diversification as a factor affecting IC creation, hence, their knowledge mobilization is very limited to the time before the real meaning
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Figure 1. The interaction effects of the three most common categories of IC
Table 1. The three IC component interactions and their meaning relative to their cumulative final effect on intellectual capital Area
Description
1
Emphases are on human capital that intensifies tacit knowledge, the know-how, and consequently innovation. But, due to lack of means of knowledge mobilization this intellectual agility remains confined to its own subsidiary. Consequently, MNCs with this type of IC will suffer from “intellectual capital divide” between various subsidiaries due to poor knowledge brokering.
2
The focus in this area is on strengthening outward relations with the business community to promote value networks, customer loyalty, and communication channels to nurture and share knowledge. The full benefit of this capital cannot be attained, unless MNCs employ it for the benefit of the structural and human capital (inward networks) advancement.
3
In this area, emphases are on structural capital where policy and procedures are potent and ICTs are robust in transferring knowledge. Moreover, property rights are protected and the MNC will be culturally prepared to accept the growth of IC. However, these cannot be properly employed because of the human and relational capital negligence.
4
In this area, poor relational capital results in inadequate communication with the external business community and stakeholders. Exotic knowledge and feedback from stakeholders and customer will be minimal. Response to customer requirements will always be poor. Consequently, the MNC will have a poor reputation and that will make customer loyalty ephemeral.
5
This interaction shows poor structural capital has a negative effect on both human and relational capital. Both tacit and explicit knowledge of the firm will be impacted due to poor management of ICTs infrastructure, intellectual property, procedures and culture. Accordingly, the company will lose control over its human resources and its knowledge repositories.
6
Due to this interaction employees will be characterized by poor skills, expertise, core competencies and capacities. The learning process will be restrained and the organization will depend on explicit knowledge more than tacit knowledge (Figure 2). Consequently strategic innovation, value creation, and organization competitiveness will be at their minimal levels.
7
In this triple relationship the optimal IC value obtained, MNCs stability and maturity levels are reached, and there is a high level of tacit and explicit knowledge integration. The company at this stage must de-layer the rigid cultural strata and become organic and flat. All three capitals will work in harmony and according to the needed proportionality.
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Figure 2. Mapping the transformation of MNCs based on IC types and a modified Perlmutter’s MNC classification
of globalization is understood. These companies fall into the old pathogenic closed system that is characterized by intense “cultural collisions” i.e. physically exist in the global market, but managed by local companies mentality. IC in traditional MNCs is dominated by subsidiary intra-communication, but with minimal interaction between subsidiaries and the headquarters except what is dictated by the rigid hierarchical structure of the firm. The scope of innovation is limited to the boundaries of these subsidiaries, because the tap on knowledge that transcends national borders depends on the individual subsidiary decision i.e. it is not part of the MNC policy. Consequently, Mohamed (2007b) reports that globalization is “misunderstood and misused by many egotistical multinationals that arrogated the ownership of globalization and shoehorned it to their purpose, then call upon the rest of the world to comply.” With various developments of the distributed systems and the advancement in communication systems a different kind of knowledge-based MNC has emerged.
Global-Knowledge-Based MNCs Global Knowledge-Based type of MNC (GKBMNC) is significantly affected by the management of human and structural capital (Figure 2), therefore, it is flatter than the rigid traditional MNCs. Besides ICTs, intellectual property protection and procedures, structural capital helps in harmonizing cultures of different subsidiaries. The
cultural differences between Eastern and Western hemispheres have great influence on which side of the GKB-MNC companies will take. For instance the former depends on structural capital and the latter depends on human capital. Vignali (2001) observed that McDonald’s in Beijing depend on personal interaction with customers; on the contrary, it depends on technology in the US. Due to the distances between knowledge source and knowledge receiver, MNCs attempt to transfer knowledge within and between subsidiaries through explicit knowledge channels. These channels are represented in knowledgebases and other means as shown in the butterfly framework depicted in Figure 3. This may be due to the dominance of technology that encourages the emergence of this type of MNC. Lang (2001a) attributes the major changes in the business processes to the rapid growth in technology and the international competition; the former transformed into knowledge-based competition. Furthermore, Mohamed (2007a) states that the progression of distributed computing up to the emergence of grid computing in the mid 90’s emulates social networks in its intent to nurture and mobilize knowledge attributes across global communities. The butterfly effect is depicted in Figure 3 is a framework named after the famous butterfly concept in chaos theory, in which patterns exist in all chaotic natural behavior. Equally, human capital processes affect structural capital which ultimately affects the construction of the GKB-
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Figure 3. The Effects of Human capital and Structural capital in the (Adopted and modified from the butterfly framework suggested by Mohamed (2007b))
MNC. For instance, the teaming and communities affect the expert networks, alliances and eventually all will result in the creation of network externalities. Similarly, knowledge economy has a rippling effect on GKB-MNC as shown in the backbone of the butterfly framework. Mohamed et al. (2004) states that the recent shift of the economy towards intangibility (knowledge assets) curtails command and control behavior and boosts cross-functionality in an attempt to exploit the intellectual capital for a differential competitive advantage in the market place. The structural capital wing mainly expressed explicit knowledge through ICT applications and intellectual properties, and referred to the knowledge mapping for sharing. Stewart (1999) reports that the reasons for managing structural capital are rapid knowledge
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sharing, collective knowledge growth shortened lead times, and more productive people.
The Learning MNC The traditional MNCs, and to some extent GKBMNC, are characterized by inflexible isolated silos that inhibit critical IC flow and suppress MNCs innovativeness which is quintessential for MNCs profitability. The intromission of new IC management principles employing ICTs into MNCs and practice cross-learning between subsidies is imperative. This needs the organization to reconfigure itself in a way that smoothly mobilizes IC between different stakeholders and over different time zones and geographical locations. Such requirement can be satisfied with a Learning MNC (LMNC) milieu. LMNC is a learning organization
The Role of ICTs in the Management of Multinational Intellectual Capital
with geographically separated, but epistemologically connected entities. In other words, it is a flat learning organization with physical distances. LMNC is continuously nurtured as an organic organization that de-layers its rigid hierarchical strata through IC sharing processes. This may lead to a reliable global ‘cognosphere’, in which the company can tap on domestic and exotic IC from stakeholders. Therefore, LMNCs must establish interconnected learning process that comply with the firm’s intellectual capacities asset within its subsidiaries, stakeholders, customers, suppliers, alliances, and even competitors in a “coopetitive” setting. In LMNCs environment companies are pushed into the direction of holistic system thinking in which people envision the whole interacting system with its all components rather than focusing on isolated elements that are under the control of their own subsidiary. Hence, for MNCs to sustain their competitiveness, they must build a strategic global learning scheme that creates a perpetually valuable knowledge, and ensure knowledge equitableness between subsidiaries that belong to the same MNC. Learning is the main determinant of profitability and competitiveness. Pemberton & Stonehouse (2000) report that the development of many companies into learning organizations was the main reason behind the success in their competition. Hall (2001) also supports this argument by analyzing the value-added by knowledge in the global arena. He found that the most optimized knowledge gain is within learning organizations, which is a determinant of the organization success. Furthermore, Venugopal & Baets (1995) report that globalization forced firms to transform themselves into learning organizations. More specifically, Kagia (2002) suggests that learning agenda have been pushed by the global knowledge economy. The author adds that besides new technologies, the know-how and new ideas are the source of the economical growth and development. LMNCs predict the requirements of their customers through pattern recognition, modelling,
and market segmentation. This can be achieved through robust data mining tools that work against warehouse of transactions, documents and customers’ feedback. This may lead to the development of clear-cut core competencies needed by the customer. Quinn (1999) found that the core competence form the quintessence of value propositions and offer the inspiration for clients to favor the firm business model of services or product over its rivals. For nurturing and streaming the synergetic effects of IC and core competencies within LMNCs, ICTs must be augmented by conglomerations of human capital ‘Network externalities’ (NE) that originate from autonomous teaming structure such as Cross-Function Teams (CFT), Virtual Communities of Practice (VCoPs) and “expert networks”. One of example of these networks is the Epistemic Community (EC), which is described by Tiessen (1999) as universal experts team that think in concert to allow MNCs to innovate as a result of pooling knowledge from different geographies. The accumulation of such structures will allow for synergetic pooling of experiences, knowledge and best practices. The increase in such network size leads to exponential increase in LMNC innovativeness and competitiveness.
The Role and Governance of ICTs for IC The strategic importance of ICTs in shrinking the time and geographic distances of MNCs is undeniable. Friedman (2005) observed the flatness of the world due to whole set of technology convergences. The author states that different technologies including the fiber-optic networks made it easy for people to work together, and that leveled the playing field for workers to share their work. Mohamed (2007b) states that “in the globalization realm, ICTs are the driving force behind shrinking physical and temporal distances and transmitting knowledge across different cultures. In general, ICTs play a major role in progressing
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globalization through simulating social networks within the physical networks, opening communication channels, fostering human development and improving services and products”. Therefore, ICTs become differentiating factor for many MNCs, Galán et al. (1999) believe “technology as one of the elemental pillars of competitive advantage in the international market, in which intense competitive capabilities are required from companies.” Knowledge Management System (KMS) automation as a platform for IC provides irrefutable services for mobilizing just-in-time knowledge for decision-makers around the world, Mohamed (2007a) states that KMS with all of its components of networking, clustering, hardware and software, is becoming critical for mobilizing knowledge in the global knowledge-based economy. Technology, through its smart devices, agents, alerts, mining and semantics, is becoming more than an enabler for KM. In fact, purposefully using technology in KM programs is inevitable, and becoming a necessity in the global arena. Lang (2001b) reports that “globalization is driven by Internet and Infocomm technologies in many ways. The economies of the world are progressively interconnected through people and ideas, investment, goods and services. This resulted in new formats of competition and cooperation as companies push for greater productivity and better efficiency”. ICTs offer an adaptable channel for communiqué of intangible assets in dispersed geographies (Duffy (2000); and Lang (2001a). Shariq (1997) observed that the world is getting into a new state where opportunities are shaped by people who have the ability to utilize their knowledge which embodied in technology and human capital. Mohamed (2007b) states that “globalization altered many KM conventional processes and procedures due to mobilization of knowledge through itinerant agents augmented by avant-garde ICT channels. The resultant knowledge spans across multinationals and commit ‘bidirectional transmutation’ due
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to different cultures and heritages of knowledge nurturing.” ICTs facilitate the diffusion of exotic (interMNCs) knowledge across the multinational body, and ease the infusion of domestic (intra-MNCs) knowledge in various subsidiaries. The exotic knowledge sources such as customers, manufacturers, distributors, suppliers and even competitors are vital for relieving MNCs from the traditional lock-in effect. On the other hand, the hybridization of the already inextricably interrelated domestic and exotic knowledge increases MNCs’ innovativeness and minimizes the intricacy caused by the unidentified attributes in the evolving global marketplace. In its natural progression, ICTs shift from supporting disintegrated functional systems to facilitating integrated processes. The latter is accomplished through emerging ICTs architectures such as grid computing, fiber optic, federated hubs, object-oriented technologies and business conglomerations establishments such as technology parks, incubators and knowledge villages. ICTs governance needs to be aligned with the new global knowledge governance. This can be achieved through building proper architecture, system development, and customized application to fit the role of ICTs in managing IC throughout different phases of Knowledge Iterative Supply Network (KISN) (Figure 4). During knowledge discovery ICTs play a major role in the conversion of data to information when human capabilities are slow in such process. This conversion can be achieved through statistical analysis and data mining tools. However, ICTs may not be helpful during the conversion of information into knowledge, where human cognitive dimension is needed for synthesizing and organizing knowledge. The analysis phase depends on human thinking more than it depends on ICTs. While classification can be performed better with ICTs; organization, assimilation and synthesis are human activities that require the power of double loop thinking and reflectivity. Presentation of procedural knowledge
The Role of ICTs in the Management of Multinational Intellectual Capital
can be carried out by ICTs channels; however, deeper knowledge layers may need intervention of humans. Additionally, the transfer of data for validation at different levels can be fulfilled via ICTs tools with robust convertibility, mobility and interactivity. Nevertheless, the feedback that results in new data and originates from communities of practice or other networks must be carried out by humans. The role of ICTs in intra- and enter-subsidiaries communications vary according to the geo-
graphic remoteness and time zone (Figure 5). For short distances under the same time zone a faceto-face interaction is preferred as it is the best way to sharing tacit knowledge. Metzker (2001) justifies this kind of communication as “The hormones stimulated when we are face-to-face with people lead to trust and bonding, and possibly enhance pleasure and reduce fear. Large or completely virtual organizations cannot support physiological responses that are most needed for accomplishing work and for providing the trust
Figure 4. Knowledge iterative supply network (KISN) processes that facilitates the transformation of traditional MNCs into learning MNCs. The dotted lines represent the role of ICTs (Adopted from Mohamed, 2008)
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Figure 5. The Effects of time zone and geographic distances on communication media selection
needed for sharing knowledge and other resources”. When the face-to-face interaction is difficult due to stretched distances, then the use of proper distributed technology is permissible. Collaboration through real-time synchronous technologies is preferred over any-time asynchronous technologies. However, this synchronicity depends on many intermingling factors such as the availability of the proper technologies and the confidentiality of the shared knowledge.
ICTs and IC Challenges Although there is a chimera that ICTs is the utopian panacea for globalization communication problems, the contribution of ICTs to the synthesis of IC and other intangible assets remain debatable (Brockway (1996), Reneker & Buntzen (2000), Eito (2002). The success of deploying ICTs across MNCs boundaries depends on human capital, and how much these ICTs are effective depends on the relational capital. In general, ICTs ease information storage, retrieval, and transfer, but it cannot replace people. At the global level, the challenge of ICTs as a tool for IC management comes from the fact that ICTs infrastructures are founded on the basis of bivalent logic i.e. 0 or 1, true of false, black or white etc. The following
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represent major challenges for ICTs when used to manage IC in MNCs settings: •
Codification effects: the fundamental notion of information theory is centered on entropy, where decisions can be made under uncertain conditions and incomplete information. When ICTs are used as a conduit for IC flow, entropy may result from the ‘knowledge de-contextualization’ or ‘knowledge dilution’ during tacit knowledge externalization or during the process of codification. Mohamed (2007b) argues that due to knowledge de-contextualization during externalization, ICTs are not the utopian panacea. Indeed, ICTs without human cognitive intervention broaden the scope of information overload, widening the IC inequitableness and other discrepancies between subsidiaries within the globalization equation. Mohamed et al. (2006) states that ICTs assimilation and representation of knowledge intangibility, dynamism, experience and other humanistic cognitive dimensions remain debatable, unless technology shreds its bivalent logic image and instead learn to operate within an authentic continuum. The development of ICTs in areas such as natural language,
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•
•
•
•
XML, neural networks, grid computing and search engines offers new opportunities to the codification process. Binary logic barrier: Due to the binary logic fundaments of ICTs, the synthesis and representation of knowledge intangibility, dynamism, experience and other humanistic cognitive dimensions remain debatable when ICTs employed for IC elucidation and redistribution over global distances without human interference. Mohamed (2008) states that so far, KMT is not mature enough to deliver bona fide KM processes. The distance from data to knowledge cannot be handled by the existing technology unless technology cast off its bivalent logic. Despite the recent leaps in technology, the situation is still perplexing and elusive. This is because KMT deals with the knowledge continuum either as discrete unrelated events or as one class with no different technological requirements. Infrastructure disparity: The disproportionately of the ICTs physical infrastructures and the differential learning capacity in various MNCs hosting locations result in an unequal distribution of knowledge and flow channels. Tools selection: If IC is a subset of knowledge and knowledge is a superset of information, then it is logical that information technology cannot be used to handle intellectual capital with the same efficiency. Due to the complexity of IC requirements, selecting the most appropriate KM technology is a perplexing issue. The process must consider unique social, behavioral as well as technological factors of the targeted environment. IC Metrics: It is difficult to explicitly define the relationship between business strategic objectives, metrics, and the intellectual assets (Gibbert et al. (2001), Kennedy
(1998), Caddy (2000) and Brennan & Connell (2000)). In addition, the common accounting system has not considered itemizing and reporting IC in the general ledger spreadsheet (Petty & Guthrie (2000), Koenig (1997), Kennedy (1998), Caddy (2000), and Brennan & Connell (2000)). For such determination, MNCs must define their ‘CI level’. IC leveling is the depth of the dependency of MNC on specific type of IC, which in turn based on the degree of globalization and the degree of ‘tacicity’ within the MNC milieu. There is the process of determining the need for policy and control objectives to govern the Return-On-Investment (ROI) from IC, especially then ICTs deployed at a wide range as a means of communication. However, MNCs face genuine challenges in measuring and reporting IC due to the non-subjectivity of tacit knowledge.
ICTs Role in IC Metrics If the measurement of IC is important for any firm to be properly managed, it is even more imperative in the case of MNCs due to the difficulty of management over geographic distances and cultural differences. Reports that show the value of the company’s intellectual assets are even more important than those detail physical assets because IC is the fundamental for value creation and cash flow. Furthermore, a proper IC management is required for properly managing the customer requirements through the response to their feedback. Hence, many companies have been obligated to investigate the measurement of their IC to provide a better foundation for its management. The process of IC creation is very dynamic in the MNC environment, and so is its measurement process. Therefore, valuing IC is difficult in both of its forms both qualitative and quantitative evaluations. Many investigators suggested tying
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of IC measurements to KM measurements (Pablos (2003), Liebowitz & Suen (2000) and Liebowitz & Suen (2000)). Guthrie (2001) emphasized the importance of management, measurement and reporting of IC as a result of re-engineering the orthodox accounting system procedures. The author recognizes the difficulty of measuring the intangible assets by assigning specific monetary value to it, but he warned that, if the intangible assets are not incorporated in the formal accounting system, then the financial and management reporting will become irrelevant as a tool that support the decision making process. The difficulty comes from the unfeasibility of correlating human capital indictors to accounting parameters such as Return-On-Investment (ROI) and Net Present Value (NPV). In addition, unlike structural capital, human capital is less controllable, more dynamic and can easily be lost when people leave the organization. Hence, human resources policies may have a significant impact on such capital. Pablos (2003) predicted that the approaching knowledge economy will require different tools for measuring and managing organizational knowledge. Furthermore, the author chose Tobin’s as a valid measure for the firm’s intellectual capital which is a ratio between the market value and the reposition value of physical assets. Although human capital is the most valuable capital, it is the most difficult to measure. However, developing software or creating a procedure is one form of manifestation of the transformation of human capital into structural capital i.e. this capital externalization produces confounding effects on its measurement. Liebowitz & Suen (2000) state that “direct measures will normally be size-oriented metrics like thousand lines of code/person-month, defects/ (thousand lines of code), and others. Indirect measures are functionoriented metrics such as the number of user inputs and outputs, function points per month, years of experience, number of dollars invested/used, years of education/research/management, and the like.”
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It is relatively easy to measure the structural capital components because they are either tangible or related to ICTs measures. Austin (1998) described technology helpfulness in the comprehensive measurement of management parameters. However, that depends on the measurement technology design and implementation. Nevertheless, Mohamed et al. (2006) argued that using technology in measuring the KM is a direct process because you can clearly see patterns such as database access or number of hits for certain knowledge objects. In these cases the associated innovation can be accounted for, but it may not be easy to quantify; therefore, KM measurements using technology should be used with care taking into account the confounded effects of nonquantifiable non-financial measures.
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Gibbert, M., Leibold, M., & Voelpel, S. (2001). Rejuvenating corporate intellectual capital by co-opting customer competence. Journal of Intellectual Capital, 2(2), 109–126. doi:10.1108/14691930110385900 Granell, E. (2000). Culture and globalisation: a Latin American challenge. Industrial and Commercial Training, 32(3), 89–94. doi:10.1108/00197850010371666 Gupta, B., Iyer, L. S., & Aronson, J. E. (2000). Knowledge management: practices and challenges. Industrial Management & Data Systems, 100(1), 17–21. doi:10.1108/02635570010273018 Guthrie, J. (2001). The management, measurement and the reporting of intellectual capital. Journal of Intellectual Capital, 2(1), 27–41. doi:10.1108/14691930110380473 Hall, B. P. (2001). Values development and learning organizations. Journal of Knowledge Management, 5(1), 19–32. doi:10.1108/13673270110384374 Havens, C., & Knapp, E. (1999). Easing into knowledge management. Strategy and Leadership, 27(2), 4–9. doi:10.1108/eb054629 Hedelin, L., & Allwood, C. M. (2002). IT and strategic decision making. Industrial Management & Data Systems, 102(3), 125–139. doi:10.1108/02635570210421318
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This work was previously published in Strategic Intellectual Capital Management in Multinational Organizations: Sustainability and Successful Implications, edited by Kevin O’Sullivan, pp. 144-159, copyright 2010 by Business Science Reference (an imprint of IGI Global).
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Chapter 8.15
An Approach to Efficient Waste Management for SMEs via RBVOs Stamatia-Ann Katriou ALTEC S.A., Greece Ioannis Ignatiadis Kingston University, UK Garyfallos Fragidis Technological Educational Institute of Serres, Greece Evangelos Tolias ALTEC S.A., Greece Adamantios Koumpis ALTEC S.A., Greece
ABSTRACT Businesses are aware of the popular demand for careful waste management as a high priority environmental issue. Small and Medium-sized Enterprises (SMEs) face greater pressure when coping with waste products, because they often lack necessary resources or expertise. E-business could offer unique opportunities both for SMEs wanting to dispose of their waste or find waste management services and for SMEs who deal with specific aspects of waste disposal itself. This
chapter proposes an approach for locating actors involved in the transportation, disposal, recycling and reuse of waste created by SMEs. Our approach incorporates the notion of Request Based Virtual Organizations (RBVOs) using a Service Oriented Architecture (SOA) and an ontology for the definition of waste management requirements. The populated ontology is utilized by a Multi-Agent System which performs negotiations and forms RBVOs. This approach enables SMEs to find appropriate partners, handle waste management and gain competitive advantage in the marketplace.
DOI: 10.4018/978-1-60960-587-2.ch815
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
An Approach to Efficient Waste Management for SMEs via RBVOs
INTRODUCTION Small and Medium-sized Enterprises/Businesses (SMEs) have specific challenges and opportunities related to their waste products, namely items needed to be disposed of. Waste management in this chapter refers to the widest concept of organizing, handling, transporting, recycling and disposing responsibly of all types of waste generated by SMEs. It is now essential that interactions of SMEs both seeking and offering services related to waste management require thoughtful analysis of which partners could benefit them the most. Systems need to be devised to meet this criterion and this is one area where e-business needs to be expanded. Waste management for SMEs is now a global priority as the green movement gathers pace (Gadenne, Kennedy, & McKeiver, 2009; Hidalgo, Irusta, & Fermoso, 2008; Vives, 2006). Waste Management has now become a highly complex issue. According to The Economist’s 2009 ‘Special Report on Waste’, the average Westerner produces over 500kg of municipal waste a year. In addition, both developed and developing countries generate vast quantities of construction and demolition debris, industrial effluent, mine tailings, sewage residue and agricultural waste (McBride, 2009). It has been estimated that the quantity of waste collected worldwide is between 2.5 and 4 billion metric tons (not including construction and demolition, mining and agricultural waste). Rich countries spend some $120 billion a year disposing of their municipal waste alone and approximately $150 billion on industrial waste (Lacoste & Chalmin, 2006). The amount of waste that countries produce tends to grow in tandem with their economies, and especially with the rate of urbanization. Waste firms see a rich future in places such as China, India and Brazil, which at present spend only about $5 billion a year collecting and treating their municipal waste. Concern about global warming should also provide a boost for the waste business. Waste is not just a
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substance that needs to be disposed of; it is also a potential resource. It can be burned to generate energy and new technologies turn sorted waste into fertilizer, chemicals or fuel. Paper, plastic, aluminum, etc can be recycled. Much waste can also be reused (McBride, 2009). Waste, thus, is now an opportunity for new business ventures, as well as for extra revenues or cost savings in existing enterprises. Many businesses are becoming more aware of the popular demand for more careful waste management as a high priority environmental issue which could also be used to promote a firm’s image. Business communities are responsible for large quantities and varieties of waste material. Acting in order to reduce and treat this waste appropriately can be easier for large organizations because they posses extensive resources and benefit from savings of scale. However, Small Medium Enterprises (SMEs) are in a unique situation. On the one hand they may have adopted waste management practices that are adapted to their operations. On the other hand, sometimes out of thoughtlessness and sometimes as the result of ignorance or a lack of understanding of the basic principles of effective waste management, many are content with meeting minimal requirements or restricting the adoption of such practices. Many SMEs have been found to fail to fulfill all waste management regulations due to lack of knowledge about the current environmental legislation relating to small companies (Gadenne, Kennedy, & McKeiver, 2009; Hidalgo, Irusta, & Fermoso, 2008). There is also the case of management’s good will being stifled by complex problems and the barriers imposed by limited resources (Dennis et al., 2003). Waste management is a complex and demanding issue that needs the contribution of a variety of experts to be handled successfully. Nevertheless, there is no such collaboration system supporting the management of waste in practice or in the literature. Companies and municipalities wishing to recycle, or find other ways of disposing of their
An Approach to Efficient Waste Management for SMEs via RBVOs
waste, need to locate appropriate firms which can support them. These services can range from a simple cost effective transport company - which can collect and deliver their waste to an appropriate place - to specialized recycling companies or firms that could deal responsibly with it. This chapter presents an integrated e-business approach for the transportation, disposal, recycling and reuse of waste generated by SMEs. This approach is designed bearing in mind the needs of an SME in finding the appropriate combination of firms that can help dispose of its waste in an environmentally friendly, efficient and cost effective manner. In order to do this they need to find and collaborate with appropriate combinations of firms. This is a difficult task due to the variety of business actors required to be involved and coordinated. The purpose of this chapter is to outline the architectural and organizational aspects of a collaborative system for the management of waste and provide SMEs at both ends of the waste management spectrum with viable solutions and a competitive edge. We develop a generic architectural model for the collaborative management of waste in SMEs based on Service Oriented Architecture (SOA), which should be adapted to the specific situation and needs of each user. The analysis remains at a high level, leaving aside some technicalities regarding the implementation and the operation of the system in practice. We believe that the lack of similar overall approaches renders our effort not only worthy, but necessary as well. The technological objective of this chapter is to provide an approach for the development of such systems that is based on Request Based Virtual Organizations (RBVOs). We propose the use of RBVOs by SMEs to enhance their business contacts and tackle effectively the problems outlined above. RBVOs are short-living entities that are formed to respond to business opportunities offered in electronic commerce; an RBVO is comprised of a cluster of partnering organizations that have totally replaced their vertical integration
into a virtual one (Roberts, Svirskas & Matthews, 2005). Although in principle RBVOs can be used by a variety of companies small and large, their specific characteristics (demand-driven, dynamic, ad-hoc collaborations) are more applicable to the nature of SMEs. These types of companies prefer more flexible and adaptable collaborations (including those with waste management companies) as opposed to larger organizations – highly specialized with multiple competencies – whose partnerships are more strategic and long-term (Hong & Jeong, 2006). This chapter also outlines and illustrates an ontology that serves the definition of waste management requirements. The populated ontology would be utilized by a Multi-Agent System which performs negotiations and forms the RBVOs, presenting them to the user who represents the SME. The user can then select the preferred RBVO and initiate collaboration with the proposed companies. For this purpose, the chapter will also discuss the use of Service Level Agreements (SLAs), used as a contracting mechanism amongst the partners in the selected RBVO.
CHALLENGES AND OPPORTUNITIES FOR SMES IN WASTE MANAGEMENT Industrial activities of the past century have created serious ecological problems. Even though there are different philosophies and approaches to resolving these problems, it is necessary to organize business activities along ecologically sound principles. Waste management is a key issue because every business activity produces some waste, either hazardous or polluting to the environment. Waste management refers in general to the processes of collecting, processing, recycling or disposal of waste materials. Waste (or industrial waste) includes a wide variety of kinds, including liquids and solid waste, sewage, electronics, chemicals,
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commercial waste (e.g. packaging material, etc.), biodegradable waste, etc. Even though SMEs may have relatively minor impact when examined independently, collectively their impact is great because of their large number. As a result, waste management is essential for SMEs, too. The adoption of environmental protection measures, both proactively and reactively, provides SMEs with the opportunity to meet their legal obligations, take care of and protect the natural environment and -at the same time- improve their competitive position. In this section we review the literature and outline the strategic opportunities of waste management considering the competitive advantages for SMEs. Emphasis is put on proactive views on waste management that provide strategic benefits to the firms, rather than on reactive approaches that mean merely to conform to the existing legislation.
Literature Review The impact of business on the environment has become an issue of increasing concern since the late 1980s, particularly in western economies, with rising external pressure and internal motivation for environmental-friendly business practices. The implementation of environmental management practice is influenced by stakeholders, such as consumers, legislators, suppliers or customers and employees. Consumers, in particular, are becoming more environmentally conscious and a growing ‘green market segment’ seems to prefer ecologically sound products and are willing to sacrifice some economic growth for environmental protection (Shrivastava, 1995). Suppliers or customers also exercise great pressure on SMEs, especially for the establishment of environmental management systems and the adoption of certifications, such as the Eco-Management and Audit Scheme (EMAS) and ISO 14001 (Hillary, 2004). Environmental regulation leads to better environmental procedures and practices (Williamson, Lynch-Wood & Ramsay, 2006; Gadenne, Ken-
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nedy, & McKeiver, 2009) and can influence the competitive dynamics of industries by imposing new costs, investment demands and opportunities for improving production and efficiency (Shrivastava, 1995). Environmental initiatives may result from concerns expressed by employees that expect their company to behave in a socially responsible way or because of the personal preferences of the owner/manager of the firm (Gadenne, Kennedy, & McKeiver, 2009). The adoption of environmental protection measures gives firms the opportunity to take care of and to protect the natural environment while simultaneously improving their competitive edge. Bansal and Roth (2000) suggest that companies take ecological initiatives for reasons of competitiveness (the potential to improve long-term profitability), legitimation (the desire of a firm to improve the appropriateness of its actions within an established set of regulations, norms, values, or beliefs) and social responsibility (the concern for social obligations and values). It should be noted that most of the literature has been focused on the large, usually multi-national, companies whose individual impact is apparent (Lawrence, Collins, Pavlovich & Arunachalam, 2006). For SMEs, in particular, Hillary (2004) suggests that environmental management can bring a broad range of direct benefits including: cost savings from increased resource use efficiency and waste reduction, marketing advantages, creation of a positive image and improved media coverage, improved relations with stakeholders, better supply chain relationships, lower insurance premiums and cheaper cost of finance, improved overall quality of management and increased staff commitment and motivation. Simpson et al. (2004) append that the ability of SMEs to gain a competitive advantage is thought to be related to issues of marketing, marketing research, marketing strategy, new product development, the technologies and processes and the manufacturing and operations strategy adopted.
An Approach to Efficient Waste Management for SMEs via RBVOs
Even though SMEs can gain a competitive advantage by adopting environmental good practices, the perceptions of SMEs and their approaches to environmental improvements reveal that there are some fundamental misunderstandings and difficulties in achieving it in practice. First of all, the majority of the surveys focusing on SMEs show that they either disregard or underestimate the competitive potential of environmental initiatives and consider the environment a ‘peripheral’ issue. Because of their small size and their limited knowledge, skills and resources, SMEs find difficulties responding to the challenge to improve their environmental performance (Hitchens, Clausen, Trainor, Keil & Thankappan, 2003; Collins, Lawrence, Pavlovich & Ryan, 2007). In addition, most SMEs perceive environmental protection as an extra cost or an unwelcome legal obligation with which they have to conform; many are reactive instead of proactive when dealing with environmental issues (Rutherfoord, Blackburn & Spence, 2000). The awareness, ability, attitudes, practices and perceptions of SMEs with regard to creating competitive advantage by making environmental improvements have been reported in the literature. As recently as 2009, Revell et al. (2009) portrayed the owner-managers of small firms as: ignorant of the environmental impact of their enterprise, lacking the tools and resources to tackle environmental problems, resistant to voluntary action due to the perceived cost, time, and resources required to reduce environmental impacts, skeptical about the business benefits of sustainability and difficult to engage on anything to do with reducing their environmental impact. Simpson et al. (2004) found that SME managers do not perceive that significant benefits in the form of cost savings, competitive advantage or other can be achieved from environmental improvements. On the contrary, they considered environmental responsibility and improvement merely a financial cost. In general, the strategic potential of investment in environmental protection and the development of
sustainable competitive advantages appear to be beyond the capabilities of the majority of SMEs (Simpson et al., 2004). Studer et al. (2008) suggest that the engagement of SMEs is further hampered by their limited access to relevant information and their lack of expertise to plan and implement environmental initiatives. Manufacturing SMEs seem to be more convinced than service-sector SMEs that they could gain competitive advantage through waste reduction (Simpson et al., 2004). Several studies have identified the barriers to SME adoption of environmental practices (Hillary, 2004; Simpson et al., 2004; Revell & Rutherfoord, 2003; Rutherfoord, Blackburn & Spence 2000). The most important barriers are related to: the perception that SMEs have little individual impact on the environment, the lack of expertise and understanding of environmental issues, the increased cost of environmental practices by SMEs and the perception that little financial benefit can be gained from environmental investments. On the other hand, the key motives are related to compliance with existing legislation, social responsibility and personal commitment of individual managers. Lawrence et al. (2006) consider that SMEs need different approaches from large firms in their effort to deal with environmental issues and they suggest seeking co-operation through networking with other SMEs and with other related organizations (e.g. research organizations, NGOs, etc). According to Collins et al. (2007) networks, with their ability to provide specialized information, mentoring and specialized support, may be a way to encourage all sustainability practices among SMEs. For example, networks can provide support to find funding and to suggest ways to deal with various environmental issues such as the reduction or recycling of waste, the implementation of new technologies or the development of new environmentally friendly products and services. In this chapter we also consider a network approach in the management of waste material, by providing a technological solution for the dynamic location
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and engagement of the appropriate partners that will support the handling of waste materials in every situation.
Development of Competitive Advantage through Waste Management There are two basic theories in the business literature for acquiring competitive advantage: one is based on industrial organization theory and is expressed by the work of Porter (1980 & 1985) and the other is based on the resource-based theory of the firm (Wernerfeld, 1984; Barney, 1991). Most of the research that relate environmental and waste management with competitive advantage for the firm derives from Porter (1980 & 1985), who suggests organizing business activities in a value chain and highlights the distinction between cost advantages and differentiation advantages. Porter (1985) suggested that value creating activities performed by the firm to design, produce, market, deliver and support a product would lead to a competitive advantage. All the primary activities with which firms create value (i.e. inbound logistics, operations, outbound logistics, marketing, sales and services) are likely to improve with the use of waste management techniques. Cost advantages can result from pollution control and pollution prevention technologies that reduce the environmental impact of the firms and from business practices that reduce the cost of production by increasing the efficiency of production processes and by reducing input and waste-disposal costs. Such practices include more efficient use of raw materials and energy, reduction of treatment costs of waste, savings from recycling activities, reduction of potential risks of environmental liability costs, reduction of logistic costs, etc. (Zutshi & Sohal, 2004). Differentiation advantages can result from improving product characteristics to be more environmentally
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responsible, developing new environmentally responsible products and marketing the environmental benefits of the products. Resource-based theory views the firm as a unique - at least in some aspects - collection of productive resources that include assets, capabilities, processes and knowledge (Barney, 1991). These resources can be used to enable firms to conceive and implement strategies that improve their effectiveness and efficiency. The development of a sustained competitive advantage should be based on rare resources or on resources that result from unique historical organizational circumstances and span the whole organization. Accordingly, waste management initiatives can lead SMEs to acquire competitive advantage especially if they cannot be easily imitated by others or are implemented early. Any single waste management initiative cannot guarantee a competitive advantage for SMEs, because it can be easily imitated. SMEs should try to develop their own capabilities in establishing waste management systems and harness specialized approaches in the management of waste materials that fit best with their particular circumstances. Waste management should not only be viewed as a legal or social obligation, but as an investment that will improve the efficiency of a firm and will provide a competitive edge. The technological solution we propose leverages the capabilities of SMEs in the handling of waste material by enabling the operation of virtual organizations that are comprised of SMEs and a variety of actors that have a role in the collection, transportation, disposal, recycling and reuse of waste created by each SME. Competitive advantages can arise from the cost improvement, the efficiency of processes and the opportunity to develop unique capabilities through the collaboration with specialized actors in waste management. For readers lacking insight into virtual organizations and other terminology a brief introduction to the technical side is provided below.
An Approach to Efficient Waste Management for SMEs via RBVOs
TECHNOLOGICAL BACKGROUND Request-Based Virtual Organizations A Virtual Organization (VO) is usually described as a network among organizations and/or individuals (Svirskas & Roberts, 2003). Therefore, it appears as a single unified organization. The benefits of VOs (cost, transaction, process and strategic) are well-documented in the literature (Bovet & Martha, 2000; Saabeel, Verduijn, Hagdorn & Kumar, 2002; Goldman, Nagel, & Preiss, 1995). However, the static nature of VOs fails to address the growing demands to locate products, services and business partners. In Government to Business (G2B) or Business to Business (B2B) contexts the above problems are more profound, due to the large potential number of collaborative partners with diverse capabilities and the lack of standardization of service description (Roberts & Svirskas, 2005). RBVOs (as a special type of VOs – more dynamic, adaptable and flexible in nature than traditional VOs) overcome this by enabling the discovery and matching of appropriate business partners. RBVOs are short-living entities that are formed to respond to business opportunities offered by electronic commerce. According to Svriskas and Roberts, the key features of a RBVO as opposed to the “classic” VO are: •
• •
A possibility for an enterprise to discover potential business partners upon demand and advertise itself in a standard way. Short-lived ad-hoc virtual formations of collaborating partners. Highly dynamic involvement of an enterprise in different e-business activities, serving different defined and advertised roles, at the same time, if needed.
As a subtype of more traditional VOs, RBVOs also inherit many of their features, i.e.:
•
•
•
A cluster of geographically dispersed organizations either within regions or inter regionally. A range of relationships from transactional to collaborative that vary dynamically over time in response to market opportunities. Lower transaction costs for geographically dispersed transactions (Svirskas & Roberts, 2003).
In trying to find collaborating partners to form a RBVO, quotes from a large number of sellers can provide a good overview of the price of transactions amongst collaborating partners. However, overcoming ignorance of product/service quality and other supplier capabilities may be more difficult. RBVOs can therefore be coupled with the concept of sector specific Service Level Agreements (SLAs) to address the issue. In its most basic form, a SLA is a contract or agreement that formalizes a business relationship, or part of the relationship, between two parties (Svirskas & Roberts, 2003; Trienekens, Bouman & Zwan, 2004). SLAs are well known from the IT services provision industry (Lee & Ben-Natan, 2002), where the provision of services is measured on technical parameters like network uptime, data rate, etc. However, SLAs can also act as the regulating framework of e-collaborations among RBVO members incorporating all the business, financial and legal aspects that are essential when considering the real environment in business (Tektonidis, Ignatiadis, Katriou, Koumpis, 2008). In this case the provision of services from one partner to another within an e-collaboration is benchmarked on pre-agreed standards that are captured within an SLA (in the form of template contracts) and which reflect the partners’ trading/collaborating arrangements. SLAs can then be used (manually or automatically) to monitor performance, resolve disagreements, and apply penalties (financial or otherwise) where appropriate. Vokrinek et al. have designed an (automated) RBVO protocol which supports a flexible forma-
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tion of RBVOs taking into account the use of SLAs with an emphasis on reflecting the conditions of real competitive environments. The protocol consists of three phases: (i) potential partner search, (ii) negotiation of SLAs and RBVO establishment and (iii) RBVO execution and dissolution (Vokrinek, Biba, Hodik, Vybihal, & Volf, 2007). Their results have been practically demonstrated in the “PANDA” project (co-funded by the European Union’s Framework Programme 6), with a focus on RBVOs (supported by SLAs) in the European ERP industry of SMEs.
Service-Oriented Architecture The creation and management of RBVOs inherently rely on a number of heterogeneous (in technical and business terms) partners coming together to explore and exploit synergies and collaborations. To accommodate different technical and business requirements - of current and future SMEs registered in the system - with regards to RBVO operations, it is imperative to adopt an open, adaptable and expandable architecture. It is for these reasons that a Service-Oriented Architecture (SOA) is considered in the context of the proposed system. SOA is also relevant for SMEs (Blum, Magedanz, Stein, 2007; JardimGoncalves, Grilo, Steiger-Garcao, 2006), and it has been argued that a SOA can be used to reduce the barriers of e-business in SMEs (Brun & Lanng, 2006). Service-Oriented Architecture (SOA) is an architectural style in which software applications are organized as a set of loosely coupled services (Harding, 2007). The SOA paradigm enables the linking of business and computational resources (mainly organizations, applications and data) on demand. It is seen to be essential for delivering business agility and IT flexibility. It also facilitates the alignment of existing IT infrastructures to achieve internal or external enterprise connectivity, by removing redundancies, generating unified collaboration tools, and streamlining IT
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processes. The benefits from this approach include an increase in business agility to respond to future changes by adapting and reorganizing the existing services as well as creating new services to fit in the existing IT architecture in order to address changed business requirements. This applies to both internal operations, as well as external ones e.g. providing new services to customers or changing the way the interactions with collaborators in a supply chain are carried out. A well-executed SOA implementation can bridge the gap between enterprise architecture and business strategy, with companies achieving a closer alignment of IT with business, while in parallel implementing a robust reuse of existing technology and application code with agility and cost effectiveness (Laurent, 2007). From a business point of view, the goals of SOA are quicker time-to-market with innovative offerings, greater productivity, and reduced integration costs. Contrary to vendor hype, SOA is not a software product, solution or technology. Rather, SOA should be viewed as a concept enabling businesses (or constellations of businesses such as in our case) to become more agile, flexible and interoperable. This is accomplished by organizing existing and new IT assets as a set of services that communicate with each other in order to form flexible processes addressing existing and future business requirements. In that sense SOA has also been termed as the ‘lean manufacturing model applied to IT’ (Woods, 2003). According to Marks and Bell: SOA is a conceptual business architecture where business functionality, or application logic, is made available to SOA users, or consumers, as shared, reusable services on an IT network. “Services” in an SOA are modules of business or application functionality with exposed interfaces, and are invoked by messages (Marks & Bell, 2007). From an architectural point of view, SOA is based on six assumptions (Brandl, 2007): applica-
An Approach to Efficient Waste Management for SMEs via RBVOs
tions are loosely coupled; interface transactions are stateless; interface follows the RPC (remote procedure call) model; interface is messagebased; messages use XML (eXtensible Markup Language) data and interfaces may support both synchronous and asynchronous transactions. Viewed as an approach to building IT systems to match flexible business requirements, SOA connects applications across a network via a common communications protocol, allowing organizations to reuse old and future software, often with the help of Web services (Brodkin, 2007). SOA incorporates standards like SOAP (Simple Object Access Protocol) and XML, to deliver standard messaging formats and increased reuse of information assets at lower integration costs (Larrivee, 2007).
Intelligent Agents A Service-Oriented Architecture can be complemented with Intelligent Agents for the creation and management of RBVOs. Intelligent Agents have been shown to be able to exist seamlessly within a SOA (Maximilien & Singh, 2005, Shen et al., 2007). In the domain of RBVOs, there are requirements for forming business alliances, planning long-term/short-term cooperation deals, and managing (including reconfiguration and dissolving) cooperation. Intelligent Agents (as part of a Multi-Agent System-MAS) can be assigned to represent the interest of SMEs registered in the system, which can guide the agents’ behavior according to customizable business rules (e.g. I only want to find waste management companies operating locally or I am only prepared to spend a certain amount of money on recycling activities). Implementation of agent technologies is usually based on the standards published by the Foundation for Intelligent Physical Agents (FIPA). Agent technologies show strong potential in the areas of cooperation, coordination, planning and control in the distributed environment (Marik and McFarlane, 2005). Using various negotiation
techniques (such as those described by Vokrinek et al., 2007), agents are able to establish cooperation even in a competitive environment. Their dynamic reconfiguration and recommitments improve the overall service quality across the whole supply chain. Various implementations and benefits of Intelligent Agents in the supply chain (for modeling, planning, negotiation, management and reconfiguration) have already been discussed in the literature (e.g. Caridi, Cigolini & De Marco, 2005; Nissen, 2001; Fox, Barbuceanu & Teigen, 2000; Swaminathan, Smith & Sadeh, 2007). In our case, the main advantages of augmenting a Service Oriented Architecture with Intelligent Agents for supporting the formation of RBVOs are as follows: •
•
•
•
Private Knowledge Protection - Only company data relevant to the business operation are provided to other partners. No central database exists and the business data are not broadcasted among the whole cluster, but kept privately by each agent representing a SME. System robustness - Negotiation and information exchange is peer-to-peer based; therefore failure of a single part doesn’t affect the rest of the system. Easy reconfiguration - Dynamic changes in a RBVO (e.g. partners joining or leaving) is supported by adoption of existing agents, creation of new agents, and disaffiliation of agents that are no longer exploited. Human Integration - Inter-agent negotiation is supported by human-based advisement, which is important in the case of business agreements.
In general, (software) agents are autonomous, which is desirable in unknown scenarios (which usually tend to appear in the real world, as in the case of waste management), where it is difficult to control directly the behavior of a business constellation (e.g. with regards to what collaborations
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will take place or what problems will arise during these collaborations). Even though it is possible to encapsulate some behaviors by specifying customizable business rules, agents must decide by themselves whether to execute their methods according to their goals (agents must be proactive), preferences and beliefs. In any case, human advisement is also integrated in agent operations where appropriate, to make sure that agents really represent their end users’ (SMEs’) needs.
THE POTENTIAL OF RBVOS FOR SMES IN WASTE MANAGEMENT In this section we provide a general approach for the management of waste that has a wide-scope use in its implementation and a system architecture for this approach. Of course, each type of waste, according to its special characteristic, requires different handling in the processes of its waste management. However, this approach can serve as a general blueprint for the development of collaborative systems for the management of waste, which would require some specialization in order that it be disposed of in an ecologically effective manner. To illustrate the specialization of the approach, we also provide a usage example according to a specific scenario. The main focus of this chapter is to show how RBVOs can be used in waste management to enhance the co-operability of SMEs to the advantage of other local businesses and municipalities. As RBVOs are a very recent concept this chapter focuses on a proposal and possible architectural design of a relevant system in order to stimulate discussion on ways computerization of waste management could tackle the vast problems confronting global pollution. In so doing, one enhances business opportunities within the waste management arena, by creating an evolving and competitive e-collaboration environment. Clearly, there is a need to segregate the different waste materials. These can vary enormously from solid
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and semi-solid forms to liquids and gases. The safety of the materials also varies widely and can include highly toxic compounds and radioactive ones. Many wastes in industrial effluent are also mixed and may be difficult to separate or need advanced systems to separate on site. A further factor to consider is the price of different waste as these vary according to season and quantities available. Another influencing factor on the price of any waste product is its open demand on the market providing commercial implications. All these factors must be considered when offering or accepting waste materials. It is these complex issues and concerns that make the use of RBVOs an attractive option as any RBVO would act like an umbrella organization to link waste producers, with waste services.
The Approach From a functional point of view, our approach is designed bearing in mind the needs of a SME, a contracting company or a municipality in finding the appropriate combination of firms who can help dispose of its waste in an environmentally friendly and cost effective manner. At present, this remains a difficult task because a wide variety of business actors are required to be involved and coordinated, each of which undertakes a specific and highly specialized task that needs to be performed accurately and according to general standards set. A poorly selected actor performing his tasks in an inefficient and ineffective way could lead to a huge negative impact on the environment, the community and the reputation of the organizations involved. As the green movement gathers pace, the importance of finding appropriate partners for waste management becomes more specialized. There is a need to provide a sophisticated, time saving and effective means for locating these partners. It is for these reasons that we have based our approach on the concept of RBVOs - a sophisticated form of VO. RBVOs are ideal for SMEs who wish to
An Approach to Efficient Waste Management for SMEs via RBVOs
find suitable waste management service providers, as they allow for on-the-spot creation of a VO which can satisfy individual SME needs. The fact that RBVOs are short living, i.e. they exist for the duration of the specified task, allows for the flexibility and agility that each SME requires when addressing their unique waste management problems. Finding appropriate waste management service providers could also give SMEs a competitive advantage by opening business opportunities they had not identified, i.e. an SME could discover a company prepared to buy their waste from them. Using RBVOs as a means of locating suitable partners, benefits the SMEs who have a mandatory obligation to dispose of their waste and need to dispose of their waste efficaciously. Using RBVOs also benefits waste management service providers - who are often themselves SMEs. RBVOs allow these organizations to advertise themselves dynamically and be paired with partners who can support them in providing better and more complete services to their customers. One further advantage of our approach, from the providers’ point of view, is that knowing the types of waste that exist can stimulate new ideas for recycling, reuse or even product invention. To simplify the agreement procedures, our approach incorporates the use of SLAs. Once a SME has selected its preferred RBVO, a contract (SLA) would need to be signed between the SME and each service provider. As well as being used in the IT services industry, SLAs can also be used as the means of defining the contractual requirements (business/financial/legal issues) between two or more partners in a RBVO context (Ignatiadis, Svirskas, Roberts & Tarabanis, 2006). This is one of the most important later trends, i.e. the shift of the goal of an SLA from being a financial and technical contract towards an instrument for the management of the customer’s or collaborating partner’s expectations (McBride, 1998; Passmore, 1996). In this case the parameters of the SLA to be measured are not technical like network uptime,
data rate etc, but rather the quality of services that are to be provided as part of the operation of the RBVO (in this case relevant to waste management), as well as the adherence to the business, financial and legal clauses in the SLA. Financial considerations would include recycling payments, transportation costs and the costs of waste separation, if necessary. It should be emphasized that waste management is a hugely complex issue and that this proposal does not pretend to be an absolute solution to the problems mentioned but we hope that it will open up new directions to tackle the ever increasing demand for improved waste management strategies.
The Proposed System There are many ways to implement RBVOs, but utilizing a community of Intelligent Agents (Multi-Agent System) has shown to be a most effective method (Tektonidis, Ignatiadis, Katriou, Koumpis, 2008). In this way, the organization and functioning of the RBVO’s activities are served by the Multi-Agent system that is developed to orchestrate and automate procedures and operations of RBVOs. For the proposed system, a Service Oriented Architecture (SOA) is used. As stated earlier, the SOA paradigm enables the linking of business and computational resources - mainly organizations, applications and data on demand (Bloomberg, & Schmelzer, 2006). SOA is seen to be essential for delivering business agility and IT flexibility (Tews, 2007). The advantages of SOA can be obtained for a conglomeration of companies coming together to exploit complementary skills and competencies synergistically. Although there is no shortage of platforms for firms to collaborate online within particular industries or across industries, the advantages of adopting a SOA approach for such platforms need to be taken into consideration. This is due to the adaptability and easy reconfigurability that SOA offers which
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matches heterogeneous RBVO’s business requirements (Tektonidis, Ignatiadis, Katriou, Koumpis, 2008). In addition, SOA has also been shown to interoperate with agent technologies (Maamar, Mostefaoui & Yahyaoui, 2005; Maximilien & Singh, 2005), which are used in the architecture described below. Figure 1 presents the architecture of the proposed system. The system is comprised of the following components: Figure 1. System architecture
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•
•
•
Web platform: A portal providing a search functionality which enables the user (an SME) to find partners (waste management service providers) who themselves might be another SME. Directory service: A data store with login information and user profiles which should be accessed via a web service. Ontology: A high level representation of waste related information which can be used to encapsulate the user’s require-
An Approach to Efficient Waste Management for SMEs via RBVOs
•
•
•
•
ments regarding the types and amounts of substances that need to be disposed or recycled. This can include such details as the toxicity profile of the materials, transport preferences, legal issues, price options and other economic considerations, organizational details and any other information essential to disclose. Agent Services: A web service that enables the submission of a request for collaboration to the Agent and the acquisition of the list of possible RBVOs. Agent: An independent distributed instance - decision maker - which interacts with other Agents and represents a potential collaborator. Company Services: A set of simple web services that enable the SME’s or municipality’s Agent, to access its Information/ Enterprise Resource Planning (ERP) system or private repository, i.e. Company Back-End System. Company Back-End System: Contains private information of the company such as the SME’s or municipality’s profile, requests for collaboration, contracts and recycling capacity it currently has available.
A Usage Scenario Let us assume that a SME building contractor wishes to find a new cost effective way to dispose of cardboard, used batteries, canteen food waste, plastic bottles, old computers and mixed rubble. To take advantage of the proposed system, the first step would be to register as a user and have an instance of an Agent - a virtual decision maker in this example referred to as ‘Agent X’ - set up to represent the SME. An instance of an Agent Service would also need to be set up as an intermediary between the portal and ‘Agent X’ in this example referred to as ‘Agent Service X’ (see Figure 1). This registration process would be required not only for SMEs and other organizations
who wish to find partners for waste management, but also for the companies offering these services in order for them to be represented in the system’s network by their Agents. After logging into the system, this new user needs to complete a web form in which the type of waste which requires management is defined. The waste is categorized as sorted or mixed. For each type of waste the corresponding amount (i.e. approximate weight/volume) should be provided. Also, the location, language in which the service is required, time constraints and any other specifications would be defined in this form. Once completed, the form can be submitted as a request to find a combination of companies within the system’s network which can fulfill the tasks. An ontology would be populated with the provided information and then would be forwarded to the ‘Agent Service X’. Should the user wish to complete the aforementioned form on a frequent basis, manual insertion of values might become tiresome. For this reason a custom script could be incorporated as a means of automatically populating the ontology from specified values in the SME’s ERP system. Should the SME not have an EPR system the ontology could be linked to another information system or multiple systems, if necessary. Continuing the sequence of events, after the ‘Agent Service X’ has received the populated ontology, this information would be forwarded to the user’s ‘Agent X’. This ‘Agent X’ in turn would send the specifications to the other Agents (Y, Z, etc) registered in the system (i.e. those which represent waste management service providers). Each of these Agents filters the incoming specifications to see if any of the required tasks are of interest to the firm it represents. A set of negotiations, based on each firm’s private constraints and on offered prices, would be performed between the Agents, resulting in a list of suitable RBVOs. This list would finally be returned to the user who would be presented with
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all the possible combinations of appropriate organizations which could perform the defined tasks. The user, in this case the SME building contractor, can now select the preferred combination of firms (RBVO), either based on price, time constraints or other criteria. Of course, once selected, contracts would need to be signed - e.g. in the form of SLAs - in order for collaboration to begin. Items of interest in the contract (SLA) would include duties and responsibilities of collaborating partners, prices to be paid for the provision (exchange) of services in the RBVO and deadlines. The sequence of the above described scenario is presented in Figure 2.
The Intelligent Agents Intelligent Agents are used for the formation of RBVOs in waste management collaborations. These formations arise after automated Agent negotiations, according to customizable human-specified business rules. To aid in these negotiations, publicly available information about other SMEs is used as well as an Agent’s private information (i.e. that is stored in the Company’s Back-End System) about the user’s preferences Figure 2. Sequence of RBVO formation
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(i.e. customizable business rules) and private information about the outcome of previous negotiations with the same Agents. As stated in the PANDA project (Tektonidis, Ignatiadis, Katriou, Koumpis, 2008), the Agents represent individual actors participating in the RBVO formation processes taking into account individual private constraints, preferences that are hidden to other actors and minimizing the disclosure of such private information. In their negotiations, agents can be guided by user-defined business rules. Agents need to decide which of these rules are applicable in each type of negotiation. Flexibility is essential when adapting and prioritizing these rules as the negotiations progress. Such rules can be set by each user to guide his/her Agent, and can be implemented using a rules engine. Indicative user-defined business rules for the negotiation between Agents could include: • • • •
Tolerance on price -x% to +y%. Prepared to wait x days for a better price. Prepared to pay more for the tasks to be finished sooner. Prepared to pay more for ‘greener’ outcomes.
An Approach to Efficient Waste Management for SMEs via RBVOs
• •
Wishes only to consider partners in the same region/country as the user. Do not want to participate in projects less than x Euros.
For example an SME construction firm wishing to dispose of rubble from a site could seek partners who would reuse their waste materials. Using a system based on the proposed architecture, the SME could set business rules for their partner search, such as the above points. The intelligent agent of the SME and the agents of other SMEs involved in the recycling trade would negotiate until an appropriate partnership for disposing of the waste was formed.
A Persistent Problem that Needs Flexible Solutions Waste management is a persistent problem which brings controversies concerning its disposal and the issue is at constant loggerheads with the ecomovement as more mixed waste is increasingly being deposited in land fills. As fewer sites become available for these landfills (“not in my back yard, thank you”) the problems involving waste management increase in complexity. Other methods of waste disposal which involve dumping are also of increasing concern; sea dumping, for example, contaminates fish stocks and shore lines. The proposed system in this chapter is designed to use technology to assist SMEs to find the best way to reduce, recycle and reuse their waste. The approach would make searching for partners easier and would encourage greater responsibility concerning the reduction of garbage creation and disposal. This proposed system could also be of use to municipalities and even corporations. One main issue we need to confront is how to stimulate businesses, government bodies and the general population to take greater responsibility for their waste. McBride (2009) emphasizes that subsidies are a bad idea. Governments have a role to play
in the business of waste management, but it is a regulatory and supervisory one. Regarding recycling, it is useless to urge people to salvage stuff for which there are no buyers. Governments need to make sure there are markets for the materials they want collected (McBride, 2009). It is essential that incentives and opportunities are provided to motivate businesses in adopting eco-friendly attitudes towards waste management. The proposed approach is devised to help solve waste management problems and to create a system which might encourage wider and more specialized markets for waste materials. By presenting the ideas in a proposed form we hope to open up the arena for further debate, to extend, expand or even, if necessary, re-design this scheme. Allowing SMEs and others easy access to finding quick and efficient ways to dispose of their variety of waste in an eco-friendly manner would benefit both the environment, the image of the company and its internal dynamics. The system could become a vital search and application tool for specialized state-of-the-art waste management enterprises enabling SMEs to exercise greater responsibility with their waste by selecting waste disposal firms specializing in modern utilization and recycling techniques to the benefit of all parties involved. To improve waste management, it is vital that companies are able to collaborate with each other in the widest way possible and our proposed system could open doors to previously unforeseen collaboration potentials using virtual clusters of organizations. Examples of waste management service providers that could be sought through the system range from simple waste disposal firms to more complex ones specializing in transport and disposal systems for dangerous substances. In addition, the system could be used to encourage start-up firms in the waste cycle process, enabling them to find companies with small waste loads and progressing to expanding their client base as their equipment and resources grow. Such start-ups might include innovative bio-fertilizer firms who could recycle human, animal and plant
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waste. Using an RBVO system would promote their expansion. Scientists with innovative ideas to reuse or design products from a waste source could also use the system to trace cheap raw materials. This system would also enable firms to fine tune waste management and many of them may be stimulated to separate their waste more effectively when they realize that there are waste management service providers that can recycle, reuse or recreate something with a product which was formerly merely discarded as mixed waste. This would give both employers and employees in a firm satisfaction in knowing that their company was really eco-friendly, thus enhancing staff morale which in turn creates an environmentally friendly atmosphere for workers leading to a loyal workforce and a positive approach to green business.
FUTURE RESEARCH DIRECTIONS In this chapter we present an approach for the development of collaborative systems for the management of waste in SMEs. We emphasize the development of a high level architecture and technological directions and described an exemplary usage scenario. As general directions for future research we single out the need to develop further the architecture outlined here by incorporating further elements (e.g. cost elements in the life cycle of waste management related to recycling, transportation of waste, etc.) and test and improve the technological solution described here. In addition, it is necessary to develop specific models and solutions for real situations that SMEs face. Such specific models could refer to specific sectors or companies or to the management of a specific type of waste (e.g. chemicals, electronics, etc.). Waste management needs to become a more competitively driven industry to inspire present and future SMEs to be key stakeholders. Information Technology (IT) needs to be incorporated into business processes concerning waste in order to support and drive more competitive environments.
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Future research needs to examine how this could be accomplished. Prices of commodities must take into account the cost of disposal of the waste items within any purchasable product ranging from soft drink bottles to old computers and carbon emissions to nuclear waste. Only when this is enforced at a transnational level there will be greater incentive for ordinary citizens to be inspired to separate and return much of the world’s waste for recycling. This in turn would create enormous potential for new enterprises and open up other business opportunities. In addition, once waste is priced realistically, the proposed system would become of greater value to firms and service providers. This could lead to the expansion of the architecture of the system which could take into account more eco-friendly ways of managing waste and other resources of the company. An ‘Eco’ score built into the system might spur firms to improve their style of waste disposal. The system could rate the RBVOs based on each firm’s Eco considerations. For example, emissions of CO2 could be used as a basis for recommendations of the best ways of transporting the companies’ waste to appropriate areas. This would require each waste management firm which registers in the system to complete its profile by providing eco-related details of its disposal methods. In cases of transport, distances would have to be calculated via a service such as Google Maps in order for emissions to be estimated. The system could also be expanded to be a type of waste monitoring system because at present, nobody knows how much waste the world generates or what it does with this (McBride, 2009). For this purpose active government support would be required. Research needs to be conducted on the use of Web 2.0 technologies for waste management. Designing an appropriate interface for the proposed system with Web 2.0 technologies would increase user friendliness and allow for business flexibility. Providing advice to system users
An Approach to Efficient Waste Management for SMEs via RBVOs
through a relevant blog, twitter or other Web 2.0 services would also be an advantage, especially for SMEs who lack specialized knowledge on waste management issues.
CONCLUSION This chapter presents a brief literature review of SMEs in relation to environmental issues of which waste management is one of increasing global concern. It also includes the competitive advantages of waste management for SMEs. An innovative approach is presented which gives a brief outline of a proposed system for decision support on selecting a combination of firms to enable cost effective, ecologically sound and efficient waste management of a SME’s or other organization’s waste. The complex problems faced by SMEs concerning the management of their waste is acknowledged and the solution proposed incorporates state-of-the-art technology in order to smash barriers imposed by limited resources of SMEs or confusion as to where to turn for comprehensive solutions. For readers lacking insight into virtual organizations and other terminology used in the chapter a brief introduction to the technical terminology is provided. We also demonstrate how the concept of RBVOs could be used in waste management. A SOA based system which uses a Multi-Agent community to create RBVOs, enabling easy adaptability and reconfigurability, is illustrated. Such a simple-to-use system would notably improve the options available online for assisting the management of waste. This is an essential step in assisting SME management to find ecologically sound ways of disposing of their waste cost-effectively. The system could be a valuable pragmatic contribution towards tackling global pollution and enforcing a more competitive market for the waste industry itself. SMEs could benefit from such a scheme choosing or finding new specialist partners to dispose responsibly of each individual firm’s
waste. The scheme offers opportunities for the creation of new SMEs wishing to specialize in different branches of waste management as they would be supported by such an innovative system which enables them to identify potential partners. The proposed approach could also be of value to governments and larger companies. As businesses become more aware of the popular demand for careful waste management as a high priority environmental issue our proposed system in this chapter turns rhetorical demands into practical solutions which could also be used for promotional purposes to enhance a firm’s image.
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This work was previously published in E-Business Issues, Challenges and Opportunities for SMEs: Driving Competitiveness, edited by Maria Manuela Cruz-Cunha and João Varajão, pp. 246-266, copyright 2011 by Business Science Reference (an imprint of IGI Global). 2492
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Supply Chain Risk Management Driven by Action Learning H.P. Borgman (Hans) University of Leiden, The Netherlands Wilfred Rachan University of Leiden, The Netherlands
ABSTRACT This chapter is the outcome of our consolidated learning on “Supply Chain Risk Management” and “Action Learning in Supply Chains” over a period from 2006 to 2010. We have also published several papers in this domain; please refer to the bibliography section. Although there is a substantial volume of literature on the topic of Supply Chain Management and no lack of coverage today on Risk Management, our motivation was guided by our desire to put into context, both from an academic and Industry perspective, a practical methodology for supply chain risk mitiDOI: 10.4018/978-1-60960-587-2.ch816
gation based on a proven theory of learning. This methodology will enable industry practitioners of supply chain management to comprehend and act upon risk i.e. identification, assessment, response, monitoring and evaluation. Risk Management in Supply Chain is not a “one-off” transaction but rather an ongoing practice of problem solving and organizational learning i.e. a continuous methodology for sustainable improvement. The methodology provides a means to structure past problems as knowledge to be used by the organization and increase preparedness for facing new challenges. In a global competitive market, successful management of risk in supply chain can be the difference between corporate success and failure.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Supply Chain Risk Management Driven by Action Learning
INTRODUCTION Today’s business environment is characterized by an ever increasing “globalization” and “outsourcing” of production and distribution activities to meet the constraints of product delivery on time and at the right price to the demanding consumer. Supply Chain management in general and supply chain risk management in particular have become crucial to ensure survival and growth of an enterprise. According to Webster dictionary, “Risk is the possibility of suffering loss”. Therefore, Risk Management is the process which aims to help organizations understand, evaluate and take action on all their risks with a view to increasing the probability of their success and reducing the likelihood of failure (ARiMI, 2010). We therefore formulate Risk as follows: R = (Iad * Loc) / Pks
(1)
Risk (R) is equal to Adverse Impact (Iad) multiplied by Likelihood of Occurrence (Loc) and moderated by Preparedness in terms of Knowledge and Skills (Pks). Risk management in the supply chain does not equate to disaster response only. Rather, it means keeping an increasingly complex network of autonomous entities working efficiently with the objective of fulfilling customer orders and reporting a bottom-line profit for the organization. In the short term, slippages in supply chain performance will have an adverse impact on financials. However, in the long term, if such slippages persist frequently, it may jeopardize the company’s future as customers look for alternative sources or shift to using substitute parts. Organizational learning provides not only protection against slippages in supply chain performance but also ensures preparedness to face challenges that have not been experienced before e.g. changes in financial markets, shifts in consumer demand, weather, terrorism, epidemic outbreaks and so on. Action Learning is a form
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of organizational learning that ensures continuity of process knowledge creation and application. In this context, the supply chain has an operational breadth and depth that is broad in scope, involving senior managers right down to delivery personnel. It is the delivery and service personnel in the supply chain that are customer facing and therefore need to be involved in the learning as well. It is for this reason that action learning is a key candidate as a driver for supply chain risk management. Our findings suggest that the action learning methodology proposed is a useful tool to educate and guide managers involved in supply chain operations, on the 4 main process flows, interactions and relationships. This knowledge will empower the manager to determine a course of action that will be most appropriate for; (i) addressing the problem at hand, (ii) understanding the impact of his actions on the related process flow, (iii) communicating the same to all other parties involved in a structured manner. In order to contextualize our research it is important to highlight several areas which we explicitly excluded, as it is not the objective of this paper to provide specific solutions to all types and aspects of risk in supply chain operations. Firstly, this paper is not about a method for supply chain performance or maturity level measurement, as this has been sufficiently addressed in the current literature on supply chain (de Waart, 2006; Geary, Childerhouse & Towill, 2002). Secondly, we also do not address the development of mathematical or quantitative models, particularly because we found that most managers involved in risk mitigation in the sites we studied were not willing to go beyond their existing knowledge of Excel Spreadsheets (rachan, 2007). It is for the same reason that this paper is not about advanced SCM design and planning optimization algorithms (Tang, 2006). Finally, we did not propose a Strategic, Operational and Tactical approach to risk mitigations (Juttner, Peck & Christopher, 2003). Supply chain
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management has remained challenging because unlike an organization, such networks not only have a large number of concurrent components (Suppliers, Entities, Plants, Distribution Centers, Shipment agencies, and so on), but these components can interact asynchronously to create an exponential number of possible outcomes. There is no CEO who owns the supply chain from endto-end like an enterprise. The need to coordinate the behavior of these autonomous entities to maintain coherence in the network adds considerable complexity. Such coordination involves dynamic temporal relations between events occurring at different entities (Peterson, Mannix, Tuttle & Day, 2003; Hau, Padmanabhan, & Whang, 1997). The result is a large number of messages and the equally large number of corresponding responses to these messages. Trying to structure all problems into Strategic, Operational and Tactical becomes nearly impossible for the supply chain manager.
ACTION LEARNING Everything we do involves action and in the process there is an opportunity to learn. The aim in action learning is not just to understand the action, but to improve it. Therefore, action learning recommends to take some time to examine certain actions where you know problems occur, gather some data, and talk it over with a colleague, or someone with domain knowledge. As a result, try out a new approach, and see what results you get. Action Learning is a practical and proven means to help groups apply learning to important organizational problems. Action learning is also an approach to the everyday work of an individual, team and organization that results in both performance and learning. In the context of management development; action learning provides an opportunity for implementing continuous improvement culture and organizational learning that can result in positive and lasting change.
Action learning is a process that involves a small group working on real business problems in real time, taking action, and learning while doing so. Susman and Evered (1978) view a general Action Learning project as a cyclical process carried out through the Action Learning cycle, comprising of five stages: diagnosing, action planning, action taking, evaluating, and specifying learning. These stages are illustrated in Figure 1.
ACTION LEARNING PROCESS At the heart of every action learning project are key questions. Without a careful understanding of the questions, effort could be directed at solving symptoms rather than the root cause of problems. These questions approach the same problem from different angles: •
•
• • • •
•
Situational questions: ask questions on what is the context of the problem or opportunity? Personal questions: ask questions such as what is your role and that of others in the Situation? Time questions: explore the past, present and future as required Factual questions: ask questions to get the hard data. Emotional questions: how do you feel about the situation and your role? General and specific questions: ask questions to move from one level to another e.g. from general to technical. Action questions: task action questions to ascertain who will do what and when.
Asking questions is not enough. Write down your thoughts and observations, not only as a record for yourself, but to communicate to others what you have done and plan to do. Write about the action and what you have learned. A good system is Describe, Explain and Indicate (D.E.I.)
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Figure 1. Action learning cycle (adapted from Susman 1978)
i.e. describe what happened, explain why if possible, and indicate what you can do next. Action Learning occurs by sharing work problems and opportunities with others The process involves teams, facilitators, a task, and senior manager sponsorship. •
•
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Teams: Teams engaged in Action Learning can be composed of intact work teams or teams mixed to optimize networking across organizational boundaries. The teams participate in a development intervention (teambuilding or training) to learn practical means to work together, set common goals, and establish rapport. In their initial time together, the team also learns critical thinking techniques and problemsolving approaches. Facilitation: Action Learning teams require an especially skilled facilitator from the beginning, to set up and keep the process optimized for both problems solving and learning.
•
•
Task: As an early task in the Action Learning team’s time together, they select a problem of importance to the organization - preferably one that has resisted solution by conventional means. Senior Manager Sponsorship: The team also needs to “sell” its approach to senior managers to get sponsorship of the effort, and to forge a relationship with at least one senior mentor who can guide the team through the political implications of the problem.
Through regularly scheduled meetings, the team analyzes the problem from many angles, thinking through causal analysis systematically, and makes practical recommendations to senior management. At the same time, the team learns to approach problems in a new way, learns the value of reflective thinking, and establishes a strong and lasting bond with each other in the team. Some Action Learning teams may continue on to take part in implementing the recommended solutions.
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The team may also be involved in monitoring the benefits to the organization, as jointly defined with senior management early in the discovery phase. Action Learning teams need a finite period for conclusion, appropriate to the complexity of the problem. In the context of Supply chain risk management, this period should be about 90 days (i.e. one quarter) to give the team time to understand and gain from the process, conduct the discovery research necessary, and struggle through the process - all while still doing their regular jobs. This period gives the team some sense of closure and urgency.
Supply Chain Dynamics Let us start by considering the supply chain performance plot in Figure 2. This is a “snap shot” representation of supply chain performance taken from the first Action Research (AR) cycle at the first study organization namely SAM (Rachan, 2007). The x-axis is time in days and the y-axis quantity in units. Customer demand for an item is
variable over time. The period planning processes accumulate information based on SAM weekly Master Production Schedule (MPS), causing a time delay between the actual events and when the supply side responses to the changes in demand. Because of these delays, planners at SAM make responses for adjustments based on what have already happened and anticipating what the planners think is likely to happen next. Typically SAM ends up with an incorrect forecast that is over or under planning the supply. What distorts the supply chain performance so badly is response time i.e. the lengthy delay between the event that creates the change i.e. demand shift in the form of a message or signal and the time when the factory i.e. supply side finally responds to this message or signal (Schroeder & Flynn, 2001). These delays are caused by delays in workflow i.e. information flow. Essentially this response time delay problem can be restated as an interaction dynamics problem. This includes but not limited to delays and disruptions in supply chain
Figure 2. A “snap shot” of supply chain performance at SAM
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transactions, communications and coordination. Goldratt (1986) described this as a “scheduling problem” mainly from a production perspective of supply chains. Hau (1997) described this as a “Bullwhip effect” from a distribution standpoint of supply chains. The bullwhip phenomenon was first noted by Forrester (1958), and has since been observed in many diverse settings. Some examples of problems created by response time delays affecting supply chain performance: a. Large inventory swings/oscillations; b. Excessive inventory: We account for this behavior by building “protection or safety” stock. This creates additional inventory holding costs, if we do not, we run the risk of stock outs; c. Wrong inventory: overstocking some items and depleting inventory of others; d. Costly efforts to remedy the above problems; e. Poor customer service and lost sales. It is evident from the above listed problems that the nature of these problems caused by supply chain dynamics, are partly operational i.e. inventory levels and holding cost and partly strategic i.e. inability to react quickly to shifting customer demands and poor customer service level.
Action Learning and Supply Chain Dynamics Action learning is most suitable for dynamic problem solving in organization. We can highlight the difference between the two aspects of work in explaining the role of Action Learning. A static problem (i.e. defined parameters) is a task that has a known answer. The difficulty is fitting the pieces together in the right combinations in order to complete the assignment. Dynamic problems are different, because there is no specific answer and no predefined formula for solving the problems. There could be no past experience to draw on.
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The outcome may take place over an extended period of time involving more than one person, sharing information and joining in the search for an answer, which is then implemented. We include here work on opportunities for they are the inverse of threats and often pursuing an opportunity brings risk. Importantly, Action learning supports “On the job” and “adult” learning. To understand and improve a situation requires the ability to formulate relevant questions. The people who usually know most about the questions are those who are living with the problem. They may not know the answer, but they do know what it is like to live in a problem situation. Therefore, AL enables participation of the people whose situation is to be improved. The main key factor in favor of Action learning is Supply Chain Dynamics. Especially in organizational and manager learning of problem solving and decision making training to ensure efficient supply chain operations (Klein, Orasnu, Calderwood & Zsambok, 1993). The central argument is that traditional models and methods are not helpful in explaining what people do solving dynamic supply chain problems i.e. “working under pressure” of time constraint. The reason is that traditional approach has focused on only one particular type of decision making i.e. the decision event - making a single decision, rather than a sequence of decisions. The decision event consist of a situation in which the decision maker evaluates a fixed set of alternatives according to a stable criteria and differentially weights and combines these criteria to select the best alternative e.g. car purchase, route selection, and so on. In contrast, dynamic supply chain decisions (time constraint) have a number of characteristics that distinguish them from the more static tradionational decision making task like buying a car. For example: a. Supply Chain problem situations typically involve ill-structured problems in which
Supply Chain Risk Management Driven by Action Learning
b.
c. d.
e.
f.
g.
the decision maker has to do significant work to generate hypotheses about what is happening. Decision making occurs within an uncertain, dynamic environment. Information about what is happening is often incomplete, ambiguous and/or of poor quality. The environment may also change quickly There may be shifting or competing goals. (Borgman & Rachan, 2008) Response to dynamic situations (based on past Learning) requires reacting to a sequence of events rather than to a single event. This creates action – feedback loops in which the decision maker has to react to the consequence of each action before determining the next action There is often considerable time pressure. Lack of time will typically produce less complicated reasoning strategies and perhaps high level of personal stress Stakes are high. Especially where customers are involved and organization performance will be affected. Often there are multiple players. Although there is usually a single person in charge, the manager interacts with others to solve the problem
We learned early in our study that managers engaged in Supply Chain operations have very little time for activities outside of their daily routine task and constant “fire-fighting”. Therefore, we wanted to narrow the scope and reduce the demand on their time to keep the momentum of their efforts in building a knowledge base on problem solving and learning. This knowledge will then empower the managers to determine a course of action that will be most appropriate for; (i) addressing the problem at hand, (ii) understanding the impact of his actions on the related process flow (iii) communicating the same to all other parties involved in a structured manner.
Before we could implement Action learning for supply chain risk management, we need to identify the primary business processes affected supply chain dynamics.
WORKFLOW ORTHOGONAL MODEL (WOM) We started the study with the most basic unit of analysis i.e. process flow. In a typical supply chain there are 3 basic flows i.e. Sales, Operational, Control and 1 pervasive flow i.e. Communication. We put this together to construct the Workflow Orthogonal Model (WOM). The WOM provides a convenient and useful conceptual framework for discussion of supply chain management grounded in systems thinking. The WOM (see Figure 3) uses the x, y, and z-axis of a three-dimensional model to show the dependencies of Sales Flow (Financial), Operations Flow (Production), and Meta Process (Coordination), the three primary aspects of any supply chain. As one aspect of an event occurs or is acted upon in the course of business, there is a corresponding reaction by one or both of the other two aspects. Do something to the x-axis and there is a corresponding response by the y or z-axis. The vertical or y-axis represents the financial aspects of a business event i.e. cost of the event, the revenue resulting from the event and the capital investment. The horizontal or x-axis represents the product or service produced or delivered by a business i.e. what it takes to source the materials and resources for each event, What it takes to make the final product or service delivered by that event, What it takes to deliver the product or service to the next step in the process; and the inventory involved in the event. The oblique or z-axis represents Meta process for coordination and control of the y and z-axes. The Workflow (Information) i.e. the underlying interaction technology infrastructure represents the communication channel.
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Figure 3. Workflow orthogonal model (WOM)
Importantly, WOM illustrates that the sales flow, operations flow, control flow and communication workflow i.e. the underlying technology infrastructure, are part of the structured whole i.e. organization. Systemic is the adjective (of the noun: system) referring to “affecting an entire system”. Efforts for managing potential threats to efficient supply chain operations need to be driven through an integrated improvement of all the processes i.e. the sales, operational and control flows supported by communication workflow. So we asked ourselves, what is the common denominator for cost in all of the process flows? Based on WOM, the common denominator for cost can be summarized as time. In Sales and Control flow, it is the cost of communication involving different people over diverse geography. People are paid based on the amount of time spent on the job i.e. the more time, the more money. Expediting due to equivocality (i.e. response time delays coupled with inaccurate messages and responses) becomes necessary. Expediting is a waste of people’s time. In Operations flow, Inventory is placed in the system, to
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protect throughput against variability. The cost of Inventory measured by the time to make it, time to store it, the time to move it, and the time to pay for it. Inventory also represents the “time value” of money. As long as you own it, you are paying for it. Inventory is everywhere. It is on the shop floor, in the warehouse and in the distribution channel. It is raw material, supplies, parts and finished goods. No matter where or what, inventory is costing time (i.e. money). We derived the constraints for each of the process flow i.e. Uncertainty from Sales flow, Variability from Operations Flow, Complexity from Control Flow and Equivocality from Communication workflow. Based on the WOM ontological framework just outlined above, Time is the common denominator of the process flows in a supply chain. We then asked ourselves, how can we operationalize time for our study? We know that time can be restated as efficiency (Goldratt & Cox, 1986). Therefore Uncertainty, Equivocality, Complexity and Variability are all constraints of time i.e. constraints to efficient supply chain operations.
Supply Chain Risk Management Driven by Action Learning
IDENTIFICATION AND CLASSIFICATION OF RISK We then constructed the Supply Chain Constraint Reduction model (See Figure 4) to operationalize the classification of potential threats to efficient supply chain operations. Based on the model there are 4 main classes of Risk in Supply Chain i.e. Uncertainty and Equivocality at the Network level and Complexity and Variability at the Entity level. The objective is to minimize all 4 classes of Risk in an integrated approach to ensure consistency in supply chain performance. All types of potential threats are to be classified in one of the 4 main classes based on the characteristics of the potential threat, before looking for a solution. This classification provides a systematic and structured manner of communicating and addressing those potential Risks. Once classified, each class has its own type of impact on supply chain performance and consequently the resolution for it. Given the temporal coupled with dynamic behavior of supply chain operations, rather than trying to identify and manage all types of risk, “on the fly”, as they emerge, we found that it would be more constructive to drop the potential threats into the respective risk buckets (class).
This way we seek to empower the supply chain manager by first providing a structured approach to position the potential threat in the right bucket (i.e. class of risk). Second, as potential threats are encountered and placed in the respective buckets, over time, a database of knowledge is created. This database of knowledge can be use to handle problems already encountered and also for training of new managers which forms part of action learning. This class of risk will allow us to structure the potential threat or problem to the fundamental objective of “getting the right product, at the right quantity, to the right place…”. Having framed the potential threat in this manner will enable the manager to conduct PDSA (Plan-Do-Study-Act) cycle in getting to the root-cause, more on this later. As opposed to just solving the symptoms and moving on, only to be face with a similar threat or problem in the future. By adopting this framework in combination with PDSA, one is able to develop process oriented solutions that reduce the chance of a similar occurrence of disruption to efficient supply chain operations. Following is the description of the risk class (buckets):
Figure 4. Constraint reduction model
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Uncertainty of Future Events This risk class is associated with uncertainty of future events. Time is modeled as a collection of world-histories (Stahl, 2002), each of which is one possible chronology or history of events throughout time. Since we cannot really control the outcome of a future event, we are therefore compelled to have contingency plans. For example “9/11 terrorist attacks” in USA and “Bird Flu” or “SARS“ epidemic in Asia that disrupted supply chains across industries on a global scale, in the recent past. A good illustration of a contingency plan would be that of a power failure, the building’s diesel power generator will “kick-in” automatically and keep the essentials services running until the power is restored.
Equivocality of Interactions This risk class is associated with equivocality of interaction (also, interface) between autonomous entities in the Supply Network. Globalization and out-sourcing are driving the rapid development and importance of Supply Chain integration i.e. communication and collaboration. With this rapid pace of development come the urgent need to ensure a reliable and possibly a “real-time” means of communication. This means of communication across different geographies and time zones comes with added challenges of different languages and cultures (Thurlow, Lengel, & Tomic, 2004).
Complexity of Scheduling This risk class is associated with complexity of Master Production Scheduling (MPS). Arguably one of the most important management tasks in manufacturing is MPS. This is also the seat of complexity in manufacturing. We can say there are two types of complexity: i) Detail Complexity i.e. when there are many variables. ii) Dynamic Complexity i.e. situations where cause and effect are subtle, and where the effects over time of in-
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terventions are not obvious. (Peterson, Mannix, Tuttle & Day, 2003). Both this types of complexity contribute to the functional conflict and response time delays in customer order workflows in manufacturing. The high level of details and dynamism in coordinating customer orders against the production schedule is already a complex task. This is further aggravated by the constant “change” caused by changes in delivery dates of customer orders and material receipts. Delay in response to such changes only adds to further conflicts and delays in an ever-escalating vicious cycle of complexity. The greater complexity results in greater the “waste” (Gerst, 2001). Anything that fails to add value is a waste.
Variability of Actions This risk class is associated with variability of Shipment or Delivery on time. Delivery is a key representation of an output of a production process or system (Keller & Ludwig, 2002). All processes and systems produce variation in output. No system is perfect. This applies to all systems, natural or man-made. This underlines the importance for a feedback mechanism (Dalcher, 2003). It is like an autopilot of an aircraft. Small and frequent adjustments are needed to keep the aircraft on the right path, due to influence of factors both internal and external.
STRATEGIES FOR RISK MANAGEMENT IN SUPPLY CHAIN Having identifies and classified the risk, all strategies to manage the risk fall into one or more of these four major categories (Dorfman, 2007) i.e. •
Avoidance or Prevention of risk from a Supply chain perspective is not getting into a contractual obligation in the first place where the risk for delivery is unac-
Supply Chain Risk Management Driven by Action Learning
•
•
•
ceptable due to liquidated damages, legal issues, concerns about environment, health and so on. Mitigation or reduction of risk can be taking steps to reduce the adverse impact or the likelihood of occurrence of the risk. This could be putting in place processes to counter such a risk. Transfer or outsourcing of risk can be to a 3rd party logistics company, an insurance company and so on. Retention or budgeting is accepting the risk as part of doing business or service.
Of these 4 categories only Mitigation is relevant and applicable to supply chain risk management. Other categories such as Avoidance, Transfer and acceptance strategies are not applicable to supply chain e.g. uncertainty of future events cannot be avoided. Whilst one can use Transfer strategy to insure or hedge against future events such applications have its limitations in scope and coverage. Acceptance likewise has limited application as the cost of doing business will become prohibitive if we were to budget or buffer for all types of supply chain risk. Also, mitigation strategies are in the scope of S & OP and MPS functions of an organization. It is for these reasons that mitigation of risk is our main focus. Our study also lead us to the findings that supply chain risk that are in the scope of S & OP are generic and those in the scope of MPS are contingent on organization (Rachan, 2007). One explanation of this is the risk class i.e. Uncertainty and Equivocality in S & OP deals with the volume level. Mostly linked to outside the organization and has little or no influence on the outcomes. Another is that changes are triggered by external factors. When this happens, the organization needs to be agile and flexible in adapting to the change. In contrast, risk class for MPS i.e. Complexity and Variability are directly contingent upon the organization and deals with the mix level. The mechanics of MPS such as time fences, planned
orders and minimum production quantity and so on protect the production performance against external change stimulus. This also explains for the voluminous literature on Production Management such as Zero Inventory, JIT, SMED, TQC, and so on. However, for supply chain risk management to function, both S & OP and MPS level risk has to be addressed in an integrated whole. Having created the 4 main classes of risk (buckets) and identifying the teams accountable, we are now ready to map the potential threats to efficient supply chain operations based on the characteristics and provide example of mitigations of such risk as follows:
Uncertainty and Sales Process Flow This risk class is derived from the Sales Process Flow. This risk class is associated with uncertainty of future events, see Figure 5. Further reference to Figure 4, suggests goal of reducing Uncertainty by the task of Forecasting. We know that forecast are never accurate, nevertheless a forecast does have its merits. By forecasting, we are able to make plans and be prepared for possible events, study the likely impact on supply chain operations, should such events materialize. Having, a forecast enables us to make contingency plans. Disasters such as “SARS” epidemic that are likely to cause disruption to supply chain operations are unforeseeable for the long term future. Making contingency plans in a formal and structured manner is one way of reducing uncertainty. Contingency planning is not only limited to disasters but is also required when there is an unplanned increased or decrease in consumption, Distribution Centers (DC) deployment locations planning, policy for stock service levels, transportation routes planning, and so on. The function that will manage such risk in an organization is Sales & Operations Planning (S & OP) and the focus of this function is at the Volume level i.e. Balancing Demand and Supply.
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Figure 5. Uncertainty risk bucket
that the fundamentals for an efficient supply chain operations is in place (Reijers, 2003). The function that will manage such risk in an organization is Sales & Operations Planning (S & OP) and the focus of this function is at the Volume level i.e. Balancing Demand and Supply.
Complexity and Control Process Flow
Equivocality and Information Flow This risk class is derived from the Information workflow. This risk class is associated with equivocality of interaction or interface between autonomous entities in the Supply Network see Figure 6. Further reference to Figure 4; suggest a goal of reducing Equivocality by the task of Communication. “Information flow” by means of communication has to take place before “Material flow” can occur. A delay in communication will consequently delay material flow. This is again the function of S & OP and the focus is at the Volume level i.e. Balancing Demand and Supply. If communication at this level happens at the right time, right message and right mode (e.g. asynchronous workflow), there is no doubt Figure 6. Equivocality risk bucket
This risk class is derived from the Control process flow. This risk class is associated with complexity of Master Production Scheduling (MPS) see Figure 7. Further reference to Figure 4, suggests a goal of reducing Complexity by the task of Planning. Complexity adds to this already challenging task of Master Production Scheduling. The Planner has the objective of planning for the production of the right part at the right time and quantity. The more variables there are in the equation, the more complex the process to make a stable MPS. As a pre-requisite to achieve this objective, the planner needs an up-to-date data on material and capacity (man and machine) availability. This, in itself, is often a challenge given the dynamic nature of the production environment. The function that will manage such risk in an organization is Master Production Scheduling (MPS) and the focus of this function is at the Mix level i.e. SKU level, options, postponement and so on.
Variability and Operations Flow This risk class is derived from the Operations process flow. This risk class is associated with variability of Production, Shipment or Delivery on time. Further reference to Figure 4, suggests a goal of reducing Variability in the task of Delivery. Standard operating procedures and regular training on compliance to such procedures can be seen as steps in reducing variability in the delivery process. Regular preventative maintenance to ensure MTBF (mean-time between failure) and proce-
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Figure 7. Complexity risk bucket
dures to reduce MTTR (Mean-time to repair) and periodic monitoring of the DIFOT (delivery in full and on time). Variation produces complexity, which in turn produces greater levels of variations. Resulting in an ever-expanding cycle of waste The function that will manage such risk in an organization is Master Production Scheduling (MPS) and the focus of this function is at the Mix level i.e. SKU level, options, postponement and so on.
Risk Estimation & Profiling We opted for quantitative risk estimation in terms of the probability of occurrence and the possible consequence. This is moderated by a non-quantitative “action zone” to enable ease of use by supply chain practitioners. During risk analysis, each risk is assigned a significant rating i.e. 1 – 25 based on the team perception of the risk. This ranks each identified risk and its relative importance. The “action zone” is a tool to prioritize the risk treatment effort. Procedures can be put in place with urgency depending on the category of “action zone” including the need for senior management involvement. This greatly helps in communication and mapping of the risk
to the supply chain area affected. The team accountable can take appropriate actions without any response time delays. Supply chain risk management is an ongoing process. As new risk are encountered, identified and added to the knowledge base. The S & OP and MPS team rate the type of risk based on Table 1. Risk Priority & Likely Action: 1 = Document & Monitor Risk 3 = Document, Monitor and Report Risk Figure 8. Complexity risk bucket
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Table 1. Type of risk Adverse Impact
Likelihood of Occurrence Remote
Possible
Probable
Low
1
3
5
Medium
3
5
15
High
5
15
25
5 = Form Action Learning Team (90 day period) 15 = Senior Management Involvement 25 = Risk Task Force Alert – State of Emergency The risk action zone may be color coded for use in industry. However, risk action zone is a guide for ease of action to be taken by the respective teams after a risk has been encountered or identified. See Table 2: Action Learning can be planned, applied and monitored based on quantitative measures. We therefore modified the Risk formula in (1) above as follows: R = (Iad * Loc) / AL
(2)
Risk (R) is equal to Adverse Impact (Iad) multiplied by Likelihood of Occurrence (Loc) and moderated by Action Learning (AL). Action learning moderator in (2) above can be express in quantitative terms by adding a weightage i.e. see Table 3. Therefore if we identified a risk with severity 15 in reference to Table 1 and if the organization has a good (weightage = 5) grade of Action Learning in place: Then, R = (Iad * Loc) / AL = (15)/3 = 5 We can therefore, make a logical deduction that a risk of severity 15 can be moderated to a severity 5 if the organization has good action learning practice.
MITIGATING SUPPLY CHAIN RISK We summarized our findings of the potential threats to Efficient Supply chain Operations in Table 4. This is to guide the manager on the use
Table 2. Risk action zone Action Zone
Knowledge-base
AL Team (Set up)
Standard Procedure
Timeline (Solution)
Senior Management
1 – 3 (e.g. Green)
Update
No
Yes
Periodic
No
5 (e.g. yellow)
Update
Yes
Yes
90 days
Informed
15 – 25 (e.g. Red)
Update
Yes
Yes
Immediate
Involved
Table 3. Action learning practice grade Action Learning
Poor = 1
Good = 5
Excellent = 15
Knowledgebase
Y
Y
Teamwork (Cross-Functional)
Y
Y
Standard Procedures
Y
Y
Y
Skills Development
Y
Y
Y
Questioning Culture
Y
Response Time Management Support Employee Empowerment
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Y Y
Y Y
Supply Chain Risk Management Driven by Action Learning
of the different buckets (class) of risk. Further, when face with one of the potential threats, which team i.e. S & OP or MPS, will need to be alerted. It is then the responsibility of the respective teams to resolve the issue and put in place measures to prevent (or procedure to handle) such an occurrence in the future. This table is by no means exhaustive, managers are encouraged to add or delete the potential threats as appropriate for their operating environment. Tables 5 – 8 are examples of risk mitigation strategies for the respective buckets (i.e. risk class), compiled based on data collected during our study of 3 manufacturing centric supply chain operations in Singapore through 4 iterations of AR (Action
Research guided by Gowin’s V). This tables are by no means exhaustive, managers are encouraged to add their own experiences drawn from their respective industries and operating environment.
IMPLEMENTING ACTION LEARNING USING PDSA (PLAN, DO, STUDY, ACT) FOR SUPPLY CHAIN RISK MANAGEMENT PDCA or “Shewhart cycle” was made popular by Dr. W. Edwards Deming, who is considered by many to be the father of modern quality control. Later in Deming’s career, he modified PDCA to
Table 4. Summary of Supply Chain Risk S & OP Team - Accountable Uncertainty
MPS Team - Accountable Equivocality
Complexity
Variability
Disasters
Workflow issues
MPS – Change Triggers
Delivery/Shipment
Shift in Demands
Response delays
Engineering Change Notice
Quality
Forecast Error
Service level Compliance
Data Accuracy on Inventory
Human Error
SLEPT Factors*
Exception Handling
Data Accuracy on Capacity
Batch Tracking
Product Cost
Expediting Needs
Supplier Issues
Maintenance (MTBF)
Distribution Strategies
Geography & Time
Multi-level BOM
Packaging (Size/Weight)
DIFOT monitoring
Interface & Integration
Shop Floor Layout
Services Disruptions
Lead Time Issues ATP, CTP & PTP ** * Social, Legal, Economic, Political and Technological ** ATP – Available to Promise, CTP – Capable to Promise, PTP – Profitable to Promise
Table 5. Uncertainty Potential Threats
Risk Management Technique
Disasters
Create contingency plans and training for “readiness of action” on those plans
Shift in Demands
Hedging and Buffers (i.e. stock or resources placed at strategic locations)
Sales Forecast (Errors)
Focus on Process Improvement not Forecast Accuracy
SLEPT Factors
Regular monitoring of the relevant factors and periodic “What-if” simulation
Product Cost
Factors of Production contribution to Product cost. Study causes and plan action.
Distribution Cost
DC Locations, Transportation, Taxes, Proximity to market
DIFOT monitoring
• Incentive for DIFOT • Economics of Transportation/Shipment/Handling/Storage
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Table 6. Equivocality Potential Threats
Risk Management
Workflow issues
Establish standard protocol and “rules of engagement”
Response delays
Asynchronous means of messaging support
Service level Compliance
Training and Certification
Exception Handling
Cases for Escalation process, person(s) to be alerted and Follow-up
Expediting Needs
Urgenct case handling procedures, person(s) to be alerted and Follow-up
Geography & Time
Conference calls, language, person(s) to be contacted, follow-up with written email to confirm actions or understandings.
Interface & Integration
Standard user interface, intuitive and short learning curve
Table 7. Complexity Potential Threats
Risk Mitigation
MPS – Change Triggers
• Identify change triggers and conduct Root-cause analysis. • Create knowledgebase for future reference
Engineering Change Notice
• Root-cause analysis, • Frequency of Change analysis • Impact of Change i.e. cost, reliability, compliance, etc;
Data Accuracy on Inventory
ERP opening balance and transaction posting up-to-date
Data Accuracy on Capacity
ERP routes, work center and WIP posting up-to-date
Supplier Issues
Supplier performance monitoring and preferred vendor certification
Multi-level BOM
Simplification, Standardization and Rationalization of BOM and parts list
Shop Floor Layout
• Shop floor safety, cleanliness, discipline, etc; • Bottleneck resources identification • Ergonomics and work-study application
Lead Time Issues
• Dynamic lead time management • Postponement strategy (Modules/Sub-assemblies/Configurations) • Vendor Managed Inventory (VMI)
ATP, CTP & PTP
ERP Data Accuracy and transaction posting up-to-date.
Table 8. Variability Potential Threats
Risk Mitigation
Delivery/Shipment
Route planning, packaging, handling equipment
Quality
Man or machine failure, Material quality (Incoming), In-transit handling
Human Error
• Training Needs/ skills/Competencies • Review Job specifications/Work study/Industrial Engineering
Batch Tracking
RFID or Bar-Coding Technology
Maintenance (MTBF/MTTR)
Preventive maintenance and Proper operating procedures
Packaging (Size/Weight)
Packaging for Deliver vs. Packaging for Consumption
Services Disruptions
• Alternatives means of Transport/Shipment e.g. airfreight • Contingency plans (i.e. “what if...”) • Substitution (e.g. Incoming Material Quality)
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“Plan, Do, Study, Act” (PDSA) so as to better describe his intent. This latter acronym is also what we have adopted. The strength of PDSA in implementing Action Learning lies in the fundamental principle of the scientific method (and PDSA) is iteration - once a hypothesis is confirmed (or negated), executing the cycle again will extend the knowledge further. Repeating the PDSA cycle can bring us closer to the goal. The concept of feedback in the scientific method, in the abstract sense, is firmly rooted in education. Our findings guided us to a hierarchical relation i.e. S & OP focus on delivery at the network level and MPS focus on cost effectiveness at the entity level in the Supply Chain. Further, this relationship is complementary and interdependent. Focusing on DIFOT alone will not guarantee survival of an enterprise in current conditions of intense market competition. An enterprise cannot be achieving DIFOT for all customers’ orders and still be cost effective without being efficient (Puttick, 1993). For an enterprise, being “customer-oriented” primarily means that the enterprise is focused on meeting the demand first (i.e. DIFOT) and then to meet the demand in a most cost effective manner (i.e. Efficiency). Efficient supply chain operations will require constant maintenance through an ongoing risk mitigation and improvement cycles. The world of organization is a tougher place than the world of pure science. Science can be contended with adding knowledge; organizations, however must apply it. Competitive advantage does not come just from knowing, but from Action. A self sustaining PDSA mechanism is required to ensure on going improvement and sustainability.
Especially during peak period of workloads during which managers might get distracted from their focus of keeping the supply chain moving efficiently. The sales, control, operational and communication process flows are interdependent and cannot be individually targeted for improvement. Local optimization models will not yield the desired result of DIFOT. Current literature gives evidence that Operations flow (production centric) has been the single focus of much attention for improvement initiatives e.g. Zero Inventory, JIT, SMED, TQM, etc; This very “Shop floor centric” approach may not produce the desired results (see Table 9) due to the difference in Product cost distribution. Therefore, with reference to Figure 4, there are 2 main constraints at the S & OP function i.e. “Uncertainty of future events” and “Equivocality of Information”. The objective is to reduce Uncertainty in Sales process flow and Equivocality in Information process flow. Improvements at the S & OP results in feed-forward to MPS function in terms of “Effectiveness”. The remaining 2 constraints apply to the MPS function i.e. “Complexity of Planning & Scheduling” and “Variability of Production and delivery”. The objective is to reduce Complexity and Variability. These objectives are influenced and subordinate to the S & OP objectives (due to the hierarchical relationship). Improvements at the MPS level feeds-back into the S & OP in terms of improved efficiency. Thus the interplay (see Figure 9) between the 2 levels feeding each other over time comes to form iterations or continuous improvement cycles (Dalcher, 2003).
Table 9. Product Cost Distribution Type of Supply Chain
Procurement (%)
Manufacturing (%)
Distribution (%)
Sourcing Centric (e.g. Consumer Durables)
50
15
35
Manufacturing Centric (e.g. Industrial Equipment & Components)
35
50
15
Distribution Centric (e.g. FMCG)
35
15
50
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Figure 9. Continuous improvement cycles
CONCLUSION Supply chain risk management is a continuous task and therefore requires a continuous methodology like Action learning. The inherent supply chain dynamics also adds to the challenges of handling risk that has never been experienced before. Action learning incremental and cyclical approach to organizational learning and performance improvement can be deployed stand-alone or combined with other management development initiatives resulting in supply chain risk mitigation over the long-term. Supply chain managers can through Action learning build a knowledge base that does not require too much effort outside of their regular work. Further, Action learning supports “On the job” and “adult” learning. To understand and improve a situation requires the ability to formulate relevant questions. The people who usually know most about the questions are those who are living with the problem. They may not know the answer, but they do know what it is like to live in a problem situation. Therefore, Action learning enables participation of the people whose situation is to be improved. This way the solutions will be implemented and maintained ensuring a positive change. The aim of Action learning in Supply chain risk management is to be pro-active. If you only start asking fundamental questions that really matter when a real risk is confronting you, chances are
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by then it is too late and risk has already overtaken you. Action learning does not require any investment in hardware or software. There is also no need for extensive lead time to form an Action learning group. It is about enabling the supply chain manager to take the right action without delay in response. Learning from past actions to do a better job in the future.
REFERENCES AriMI. (n.d.). Asian Risk Management Institute. Retrieved from http://www.arimi.org/arimi/faculty/research_BOK_RMIntro.htm Borgman, H. P., & Rachan, W. (2008). Managing functional conflicts and Response Time delays of Customer Orders in Discrete Manufacturing Workflows. In Proceedings of POMS-2008: the nineteenth annual conference of the Production and Operations Management Society, La Jolla, CA. Dalcher, D. (2003). Dynamic Systems Development: Towards Continuity, Growth and Evolution. Engineering of Computer-Based Systems, Proceedings. 10th IEEE International Conference and Workshop, 62-71. Piscataway, NJ: IEEE. de Waart, D. (2006). Getting SMART about Risk Management. Supply Chain Management Review, 10(8), 27–33.
Supply Chain Risk Management Driven by Action Learning
Dorfman, M. S. (2007). Introduction to Risk Management and Insurance (9 ed.). Englewood Cliffs, N.J: Prentice Hall. Geary, S., Childerhouse, P., & Towill, D. (2002). Uncertainty and the Seamless Supply Chain. Supply Chain Management Review, 6(4), 52–61. Gerst, R. (2001). The Performance Improvement Toolkit: The Guide to Knowledge-based Improvement. Calgary, Canada: Converge Consulting Group, Inc. Goldratt, E. M., & Cox, J. (1986). The Goal: A Process of Ongoing Improvement. Great Barrington, MA: North River Press. Hau, L. L., Padmanabhan, V., & Whang, S. (1997). The Bullwhip Effect In Supply Chains. Sloan Management Review, 38(3), 93–102. Juttner, U., Peck, H., & Christopher, M. (2003). Supply Chain Risk Management: Outlining an Agenda for Future Research. International Journal of Logistics: Research and Applications, 6(4), 197–210. doi:10.1080/13675560310001627016 Keller, A., & Ludwig, H. (2002). Defining and Monitoring Service Level Agreements for Dynamic e-Business. In Proceedings of LISA ‘02: Sixteenth Systems Administration Conference, 189-204. Berkeley, CA: USENIX Association. Klein, G. A., Orasanu, J., Calderwood, R., & Zsambok, C. E. (1993). Decision Making in Action: Models and Methods. Norwood, NJ: Ablex Publishing.
Peterson, R. S., Mannix, E., Tuttle, E. B., & Day, R. D. (2003). Leading and Managing People in the Dynamic Organization. Mahwah, NJ: Lawrence Erlbaum Associates, Inc. Rachan, W. (2007). The Effects of Workflow Automation on Customer Synchronized Supply Chain Management in the Discrete Manufacturing Industry. Unpublished doctoral dissertation, University of Leiden, Netherlands. Reijers, H. A. (2003). Design and Control of Workflow Processes: Business Process Management for the Service Industry. Berlin: Springer-Verlag. Schroeder, R. G., & Flynn, B. B. (2001). High Performance Manufacturing: Global Perspectives. New York: John Wiley & Sons, Inc. Stahl, G. (2002). Computer Support for Collaborative Learning. Hillsdale, NJ: Lawrence Erlbaum Associates, Inc. Susman, G. I., & Evered, R. D. (1978). An Assessment of the Scientific Merits of Action Research. Administrative Science Quarterly, 23(4), 582–603. doi:10.2307/2392581 Tang, C. S. (2006). Perspectives in Supply Chain Risk Management. International Journal of Production Economics, 103, 451–488. doi:10.1016/j. ijpe.2005.12.006 Thurlow, C., Lengel, L. B., & Tomic, A. (2004). Computer Mediated Communication: Social Interaction and the Internet. London: Sage Publications Ltd.
Novak, J. D., & Gowin, D. B. (1984). Learning to Learn. Cambridge. UK: Cambridge University Press.
This work was previously published in Supply Chain Optimization, Management and Integration: Emerging Applications, edited by John Wang, pp. 212-229, copyright 2011 by Business Science Reference (an imprint of IGI Global).
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Chapter 8.17
Tailor-Made Distance Education as a Retention Strategy: The “Learning at the Workplace” Program in Thailand Prathurng Hongsranagon Chulalongkorn University, Thailand
ABSTRACT In rural areas of Thailand, health center personnel are responsible for primary health care. The opportunity for continuing education is imperative in the attraction and retention of these workers at their primary locations. The provision of continuing education also increases the quality and spectrum of health care available for the local people leading to better health outcomes for the Thai population. Distance education is one promising form of continuing education involving the use of advanced communication technologies to allow health center staff to continue to work and study off-campus. This chapter describes a DOI: 10.4018/978-1-60960-587-2.ch817
tailor-made “Learning at the Workplace” distance education program provided to Thai rural health center personnel through the College of Public Health Sciences at Chulalongkorn University. Focus group discussions and selected quantitative research methods are recommended to evaluate the effectiveness of this learning model and determine the educational needs of health workers. Learning at the Workplace is expected to make a new contribution to the local needs of continuing education among the health care workforce in Thailand. This chapter emphasizes the potential that distance education offers to attract and retain health care personnel as well as the importance of providing a tailor-made curriculum in response to different regional and epidemiological factors.
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Tailor-Made Distance Education as a Retention Strategy
INTRODUCTION To cope with constant changes, challenges, and new epidemiological and demographic transitions, it is essential that Thai primary care health workers in rural areas maintain up-to-date skills. Skill enhancement targeted towards the retention of health center personnel at their current work locations can be achieved through continuing education. However, shortages of personnel, especially in rural areas of Thailand, make on-campus education a less than viable option. An alternative and more appropriate option is distance education that allows individuals to continue working while studying off-campus. In the public health field, the “Learning at the Workplace” program has been conducted for many years by the College of Public Health Sciences at Chulalongkorn University, Thailand. The college is working to blend major educational components in a systematic manner in a student-centered framework (Moore & Kearsley, 2005, pp. 1-3/21). These components include self-directed student learning skills, a coaching-based approach led by faculty, the creation of an online community through social networking/integration, and a new “mindset” for the College’s administrative staff. A tailor-made and differentiated approach is undertaken by creating effective and efficient distance education programs based on further application of the concept of learner autonomy (Moore & Kearsley, 2005, pp. 227-228). The objective of the current chapter is to emphasize that, within this distance education program, the required lessons and course packages were determined by the learners themselves with guidance and supervision from faculty. An equally important aim of distance education was to provide appropriate educational material for health workers in each region of the country based on local needs. Differentiated or specific course packages in distance education programs within the public health field are expected to return better health outcomes for the Thai population via
increased quality and service coverage provided by the primary care health workforce. Focus group discussions, opinion surveys, importanceperformance analysis (IPA), and Kirkpatrick’s (1996) multilevel assessment conducted with health workers from the 18 Centers of Provincial Clusters were recommended as means of measuring the efficacy and efficiency of these programs.
BACKGROUND Levels of Health Care Services in Thailand Thailand’s health care services are divided into five levels based on the complexity of services provided. 1. Self Care Level: Encompasses health services concerned with the potential of individuals to care for their own health and the health of their families. 2. Primary Health Care Level: Encompasses health services implemented at the community level. Primary health care incorporates the four cornerstones of the public health discipline: health promotion, health prevention, treatment, and rehabilitation. It uses minimal technology and is provided by community volunteers. 3. Primary Care Level: Encompasses health services provided through formal health care personnel such as physicians. This level covers four different groups: a. Village-level community public health centers responsible for 500-1,000 individuals b. Tambon-level health centers responsible for 1,000-5,000 individuals c. Local medical clinics d. Drugstores
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Tailor-Made Distance Education as a Retention Strategy
4. Secondary Care Level: Encompasses health services offered through medium-size hospitals in both the public and private sectors. 5. Tertiary Care Level: Encompasses health services offered through large hospitals in both the public and private sectors. This chapter focuses primarily on the tambonlevel health centers considered the first line of (formal) health service operating closest to the community. According to a report from the Thailand Health Profile 2001-2004, there were 9,765 tambon (rural) health centers in the country (Noree, Chokchaichan, & Mongkolporn, 2005, p.4). The function of health care workers operating at this level is to focus on health promotion, health prevention, and treating patients within a designated area of responsibility. The health care workforce operating at these health centers are midwives, nurses, community dentists, and public health technical officers. For job orientation and academic knowledge, health center workers rely on community hospitals in their respective clusters to give support (Mongkolporn, Ankleepan, Kanchanachitra, & Tangcharoensathien, 2005, pp. 6-7).
The Shortage of Required Skills Since 2002, the establishment of Primary Care Units (PCU) in Thailand has affected the healthseeking behavior of the population and the modification of health service systems within the country. PCUs were created in response to a basic health care requirement issued under the Universal Coverage (UC) Scheme to guarantee access to health care services for 47.7 million Thais (74.7 per cent of the total population) by 2003. Visits paid to community hospitals and health centers rose from 14.2 and 22.2 per cent, respectively, in 2001 to 22.0 and 26.2 per cent, respectively, in 2003. This increase affected health centre staff required to pick up the extra workload. Additionally, on occasions, health centre staff members
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had to serve as locum replacements at the basic care level to help alleviate the strain caused by the shortages of physicians (Mongkolporn et al., 2005, pp.15-16; Wibulpolprasert & Hempisut, 2004, p. 45, 54). In primary care settings, it is imperative that health care personnel obtain and demonstrate required skills including (but not limited to) the implementation of public health programs, monitoring of threats from new diseases, possession of competent information technology skills for establishment and maintenance of local databases, and communication and management to gain the compliance of concerned parties, community leaders in particular. These abilities and skills are necessary for the health workforce to improve local health systems and overcome local problems (Mongkolporn et al., 2005, p. 12; Wibulpolprasert & Hempisut, 2004, p. 39). Globalization and international trade; epidemiological and demographic transitions; social and public health sector reforms; and macroeconomic policies are all challenges that the health service in Thailand face. In turn, these variables affect the Thai health workforce at all levels creating personnel shortages; migration and mal-distribution of workers; low productivity; low motivation; and outdated skills (Wibulpolprasert & Hempisut, 2004, p. 10).
One Available Solution To improve the lack of required skills found within the health workforce, organizations and managers must provide workers with the opportunity to enhance their skills through continued education (Browell, 2000; Lester, 1999; Noree et al., 2005, p. 7; Wibulpolprasert, 1999). This form of fringe benefit is classified as a non-financial benefit and aims to increase motivation, incentive, and retention of workers (Luyao, 2003, p.9; Wibulpolprasert & Hempisut, 2004, p. 42). Additionally, according to social learning theory suggested by Guile and Young (1998), workplace learning provides
Tailor-Made Distance Education as a Retention Strategy
individuals with support and group coherence amongst learners (Vann & Hinton, 1994). Continuing education in a modern economy has three major types of learning sources: family, school, and workplace learning (Baumann et al., 2001; DeCenzo & Robbins, 2005, p. 224; Harris & Simons, 2005; World Health Organization, 1989, pp. 20-21; Zurn, Dolea, & Stilwell, 2005). In regard to continuing education in the workplace: “Vocational schools and universities should seek to promote more interaction between learning and the workplace. Universities should be more flexible in their curriculum to better adjust to ever-changing market demand. It will help ensure that we have a capable 21st century workforce that succeeds in global competition” (Ahuja, Chucherd, & Pootrakool, 2006, Executive Summary).
Workplace Continuing Education and Lifelong Learning There are a number of sources that stress the link between educational opportunities and lifelong learning (Leurer, Donnelly, &Domm, 2007). In a knowledge-driven society yearning for innovation and initiatives, post-compulsory education and training (PCET) and further education (FE) are required. It is in the context of a learning society that lifelong learning is embraced for professional development, retention, and achievement (Leader, 2003). Continuing education programs and self-directed learning are also emphasized in the business and industry world, the outcomes of which include outstanding performance, problemsolving skill, and educational success of the staff (Guglielmino, Guglielmino, & Long, 1987). Regardless of age, people, at any time of life can further their professional and personal development (Gill, 2007). Professional development and skill enhancement, when solidly combined, can become a significant retention strategy, allowing an organization to use human resources to their
utmost potential (Murphy, Cross, & McGuire, 2006). The outcomes of lifelong learning through professional education at the workplace are very beneficial for workers, and include improvements in self-confidence; self-value; networking; satisfaction with job; career progression; ability to assume the role of change agent (enabling an organization to better cope with turbulent changes); knowledge; skills; and respect from colleagues (Murphy et al., 2006). However, due to the decentralization of public policy in Thailand, health workforce opportunities for professional development and career mobility suffer as a result of reduced training budgets, isolation from national training programs, and most importantly, the reluctance of health care organizations to release staff for training programs due to shortages of personnel (Wibulpolprasert & Hempisut, 2004, p.23).
A Balanced Alternative When on-campus continuing education is not possible for Thai health workers, off-campus distance education seems to be a balanced alternative. Worldwide, distance education is well accepted in both the public sector for continuing professional education and/or earning a higher degree (Drucker, 1992, p. 129). In the private sector it is used for corporate training. Particularly for health professionals in rural and under-served areas, distance education offers unique opportunities by, for example, providing interdisciplinary team training in geriatric care when devising and implementation of comprehensive care plans for older adults with multiple chronic conditions are required (Coogle, Parham, Welleford, & Netting, 2002). The lack of opportunities to maintain knowledge and skills among rural family physicians makes increased support for continuing medical education necessary (Rourke, 1993). For instance, introducing telemedicine to reduce professional isolation is a solution for rural medicine problems when there is a shortage of access to face-to-face medical
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consultancy by specialists (Nestman, 1998, pp. 3, 13). Recruitment and retention of health personnel can be influenced by high levels of satisfaction engendered by continuous professional development (CPD) based on group needs, an adult learning approach, and flexible delivery. The positive effect of CPD on clinical skills and the number of patients seeking treatment is proof of its success (Schoo, Stagnitti, Mercer, & Dunbar, 2005, p.13). Distance education has also played a key role in reducing the gap between recommended and existing public health nutrition services (Laraia, Dodds, Benjamin, Jones, & Carbone, 2008). It is suggested that academic institutions take advantage of the newly-developed information and communication technology (ICT) infrastructure to transfer skills and knowledge to the health workforce in rural and remote areas in need of advanced training (Laraia et al., 2008). The demand for continuing education is also encouraged by the open market economy system. With advances in ICT, open and distance learning (ODL) can be delivered in a flexible and interactive mode to respond to clients’ needs (Kumar, Chaudhary, & Shankar, 2008). Distance education is a self-paced instruction that provides immediate interaction and feedback from instructors, yielding personalized instruction that accommodates different learning styles, maximizes learning efficiency, and saves time (Kapp, with Latham & Ford-Latham, 2001, pp. 281, 287, 291).
Distance Education by Definition Distance education is an integration of various components involving instructors, learners, online classmates, local preceptors, course designers, and administrative staff (Moore & Kearsley, 2005, pp. 1-3, 21). Learning and teaching are planned through learner autonomy under the instructor’s guidance. The online classroom operates through advanced communication technologies such as asynchronous (non real time), synchronous (real time), and blended classes (both face-to-face vis-
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its to students and online learning components). The concept of planned learning aims to promote self-directed learning and encourages life-long learning skills (Brockett, 1987; Confessore, Long & Redding, 1993, pp. 45-56; Guglielmino & Guglielmino, 1992; Harring-Hendon, 1989; Moore & Kearsley, 2005, pp. 1-3; Murphy et al., 2006; Zemke, 1982).
Distance Education Policy in Thailand With regard to Thai national public policy, the concept of distance education has been supported by the Commission of Higher Education (CHE) and the Ministry of Education. The CHE is involved primarily in policy recommendation; higher education standards; financial support for the establishment of higher education institutes; and monitoring, inspecting, and evaluating the outcomes of higher education management. Appropriately, the slogan of the CHE is “Higher education in Thailand – Gearing up to meet the knowledge society,” a statement influenced by educational reforms in place to meet the nation’s human resources requirements for future generations. The broad development of lifelong learning has been established. With support from the Thailand Ministry of Education, CHE emphasized initiatives that focused on enhancing educational outreach via technology. In addition to e-learning services offered through the Distance Learning Foundation established in May 2002 to carry out His Majesty the King’s lifelong learning policy, other prominent projects included the Thailand Education and Research Network (UniNet) established in 1996, ICT Master Plan for Higher Education (2002-2006), and the Thai Cyber University (TCU). TCU assisted all higher educational institutes in providing online distance education and planned to become a knowledge and education centre using UniNet and other cuttingedge technologies to provide further education, both formal and informal, for all (see http://www. mua.go.th).
Tailor-Made Distance Education as a Retention Strategy
In 2004 the Civil Servant Commission (CSC), whose main responsibility was to determine and formulate public policies concerning civil service human resources planning, placed a primary emphasis on human resources development through e-learning, an initiative aimed at increasing the potential of Thai civil servants. CSC offered a wide range of free e-learning training courses to enhance the skills of new civil servants in public sector management. The courses included strategic planning, project analysis, paradigm development, competency enhancement in information technology and language, and human resources development. CSC planned to become a new system of career development in a rapidly changing world as the e-learning program produced more competent and capable knowledge workers. Distance education served as a win-win solution for all parties involved (see http://www.ocsc.go.th/ocsccms/ frontweb/view.jsp?category ID=CAT0001429).
E-LEARNING AND DISTANCE EDUCATION PROGRAM AT CHULALONGKORN UNIVERSITY, THAILAND Chulalongkorn University, as one of the leading universities of the country, has strongly emphasized electronic or e-learning and distance education programs for both on- and off-campus students at both undergraduate and graduate levels. The university established the Learning Center in Nan province in the north of Thailand to offer courses in the field based on labor-market demand. Consequently, electronic-learning and distance education program policy has become one of the university’s key issues for strategic planning and management since 2004. Overall, Chulalongkorn University hopes to extend knowledge to the public-at-large in such a manner that the Thai society can be self-reliant and sustainable at a global level (Chulalongkorn University
Academic Affairs Office, 2008, see http://www. academic.chula.ac.th).
LEARNING AT THE WORKPLACE Distance Education Program at the College of Public Health Sciences, Chulalongkorn University, Thailand The College of Public Health Sciences on campus has operated the distance education program “Learning at the Workplace Program” (LWP) since 1996. LWP is a master program curriculum provided to an international audience. By employing techniques such as problem-based learning, critical thinking, and interdisciplinary teams/collaboration, the College hopes to develop a high caliber of public health manpower. The ultimate goals of LWP are three-fold: to solve the issue of health resource constraints in rural areas of Thailand, to endow students with an opportunity to integrate their work and community experience, and to help students acquire self-directed learning skills that emphasize and implant a vision of life-time learning amongst students.
The Operation Side of the Program By collaborating with other health-related faculties on campus and receiving support from external organizations such as the Thailand Ministry of Public Health and Thai Red Cross, LWP is able to target the rural health workforce. Additionally, through full technological support from the university, the College of Public Health Sciences employs a number of advanced communication technologies for its LWP program such as the Blackboard course management system, Faceto-Face Broadcast, Macromedia Breeze Meeting, and videoconferencing applications under the umbrella of the Distance on Situational Learning Program (DSL) Program.
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Currently, the goal of LWP management is to find a balance between asynchronous (prepared electronic lessons), synchronous (real time online class education), and blended learning (visits paid to students by instructors as well as online learning). Since the LWP context differs from the traditional face-to-face classroom environment, the management team attempts to embrace a more humane approach by the creation and maintenance of a “human touch” despite the use of advanced communication technology, to produce a balanced learning environment that facilitates the solution of the issue of health resource constraints, enabling students to integrate their work and community experiences, and developing students’ self-directed learning skills and life-long learning. The college is working towards a holistic integration of these learning skills; coaching from faculty; social integration within the online community; and a new orientation for course instructional designers and administrative staff in the most cost-effective manner (Tang & Byrne, 2007; Welsh, Wanberg, Brown & Simmering, 2003).
Responding to Local Need For LWP to be fully effective and efficient for primary care health workers, it is essential that the College provides a tailor-made approach based on the different regional environments of health workers. In this case, one size does not fit all and it is emphasized that the context-based learning is better than a general standardized program. In businesses offering products and services that are unique or superior to those of competitors, differentiation is valued in a positive way by customers. Additionally, it must be difficult to imitate and must appropriately reflect the organization’s knowledge of customers’ needs, perceptions, preferences, and behaviors to fulfill a sustainable customer retention strategy (Kotler, 2004, pp. 145-146; Lambkin, 2000, pp. 438-453). Areas with different patterns and epidemiology of diseases will require different approaches.
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Table 1. Illness of Thai population by region in 2004 (per cent of people who visited a physician) Region
Percentage of population who are ill
Central
15
Bangkok
14
Southern
18
Northeastern
24
Northern
29
Source: Thailand National Statistical Office, Office of the Prime Minister (2004). Report of 2003 health and welfare survey. Bangkok: Thailand National Statistical Office. As reported in Kanchanachitra, Podhisita, Archavanitkul, & Im-em, 2005, p.14. Thai Health 2005.
Table 1 illustrates the burden of illness (expressed as the percentage of the population who are ill) in different Thai regions in 2004 (Kanchanachitra, Podhisita, Archavanitkul & Im-em, 2005, p. 14), while Table 2 addresses cancer epidemiology and lists the three most common causes of cancer by region from 1995 to 1997 and 1998 to 2000 in females and males (Kanchanachitra et al., 2005, p. 21). Thus one can see that the diversity and scope of health problems suffered by Thais differs dramatically between regions. In 2004, the 12 health indicators (as publicly reported and supported by the Thai Health Promotion Foundation, available at http://www.thaihealth.or.th) reported for Thais were pregnancy and health problems; life expectancy for all age groups; disability and impairment; environmental problems; unbalanced diets; poverty and ill health; human security concerning quality of life and basic minimal needs; mental health issues; teenage health problems; and geriatric health. Over time, the scope and the severity of these health indicators may differ from one region to another (Kanchanachitra et al., 2005, pp. 78-81). Northern and Northeastern Thailand are reported as the regions with the lowest number of health workers per capita – a fact hard to ignore. In the capital of Bangkok, there are 924 people per physician and in the North-East the
Tailor-Made Distance Education as a Retention Strategy
Table 2. The three most common types of cancer in females and males by region in Thailand from 1995 to 1997 and 1998 to 2000. Chiang Mai (North)
Khon Kaen (Northeast)
Songkhla (South)
Bangkok (Central-capital)
Type %
Type %
Type %
Type %
1995-1997
Cervix 18.1 Lung 15.9 Breast 12.5
Liver 24.5 Cervix 12.6 Breast 10.1
Cervix 20.2 Breast 15.9 Thyroid 12.5
Breast 21.2 Cervix 17.4 Colon 8.1
1998-2000
Cervix 19.3 Lung 14.5 Breast 14.8
Liver 23.7 Cervix 13.3 Breast 11.3
Cervix 19.3 Breast 14.5 Thyroid 14.8
1995-1997
Lung 24.7 Liver 13.3 Colon 5.9
Liver 45.9 Lung 10.6 Colon 4.2
Lung 14.2 Oral cavity pharynx 7.9 Colon 13.7
1998-2000
Lung 21.2 Liver 11.7 Colon 7.0
Liver 45.1 Lung 11.8 Colon 5.0
Lung 12.8 Oral cavity pharynx 9.7 Colon 13.1
Year
Female
-
Male Liver 16.6 Non-hodgkin10.6 Colon 11.1 -
Source: Sriplung et al., 2003. Cancer in Thailand. Bangkok: Cancer Research Foundation for National Cancer Institute. As reported in Kanchanachitra, Podhisita, Archavanitkul, & Im-em, 2005, p.21. Thai Health 2005.
ratio is 7-8 times higher (Kanchanachitra et al., 2005, p. 14). Since physicians are still concentrated in wealthy areas, the need for sufficient staff to cope with the rising number of patients outside of the capital region and wealthier areas is evident.
THE GOAL How to Accomplish a TailorMade Approach for LWP Program Management The proposed tailor-made LWP requires coverage in four main areas according to the concept and theory of distance education of Moore and Kearsley (2005, pp. 219-235). The areas are: 1. To determine and assess required courses/ skills learning with input from regional health workforces. Since health workers from different regional areas are most famil-
iar with the local needs of their public health responsibility, these individuals should be the ones who report what in-depth knowledge is essential for improving their work environments and tasks at hand. 2. To review course packages created in response to different locally determined needs. By working with the college’s faculty, regional health workforces can participate in determining which available courses – both core and selective – are appropriate and relevant and which require modification. 3. To assess the potential of a given course to empower learners using college faculty guidance. It is important to assess whether the course material enables students to master necessary skills, promote lifelong-learning, and empower learners through professional guidance. 4. To assess the technological requirements needed for distance LWP in each particular region. As communication technology is imperative for distance education, it is neces-
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sary that students are able to have access to minimal technological requirements either at home or at their work station (Moore & Kearsley, 2005, pp. 86-89). In the case of the college’s LWP, the minimal technological requirements are that the students’ computer system be well connected to the university’s Distance on Situational Learning Program (DSL Program), for example Blackboard CMS or BB, on a continuous basis without any interruption, so that the students are able to hear sound files and to view the PowerPoint presentation via BB clearly, and are also able to give their input via mouse or keyboard smoothly.
The Methodology: Means for Knowledge Elicitation A mixture of evaluation methods is used to measure the effectiveness of the college’s tailor-made LWP distance education programs and the factors that influence their effectiveness. In order to gain data from targeted learners, qualitative methodology through focus group discussion (FGD) is highly recommended. Focus groups, by their nature, emphasize finding knowledge under unstructured and natural circumstances (Dreachslin, 1999). FGD is a tool for exploratory study (Fagerheim & Weingart, 2005). It is defined as “a group of individuals selected and assembled by [a] researcher to discuss and comment upon, from personal experience, the topic that is the subject of the research” (Gibbs, 1997, p.1). The success of FGD is dependent on a highly skilful group moderator/facilitator – an individual who can create successful rapport with group members, follow interview guidelines from general topics to specific issues in response to research questions, remain objective, and control dominant figures that may exist within the group (Morgan, 1995). Its ultimate goal is to learn from the heterogeneity of ideas among the group members (Kitzinger, 1995). In this way, the
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educational institution can be in the position to properly respond to LWP regional contexts and needs by the modification of course packages to respond to the epidemiological and demographic factors, and the identification of knowledge requirements based on a learning empowerment approach. Using a random sample from the 9,765 tambon (rural) health centers across the country, FGD must involve health care workers from the 18 Centers of the Thailand Provincial Clusters (proposed by the Office of the Public Sector Development Commission Thailand (OPDC) with approval from the Budget Bureau of Thailand and the National Economic and Social Development Board of Thailand (NESDB) and also approved by the Royal Thai Government in January 2008). These 18 centers serve as strategic management bureaus for the provinces within their clusters to collaborate, connect, and drive the clusters’ strategic plans for successful implementation. After FGD, transcribed verbatim reports are obtained, and subsequent content analysis is employed for further data interpretation. Opinion surveys are also conducted to learn about the motivation of the LWP students, including perceived benefits and drawbacks both for the individual students and their organizations. The objective is to draw out implications for the college as the knowledge provider and for the human resources development practitioners of the health centers. In addition, an importanceperformance analysis (or IPA) is employed as it seeks to identify the underlying importance attributed by consumers to the various quality criteria being assessed (Kitcharoen, 2004). As the IP analysis helps to indicate what problems exist and why, educational institutes not only learn where they stand in the mind of the learners, but also learn how to allocate available resources and to prioritize tasks. The ultimate goal is to derive effective management of the distance education study program by improving the performance to match the expectations of the students (Hawres & Rao, 1985; Park and Wentling, 2007). Last,
Tailor-Made Distance Education as a Retention Strategy
but not least, to measure students’ satisfaction, learning achievement, self-reported practice performance change, and e-pedagogical courseware characteristics, multilevel assessment criteria on evaluation of training programs are also suggested (Kirkpatrick, 1996). According to the criteria, four major themes include: learners’ reactions to learning (Level I), achievement (Level II), and application to practice (Level III), while the fourth area investigates the instructional design and pedagogical influences on the other three themes.
CONCLUSION LWP conducted by the College of Public Health Sciences with full technological support from Chulalongkorn University hopes to alleviate the issue of health human resources constraints in rural areas of Thailand; present students with the opportunity to integrate work and community experience; develop students’ self-directed learning skills; and implant and encourage a life-long learning vision. In achieving these goals, the university’s first mission is to incorporate a “human touch” into the program management as distance education, by its nature, differs from traditional face-to-face classroom learning. By placing learners at the center of the study program, self-directed learning skills, coaching-based approaches, social integration, and the development of a new mindset of administrative staff can take place. The university’s second mission in achieving these goals is to provide students with a tailormade LWP. This notion takes into consideration the differences and similarities in epidemiological and demographic conditions of the regions of Thailand. If successful, a tailor-made approach benefits stakeholders and presents a win-win solution for all parties involved. The first and most important motivational strategy in creating a tailor-made LWP is the potential for health improvements in regional Thai
populations. As Thai citizens are the recipients of primary care services, it is important these services are provided by a skilful health workforce. LWP can insure knowledgeable and competent health care staff, increasing positive health outcomes for Thai citizens. Additionally, LWP helps ensure equality in accessing health services – a fulfilment of basic human rights – and improve quality of life in regional Thailand. Second, LWP motivates health workers in rural areas of Thailand to remain at their work places. Through skill enhancement, the health workforce becomes more versatile and better able to cope with constant changes and new uncertainties within their field of work. As self-learners with reliable, accessible networks, distance education students become competent in producing, with valid research methodologies, a new body of knowledge essential for solving tasks at hand. Life-time learning skills keeps health workforce students at the frontier of academic advancement in the public health field, enabling them to plan their own learning and respond to locally determined health care needs in Thailand. LWP learners find their jobs rewarding and successful. Third, the College of Public Health Sciences at Chulalongkorn University assumes the role of a higher education institute that manages an effective distance education program in a humane and individualized manner. Accordingly, Chulalongkorn University produces a high level of learner satisfaction, and increased retention of health workers can be achieved. Last, the Commission of Higher Education (responsible for formulating higher education development policies) and the Civil Service Commission (responsible for the development of civil servant competencies) regards LWP as a new and effective needs-oriented study program. The shift from standardized to tailor-made approaches provides insight to policy-makers enabling them to prepare an effective Thai health workforce for the 21st century and to transform Thailand into a knowledge-based society.
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This work was previously published in Human Resources in Healthcare, Health Informatics and Healthcare Systems, edited by Stéfane M. Kabene, pp. 167-179, copyright 2011 by Medical Information Science Reference (an imprint of IGI Global).
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Chapter 8.18
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism Lucio Biggiero University of L’Aquila, Italy
ABSTRACT Notwithstanding the warning of myopic view, when giving too much emphasis to the short run and stable environments, efficiency is usually claimed by standard economics as the main goal of competitive firms. This is challenged by management and organization scholars, who argue that, in presence of strong uncertainty due to environmental turbulence, slack resources can be a competitive advantage. In order to put some sound block in this debate through, this paper tests four groups of hypotheses on an agent-based model of industry competitiveness based on suppliers’ quality. It innovates current literature in two ways: first, it considers redundancy in terms of organizational knowledge, and not in terms of personnel or financial assets or other types of resources, which are usually taken as object of study. Secondly, it compares the effects of two forms of perturbations: environmental shock and
opportunism. The results show that these two forms impact differently on industry profitability and that knowledge redundancy can (limitedly) compensate the effects of environmental shocks but not of opportunism. Moreover, it demonstrates that, as agents exchange (and accumulate) more information, knowledge efficiency declines, but less than proportionally to the increase of knowledge exchange.
INTRODUCTION The aim of this contribution is to understand the relationships between profitability and knowledge at industry and segment level. In particular, by considering knowledge as a resource, the relative (dis)advantages of knowledge redundancy is discussed in different competitive environments, with a special focus on the effects of environmental shocks and opportunistic behaviors.
DOI: 10.4018/978-1-60960-587-2.ch818
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Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Redundancy indicates an excess of some resource respect to its minimum requirement, and thus, by definition it is the reverse of efficiency. Most phenomena can be analyzed in terms of redundancy, which can be measured in many ways. In information theory it can be measured and conceptualized in terms of signals in excess to what would be required by the receiver in order to run a certain operation. In cybernetics it could be also referred to variety in excess to that required for systems survival or to excess “copies” of the qualitative types constituting the requisite variety. In network analysis it measures the number of links over the minimum. Just to mention a few examples. Since the traditional -and still dominant view in economics- considers firms as (almost exclusively) short run profit maximizers in a rather stable or predictable environment, redundancy should be prevented because it reduces profit margins. According to that view, efficiency and the maximum exploitation of resources is always a must. Conversely, alternative approaches argue that, in the long run with a turbulent environment, redundancy can be a competitive advantage. Of course efficiency is a multi-dimensional phenomenon, because there are different types of resources. The same amount of total cost can be given by different combinations of resources, whose actual use can be individually more or less efficient. In other words, efficiency should be always specified in reference to a certain type of resource. In this work, the focus is put on knowledge, and hence it is questioned whether knowledge efficiency is always preferable. This choice is mainly due to the fact that, according to the knowledge based view of the firm (Conner, 1991; Conner & Prahalad, 1996; Kogut & Zander, 1992, 1996), in current and future evolution of economy, knowledge is regarded as a crucial factor of competitiveness. However, among the many ways to categorize organizational knowledge (Amin & Cohendet, 2004; Nonaka & Nishiguchi, 2001; Nonaka &
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Takeuchi, 1995; Tsoukas, 1996, 2005; von Krogh and Roos, 1996; von Krogh et al., 1998; Yolles, 2006), there is one particularly pertinent for the purposes of this paper: the distinction concerning the origin of knowledge, whether from external and internal sources. In fact, the effects of the acquisition of external knowledge suffer of the lack of precision or, much worst, of scarce reliability. The first failure is mainly due to cognitive distance (Fiol, 2002; Lant, 2002) and information equivocality (March, 1997; Weick, 1995), while the latter to the combination of information asymmetry (Akerlof, 1970; Mas-Colell et al., 1995; Shapiro and Varian, 1999; Stigler, 1961) and opportunism (Child, 2001; Gambetta, 1988; Hall, 1992; Humphrey, 1998; Kramer & Tyler, 1996; Lane, 1995, 2001; Lane & Bachmann, 1996, 1998; Williamson, 1975, 1981, 1985, 1994, 1996). Indeed, even the internal sources of knowledge are not completely free from these two failures, but it is reasonably to assume –as most literature doesthat they markedly differ in intensity, especially in the case of small-medium size organizations. These two defects play also in regard of our issue of knowledge redundancy, which here is referred only to the acquisition of external knowledge. The role played by various forms of opportunistic behavior between firms has been extensively investigated by transaction cost economics (Williamson, 1975, 1985, 1993), according to which if only few firms do exchange and/or its products are complex, then transaction costs raise respectively, because of opportunistic behaviors and idiosyncrasy. If this latter is kept constant, the crucial variable becomes opportunism and the attention is shifted to the methods to reduce it. One of them is by increasing the ability to distinguish between opportunist and correct agents through the acquisition (and use) of information on their behaviors. Such information can come either from direct experience or from accessing others’ knowledge. However, the knowledge tool is weakened if opportunism assumes the form of cheating, because such information can be false.
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
This eventuality is receiving growing attention by most theoretical and empirical studies, because in the past opportunism was depicted by all the other variables but cheating, as transactions’ specificity, frequency or uncertainty, the number of exchanging parties, and eventually their perceived effects on economic outcomes. This study exploits the architecture of CIOPS model (Biggiero & Sevi, 2009), which is a network of agents representing firms that interact through structural and cognitive links. Through an agent-based simulation model of a threesegment industry some structural and cognitive characteristics of agents’ searching, choosing and basic learning have been operationalized. The structural network is a productive system constituted by agents connected each other by (vertical) economic relationships, and interacting through orders and products. Conversely, information flows horizontally among agents of the same filiere segment. Industry is taken in a medium (200 firms) size, and sales and profits of final producers (FPs) depend on the quality of first tiers (FTs), which in turn depends on that of their suppliers (the segment of raw materials). It is supposed that clients always can sell products on the final market, and select subcontractors but not vice versa. Cognitive variables are: type and amount of information available to agents, their rationality (computational capacity and levels of aspiration), their types of decision making processes, and attitude to cheat. Agents’ decision making process is constituted by three types of choices that are compared each other in each step: random choice (RND), direct (DEBT) and indirect (INDEBT) experience-based. Clients ask each other information concerning supplier’s quality, and compare it with that existing in their memory. This way they move within the information space, while their rationality is bounded by the limited number of information they can ask. In essence, there are two dynamic networks, a structural and a cognitive one, which overlap and interact in multiple
ways, and each agent develops his own cognitive representation of the structural network. Turbulence is given by two types of mechanisms: i) behavioural uncertainty due to competitors’ opportunism by cheating (Biggiero & Sevi, 2009); ii) environmental changes due to a new distribution of quality among suppliers, which can approximate the rapid diffusion of a radical innovation among suppliers (Corso & Pellegrini, 2007; Li et al., 2008). The analysis is run at both industry and segment level, taken as a whole. This paper innovates current literature in two ways: firstly, it considers redundancy in terms of organizational knowledge, and not in terms of personnel or financial assets or other types of resources, which are usually taken as object of study. Secondly, it compares the effects of two forms of perturbations: environmental shock and opportunism. The results show that these two forms impact differently on industry profitability and that knowledge redundancy can (limitedly) compensate the effects of environmental shocks but not of opportunism. Moreover, it demonstrates that, as agents exchange (and accumulate) more information, knowledge efficiency declines, but less than proportionally to the increase of knowledge exchange. Finally, it shows that the two segments of final and intermediary producers perform and react to perturbations quite differently The paper proceeds as follows. In next section theoretical background is revisited especially concerning the fields of economics and management. According to the literature review four groups of hypotheses are advanced, and referred to the effects of environmental shocks and opportunism on the level and stability of industry competitiveness. This latter is measured in terms of average quality, mean and total cumulated profit, knowledge production and its employment. In section three the characteristics of the simulation model and the parameters of virtual experiments are summarized. Then, in the next section results are discussed and analyzed in terms of final outcomes after 400 simulation steps, and in terms of dynamic patterns.
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Finally, these results are confronted with those of the revised literature.
THEORETICAL BACKGROUND In economics and management redundancy is usually indicated with the concept of slack resources, which can refer to production (Leibenstein, 1966, 1987), human resource (Williamson, 1974, 1985), finance (George, 2005), power (Bourgeois and Singh, 1983), and labour (Love & Nohria, 2005; Nohria & Gulati, 1997). Indeed, the major attention has been focused on the financial and personnel sources of redundancy, also because it is relatively easier to be measured and to gather data. For the same reason most studies look for the effects of personnel redundancy in terms of downsizing and behavioural consequences. At a closer sight it appears that, given the extension and rather chronic existence of redundancy, both its theoretical and empirical analysis has been really scarce. A good explanation of this surprising lack of studies lies into the deep core of mainstream economics, because its focus on general economic equilibrium and on the perfect rationality of agents made the case for redundancy definitely implausible. Even when industrial and managerial economics (Leibenstein, 1966, 1987; Williamson, 1974), agency cost theory (Jensen & Meckling, 1976; Jensen, 1993), and transaction cost economics (Williamson, 1975, 1985) deal deeply with the inner structure and functioning of firms, the most important imperative for economics remained efficiency. Hence, redundancy was (and is) always considered as a handicap for firms performance and competitiveness. A different story can be told for management and organization theory. Starting from Cyert and March (1963) seminal book on the behavioural theory of the firm, slack resources have been recognized as a normal state. Further research developed their analysis showing that redundancy comes from agents’ bounded rationality and the
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ambiguity of information they exchange and, especially in large organizations, from the power games of coalition groups (Pfeffer and Salancick, 1978; Sharfman et al., 1988). Another way to look at the issue has been developed by management science and operations research, and in particular by the approaches to total quality management (Ahire et al., 1996; Anderson et al., 1995; Flynn et al., 1995; Ishikawa, 1985; Kekre et al., 1995; Martinez-Lorente et al., 1998; Ohno, 1988; Womack and Jones, 1990). It refers to the optimum size of inventory stocks either within different organizational functions and departments or between organizations. Developing American early theorization by Juran (Juran & Blanton Godfrey, 2000) and Deming (Anderson et al., 1995; Deming, 1986), Japanese management approaches proposed to put zero-stock as one of the main goals (Carter & Narasimhan, 1994; Gonzales-Benito, 2003; Ishikawa, 1985; Krafcik, 1988), because stocks sharply reduce efficiency (Narasimhan and Mendez, 2001; Roy & Guin, 1999). The supplier-buyer relationship becomes a crucial issue (Bessant et al., 1994; Lascelles and Dale, 1989), which leads to the fundamental action of selecting the best supplier in terms of purchasing quality, and hence to the core of the present simulation model (see the next section). Finally, the question of redundancy clearly relates to the exploitation-exploration trade-off (March, 1991), because in order to explore it is necessary to have slack resources and so to reduce efficiency gains obtainable by exploitation strategies. However, as March and others underlie (Levinthal & March, 1993; March, 1991), a pure exploitative strategy likely brings into competency traps, because organizations become unable to perceive and to react to environmental changes. Actually, the link between redundancy and innovation capacity has been highlighted too (Damanpour, 1991; Nohria & Gulati, 1997; Richtner & Åhlström, 2006). However, these scholars are as well concerned that firms should be efficient to be competitive,
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
and so Nohria and Gulati (1997) argued for a curvilinear relationship between redundancy and performance: the optimum is supposed to be at an intermediate level. This hypothesis has been confirmed also by other recent studies (Geiger & Cashen, 2002; Tan, 2003; Tan & Peng, 2003). Besides explaining its rationale, scholars argued also for the existence of its positive effects, especially for enhancing innovation (Geiger & Cashen, 2002; Geiger & Makri, 2006), for managing risk (Hambrick & Snow, 1977; Richtner & Åhlström, 2006; Singh, 1986), and to face with long term environmental uncertainty (Sharfman et al., 1988; Van der Stede, 2000). The latter is the main focus of this paper. Drawing from Thompson’s (1967) suggestion that efficiency would the primer only if the world were quite predictable and stable, the idea here developed is that long run competitiveness in a turbulent environment requires slack resources. In fact, if the environment is likely to change, then it is necessary to perceive it and promptly react, especially if changes are radical and jolt (Meyer, 1982). Since both perceptions and reactions consume resources, in order to survive and face with radical environmental changes it is necessary to have a certain amount of slack resources. This idea is consistent also with the theoretical perspective of the population ecology of organizations, which highlights that large organizations are characterized by longer survival rates respect to small ones (Hannan & Carroll, 1992). This is due to the huge resources they can employ to explore and experiment and adapt to changing environments. Among the many types of resources they can dedicate there is certainly knowledge, which is developed to a larger extent and it is based on a larger amount of information. Indeed, according to the knowledge-based view of the firm (Conner, 1991; Conner & Prahalad, 1996; Kogut & Zander, 1992, 1996), competitiveness is mostly due to knowledge acquisition and management, and to learning processes and abilities. That is why the key concept of this paper is on knowledge
efficiency, which here is measured by the profit gained per knowledge units (information). Other studies have recently underlined the relationships between knowledge and slack resources (Richtner & Åhlström, 2006; Van der Stede, 2001), but they have investigated the extent to which slack resources enhance knowledge creation in terms of innovation: the causal relationship is from personnel or budget resources to knowledge. Conversely, here knowledge is the resource of which the efficiency should be analyzed: the causal relationship goes from knowledge to profitability through the capacity to face with environmental uncertainty. This latter is modelled in two ways. Firstly, it is related to agents’ opportunistic behaviours, which concretely is operationalized as their attitude to give false information. If informers can be unreliable the environment becomes more uncertain than the case of honest informers, because it is necessary to discern between true and false information. Secondly, the occurrence of environmental shocks can vanish the effectiveness of current knowledge and require a prompt adaptation. In this specific model, it is supposed that a new radical innovation changed the distribution of quality among industry suppliers. The effects of the two types of uncertainty are investigated separately, and then combined, so to distinguish its specific contributions to profit losses and knowledge redundancy. Since uncertainty is a way to look at complexity (Biggiero, 2001), this model allows to understand the relationships between knowledge and complexity in an industry setting. According to Ashby’s (1956) law of requisite variety, the more complex is the environment the more complex should be system’s behaviour in order to assure its survival. So, we expect that, in order to get the same performance, in more complex contexts firms should employ larger amounts of knowledge.
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RESEARCH HYPOTHESES The literature review just discussed can lead to formulate some research hypotheses with two main warnings, which limit the possibility to derive the latter from the former. The first limit is that previous literature dealt with redundancy in the form of personnel or financial slack resources. Notwithstanding cybernetics had always emphasized the role of information and knowledge, this type of redundancy has been neglected. The knowledgebased view of the firm has focused its attention on the role of competence for firms’ competitiveness and innovation. There is a plenty o0f literature on competence mix and the relevance of accessing new knowledge, but nothing about the essentiality or minimum level of knowledge. On the other side most modern approaches of cybernetics to organizational knowledge are entrapped on the rather sterile dispute on the distinction between data, information and knowledge. Influenced by the applications of autopoiesis theory to social systems, they completely overlook the issue of knowledge redundancy, which indeed in their perspective would be probably acknowledged only as information redundancy. The second problem that makes the following research hypotheses not so directly derivable from the current literature is that most studies considered only internal and not external knowledge. The main consequence is that, being external knowledge less precise and trustworthy than the internal one, some of the expected results could be easily unfulfilled. In other words, the lack of precision and trustworthiness characterizing external knowledge could produce more noise and distortion than benefits. Besides these aspects, the need to keep distinguished the provenience of knowledge comes from the fact that that external and internal knowledge growth have marked differentiated effects on industry profitability Biggiero (2010). Such differences are not sensitive to agents’ opportunism if not for the intensity of the effects. Moreover,
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industry segments react differently to the growth of external and internal knowledge. As a methodological and expositional choice, instead of make a descriptive paper assuming and discounting these two limits from the beginning, I preferred to formulate the hypotheses as if these two peculiar aspects wouldn’t play, and to leave them eventually emerging from results in the attempt to test the hypotheses. According to previous literature some authors consider knowledge redundancy as a competitive advantage and not as a failure. If this were true, then in a competitive context without information circulation, that is where agents make their choices only according to their own experience, the damage of an environmental shock would be heavier, because they could not achieve any redundancy (of external knowledge). As we have seen reviewing the theoretical background, most authors argue that opportunism has a negative impact on industry performance. This is confirmed also by Biggiero and Sevi (2009), who demonstrate that opportunism by cheating severely reduces industry profitability, and that the corresponding profit loss is sensitive to scale effects. Hence, the first group of hypotheses sounds as follows: Hypothesis H1a: with less information circulation the damage of an environmental shock is superior. Hypothesis H1b: in facing with damages due to an environmental shock, agents’ dishonesty is relatively less disadvantageous than in the case of not trust at all –that is, no information circulation at all. Hypothesis H1c: ceteris paribus, respect to a context of non-perturbed honest agents, the damage produced by an environmental shock is superior to that of an eventual dishonesty. Though this paper focuses on the effects of varying external knowledge, agents accumulate anyway internal knowledge too because of capi-
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
talizing direct experience. Of course, by asking more questions each other the amount of external knowledge tends to grow, even though such a tendency is limited by the amount and effectiveness of internal knowledge. In fact, the more valid and satisfying is internal knowledge, the less they ask. However, the interesting problem is to understand how the external knowledge is employed. Plausibly, it is absorbed by discovering wrong information, false informers and bad suppliers, and hence its accumulation grows in a context of dishonesty. The other rationale to employ knowledge is just to face with environmental shocks, which could vanish previous knowledge by suddenly changing the distribution of quality among suppliers. Presumably, the two conditions of dishonesty and shock had to reinforce each other by inducing more knowledge accumulation. Thus, the following hypotheses can be advanced:
competitors-informers are dishonest, agents receive damage from false information and need time and information to discover false informers. Secondly, agents collect much more knowledge than what would be done using only their direct knowledge. In fact, it is unlikely that answers will fill exactly the reciprocal knowledge gaps, because agents do not know “who knows who” nor how many competitors and suppliers there are3. Likely, the more questions are raised the more both advantages and disadvantages increase, but in a context of environmental shock the former are lesser than the latter, because most information would reveal false. Consequently, agents should “reset” their internal and external knowledge, and this effort will likely be emphasized facing with dishonest agents. Therefore, it can be reasonably supposed that:
Hypothesis H2a: at industry level an environmental shock determines the accumulation of more knowledge. Hypothesis H2b: at industry level with dishonest agents more knowledge is accumulated in order to discover wrong information, informers and bad suppliers. Hypothesis H2c: at industry level profit loss due to environmental shock is lower when more knowledge is accumulated.
Hypothesis H3a: at industry level if more questions are asked to competitors, then knowledge efficiency declines. Hypothesis H3b: at industry level when more questions are asked to competitors and there has been an environmental shock, then knowledge efficiency declines relatively less or not at all. Hypothesis H3c: at industry level with dishonest agents and an environmental shock profit loss is relatively less.
Random choice and its consequent direct experience produces internal knowledge. If agents rely only on this source of knowledge, even supposing that suppliers’ quality remains invariant, they would need more than 80 steps1 to know all suppliers and to discover their quality. If they would access and trust others’ experience they would explore the decision space (see next section) much earlier, and of course they would avoid buying satisfying products only in the 50% of cases2. However, such a faster and effective exploration strategy has a price. Firstly, if the trusted
Though submitted to the same general rules and number of potential suppliers, FPs and FTs differ in terms of the size of their information space (IS) (see next section). FTs have and initial IS double than that of FPs, even if over time half of them tend to switch to an inactivated state. However, it happens only in the stable regime -when all clients know all suppliers- that the inactivated suppliers are the same, and in this simple and efficient version of the CIOPS model, they are just the bad suppliers. Until that moment, in each step a certain share of activated FTs is always changing, albeit decreasing over time. Hence, new information can
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be exchanged and accumulated. Hence, plausibly the following hypotheses can be advanced: Hypothesis H4a: FPs and FTs react differently to environmental shocks. Hypothesis H4b: FTs accumulate more knowledge. Hypothesis H4c: FTs can better answer to the environmental shock.
THE MODEL STRUCTURE Agent based models are rapidly assuming a great relevance in management as well as in social sciences (Gilbert, 2008). Its advantages are really enormous, because they are the laboratory where the social scientist can test and develop theories. Moreover, virtual experiments can explore situations not yet evidenced by field or pure speculative research. Finally, the formalization forced by modeling helps inter-theoretical comparisons by making explicit hypotheses, methods and the operationalization of variables, and by allowing the replication of experiments. The present model is a specific development of a model built by Biggiero and Sevi (2009). It allows combining cognitive and structural characteristics of agents, which here are representing firms. Cognitive characteristics enable agents to explore their competitive environment, and are based on their computational capacity, which consists: i) in gathering and comparing various amounts of information required to select the best quality suppliers; ii) in building and updating their memory, which notwithstanding is affected by various types of forgetfulness effects. Structural characteristics consist in different segments and levels of quality suppliers. Their behaviour is path dependent and they learn in a basic, substantial though not sophisticated sense. Virtual experiments examine also agents’ cheating attitude at the opposite extremes of full honesty or dishonesty. Since it is supposed that in this industry competitiveness is strictly related to
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product quality and this latter to suppliers’ quality, agents’ main goal is selecting the best suppliers. A set of virtual experiments is run distinguishing the cases of honest and opportunistic agents, who always lie when consulted by their competitors about suppliers’ quality. Performance parameters are average quality and total profit at segment and industry level. A general view of the model (Figure 1) shows its logical structure: profits of final producers depend on the quality of their purchases, which in turn depends on supplier’s quality. Thus, the goal of final producers is to choose the best suppliers. Since final producers don’t know suppliers’ quality, they have to select them through one of three selection mechanisms: random choice, direct and indirect experience. The latter implies information transfer between FPs, who play the role of reciprocal informers. In this model it is supposed that there are 200 agents distributed as follows: 40 FPs, 80 FTs, and 80 second tiers (suppliers of row materials). Moreover, it is supposed only an exclusive (one-to-one) relationship between a client and a supplier4. Some of the major points of interest of this model are in the characteristics of agents and in the ways in which they affect their selection mechanisms. Agents are trustworthy or opportunistic, and they perform this latter behavior by cheating, and not by betraying previous agreements, as it is usually supposed in most studies. This represent the main threaten to the individuation of the best suppliers, and consequently to the achievement of high profits. Moreover agents are boundedly rational, in that they can ask only a limited number of questions. Finally, they are satisfiers and not maximizers, and exchange information only among them and not with FTs. Technology (filiere structure). A final product requires more than one phase of production, each one composed by a set of specialized firms (Figure 2): FPs (downstream firms) get its intermediate product from first tiers (FTs), that is, intermediate firms that in turn are supplied by second (or
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Figure 1.
Figure 2.
source) tiers (upstream firms). Production orders flow obviously in the opposite direction. Technology defines also the number of production phases and therefore the length of the filiere, which in this model is built by three specialized filiere segments. Thus, all agents are producers and suppliers except downstream (final producer), which are merely producers, and upstream (suppliers of row materials), which are pure subcontractors. A one-to-one relationship holds between suppliers and clients, that is, in each step and in each market a client orders products to just one supplier, and vice versa. Consequently, orders and goods are exchanged within two markets: a market among downstream and intermediate firms, and another among intermediate and upstream firms. In Figure 2, the arrows indicate the movements of goods, although the orders follow the counter way. Orders start from external market, which is supposed to demand one product per each final producer. Therefore, FPs order components to one intermediate supplier who in turn, orders its products to one upstream supplier of row material. Hence, intermediate tiers are clients with respect to upstream tiers. Agents’ behavior in the downstream and in the intermediate segment is modeled alike, that is, the way they manage and use cognitive and structural variables is the same. Suppliers are selected according to their quality. However, actual suppliers’ quality is verified only after transactions, because clients either could not know it in advance or they could have incorrect information. In this model information reli-
ability is not evaluated as such, but instead it depends on informers’ reliability. Actual suppliers’ selection depends on clients’ experience and cognition: knowledge, computational capacity, expectations, and decision making processes. In order to choose their subcontractors clients: i) scan their own memory on past direct and indirect experience with suppliers; ii) ask other agents as informers. Notice that questioners are allowed to ask information only to members of their segment. Sales are supposed to be a linear function of the degree of quality according to the following expression: S = 1.2 Qs Where S = sales value and Qs = supplier’s quality. Since clients buy from suppliers at the fixed cost C, profits depend on quality as well, and are given by: P = S- C = 1.2 Qs – C By putting C = 0.75, there are some paradigmatic situations shown in Table 1. FTs have the same cost-profit structure, so that average and agent’s quality is transferred from one to other segments only through its effects on agents’ profits. Moreover, a ratio of 2/1 is supposed between suppliers in each segment and FPs, so that they always find some supplier. This assumption corresponds to a demand-driven industry. Things could be very different in a supply-driven industry, where 2533
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competition between clients would be increased by competing for a smaller or equal number of suppliers. Questioners’analysis of informers’trustworthiness leads to set up a list including only full reliable informers. If the number of informers entering the list is minor than the number of questions that the questioner is able to raise, the questioner asks also some unknown informer randomly chosen. The number of questions that the questioner is able to ask represents his exploration capacity Informers’ trustworthiness depends on the truth of information that that informer passed previously to the specific questioner. If, in the past, a given questioner followed the indication of a given informer, then the questioner could verify informer’s reliability. Specifically, reliability is defined as the absolute value of the difference between suggested quality and actual quality of a specific supplier. Unknown informers are assigned maximum trustworthiness value, as it is also for the required level of informers’ reliability. Informers can tell truth or falseness depending on their inclination toward cheating. True informers indicate the best supplier among the ones directly experienced. False informers indicate the worst supplier as if it were their best. That is, cheaters say that the worst has the quality of their best. There is no answer when informers have no information. Table 1. Some paradigmatic situations of cost structure Quality of suppliers’ product (QS)
Clients’ sales (S)
Costs of purchases (CP)
Profits (P)
0.5
600
750
-150
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0.6
720
750
-30
0.7
840
750
10
0.8
960
750
210
0.9
1,080
750
330
1.0
1,200
750
450
Agents have an inclination towards cheating, as the probability that in each interval is given false information, and it is kept constant during the virtual experiment. If the attitude is zero, then agents pass always true information, and vice versa. It is crucial to underline that cheating concerns only the content and not the type of information. In other words, informers can indicate their worst bad experience as if they were the best, but they cannot say, for instance, that they have direct experience if they don’t, or any other kind of falsity concerning the source of the information they pass. It should also be highlighted that in this model it is supposed that all informers are available to give information; that is, they can lie about information content but not about the type of information and neither reject to give information. Agents build their own cognitive network by coping with a number of direct experiences and getting information from others. Through their direct experience agents get information on suppliers’ actual quality and informers’ reliability by interacting with the given supplier. Indirect experience-based information originates from informers’ direct experience. Agents collect and verify a set of INDEBT information, which are stored in their cognitive network in order to build and update their memory. If confirmed by direct experience, that part of memory made of INDEBT information becomes DEBT. Experimentation concerning INDEBT information and memory gives a feedback on the reliability of the agents who gave it, and of course on the corresponding supplier’s quality. Further, it should be noted that the three decision making processes are in a nested reciprocal relationship (Figure 3), because the DEBT decision making pattern (DMP), besides the DEBT decision making process includes also the RND option, and analogously INDEBT DMP, besides the INDEBT decision making process includes also the DEBT and the RND options. Hence, in
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
virtual experiments DMP and not single decision making processes are confronted5. Agents are all equal in cognitive terms, and respect to goal seeking and expectations. In each virtual experiment they are facing the same environment and are provided with the same opportunities. They are equal also under structural respects, with the exception that first and second (source) tiers are randomly assigned a given quality, and that to FP and FT certain initial opportunities are randomly offered. Agents differ on which type, how much and how reliable is their knowledge. Knowledge at industry level is just the sum of agents’ knowledge, but not all knowledge circulates. For instance, in those configurations in which direct experience is prevalent, and especially in which indirect experience is inhibited, transferred knowledge is only a small portion. Noticeably, though their simplicity agents store and transfer different types and amount of knowledge. Moreover, they develop different images of the others, and so they enact different cognitive networks. Information space and agents’knowledge. The decision space (DS) is represented by the suppliers’ number (Figure 4), because they constitute the alternatives among which clients should choose. Within this space, questioners move looking for the best choice. Conversely, the information space (IS) refers to indirectly gathered information that can be referred to suppliers, and hence it is composed by: IS = (DS)*(ΣINDEBT) Figure 3.
The total knowledge (TK) residing into the industry and unevenly distributed among its agents is given by the three forms of memories about DEBT, INDEBT, and INFORMERS. This latter also help to choose reliable informers to be asked, and their answers feed the types of knowledge. It is noteworthy that, whereas decision space grows linearly with the number of suppliers, information space grows squarely with the number of informers. In fact, though not all potential informers are activated and consequently not all information are gathered in each step, potential informers are equal to n(n-1) at each step, where n is the number of informers. Moreover, this information cumulates and in each step it is integrated by the information concerning DEBT, and informers’ memory. It is noteworthy that agents do not know industry size and the number of suppliers, and so they cannot decide to stop searching for better suppliers. This option could be introduced in another version of the model, when agents could be differentiated in terms of strategy: some could be more oriented to optimization and so they will always continue exploring the decision space, while others could be more oriented to satisfying behaviors, and thus, they will stop exploration once a certain level is reached. Of course, both strategies depend on other variables concerning exploration costs and advantages. As concerning trust and opportunistic behaviors, agents’ attitude could be defined as “prudent trust” in the sense that they trust others Figure 4.
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but check their information and keep track of the corresponding result. Though they do not necessarily react through pure forms of retaliation, once an informer has been recognized as unreliable, they cancel him from the list of future potential informers. Hence, even if their reactions to cheating are “soft” and only passive, agents are not “blind trustees”, because they check information and learn consequently. Moreover, it should be noticed that agents acquire free information, because it has no price and informers cannot refuse to give it. Finally, it should be taken into account that in this model all these cognitive operations are costless. In short, there are no direct costs of misplacing trust or checking information coming from indirect experience. However, though there are no such direct costs, “prudent trust” has an indirect cost, that turns to produce effects on performance: at least in consequence of the first lie received from a cheating informer, the questioner is addressed to a bad supplier, and thus, his own performance is damaged. Being industry performance simply the sum of that of individual agents, industry profitability is negatively affected.
THE METHODOLOGY AND THE CONFIGURATION OF VIRTUAL EXPERIMENTS Parameters and initial conditions used in these virtual experiments6 are shown in Table 2. In each step a whole cycle choice/order/production/payment takes place. Supposing that it can represent a reality in which it lasts 5 working days, 400 steps describe 10 years of industry evolution from the very beginning. This could approximate a simpleproduct industry, whose production cycle is very short and can be realized completely in one week, but whose quality represents a competitive advantage. Medium-high quality segments of some consumer goods markets like clothing, footwear, leather, etc. could satisfy these characteristics.
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The time span consideration is very important to give sense results of dynamic patterns, because while in some cases performance stabilizes already before 50 steps, in many other situations it still remains uncertain after 400 steps. Sometimes performance becomes definitely unpredictable in the short run, while in the long run keeping stable around a mean value. Indeed, complex products would better match the crucial role assigned suppliers’ quality, as it is characteristic of biotechnology, aerospace, biomedicals, and most high-tech industries. However, they have production cycles extending far beyond two or even six months, and they require even long time to define product and contractual characteristics. If such a real correspondence is given each step, it is clear that even 50 intervals addresses to a very significant time span. Experiments are executed varying: i) the presence or absence of an environmental shock; and ii) agents’ inclination to cheat (0 or 1), while keeping constant other parameters. Due to the high number of variables and the value that each variable may assume for each agent, within each virtual experiment suppliers differ only in quality while keeping constant other parameters, agents have the same quality threshold, employ the same decision making patterns. Other parameters not specifically discussed before are the following: •
•
quality threshold: this refers to agents’ aspiration levels (March, 1988; Simon, 1982, 1991, 1997), who consider a supplier satisfying only if his quality is not lower than 0.75; clients’ requirement of informers’ reliability, which here it is supposed to be full reliability. In other words, an informer is supposed to be credible only if he is completely reliable. Results are expressed in terms of:
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Table 2. Virtual experiments parameters Structural parameters with constant values Filiere segments
3
Industry size
200 firms
Ratio FP/FT = 1/2
40 downstream firms, 80 suppliers in intermediate segment and 80 suppliers in upstream segment.
Quality
Randomly uniform distribution between 0.5 and 1
Outsourcing degree
1 subcontractor for each client
Cognitive parameters with constant and uniform values Decision making processes
RND, DEBT, INDEBT.
Number of questions agents can ask to explore the environment
0, 1, 4, 8, 16
Quality threshold
0.75
Varied structural parameters Environmental shock
At 201st interval suppliers’ quality is randomly uniformly re-distributed
Varied but uniform (among agents) cognitive parameters Inclination to cheat
•
•
•
• •
• •
average quality (AQ), which is the mean quality of all agents calculated over the 400 simulation steps7; total profit, total cumulated profit and profit loss, which all are calculated in absolute values; total knowledge, distinguished in terms of internal and external knowledge and measured in terms of number of information; number of informers and suppliers activated in average by all agents; average knowledge units per profit (TP/K), which is a measure of mean cognitive efficiency; average knowledge units per informer or per supplier; neutralization time (NT), which is the number of steps required to reach (almost) the profitability level right before the shock.
As for many agent-based models, this one is deterministic, excepted for the quality distribution among suppliers at the beginning (step 1) and after the environmental shock (step 201). The results discussed in next section are the mean of
0 or 1
10 runs for each virtual experiment. In order to interpret the results it is useful to bear in mind that an agent’s knowledge is efficient when s/he has exactly 80 information, which correspond to one per each of the suppliers. Hence, in the segment of FPs knowledge is redundant when it exceeds 3200 units, while in the segment of FTs at 3600, and at industry level at 6800 units of information. It does not matter the way in which such information have been achieved, whether by random choice, direct or indirect experience. Of course, the most parsimonious (efficient) way is through random choice accompanied by indirect experience, both steering direct experience. However, it is definitely unlikely that the lack of knowledge left by random choice were precisely covered by achieving information through indirect experience. Usually there will be a certain degree of redundant –and eventually even contradictory, in the context of dishonest agents- knowledge also in efficient cases. Clearly, the more questions are asked per each agent, the more redundancy will be created.
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Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
MAIN RESULTS Before testing the hypotheses it is useful to see the effects of the environmental shock in contexts of honest and dishonest agents, who can ask each other different amounts of questions about suppliers’ quality. As shown by Figures 5a and b, the effects are quite pronounced, because the average profit drops down, and the more questions they ask the heavier is the loss. It is also evident that the crash is much more accentuated with dishonest agents, because the “seductive” effect played by false information –competitors give their worst supplier as if it were the best- prevents for long time not only to accumulate direct knowledge, but also to cast dices through random choices. An analogous divertive role played by false information explains the different behaviors of the two graphics during the early 100 steps. In order to well understand the meaning of this phenomenon, it should be clear that, if one step would correspond to one working week, dishonesty determines years Figure 5.
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of low profits before reaching a stable regime of high profits. The first hypothesis (H1a) states that with less information circulation the damage of an environmental shock is superior. Data shown in Table 3 confirms this hypothesis, with the only exception of the lowest rationality in which agents ask just one question. It seems that by increasing rationality both profit loss and neutralization time decrease because agents access more knowledge: they re-build previous profitability sooner and with lower losses. The second hypothesis (H1b) suggests that, in facing with damages due to an environmental shock, agents’ dishonesty is relatively less disadvantageous than in the case of not trust at all –that is, no information circulation at all. This hypothesis should be rejected (Table 3), because, even though by increasing rationality losses decrease, losses due to dishonesty are systematically superior to those occurring with honest agents. Apparently, the unreliability of information is more disruptive
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
than knowledge redundancy. Even though over time agents learn who lie, the damage of false informers produces serious damages, which cannot be compensated by the knowledge of suppliers.
wrong information, false informers, and bad suppliers. Hence, figures show that the occurrence of shock, the presence of opportunism, and high rationality are all independent causes of knowledge growth. Consequently, when they combine there is the maximum accumulation of knowledge. Accordingly to the hypothesis H2c, the more knowledge is created the lesser should be the profit loss just because of the advantages of knowledge redundancy. Table 3 confirms this hypothesis only for the period of the neutralization time, and therefore with reference to the shock effect. In all other cases the lack of precision and/ or the unreliability of information determine a negative effect on the total cumulated profit. Of course the more accumulated knowledge is mostly the external one (Figure 7a and b), even though choices are made mostly accordingly to direct experience, that is to internal knowledge (Figure 7c, d, e and f). Regardless of the degree of rationality and agents’ honesty, the types of choices are the same depending on the stable or shock regime: at the beginning agents follow informers’ indications, and hence external knowledge is more used. However, soon they experience directly the best suppliers, and thus, internal knowledge becomes the reference knowledge.
NT = neutralization time LOSS = profit loss (in absolute value and referred merely to the neutralization time) due to environmental shock The third hypothesis (H1c) argues that respect to a context of non-perturbed honest agents, the damage produced by an environmental shock is superior to that of an eventual dishonesty. This hypothesis should be rejected (Table 4), because the losses due to dishonesty are systematically superior to those of the shock. The hypothesis 2a states that at industry level an environmental shock determines the accumulation of more knowledge. This hypothesis is fully confirmed, because in every configuration the amount of knowledge sharply increases right after the shock (Figure 6). In particular, Figures 6a, b and c show that such an increase grows with the number of questions agents can ask: with just one question the gap is around the double, while with 16 questions it is about 7 times. The reason is that more knowledge is required to discover Table 3.
Effects of environmental shock 0
QUES honest dishonest Var. honest/dishonest
1
NT
LOSS
NT
15
10110
4 LOSS
NT
113
13725
115
6810
60
16463
67
16778
-46,90%
19,95%
-41,74%
146,37%
8
QUES
LOSS
16
NT
LOSS
NT
LOSS
honest
65
7253
61
5978
dishonest
77
14580
104
9690
18,46%
101,02%
70,49%
62,09%
Var. honest/dishonest
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Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Table 4. Cumulated profits 0
questions
1
regime
STA
SHO
LOSS
LOSS %
honest
6882
6801
81
1,18%
dishonest Var. honest-dishonest
4
STA
SHO
LOSS
LOSS %
STA
SHO
LOSS
LOSS %
7110
6874
236
3,32%
7220
7033
187
2,59%
6831
6490
341
4,99%
6732
6272
460
6,83%
-3,93%
-5,60%
44,47%
-6,76%
-10,82%
145,99%
8
questions
16
regime
STA
SHO
LOSS
LOSS %
honest
7198
7006
192
2,67%
7248
7055
192
2,65%
dishonest
6620
6117
503
7,59%
6387
5853
534
8,37%
-8,03%
-12,69%
161,91%
-11,88%
-17,05%
177,69%
Var. honest-dishonest
Figure 6.
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STA
SHO
LOSS
LOSS %
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
External knowledge is recalled again right after the shock, because agents understand that their memory does not give good indications any more. But then it is replicated the same situation as at the beginning, with internal knowledge rapidly and constantly replacing external knowledge as the source of choices. The difference between a context of opportunism and a context of honest agents is that in presence of false information the process of replacement of choices based on indirect experience with those based in direct experience is longer, especially at the beginning. The hypothesis 3a suggests that when more questions are asked to competitors, then knowledge efficiency declines. This hypothesis is perfectly confirmed, because total cumulated profit per knowledge unit declines from 11 to 2.2 while giving agents the possibility to ask no questions at all up to 16 questions (Figure 8). Conversely, the hypotheses 3b and 3c should be rejected because, excepted for the case of just one available
question, the configurations in which there is a shock and/or agents are dishonest score systematically lower knowledge efficiency. Apparently, the lack of precision and reliability of external knowledge prevail on the advantages of having more information. Hence, more and more knowledge is employed to discover false informers and bad suppliers, as it is shown by Figures 10a and b. However, these figures suggest also that, despite the large increase in the amount of informers and suppliers that are known with the additional questions and that are solicited by the environmental shock and informers’ falsity, the amount of knowledge employed to know them is less then proportional respect to its increment. In other words, external knowledge is employed efficiently in terms of the exploration of the information and the decision space. The last group of hypotheses concerns the supposedly different reaction of industry segments to environmental shock. This supposition is fully
Figure 7.
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Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Figure 8.
Figure 9.
confirmed, as it can be seen with the Tables 6-8 in the Appendix and the two following figures. They show that FTs perform systematically worst than FPs, regardless of opportunistic or correct behaviours. The only difference is that with dis-
2542
honest agents the impact of shock is so hard that FTs record even mean negative profits in absolute values. The hypothesis H4b suggests that FTs accumulate more knowledge than FPs, because they
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Figure 10.
have to face with a larger information space. The results (Figures 10a and 8, and Table 5) are not clear, and should be distinguished between honest and dishonest agents, and the steps before and after the shock. With dishonest agents and before the shock FTs employ a lower amount of knowledge respect to FPs, but after the break the relationship reverses. The final hypothesis (H4c) states that, thank to knowledge redundancy, FTs can answer to the environmental shock better than FPs. The data of Table 4 indicates that this is true only for the context with honest agents, because knowledge efficiency in terms of profits per knowledge units is higher. However, with dishonest agents there is the opposite result, and thus, the test of this hypothesis is not conclusive.
FUTURE RESEARCH DIRECTIONS All these results do not contrast with current literature, but indeed they are hardly comparable, because the other studies do not consider the
knowledge as a slack resource, and do not suppose any form of opportunism by cheating. And unfortunately this lack of researches concerns both theoretical and empirical studies, as well as simulation models. This work can be developed in a number of ways by removing its current limitations. Some of them are relatively easy and some more complex to do. Among the former there is the re-configuration of the virtual experiments, because results are sensitive to the length of simulation runs. Since in most experiments industry performance stabilizes far sooner than the 200th step and a stable regime is re-built far sooner than the 400th step, the effects of the environmental shock are not so marked. The best configuration would be that in which the shock is introduced right after the achievement of the stable regime and the simulation is stopped right after its re-establishment. Moreover, the effects would be much more emphasized if the firms hit by the environmental shock failed and exited out the industry. This way the unsuccessful suppliers could not be
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Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Table 5. Comparison FP-FT in terms of TP, K, and TP/K Honest 1
4
16
FP
FT
FP
FT
FP
FT
mean TP
9648
7500
9829
7753
8713
7685
mean K
2400
1400
5355
2191
5741
3723
TP/K
4.02
5.36
1.84
3.54
1.52
2.06
Dishonest mean TP
9276
6952
8973
6708
8713
5919
mean K
1736
2033
4686
3586
12561
13108
TP/K
5.34
3.42
1.91
1.87
0.69
0.45
chosen again by the clients. Other relatively easy improvements concern the introduction of information and overhead costs, and of initial capital assets. Further, in order to study whether external knowledge redundancy impact differently among different agents, they could be distinguished in groups of honest and dishonest or small vs. large firms. Finally, it could be very interesting to test these same hypotheses with reference to internal knowledge redundancy and to compare the corresponding results with the present ones. The limitations inherent to the inner structure of the CIOPS model concern its major assumptions: i) agents are all equal in terms of size, cognitive capacity and boundaries, selection devices (decision making patterns and processes); ii) their cheating attitude is invariant; iii) the sole form of product differentiation is between industry segments, that is between raw materials, intermediate goods, and final products; and finally iv) there is no firms’ turn over, and therefore failed or inadequately profitable firms do not exit and new ones do not entry. It is indeed impossible to outline the implications of these assumptions for the possibility to generalize the results here discussed, because complex phenomena hide quite surprising outcomes, which hardly could be intuited without running specific virtual experiments as those realized in
2544
this work. At the best, just some conjectures could be raised and offered for future tests. Bearing this warning in mind, here we attempt to draw some of them, at least trying to figure out the direction to which each of these assumptions points out. The invariance of agents’ behavior in terms of cheating attitude could help them being very efficient in selecting suppliers, because otherwise their strategies would be subjected to much more uncertainty. Likely, this could keep industry profitability higher than what we found in these experiments. The same holds for the fact that the only form of product differentiation is that between segments, because this simplifies suppliers’ selection. On the opposite direction plays the absence of firms’ turn over and evolutionary mechanisms, because the permanence of unprofitable firms depresses industry profitability. However, without making the appropriate experiments it is impossible to confirm these conjectures and neither to say whether these effects compensate each other or how they could combine in some unexpected way. Moreover, removing the assumption of agents’ uniformity and introducing a retaliation strategy and a more sophisticated learning process than the one implemented here would likely undermine the stability of dynamic patterns and hinder the achievement of high average profits.
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
The list of minor assumptions is much longer than that of the major ones, and so we mention just a few of them: i) the technology is only sequential, and so we don’t know what could happen whether segments were connected through parallel or reciprocal interdependencies; ii) opportunism is meant only in terms of cheating and not in terms of betraying previous (formal or informal) agreements; iii) information is costless; iv) there are no stocks and no fixed capital goods; v) agents ask only their competitors and not also suppliers or customers; vi) there are no inter-firm alliances; vi) there is no pure gossip, that is (individual) de-responsible information, else than (collective) reputation; vii) agents lie only in relation to information content (true or false, the worst for the best advice) and not to its nature (existing for nonexisting) or type (direct for indirect experience or reputation). As evident, it is definitely impossible to draw any kind of conjecture about the possible effects of removing these assumptions. The only way is to methodically run the appropriate virtual experiments, and actually this is the strength and incomparable value of the simulation model methodology, because it would be as well impossible to find enough and clear and methodologically comparable case studies able to understand and isolate the effects of each assumption. The same problem concerns parameters’ setting, because it is well known that a property of complex systems is being sensitive to its (even small) variations. For instance, what could happen whether the reputation threshold or the informers’ reliability threshold would change? And what about variations in the aspiration levels, that here have been fixed at 0.75%, or in the forgetfulness time or mix? Here something more precise can be said just concerning the ratio 1/2 between FPs and FTs, and the one-to-one relationship between each pair of supplier-buyer, just because recently CIOPS model was developed in that direction. Biggiero (2010) found that, by varying the ratio of transactions between the suppliers and the buyers –which actually is the key parameter for
measuring the competitive balance between the agents of the two segments-, the increase of the number of subcontractors activated by each client impacts very differently on FPs and FTs. The former gain a lot, while the latter lose considerably both in terms of profitability and number of firms. On the contrary, accessing more others’ experience by means of asking more informers helps more FTs than FPs. However, in both cases the marginal benefit decreases, and the net effects at industry level strictly depends on the combination of the two factors. Moreover, uncertainty and instability sharply grow because of the consequent higher competitive pressure among a small number of clients respect to that of suppliers.
CONCLUSION This paper shows that if purchasing quality were a key factor of industry competitiveness, an event that radically changed the distribution of quality among suppliers would significantly hit profitability, and its damage would be much heavier if agents were opportunist. On the other hand, if honest agents exchanged each other much more information about their own previous experience, profit losses would be more limited and the conditions preceding the shock would be sooner re-established. However, if agents were fully dishonest the exchange of false information would not help at all to compensate the uncertainty generated by the environmental shock. The virtual experiments also demonstrated that in presence of uncertainty due to either environmental shock and agents’ opportunism, agents require more information. Further, the more information they can exchange, the more knowledge is accumulated. Thus, under these respects the two forms of uncertainty do not differ. They do, instead, in another aspect: knowledge redundancy is (at least partially) able to limit the damages of environmental perturbations, while it is not effective in facing with opportunism.
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Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Therefore, this characteristic is more dangerous for industry profitability, and ultimately for industry competitiveness. Another interesting finding is that knowledge efficiency declines with redundancy, but less than proportionally to the increase of information exchange. Moreover, first tiers perform systematically worst than final producers, regardless of opportunistic or correct behaviours. They require different amounts of knowledge either before or after the environmental shock.
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ENDNOTES 1
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Von Krogh, G., Roos, J., & Kline, D. (Eds.). (1998). Knowing in firms: understanding, managing and measuring knowledge. London: Sage. Weick, K. E. (1995). Sensemaking in organizations. London: Sage. Williamson, O. E. (1974). The economics of discretionary behaviour. Managerial objectives in a theory of the firm. London: Kershaw Publ. Comp. Williamson, O. E. (1975). Markets and hierarchy: analysis and antitrust implications. New York: The Free Press. Williamson, O. E. (1981). The Economics of Organization: The Transaction Costs Approach. American Journal of Sociology, 87, 548–577. doi:10.1086/227496 Williamson, O. E. (1985). The economic institutions of capitalism. New York: The Free Press. Williamson, O. E. (1994). Transaction cost economics and organization theory. In Smelser, N. J., & Swedberg, R. (Eds.), The handbook of economic sociology (pp. 77–107). Princeton, NJ: Princeton UP. Williamson, O. E. (1996). The Mechanisms of Governance. New York: Oxford UP. Womack, J. P., Jones, D. T., & Roos, D. (1990). The machine that changed the world: the triumph of lean production. New York: Macmillan. Yolles, M. (2006). Organizations as Complex Systems. An Introduction to Knowledge Cybernetics. Greenwich, CT: IAP.
2550
Indeed, likely they would need not just 80 steps as the number of suppliers, because sometimes it will happen that the contacted supplier were already engaged with another client, and thus, be unavailable. Let’s note that agents’ levels of aspiration for purchases quality is set up at 0.75 and that suppliers’ quality is randomly uniformly distributed between 0.5 and 1 (see next two sections). Actually, they also don’t know how quality is distributed among suppliers and neither if quality keeps constant. For different scientific purposes the former condition is made varying in Biggiero and Sevi (2009), while the latter in Biggiero (2010). Of course, the RND DMP concerns only the RND decision making process. The program running the model will be available on the URL of Knownetlab Research Center (www.knownetlab.it). To run the program is needed the platform and language LSD (Laboratory on Simulation Development), placed at www.business.auc.dk/lsd. The maximum average profit is 0.88, which is he middle value between 0.75 and 100%. It depends on the distribution of suppliers quality between 0.5 and 100%, on agents’ aspiration level of 0.75 and on the ratio between the number of clients and suppliers, which is 1 to 2. For more details, see Biggiero and Sevi (2009).
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
APPENDIX Table 6. Reactions At Industry Level Honest agents Questions Regime
0 STA
SHO
1 Var.
STA
SHO
4 Var.
STA
SHO
8 Var.
STA
SHO
16 Var.
STA
SHO
Var.
AQ
0,87
0,86
-1,1%
0,87
0,87
0,0%
0,87
0,87
0,0%
0,87
0,87
0,0%
0,88
0,87
-1,1%
TP
17,2
17,0
-1,2%
17,7
17,2
-2,8%
18,0
17,6
-2,2%
18,0
17,5
-2,8%
18,1
17,6
-2,8%
Choice
32,0
32,0
0,0%
32,0
32,0
0,0%
32,0
32,0
0,0%
32,0
32,0
0,0%
32,0
32,0
0,0%
RND
2,4
2,5
4,2%
1,2
1,5
25,0%
0,5
0,7
40,0%
0,5
0,7
40,0%
0,4
0,5
25,0%
Debt
29,6
29,5
-0,3%
29,9
28,8
-3,7%
29,9
28,7
-4,0%
29,8
28,6
-4,0%
30,0
28,7
-4,3%
0,9
1,7
88,9%
1,6
2,6
62,5%
1,7
2,7
58,8%
1,6
2,8
75,0%
Know
1,5
1,7
13,3%
2,7
3,8
40,7%
6,1
7,5
23,0%
9,0
8,9
-1,1%
7,2
9,5
31,9%
Debt
1,5
1,7
13,3%
1,6
2,1
31,3%
1,9
2,5
31,6%
2,0
2,9
45,0%
1,8
2,9
61,1%
1,1
1,7
54,5%
4,2
5,0
19,0%
7,0
6,0
-14,3%
5,4
6,6
22,2%
11,5
10,0
-12,8%
6,6
4,5
-31,0%
3,0
2,3
-20,5%
2,0
2,0
-1,7%
2,5
1,9
-26,3%
0,5
0,6
20,0%
0,9
1,2
33,3%
1,9
2,5
31,6%
Indebt
Indebt TP/K Informers Suppliers
1,4 1,5
1,7
13,3%
1,9
K/Informers K/Suppliers
2,4
26,3%
2,7 1,0
1,0
0,0%
1,4
1,6
11,4%
2,5
3,0
20,0%
3,2
3,8
18,8%
3,4
4,2
23,5%
12,2
12,5
2,5%
10,0
11,2
12,0%
3,8
10,6
178,5%
2,4
2,5
2,5%
2,8
4,0
42,2%
2,1
4,3
103,9%
Dishonest agents Questions Regime
1
4
8
16
STA
SHO
Var.
STA
SHO
Var.
STA
SHO
Var.
STA
SHO
Var.
AQ
0,87
0,86
-1,1%
0,86
0,85
-1,2%
0,86
0,85
-1,2%
0,85
0,84
-1,2%
TP
17,1
16,2
-5,3%
16,8
15,7
-6,5%
16,5
15,3
-7,3%
16,0
14,6
-8,8%
Choice
32,0
32,0
0,0%
32,0
32,0
0,0%
32,0
32,0
0,0%
32,0
32,0
0,0%
RND
1,9
2,0
5,3%
1,2
1,2
0,0%
1,0
0,9
-10,0%
0,7
0,7
0,0%
Debt
29,3
28,8
-1,7%
29,2
28,1
-3,8%
28,3
27,2
-3,9%
27,5
26,4
-4,0%
Indebt
0,8
1,2
50,0%
1,6
2,7
68,8%
2,7
3,9
44,4%
3,8
4,9
28,9%
Know
3,1
3,8
22,6%
6,5
8,3
27,7%
11,9
14,6
22,7%
24,3
25,7
5,8%
Debt
1,9
2,1
10,5%
2,3
2,8
21,7%
3,1
3,6
16,1%
3,9
4,5
15,4%
Indebt
1,2
1,7
41,7%
4,2
5,5
31,0%
8,8
10,9
23,9%
18,5
21,2
14,6%
TP/K
5,5
4,3
-22,7%
2,6
1,9
-26,8%
1,4
1,0
-24,4%
0,7
0,6
-13,7%
Informers
0,6
0,8
33,3%
1,5
1,8
20,0%
2,5
2,9
16,0%
3,9
4,3
10,3%
Suppliers
2,0
2,6
30,0%
2,5
3,0
20,0%
3,5
4,0
14,3%
4,4
4,9
11,4%
K/Informers
5,2
4,8
-8,1%
4,3
4,6
6,4%
4,8
5,0
5,8%
6,2
6,0
-4,1%
K/Suppliers
1,6
1,5
-5,7%
2,6
2,8
6,4%
3,4
3,7
7,4%
5,5
5,2
-5,0%
2551
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Table 7. Reactions of Final Producers Honest agents Questions Regime AQ
0 STA 0,87
1
4
8
SHO
Var.
STA
SHO
Var.
STA
SHO
Var.
0,87
0,0%
0,87
0,87
0,0%
0,87
0,87
0,2%
16
STA
SHO
Var.
0,87
0,87
0,0%
STA
SHO
Var.
0,88
0,87
-1,1%
TP
9,7
9,6
-1,0%
9,9
9,7
-2,0%
10,0
9,8
-2,0%
10,0
9,8
-2,0%
10,1
9,9
-2,0%
Choice
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
RND
1,1
1,2
9,1%
0,5
0,5
0,0%
0,2
0,4
0,2
0,4
0,2
0,3
50,0%
Debt
14,9
14,8
-0,7%
Indebt
100,0%
100,0%
14,7
14,2
-3,4%
14,4
14,0
-2,8%
14,4
14,1
-2,1%
14,4
14,2
-1,4%
0,8
1,3
62,5%
1,4
1,6
14,3%
1,4
1,5
7,1%
1,4
1,5
7,1%
Know
0,7
0,7
0,0%
1,7
2,4
41,2%
5,0
5,3
6,0%
5,4
5,8
7,4%
5,1
5,7
11,8%
Debt
0,7
0,7
0,0%
1,0
1,2
20,0%
1,4
1,6
14,3%
1,5
1,8
20,0%
1,4
1,7
21,4%
0,7
1,2
71,4%
3,6
3,7
2,8%
3,9
4,0
2,6%
3,7
4,0
8,1%
4,0
-30,6%
Indebt TP/K
13,9
13,7
-1,0%
5,8
Informers Suppliers
0,7
0,7
0,0%
1,1
1,3
1,0
1,0
0,0%
0,9
0,9
K/Informers K/Suppliers
2,0
1,8
-7,5%
1,9
1,7
-8,8%
2,0
1,7
-12,3%
0,2
0,2
0,0%
0,3
0,4
33,3%
0,6
0,7
16,7%
18,2%
1,7
1,8
5,9%
2,0
2,0
0,0%
2,0
2,0
0,0%
7,0
8,0
14,3%
5,0
4,5
-10,0%
2,3
2,4
4,1%
1,5%
0,8
0,9
7,9%
0,8
0,9
20,0%
0,7
0,9
21,4%
0,1 17,1
Dishonest agents Questions Regime
1
4
8
16
STA
SHO
Var.
STA
SHO
Var.
STA
SHO
Var.
STA
SHO
Var.
AQ
0,87
0,86
-1,1%
0,86
0,85
-1,2%
0,86
0,85
-1,2%
0,86
0,85
-1,2%
TP
9,6
9,3
-3,1%
9,4
9,0
-4,3%
9,2
8,8
-4,3%
9,1
8,7
-4,4%
Choice
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
RND
0,9
0,9
0,0%
0,4
0,4
0,0%
0,5
0,4
-20,0%
0,4
0,4
0,0%
Debt
14,7
14,6
-0,7%
14,5
14,3
-1,4%
14,1
13,9
-1,4%
13,7
13,7
0,0%
Indebt
0,4
0,5
25,0%
1,1
1,3
18,2%
1,4
1,7
21,4%
1,9
1,9
0,0%
Know
1,5
1,7
13,3%
4,2
4,7
11,9%
6,9
7,6
10,1%
12,5
12,5
0,0%
Debt
0,9
0,9
0,0%
1,3
1,4
7,7%
1,6
1,7
6,2%
2,0
2,0
0,0%
Indebt
0,6
0,8
33,3%
2,9
3,3
13,8%
5,3
5,9
11,3%
10,1
10,5
4,0%
TP/K
6,4
5,5
-14,5%
2,2
1,9
-14,4%
1,3
1,2
-13,2%
0,7
0,7
-4,4%
Informers
0,3
0,3
0,0%
0,8
0,9
12,5%
1,1
1,2
9,1%
1,5
1,5
0,0%
Suppliers
0,9
1,0
11,1%
1,3
1,4
7,7%
1,7
1,8
5,9%
2,1
2,1
0,0%
K/Informers
3,0
3,0
0,0%
1,6
1,6
-4,3%
1,5
1,4
-2,6%
1,3
1,3
0,0%
K/Suppliers
1,0
0,9
-10,0%
1,0
1,0
0,0%
0,9
0,9
0,3%
1,0
1,0
0,0%
2552
Knowledge Redundancy, Environmental Shocks, and Agents’ Opportunism
Table 8. Reactions of First Tiers Honest agents Questions Regime AQ
0
1
4
STA
SHO
Var.
STA
SHO
Var.
0,86
0,86
0,0%
0,87
0,87
0,0%
8
STA
SHO
Var.
0,87
0,87
0,0%
16
STA
SHO
Var.
0,87
0,87
0,0%
STA
SHO
Var.
0,88
0,87
-1,1%
TP
7,5
7,4
-1,3%
7,9
7,5
-5,1%
8,0
7,6
-5,0%
8,0
7,7
-3,8%
8,0
7,7
-3,8%
Choice
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
RND
1,3
1,7
30,8%
0,7
0,9
28,6%
0,3
0,3
0,0%
0,3
0,3
0,0%
0,2
0,2
0,0%
Debt
14,7
14,3
-2,7%
15,1
14,7
-2,6%
15,5
14,7
-5,2%
15,4
14,5
-5,8%
15,5
14,5
-6,5%
0,2
0,4
100,0%
0,2
1,0
400,0%
0,3
1,2
300,0%
0,3
1,3
333,3%
Indebt Know
0,8
1,0
25,0%
1,0
1,4
40,0%
1,0
2,2
120,0%
1,6
3,1
93,8%
2,1
3,7
76,2%
Debt
0,8
1,0
25,0%
0,7
0,9
28,6%
0,4
0,9
125,0%
0,5
1,2
140,0%
0,4
1,2
200,0%
0,3
1,5
400,0%
0,6
1,3
116,7%
1,1
1,9
72,7%
1,7
2,5
47,1%
-32,2%
Indebt TP/K
9,4
7,4
-21,1%
Informers Suppliers
7,9
5,4
0,0
0,1 1,0
0,8
1,0
25,0%
0,8
1,0
1,0
0,0%
0,9
K/Informers K/Suppliers
8,0
3,5
-56,8%
5,0
2,5
-50,3%
3,8
2,1
-45,4%
0,3
0,4
33,3%
0,6
0,8
33,3%
1,3
1,5
15,4%
25,0%
0,8
1,3
62,5%
1,2
1,7
41,7%
1,5
2,1
40,0%
1,3
2,3
68,8%
0,8
1,5
80,0%
0,3
0,8
160,0%
2,9%
0,5
0,7
38,5%
0,4
0,7
69,4%
0,3
0,6
114,3%
12,9 0,9
Dishonest agents Questions Regime
1
4
STA
SHO
Var.
STA
SHO
8 Var.
STA
SHO
16 Var.
STA
SHO
Var.
AQ
0,86
0,85
-1,2%
0,86
0,85
-1,2%
0,87
0,84
-3,4%
0,85
0,83
-2,4%
TP
7,5
6,9
-8,0%
7,5
6,7
-10,7%
7,3
6,5
-11,0%
6,8
5,9
-13,2%
Choice
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
16,0
16,0
0,0%
RND
1,0
1,1
10,0%
0,8
0,7
-12,5%
0,5
0,4
-20,0%
0,3
0,2
-33,3%
Debt
14,6
14,2
-2,7%
14,6
13,9
-4,8%
14,3
13,4
-6,3%
13,7
12,9
-5,8%
Indebt
0,4
0,7
75,0%
0,6
1,4
133,3%
1,2
2,2
83,3%
2,0
2,9
45,0%
Know
1,6
2,0
25,0%
2,3
3,6
56,5%
5,6
7,0
25,0%
11,8
13,1
11,0%
Debt
1,0
1,2
20,0%
1,0
1,4
40,0%
1,4
1,9
35,7%
1,9
2,4
26,3%
Indebt
0,6
1,8
200,0%
1,3
2,2
69,2%
3,6
5,1
41,7%
8,4
10,7
27,4%
TP/K
4,7
3,5
-26,4%
3,3
1,9
-42,9%
1,3
0,9
-28,8%
0,6
0,5
-21,8%
Informers
0,3
0,4
33,3%
0,7
1,0
42,9%
1,4
1,7
21,4%
2,7
2,4
-11,1%
Suppliers
1,1
1,3
18,2%
1,2
1,6
33,3%
1,8
2,1
16,7%
2,7
2,4
-11,1%
K/Informers
3,3
3,0
-10,0%
1,4
1,4
-2,0%
1,0
1,1
11,8%
0,7
1,0
42,1%
K/Suppliers
0,9
0,9
1,5%
0,8
0,9
5,0%
0,8
0,9
16,3%
0,7
1,0
42,1%
This work was previously published in Knowledge-Based Intelligent System Advancements: Systemic and Cybernetic Approaches, edited by Jerzy Jozefczyk and Donat Orski, pp. 252-282, copyright 2011 by Information Science Reference (an imprint of IGI Global).
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Chapter 8.19
Embracing Guanxi: The Literature Review Jilong Zhang RMIT University, Australia Nattavud Pimpa RMIT University, Australia
ABSTRACT
INTRODUCTION
Guanxi is deeply ingrained in Chinese society and business etiquette; therefore, it is critical to understand and appreciate it to gain a commercial foothold in China. This paper explores the fundamental differences between Chinese and Western approaches to business dealings, to identify the factors that make it difficult for Western managerial practises to adopt guanxi. The authors identify the differences in the perception of trust in both societies and how this ultimately leads to clashes in cultures. However, there is also a need for Western practices to be more flexible and appreciate guanxi and its implications if multinational corporations are to succeed in China. The paper concludes by suggesting a possibility for both approaches to co-operate well, given the relative success of each approach in their respective cultures.
Since 1978, China’s progress in economic reform has been one of the great economic success stories of the post-war era. China has become the world’s seventh largest economy and second largest recipient of foreign direct investment (OECD, 2008). China’s performance is all the more remarkable in that its reforms have been gradual and its development has occurred despite extensive, though declining, state ownership and intervention in the economy. The accession of China to the World Trade Organisation (WTO) marks an important milestone along the reform path. China has been liberalising its international trade and investment policies since the mid-1980s and is now as open as some present WTO members. Although China stands to gain significantly from the opening of its export markets under the terms of its accession, the depth and breadth of its commitments to liberalise access to its domestic
DOI: 10.4018/978-1-60960-587-2.ch819
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Embracing Guanxi
economy are acknowledged to be more extensive than those agreed to by previous adherents to the WTO. This willingness reflects the fact that opening to international markets promotes market discipline, access to technology, and other qualities that have been important goals of domestic economic reforms. In this respect, WTO entry is a complementary aspect of the next phase of China’s reforms. Globalisation has led to opportunities for corporations to expand their businesses across borders and extend their reach into new markets. This makes understanding culture and its implications on business in the international arena vital for success. China is fast becoming a world superpower, but this new land of opportunity is only open to those who fully appreciate the complexities of business culture of the country. In pursuit of deeper understanding of what are the underlying cultural differences between Chinese and Western managerial approaches, this literature review attempts to explore the concept of “Guanxi,” its origins, links to the Chinese societal system and criticisms on its implications on business practises – especially in regards to interactions between Chinese and Western firms. The literature attempts to identify the factors that may make it difficult to integrate ‘guanxi’ into Western managerial practise and in doing so investigates the differences in grassroots culture and business culture between Chinese and Western societies.
FOUNDATIONS OF GUANXI: THE LITERATURE REVIEW While it is emphasised in the Western concept on “what you know,” refers to technological expertise, including the price and quality of tendered product or service, it is emphasized in Confucian societies on “who you know,” which refers to personal connections with the appropriate authorities or individuals. These connections are known in Chinese as guanxi, which is believed to be a
striking feature that helps to enter a profitable and growing Chinese market. Thus, the issues of what indeed guanxi is and how it works in effect thus have become focal discussions Guanxi literally means relation or relationships, ties or connections – and this already establishes the foundation on which to understand the Chinese approach to social network building and ultimately – business relationships. According to Pablos (2006) the origin of guanxi relates to the Confucianism heritage of Asian countries and Chinese communities in non-Asian countries. According to it, five major relationships dictate all relationships: Emperor–subject, father-son, husband-wife, elder-younger brothers and senior friend- junior friend. To ensure social harmony, order and stability, appropriate behaviours are needed. Lee et al. (2006) states that “With a history of more than 2500 years, Confucianism has exerted a fundamental influence on the Chinese and East Asian modes of thinking and way of behaving.” Thus, by definition, ‘Guanxi’ embodies this influence, and so it is not surprising that “Guanxi is deeply embedded in the mindset of Chinese and is in every aspect of their personal and organisational interactions” (Park & Luo, 2001). The basis of these relationships also confirms Asian countries such as China, Japan, Korea, Taiwan and Singapore as relatively high power distance countries. Guanxi is a good example of the development of cultural and economic dimensions. The context of cultural power includes intellectual factors (such as technology, education, etc.); spiritual factors (such as ideal, belief, ethic, value, etc.) and the social-cultural network affect our daily life along in addition to the power of traditional culture (Gia, 1998). Economics and culture are not developing as two parallel lines. They interact and affect each other reciprocally. Based upon the economic development collaboration, productivity increase, and social progress, the power of various cultures integrates and externalizes with the need of overall development from the power
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of culture subjectively constructed in the process of cultural value and civilization creation, which pushes, guides, condenses, and inspires the economic development (Gia, 1998) According to Hofstede’s (2001), one dimension of culture is power distance – which distinguishes the level of inequality in social and work hierarchies that is tolerated by the people – and their respect of the rights of power and authority of those high social hierarchical standings. Leung and Wong (2001) state that the “social hierarchical theory (that is guanxi’s five relationships) has prompted almost all Chinese rulers to adopt Confucianism as a strategic tool to achieve social stability in the vast Chinese continent.” Already there is theory of culture in international management that supports the concept of ‘guanxi,’ which emphasises the importance of understanding this concept.
GUANXI AND CONFUCIANISM Guanxi interaction has been viewed by many scholars as an idiosyncratic cultural phenomenon (Lee & Wong, 2001) where Confucianism is the major life philosophy. In China, guanxi has been a way of life since time immemorial, thus the personal investment required to develop and maintain good social relations is accepted as an unavoidable fact of life. For each specific relationship, people in China “make out” through interpersonal accommodation and negotiation (Lee & Wong, 2001). With respect to social context, Chinese culture provides a tightly knitted social framework in which individuals are protective of one another and organizations safeguard their members’ interests. It projects a preference for cooperation, group decision-making, and relationships. Thus, the importance of networks lies in their emphasis on collectivism and group harmony. Social status is determined largely by guanxi system to which one belongs – a determination often preordained by the composite membership of one’s extended
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family. The Chinese strive to keep relationships among guanxi members stable and harmonious since guanxi is the basis on which they exchange a lifetime of favors, resources, and business leverage (Pearce & Robinson, 2000). Social norms, though somewhat are different around the world, mostly are attached to the social status, which is the position where people stand in a social system. And the regulation integrated for a certain status is the “role” (Hui & Graen, 1997). For someone who takes the proper role and plays it accordingly receives high praise for being qualified for his social status. Wu-lune, the basic norms of guanxi, is the main thought of the ideal type of manhood and patriarchy and filial piety and the spirit of trust and justice in regulating different levels of guanxi and setting them in hierarchical order with priorities in Chinese societies. It consists of five levels: the monarch (and his subjects), the father and his son, brothers, friends, and the husband and his wife In this guanxi system, while the three basic guanxi of the father and his son, brothers, and the husband and his wife are inside of the family, the political guanxi of monarch and his subjects is up-pushed to the national level, and guanxi of friends contains the rest of those who are outside of the families. From the perspective of Chinese societal progress, the “family – nation – world” is the structure from inside out where the family ethic is the basis of Confucius’ human relations, where each one ought to be committed, responsible, and content to his given role. As long as every member in the group follows the rules, the whole society stays in harmony. As time goes by, the Confucius followers elaborate and report Confucius’ doctrine to the societies in accordance with the trend of the times. Thus, there is bifurcation of Confucianism, such as neo-Confucianism and others, which states the difference in the implementation of it; nevertheless the core thoughts basically stay in common. Guanxi is characterized into categories in accordance with its bases (Hui & Graen, 1997). However, no matter, how guanxi is classified and
Embracing Guanxi
implemented theoretically, in practice there are certain rules for each role played among parties in accordance with Wu-lune. And rules are often borrowed when guanxi cannot be clearly defined. For example, a business relationship built between strangers is seen as most distant unless credentials and a mutual sense of identities are established in terms of insiders, such as the “Zijiaren”, then the guanxi can be upgraded and seen either as brothers or friends, and the non-written rules, “Hsin” for brothers or “Yi” for friends is borrowed from Wulune as metaphors, with which people involved in business follow along without suspicions. In markets, people see one invisible hand – price, while in China, another hand – guanxi, is seen as a potential solution for most problems of entering and operating in China. While guanxi plays the role as the “protocol,” setting the rules governing the communication and the transfer of affection between individuals in Chinese societies, the teaching of Confucianism deeply rooted in effect constructs the norms of guanxi for its establishment and maintenance. Although in this paper we limit our discussion within the phase of guanxi and business, we can still see guanxi networks knitted across, reach out broadly, and wide spread into every corner of Chinese society, which has essential influence in multi and inter dimensions. With respect to social context, Chinese culture provides a tightly knitted social framework in which individuals are protective of one another and organizations safeguard their members’ interests. It projects a preference for cooperation, group decision-making, and relationships. Thus, the importance of networks lies in their emphasis on collectivism and group harmony. Social status is determined largely by guanxi system to which one belongs – a determination often preordained by the composite membership of one’s extended family. The Chinese strive to keep relationships among guanxi members stable and harmonious since guanxi is the basis on which they exchange a lifetime of favours, resources, and business leverage (Pearce & Robinson, 2000).
GUANXI: THE WESTERN AND CHINESE PERCEPTIONS OF ESTABLISHING ‘TRUST’ One aspect of guanxi is “xinyong” which directly translates to ‘credit’ but which is equivalent to what Western cultures know as trust. Although they are similar in definition, the difference in concepts of trust is distinguishable between Eastern and Western cultures. “Trust, in Chinese business relationships, is more based on one’s credit of ability to return favours than relied on one’s integrity and competency, as in Western relationship context” (Wang, 2005). Wang (2005) also argues that members of a guanxi web are held together by an invisible and unwritten code of reciprocity and members are accountable by the ‘threat’ of losing face - which embodies an individual’s integrity, honour and personal equity. “The ‘theory of reasoned action’ assumes intention as a main predictor of behaviour; it suggests that behavioural intentions can drive individual behaviour and intentions could be determined by attitudes (general feelings) and subjective norms” (Fishbein & Ajzen, 1975). In support, Huang et al. (2008) propose that general feelings comprise of salient beliefs including a perceived possibility and judgement of consequences resulting from the behaviour” whereas subjective norms are “an individual’s perception about how people important to them judge the behaviour.” If the attitudes and subjective norms do not match up within the reasoned action theory, this would result in damaging ones own social functions and interactions within the whole network. This suggests that establishing personal relationships as a foundation for business activities is key in Chinese business culture. The difference is that Western companies focus on a ‘transactional strategy’ with the supplier organisations; Western business relationships are short term and contracted based. “Once a contract is performed, no further obligations will apply between the buyer and the supplier” (Lee et al., 2006). It can be seen that according to the different
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approaches and cultural norms between Eastern and Western cultures, trust is also perceived and treated differently. “Xinyong” often relies on one’s oral commitment and ability to fulfil his/her promise and obligation; in certain ways differ from Western concepts of credibility, which largely rely on written agreements and legal contracts (Wang, 2005). Wang (2005) states the difference with the Western system is its reliance and trust placed on the system rather than the individual. In contrast to this idea of individualism and focus on the individual- as proposed by Wang (2005), Farh et al. (1998) argues that with business relationships, a “West-based independent self” is created that differs from an “interdependent self” as with Chinese-oriented social relations. Farh et al. (1998) states that “social relations are accorded great significance, and relationships are often seen as ends in themselves rather than means for realizing individual goals.” In support, “this interdependent self would be associated with Hofstede’s (2001) construct of collectivistic identity (Song & Werbel, 2007).” In contrast to Chinese culture, according to Michailova and Worm (2003), personal networking in the west is based primarily on individualism. Edward T. Hall’s research into cultural contexts and the theories of “context-space-time” allow the categorisation of counties based on their behaviours and preferences. Characteristics of highcontext cultures include long lasting relationships and the preference of agreements between persons being spoken rather than written. Thus, a connection can be drawn between these characteristics and the Chinese concept of ‘xinyong (trust and credibility)’ and ‘guanxi.’ Western companies contemplating entering the Chinese market must make it a top priority to understand “guanxi” and exercise the concept to maintain relationships with their business partners. According to Styles and Amber (2003), China is a “relational society” and the low-trust nature of this society, “relationship orientation is only applied to insiders of “guanxi” network but not to outsiders of networks such as
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a foreign firm.” Again this differs from a Western perspective, where most Western countries are high-trust cultures “in which people can trust each other even though they do not have blood relations (Fukuyama, 1995).” Thus because of a general distrust of outsiders in Chinese culture, it cannot be automatically assumed that the Chinese will enter into business freely. “To develop Guanxi is to form the basis for a gradual transition from outsider to an insider so that a long-term relationship can be built” (Haley, Tan, & Haley, 1998). Lee et al. (2006) supports this notion by suggesting that the development of an effective guanxi network has an important role in helping to gain a commercial foothold. Foreign investors most often establish business linkages through a joint venture or wholly owned subsidiary. Under either option, they must be able to gain access to the appropriate guanxi webs, through their Chinese partners, in order to facilitate quick acceptance of the investor. To oppose this however, Wong (2007) states that in the West, is it emphasis is put on “what you know,” referring to technological expertise, whereas in Confucian societies, emphasis is put on “who you know,” which refers to personal connections with the appropriate authorities and individuals.” This suggests to me that it is actually the Chinese society that is relatively trusting – because relationships are encouraged on the personal level – whereas in the West, contracts and legal papers are set in place to ‘protect’ intellectual property.
THE CLASH OF BUSINESS CULTURES Criticisms of both “guanxi’ and Western approaches are applicable when trying to find a link between how the concept of ‘trust’ is interpreted between cultures and how this can affect establishing business relationships. Yum (1988) suggests that due to the nature and dynamic of guanxi
Embracing Guanxi
relationships – ‘favours’ can be paid back in the long run with the expectation that the relationship will last into the unforeseeable future. This suggests that one does not simply pay back his/ her ‘debt,’ but could hold onto it until the right time when the other party needs it. By extension, Hwang (1987) suggests that because of this the degree of reciprocity in guanxi relationships cannot be objectively measured. In contrast, from a Western perspective, the advantage of a set agreement and the use of legal contracts would be that the terms of repayment and method of repayment (cash debts) are established – and are much easier to document and track. The reason why the concept of “guanxi” is so influential in business relationships in China is it provides an alternative dispute resolution mechanism – since formal legal systems and proper distribution channels are still at a relatively immature stage (Lee et al., 2006) – compared to the West. Wang (2005) states that the guiding principles of relational behaviour in guanxi are driven by morality and social norms; This is supported in the literature by Lee et al. (2006) who confirm that concepts such as guanxi have a major influence on both social and business norms.” The conflict would occur when there is a clash of belief systems and differences in what is perceived as social and business norms. “Thus, within the Chinese business context there is this ambiguity between elements of the long term business relationship and the short term transaction” (Lee et al., 2006). Western based business may be reluctant to do business whereby ‘debts’ are non-measurable and unpredictably outstanding – and Chinese based firms may find it hard to trust Western firms who do not appreciate the value of long term relationships which may imply their untrustworthiness. Thus, the interpretation of trust is one factor that may make it difficult for relationships to form. Also prominent is how ethical “guanxi” is perceived. The positioning of guanxi may be the factor that leads to the confusion and misinterpreta-
tion of the activities involved. “In the process of cultivating guanxi, gifts are normally used (Brunner et al., 1989).” “Gift giving and wine-and-dine are the means of establishing and maintaining guanxi, but the activities are not equivalent to corruption (Leung & Wong, 2001).” Leung and Wong (2001) elaborate by stating that “outright bribery may be good enough to get a business transaction done on a one-off basis, but it cannot produce interpersonal relationships” that are the foundation of healthy long-term relationships. It may be the ethnocentric nature of the West to only take this apparent corruption into account when labelling “guanxi” practices.
EMBRACING GUANXI: A SHIFT IN PERCEPTION From a buyer-supplier perspective - which may ultimately mirror the relationship between Chinese and Western business partners – relationships are categorised into two types; “adversarial competitive” and “collaborative relationship” (Humphreys et al., 2001). In support of this, the literature by Shapiro (1986) elaborates by arguing that the adversarial approach is dependent on three major activities, one being “the buyer assumes an arms’length posture and uses only short term contracts.” This method forgoes the need or implication of a long-term relationship because the buyer is wary of “not making direct use of the total resources of the supplier.” On the other hand, “Collaborative relationships require trust and commitment for long-term co-operation along with a willingness to share risks (Humphreys et al., 2001)” and this is emphasised by the need for “efficient communication at all levels, open information sharing and continuous inter and intra-improvements.” Many manufacturers now recognise that their ability to become world-class competitors is based to a great degree on their ability to establish high levels of trust and co-operation with suppliers (Humphreys et al., 2001).” Ohmae (1989) advocates that in
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a world of converging consumer tastes, rapidly spreading technology, escalating fixed costs and growing protectionism, more collaborative relationships with suppliers are crucial instruments for serving customers in a global environment. Instead of seeing it as an obstacle to the prosperity to be had in China, Lee et al. (2001) proposed that guanxi “has positive effects on organisational performance and offers good means of facilitating transactions by allowing access to limited resource and information, preferential treatment in business dealings and protection from external threats.” In other words, guanxi seems to have a strong positive effect on the collaborative relationship among buyer and suppliers. The benefits of a guanxi relationship are aligned with the benefits of joint venture, which include the ability for parent country firms to utilise partner’s local knowledge of the market. Establishing and maintaining strong guanxi networks can also allow Western firms to bypass host nation government regulations associated with joint ventures as well as address the long lead time to first sale, especially associated with Greenfield whollyowned subsidiary operations (International Trade Operations, 2007). In relation to this, Lee et al. (2006) note that “given the uncertainty and confusion in China’s transactional economy, firms can use guanxi as an entrepreneurial tool to bridge gaps in information and resource flows between unlinked firms and between firms and important outside stakeholders.” With this, it reasonable to suggest that Western business culture can embrace guanxi and use it to their advantage in their ventures in China (or most East Asian and south-East Asian countries) – and this would be a major shift in perception. In fact, the concept guanxi - of utilising personal relationships and connections to facilitate business is not a new idea – and for that matter not restricted by any means to China. In the literature, Walder (1986) has noted that the “term ‘blat’ in Russia and ‘pratik’ in Haiti refer to the same type of instrumental –personal connections.” Spicer (2008)
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adds that one of the most interesting countries at the moment is Russia too. There are “stories of multinationals being unable to get any idea of what kind of benefits and rewards are paid (in terms of compensation in HR policy), partly because everything is done on such an informal basis… and it is not because of anything illegal, it’s just the way things are done there.” Thus, although the different forms of guanxi across the world will not be mirroring each other exactly, the use of relationships to facilitate business transactions is common “particularly when the business environment is uncertain and an adequate legal system is not available (Lee et al., 2006).” Park and Luo (2001) establish the link between transactional relationships between both Western and Chinese business cultures by stressing the importance of guanxi “by suggesting that while a relationship follows successful transactions in the West, transactions often (also) follow successful guanxi in China.” In support, the “system of guanxi has led to business success in Chinese societies reflecting the ability to be flexible and adapt through the quick reaction within networks based on trust and reciprocity” (Buttery & Wong, 1999). This implies that there is a possibly that the two concepts have enough similarity to both work successfully, and may be transferable between both cultures and serves to confirm the benefits and the need to embrace guanxi or at least appreciate the concept.
IMPLICATIONS OF GUANXI IN THE BUSINESS CONTEXT The literature confirms a strong relationship among societal links that Guanxi possesses in Chinese society (or society which are strongly influenced by confucious philosophy). With 2500 years of history, and based on the principles’ of Confucianism - guanxi is not just a simple concept; it is a complex, unwritten rule that binds social and business relationships in Chinese society and is a foundation of Chinese culture. Amongst the major
Embracing Guanxi
differentials between guanxi and Western business approaches is the perception and context of trust, and how it is expressed in both cultures. In Chinese society, trust is the foundation and guideline of guanxi – and dictates how it is conducted and ensures that it works. This is possible because of the importance of ‘face’ or personal dignity of each member of a guanxi web. This differs from the Western approach, which is focussed on a transactional strategy with business partners – where trust embodies the belief in each party to perform their part of a written contract or agreement. In this approach, the personal attributes are removed, which is consistent with the Western adage, “you don’t mix business with pleasure.” This suggests that it is the Chinese approach of guanxi that is more ‘trusting,’ even though Chinese society is a low-trust, relational society. The guanxi approach is flexible enough to accept those within a guanxi web, and to allow those who are outsiders – where as trust is harder to establish (but easier to encapsulate) with the Western approach, which relies of contracts and agreements that advocate short-term commitments and hinder long term relationships. Thus, criticisms can apply from both sides of the spectrum – which the Chinese wondering why Westerners are so restricted and afraid of commitment, whilst Westerners remain uncomfortable with the subjective nature of guanxi, as well as the apparent informal structure of business relationships – that are not held together by legality and written guidelines. As globalisation progresses and China continues to grow as an economic superpower – the West may have to ultimately succumb to the influence of guanxi, and a major shift in perception is required to do this. Guanxi should not be seen as an obstacle to establishing business relationships across cultures – it should be viewed as a tool to facilitate it. Western managers should accept that the apparent informality of business relationship structure in China is nevertheless effective – and has been across time and other cultures. Although this concept may not be easily comprehended,
there is evidence to support that it is the significant step to business success in China.
REFERENCES Buttery, A. E., & Wong, Y. H. (1999). The development of a Guanxi framework. Marketing Intelligence & Planning, 17(3), 147–154. doi:10.1108/02634509910271605 Farh, J. L., Tsui, A. S., Xin, K. R., & Cheng, B. S. (1998). The influence of relational demography and guanxi: the Chinese case. Organization Science, 9(4), 471–488. doi:10.1287/orsc.9.4.471 Fishbein, M., & Ajzen, I. (1975). Belief, attitude, intention, and behavior: An introduction to theory and research. Reading, MA: Addison-Wesley. Fukuyama, F. (1995). Trust: The social virtues and the creation of prosperity. New York: The Free Press. Haley, G. T., Tan, C. T., & Haley, U. C. V. (1998). New Asian emperors. Burlington, MA: Butterworth Heinemann. Hall, E. T. (1966). The Hidden Dimension. New York: Doubleday. Hofstede, G. (2001). Culture’s Consequences, Comparing Values, Behaviors, Institutions, and Organizations across Nations. Thousand Oaks, CA: Sage Publication. Huang, Q., Davison, R., & Gu, J. (2008). Impact of personal and cultural factors on knowledge sharing in China. Asia Pacific Journal of Management, 25, 451–471. doi:10.1007/s10490-008-9095-2 Hui, C., & Graen, G. (1997). Guanxi and professional leadership in contemporary Sino-American joint ventures in mainland China. The Leadership Quarterly, 8(4), 451–465. doi:10.1016/S10489843(97)90024-2
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Humphreys, P. K., Shiu, W. K., & Chan, F. T. S. (2001). Collaborative buyer-supplier relationships in Hong Kong. Supply Chain Management: An International Journal, 6(4), 152–162. doi:10.1108/ EUM0000000005708
Shapiro, R. (1986). Towards effective supplier management: international comparisons (Working Paper No. 9-785-062). Boston, MA: Harvard Business School.
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Styles, C., & Ambler, T. (2003). The coexistence of transaction and relational marketing: Insights from the Chinese business context. Industrial Marketing Management, 17(6), 539–557.
Michailova, S., & Worm, V. (2003). Personal networking in Russia and China: Blat and Guanxi. European Management Journal, 21(4), 509–519. doi:10.1016/S0263-2373(03)00077-X Ohmae, K. (1989). The global logic of strategic alliances. Harvard Business Review, 67(2), 143–154. Pablos, P. (2006). Western and Eastern views on social networks. The Learning Organization, 12(5), 436–456. doi:10.1108/09696470510611393 Park, S., & Luo, D. (2001). Guanxi and organizational dynamics: Organizational networking in Chinese firms. Strategic Management Journal, 22(5), 455–477. doi:10.1002/smj.167
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This work was previously published in International Journal of Asian Business and Information Management (IJABIM), Volume 1, Issue1, edited by Patricia Ordóñez de Pablos, pp. 23-31, copyright 2010 by IGI Publishing (an imprint of IGI Global).
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1
Index
A academic management portal 1283 Accreditation Board for Engineering and Technology (ABET) 531, 532, 547 acquiring bank 701, 702, 716, 717 action plan 995, 997, 1006, 1015, 1016 Active Server Pages (ASP) 693 activity based costing 1644, 1650, 1658 ad-hoc system 623, 625 Administration-to-Administration (A2A) 258 Administration-to-Business (A2B) 258 Administration-to-Consumer (A2C) 258 advanced engineering firms 2239 Amazon 2246, 2255 ambient intelligence (AmI) 194, 202, 205 ambiguity 2010, 2011 Americans with Disabilities Act (ADA) 2116, 2117, 2118, 2126, 2131 analytic hierarchy process (AHP) 345-348, 356, 359, 370, 1796, 1797, 1803-1810, 1813-1818 applicant tracking systems 970, 974 application-to-application (A2A) 2245 ARCON reference model 254, 265 aspect oriented software 1732, 1747 assessment design 531 assistance system 569, 570 Association of Southeast Asian Nations (ASEAN) 2145, 2146, 2147, 2153, 2155 astrobiology 1203, 1209, 1214, 1215 Australian Quarantine Inspection Service (AQIS) 1961, 1964, 1967, 1968, 1973, 1977 authentication 2420, 2428, 2430, 2431 Automated Teller Machine (ATM) 1057, 1058, 1060 automotive industry 254, 256, 257, 258, 262, 263
autonomous organizations 888, 889 availability of maintenance 1156
B B2B development 206, 207, 222 B2B maturity 207, 223 B2B-collaborations 374 balanced scorecard (BSC) 549, 550, 567, 611-618, 1281-1287 bank performance 511, 1055, 1058, 1059, 1068 banking and exchange firms 1071 Beatles 2162, 2163 Beginning-of-Life (BOL) 258 Beginning-of-Life (BOL) phase 258 betweenness centrality 654, 656, 659 big five model 2101 binary regression 1023 blogs 2203, 2208, 2215, 2217, 2218, 2221, 2224, 2228 bottom-up 295, 296, 297, 298, 303, 307 breeding environment 254, 255 brick-and-mortar 1291, 1295, 1297 brick-and-mortar 229, 230, 236 brick-and-mortar organization 1297 British Standards Institute (BSI) 2106 broadcast 2004, 2007, 2010, 2012 bulletin boards 642 business analytics (BA) 150-181 business communication 1337 business information systems 742 Business Intelligence (BI) 1933-1938, 1942-1945, 2393, 2394, 2407 business management 374, 398 business model (BM) 195-205, 499-511 business operator 1585
Volume I pp. 1-642; Volume II pp. 643-1288; Volume III pp. 1289-1932; Volume IV pp. 1933-2562
Index
business pattern 1732, 1733 business performance 1339, 1340, 1342, 1344, 1347 business process (BP) 194, 202, 205 business process diagram 888, 899 business process engineer (BPE) 2179, 2276-2278, 2288-2291, 2297, 2393 Business Process Execution Language (BPEL) 2245 business process management (BPM) 205 business process modelling 888, 889, 890, 893, 901 business process redesign 888 business scenarios 672 business skilling 1978, 1982, 1983, 1984 business system 2333 Business Systems Engineering (BSE) 2277, 2295, 2297 business value 229-239, 243-245, 248 business value 28, 34, 35, 36, 37, 38 Business-2-Customer (B2C) 1176, 1179 Business-to-Administration (B2A) 258 Business-to-Business (B2B) 2, 206-223, 226, 258, 470, 483, 516, 527, 528, 552, 566, 782-788, 791-795, 799-807, 1172, 1176, 1339-1349, 1548, 1821, 1830, 1831, 1834-1839, 2245, 2246, 2255 business-to-business (B2B) e-strategy 1347 Business-to-Consumer (B2C) 258, 470, 482, 485, 512, 513, 516, 525, 661, 662, 666, 1339-1344, 1347, 1548-1550, 1557, 2245, 2249 business-to-consumer (B2C) e-strategy 1347 business-to-consumer insurance 912 Business-to-Employee (B2E) 1339, 1340, 1341, 1343, 1344, 1347, 1548, 1549, 1550, 1551, 1552, 1554, 1555, 1556, 1557, 1558, 1559, 1560 business-to-employee (B2E) e-strategy 1347
C career choice 2101 career satisfaction 2092, 2096, 2101 catastrophe communications network 623, 625 causal loop diagram (CLD) 2049, 2051, 2053, 2054, 2055, 2056, 2057 centric culture 1523 Chief Information Officers (CIO) 296, 298, 299, 303, 308, 310 Chief Technology Officer (CTO) 69 Chinese business etiquette 2554 Chinese society 2554, 2557, 2558, 2560, 2561 Chulalongkorn University, Thailand 2512, 2513, 2517, 2521, 2522 Citizens Advisory Board (CAB) 69
2
City of Charles Sturt (CCS) 1969, 1970, 1971, 1972 Classification and Regression Trees (CART) 2361, 2364, 2369, 2375, 2378 click and rush 2011 click-and-brick 229, 230, 231 click-and-mortar banks 505, 511 Closed User Group (CUG) 2334 closed-loop supply chain 359, 370, 371 closeness centrality 654, 660 cognitive mapping 593, 596, 601, 608 cognitive processes 1158, 1159, 1168 Collaborative Enterprise Architecture (CEA) , 294, 295, 296, 298, 303, 308 Collaborative Innovation Networks (COINs) 2402 Collaborative Interest Networks (CINs) 2402 Collaborative Knowledge Networks (CKN) 2402 collaborative learning environments 1985 Collaborative Learning Networks (CLNs) 2402 collaborative networked organisation 254 collaborative networks 254, 255, 262 collaborative science 1215 collaborative synergy 1350-1362, 1366-1369, 1374 collaborative technologies 28, 29, 30, 32, 33, 34 collaborative working environment 1311, 1337 collaboratory 1215 collection facilities 357, 358, 359, 364, 365, 366, 367, 368 Combination Export Manager (CEM) 4 command center logistics 718, 722, 723, 725, 726, 727, 728, 729, 730 committee standards 106, 119 Common Object Request Broker Architecture (CORBA) 2245 communication 1879, 1880-1883, 1886-1894 communication system operations and management 1337 Communities of Practice (CoP) 418, 427-432, 777780, 1206, 1215, 2116, 2119-2124, 2134 community building 1904, 1905, 1908, 1909, 1918, 1919 Community Innovation Survey (CIS) 1604 comparative study 183, 184, 187, 190 competence level 1394 competence management 625 competency gaps 403, 406, 407, 411, 414 competitive advantage 28-38, 56, 58, 62-64, 2525, 2526, 2530, 2536, 2547 competitive economy 1459 competitive environment 1868, 1869, 1876 competitive intelligence (CI) 1934 Complex Adaptive Systems (CAS) 2192, 2193, 2199
Index
complex systems 1879 complexity theory 2180, 2183, 2192, 2193 component architecture 748 computer science (CS) 1991, 1992, 1993, 1994, 1995, 1997 computer supported cooperative work (CSCW) 663, 2074, 2083, 2084 computer-mediated interaction 662, 663, 664, 665, 666, 667, 669 computers and society 1904 Computers System Policy Project (CSPP) 2145, 2147, 2153 conceptual framework 1951 conceptual model 386, 402 Confucian societies 2555, 2558 Confucianism 2555, 2556, 2557, 2560, 2562 confusion 2011, 2012 Connections Markup Language (cnXML) 673 conservation of information (COI) 67, 70, 77 consistency of maintenance 1151, 1156 consumer generated content 1571, 1572, 1575 consumer information 1570, 1571, 1572, 1573, 1574, 1575 consumer space 2, 3 Consumer-to-Administration (C2A) 258 Consumer-to-Business (C2B) 258 Consumer-to-Consumer (C2C) 257, 470 Context 1933, 1940 context awareness 194, 205 contingency theory 32, 34, 35, 36, 38, 1788, 1789, 1792, 1793, 1795 contingent work 1300, 1301, 1302, 1303, 1304, 1305 continuing education 2512, 2513, 2515, 2516 continuity plan 621, 623, 625 Control Account Plans (CAP) 1591, 1596, 1597 copyright law 2158, 2160, 2166, 2169 Cordless Telephony System (CTS) 2375 corporate culture 978 corporate governance 1752, 1763 corporate knowledge 1536 corporate R&D capabilities 1796, 1797, 1813, 1814, 1818 Corporate Social Responsibility (CSR) 2332, 2336, 2341, 2346 corporate socialization 930, 939, 940, 941, 943, 946 costumer focus 1046 credit card processor 699, 702, 703, 705, 706, 712, 713, 716, 717 crisis management 623, 626 crisis response 718, 719, 726, 727, 728 crisis response logistics 718, 719
crisis response plan 622, 626 critical infrastructure 718, 723, 726, 729 critical research 1997 Critical Success Factor (CSF) 206-208, 211-214, 222, 223, 468, 470, 481, 1109, 1110, 11131115, 1124, 1128, 1129, 1132, 1859-1866 cross organizational issues 750 Cross-Cultural IRM 1926, 1932 cross-cultural psychology 1707 cross-cultural study 1509 cross-cultural training 1707, 1708, 1717, 1718, 1719, 1720, 1726 cross-impact analysis 254, 265, 266, 267 cultural diversity 1510, 1520, 1521 Cultural Habit 1932 cultural ignorance 2015 cultural knowledge 1707, 1716, 1717, 1718, 1726 Cultural Simulation Modeler (CSM) 1933, 1934, 1937, 1938, 1939, 1940, 1941, 1942, 1943, 1944, 1945 culture of collaboration 1206, 1207, 1208, 1209, 1216 Current Population Survey (CPS) 2118 curricula vitae (CV) 974, 975 customer decision process 1573, 1575 Customer Relationship Management (CRM) 258, 1120, 1121, 1127, 1130, 1132, 1179, 2246, 2393, 2394, 2407 customer service life cycle 55 Customer Service Life Cycle (CSLC) 811, 814, 815, 818 customer-to-customer (C2C) 661 Customization 2259 cyber security 406 cybercafé 642, 1177 cyber-criminal 699, 707, 708, 710, 714, 715, 716 cyberfeminists 1994 cyberinfrastructure 1204, 1206, 1208, 1213, 1214, 1216 cybernetics 2183, 2192, 2200
D data cube 1866 Data Definition 1932 Data Encryption Standard (DES) 781 data envelopment analysis 1094, 1098, 1106, 1107 data mart 818 data mining 692-698, 809-819, 2239 Data Resources Management 1928, 1932 data security 1413, 1425, 1429 data tampering 778, 781
3
Index
Data Universal Numbering System (DUNS) 784, 790 data warehouse(ing) 615-618, 812, 818-821, 957965, 1282-1287, 1864, 1866 database management 2206 Data-Planning 1932 de facto standards 106, 109 decision making 626 decision making support system (DMSS) 549-563 decision sciences (DS) 150-153, 157-177, 2045, 2046, 2059 decision support systems (DSS) 957, 964 decision-making planning 344 decision-making procedures 344 declarative knowledge 2303, 2307 degree of innovativeness 1607, 1610, 1611, 1612, 1614 demand centers 358 demand theory 83, 84, 85, 103 democratic country 1044, 1045 Department of Energy (DOE) 69 design assessment 529, 530, 531, 533, 534, 535, 536, 537, 539, 540, 542, 543, 544, 545, 546, 547, 548 Design of Information Infrastructure Systems for Manufacturing (DIISM) 2229 design pattern 664, 666, 669 design research 530, 531, 547, 548 developing countries 206, 207, 208, 209, 210, 211, 213, 215, 216, 217, 219, 220, 222, 223, 224, 225, 226 development application integration (DAI) 2231, 2232 diagnostic measure 618 diffusion of innovation (DOI) 977, 978, 979, 980, 1136, 1137 Digital and Knowledge Divide 2381, 2382, 2383, 2396 Digital City of Trikala 294, 295, 296, 297, 304, 308 digital divide 638, 639, 642, 1904, 2102-2120, 21232134, 2381, 2397 digital economy 1978, 1979, 1981, 1982, 1983, 1984, 1985, 1986 digital gap 2103, 2107 digital literacy 1376 digital marketplaces 470 digital media 2157, 2158, 2160, 2161, 2166 digital networks 2458 Digital Rights Management (DRM) 2159, 2169, 2171 digital spaces 468
4
digital subscriber line (DSL) 2355, 2356, 2357, 2358 directive management 1458, 1464, 1470 disability divide 2112, 2114, 2115, 2128 distance education 2512, 2513, 2515, 2516, 2517, 2519, 2520, 2521, 2522, 2523 Distributed Component Object Model (DCOM) 2245 distributed leadership 1688, 1690, 1691 distributed programming 748 distribution channel strategy 511 Document Type Definition (DTD) 782, 783, 784, 785, 786, 791, 792, 795, 800 domain knowledge 1445, 1446, 1447, 1448, 1449, 1450, 1453 domain semantics 379, 385, 402 dot-com boom 2204 double hermeneutic 2044, 2053, 2054 dynamic ad-hoc collaboration 1318, 1337 dynamic capability 29, 30, 38 dynamic deployment 1150, 1153, 1156 dynamic e-business workflows 1337 dynamic knowledge 1494, 1496, 1497, 1499, 1504, 1505 dynamic maintenance 1149, 1150, 1151, 1152, 1154, 1155, 1156 dynamic service integration 1337
E Earned Value Analysis (EVA) 1588, 1591, 1599 Earned Value Management (EVM) 1588, 1591, 1592, 1600, 1601 Eastern Standard Time (EST) 693 E-business balanced scorecard based model (EBBSC) 550, 567 e-business competence 1071 e-business correlation 651 e-business management 549 e-Business Management Section (eBMS) 1375, 1376, 1377, 1380, 1385, 1386, 1387, 1391, 1392, 1395, 2381, 2385, 2386, 2398, 2399, 2405, 2406, 2407, 2408, 2409, 2410, 2411, 2412, 2413, 2414, 2416, 2418 e-Business Model (e-BM) 47, 205, 499, 500, 501, 502, 504, 506, 508, 509, 511 e-business practitioners 1964 e-business strategy 468, 471, 2332, 2335, 2342 e-business technology 1788, 1793, 1795 e-collaboration 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 2230, 2236, 2240, 2261 e-commerce business success (ECBS) 230, 231, 234, 235, 236, 238, 239, 240, 241, 242, 244, 252
Index
e-commerce merchants 699, 700, 701, 705, 713, 715 economic competitiveness 842, 848, 850, 851, 857, 858 economic growth 1134, 1135 Economic Incentive and Institutional Regime (EIR) 2384 economic performance 1899 economic progress 1981 economic value added (EVA) 58, 1094 Economist Intelligence Unit (EIU) 2334, 2335 egotistic behaviour 1397, 1400 e-government 2103, 2110, 2111 e-health 2103 e-initiatives 2102, 2103 e-leadership 1688, 1689, 1690, 1692, 1695, 1696, 1701 eLearning , 1984, 1985, 1986 electronic authorisation 1968 Electronic banking (e-banking) 1055, 1057, 1059, 1067 electronic business (e-business) 28, 56-64, 192-198, 201-205, 254-258, 267-270, 373, 379, 393, 394, 402, 513, 514, 525, 549, 562-566, 691, 1055-1068, 1178-1196, 1200, 1290-1297, 1338, 1339, 1344-1348, 1633, 1634, 1643, 1961-1964, 1967, 1973, 1979, 2019-2022, 2028-2030, 2102, 2103, 2106-2110, 21352161, 2173, 2202-2204, 2209, 2212-2218, 2223, 2226-2228, 2244-2246, 2250-2255 Electronic Business using eXtensible Markup Language (ebXML) 673 electronic collaboration 1202, 1204, 1205, 1207, 1214, 1216 electronic collaboration 669 electronic commerce (e-commerce) 56, 691-695, 699-701, 704, 705, 711-716, 1338, 1339, 1345-1348, 2019-2030, 2137, 2138, 21412147, 2151, 2154-2260, 2273 Electronic Commerce and Telework Trends (ECATT) 1585 Electronic Data Interchange (EDI) 645, 650, 783, 799, 805, 1179, 1180, 1184, 1189, 1197, 1199 Electronic Document and Records Management Systems (EDRMS) 1968, 1969, 1970, 1971, 1972, 1973, 1976 Electronic human resource management (e-HRM) 635, 642, 1633, 1634, 1635, 1636, 1637, 1638, 1639, 1640, 1641, 1642, 1643 Electronic Human Resource Management Systems (EHRMS) 1634, 1637, 1639, 1643
electronic insurance 911, 912, 913, 914, 915, 916, 917, 921, 922, 923, 924, 925, 926, 927, 928 electronic market place (e-marketplace) 470 electronic mentoring (e-mentoring) 627, 628, 629, 630, 631, 632, 633, 634 electronic service 911, 912, 913, 914, 916, 917, 921, 924, 925 electronic strategy (e-strategy) 1338, 1339, 1340, 1341, 1342, 1343, 1344, 1348, 1349 electronically collaborate (e-collaborate) 2299, 2300 electrostatic attraction (EA) 2179, 2180, 2186, 2188, 2190, 2192, 2193 e-library 1394 e-logistics 643, 644, 645, 647, 648, 649, 650 e-mail bankruptcy 2010 e-management portal 1283, 1284, 1287 e-marketing 2019, 2021 emergency management 718, 723 emergency response organizational model 620, 626 emergent business pattern 1732, 1733 emergent strategy 1732, 1736, 1738, 1747 emotional labor 735, 737, 740 employee assistance programs (EAPs) 2070 employee engagement 1094, 1099 employers for work-life balance (EfWLB) 733 end to end (E2E) 644, 647 End-of-Life (EOL) 258 End-of-Life (EOL) phase 258 Enterprise 2.0 , 2202, 2203, 2209, 2214, 2217, 2220, 2221, 2222, 2223, 2224, 2225, 2226, 2227, 2228 Enterprise Application Integration (EAI) 1123, 1124, 1127, 1128, 1132, 2231, 2239, 2394 Enterprise Architecture (EA) 294-300, 303-312, 315317, 320, 324, 325, 328, 329, 332, 335-340 Enterprise Requirements Planning (ERP) 647, 949, 2276, 2285, 2291, 2393, 2394, 2396, 2407 Enterprise Requirements Planning systems 647 environmental shock 2525, 2527, 2530-2532, 25362546 e-partnership 1291, 1292, 1294, 1295, 1297 e-procurement 2261 e-readiness 2135, 2137, 2143-2155 e-recruitment 635, 636, 637, 639, 642 eSourcing Capability Model (eSCM) 1615-1632 e-supply chain 1297 EU policies 995 evolutionary diffusion theory (EDT) 1961, 1963, 1964, 1965, 1966, 1968, 1972, 1973 exception handling 1732, 1736, 1737, 1738, 1743, 1746, 1747
5
Index
executive information systems (EIS) 1858, 1859, 1860, 1861, 1862, 1863, 1864, 1865, 1866 executive judgment 1789, 1792, 1793, 1795 explicit knowledge 1157, 1158, 1162, 1166, 1167, 1168, 1249, 1256, 1258, 1259, 1260 explicit organizational knowledge 1476 extended product 254, 257 eXtensible Markup Language (XML) 671-673, 681, 686, 690, 782-808 external environment 1795 external recruitment 968, 969, 970, 971, 972, 974 extract transform and load (ETL) processing 1284, 1287 extraction, transportation, transformation, and loading (ETL) 957, 958, 965, 1284, 1287
F Facebook 2247, 2248, 2252 face-to-face interactions 629, 631 face-to-face mentoring 629 family-work interference (FWI) 733, 736, 740 fast forward 2011, 2012 Federal Emergency Relief Agency (FEMA) 621, 622, 625 Federal Enterprise Architecture (FEA) 295, 298, 303, 308, 309, 315-318, 321-328, 339, 342 feminist research 1994, 1997 Fibre to the Home (FTTH) 2355, 2357, 2358 financial firms 1178, 1179, 1180-1187, 1193-1196 financial flexibility 1299, 1305 financial focus 1046 financial services industry (FSI) 1179, 1180, 1181, 1183, 1195 flagship building 1957 flaming 2011, 2012 flexible working 736, 737, 738, 740 Food Standards Australia New Zealand (FSANZ) 1967 franchisee 48-55, 810-819 franchisee learning process 819 franchisee life cycle 48, 52, 55, 810, 811, 816, 819 franchisee relationship management 812, 819 franchisor 48-55, 810-819 franchisor learning process 819 franchisor relationship management 819 Frequency Division Multiple Access (FDMA) 2375 full-time home-based worker 1585 function deployment 1023, 1024, 1039, 1041, 1042 function points analysis 1094 functional flexibility 1299, 1301, 1302, 1305, 1605, 1614
6
fuzzy cognitive mapping 593, 596, 608 fuzzy ratings 357, 358, 364, 369 fuzzy set theory 358, 359, 360, 364 fuzzy TOPSIS 357, 358, 359, 366, 369, 370
G gap analysis 1732 genetic algorithm 692, 696 geospatial position 67 Ghoshal’s thesis 2050 global 1992, 1994, 1995, 1996 Global account management (GAM) 1838-1857 global account manager 1838, 1846, 1847, 1851, 1853, 1855, 1856 Global Business Intelligence 1933 Global Competitive Intelligence 1933 Global Diffusion of the Internet (GDI) 2145, 2147 Global Digital Divide , 2102, 2103, 2104, 2105, 2110 global issues , 2060 global knowledge-based organization (GKB-MNC) 2457, 2461, 2462 Global reach 2258 Global System for Mobile communications (GSM) 2360, 2361, 2369-2371, 2374-2378 Global Trade Identification Number (GTIN) 784, 790, 791, 792, 795 global virtual teams (GVTs) 1688-1703 gloomy vision 2044-2054, 2057, 2058 goal programming (GP) 345, 346, 349, 351, 355 go-to-market strategy 2, 3 Government-to-Citizen 470 graphic design 984, 986, 987, 988, 989, 990, 991, 992, 993, 994 graphic design skill sets 984 graphic design SMEs 984, 986, 987, 992, 993 graphical user interfaces (GUIs) 978 Great Arab Free Trade Area (GAFTA) 2387 Greenwich Mean Time (GMT) 693 Grid computing 1396, 1397, 1405 grid container 1150, 1156 Grid technology 1397, 1398, 1404, 1406 gross domestic product (GDP) 2136 groupware systems 663, 669 Guanxi 2554, 2555, 2556, 2557, 2558, 2559, 2560, 2561, 2562
H haiku 1249, 1252-1266 harmful address disclosure 2010
Index
hastily formed networks 626 health center personnel 2512, 2513 health insurance 912 Health, Safety and Environment Management System (HSE-MS) 1440 Hexagonal Model 2333 High Definition Internet Protocol Television (HDIPTV) 2356 higher education 529, 530, 531, 545, 547, 548 higher education institutions (HEI) 611, 612, 1286, 1287 Hilbert Space (HS) 68 Holland’s Vocational Theory 2087, 2101 home-based entrepreneur 1585 home-based worker 1581, 1585 homogenous workforce 1508 horizontal dynamics 107 House of Quality (HOQ) 1024, 1025, 1026, 1027, 1030, 1031, 1032, 1033, 1034, 1035, 1036, 1037 HR intranet 2073, 2074, 2078, 2079, 2080, 2081, 2082, 2085 HRM practices 1603, 1604, 1606, 1607, 1608, 1610, 1611, 1612, 1614 human capital 1376, 1377, 1380, 1386-1392, 16151620, 1625, 1628-1632, 1796-1799, 1803, 1804, 1807, 1808, 1812-1815, 1818 human resource (HR) 611-616, 976-982, 1896-1901 human resource information systems (HRIS) 619626, 967-975, 1637, 1642, 1643 human resource management (HRM) 620, 626, 635, 641, 642, 948-955, 967-975, 1603-1614, 1633-1643, 1896, 1903, 2060-2067, 2070 Human Resource Management System (HRMS) 1637, 1639, 1643 Human Resources Line of Business (HR LOB) 311, 312, 315-343 Human Rights and Equal Opportunity Commission (HREOC) 1980 human-computer interaction (HCI) 1951 Hyper Text Transfer Protocol (HTTP) 692, 694 hypercompetitive environments 288
I implicit knowledge 1249 impression management 1707-1731 impression management strategies 1707-1727 independent contractor 1585 individual knowledge 420, 421 industrialized world 2434
information communication technology (ICT) 150, 173-175, 295-299, 304-306, 310, 404-406, 414, 510, 511, 1171-1179, 1195, 1578, 1581, 1585, 1643, 1662-1664, 1669, 1765-1771, 1780-1785, 1949, 1958, 1979, 1984-1986, 1990, 2037, 2102-2116, 2119, 2121, 21252127, 2130, 2133-2138, 2142-2154, 2332, 2380-2389, 2393-2397 information component 41, 45 information component of products 41, 45 Information density 2259 Information Management (IM) 595, 609, 610 Information Management (IM) Strategy 595 information processing 865, 881 Information Resources 1924, 1926, 1927, 1929, 1932 Information Resources Accountability 1929, 1932 information sharing 1570, 1571, 1573, 1574, 1575 information system (IS) 150-153, 156-165, 168-177, 271-273, 279, 284, 285, 593-610, 967-974, 1445-1450, 1453-1456, 1643, 1858-1867, 1961-1964, 1973, 1996-1998 Information Systems (IS) Strategy 594, 595 information systems careers 2101 information technology (IT) 150, 152, 156-159, 162, 167, 170, 171, 180, 229-240, 243-252, 271283, 286-293, 313, 318, 328, 330, 339-342, 593-601, 606-610, 620-622, 625, 1438-1443, 1633-1643, 1732-1734, 1748, 1820, 1821, 1825-1830, 1834, 1835, 1996, 1997, 20632065, 2276, 2280, 2285-2293, 2297 Information Technology (IT) Strategy 594, 595 Information Technology Association of America (ITAA) 1440 Information Value Chain (IVC) 1121, 1132 informational transaction costs 107 information-knowledge 419 innovational capital 1799, 1818 innovative output 1603, 1604, 1605, 1606, 1607, 1608, 1610, 1611, 1612, 1614 innovative productivity 1610, 1611, 1614 Innovative Technology Uptake (ITU) 1962, 1963, 1964, 1966 input-process-result (IPR) 1796, 1797, 1801, 1802, 1806, 1813 input-process-result model 1818 instant messaging services 2113 intangible capital 183 intellectual capital (IC) 183-191, 1046, 1047, 10511054, 1376, 1796-1803, 1813-1819, 24332437, 2440-2451, 2457-2468
7
Index
intellectual capital management (ICM) 2400 intellectual capital statements 183, 190 intellectual goods 2161, 2168, 2169, 2170, 2172, 2173, 2176 intellectual property (IP) 1293, 1295, 1297 intellectual property rights 2037 intelligent collaboration 2239 Intelligent Manufacturing Systems 2229, 2240 intelligent system 103, 104 intensive care units (ICUs) 1879, 1880, 1881, 1882, 1883, 1884, 1885, 1886, 1887, 1888, 1894 Interaction-by-Doing 569, 570, 573, 574, 575, 578, 583, 589 Interaction-by-Movement 573 interactive learning 272 Interactivity 2258, 2264 intercultural knowledge 1536, 1540, 1541, 1542, 1543, 1544 intercultural knowledge transfer 1536, 1540, 1541, 1542, 1543, 1544 intercultural workforce 2060, 2061 internal audit 888, 889, 890, 892, 897, 898, 899, 900, 901, 902, 903 internal control 888, 889, 890, 892, 900, 902 internal recruitment 968, 969, 970, 971, 972, 974 International Business Division (IBD) 2338 International Data Corporation (IDC) 1179 International Master in e-Business Management (IMeBM) 1375, 1376, 1383, 1384, 1385, 1390 International Organization of Standardization (ISO) 106, 107, 117, 118, 119 international public relations 1707, 1708, 1720, 1723, 1726 internationalization strategies 1231 Internet banking 1057, 1060 internet business solutions (IBS) 1218, 1226, 1227 Internet café 638, 642 internet markets 470 Internet Protocol (IP) 1170, 1177, 2028, 2352-2358 Internet revolution 627 internet security 1071, 1074, 1075, 1077, 1078 Internet Service Providers (ISPs) 673, 674 inter-organizational activities 888 interorganizational network 1899 inter-organizational supply chain 888, 892, 893 inter-organizational systems availability (IOrSA) 230, 231, 232, 236, 237, 238, 239, 240, 241, 242, 243, 244, 245, 252 inter-organizational view 434, 435
8
interpretive research 1997 intra-business networks 1548 In-Vehicle Monitoring Systems (IVMS) 1439, 1441, 1442 Iran 2433, 2434, 2435, 2436, 2437, 2438, 2439, 2440, 2441, 2442, 2443, 2444, 2445, 2446, 2447, 2448, 2449, 2452, 2453 IS development 594 iSchools 2064, 2071 issuing bank 699, 701, 703, 709, 713, 714, 717 IT alignment to organizational strategies (ITOrS) 230, 231, 232, 236, 237, 238, 239, 241, 242, 243, 244, 252 IT business value 231, 232, 234, 235, 236 IT resources 2104 IT Transfer 1927, 1932 iterative development 1267, 1270 iTunes 2206
J Java 2245, 2246, 2255 Java Server Pages (JSP) 693 Jordanian banking sector 1055, 1058
K kaizen 1158, 1164, 1168 Key Performance Indicators (KPI) 2361, 2362, 2364, 2365, 2368, 2373, 2374, 2378 KM processes 2035 knowledge acquisition 135-137, 140-144, 1447 knowledge aspects 1732 Knowledge Assessment Methodology (KAM) 2384 knowledge creation 929-940, 943-946, 1250, 1253, 1260-1266, 1522 Knowledge Discovery in Databases (KDD) 23622370, 2375-2378 knowledge domain 1386, 1394 knowledge economy 1765, 1766 Knowledge Economy Index (KEI) 2384 knowledge exchange 1250, 1258, 1262, 1265 knowledge generation 863, 866, 874, 877-880, 1475, 1478, 1490 knowledge governance 418-427 knowledge intensive business 1765, 1770, 1782, 1785-1787 knowledge intensive business services (KIBS) 17651787 knowledge iterative supply network (KISN) 2457, 2464, 2465
Index
knowledge management (KM) 183-187, 190, 286293, 418-422, 425, 430-433, 446, 467, 674, 718, 719, 727-731, 820-833, 836, 865, 874, 880, 929-947, 962, 965, 1447, 1449, 14541457, 1475-1480, 1490-1496, 1504, 1507, 2034-2043, 2390-2394, 2458, 2464, 2467, 2468 knowledge management platform (KM platform) 820-832 knowledge management strategy 1732, 1733, 1738, 1739, 1744-1747 knowledge management system (KMS) 626, 2400, 2458, 2464 knowledge network(ing) 1476, 1490, 1494, 1496, 1504, 1505 knowledge production activity 2038 knowledge sharing 1350-1362, 1365-1369, 1929, 1932, 2239 knowledge society 820 knowledge transfer 820, 823, 825, 830-832, 929, 930, 935, 939-943, 947, 1536, 1539-1544 Knowledge Value Chain (KVC) 1115, 1121, 1122, 1128, 1132 knowledge work 1095, 1096, 1097, 1098, 1107 knowledge work productivity 1096, 1097, 1098 knowledge worker 1094, 1095, 1098, 1104, 1106, 1107 knowledge worker productivity 1094, 1095, 1098, 1104, 1106, 1107 knowledge worker productivity assessment 1094, 1104 knowledge-based economy 43, 46 knowledge-based system 1732 knowledge-based theory 1447 knowledge-based view (KBV) 28, 29, 434-437, 442, 821, 824, 832
L labor flexibility 1305, 1607, 1614 ladder of investment 2356, 2357 leadership assessment 1675, 1681, 1682, 1685, 1686 leadership model 1458 leadership pipeline 1869, 1876 leadership training 1675, 1681 lean manufacturing 41, 43, 46 lean production 1158, 1168 learning at the workplace programs , 2512, 2513, 2517 learning community 124, 125, 132, 133, 134 learning curve 1096
learning experience 1375, 1379, 1385, 1386, 1388, 1394 learning MNC (LMNC) 2457, 2462, 2463 learning objective 1395, learning process 48, 49, 55 legacy system 742, 743, 744, 745, 747, 748 lifecycle costing 1644, 1645, 1646 lifelong learning 406 linchpin positions 1877 linguistic data 357, 358, 369 living lab 1750, 1752, 1758, 1760, 1763 local area networks (LANs) 978 location independence 1958 locational flexibility 1299, 1300, 1303, 1305 log data 691, 692, 693, 694, 698 logistic binary regression 1023
M machine learning 692, 694 management information system (MIS) 286, 291, 293, 611-618, 958, 1281-1288 management portal 618 management practice 2044 management process 1281, 1282, 1283, 1284, 1286, 1287, 1288 management sciences (MS) 2045, 2046, 2059, management strategies 1707-1727 management theory 435, 2044, 2049, 2177, 21802186, 2190-2196 managerial succession 1868, 1877 manufacturer’s export agent (MEA) 4 manufacturing execution systems (MES) 2239 market demands 1662 market development 984 market entry strategy 2 market portfolios 1231, 1234, 1238, 1240-1245 masquerade 2011, 2013 m-commerce 2244, 2249, 2256 media richness 1688, 1691, 1702 media richness theory 1563, 1565, 1566, 1567, 1568, 1569 Medium Enterprises (MEs) 644, 647 memory knowledge 2303, 2304, 2305, 2306 mentee 628, 629, 630, 631, 634 merchant account 700, 702, 703, 704, 705, 717 merger and acquisition (M&A) 69 meta-competency efficacy 1978 metaverse 122, 123, 124, 134 middle management 2085 Middle-of-Life (MOL) 258
9
Index
Middlle East, business investment in 2434 misidentification 2011, 2013 Mobile banking 1057 mobile employees 1958 Mobile Sports Companion (MSC) 1267-1269, 12731278 mobile technology 406, 734-740 mobile training 1267, 1277 mobile work 1948, 1958 mobile workers 1562, 1563, 1565, 1566, 1567, 1569 mobile working 733, 735, 737, 738, 740 moonlighter 1585 Motivation Application Measurement Support (MAMS) 2135, 2137, 2148-2152 multi-agent systems (MAS) 86, 88, 96, 104, 2473, 2475, 2481, 2483 multi-criteria decision-making (MCDM) 344-355 multicultural innovation 1023 multicultural organization 1509, 1511-1520 multicultural society 1510 Multidisciplinary Design and Optimization (MDO) 2394 Multidisciplinary Integrated Modelling (MIM) 2394 multi-entity supply chain 1179 multilevel relationships 1838, 1851, 1852 multimedia knowledge objects 1395 Multimedia Learning Modules (MLM) 2391 multinational communities 1523 multinational corporations (MNC) 929-945, 1839, 2433, 2434, 2439-2442, 2447-2451, 24572463, 2467, 2468, 2554 multi-tier architecture 744, 748 municipal waste 2474
N national policies 995 National Science Foundation (NSF) 530, 547 NetCorps Jordan Project 1994, 1997 Network Constraint 1902 network organizations 1750-1755, 1759, 1762, 1763 Network Tie 1902 new product development (NPD) 1023-1042, 22982321 Next Generation Networks (NGN) 2353, 2355, 2357, 2358 non-governmental organizations (NGOs) 2039, 2042 nonverbal communication 1707, 1708, 1712 Nordic Mobile Telephone (NMT) 2370 n-tier architecture 748 numerical flexibility 1299-1305, 1605, 1614
10
O object-oriented programming 748 occasional homeworker 1585 occupational identity 735, 740 Office of Management and Budget (OMB) 312-318, 325-330, 335, 340-342 Office of Personnel Management (OPM) 311, 312, 315, 321-326, 329-335, 341-343 Omission 2011, 2013 Online Analytical Processing: (OLAP) 959, 960, 965, 966 online banking 503, 511 online brokering 500 online community 1904 online CV management 975 online exchanges 470 online recruitment 636, 639, 641 online relationships 1904 online syndicate 1297 online systems efficiency (OnSE) 230-233, 236-245, 252 online systems quality and effectiveness (OnSQE) 230, 231, 234-244, 252 ontology engineering 375, 379, 389, 395, 396, 401 ontology matching 375, 379, 384, 385, 390, 393, 402 Open Source movement 2038 operations research /management science (ORMS) 2045, 2046 opportunism 2525, 2526, 2527, 2528, 2530, 2539, 2541, 2544, 2545, 2546 Organization of Economic Co-operation and Development (OECD) 296, 309 organizational barriers 1134, 1135 organizational capital 1796, 1799, 1800, 1807-1810, 1815, 1819 organizational change 1044, 1045, 1049, 1051, 1948, 1958 organizational culture 1508-1512, 1515, 1522, 1707, 1711-1717, 1726, 1727 organizational identity 1948, 1949, 1952, 1955, 1958 organizational knowledge 864-866, 869, 870, 874, 880, 883, 1249-1254, 1258-1262, 1265, 1476, 1481, 1490 organizational leadership 1675, 1678, 1682, 1686 organizational leadership assessment 1675, 1682, 1686 organizational learning (OL) 32, 33, 38, 821-824, 832, 837, 863-866, 869, 870, 878, 881, 884, 966, 1044, 1048-1053, 1249-1252, 1259-1262, 1265
Index
organizational life 1509 organizational memory 820, 822, 830 organizational metacognition 1494-1497, 1502-1505 organizational technology 1445-1450, 1453, 1454 organizational technology learning 1445-1450, 1453, 1454 organizational theory 1509-1513, 1517-1521 Original Equipment Manufacturers (OEM) 256, 257, 260-263 outsourcing 1615-1617, 1622, 1624, 1628, 16301632, 2494, 2503
P pair matching 630, 634 participating/directive management 1458 Partner Interface Processes (PIP) 783-806 part-time home-based worker 1585 password life cycles 2420 password policy 2420-2429 password policy life cycles 2420 passwords, simple 2420, 2425 patient safety 1879, 1880, 1883, 1885, 1888, 1889, 1890 pattern discovery 692, 694, 698 pattern language 662, 663, 664, 665, 667, 669 pedagogy 131, 134 peer mentoring 634 People Capability Maturity Model (People-CMM) 1615-1630, 1632 Performance Management (PM) 1606, 1614-1628, 1644, 1648, 1658 performance measurement 1588, 1589, 1591, 1600, 1601 performance-based earned value (PBEV) 1600 Personal Digital Assistant (PDA) 1564, 1567, 1569 personal identification number (PIN) 2420, 2422, 2429, 2431 personal style inventory (PSI) 2090, 2101 personality traits broad and narrow 2101 person-environment fit 2101 personnel performance management 1632 personnel productivity assessment 1094, 1095, 1106 pervasive computing 192-194, 198-201, 205 phone banking 1057 piggybacking 2 planning strategy 344 Point of Interest (POI) 257 policy analysis 750-753, 757, 758, 768, 769, 774, 775 policy framework 750, 774 policy management 750-753, 761, 762, 768-775
political theory 2180 politico-administrative regimes 843 positivist research 1998 power flaunting 2013 predicted emergent business pattern 1732, 1733 pricing 2025 Probability Density Function (PDF) 2374 Problem Based Learning (PBL) 1378-1381, 1395 procedural knowledge 2303 process capital 1799, 1800, 1804, 1807-1811, 1814, 1819 process focus 1046 product development 1023, 1039, 1040, 1041, 1042 Product Lifecycle Data Management (PDM) 2394 product life-cycles 106 productivity assessment 1094, 1095, 1098-1100, 1104-1107 product-service bundle 1267, 1269, 1273 product-service packages 1267, 1268 profitability 56, 57, 58, 60, 61, 62, 63 project management 2391, 2392, 1644, 1645, 1649, 1655-1658 protégé 628, 632, 634 Public Land Mobile Network (PLMN) 2370, 2373, 2375 pure player banks 511
Q quality function 1023, 1039, 1041 quality function deployment (QFD) 1023-1041 quality management system 1440 quality of care 1879-1883, 1888 quality of manageability (QoM) 1156 Quality of Service (QoS) 487, 489, 495, 496, 23602362, 2368-2375, 2378
R Radio Frequency Identification (RFID) 645, 647, 650 reciprocal determinism 2044, 2057 recommender system 1576 recovery facilities 357, 358, 359 recruiting portals 642 recruitment and selection 1607, 1614 recurrent interactions 2085 relational capital 1799, 1801, 1808, 1811-1814, 1819 relational character 1957 relational e-strategy 1339-1344, 1348 relationship management 49, 50, 51, 55 relative advantage 978, 983
11
Index
Remote Method Invocation (RMI) 2245 replacement planning 1871, 1874, 1877 request based virtual organizations (RBVO) 2473, 2475, 2479-2485, 2488, 2489, 2492 research and development (R&D) 106, 111, 117 resource-based view (RBV) 28, 29, 37, 38, 57, 58, 821, 824, 832, 833, 836 return on assets (ROA) 58, 59, 60, 61 return on equity (ROE) 58 return on investment (ROI) 122, 134 reverse logistics 644, 650 risk assessment 888, 889, 892, 893, 897-902 risk management 888-891, 901-903, 2493, 2494, 2507-2511 Rivest, Shamir, and Adelmaen (RSA) 781 RosettaNet 782-808 RosettaNet Implementation Framework (RNIF) 783785, 794-801
S Savannah River Site (SRS) 69 search engine optimization (SEO) 468-482 SECI process 2308, 2316 secure data management 1337 Secure Sockets Layer (SSL) 704, 706, 717 Security Assertion Markup Language (SAML) 2246 security management 750, 751 Self-Organizing Map (SOM) 2361, 2364, 2365, 2369, 2375, 2378, 2379 Semantic Competence Pull 403, 406, 407, 410-415 semantic integration 373, 375, 383, 384 semantic interoperability 378, 379, 384, 393, 396, 402 semantic model referencing 373, 375, 379, 389, 390, 394, 402 sensor networks 750, 771, 772 servant leadership 1675-1687 service computing 83-85, 95, 104 service dependency 1149-1156 service gateway 699, 717 service intelligence 83, 84, 85, 98 Service Level Agreements (SLA) 1616, 1619, 1621, 1624, 1627 service oriented architecture (SOA) 782, 786, 787, 793, 801, 802, 2473, 2475, 2480-2484, 24892492 service science 83, 84, 85, 98, 104 shared service centers (SSCs) 312, 315, 316, 322, 326, 328, 330, 331, 332, 333, 334, 335, 336, 337, 338, 340
12
shareware 2158, 2171 Simple Object Access Protocol (SOAP) 2245, 2256 situated activities 2085 skill enhancement 2513 skill gap analysis 1395 skimming 708, 715, 717 Slow Associated Control CHannel (SACCH) 2375 Small and Medium Enterprises (SME) 468-473, 481-486, 644, 984-987, 991-994, 1109-1116, 1124-1130, 1133, 1170-1177, 1217-1228, 1475-1492, 1868, 1979, 1989, 1990, 21352156, 2231-2233, 2473-2492 Small Office-Home Office (SOHO) 644, 1585 social capital (SC) 1376, 1386-1392, 1896-1910, 1915-1919 social capital theory (SCT) 1896-1901 social cohesion 1906, 1909 social connections 1897 social inclusion 1905, 1906, 1909, 1912, 1921 social knowledge 420 social media 1570-1576 social network 651-660, 1906, 2117, 2118 Social Network Analysis (SNA) 2392, 2400, 2401, 2418 Social Network Scorecard (SNS) 2398, 2399, 2403, 2409, 2417 social network theory 651, 652, 659 social networking sites 660 social perception 1707 social science 2179, 2184 social support 1906 social systems 2180, 2181 social tagging 1570, 1571, 1572, 1576 socialist state 1044, 1045 social-psychological harmonic oscillator (SPHO) 67, 69, 70 societal level 1044 societal transience 1044, 1045, 1051 Society for Human Resource Management (SHRM) 2061, 2062, 2071 Society of Competitive Intelligence Professionals (SCIP) 1935 socio-economic indicators, macro-level 2433, 2449 sociometry 658, 660 socio-technical design 660 socio-technical pattern 669 socio-technical system 664, 669 software as a service (SaaS) 488, 2205, 2224, 2225, 2228, 2246 software development 1588-1591, 1596, 1601, 1602 software engineering 742, 1644, 1645, 1660
Index
Software Engineering Institute (SEI) 1617, 1630, 1632 Software Engineering Process Management (SEPM) 1589 software program 1643 spatial frequency 67 spatial knowledge 135-145, 149 spatial knowledge acquisition (SKA) 135-144 Stand-alone Dedicated Control CHannel (SDCCH) 2374, 2375 Standard Deviation (SD) 2340, 2349 standards change 105-117, 120 storage area network (SAN) 2389 strategic alliance 434, 435-437, 440-443, 661 strategic business-to-business relationships 1838 strategic choice 1790, 1793, 1795 strategic decision-making 1795 strategic development 844, 862 strategic e-business management 549 strategic experimentation 287-293 strategic information system planning (SISP) 271274, 593-600, 603, 606-609 strategic management 287-293, 419, 612, 615-821, 824, 834-836 strategic network 46 strategic partnerships 1838 strategic planning 254-256, 260-267, 286-289, 344, 347, 353, 354, 358, 370, 529, 530, 533, 537-539, 542-544, 547, 691, 742, 1283, 1284, 1288 strategic scaffolding 842, 843 strategy development 842 strategy map 613, 618 structural capital 1046, 1376, 1386, 1388, 1390, 1798, 1799, 1819 Structural Holes 1903 structuration theory 1415 structurational perspective on technology 2085 subject matter experts (SME) 2285, 2286, 2287 Sub-Saharan Africa (SSA) 1170-1177 superior performance 56, 62 Supplier Relationship Management (SRM) 2393, 2394 supply chain 888-893, 898-909, 2493, 2494, 24972502, 2507-2511 supply chain collaboration 1179 supply chain integration (SCI) 1820-1827, 1834, 1835 Supply Chain Management (SCM) 258, 271, 278, 283, 1127, 1130-1133, 1820-1836, 2393, 2394, 2407, 2511
supply chain risk management 2493, 2511, supply chain risk mitigation 2493, 2510 supply chains, action learning in 2493 supply network integration 1821 supply-chain planning 344-349, 353, 355 supply-chain planning strategy 344 supply-chain resources 344 supply-chain system 344 surface acting 735, 740 symbology 1564, 1569 systems thinking 2058, 2059
T tacit knowledge 864, 865, 870, 1161, 1168, 1249, 1250, 1253, 1258-1262, 1265, 1476, 1478, 1481, 1482, 1488, 2298-2312, 2315-2320, 2324, 2325, 2329, 2330, 2457-2472 talent management 2060, 2061, 2062, 2065, 2066, 2068, 2071 team expertise 1588, 1590, 1600 tech wreck 643 Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) 357, 358, 359, 362, 366, 367, 369, 370 technological innovation adoption 1055, 1063 technological knowledge 1604, 1607, 1609 Technology Acceptance Model (TAM) 720, 1136, 1137, 1146, 1147, 1148, 1217-1222, 1225, 1226, 1227 technology as a technical artifact 2085 technology as a technology-in-practice 2085 technology integration 288, 291, 293 technology learning 1445, 1446, 1447, 1448, 1449, 1450, 1453, 1454, 1456 Technology-Organization-Environment (TOE) 57, 1055, 1058, 1061-1064, 1178-1182, 1195, 1196 Technology-Organization-Environment (TOE) framework 1055, 1178, 1181, 1182, 1195 tecso model 650 Telecommunications Management Network (TMN) 2370, 2371, 2379 telecommuting 1562, 1569, 1577, 1585 tele-ICU 1879-1889, 1894, 1895 telemedicine 1879, 1880, 1883, 1884, 1888, 1890, 1894, 1895 telework 777-781, 1299-1305 teleworker 777-781 teleworking 40, 46, 733-735, 740, 1584, 1585 temporary network 39, 40, 43, 46 Thailand, rural 2512-2517, 2520-2524
13
Index
Theory of Reasoned Action (TRA) 1136 Third Party Logistic Providers (3PL) 644, 648 Time Division Multiple Access (TDMA) 2375, 2377 To Complete Performance Index (TCPI) 1592 top-down 294, 295, 297, 298 top-down procedure 294, 295 Total Quality Management (TQM) 2178, 2179, 2194, 2196 tourism destination 447, 448, 454, 458, 459, 465 tourism experience 447, 449 traditional mentoring (t-mentoring) 628, 629, 632, 634 transformational leadership 1350-1371, 1374 trap doors 781 trialability 978, 983 trial-and-error learning 289, 293 triangulation technique 934, 947 trust, perception of 2554
U ubiquitous computing 193, 194, 202, 203, 205 Ubiquity 2258 Unified Modeling Language (UML) 784 Uniform Resource Locator (URL) 692, 693, 697 Universal Description, Discovery, and Integration (UDDI) 2245, 2256 Universal Mobile Telecommunications System (UMTS) 2361, 2370, 2377, 2379 Universal standards 2258 urban development 844, 845, 846, 848, 849, 851, 852, 857, 858 urban planning 842, 849, 852, 855, 860 user names 2420 user-centered design (UCD) 669, 2085
V value management 1588, 1591, 1600, 1601, 1602 value networking 1522, 1523, 1524, 1532 variable cost 46 variable cost virtual corporation 46 variable geometry structure 46 variation analysis 1644, 1647 Verein Deutscher Ingenieure (VDI) 1268, 1280 vertical dynamics 108, 111 vertical integration 2257, 2268 virtual communities 651, 654, 658 virtual company 1664 virtual corporation 39-46, 255, 436, 443 virtual corporation as temporary network 46 virtual corporation that manufactures virtual products 46
14
virtual engineering 2236, 2240 virtual enterprise 255, 259, 888-890, 893, 899-902, 905 virtual enterprise network 888-890, 893, 899-901, 905 Virtual Environment (VE) 135-145, 148, 149 virtual factories 255 virtual firms 1664 virtual interaction 1088 virtual knowledge 447 virtual laboratory 1751, 1757, 1764 virtual marketplace 470 virtual multinational communities 1523 Virtual Organisation (VO) 254-256, 260-264, 267, 434-436, 440-445, 660, 888. 1216, 1290-1297, 1337, 1397, 1404, 1406, 1494-1496, 15011506, 1562, 1563, 1567-1569, 1662-1673, 1688, 1689, 1700, 1703, 1750, 1751, 1752, 1762, 1764 virtual private network (VPN) 2114 virtual process chains 2239 virtual product 46 virtual store 470 virtual team 1023, 1202, 1205, 1214-1216, 13961412, 1663, 1688-1691, 1701-1704, 1879, 1883-1892 virtual value chain 1121, 1127, 1131, 1132 virtual work 1413-1416, 1419, 1420, 1423, 14291431, 1436 virtual work behaviors 1415 virtual work policies 1415, 1420, 1430 virtual world 121-134 virtue approach 2023 VO Breeding Environment (VBE) 254-256, 260-267 vocational choice-information systems 2101 vocational interests 2101 voice over Internet protocol (VoIP) 2113, 2353, 2354, 2355, 2356
W waste disposal 2473, 2487, 2488 waste management 2473-2475, 2478 waste management requirements 2473, 2475 waste products 2473, 2474 Web 2.0 661-663, 668, 2202-2209, 2213-2228, 2244-2248, 2253-2256 web access log 692, 694, 697 web agent log 697 web bots 693 web design 468, 472, 473, 476 web error log 697
Index
web forensic framework 692 Web learning 1375, 1385, 2391, 2392 web log 691-698 web log acquisition 692, 697 web log analysis 692-697 web log data 691, 693, 694, 698 web log pattern discovery 698 web log preprocessing and cleansing 698 web logging 693 Web mining 691, 1395 Web ontology language 782, 786, 788, 792 web presence 691, 692, 695, 696, 698 web referrer log 698 web server 692, 693, 694, 697, 698 web server log data 698 web service architecture 84, 85, 86, 88, 91, 99, 104 web service demand chain 90, 103 web service discovery 95, 97, 98, 104 Web Service Lifecycle (WSLC) 83, 84, 85, 86, 88, 92, 93, 94, 95, 96, 98, 104 web services 83-104, 487-498, 672, 675-686, 689, 690 web services definition language 748 Web Services Description Language (WSDL) 2245, 2256 web site optimization 692 web usability 468, 469, 473
web usage data 692 web usage mining 692, 698 web-based systems 549 web-based technology 1348, 1867, 2029 Western society 2554, 2555, 2557, 2558, 2559, 2560, 2561, 2562 wikis 2203, 2208, 2217, 2218, 2221, 2224, 2228 wireless market 1231 wireless market portfolios 1231 wireless networks 406 work behaviors 1415 Work Breakdown Structure (WBS) 1591 work policies 1415, 1420, 1430 work/life balance 732, 733, 736, 737, 738, 740, 2060, 2061, 2069, 2070 Work-family interference (WFI) 733, 734, 735, 736, 738, 740 work-family policies 1415, 1434 work-life policies 1305 workplace safety 1438, 1439, 1440, 1441, 1442, 1443 World Trade Organisation (WTO) 2138 World Wide Web (www) 1087, 1089, 1092 World Wide Web Consortium (W3C) 106, 117
X XML Schema Definition (XSD) 783, 786, 800
15
